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 December 31, 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 March 25, 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 December 31, 2005 (unaudited) 2 and 3
Consolidated Statement of Income - For the Three
Months Ended December 31, 2004 and 2005 (unaudited) 4
Consolidated Statement of Stockholders' Equity - For
the Three Months December 31, 2005 (unaudited) 5
Consolidated Statement of Cash Flows - For the Three
Months Ended December 31, 2004 and 2005 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 3. Controls and Procedures 17
Item 6. Exhibits and Reports on Form 8-K 17
-1-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2005
ASSETS
September 30, December 31,
2005 2005
(Unaudited)
Current assets: ------------ -----------
Cash and cash equivalents $ 533,485 $ 553,893
Accounts receivable, net of allowance
for doubtful accounts 508,810 492,710
Income tax refund receivable - 14,505
Inventories 137,562 147,156
Prepaid expenses 84,717 64,198
---------- ----------
Total current assets 1,264,574 1,272,462
---------- ----------
Furniture and equipment, at cost:
Office furniture and equipment 267,021 267,021
Computers and equipment
under service contracts 2,501,874 2,536,204
Leasehold improvements 98,936 98,936
Vehicles, including vehicles
under capital leases 150,171 150,171
--------- ---------
3,018,002 3,052,332
Less accumulated depreciation (1,979,528) (2,065,217)
---------- ---------
Net furniture and equipment 1,038,474 987,115
---------- ----------
Other assets:
Deferred tax asset 80,600 66,000
Investment in marketable securities 503,970 588,212
Deposits and other 33,969 22,450
Goodwill 404,547 404,547
Software development costs, net of
accumulated amortization 218,068 217,867
--------- --------
Total other assets 1,241,154 1,299,076
--------- ---------
$ 3,544,202 $ 3,558,653
=========== ===========
See accompanying notes to consolidated financial statements.
-2-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2005
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2005 2005
(Unaudited)
------------ -----------
Current liabilities:
Accounts payable $ 55,842 $ 113,212
Accrued expenses 441,140 394,830
Accounts payable, related party 1,530 -
Income taxes payable 117,827 25,074
Current portion of long-term debt 6,419 -
Current portion of obligations
under capital leases 10,950 10,950
Deferred revenue 112,402 105,400
--------- --------
Total current liabilities 746,110 649,466
Long-term debt, net of current portion 274,763 279,058
Obligations under capital leases,
net of current portion 11,931 10,160
--------- -------
Total liabilities 1,032,804 938,684
--------- -------
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 1,221,910
--------- ---------
Total stockholders' equity 2,511,398 2,619,969
----------- -----------
$ 3,544,202 $ 3,558,653
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 2004 and 2005
(Unaudited)
December December
31, 2004 31, 2005
Revenues: -------- --------
Sales $ 51,365 $ 36,463
Service contract income 662,105 679,006
Parking ticket collections 143,159 146,775
---------- ----------
Total revenues 856,629 862,244
---------- ----------
Costs and expenses:
Cost of sales 20,330 36,177
Cost of services 175,759 164,198
Cost of parking ticket
collections 28,178 25,636
General and administrative 415,922 479,222
Research and development 16,976 14,650
--------- ---------
Total costs and expenses 657,165 719,883
--------- ---------
Income from operations 199,464 142,361
-------- ---------
Other income (expense):
Interest income 21 7,033
Interest expense (7,880) (6,552)
Other Income - 1,838
Minority interest in
loss of subsidiary 8,402 -
--------- ---------
Total other income (expense) 543 2,319
--------- ----------
Income before provision for
income taxes 200,007 144,680
--------- ----------
Provision for income taxes:
Current expense 66,330 21,509
Deferred expense 9,725 14,600
---------- ---------
Total income tax expense 76,055 36,109
---------- ---------
Net income $ 123,952 $ 108,571
=========== ==========
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 STATEMENT OF STOCKHOLDERS' EQUITY
For the three months ended December 31, 2005
(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
three months ended
December 31, 2005 - - - 108,571
---------- --------- ---------- ----------
Balance, December,
31, 2005 382,617,938 $ 38,262 $ 1,359,797 $ 1,221,910
=========== ========= ============= ===========
See accompanying notes to consolidated financial statements.
-5-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2004 and 2005
(Unaudited)
December December
31, 2004 31, 2005
------- -------
Cash flows from operating activities:
Net income $ 123,952 $ 108,571
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 118,359 107,596
Deferred income tax expense 9,725 14,600
Minority interest (8,979) -
Changes in assets and liabilities:
Accounts receivable (110,942) 16,100
Inventories 1,239 (9,594)
Income taxes refundable (22,085) (14,505)
Prepaid expenses 23,161 20,519
Accounts payable 28,576 57,370
Accounts payable, related party - (1,530)
Accrued expenses 8,215 (46,310)
Income taxes payable 68,254 (92,753)
Deferred revenue (5,136) (7,002)
---------- ---------
Total adjustments 110,387 44,491
---------- ---------
Net cash provided by operating
activities 234,339 153,062
---------- ---------
Cash flows from investing activities:
Acquisition of furniture and equipment (24,867) (34,330)
Increase in software licenses and
software development costs (27,157) (20,561)
Increase in investments in
marketable securities (45,508) (84,242)
Increase in deposits and other
assets 6,225 10,374
---------- ---------
Net cash (used in) investing
activities (91,307) (128,759)
---------- ---------
Cash flows from financing activities:
Payments on long-term debt and capital
leases (40,038) (3,895)
Decrease in bank overdraft (14,645) -
---------- ----------
Net cash (used in) financing
activities (54,683) (3,895)
----------- ----------
Increase in cash and
cash equivalents 88,349
20,408
Cash and cash equivalents at beginning
of period 306,691 533,485
---------- ---------
Cash and cash equivalents at end
of period $ 395,040 $ 553,893
========== ==========
See accompanying notes to consolidated financial statements.
-6-
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
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 three months ended December 31, 2004
and 2005. All significant intercompany transactions and balances have been
eliminated in consolidation.
2. Inventories
Inventories consist of the following at:
September 30, December 31,
2005 2005
------------ -----------
Finished goods $ 18,835 $ 33,018
Work in process 17,553 30,036
Purchased parts and supplies 101,174 84,102
---------- ---------
$ 137,562 $ 147,156
========== =========
-7-
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
3. Related party transactions
Related party account balances consist of the following at:
Accounts payable, related party was due to Pan American Products, a company
owned by the current president of UTS.
September 30, December 31
2005 2005
------------ -----------
Accounts payable, related party $ 1,530 $ -
============ ===========
4. Income taxes
The provision for income taxes for year ended September 30, 2005 and
the three months ended December 31, 2005 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, December 31,
2005 2005
------------ -----------
Non-current deferred tax assets $ 142,200 $ 217,800
Non-current deferred tax liabilities (61,600) (151,800)
------------ -----------
$ 80,600 $ 66,000
============ ===========
5. Recent Accounting Pronouoncements
In February 2006, the FASB issues SFAS No. 155, "Accounting
for Certain Hybrid Financial Instruments-an amendment of
FASB Statements No. 133 and 140." This amends SFAS No.
133, "Accounting for Derivative Instruments and
Hedging Activities," and No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments
of Liabilities." This Statement resolves issues addressed
in SFAS No. 133 Implementation Issue No. D1, "Application
of Statement 133 to Beneficial Interests in Securitized
-8-
Financial Assets." This Statement is effective for all financial
instruments acquired or issued after the first fiscal
year that begins after September 15, 2006. Currently, the
Company has no derivatives or hedging activities, and thus,
there is no impact on the financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting
Changes and Error Corrections--a replacement of APB
Opinion No. 20 and FASB Statement No. 3." This
Statement replaces APB Opinion No. 20, "Accounting Changes,"
and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements," and changes the requirements
for the accounting for, and reporting of, a change in
accounting principles. This Statement applies to all
voluntary changes in accounting principle. It also
applies to changes required by an accounting pronouncement
in the unusual instance that the pronouncement does not
include specific transition provisions. When a
pronouncement includes specific transition provisions,
those provisions should be followed.
SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning
after December 15, 2005. It will only affect the
financial statements of the Company if there is a
change any accounting principle. At this time, no
such changes are contemplated or anticipated.
In December 2004, the FASB issued SFAS No. 123(R),
"Share-Based Payments." SFAS No. 123 (R) requires all
entities to recognize compensation expense in an amount
equal to the fair value of share-based payments such as
stock options granted to employees. SFAS No. 123 (R) is
effective for the first reporting period beginning after
December 15, 2005. The adoption of SFAS 123 (R) did
not have a material impact on the financial statements.
-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 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.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
At December 31, 2005, the Company had consolidated working capital of
$622,996 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 DECEMBER 31, 2004
AND 2005
REVENUES. From the quarter ended December 31, 2004 to the quarter ended
December 31, 2005 revenues increased by $5,615 or .7% from $856,629 to
$862,244. The increase in revenues is due to the addition of new customers
and products during the quarter ended December 31, 2005. Clancy's
Remit-online.com service has processed 41,266 transactions totaling $1,642,601
for the quarter ended December 31, 2005. 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. From the quarter ended December 31, 2004 to the quarter
ended December 31, 2005, cost of services decreased by $11,561 or 6.6% from
$175,759 to $164,198 for the Company. Cost of services as a percentage of
service contract income was 26.6% for the 2004 quarter and 24.2% for the
2005 quarter.
-10-
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs decreased from $16,976 to $14,650, or
13.7%, from the quarter ended December 31, 2004 to 2005. Product development
and improvement is still paramount to the Company, and costs are being
incurred fordevelopment of several new items.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $63,300 or 15.2% from $415,922 to $479,222 for the quarter ended December 31,
2004 and 2005, respectively. The increase relates primarily to increased
rent, salaries, office supplies and repairs and maintenance expense at UTS
from the opening of offices in Arecibo and Humacao.
NET INCOME. For the quarter ended December 31, 2005, the Company reported
net income of $108,571 compared to $123,952 for the quarter ended December
31, 2004. The primary reason for the decrease in net income is the increase
in general and administrative expenses at UTS which are 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.
During 2001/2002, the Company began manufacturing a new printer board
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.
-11-
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.
URBAN TRANSIT SOLUTIONS
The Company provided a total financial investment of $500,000 to Urban
Transit Solutions between March 1998 and April 1999. UTS has been
generating revenue since August 1998. Collections from parking lot fees
from Cauguas commenced in January of 1999. The settlement of ownership
between the Company and UTS set forth the opportunity for Clancy management
to take a more significant role in the operations of UTS. In September 2005,
the Company acquired all outstanding shares of UTS stock in exchange for
shares of the Company's common stock.
In June, 2003, a new management team was installed at UTS. Kenneth Stewart
is the President of UTS. Damaris Carasquillo is the operations manager. The
UTS Board of Directors includes Kenneth Stewart, Stanley Wolfson, and
Lizabeth Wolfson. The new management team 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 will advance 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: (i)
additional accounting and auditing procedures; and (ii) additional
legal costs due to compliance with new corporate governance mandates.
The Company now utilizes three different accounting firms for preparation
of financial statements, reviews and auditing functions.
-12
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. 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 will be imperative for all cities.
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 and bank debt. 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.
-13-
The Company has experienced significant interest 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 $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.
In addition, for Clancy, outstanding ticket fines of approximately $829,000
and for UTS, outstanding ticket fines of approximately $305,000, have not
been recognized as revenue at December 31, 2005 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.
-14-
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.
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
On March 21, 2002, a complaint was filed in Denver District Court by
Francis Salazar against the Company. Mr. Salazar was seeking compensation
for alleged loss of profit on the sale of 6,000,000 shares of the Company's
common stock that carried a restrictive legend under Rule 144 of the
Securities Act of 1933, as amended. The complaint alleges that the restrictive
legend prevented Salazar from selling the shares during an up tick in the
Company's share price. The Company filed a motion to dismiss, which was
granted in December 2002, but subsequently overturned on appeal in October
2003.
-15-
Clancy filed a motion with the District Court, City and County of Denver,
Colorado, Case #02-cv-2391, for Summary Judgment to dismiss the case in
June 2004. That motion was granted and the case was dismissed on August
13, 2004. Management is pleased with the results. The Company has been
severely damaged by Mr. Salazar as it had to incur substantial legal
fees on this matter which are not recoverable and have had a negative
impact on the Company's profits and shareholder value.
Mr. Salazar has brought other lawsuits against the Company over the years
and the defense of these suits has been costly to the Company. All suits
have been dismissed and have been resolved in favor of the Company.
However, in November 2004, Mr. Salazar filed a notice of appeal in the
Colorado Court of Appeals with respect to the suit dismissed by the
District Court in August 2004. That appeal has been briefed and is pending.
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 significant changes in the Company's internal controls or
in other factors that could significantly affect internal controls subject
to their evaluation.
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.
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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: April 13, 2006 CLANCY SYSTEMS INTERNATIONAL, INC.
(Registrant)
By: /s/ Stanley J. Wolfson
Stanley J. Wolfson, President
and Chief Executive Officer
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