-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UMDqsMlMGFMfGStImoPjeO0Gcuab6my/JB18K4Ys+wEugFz9OCb0jZH8IFmM+dC/ efjw/glIwIUNBeR8/vicEA== 0000789318-05-000016.txt : 20050819 0000789318-05-000016.hdr.sgml : 20050819 20050819144404 ACCESSION NUMBER: 0000789318-05-000016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050819 DATE AS OF CHANGE: 20050819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLANCY SYSTEMS INTERNATIONAL INC /CO/ CENTRAL INDEX KEY: 0000789318 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 841027964 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-04882-D FILM NUMBER: 051038308 BUSINESS ADDRESS: STREET 1: 2250 S ONEIDA STREET 2: STE 308 CITY: DENVER STATE: CO ZIP: 80224 BUSINESS PHONE: 3037530197 MAIL ADDRESS: STREET 1: 2250 S ONEIDA STREET 2: STE 3308 CITY: DENVER STATE: CO ZIP: 80224 FORMER COMPANY: FORMER CONFORMED NAME: OXFORD FINANCIAL INC DATE OF NAME CHANGE: 19600201 10QSB 1 n10q0605.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, 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 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. -17- 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. -18- 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 -19- EX-31 2 a311.txt Exhibit 31.1 Section 302 Certification Quarterly Report on Form 10-QSB I, Stanley J. Wolfson, certify that: I have reviewed this quarterly report on Form 10-QSB of Clancy Systems International, Inc.; 1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 2. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 3. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 4. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 19, 2005 /s/Stanley J. Wolfson Chief Executive Officer EX-31 3 a312.txt Exhibit 31.2 Section 302 Certification Quarterly Report on Form 10-QSB I, Lizabeth M. Wolfson, certify that: I have reviewed this quarterly report on Form 10-QSB of Clancy Systems International, Inc.; 1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 2. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 3. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 4. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 19, 2005 /s/Lizabeth M. Wolfson Chief Financial Officer EX-32 4 a321.txt Exhibit 32.1 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-QSB for the period ended June 30, 2005 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 results of operations of the Company. /s/ Stanley J. Wolfson _______________________ Chief Executive Officer August 19, 2005 EX-32 5 a322.txt Exhibit 32.2 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-QSB for the period ended June 30, 2005 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 results of operations of the Company. /s/ Lizabeth M. Wolfson _______________________ Chief Financial Officer August 19, 2005 -----END PRIVACY-ENHANCED MESSAGE-----