UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2018
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 333-68008
Clancy Systems International, Inc.
(Exact name of registrant as specified in its charter)
| Colorado | 84-1027964 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2250 S. Oneida #308, Denver, Colorado 80224
(Address of principal executive offices)
(303)
753-0197
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Name of each exchange on which registered |
| N/A | N/A |
| Securities registered pursuant to Section 12(g) of the Act: | None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒ No ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the precedent 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company and emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of September 26, 2019: $0.
As of September 26, 2019, the registrant had 343,368,111 outstanding shares of common stock.
CLANCY SYSTEMS INTERNATIONAL, INC.
Form 10-K
PART I
Item 1. 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.
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.
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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. The data is stored on in-house servers at the Company in a cloud-computing environment. The system allows users to print photos on the tickets as well as store the photos with the ticket records. Some clients will prefer to remain on the batch system.
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.
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.
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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.
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.
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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
The Company has also 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.
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.
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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.
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.
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Significant 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.
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%.
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 expired April 2008.
The Company also obtained a patent for a printer latch on June 27, 2000. The patent expired 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.
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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 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.
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 was developed in-house by four full-time programmers and by the Company’s former President and 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.
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.
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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.
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.
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 filed notice of appeal in Colorado Court of appeals with respect to the District Court's denial of his motion to amend.
Item 4. Mine Safety Disclosures.
None.
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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.
Item 6. Selected Financial Data.
None.
Item 7. 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.
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.
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.
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CRITICAL ACCOUNTING POLICIES
The Company has identified the accounting policies described below as critical to its business operations and the understanding of the Company's results of operations. The impact and any associated risks related to these policies on the Company's business operations is discussed throughout this section where such policies affect the Company's reported and expected financial results.
The preparation of 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.
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.
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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.
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 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.
Item 8. Financial Statements and Supplementary Data.
The following financial statements are filed as a part of this report.
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ACCOUNTANT'S REPORT
Board of Directors
Clancy Systems International, Inc.
We are not independent with respect to Clancy Systems International, Inc. (the "Company"), and the accompanying balance sheets as of September 30, 2017 and 2018, and the related statements of operations and comprehensive loss, stockholders' equity, and cash flows for the years then ended were not audited by us and, accordingly, we do not express an opinion on them.
/s/ Causey Demgen & Moore P.C.
Denver, Colorado
July 24, 2019
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CLANCY SYSTEMS INTERNATIONAL, INC.
BALANCE SHEETS
September 2017 and 2018
(unaudited)
ASSETS
| 2017 | 2018 | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,362,200 | $ | 1,624,657 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $13,300 (2017 and 2018) | 580,242 | 242,133 | ||||||
| Income tax receivable | 154,550 | 150,900 | ||||||
| Inventories | 30,417 | 30,417 | ||||||
| Prepaid expenses | 7,604 | 1,054 | ||||||
| Total current assets | 2,135,013 | 2,049,161 | ||||||
| Property and equipment, at cost: | ||||||||
| Land | 82,000 | 82,000 | ||||||
| Building and building improvements | 356,477 | 356,477 | ||||||
| Office furniture and equipment | 133,855 | 133,855 | ||||||
| Equipment under service contracts | 1,851,434 | 1,851,434 | ||||||
| Vehicles | 6,000 | 6,000 | ||||||
| 2,429,766 | 2,429,766 | |||||||
| Less accumulated depreciation | (2,088,861 | ) | (2,106,093 | ) | ||||
| Net property and equipment | 340,905 | 323,673 | ||||||
| Other assets: | ||||||||
| Marketable securities | 1,127,197 | 1,091,416 | ||||||
| Deposits and other | 871 | 317 | ||||||
| Software development costs, net of accumulated amortization of $1,274,766 (2017) and $1,386,019 (2018) | 321,698 | 333,689 | ||||||
| Deferred tax assets, net | 244,200 | 288,500 | ||||||
| Total other assets | 1,693,966 | 1,713,922 | ||||||
| $ | 4,169,884 | $ | 4,086,756 | |||||
See accompanying notes to financial statements.
| 14 |
CLANCY SYSTEMS INTERNATIONAL, INC.
BALANCE SHEETS
September 30, 2017 and 2018
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
| 2017 | 2018 | |||||||
| Current liabilities: | ||||||||
| Deferred revenue | $ | 14,400 | $ | 14,400 | ||||
| Total current liabilities | 14,400 | 14,400 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $.0001 par value; 100,000,000 shares authorized, none issued | ||||||||
| Common stock, $.0001 par value, 800,000,000 shares authorized, 332,662,251 (2017) and 332,422,251 (2018) shares issued and outstanding | 33,266 | 33,242 | ||||||
| Additional paid-in-capital | 1,210,795 | 1,210,219 | ||||||
| Unrealized gain (loss) on marketable securities | 22,003 | (1,881 | ) | |||||
| Retained earnings | 2,889,420 | 2,830,776 | ||||||
| Total stockholders' equity | 4,155,484 | 4,072,356 | ||||||
| $ | 4,169,884 | $ | 4,086,756 | |||||
See accompanying notes to financial statements.
| 15 |
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
For the years ended September 30, 2017 and 2018
(unaudited)
| 2017 | 2018 | |||||||
| Revenues | $ | 1,363,289 | $ | 1,381,508 | ||||
| Costs of sales | 411,623 | 400,155 | ||||||
| Gross profit | 951,666 | 981,353 | ||||||
| Costs and expenses: | ||||||||
| General and administrative | 1,085,927 | 1,115,565 | ||||||
| Research and development | 62,666 | 607 | ||||||
| Total costs and expenses | 1,148,593 | 1,116,172 | ||||||
| Loss from operations | (196,927 | ) | (134,819 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | 38,566 | 37,510 | ||||||
| Loss on sale of marketable securities | (544 | ) | (5,635 | ) | ||||
| Total other income (expense) | 38,022 | 31,875 | ||||||
| Loss before provision for income taxes | (158,905 | ) | (102,944 | ) | ||||
| Provision for income taxes: | ||||||||
| Current expense | 2,959 | |||||||
| Deferred benefit | (63,100 | ) | (44,300 | ) | ||||
| Total income tax benefit | (60,141 | ) | (44,300 | ) | ||||
| Net loss | (98,764 | ) | (58,644 | ) | ||||
| Other comprehensive income: | ||||||||
| Unrealized gain on marketable securities | (28,998 | ) | (23,884 | ) | ||||
| Comprehensive loss | $ | (127,762 | ) | $ | (82,528 | ) | ||
| Basic and diluted: | ||||||||
| Net income (loss) per common share | * | * | ||||||
| Weighted average number of shares outstanding | 332,662,251 | 332,541,922 | ||||||
| * Less than $.01 per share | ||||||||
See accompanying notes to financial statements.
| 16 |
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS'
EQUITY
For the years ended September 30, 2017 and 2018
(unaudited)
|
Common Stock
Shares |
Amount |
Additional
paid-in capital |
Other
compre- hensive income |
Retained
earnings |
||||||||||||||||
| Balance, September 30, 2016 | 332,662,251 | $ | 33,266 | $ | 1,210,795 | $ | 51,001 | $ | 2,988,184 | |||||||||||
| Unrealized gain on marketable securities | – | – | – | (28,998 | ) | – | ||||||||||||||
| Net loss for the year ended September 30, 2017 | – | – | – | – | (98,764 | ) | ||||||||||||||
| Balance, September 30, 2016 | 332,662,251 | 33,266 | 1,210,795 | 22,003 | 2,889,420 | |||||||||||||||
| Common stock repurchased | (240,000 | ) | (24 | ) | (576 | ) | – | – | ||||||||||||
| Unrealized loss on marketable securities | – | – | – | (23,884 | ) | – | ||||||||||||||
| Net loss for the year ended September 30, 2018 | – | – | – | – | (58,644 | ) | ||||||||||||||
| Balance, September 30, 2018 | 332,422,251 | $ | 33,242 | $ | 1,210,219 | $ | (1,881 | ) | $ | 2,830,776 | ||||||||||
See accompanying notes to financial statements.
| 17 |
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the years ended September 30, 2017 and 2018
(unaudited)
| 2017 | 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (98,764 | ) | $ | (58,644 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 122,148 | 129,040 | ||||||
| Loss on sale of marketable securities | 544 | 5,635 | ||||||
| Deferred income tax benefit | (63,100 | ) | (44,300 | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 211,149 | 338,109 | ||||||
| Income taxes refundable and payable | (108,848 | ) | 3,650 | |||||
| Prepaid expenses | (6,622 | ) | 6,550 | |||||
| Deferred revenue | (12,300 | ) | ||||||
| Total adjustments | 142,971 | 438,684 | ||||||
| Net cash provided by operating activities | 44,207 | 380,040 | ||||||
| Cash flows from investing activities: | ||||||||
| Increase in software licenses and software development costs | (184,500 | ) | (123,245 | ) | ||||
| Acquisitions of marketable securities | (177,115 | ) | (143,738 | ) | ||||
| Proceeds from sale of marketable securities | 175,000 | 150,000 | ||||||
| Net cash used in investing activities | (186,615 | ) | (116,983 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repurchase of common stock | – | (600 | ) | |||||
| Net cash used in financing activities | – | (600 | ) | |||||
| Increase (decrease) in cash and cash equivalents | (142,408 | ) | 262,457 | |||||
| Cash and cash equivalents at beginning of period | 1,504,608 | 1,362,200 | ||||||
| Cash and cash equivalents at end of period | $ | 1,362,200 | $ | 1,624,657 | ||||
(continued on following page)
See accompanying notes to financial statements.
| 18 |
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the years ended September 30, 2017 and 2018
(unaudited)
(continued from previous page)
| 2018 | 2017 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Net cash paid (refunded) during the period for income taxes | $ | 111,807 | $ | (1,462 | ) | |||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Unrealized loss on available for sale securities | $ | (28,998 | ) | $ | (23,884 | ) | ||
See accompanying notes to financial statements.
| 19 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 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, car rental companies and laundry facilities throughout the United States and Canada. The Company manufactures some of its equipment for field operations, including printers, chargers, mobile device keypads and other items used in its applications.
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.
Accounts receivable:
The allowance for doubtful accounts at September 30, 2017 and 2018 was $13,300. 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 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) and net realizable value. 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, 2017 and 2018 amounted to $98,987 and $111,254 respectively, and is included in cost of services. The cost of direct labor is periodically capitalized as computer software costs.
| 20 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 1. | Organization and Summary of Significant Accounting Policies (continued) |
Property and equipment:
Property and equipment are stated at cost. Depreciation is provided by the Company on the straight line method over the assets' estimated useful lives as follows:
| Building and building improvements | 10 to 30 years |
| Office furniture and equipment | 5 years |
| Equipment under service contracts | 3 to 5 years |
| Vehicles | 3 to 5 years |
Property and equipment consists partly of computers and printers which are subject to technical obsolescence. Depreciation expense for the years ended September 30, 2017 and 2018 amounted to $22,608 and $17,232, respectively.
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.
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. Revenue derived from professional service contracts on parking meter, lots fees and laundry facility collections are 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 the conditions for realization of revenue areas 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.
| 21 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 1. | Organization and Summary of Significant Accounting Policies (continued) |
In addition, in accordance with FASB ASC 605-45, 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. Agent transactions include cash collections of $8,560,052 and $8,613,537, net of vendor payments in the amount of $7,955,731 and $8,027,604 for the years ended September 30, 2017 and 2018, respectively.
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, collectability 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 and ticket stock and licenses the software separately, (2) charges a monthly fee for the use of the 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 to the client and the remainder is recognized as revenue 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.
Shipping and handling costs:
The Company pays all shipping costs for its contract services. Customers are provided prepaid shipping labels for returning equipment to the Company for repair and shipping repaired equipment back to the client is paid for by the Company.
| 22 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 1. | Organization and Summary of Significant Accounting Policies (continued) |
Advertising costs:
The Company expenses the costs of advertising as incurred. Advertising expense was $72 and $0 for the years ended September 30, 2017 and 2018, respectively.
Deferred Income taxes:
The Company accounts for deferred income taxes under FASB ASC 740-10. Under ASC 740-10, 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. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes. This guidance is designed to reduce complexity in financial reporting without sacrificing the quality of information provided to users. Under current GAAP, an entity is required to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The new standard requires deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position. The Company has adjusted the presentation of these financial statements accordingly. The ASU has been applied retrospectively to all periods presented.
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.
Marketable securities:
The Company accounts for marketable securities in accordance with ASC 320-10. In accordance with ASC 320-10, the investment in securities has been classified as available-for-sale because the securities are being held for an indefinite period of time. Under the available-for-sale classification, the securities are recorded as an asset at current market value on the balance sheet with an amount representing unrealized gains and losses recorded as comprehensive income. The current market value is derived from published market quotations. At the time of sale, a gain or loss is recognized in the statement of operations using the cost basis of securities sold as determined by specific identification.
| 23 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 1. | Organization and Summary of Significant Accounting Policies (continued) |
Investments in marketable securities at September 30, 2017 and 2018 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, 2017, the securities had a cost basis of $1,105,194 and a fair market value of $1,127,197. At September 30, 2018, the securities had a cost basis of $1,093,297 and fair market value of $1,091,416.
The adjustment to unrealized holding losses (gains) on available-for-sale securities included in accumulated other comprehensive income (loss) as a component of stockholders' equity decreased by $28,998 for the year ended September 30, 2017 and decreased by $23,884 for the year ended September 30, 2018, and totaled $(1,881) at September 30, 2018.
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 that value.
For cash and cash equivalents, accounts receivable and accounts payable the carrying amount is assumed to approximate fair value due to the short-term maturities of these instruments.
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, 2017 and 2018 and at various times during the years ended September 30, 2017 and 2018, the balance at one of the financial institutions exceeded FDIC insurance limits on interest bearing accounts.
The Company provides credit, in the normal course of business, to customers throughout the United States. 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, municipalities and laundry facilities.
| 24 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 1. | Organization and Summary of Significant Accounting Policies (continued) |
Earnings per share:
The Company follows ASC 260-10 in presenting earnings per share which establishes 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, 2017 and 2018, 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. In accordance with ASC 360-10, the Company periodically evaluates the carrying value of 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.
Segment Information:
The Company follows ASC 280-10 for segment reporting. Certain information is disclosed, 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 (loss):
The Company reports comprehensive income (loss) in accordance with ASC 220-10, 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.
| 25 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 2. | Inventories |
Inventories consist of the following at September 30:
| 2017 | 2018 | |||||||
| (unaudited) | (unaudited) | |||||||
| Finished goods | $ | 19,738 | $ | 19,738 | ||||
| Work in process | 4,854 | 4,854 | ||||||
| Purchased parts and supplies | 5,825 | 5,825 | ||||||
| $ | 30,417 | $ | 30,417 | |||||
| 3. | Fair value measurements |
Financial Accounting Standards Board ASC 820, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
| Level 1: | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. |
| Level 2: | Inputs to the valuation methodology include: |
| · | Quoted prices for similar assets or liabilities in active markets; |
| · | Quoted prices for identical or similar assets or liabilities in inactive markets; |
| · | Inputs other than quoted prices that are observable for the asset or liability; |
| · | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
| Level 3: | Inputs to the valuation methodology are unobservable and significant to the fair value measurement |
The asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
| 26 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 3. | Fair value measurements (continued) |
Following is a description of the valuation methodologies used for assets measured at fair value.
Municipal bonds: Valued at the closing price reported on the active market on which the individual securities are traded.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table set forth by level, within the fair value hierarchy, the Company's assets at fair value as of September 30, 2017 and 2018.
Assets at fair value as of September 30, 2018 (unaudited)
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Municipal Bonds | $ | 1,091,416 | $ | – | $ | – | $ | 1,091,416 | ||||||||
| $ | 1,091,416 | $ | – | $ | – | $ | 1,091,416 | |||||||||
Assets at fair value as of September 30, 2017 (unaudited)
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Municipal Bonds | $ | 1,127,197 | $ | – | $ | – | $ | 1,127,197 | ||||||||
| $ | 1,127,197 | $ | – | $ | – | $ | 1,127,197 | |||||||||
| 27 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 4. | Income Taxes |
The components of the Company's deferred tax assets, net at September 30 are as follows:
|
2017
(unaudited) |
2018
(unaudited) |
|||||||
| Deferred tax assets: | ||||||||
| Section 263A capitalization | $ | 56,900 | $ | 57,100 | ||||
| Allowance for doubtful accounts | 4,300 | 4,300 | ||||||
| Net operating loss carryforward | 250,700 | 304,500 | ||||||
| 311,900 | 365,900 | |||||||
| Deferred tax liabilities: | ||||||||
| Depreciation and amortization | (67,700 | ) | (77,400 | ) | ||||
| Deferred tax assets, net | $ | 244,200 | $ | 288,500 | ||||
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 statements of income
|
2017
(unaudited) |
2018
(unaudited) |
|||||||
| Income tax benefit at the statutory rate | $ | (54,028 | ) | $ | (35,001 | ) | ||
| State and local income taxes, net of federal income tax | (5,532 | ) | ||||||
| Tax exempt income | (13,112 | ) | (12,665 | ) | ||||
| Effect of graduated tax rates | 12,425 | 3,244 | ||||||
| Nondeductible expenses | 106 | 122 | ||||||
| $ | (60,141 | ) | $ | (44,300 | ) | |||
The Company is subject to guidance issued by the FASB relating to "Accounting for Uncertainty in Income Taxes." The guidance applies to all tax positions accounted for in the financial statements, including positions taken in a previously filed tax return or expected to be taken in a future tax return.
The Company has analyzed its filing positions in Federal and significant state jurisdictions where it is required to file income tax returns. Management believes the Company's positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on its financial conditions, results of operations or cash flows.
| 28 |
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (unaudited) and September 30, 2018 (unaudited)
| 4. | Income Taxes (continued) |
Interest and penalties, if any are recorded as income taxes in the consolidated income statement. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
| 5. | 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 332,662,651 and 332,541,922 during the years ended September 30, 2017 and 2018, respectively.
| 6. | Professional service contracts |
Clancy provides equipment and support services under 12 month professional service contracts. At September 30, 2017 and 2018, all of the contracts contained cancellation provisions requiring notice of 30 days or less.
| 7. | Subsequent events |
The Company has evaluated subsequent events from September 30, 2018 through July 24, 2019, which is the date the financial statements were issued. Other than disclosed above, there have been no material events noted in this period which would impact the results reflected in this report, the Company's results going forward or require additional disclosure.
| 29 |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
NONE
Item 9A. 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;
(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.
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-K for the fiscal year ended September 30, 2017, 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 year ended September 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 30 |
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 14. Principal Accounting Fees and Services.
Part IV
Item 15. Exhibits , Financial Statement Schedules.
(a) Exhibits.
The following is a complete list of exhibits filed as a part of this Report on Form 10-K and are those incorporated herein by reference.
31.1 Certification Pursuant to 18 USC Section 302
31.2 Certification Pursuant to 18 USC Section 302
32.1 Certification Pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Clancy Systems International, Inc. | ||
| By: | /s/ Tony Nick | |
|
Tony Nick
Chief Executive Officer |
||
Date: September 26, 2019