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 June 30, 2005
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 August 19, 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
Condensed Consolidated Balance Sheet - September
30, 2004 and June 30, 2005 (unaudited) 2 and 3
Condensed Consolidated Statement of Income - For the
Three Months ended June 30, 2004 and 2005 (unaudited) 4
Condensed Consolidated Statement of Income - For the
Nine Months Ended June 30, 2004 and 2005 (unaudited) 5
Condensed Consolidated Statement of Stockholders'
Equity - For the Nine Months Ended June 30, 2005
(unaudited) 6
Condensed Consolidated Statement of Cash Flows -
For the Nine Months Ended June 30, 2004 and 2005
(unaudited) 7
Notes to Unaudited Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Controls and Procedures 18
PART II. OTHER INFORMATION 19
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
-1-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September June
30, 2004 30, 2005
Current assets: -------- -------
Cash and cash equivalents $ 306,691 $ 603,870
Accounts receivable, net of allowance
for doubtful accounts of $10,000 449,628 480,054
Accounts receivable, related party
(Note 3) 30,019 -
Income tax refund receivable 18,724 5,453
Inventories (Note 2) 101,539 96,159
Prepaid expenses, current portion 74,566 60,041
---------- --------
Total current assets 981,167 1,245,577
Furniture and equipment, at cost:
Office furniture and equipment 322,137 322,947
Computers and Equipment
under service contracts 2,058,386 2,583,738
Leasehold improvements 98,936 98,935
Equipment and vehicles under capital
leases 467,221 -
--------- ---------
2,946,679 3,005,260
Less accumulated depreciation (1,604,762) (1,880,392)
--------- ---------
Net furniture and equipment 1,341,917 1,125,228
Other assets:
Deferred tax asset 16,000 7,200
Investment in marketable securities 353,837 451,162
Deposits and other 60,125 36,489
Goodwill 225,214 225,214
Software development costs, net of
accumulated amortization 213,870 216,640
--------- --------
Total other assets 869,046 936,705
--------- --------
$ 3,192,130 $ 3,307,510
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
CLANCY SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September June
30, 2004 30, 2005
Current liabilities: -------- -------
Accounts payable $ 189,409 $ 179,320
Accrued expenses 316,947 364,389
Accounts payable, related party
(Note 3) 38,656 -
Bank overdraft 14,645 -
Income taxes payable - 13,923
Current portion of long term debt 239,449 30,358
Current portion of obligations
under capital leases 41,460 26,041
Deferred revenue 126,078 120,145
--------- --------
Total current liabilities 966,644 734,176
Long term debt - 265,000
Obligations under capital leases,
net of current portion 27,430 -
Minority interest in subsidiary 72,610 30,196
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 937,387 1,090,079
--------- ---------
Total stockholders' equity 2,125,446 2,278,138
--------- ---------
$ 3,192,130 $ 3,307,510
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
CLANCY SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30, 2004
and June 30, 2005
(Unaudited)
June June
30, 2004 30, 2005
Revenues: -------- --------
Sales of goods $ 86,892 $ 29,849
Service contract income 622,221 648,285
Parking ticket and permit
operations 89,660 82,126
----------- -----------
Total revenues 798,773 760,260
Costs and expenses:
Cost of sales 2,696 8,448
Cost of services 211,088 204,649
Cost of parking ticket
and permit operations 23,643 21,356
General and administrative 547,855 538,811
Research and development 11,236 16,601
----------- ----------
Total costs and expenses 796,518 789,865
----------- ----------
Income (loss) from operations 2,255 (29,605)
Other income:
Interest income 163 643
Interest expense (14,331) (2,287)
Other Income 2,987 -
Minority interest in (income)
loss of subsidiary 30,048 32,717
----------- ----------
Total other income (expense) 18,867 31,072
----------- ----------
Income (loss) before provision
for income taxes 21,122 1,467
Provision for income taxes:
Current expense benefit 17,871 (2,283)
Deferred expense (benefit) (505) (6,000)
----------- ---------
Total income tax expense 17,366 (8,283)
----------- ---------
Net income $ 3,756 $ 9,750
=========== ==========
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.
F-4
CLANCY SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended June 30, 2004
and June 30, 2005
(Unaudited)
June June
30, 2004 30, 2005
Revenues: -------- --------
Sales of goods $ 191,742 $ 110,358
Service contract income 1,958,892 1,875,503
Parking ticket and permit
operations 252,350 335,689
----------- -----------
Total revenues 2,402,939 2,321,550
Costs and expenses:
Cost of sales 24,209 53,039
Cost of services 695,879 557,299
Cost of parking ticket
and permit operations 95,131 71,380
General and administrative 1,401,722 1,412,168
Research and development 39,126 45,020
----------- ----------
Total costs and expenses 2,256,067 2,138,906
----------- ----------
Income from operations 146,872 182,644
Other income:
Interest income 548 8,737
Interest expense (29,896) (13,770)
Other Income 3,691 -
Minority interest in (income)
loss of subsidiary 27,683 42,372
----------- ----------
Total other income (expense) 2,026 37,338
----------- ----------
Income (loss) before provision
for income taxes 148,898 219,982
Provision for income taxes:
Current expense 69,177 58,490
Deferred expense (benefit) (3,235) 8,800
----------- ---------
Total income tax expense 65,942 67,290
----------- ---------
Net income $ 82,956 $ 152,692
=========== ==========
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.
F-5
CLANCY SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended June 30, 2005
(Unaudited)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
------ ------ --------- --------
Balance,
September 30, 2004
365,117,938 $ 36,512 $ 1,151,547 $ 937,387
Net income for
the nine months
ended June 30,
2005 --- --- --- 152,692
----------- --------- ---------- ----------
Balance, June
30, 2005 365,117,938 $ 36,512 $ 1,151,547 $ 1,090,079
=========== ========= ============= ===========
See accompanying notes to consolidated financial statements.
F-6
CLANCY SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2004 and 2005
(Unaudited)
June June
30, 2004 30, 2005
------- -------
Cash flows from operating activities:
Net income $ 82,956 $ 152,692
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 422,673 373,541
Deferred income tax expense (3,235) 8,800
Minority interest (27,684) (42,414)
Changes in assets and liabilities:
Accounts receivable 7,799 (30,426)
Accounts receivable related party - 30,019
Inventories 29,607 5,380
Income taxes refundable - 13,271
Prepaid expenses 35,674 14,525
Accounts payable 231,234 (10,089)
Accrued expenses 16,921 47,422
Accounts payable, related party (11,000) (38,656)
Income taxes payable (7,961) 13,923
Deferred revenue (2,885) (5,933)
---------- ---------
Total adjustments 703,994 379,293
---------- ---------
Net cash provided by operating
activities 786,950 531,985
---------- ---------
Cash flows from investing activities
Acquisition of furniture and equipment (170,130) (93,152)
(Increase) in software licenses and
software development costs (82,023) (62,803)
(Increase) in investments in marketable
securities (400,000) (97,325)
Increase in deposits and
other assets - 20,059
---------- ---------
Net cash (used) in investing
activities (652,153) (233,221)
---------- ---------
Cash flows from financing activities:
Issuance of notes payable - 284,938
Payments on long term debt and capital
leases (244,064) (271,878)
(Decrease) in bank overdraft - (14,645)
---------- -----------
F-7
Net cash (used) in financing
activities (244,064) (1,585)
----------- -----------
Increase (decrease) in cash and
cash equivalents (109,267) 297,179
Cash and cash equivalents at beginning
of period 669,292 306,691
---------- -----------
Cash and cash equivalents at end
of period $ 560,025 $ 603,870
========== ==========
See accompanying notes to consolidated financial statements.
F-8
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
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 condensed 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 condensed 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.
The Company's 72%-owned subsidiary, Urban Transit Solutions, Inc.
("UTS") is incorporated in 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. The Company has consolidated the financial results
of UTS with those of the Company for the three and nine months ended
June 30, 2004 and 2005. All significant inter company transactions
and balances have been eliminated.
2. Inventories
Inventories consist of the following:
September June
30, 2004 30,2005
--------- -------
Finished Goods $ 25,157 $ 15,064
Work in Process 15,863 27,032
Purchased parts and supplies 60,519 54,063
---------- ----------
$ 101,539 $ 96,159
========== ==========
F-9
<PAGE
3. Related party transactions
Related party account balances consist of the following at:
September June
30, 2004 30,2005
----------- --------
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. This amount was written off in the quarter ended March
31, 2005.
Accounts payable, related party is due to Pan American Products,
a company owned by the current president of UTS. This amount was
paid in the quarter ended March 31, 2005.
4. Income taxes
The provision for income taxes for the three and nine months ended
June 30, 2004 and 2005 is based on the expected rate for the tax year.
The components of the Company's deferred net tax assets and liabilities
are as follows:
September June
30, 2004 30, 2005
----------- --------
Non-current deferred tax assets $ 177,400 $ 160,300
Non-current deferred tax liabilities (161,400) (153,100)
----------- ----------
Net non-current deferred tax assets $ 16,000 $ 7,200
=========== ==========
F-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.
LIQUIDITY AND CAPITAL RESOURCES. At June 30, 2005, the Company
had consolidated net working capital of $511,401 derived primarily
from cash flow from contract sales and contract service revenue. 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 sustain operations in the forth-coming annual operating
cycle.
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED JUNE 30,
2005 AND 2004
REVENUES. From the quarter ended June 30, 2004 to the quarter
ended June 30, 2005 revenues decreased by $38,513 or 5% from
$798,773 to $760,260. Management believes this has to do with the
timing of its clients' ticket purchases under contractand not a
decrease in overall business. Clancy's Remit-online.com service
has processed 36,155 transactions totaling $1,436,152 for the
quarter ended June 30, 2005. Revenues are based on a
per transaction fee less bank processing costs.
The gross amount of cash, less amounts due to the client, flowing
through Remit-online.com is presented as revenue based on SEC
Staff Accounting Bulletin No. 104 and Emerging Issues Task Force
No. 99-19. In other words, the Company recognizes only its pro-
rata share of the revenue proceeds in the statements of
operations.
-11-
The Company's other ticket issuance revenues are
derived from the ticket issuance productivity of its clients which
can vary based on client staffing, seasonal conditions, budget
considerations and other factors unique to each client. Sales of
goods will vary for many of the same reasons. Parking ticket and
permit operations revenues have been steadily increasing overall
for the Company. These operations are facilities management
contracts the Company operates.
COST OF SERVICES AND SALES. From the three month quarter
ended June 30, 2004 to the three month quarter ended June
30, 2005, cost of services decreased by $6,439 or 3% from
$211,088 to $206,649 for the Company. Cost of services were
down in relation to the ticket sales being down slightly. Cost
of services as a percentage of service contract income was
33.9% for the 2004 quarter and 31.6% for the 2005 quarter. Cost
of sales of goods include manufacturing, labor and shipping.
These costs reflect some seasonal planning for manufacturing
particularly necessary for the Denver Boot. The cost of
operations of permit and ticket programs where the Company
is actually the facilities manager also reflects some
seasonal cost variations.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement
systems research and development costs increased from $11,236
to $16,601 or 48%, from the quarter ended June 30, 2004
to 2005. 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 $9,044 or 2% from $547,855 to $538,811 for the
three month quarter ended June 30, 2004 and 2005, respectively.
NET INCOME. For the quarter ended June 30, 2005, the Company
reported net income of $9,750 compared to net income of $3,756
for the quarter ended June 30, 2004.
COMPARISON RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 2005 AND
JUNE 30, 2004
REVENUES. From the nine months ended June 30, 2004 to
the nine months ended June 30, 2005 revenues decreased
by $81,389 or 3% from $2,402,939 to $2,321,550. Management
believes this has to do with the timing of its clients' ticket
purchases under contact and not a decrease in overall business.
Service contract revenues are generated based on a per transaction
fee. The gross amount of cash, less amounts due to the client,
flowing through Remit-online.com is presented as revenue based
on SEC Staff Accounting Bulletin No. 104 and Emerging Issues
Task Force No. 99-19. In other words, the Company recognizes only
its pro-rata share of revenue proceeds from each transaction as
revenue in the statements of operations.
-12-
The Company's other ticket issuance revenue are derived from
the ticket issuance productivity of its clients which can vary
based on client staffing, seasonal conditions, budget considerations
and other factors unique to each client. Sales of goods will vary
for many of the same reasons. Parking ticket and permit operations
revenues have been steadily increasing overall for the Company.
These operations are facilities management contracts the Company
operates.
COST OF SERVICES AND SALES. From the nine months ended
June 30, 2004 to the nine months ended June 30, 2005,
cost of services decreased by $138,580 or 20% from $695,879
to $557,299 for the Company. Cost of services as a percentage
of service contract income was 35.5% for the 2004 nine months
and 29.7% for the 2005 nine months. Cost of sales of
goods include manufacturing, labor and shipping. These costs
reflect some seasonal planning for manufacturing particularly
necessary for the Denver Boot. The cost of operations of
permit and ticket programs where the Company is actually the
facilities manager also reflects some seasonal cost
variations.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement
systems research and development costs increased from $39,126 to
$45,020 or 15% from the nine months ended June 30, 2004
to 2005. 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
increased by $10,446 or 1% from $1,401,722 to $1,412,168 for the
nine months ended June 30, 2004 and 2005, respectively.
This increase in General and Administrative expenses reflects
some additional accounting costs, which pertain primarily to
the UTS operations.
NET INCOME. For the nine months ended June 30, 2005,
the Company reported net income of $152,692 compared to net
income of $82,956 for the nine months ended June 30,
2004.
The Company's business is a transaction based business.
As the Company gears itself to more business activities related
to transactional activity, it will not necessarily increase overhead
as infrastructure costs to process transactions do not vary
significantly.
-13-
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 6 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 and 2002, the Company began manufacturing a new printer
board to interface to Palmhandheld 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
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.
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.
-14-
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, INC (UTS)
Between 1998 and 1999, the Company loaned UTS, its 72%-owned Puerto
Rican subsidiary, a total of $500,000. UTS has been generating revenue
since August 1998 from ticket issuance, meter collections and parking
lot fees from Cauguas, a major client. The recent settlement
of ownership issue 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, UTS management was replaced. The new management team
has taken an assertive approach in managing operations, cash flows
and containing costs. It is expected that UTS operations
will be profitable during fiscal 2005.
UTS has funded its operations primarily by loans and cash flows
from operations. In February, 2005, Urban Transit Solutions
consolidated its outstanding interest-bearing debt and capital
leases with a $300,000 zero coupon 2 year loan from Salem Capital
Group, Inc., an unrelated entity. The loan was recorded net of an
implicit interest discount at $265,000. It matures at February 28,
2007 and accretes implicit interest of 6.5%.
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 four 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 cash flow 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.
-15-
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 is
imperative.
In addition, the Company supplies all hardware, software, training,
supplies and maintenance for the system, thus eliminating all
significant capital expenditures by the user.
The Company has experienced a large number of inquiries about its
system related to the total program and special features and
anticipates growth in this area in the next fiscal year.
Uncertainties that can impact revenues from the Company's service
contract agreements would be related to dramatic weather changes and
municipal disaster occurrences (i.e. September 11, 2001). As parking
ticket issuance operations are primarily "out-of-doors" tasks, severe
weather such as a major blizzard, hurricane, or rains could impact ticket
production for a limited period in certain locales. While such reductions
are temporary, they can impact revenues as the Company bills most clients
on a fee-per-ticket basis. The meter collections for UTS could be
temporarily reduced during a hurricane or tropical storm. Further,
as the Company is contracting primarily with City government agencies, a
deployment of personnel to other duties during a disaster could
temporarily reduce ticket issuance activities.
Internal and external sources of liquidity
Overall, the Company generated net cash flows of $297,179 in the nine
months ended June 30, 2005 compared to a net use from all sources
of $109,267 in the comparable 2004 period. Cash at June 30, 2004
and 2005 was $306,691 and $603,870 respectively. Net cash from
operations decreased from $786,950 to $531,985 for the nine months
ended June 30, 2004 and 2005, respectively. This was primarily
due to the significant use of accounts payable in 2004 to fund
operations. Net cash used in investing activities decreased from
$652,153 to $233,221 in the nine months ended June 30, 2004 and 2005,
respectively.
While the amounts are somewhat similar, in fiscal 2004 the Company
primarily invested cash in equipment but in
fiscal 2005 invested cash into marketable securities (bonds).
Net cash flows used by financing activities were $244,064 and
$1585 in the nine months ended June 30, 2004 and 2005,
respectively. In fiscal 2004 the Company solely repaid debt
and lease obligations while in fiscal 2005, the Company
restructured its debt by borrowing $265,000 and repaid
various debt obligations.
-16-
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
sustain operations in the forthcoming annual operating cycle.
The Company has experienced significant interest by clients 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 June 30, 2005
based on the guidelines of SEC Staff Accounting Bulletin No. 104.
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 of 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.
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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 greater of 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 are no longer amortized, but are tested
annually for impairment and in the event of other adverse indicators.
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
been filed as required by law with the Securities and Exchange
Commission and other regulatory agencies.
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.
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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.
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
disparaged the company by posting false information about the Company and
its officers and directors on the Internet.
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. The Honorable Thomas J. Murphy, Justice,
for the State of New York, Supreme Court, County of Onondaga signed
and order on April 14, 2005 to order the sale of the property. The
sale is scheduled for September 12, 2005.
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.
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: August 19, 2005 CLANCY SYSTEMS INTERNATIONAL, INC.
(Registrant)
By: /s/ Stanley J. Wolfson
Stanley J. Wolfson, President
and Chief Executive Officer
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