10QSB 1 c10q.txt 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 March 31, 2002. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the transition period from to -------------- ----------------------- Commission file number: 33-4882-D ---------- CLANCY SYSTEMS INTERNATIONAL, INC. ------------------------------------------------------------------------------ (Exact name of Registrant as specified in its charter) Colorado 84-1027964 ------------------------------------------------------------------------------ (State or other jurisdiction of (IRS Employer Identification incorporation or organization) Number) 2250 S. Oneida #308, Denver, Colorado 80224 ------------------------------------------------------------------------------ (Address of principal executive offices and Zip Code) (303) 753-0197 ------------------------------------------------------------------------------ (Registrant's telephone number) N/A ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 May 13, 2002 is 361,617,938 shares, $.0001 par value. CLANCY SYSTEMS INTERNATIONAL, INC. Page No. PART I. FINANCIAL INFORMATION Balance Sheet - September 30, 2001 and March 31, 2002 (unaudited) 2 and 3 Statement of Income For the Three Months Ended March 31, 2001 and 2002 (unaudited) 4 Statement of Income - For the Six Months Ended March 31, 2001 and 2002 (unaudited) 5 Statement of Stockholders' Equity - For the Six Months Ended March 31, 2002 (unaudited) 6 Statement of Cash Flows - For the Six Months Ended March 31, 2001 and 2002 (unaudited) 7 Notes to Unaudited Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 10 CLANCY SYSTEMS INTERNATIONAL, INC. BALANCE SHEET September 30, 2001 and March 31, 2002 (Unaudited) ASSETS 2001 2002 ------------ ------------ Current assets: Cash and cash equivalents $ 385,491 $ 332,611 Accounts receivable 342,323 308,824 Income tax refund receivable 55,346 43,331 Inventories (Note 2) 144,602 148,427 Prepaid expenses 14,645 108,350 ------------ ------------ Total current assets 942,407 941,543 Furniture and equipment, at cost: Office furniture and equipment 97,501 83,638 Equipment under service contracts 982,290 1,029,218 ------------ ------------ 1,079,791 1,112,856 Less accumulated depreciation (811,211) (830,279) ------------ ------------ Net furniture and equipment 268,580 282,577 Other assets: Investment in partnership 454,159 446,539 Deferred tax asset (Note 3) 46,400 37,400 Note receivable - employee 10,277 10,207 Deposits and other 3,194 2,906 Software development costs, net of accumulated amortization 146,035 144,657 ------------ ------------ Total other assets 660,065 641,709 ------------ ------------ $ 1,871,052 $ 1,865,829 ============ ============ See accompanying notes. -2- CLANCY SYSTEMS INTERNATIONAL, INC. BALANCE SHEET September 30, 2001 and March 31, 2002 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2002 ------------ ------------ Current liabilities: Accounts payable $ 16,008 $ - Deferred revenue 114,266 78,558 ------------ ------------ Total current liabilities 130,274 78,558 Stockholders' equity: Preferred stock, $.0001 par value; 100,000,000 shares authorized, none issued - - Common stock, $.0001 par value; 800,000,000 shares authorized, 361,617,938 shares issued and outstanding 36,162 36,162 Additional paid-in capital 1,131,397 1,131,397 Retained earnings 573,219 619,712 ------------ ------------ Total stockholders' equity 1,740,778 1,787,271 ------------ ------------ $ 1,871,052 $ 1,865,829 ============ ============ See accompanying notes. -3- CLANCY SYSTEMS INTERNATIONAL, INC. INCOME STATEMENT For the Three Months Ended March 31, 2001 and 2002 (Unaudited) 2001 2002 ------------ ------------ Revenues: Sales $ 47,186 $ 49,358 Service contract income 285,312 345,656 Parking ticket collections 46,593 32,593 ------------ ------------ Total revenues 379,091 427,607 Costs and expenses: Cost of sales 22,834 13,055 Cost of services 110,741 133,973 Cost of parking ticket collections 35,982 25,401 General and administrative 152,080 191,522 Research and development 4,977 12,122 ------------ ------------ Total costs and expenses 326,614 376,073 ------------ ------------ Income from operations 52,477 51,534 Other income (expense): Interest income 3,022 724 Interest expense (2,251) - ------------ ------------ Total other income (expense) 771 724 Income before provision for income taxes and gain in equity-basis partnership 53,248 52,258 Provision for income taxes (Note 3) (7,805) (19,810) Gain in equity basis partnership (net of tax expense of $4,858 -2001 and $40 -2002) 16,672 67 ------------ ------------ Net income $ 62,115 $ 32,515 ============ ============ Basic net income per common share $ * $ * ============ ============ Weighted average number of shares outstanding 351,300,000 361,600,000 * Less than $.01 per share See accompanying notes. -4- CLANCY SYSTEMS INTERNATIONAL, INC. INCOME STATEMENT For the Six Months Ended March 31, 2001 and 2002 (Unaudited) 2001 2002 ------------ ------------ Revenues: Sales $ 60,723 $ 88,753 Service contract income 654,434 687,975 Parking ticket collections 70,512 53,823 ------------ ------------ Total revenues 785,669 830,551 Costs and expenses: Cost of sales 56,115 47,593 Cost of services 230,587 248,211 Cost of parking ticket collections 64,614 51,675 General and administrative 282,897 372,930 Research and development 15,400 26,245 ------------ ------------ Total costs and expenses 649,613 746,654 ------------ ------------ Income from operations 136,056 83,897 Other income (expense): Interest income 6,770 1,675 Interest expense (5,069) - ------------ ------------ Total other income (expense) 1,701 1,675 ------------ ------------ Income before provision for income taxes and gain in equity-basis partnership 137,757 85,572 Provision for income taxes (Note 3) (30,719) (34,355) Gain (loss) in equity basis partnership (net of tax expense of $6,009 -2001 and tax benefit of $2,896 -2002) 18,719 (4,724) ------------ ------------ Net income $ 125,757 $ 46,493 ============ ============ Basic net income per common share $ * $ * ============ ============ Weighted average number of shares outstanding 347,700,000 361,600,000 ============ ============ * Less than $.01 per share See accompanying notes -5- CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF STOCKHOLDERS' EQUITY For the Six Months Ended March 31, 2002 (Unaudited)
Additional Common stock paid-in Retained Shares Amount capital earnings ------ ------- ------- -------- Balance, September 30, 2001 361,617,938 $ 36,162 $ 1,131,397 $ 573,219 Net income for the six months ended March 31, 2002 - - - 46,493 ---------- --------- ----------- --------- Balance, March 31, 2002 361,617,938 $ 36,162 $ 1,131,397 $ 619,712 ========== ========= =========== ========= See accompanying notes -6-
CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF CASH FLOWS For the Six Months Ended March 31, 2001 and 2002 (Unaudited) 2001 2002 ------------ ------------ Cash flows from operating activities: Net income $ 125,757 $ 46,493 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 101,981 97,458 Loss (gain) in equity basis partnership (24,728) 7,620 Deferred income tax expense (benefit) (11,000) 9,000 Common stock issued for services and for acquisition of web sites 61,624 - Changes in assets and liabilities: Accounts receivable (4,508) 33,499 Income taxes receivable (59,472) 12,015 Inventories (4,726) (3,825) Prepaid expenses 6,967 (93,705) Accounts payable (5,721) (16,008) Income taxes payable (46,000) - Deferred revenue (17,716) (35,708) ------------ ------------ Total adjustments (3,299) 10,346 ------------ ------------ Net cash provided by operating activities 122,458 56,839 Cash flows from investing activities: Acquisition of furniture and equipment - net (53,209) (81,028) Decrease in deposits and other 63 70 Increase in software development costs (38,439) (28,761) ------------ ------------ Net cash used in investing activities (91,585) (109,719) Cash flows from financing activities: Payments on note payable - bank (70,000) - ------------ ------------ Net cash used in financing activities (70,000) - ------------ ------------ Decrease in cash and cash equivalents (39,127) (52,880) Cash and cash equivalents at beginning of period 435,238 385,491 ------------ ------------ Cash and cash equivalents at end of period $ 396,111 $ 332,611 ============ ============ See accompanying notes. -7- CLANCY SYSTEMS INTERNATIONAL, INC NOTES TO UNAUDITED FINANCIAL STATEMENTS March 31, 2002 1. Basis of presentation The accompanying financial statements have been prepared by the Company, without audit. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the financial position as of September 30, 2001 and March 31, 2002, and the results of operations and cash flows for the periods ended March 31, 2001 and 2002. 2. Inventories Inventories consist of the following at: September 30, March 31, 2001 2002 ------------ ------------ Finished goods $ 24,233 $ 40,472 Work in process 1,885 13,495 Purchased parts and supplies 118,484 94,460 ------------ ------------ $ 144,602 $ 148,427 ============ ============ 3. Income taxes The provision for income taxes for the six months ended March 31, 2001 and 2002 is based on the expected tax rate for the year. As of September 30, 2001 and March 31, 2002, total deferred tax assets and liabilities are as follows: September 30, March 31, 2001 2002 ------------ ------------ Deferred tax assets $ 118,100 $ 133,500 Deferred tax liabilities (71,700) (96,100) ------------ ------------ $ 46,400 $ 37,400 ============== ============== -8- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Material Changes in Financial Condition At March 31, 2002, the Company had working capital of $862,985 derived primarily from contract sales, as compared to working capital of $812,133 at September 30, 2001. The Company anticipates that working capital will be sufficient to meet its working capital requirements for the current year. Funds will continue to be used for general and administrative purposes, equipment purchases, equipment manufacturing, travel, marketing and research and development. Material Changes in Results of Operations During the quarter ended March 31, 2002, the Company generated revenues from contract sales from its professional services contracts, sales, remit- online payment processing, and privatization contract. New contracts signed during the quarter included Fairfax County, Virginia; and Carolina Beach, North Carolina. Revenues during the quarter were higher than the prior year's quarter by 13%. Expenses increased by 15% over the prior year's quarter, primarily attributed to legal expenses. The Company reported a profit of $32,515 for the quarter as compared to a net profit of $62,115 for the prior year's quarter. The Company also reflected a loss from it's equity based investment in Urban Transit Solutions. Forward Looking Information Statements of the Company's or management's intentions, beliefs, anticipa- tions, expectations and similar expressions concerning future events contained in this document constitute "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995. As with any future event, there can be no assurance that the events described in the forward looking statements made in this report will occur or that the results of future events will not vary materially from those described in the forward looking statements in this document. Important factors that could cause the Company's actual performance and operating results to differ materially from the forward looking statements include, but are not limited to, (i) the ability of the Company to obtain new customers, (ii) the ability of the Company to obtain sufficient financing for business opportunities, (iii) the ability of the Company to reduce costs and thereby maintain adequate profit margins. Chat Room Disclaimer This forum of exposure to publicly traded companies presents a venue for the public to inquire about companies from other individuals as well as post opinions. The Company has no way to regulate postings nor monitor information posted 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. -9- PART II - OTHER INFORMATION Item 1. Legal Proceedings In an action filed against the Company by Philip Benjamin Davis in the Circuit Court for the City of Richmond, Davis seeks Judgment against the Company for payment of a finder's fee for the opportunity to invest in Urban Transit Solutions as well as other compensation for contracts in Richmond, VA, North Carolina State University, and Charleston, SC. The Company had commission agreements with Davis for Richmond, VA and North Carolina State University through August 1998. All commissions due Davis were paid in full. Davis was not the sole procuring agent for the sale of the system in Charleston, SC and was paid a 10% finder's fee which he agreed to and knowingly accepted as payment in full. No compensation agreement was ever reached between Clancy and Mr. Davis in relation to Urban Transit Solutions. In addition, all the terms presented to Clancy by Mr. Davis as a reason for investment in UTS have not come to fruition or been honored. Venue has been changed to the Eastern District of the Virginia Federal Court. The Company is seeking damages against Mr. Davis. On March 26, 2002, the case was withdrawn by Mr. Davis per agreement reached with the Company. On March 21, 2002, a lawsuit was filed against the Company by Francis R. Salazar to seek compensation for alleged loss of profit on the sale of 6,000,000 shares of the Company's stock which carried a restrictive legend subject to Rule 144 regulations, and that such restriction prevented him from selling the shares during an uptick in price. The Company views this as yet another frivolous lawsuit by Mr. Salazar and filed a Motion to Dismiss on April 29, 2002. The Company is seeking costs and attorneys fees from Mr. Salazar. Item 2. Changes in Securities and Use of Proceeds None Item 6. Exhibits and Reports on Form 8-K None -10- 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: May 13, 2002 CLANCY SYSTEMS INTERNATIONAL, INC. (Registrant) By: /s/ Stanley J. Wolfson Stanley J. Wolfson, President and Chief Executive Officer -11-