10QSB 1 a10q1.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 June 30, 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 Section13 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 8, 2002 is 364,617,938 shares, $.0001 par value. CLANCY SYSTEMS INTERNATIONAL, INC. INDEX Page No. PART I. FINANCIAL INFORMATION Balance Sheet - September 30, 2001 and June 30, 2002 (unaudited) 2 and 3 Income Statement - For the Three Months Ended June 30, 2001 and 2002 (unaudited) 4 Income Statement - For the Nine Months Ended June 30, 2001 and 2002 (unaudited) 5 Statement of Stockholders' Equity - For the Nine Months Ended June 30, 2002 (unaudited) 6 Statement of Cash Flows - For the Nine Months Ended June 30, 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 1 CLANCY SYSTEMS INTERNATIONAL INC. BALANCE SHEET September 30, 2001 and June 30, 2002 (unaudited) ASSETS 2001 2002 - - - - - - - - Current assets: Cash and cash equivalents $ 385,491 $ 368,610 Accounts receivable 342,323 425,331 Income tax refund receivable 55,346 46,263 Inventories (Note 2) 144,602 157,065 Prepaid expenses 14,645 98,766 ------------ --------- Total current assets 942,407 1,096,035 Furniture and equipment, at cost: Office furniture and equipment 97,501 83,639 Equipment under service contracts 982,290 1,092,099 ------------ ----------- 1,079,791 1,175,738 Less accumulated depreciation (811,211) (869,798) ----------- ----------- Net furniture and equipment 268,580 305,940 Other assets: Investment in partnership 454,159 425,498 Deferred tax asset (Note 3) 46,400 32,900 Note receivable - employee 10,277 10,183 Deposits and other 3,194 12,263 Software development costs, net of accumulated amortization 146,035 146,930 ---------- ---------- Total other assets 660,065 627,774 --------- ----------- $1,871,052 $2,029,749 ========= ========= See accompanying notes 2 CLANCY SYSTEMS INTERNATIONAL INC. BALANCE SHEET September 30, 2001 and June 30, 2002 (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2002 ------- ------- Current liabilities: Accounts payable $ 16,008 $ - Deferred revenue 114,266 183,900 ----------- ------------ Total current liabilities 130,274 183,900 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 (2001) and 364,617,938 (2002) shares issued and outstanding 36,162 36,462 Additional paid-in capital 1,131,397 1,149,097 Retained earnings 573,219 660,290 --------- ------- Total stockholders' equity 1,740,778 1,845,849 ---------- --------- $ 1,871,052 $ 2,029,749 =========== =========== See accompanying notes 3 CLANCY SYSTEMS INTERNATIONAL INC. INCOME STATEMENT For the Three Months Ended June 30, 2001 and 2002 (unaudited) 2001 2002 ------ ----- Revenues: Sales $ 64,556 $ 104,212 Service contract income 359,557 329,852 Parking ticket collections 27,328 30,730 ------------ ---------- Total revenues 451,441 464,794 Cost and expenses: Cost of sales 29,226 38,117 Cost of services 128,651 127,043 Cost of parking ticket collections 27,394 23,999 General and Administrative 142,068 186,668 Research and development 10,414 6,511 ---------- --------- Total costs and expenses 337,753 382,338 ----------- --------- Income from operations 113,688 82,456 Other income (expense): Interest income 2,429 1,070 Interest expense (916) - --------- ------- Total other income (expense) 1,513 1,070 ---------- ---------- Income before provision for income taxes and gainin equity-basis partnership 115,201 83,526 Provision for income taxes (Note 3) (41,386) (29,902) Gain (loss) in equity basis partnership (net of tax expense of $484 - 2001 and tax benefit of $7,995 - 2002) 1,843 (13,046) -------- ---------- Net income $ 75,658 $ 40,578 ============ =========== Basic net income per common share $ * $ * ============ =========== Weighted average number of shares outstanding 361,600,00 364,600,000 ============ =========== *Less than $.01 per share See accompanying notes 4 CLANCY SYSTEMS INTERNATIONAL INC. INCOME STATEMENT For the Nine Months Ended June 30, 2001 and 2002 (unaudited) 2001 2002 ------- ------- Revenues: Sales $ 125,279 $ 192,965 Service contract income 1,013,991 1,017,827 Parking ticket collections 97,840 84,553 ----------- ---------- Total revenues 1,237,110 1,295,345 Costs and expenses: Cost of sales 85,341 85,710 Cost of services 359,238 375,254 Cost of parking ticket collections 92,008 75,674 General and administrative 424,965 559,598 Research and development 25,814 32,756 ------------ ----------- Total costs and expenses 987,366 1,128,992 ------------ ----------- Income from operations 249,744 166,353 Other income (expense): Interest income 9,199 2,745 Interest expense (5,985) - ---------- ---------- Total other income (expense) 3,214 2,745 ----------- ----------- Income before provision for income taxes and gain in equity-basis partnership 252,958 169,098 Provision for income taxes (Note 3) (72,105) (64,257) Gain (loss) in equity basis partnership (net of tax expense f $6,493 -2001 and tax benefit of $10,891 -2002) 20,562 (17,770) ----------- --------- Net income $ 201,415 $ 87,071 ======== ======== Basic net income per common share $ * $ * ======== ======== Weighted average number of shares outstanding 352,300,000 364,600,000 * Less than $.01 per share ========== ========= See accompanying notes 5 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF STOCKHOLDERS' EQUITY For the Nine Months Ended June 30, 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 Issuance of common stock for services (Note 4) 3,000,000 300 17,700 - Net income for the nine months ended June 30, 2002 - - - 87,071 Balance, June 30, 2002 ------------ ---------- ---------- --------- 364,617,938 $ 36,462 $ 1,149,097 $ 660,290 ========== ========== ========== =========== See accompanying notes 6
CLANCY SYSTEMS INTERNATIONAL INC. STATEMENT OF CASH FLOWS For the Nine Months Ended June 30, 2001 and 2002 (unaudited) 2001 2002 ------ ------- Net income $ 201,415 $ 87,071 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 157,454 108,190 Loss (gain) in equity basis partnership (27,055) 28,661 Deferred income tax expense (benefit) (11,000) 13,500 Common stock issued for services and for acquisition of web sites 61,624 18,000 Changes in assets and liabilities: Accounts receivable (34,934) (83,008) Income taxes receivable (29,472) 9,083 Inventories 8,918 (12,463) Prepaid expenses 10,450 (84,121) Accounts payable (9,496) (16,008) Income taxes payable (46,000) - Deferred revenue 3,307 69,634 ----------- ---------- Total adjustments 83,796 51,468 ------------- ----------- Net cash provided by operating activities 285,211 138,539 Cash flows from investing activities: Acquisition of furniture and equipment - net (85,976) (109,810) Decrease in deposits and other 308 94 Increase in software development costs (59,373) (45,704) ---------- ---------- Net cash used in investing activities (145,041) (155,420) Cash flows from financing activities: Payments on note payable - bank (90,000) - Payments on note payable - shareholder (45,000) - ----------- --------- Net cash used in financing activities (135,000) - ------------ ----------- Increase (decrease) in cash and cash equivalents 5,170 (16,881) Cash and cash equivalents at beginning of period 435,238 385,491 ---------- ----------- Cash and cash equivalents at end of period $ 440,408 $ 368,610 ========= ========= See accompanying notes 7 CLANCY SYSTEMS INTERNATIONAL INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS June 30, 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 June 30, 2002, and the results of operations and cash flows for the periods ended June 30, 2001 and 2002. 2. Inventories Inventories consist of the following at: September 30, June 30, 2001 2002 ---- ---- Finished goods $ 24,233 $ 13,969 Work in process 1,885 82,845 Purchased parts and supplies 118,484 60,251 --------- -------- $ 144,602 $ 157,065 ============ ========== 3. Income taxes The provision for income taxes for the nine months ended June 30, 2001 and 2002 is based on the expected tax rate for the year. As of September 30, 2001 and June 30, 2002, total deferred tax assets and liabilities are as follows: September 30, June 20, 2001 2002 ---- ---- Deferred tax assets $ 118,100 $ 133,500 Deferred tax liabilities (71,700) (100,600) ------------ ---------- $ 46,400 $ 32,900 ============ ========== 4. Stock issuance On May 13, 2002, the Board of Directors of the Company consented to the issuance of shares of common stock valued at $18,000 (3,000,000 shares of common stock at $0.0060 per share) to certain employees for services. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Material Changes in Financial Condition At June 30, 2002, the Company had working capital of $912,135 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 June 30, 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 3%. Expenses increased by 17% over the prior year's quarter, primarily attributed to legal expenses and an $18,000 stock bonus issued to employees. The Company reported a net profit of $40,578 for the quarter as compared to a net profit of $75,658 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, anticipations, expectations and similar expressions concerning future events contained in this document constitute "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995. As with any future event, there can be no assurance that the events described in the forward looking statements made in this report will occur or that the results of future events will not vary materially from those described in the forward looking statements in this document. Important factors that could cause the Company's actual performance and operating results to differ materially from the forward looking statements include, but are not limited to, (i) the ability of the Company to obtain new customers, (ii) the ability of the Company to obtain sufficient financing for business opportunities, (iii) the ability of the Company to reduce costs and thereby maintain adequate profit margins. Chat Room Disclaimer This forum of exposure to publicly traded companies presents a venue for the public to inquire about companies from other individuals as well as post opinions. The Company has no way to regulate postings nor monitor information posed on these boards. Management can only provide accurate information to shareholders and potential shareholders when contacted directly and such information can only be provided when it is based on fact and has been filed as required by law with the Securities and Exchange Commission and other regulatory agencies. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings 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. On July 10, 2002, the court granted the Company's motion to dismiss. On July 26, 2002 Salazar filed a motion for reconsideration. The Judge has not yet ruled on Salazar's motion. Item 2. Changes in Securities and Use of Proceeds The Company granted stock in an aggregate amount of 3,000,000 shares to 3 employees. No exemption was necessary because the bonuses did not involve the sale of securities. None of the employees were officers or directors. Item 6. Exhibits and Reports on Form 8-K Exhibit 99.1 Certification by Chief Executive Officer Exhibit 99.2 Certification by Chief Financial Officer Filed herewith. 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: August 14, 2002 CLANCY SYSTEMS INTERNATIONAL, INC. (Registrant) By: /s/ Stanley J. Wolfson Stanley J. Wolfson, President and Chief Executive Officer 11 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Clancy Systems International, Inc. (the "Company") on Form 10-Q for the period ended June 30,2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stanley J. Wolfson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Stanley J. Wolfson _______________________ Chief Executive Officer August 14, 2002 12 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Clancy Systems International, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lizabeth M. Wolfson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Lizabeth M. Wolfson _______________________ Chief Financial Officer August 14, 2002 13