UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-4882-D
CLANCY SYSTEMS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-1027964
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
2250 S. Oneida #308, Denver, Colorado 80224
(Address of principal executive offices and Zip Code)
(303) 753-0197
(Registrant's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such Mr. Shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's classes of common stock,
as of February 12, 2003 is 365,117,938 shares, $.0001 par value.
CLANCY SYSTEMS INTERNATIONAL, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidtated Balance Sheet - September 30, 2002
and December 31, 2002 (unaudited) 2 and 3
Consolidated Statement of Income - For the Three Months
Ended December 31, 2001 and 2002 (unaudited) 4
Consolidated Statement of Stockholders' Equity - For the
Three Months Ended December 31, 2002 (unaudited) 5
Consolidated Statement of Cash Flows - For the Three Months
Ended December 31, 2001 and 2002 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION 11
1
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
September 30, 2002 and December 31, 2002
(unaudited)
ASSETS
September December
--------- --------
Current assets:
Cash, including interest bearing accounts $ 357,315 $ 414,136
Accounts receivable 339,599 447,855
Income tax refund receivable 35,063 8,410
Inventories (Note 2) 148,517 135,839
Prepaid expenses 138,141 114,341
---------- ---------
Total current assets 1,018,635 1,120,581
Furniture and equipment, at cost:
Office furniture and equipment 259,595 199,424
Equipment under service contracts 1,893,995 2,446,790
Leasehold improvements 105,259 95,482
Equipment and vehicles under capital leases 356,745 169,582
--------- ---------
2,615,594 2,911,278
Less accumulated depreciation (1,170,030) (1,224,851)
----------- ----------
Net furniture and equipment 1,445,564 1,686,427
Other assets:
Deferred tax asset (Note 3) 38,200 25,150
Deposits 20,640 21,996
Goodwill 225,214 225,214
Software development costs, net of
accumulated amortization 150,193 157,869
--------- ---------
Total other assets 434,247 430,229
--------- ---------
$ 2,898,446 $ 3,237,237
=========== ===========
See accompanying notes
2
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
September 30, 2002 and December 31, 2002
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September December
--------- --------
Current liabilities:
Accounts payable $ 141,092 $ 234,114
Accrued Expenses 166,159 183,029
Current portion of long term debt 111,111 169,715
Current portion of obligations
under capital leases 132,279 132,279
Deferred revenue 110,722 103,222
---------- ---------
Total current liabilities 661,363 882,359
Long-term debt, net of current portions 182,824 238,985
Obligations under capital leases, net of
current portion 53,423 83,408
Minority interest in subsidiary 142,769 146,619
Commitments
Stockholders' equity:
Preferred stock, $.0001 par value;
100,000,000 shares authorized,
none issued - -
Common stock, $.0001 par value;
800,000,000 shares authorized,
365,117,938 shares issued and
outstanding 36,512 36,512
Additional paid-in capital 1,151,547 1,151,547
Retained earnings 670,008 757,807
--------- ---------
Total stockholder's Equity 1,858,067 1,945,866
----------- ----------
$ 2,898,446 $ 3,237,237
=========== ===========
See accompanying notes
3
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIATED STATEMENT OF OPERATIONS
For the Three Months Ended December 31, 2001 and 2002
(unaudited)
2001 2002
---- ----
Revenues:
Sales $ 39,395 $ 40,775
Service contract income 342,319 621,451
Parking ticket collections 21,230 38,286
--------- ---------
Total revenues 402,944 700,512
Costs and expenses:
Cost of sales 34,538 20,443
Cost of services 114,238 122,096
Cost of parking ticket collections 26,274 35,688
General and administrative 181,408 338,928
Research and development 14,123 8,925
Minority interest in loss of subsidiary - 3,849
--------- --------
Total costs and expenses 370,581 529,929
Income from operations 32,363 170,583
Other income (expense):
Loss on disposal of assets - (17,762)
Interest income 951 548
Interest expense - (11,507)
--------- --------
Total other income (expense) 951 (28,721)
Income before provision for income
taxes and loss in equity-basis
partnership 33,314 141,862
Provision for income taxes:
Current expense (14,545) (41,013)
Deferred expense - (13,050)
--------- --------
Total income tax expense (14,545) (54,063)
Loss in equity basis
partnership (net of tax benefit
of $2,936 - 2001) (4,791) -
--------- -------
Net income $ 13,978 $ 87,799
========= ========
Basic net income per common share $ * $ *
========= ========
Weighted average number of shares
outstanding 361,600,000 365,118,000
*Less than $.01 per share
See accompany notes
4
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended December 31, 2002
(Unaudited)
Additional
Common stock paid-in Retained
Shares Amount capital earnings
------ ------ ------- --------
Balance, September 30, 2002 365,117,938 $ 36,512 $ 1,151,547 $ 670,008
Net income for the three
months ended December 31,
2002 - - - 87,799
----------- --------- ----------- --------
Balance, December 31, 2002 365,117,938 $ 36,512 $ 1,151,547 $ 757,807
=========== ========= ============ =========
See Accompany Notes
5
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended December 31, 2001 and 2002
(unaudited)
2001 2002
---- ----
Cash flows from operating activities:
Net income $ 13,978 $ 87,799
Adjustments to reconcile net
income to net cash provided by operating
activities:
Depreciation and amortization 47,431 69,615
Deferred income tax expense 4,500 13,050
Changes in assets and liabilities:
Investment in equity-basis partnership 7,728 -
Accounts receivable 55,180 (108,256)
Inventories (2,892) (305)
Income taxes refundable - 26,653
Prepaid expenses 4,209 36,783
Accounts payable (16,008) 93,022
Accrued Expenses - 16,870
Income taxes payable 7,030 -
Deferred Revenue (11,982) (7,500)
Minority Interest - 3,850
-------- --------
Total adjustments 95,196 143,782
-------- --------
Net cash provided by operating activities 109,174 231,581
Cash flows from investing activities:
Acquisition of furniture and equipment (30,033) (250,099)
Increase in software licenses and software
development costs (7,675) (21,826)
Decrease in note receivable-employee 35 -
Increase in deposits and other assets - (2,000)
-------- --------
Net cash used in investing activities (37,673) (273,925)
Cash flows from financing activities:
Borrowings on notes payable - 160,000
Payments on notes payable and capital leases - (60,835)
-------- -------
Net cash provided by financing activities - 99,165
-------- -------
Increase in cash and cash equivalents 71,501 56,821
Cash and cash equivalents at beginning
of period 385,491 357,315
-------- --------
Cash and cash equivalents at end
of period $ 456.992 $ 414,136
========= =========
See accompanying notes
6
1. Basis of presentation
The accompanying financial statements have been prepared by the Company,
without audit. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the financial
position as of September 30, 2002 and December 31, 2002, and the results
of operations and cash flows for the periods ended December 31, 2001 and
2002.
As a result of the July 2002 settlement agreement with
the principals of UTS (Urban Transit Solutions) we have changed
the reporting method for the Company's 60% ownership in UTS
from the equity method of accounting to presenting the
information on a consolidated basis.
The difference in presentation between the equity method
of accounting and on a consolidated basis is significant. For,
2001, Clancy presented its investment in UTS as a single line
item "investment in partnership" on the balance sheet and as
a single line item on the statement of operations. For 2002,
the consolidated financial statements combine each line item
on the balance sheet and statement of operations of Clancy
with those of UTS.
2. Inventories
Inventories consist of the following at:
September 30, December 31,
2002 2002
------------ ------------
Finished goods $ 22,272 $ 40,784
Work in process 4,795 42,247
Purchased parts and supplies 121,450 52,808
-------- ---------
$148,517 $135,839
======== ========
3. Income taxes
The provision for income taxes for the three months ended December
31, 2001 and 2002 is based on the expected tax rate for the year.
As of September 30, 2002 and December 31, 2002, total deferred tax
assets and liabilities are as follows:
September 30, December 31,
2002 2002
---- ----
Deferred tax assets $ 87,700 $ 98,700
Deferred tax liabilities (49,500) (73,550)
--------- ----------
$ 38,200 $ 25,150
========= ==========
7
4. Investment in UTS
Pro Forma consolidated financial information for the quarter ended
December 31, 2001 is as follows:
Pro Forma consolidated For quarter ended
statement of operations December 31, 2001
----------------------- -----------------
Total Revenues $ 685,784
Total costs and expenses (671,806)
-----------------
Net income $ 13,978
=================
8
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 Quarterly 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 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
and lots fees collections is recognized on a cash basis when received.
Related costs consist mainly of Municipalities' fees, depreciation and
lots rents.
Computer software:
Costs incurred to establish the technological feasibility of computer
software are research and development costs, which are charged to
expense as incurred. Software development costs incurred subsequent
to establishment of technological feasibility are capitalized and
subsequently amortized based on the greater of the straight line method
over the remaining estimated economic life of the product (generally five
years) or the estimate of current and future revenues for the related
software product.
9
Good Will
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 indefinitive lives will no
longer be amortized, but will be tested for impairment annually and also
in the event of an impairment indicator.
Material Changes in Financial Condition
At December 31, 2002, the Company had working capital of $238,222
derived primarily from contract sales and contract service, as compared
to working capital of $357,272 at September 30, 2002. The Company
anticipates that working capital will be sufficient to meet its
working capital requirements for the current year. Funds will continue
to be used for general and administrative purposes, equipment purchases,
equipment manufacturing, travel, marketing and research and development.
Material Changes in Results of Operations
During the quarter ended December 31, 2002, the Company generated
revenues from contract sales from its professional services contracts,
sales, remit-online payment processing, privatization contract, and
meter operations in Puerto Rico. New contracts signed during the
quarter included Loudoun County VA, Mountain Village CO, Ellensburg WA,
and Bay Area Rapid Transit. UTS added 663 meters to it's Cauguas
contract. Enforcement efforts have also begun. Consolidated revenues
during the quarter were higher than the prior year's quarter by 74%.
Consoliated expenses increased by 43% over the prior year's quarter.
The Company reported a profit of $87,799 ($82,028 for Clancy directly
and $5,771 for UTS)for the quarter as compared to a net profit of
$13,978 for the prior year's quarter. The consolidated revenues are
reported as $700,512 ($421,246 for Clancy directly, up 5% from the
prior year's quarter, and $279,266 for UTS). The consolidated expenses
are reported as $529,929 ($320,807 for Clancy directly, down 10% from
the prior year's quarter and $209,122 for UTS). Long term debt, capital
lease,and interest expenses are attributed to the obligations of UTS.
Clancy directly has no outstanding debt.
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 defined in the Private Securities Litigation Reform Act of 1995. As
with any future event, there can be no assurance that the events described
in the 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 in this document.
10
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 obtain sufficient financing for business opportunities,
(iii) the ability of the Company to reduce costs and thereby maintain
adequate profit margins.
Chat Room Disclaimer
This forum of exposure to publicly traded companies presents a venue for
the public to inquire about companies from other individuals as well as
post opinions. The Company has no way to regulate postings nor monitor
information posed on these boards. Management can only provide accurate
information to shareholders and potential shareholders when contacted
directly and such information can only be provided when it is based on
fact and has been filed as required by law with the Securities and
Exchange Commission and other regulatory agencies.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On September 19, 2000, the Company filed an action in Suffolk County
Superior Court against Mr. John Mr. Short, Syracuse, New York, who posted
as Darth4, MrDarth4, and other aliases on Raging Bull and other message
boards. Relief sought includes monetary damages for harm done to the
Company and its officers in an amount not yet determined, retraction of
false and damaging statements and for the subject to cease and desist
posting or discussing the Company, its officers, and any activities
related thereto. In a judgment rendered by the Superior Court Department
of the Trial Court of Suffolk County, a default judgment against
Mr. Short was entered on October 31, 2001. The Judgment orders Mr. Short
to pay the Company attorney's fees and costs of $16,699 and an
additional fine of $50,000 for his willful failure to comply with a Court
order of June 28, 2001. On November 19, 2002 Short filed a Motion for
Relief of Default Judgment. The motion was denied on December 13, 2002.
On December 20,2002, Short filed a Notice of Appeal from Order Denying
Motion for Relief from Default Judgment. This appeal is still pending.
On January 23, 2003, Short filed an Emergency Motion for Stay of Execution
of Judgment Pending Appeal from Order Denying Motion for Relief from
Default Judgment. On February 6, 2003 this Motion was denied.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Company's management, including the
Chief Executive Officer and Chief Financial Officer of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures within 90 days before the
filing date of this quarterly report.
11
Based on that evaluation,the Company's management, including the
CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective. There have been no significant changes
in the Company's internal controls or in other factors that could
significantly affect internal controls subject to their evaluation.
Item 6. Exhibits and Reports on Form 8-K
Section 302 Certification by Chief Executive Officer
Section 302 Certification by Chief Financial Officer
Exhibit 99.1 Section 906 Certification by Chief Executive
Officer
Exhibit 99.2 Section 906 Certification by Chief Financial
Officer
Filed herewith.
12
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 2003 CLANCY SYSTEMS INTERNATIONAL, INC.
(Registrant)
By: /s/ Stanley J. Wolfson
Stanley J. Wolfson, President
and Chief Executive Officer
13
Section 302 Certification
Quarterly Report on Form 10-QSB
I, Stanley J. Wolfson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Clancy
Systems International, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
14
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: February 14, 2003
/s/Stanley J. Wolfson
Chief Executive Officer
15
Section 302 Certification
Quarterly Report on Form 10-QSB
I, Lizabeth M. Wolfson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Clancy
Systems International, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
16
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: February 14, 2003
/s/Lizabeth M. Wolfson
Chief Financial Officer
17
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Clancy Systems International,
Inc. (the "Company") on Form 10-QSB for the period ended December 31,2002
as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Stanley J. Wolfson, Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant
to 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and result of
operations of the Company.
/s/ Stanley J. Wolfson
_______________________
Chief Executive Officer
February 14, 2003
18
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Clancy Systems International,
Inc. (the "Company") on Form 10-QSB for the period ended December 31 2002
as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Lizabeth M. Wolfson, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted
pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and result of operations
of the Company.
/s/ Lizabeth M. Wolfson
_______________________
Chief Financial Officer
February 14, 2003
19