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, 2006
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 14, 2006 is 382,617,938 shares, $.0001 par value.
Transitional Small Business Disclosure Format: Yes No X
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
CLANCY SYSTEMS INTERNATIONAL, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - September 30, 2005
and June 30, 2006 (unaudited) 2 and 3
Consolidated Statements of Income - For the Three
Months Ended June 30, 2005 and 2006 (unaudited) 4
Consolidated Statements of Income - For the Nine
Months Ended June 30, 2005 and 2006 (unaudited) 5
Consolidated Statement of Stockholders' Equity - For
the Nine Months Ended June 30, 2006 (unaudited) 6
Consolidated Statements of Cash Flows - For the Nine
Months Ended June 30, 2005 and 2006 (unaudited) 7
Notes to Unaudited Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 3. Controls and Procedures 18
Item 6. Exhibits 18
-1-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2005 2006
(Unaudited)
Current assets: ------------ -----------
Cash and cash equivalents $ 533,485 $ 581,423
Accounts receivable, net of allowance
for doubtful accounts 508,810 622,608
Inventories 137,562 115,361
Prepaid expenses 84,717 56,149
---------- ----------
Total current assets 1,264,574 1,375,541
---------- ----------
Furniture and equipment, at cost:
Office furniture and equipment 267,021 267,021
Computers and equipment
under service contracts 2,501,874 2,595,882
Leasehold improvements 98,936 98,936
Vehicles, including vehicles
under capital leases 150,171 150,171
--------- ---------
3,018,002 3,112,010
Less accumulated depreciation (1,979,528) (2,233,603)
---------- ---------
Net furniture and equipment 1,038,474 878,407
---------- ----------
Other assets:
Deferred tax asset 80,600 70,700
Investment in marketable securities 503,970 588,212
Deposits and other 33,969 22,885
Goodwill 404,547 404,547
Software development costs, net of
accumulated amortization 218,068 217,837
--------- --------
Total other assets 1,241,154 1,304,181
--------- ---------
$ 3,544,202 $ 3,558,129
=========== ===========
See accompanying notes to consolidated financial statements.
-2-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
2005 2006
(Unaudited)
------------ -----------
Current liabilities:
Accounts payable $ 55,842 $ 92,716
Accrued expenses 441,140 404,879
Accounts payable, related party 1,530 -
Income taxes payable 117,827 15,396
Current portion of long-term debt 6,419 -
Current portion of obligations
under capital leases 10,950 3,211
Notes Payable, related party - 150,000
Deferred revenue 112,402 90,986
--------- --------
Total current liabilities 746,110 775,188
Long-term debt, net of current portion 274,763 -
Obligations under capital leases,
net of current portion 11,931 10,527
--------- -------
Total liabilities 1,032,804 767,715
--------- -------
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,
382,617,938 shares issued and
outstanding 38,262 38,262
Additional paid-in capital 1,359,797 1,359,797
Retained earnings 1,113,339 1,392,355
--------- ---------
Total stockholders' equity 2,511,398 2,790,414
----------- -----------
$ 3,544,202 $ 3,558,129
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30,2005 and 2006
June June
30, 2005 30, 2006
(Unaudited) (Unaudited)
Revenues: -------- --------
Sales $ 29,849 $ 46,797
Service contract income 648,285 774,176
Parking ticket collections 82,126 59,550
---------- ----------
Total revenues 760,260 880,523
---------- ----------
Costs and expenses:
Cost of sales 8,448 26,956
Cost of services 204,649 215,696
Cost of parking ticket
collections 21,356 20,038
General and administrative 538,811 536,647
Research and development 16,601 9,022
--------- ---------
Total costs and expenses 789,865 808,359
--------- ---------
Income from operations (29,605) 72,164
-------- ---------
Other income (expense):
Interest income 643 9,900
Interest expense (2,288) (10,918)
Other Income - 2,082
Minority interest in
loss of subsidiary 32,717 -
--------- ---------
Total other income (expense) 31,072 1,064
--------- ----------
Income before provision for
income taxes 1,467 73,228
--------- ----------
Provision for income taxes:
Current expense (benefit) (2,283) 26,898
Deferred expense (benefit) 6,000 (30,800)
---------- ---------
Total income tax expense (benefit) (8,283) (3,902)
---------- ---------
Net income $ 9,750 $ 77,130
=========== ==========
Basic and diluted
net income per common
share $ * $ *
========== ===========
Weighted average number of
shares outstanding 365,118,000 382,618,000
============ ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
-4-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended June 30, 2005 and 2006
June June
30, 2005 30, 2006
(Unaudited) (Unaudited)
Revenues: -------- --------
Sales $ 110,358 $ 102,015
Service contract income 1,875,503 2,232,123
Parking ticket collections 335,689 350,530
---------- ----------
Total revenues 2,321,550 2,684,668
---------- ----------
Costs and expenses:
Cost of sales 53,039 79,557
Cost of services 557,299 544,258
Cost of parking ticket
collections 71,380 67,706
General and administrative 1,412,168 1,532,477
Research and development 45,020 35,358
--------- ---------
Total costs and expenses 2,138,906 2,259,356
--------- ---------
Income from operations 182,644 425,312
-------- ---------
Other income (expense):
Interest income 8,736 23,366
Interest expense (13,770) (19,004)
Other Income - 4,375
Minority interest in
loss of subsidiary 42,372 -
--------- ---------
Total other income (expense) 37,338 8,737
--------- ----------
Income before provision for
income taxes 219,982 434,049
--------- ----------
Provision for income taxes:
Current expense 58,490 145,133
Deferred expense 8,800 9,900
---------- ---------
Total income tax expense 67,290 155,033
---------- ---------
Net income $ 152,692 $ 279,016
=========== ==========
Basic and diluted
net income per common
share $ * $ *
========== ===========
Weighted average number of
shares outstanding 365,118,000 382,618,000
============ ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
-5-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended June 30, 2006
(unaudited)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
------ ------ --------- --------
Balance,
September 30, 2005 382,617,938 $ 38,262 $ 1,359,797 $ 1,113,339
Net income for the
nine months ended
June 30, 2006 - - - 279,016
---------- --------- ---------- ----------
Balance, June,
30, 2006 382,617,938 $ 38,262 $ 1,359,797 $ 1,392,355
=========== ========= ============= ===========
See accompanying notes to consolidated financial statements.
-6-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2005 and 2006
June June
30, 2005 30, 2006
(Unaudited) (Unaudited)
------- -------
Cash flows from operating activities:
Net income $ 152,692 $ 279,016
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 373,451 321,920
Deferred income tax expense 8,800 9,900
Minority interest (42,414) -
Changes in assets and liabilities:
Accounts receivable (30,426) (113,798)
Accounts receivable related party 30,019 -
Inventories 5,380 22,201
Income taxes refundable 13,271 -
Prepaid expenses 14,525 28,568
Accounts payable (10,089) 36,874
Accounts payable, related party (38,656) (1,530)
Accrued expenses 47,442 (36,261)
Income taxes payable 13,923 (102,431
Deferred revenue (5,933) (21,416)
---------- ---------
Total adjustments 379,293 144,027
---------- ---------
Net cash provided by operating
activities 531,985 423,043
---------- ---------
Cash flows from investing activities:
Acquisition of furniture and equipment (93,152) (96,226)
Increase in software licenses and
software development costs (62,803) (61,963)
Increase in investments in
marketable securities (97,325) (84,242)
Decrease in deposits and other
assets 20,059 7,651
---------- ---------
Net cash used in investing
activities (233,221) (234,780)
---------- ---------
Cash flows from financing activities:
Proceeds from notes payable related
party 175,000
Payments on notes - (25,000)
Proceeds from borrowings of long term
debt 284,938 -
Payments on long-term debt and capital
leases (271,878) (290,325)
Decrease in bank overdraft (14,645) -
---------- ----------
-7-
Net cash used in financing
activities (1,585) (140,325)
----------- ----------
Increase in cash and
cash equivalents 297,179 47,938
Cash and cash equivalents at beginning
of period 306,691 533,485
---------- ---------
Cash and cash equivalents at end
of period $ 603,870 $ 581,423
========== ==========
See accompanying notes to consolidated financial statements.
-8-
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
1. Basis of Presentation
The accompanying unaudited 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, 2005.
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 nine months ended June 30, 2005
and 2006. All significant intercompany transactions and balances have been
eliminated in consolidation.
2. Inventories
Inventories consist of the following at:
September 30, June 30,
2005 2006
------------ -----------
Finished goods $ 18,835 $ 19,672
Work in process 17,553 55,399
Purchased parts and supplies 101,174 40,290
---------- ---------
$ 137,562 $ 115,361
========== =========
-9-
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
3. Related party transactions
On March 28, 2006, Clancy borrowed $175,000 from Liz Wolfson, an officer
and director of the Company. The Company made a payment on the note in
the amount of $26,895, including interest on May 15, 2006. The balance
is due on March 28, 2007 including interest at 7.75% and is unsecured.
4. Income taxes
The provision for income taxes for year ended September 30, 2005 and
the nine months ended June 30, 2006 is based on the expected rate for
the tax year.
The components of the Company's deferred tax assets and liabilities are
as follows:
September 30, June 30,
2005 2006
------------ -----------
Non-current deferred tax assets $ 142,200 $ 211,700
Non-current deferred tax liabilities (61,600) (141,000)
------------ -----------
$ 80,600 $ 70,700
============ ===========
5. Long-term debt
During the nine months ended June 30, 2006, the Company paid in full
its long-term debt in the amount of $265,000.
-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 maintain its
competitive position in the parking enforcement business by continuing
to offer competitive products and services, (iii) the ability of the
Company to reduce costs and thereby maintain adequate profit margins.
At June 30, 2006, the Company had consolidated working capital of
$600,353 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, 2006.
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED June 30, 2005
AND 2006
REVENUES. From the three month quarter ended June, 2005 to the
three month quarter ended June 30, 2006 revenues increased by $120,263
or 5.8% from $760,260 to $880,523. The increase in revenues is due
to the addition of new customers and products during the quarter ended
June 30, 2006. Clancy's Remit-online.com service has processed 45,934
transactions totaling $1,839,352 for the quarter ended June 30,
2006. 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. For the three month quarter ended June 30, 2005
compared to the three month quarter ended June 30, 2006, cost of
services increased by $11,047 or 5.4% from $204,649 to $215,696
for the Company. Cost of services as a percentage of service
contract income was 31.6% for the 2005 quarter and 27.9% for the
2006 quarter.
-11-
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs decreased from $16,601 to $9,022, or
45.7%, from the quarter ended June 30, 2005 to 2006. 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 $2,164 or .4% from $538,811 to $536,647 for the quarter ended June 30,
2005 and 2006, respectively.
NET INCOME. For the quarter ended June 30, 2006, the Company reported
net income of $77,130 compared to $9,750 for the quarter ended June
30, 2005. The primary reason for the increase in net income is the
increase in net revenue which is discussed above.
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 2005
AND 2006
REVENUES. From the nine month quarter ended June 30, 2005 to the
nine month quarter ended June 30, 2006 revenues increased by $363,118
or 15.6% from $2,321,550 to $2,684,668. The increase in revenues is
due to the addition of new customers and products during the nine
months ended June 30, 2006. Clancy's Remit-online.com service has
processed 129,504 transactions totaling $5,192,061 for the nine months
ended June 30, 2006. 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. For the nine months ended June 30, 2005
compared to the nine months ended June 30, 2006, cost of services
decreased by $13,041 or 2.3% from $557,299 to $544,258 for the
Company. Cost of services as a percentage of service contract
income was 29.7% for the 2005 quarter and 24.4% for the 2006
quarter.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs decreased from $45,020 to $35,358, or
21.5%, from the nine months ended June 30, 2005 to 2006. 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 $120,309 or 8.5% from $1,412,168 to $1,532,477 for the nine months ended
June 30, 2005 and 2006, respectively. The increase relates primarily to
increased rent, salaries, office supplies, health insurance, repairs
and maintenance, and UTS opening offices in additional cities.
-12-
NET INCOME. For the nine months ended June 30, 2006, the Company
reported net income of $279,016 compared to $152,692 for the nine months
ended June 30, 2005. The primary reason for the increase in net income is
the increase in net revenue which is discussed above.
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 the quarter ended December 31, 2005,
the Company began production of a printer using wireless Bluetooth
technology.
The Company manufactures a printer 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.
The Company's software is developed in-house by four full- time programmers
and by the Company's President, Stanley Wolfson, and is maintained and
updated on a regular basis.
Clancy is a qualified Microsoft Certified Partner. This relationship allows
the Company to receive pre-releases of software products which gives
the Company a leading edge on upgrading programs and embedding new services
into 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.
-13-
URBAN TRANSIT SOLUTIONS
In September 2005,the Company acquired all outstanding shares of UTS
stock in exchange for shares of the Company's common stock. Its ownership
therefore changed from 72% to 100%.
Damaris Carasquillo is the operations manager. The UTS Board of Directors
includes Kenneth Stewart, Stanley Wolfson, and Lizabeth Wolfson. The
management team of UTS 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 2005-2006 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 has advanced funding to Urban Transit
Solutions in order to allow them to expand their operations and reduce
their outside debt obligations.
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 additional
accounting and auditing procedures for 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 cash flow to accomplish the upgrades
without incurring debt, it is anticipated that the ongoing upgrades and
tooling for newer products shall continue to require a large capital
commitment. 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.
-14-
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
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, 2006.
UTS has funded its operations primarily by cash flows, bank debt, and
advances from the Company. 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, 2006.
The Company manufactures and markets the Denver Boot for vehicles
as well as for security on other mobile devices including construction
trailers and communications generators. There is 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 $547,000 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.
- -15-
In addition, outstanding ticket fines of approximately
$2,518,305 for UTS and $380,000 for Clancy, have not been recognized
as revenue at June 30, 2006 based on SEC accounting guidance.
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.
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 lot 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.
-16-
GOODWILL. The excess of the purchase price over net assets acquired by
the Company from unrelated third parties is recorded as goodwill. Goodwill
resulted from the acquisition of UTS. On January 1, 2002, the Company
adopted Statement of Financial Accounting Standard No. 142 (SFAS 142),
"Goodwill and Intangible Assets", which clarifies the accounting for
goodwill and intangible assets. Under SFAS 142, goodwill and intangible
assets with indefinite lives will no longer be amortized, but will be
tested for impairment at least annually and also in the event of an
impairment indicator.
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
No changes in legal proceedings occurred during the quarter
ended June 30, 2006.
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 changes in the Company's internal controls or
in other factors that could significantly affect internal controls subject
to their evaluation.
Item 6. Exhibits
(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.
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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: August 14, 2006 CLANCY SYSTEMS INTERNATIONAL, INC.
(Registrant)
By: /s/ Stanley J. Wolfson
Stanley J. Wolfson, President
and Chief Executive Officer
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