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, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-4882-D
CLANCY SYSTEMS INTERNATIONAL, INC
(Exact name of Registrant as specified in its charter)
Colorado 84-1027964
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
2250 S. Oneida #308, Denver, Colorado 80224
(Address of principal executive offices and Zip Code)
(303) 753-0197
(Registrant's telephone number)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's classes of common stock, as
of February 22, 2005 is 365,117,938 shares, $.0001 par value.
Transitional Small Business Disclosure Format: Yes No X
CLANCY SYSTEMS INTERNATIONAL, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet - September 30, 2004
and December 31, 2004 (unaudited) 2 and 3
Consolidated Statement of Income - For the Three
Months Ended December 31, 2003 and 2004 (unaudited) 4
Consolidated Statement of Stockholders' Equity - For
the Three Months Ended December 31, 2004 (unaudited) 5
Consolidated Statement of Cash Flows - For the Three
Months Ended December 31, 2003 and 2004 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 3. Controls and Procedures 20
Item 6. Exhibits and Reports on Form 8-K 20
-1-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2004
(Unaudited)
ASSETS
December
31, 2004
Current assets: --------
Cash and cash equivalents $ 395,040
Accounts receivable, net of allowance
for doubtful accounts of $10,000 560,570
Accounts receivable, related party
(Note 3) 30,019
Income tax refund receivable 30,624
Inventories (Note 2) 100,300
Prepaid expenses 51,405
----------
Total current assets 1,167,958
Furniture and equipment, at cost:
Office furniture and equipment 323,112
Computers and Equipment
under service contracts 2,081,584
Leasehold improvements 98,935
Equipment and vehicles under capital
leases 467,221
---------
2,970,852
Less accumulated depreciation (1,702,221)
---------
Net furniture and equipment 1,268,631
Other assets:
Deferred tax asset 31,275
Investment in marketable securities 399,345
Deposits and other 52,612
Goodwill 225,214
Software development costs, net of
accumulated amortization 222,109
---------
Total other assets 930,555
---------
$ 3,367,144
===========
See accompanying notes to consolidated financial statements.
-2-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2004
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
December
31, 2004
Current liabilities: --------
Accounts payable $ 217,985
Accrued expenses 325,162
Accounts payable, related party
(Note 3) 38,656
Income taxes payable 68,254
Current portion of long term debt 205,428
Current portion of obligations
under capital leases 33,996
Deferred revenue 120,942
---------
Total current liabilities 1,010,423
Obligations under capital leases,
net of current portion 28,877
Minority interest in subsidiary
(Note 4) 63,632
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
Additional paid-in capital 1,151,547
Retained earnings 1,076,153
---------
Total stockholder's equity 2,264,212
---------
$ 3,667,144
===========
See accompanying notes to consolidated financial statements.
-3-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 2003 and 2004
(Unaudited)
December December
31, 2003 31, 2004
Revenues: -------- --------
Sales $ 41,929 $ 51,365
Service contract income 659,735 662,105
Parking ticket collections and
other 64,319 143,159
----------- -----------
Total revenues 765,983 856,629
Costs and expenses:
Cost of sales 3,727 20,330
Cost of services 231,632 175,759
Cost of parking ticket
collections 31,919 28,178
General and administrative 445,440 415,922
Research and development 14,022 16,976
----------- ----------
Total costs and expenses 726,740 657,165
----------- ----------
Income from operations 39,243 199,464
Other income:
Interest income 194 21
Interest expense (8,410) (7,880)
Other Income 1,872 -
Minority interest in (income)
loss of subsidiary 15,565 8,402
----------- ----------
Total other income (expense) 9,221 543
----------- ----------
Income before provision for
income taxes and loss in
equity-basis partnership 48,464 200,007
Provision for income taxes:
Current expense 16,498 66,330
Deferred expense 1,365 9,725
----------- ---------
Total income tax expense 17,863 76,055
----------- ---------
Net income $ 30,601 $ 123,952
=========== ==========
Basic and diluted
net income per common
share $ * $ *
========== ===========
Weighted average number of
shares outstanding 365,118,000 365,118,000
=========== ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
-4-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended June 30, 2004
(Unaudited)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
------ ------ --------- --------
Balance,
September 30, 2004
(Restated) 365,117,938 $ 36,512 $ 1,151,547 $ 952,201
Net income for the
three months ended
December 31, 2004 --- --- --- 123,952
----------- --------- ---------- ----------
Balance, December,
31, 2004 365,117,938 $ 36,512 $ 1,151,547 $ 1,1076,153
=========== ========= ============= ===========
See accompanying notes to consolidated financial statements.
-5-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2003 and 2004
(unaudited)
December December
31, 2003 31 2004
------- -------
Cash flows from operating activities:
Net income $ 30,601 $ 123,952
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 135,992 118,359
Deferred income tax expense 1,365 9,725
Minority interest (15,565) (8,979)
Changes in assets and liabilities:
Accounts receivable (23,507) (110,942)
Inventories (23,061) 1,239
Income taxes refundable - (22,085)
Prepaid expenses 19,026 23,161
Accounts payable (38,204) 28,576
Accrued expenses 9,887 8,215
Income taxes payable (21,852) 68,254
Deferred revenue (9,202) (5,136)
---------- ---------
Total adjustments 34,879 110,387
---------- ---------
Net cash provided by operating
activities 65,480 234,339
---------- ---------
Cash flows from investing activities
Acquisition of furniture and equipment (52,849) (24,867)
Increase in software licenses and
software development costs (26,407) (27,157)
Increase in deposits and
other assets 2,587 6,225
---------- ---------
Net cash used in investing
activities (76,669) (91,307)
---------- ---------
Cash flows from financing activities:
Payments on long term debt and capital
leases (60,088) (40,038)
Decrease (increase) in bank overdraft - (14,645)
---------- -----------
Net cash used in financing
activities (60,088) (54,683)
----------- -----------
Increase (decrease) in cash and
cash equivalents (71,277) 88,349
Cash and cash equivalents at beginning
of period 669,292 306,691
---------- -----------
Cash and cash equivalents at end
of period $ 598,015 $ 395,040
========== ==========
See accompanying notes to consolidated financial statements.
-7-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2003 and 2004
(Unaudited)
continued from preceding page
Supplemental disclosure of cash flow informtion
2003 2004
------- -------
Cash paid during the period for interest $ 8,410 $ 2,208
======== =========
Cash paid during the period for income
taxes $ 38,350 $ 20,160
======== =========
-8-
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. The
accompanying unaudited consolidated financial statements reflect all
adjustments that, in the opinion of management, are considered necessary
for a fair presentation of the financial position, results of operations,
and cash flows for the periods presented. The results of operations for
such periods are not necessarily indicative of the results expected for
the full fiscal year or for any future period. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements of Clancy Systems International,
Inc. and Subsidiary included in the Form 10-KSB for the fiscal year ended
September 30, 2004, as restated.
The Company's subsidiary, Urban Transit Solutions, Inc. ("UTS") was
incorporated under the Laws of the Commonwealth of Puerto Rico. The
financial statements of UTS have been prepared on the basis of
accounting principles generally accepted in the United States of
America and are denominated in U.S. dollars. Therefore, there are no
amounts recorded for foreign currency translation or for transactions
denominated in a foreign currency. The Company has consolidated the
financial results of UTS with those of the Company for the three months
ended December 31, 2003 and 2004. All significant intercompany
transactions and balances have been eliminated in consolidation.
Prior Period Adjustment:
The Company has discovered an error in the amount of revenue
recognized by UTS, the Company's subsidiary in Puerto Rico, in its
consolidated September 30, 2004 financial statements. The approximate
results of the correction of the error is that receivables and
revenues are each reduced by $130,000, that minority interest is
increased by $30,000, deferred tax benefit is increased by $30,000
and net income is decreased by $60,000.
2. Inventories
Inventories consist of the following at:
December 31,
2004
-----------
Finished Goods $ 26,278
Work in Process 41,123
Purchased parts and supplies 32,899
----------
$ 100,300
==========
-9-
3. Related party transactions
Related party account balances consist of the following at:
December 31,
2004
-----------
Accounts receivable, related party $ 30,019
===========
Accounts payable, related party $ 38,656
===========
Accounts receivable, related party is due from Pan American Parking
Solutions, Inc. which is a company owned by the former president
of UTS.
Accounts payable, related party is due to Pan American Products,
a company owned by the current president of UTS.
4. Income taxes
The provision for income taxes for the three months ended December 31,
2003 and 2004 is based on the expected rate for the tax year.
The components of the Company's deferred tax assets and liabilities
are as follows:
December 31,
2004
-----------
Non-current deferred tax assets $ 184,365
Non-current deferred tax liabilities (153,090)
-----------
Net non-current deferred taxes $ 31,275
===========
-10-
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Statement Regarding Forward Looking Information
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future
events contained in this document constitute "forward looking
statements." As with any future event, there can be no assurance
that the events described in forward looking statements made in this
report will occur or that the results of future events will not vary
materially from those described in the forward looking statements made
in this document.
Important factors that could cause the Company's actual performance
and operating results to differ materially from the forward looking
statements include, but are not limited to, (i) the ability of the
Company to obtain new customers, (ii) the ability of the Company to
obtain sufficient financing for business opportunities, (iii) the
ability of the Company to reduce costs and thereby maintain adequate
profit margins.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
At December 31, 2004 the Company had consolidated working capital of
$157,535 derived primarily from contract sales and contract service.
The Company anticipates using its working capital to fund ongoing
operations, including general and administrative expenses, equipment
purchases, equipment manufacturing, travel, marketing and research
and development. The Company anticipates having sufficient working
capital to fund operations for the fiscal year ending September 30,
2005.
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31,
2004 AND 2003
REVENUES. From the quarter ended December 31, 2003 to the quarter
ended December 31, 2004 revenues increased by $90,646 or 11.8% from
$765,983 to $856,629. The increase in revenues is due to the addition
of new customers and products during the quarter ended December 31,
2004. Clancy's Remit-online.com service has processed 32,319
transactions totaling $1,346,746 for the quarter ended December 31,
2004. Revenues are generated based on a per transaction fee less
bank processing costs. The gross amount of cash flowing through
Remit-online.com cannot be presented as revenue based on the SEC
accounting guidance. The Company only presents its net profit from
each transaction as revenue in the statements of operations.
COST OF SERVICES. From the quarter ended December 31, 2003 to the
quarter ended December 31, 2004, cost of services decreased by $55,873
or 24.1% from $231,632 to $175,759 for the Company.
-11-
Cost of services as a percentage of service contract income
was 35.1% for the 2003 quarter and 26.5% for the 2004 quarter.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement
systems research and development costs increased from $14,022
to $16,976, or 21.1%, from the quarter ended December 31, 2003
to 2004. Product development and improvement is still paramount
to the Company, and costs are being incurred for development of
several new items.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased by $29,518 or 6.6% from $445,440 to $415,922 for the
quarter ended December 31, 2003 and 2004, respectively.
NET INCOME. For the quarter ended December 31, 2004, the Company
reported net income of $123,952 compared to $30,601 for the quarter
ended December 30, 2003. The primary reason for the increase in net
income is the increase in revenues from Remit online.com and the
increased services which are discussed above.
During the next twelve months, the Company will continue to expand
its Internet parking services and operations. A concentrated effort
will be made for "Park-by-phone". The Company is currently
manufacturing its printer in a new and smaller case. All current
customers will receive the upgrade model within the next 12 months.
In order to keep its products and systems from becoming obsolete,
the Company regularly modifies and updates its hardware and software.
In order to streamline its ticket writing and car rental equipment,
the Company redesigned the printer so that it weighs less than two
pounds. New battery technology has also allowed the Company to
reduce the size and weight of the printers.
During 2001/2002, the Company began manufacturing a new printer
board to interface to Palm handheld devices. It incorporates a state
of the art print mechanism, light weight battery technology, and
flat forms. The company has also developed a keyboard cradle for
the Palm devices. The Palm keyboard has a 45 key full alpha/numeric
keypad with function keys and assignable function keys.
Management keeps informed of new developments in components so that
the printer and keypads are up-to-date, fast and suit user
requirements. The Company communicates with vendors on a regular
and ongoing basis so that management is aware of upgraded components,
new technologies and processes that can be used to upgrade its hardware.
The Company has a relationship with an engineer, who, although he
works as an independent contractor, dedicates as much time as the
Company requires to develop and enhance its products. The engineer
also performs research and development for the Company and makes
prototype boards for testing and evaluation.
-12-
The Company's software is developed in-house by five full- time
programmers and by the Company's President, Stanley Wolfson, and is
maintained and updated on a regular basis.
Clancy has qualified to be a Microsoft Certified Partner. This
relationship allows the Company to receive pre-releases of software
products which gives us the leading edge on upgrading programs and
embedding new services into our systems.
The office computer software allows daily ticket, rental and
inventory information to be transferred from the portable data entry
units to a central computer database. The information is compiled
and then processed further according to user requirements.
Through sophisticated communications software developed internally,
the Company is able to update, modify, repair, enhance and change
programs at the client's location via modem and the Internet.
The Company has developed numerous Internet based parking programs
which include payment processing, permit registrations, and pre-paid
parking and parking reservations, special event parking and permitting,
and its Expo1000 Parking Industry Guide.
URBAN TRANSIT SOLUTIONS
The Company provided a total financial investment of $500,000
to Urban Transit Solutions between March 1998 and April 1999.
UTS has been generating revenue since August 1998. Collections from
parking lot fees from Cauguas commenced in January of 1999. UTS
loans to its primary bank and private lender are being paid back by
the UTS cash flows. UTS secured a loan through the Company's primary
bank, however the Company has no obligation on the loan. The loan is
secured by UTS assets. The settlement of ownership between the Company
and UTS set forth the opportunity for Clancy management to take a more
significant role in the operations of UTS.
In June, 2003, a new management team was installed at UTS. Kenneth
Stewart is the President of UTS. Damaris Carasquillo is the
operations manager. The UTS Board of Directors includes Kenneth Stewart,
Stanley Wolfson, and Lizabeth Wolfson. The new management team has taken
an aggressive approach to bringing the accounts payable current, reducing
unnecessary expenses and reducing debt obligations. The Company expects
to see an improvement to UTS profitability during the 2004-2005 fiscal
year. UTS has funded its operations primarily by loans and cash flows.
It has notes payable and capital lease obligations arising from
borrowings for working Capital and purchases of equipment. The Company
will advance funding to Urban Transit Solutions in order to allow
them to expand their operations and reduce their outside debt obligations.
-13-
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 anticipates that its expenses shall increase as a direct
result of the Sarbanes-Oxley Act of 2002 as it pertains to: (i)
additional accounting and auditing procedures; and (ii) additional
legal costs due to compliance with new corporate governance mandates.
The Company now utilizes three different accounting firms for
preparation of financial statements, reviews and auditing functions.
Director and Officer insurance premiums have tripled for the Company
(this is consistent with the industry as a result of the public company
irregularities of several years ago). The Company is able to qualify
for Directors and Officers insurance when many companies are no longer
able to qualify.
The Company's newest equipment has proven to be a capital intensive
program. The Company has designed its printer board to work and fit
in both its current model case as well as its new case, which will prove
to be a cost savings. While the Company has adequate cashflow to
accomplish the upgrades without incurring debt, it is anticipated that
the ongoing upgrades and tooling for newer product shall continue to
require a large capital commitment. With the weakened economy as of
recent years, municipalities are in search of additional revenues and
the installation and implementation of means to efficiently and
effectively collect parking ticket revenues as a viable source of such
additional revenues for many locales. As on street parking spaces are
finite, and populations increase, a structured management system of
turnover, enforcement and accountability of parking revenues will be
imperative for all cities.
In addition, the Company supplies all hardware, software, training,
supplies and maintenance for the system, thus eliminating all
significant capital expenditures by the user.
The Company has experienced a large number of inquiries about its
system related to the total program and special features and
anticipates growth in this area in the next fiscal year.
Uncertainties that can impact revenues from the Company's service
contract agreements would be related to dramatic weather changes and
municipal disaster occurrences (i.e. September 11, 2001). As parking
ticket issuance operations are primarily "out-of-doors" tasks, severe
weather such as a major blizzard, hurricane, or rains could impact ticket
production for a limited period in certain locales. While such reductions
are temporary, they can impact revenues as the Company bills most clients
on a fee-per-ticket basis. The meter collections for UTS could be
temporarily reduced during a hurricane or tropical storm. Further,
as the Company is contracting primarily with City government agencies, a
deployment of personnel to other duties during a disaster could
temporarily reduce ticket issuance activities.
-14-
Internal and external sources of liquidity
The Company anticipates using its working capital to fund ongoing
operations, including general and administrative expenses, equipment
manufacturing, travel, marketing and research and development.
The Company anticipates having sufficient working capital to
fund operations for the fiscal year ending September 30, 2005.
UTS has funded its operations primarily by cash flows and bank debt.
It has notes payable and capital lease obligations arising from
borrowings for working capital and purchases and installation of
meter equipment. With UTS under new management, the Company anticipates
that UTS will be profitable for the year ending September 30, 2005.
The Company has experienced significant interest in the Denver Boot
for vehicles as well as for security on other mobile devices including
construction trailers and communications generators. There has also
been a demand for the Denver Boot for enforcement on private property.
Exposure on the Internet has been favorable for sales of this product.
The Company has experienced an interest in its IDBadgemaker software.
The program is utilized by news services, janitorial companies, social
service agencies, private clubs and others for security and identification
purposes. The program receives "excellent" ratings at download.com.
Remit-on-line.com has grown as a ticket payment site. It is offered
to Clancy ticket system clients and other companies in parking industry
businesses. Remit processes an average of $450,000 per month in
transactions. The Company has observed a continuing increase in
activity monthly. The Company generates revenue from Remit-online.com
based on a per transaction fee.
In addition, for Clancy, outstanding ticket fines of approximately
$400,000 and for UTS, outstanding ticket fines of approximately
$253,703, have not been recognized as revenue at December 31, 2004
based on SEC accounting guidance.
CONTRACTUAL OBLIGATIONS
The following obligations are the debt responsibility of UTS.
Clancy does not have any obligations other than operating leases
for its office space.
-15-
Payment Due by Period
Contractual Less than
Obligations Total 1 year 1-3 years 4-5 years Over
Long Term
Debt $ 198,436 $ 198,436 $ - $ - $ -
Capital
Lease
Obligations $62,873 $33,996 $28,877 -
Operating
Expenses
UTS 9,900 3,600 6,300 - -
Clancy 42,590 31,173 11,417
Purchase
Obligations - - - - -
Other Long-
term
obligations - - - - -
--------- --------- ---------- ---------- ---------
Total
Contractual
Cash
Obligations $ 313,799 $ 267,205 $ 46,594 $ - $ -
========= ========== ========= ========== ==========
CRITICAL ACCOUNTING POLICIES
The Company has identified the accounting policies described below
as critical to its business operations and the understanding of the
Company's results of operations. The impact and any associated risks
related to these policies on the Company's business operations is
discussed throughout this section where such policies affect the
Company's reported and expected financial results.
The preparation of financial statements requires the Company to make
estimates and assumptions that affect the reported amount of assets
and liabilities of the Company, revenues and expenses of the Company
during the reporting period and contingent assets and liabilities as
of the date of the Company's financial statements. There can be no
assurance that the actual results will not differ from those estimates.
REVENUE RECOGNITION: Revenue derived from professional service
contracts on equipment and support services is included in income
ratably over the contract term; related costs consist mainly of
depreciation, supplies and sales commissions.
-16-
The Company defers revenue for equipment and services under service
contracts that are billed to customers on a quarterly, semi-annual,
annual, or other basis and are included in income ratably over the
expected term of the contract.
Revenue from the issuance of parking citations for the Company's
privatization projects is recognized on a cash basis when received
as collectibility is not reasonably assured.
Revenue derived from professional service contracts on parking meter
and lots fees collections is recognized net of municipalities' fees
as services are provided. Related costs consist mainly of depreciation
and lot rents.
Revenue derived from professional service contracts for permit
fulfillment and remit-online services is recognized based on add-on
fees earned for each transaction.
COMPUTER SOFTWARE. Costs incurred prior to establishment of the
technological feasibility of computer software are research and
development costs, which are charged to expense as incurred. Software
development costs incurred subsequent to establishment of technological
feasibility are capitalized and subsequently amortized based on the
greater of the straight line method over the remaining estimated
economic life of the product (generally 5 years) or the estimate of
current and future revenues for the related product.
GOODWILL. On January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142(SFAS 142), Goodwill and
Intangible Assets, which clarifies the accounting for goodwill and
intangible assets.Under SFAS 142, goodwill and intangible assets
with indefinite lives will no longer be amortized, but will be
tested for impairment annually and also in the event of an
impairment indicator.
Chat Room Disclaimer
This forum of exposure to publicly traded companies presents a venue
for the public to inquire about companies from other individuals as
well as post opinions. The Company has no way to regulate postings
nor monitor information posed on these boards. Management can only
provide accurate information to shareholders and potential shareholders
when contacted directly and such information can only be provided when
it is based on fact and has been filed as required by law with the
Securities and Exchange Commission and other regulatory agencies.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In August 2000, the Company hired the law firm of Bingham Dana Ltd to
commence actions on behalf of the Company against several John Does that
bashed the company by posting false information about the Company and
its officers and directors on the Raging Bull Internet chat room site
and other chat rooms.
-17-
On September 19, 2000, the Company filed an action in Suffolk Superior
Court against John Short, Syracuse NY, who posted as Darth4, MrDarth4
and possible other aliases. Relief sought includes monetary damages for
harm done to the Company and its officers, 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.
After a final appeal by Mr. Short, the Massachusetts State Supreme Court
upheld the earlier judgement awarded in favor of the Company. The court
awarded an additional $23,000 in damages to the Company. The Company's
attorney in Syracuse New York has filed a motion to restore the case to
the court's motion calendar for a decision on an earlier motion to schedule
a sheriff's sale. 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 overtunred 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. Management is pleased with the results. The Company
has been severely damaged by Mr. Salazar as it had to incur substantial
legal fees on this matter which are not recoverable and have had a negative
impact on the Company's profits and shareholder value.
Mr. Salazar has brought other lawsuits against the Company over the
years and the defense of these suits has been costly to the Company.
All suits have been dismissed and have been resolved in favor of the
Company. 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. The outcome of
this matter cannot be determined at this time.
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.
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.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Section 302 Certification by Chief Executive Officer
Exhibit 31.2 Section 302 Certification by Chief Financial Officer
Exhibit 32.1 Section 906 Certification by Chief Executive Officer
Exhibit 32.2 Section 906 Certification by Chief Financial Officer
Filed herewith.
(b) Reports on form 8-K
Filed on 10/18/04 Change of Auditor
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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 22, 2004 CLANCY SYSTEMS INTERNATIONAL, INC.
(Registrant)
By: /s/ Stanley J. Wolfson
Stanley J. Wolfson, President
and Chief Executive Officer
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