10QSB 1 a10q.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 December 31, 2003 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) Transitional Small Business Disclosure format (check one): yes x no APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of the issuer's classes of common stock, as of February 20,2004 is 365,117,938 shares, $.0001 par value. CLANCY SYSTEMS INTERNATIONAL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 30, 2003 and December 31, 2003 (unaudited) 2 and 3 Consolidated Statements of Income - For the Three Months Ended December 31, 2002 and 2003 (unaudited) 4 Consolidated Statement of Stockholders' Equity - For the Three Months Ended December 31, 2003 (unaudited) 5 Consolidated Statements of Cash Flows - For the Three Months Ended December 31, 2002 and 2003 (unaudited) 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of 9 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 3. Controls and Procedures 16 Item 6. Exhibits and Reports on Form 8-K 16 -1- CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 AND DECEMBER 31, 2003 (unaudited) ASSETS September December --------- -------- Current assets: Cash, including interest bearing accounts $ 669,292 $ 598,015 Accounts receivable, net of allowance for doubtful accounts 488,361 511,868 Accounts receivable, related party (note 3) 30,019 30,019 Income tax refund receivable 9,450 9,450 Inventories (Note 2) 135,437 158,498 Prepaid expenses 77,389 58,363 --------- -------- Total current assets 1,409,948 1,366,213 Furniture and equipment, at cost: Office furniture and equipment 269,523 269,523 Equipment under service contracts 2,109,045 2,161,893 Leasehold improvements 96,604 96,604 Equipment and vehicles under capital leases 439,286 439,286 --------- --------- 2,914,458 2,967,306 Less accumulated depreciation (1,328,226) (1,447,089) --------- --------- Net furniture and equipment 1,586,232 1,520,217 Other assets: Deposits and other 76,028 72,797 Goodwill 225,214 225,214 Software development costs, net of accumulated amortization 180,163 190,086 -------- -------- Total other assets 481,405 488,097 --------- --------- $ 3,477,585 $ 3,374,527 ============ ============ See accompanying notes. -2- CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 AND DECEMBER 31, 2003 (unaudited) LIABILITIES AND STOCKHOLDER'S EQUITY September December Current liabilities: --------- -------- Accounts payable $ 229,229 $ 191,025 Accrued expenses 276,176 286,063 Accounts payable, related party (note 3) 11,000 11,000 Income taxes payable 21,852 --- Current portion of long term debt 250,197 253,946 Current portion of obligations under capital leases 125,102 118,754 Deferred revenue 134,401 125,199 ---------- ---------- Total current liabilities 1,047,957 985,987 Long-term debt, net of current portions 124,866 69,438 Obligations under capital leases, net of current portion 75,948 73,887 Minority interest in subsidiary 123,084 107,519 Deferred tax liability (note 4) 4,600 5,965 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 913,071 943,672 ---------- ----------- Total stockholder's equity 2,101,130 2,131,731 ---------- ----------- $ 3,477,585 $ 3,374,527 =========== =========== See accompanying notes. -3- CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME For the three months ended December 31, 2002 and 2003 (unaudited) December December 2002 2003 Revenues: -------- -------- Sales $ 40,775 $ 41,929 Service contract income 621,451 659,735 Parking ticket collections and other 38,286 64,319 --------- --------- Total revenues 700,512 765,983 Costs and expenses: Cost of sales 20,443 3,727 Cost of services 122,096 231,632 Cost of parking ticket collections 35,688 31,919 General and administrative 338,928 445,440 Research and development 8,925 14,022 --------- --------- Total costs and expenses 526,080 726,740 --------- --------- Income from operations 174,432 39,243 Other income (expense): Gain (loss) on disposal of assets (17,762) --- Interest income 548 194 Interest expense (11,507) (8,410) Minority interest in loss of subsidiary (3,849) 15,565 Other income --- 1,872 --------- --------- Total other income (expense) (32,570) 9,221 --------- --------- Income before provision for income taxes 141,862 48,464 Provision for income taxes: Current expense 41,013 16,498 Deferred expense 13,050 1,365 ---------- --------- Total income tax expense 54,063 17,863 --------- --------- Net income $ 87,799 $ 30,601 ========== ========== Basic 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. -4- CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the three months ended December 31, 2003 (Unaudited)
Additional Common Stock Paid-In Retained Shares Amount Capital Earnings ------ ------ ------- ------- Balance, September 30, 2003 365,117,938 $36,512 $ 1,151,547 $ 913,071 Net income for the three months ended December 31, 2003 --- --- --- 30,601 ------------- -------- ---------- ---------- Balance, December 31, 2003 365,117,938 $36,512 $ 1,151,547 $ 943,672 =========== ======= =========== =========== See accompanying notes. -5-
CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended December 31, 2002 and 2003 (unaudited) December 31, December 31, 2002 2003 ------------ ------------ Cash flows from operating activities: Net income $ 87,799 $ 30,601 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 69,616 135,992 Deferred income tax expense 13,050 1,365 Minority interest 3,849 (15,565) Changes in assets and liabilities: Accounts receivable (108,256) (23,507) Inventories (305) (23,061) Income taxes refundable 26,653 --- Prepaid expenses 36,783 19,026 Accounts payable 93,022 (38,204) Accrued expenses 16,870 9,887 Income taxes payable --- (21,852) Deferred revenue (7,500) ( 9,202) ---------- ------- Total adjustments 143,782 34,879 --------- -------- Net cash provided by operating activities 231,581 65,480 --------- -------- Cash flows from investing activities: Acquisition of furniture and equipment (250,099) (52,849) Increase in software licenses and software development costs (21,826) (26,407) Change in deposits and other assets (2,000) 2,587 --------- -------- Net cash used in investing activities (273,925) (76,669) --------- -------- Cash flows from financing activities: Borrowings on notes payable and capital leases 160,000 --- Payments on notes payable and capital leases (60,835) (60,088) ---------- -------- Net cash provided (used in) by financing activities 99,165 (60,088) ---------- ------- Increase (decrease) in cash and cash equivalents 56,821 (71,277) Cash and cash equivalents at beginning of period 357,315 669,292 ---------- -------- Cash and cash equivalents at end of period $ 414,136 $ 598,015 =========== =========== See accompanying notes. -6- CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003 1. Basis of presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principals 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 principals 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, 2003. 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 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, 2002 and 2003. All significant intercompany transactions and balances have been eliminated in consolidation. 2. Inventories Inventories consist of the following at: September 30, December 31, 2003 2003 ------------ ----------- Finished goods $ 21,521 $ 47,490 Work in process 4,563 55,504 Purchased parts and supplies 109,353 55,504 ---------- ---------- $ 135,437 $ 158,498 ========= ========= -7- CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 3. Related party transactions Related party account balances consist of the following at: September 30, December 31, 2003 2003 ----------- --------- Accounts receivable, related party $ 30,019 $ 30,019 ========= ========= Accounts payable, related party $ 11,000 $ 11,000 ========= ========= Accounts receivable, related party is due from Pan American Parking Solutions, Inc. which is a company owned by the former president of UTS. Accounts payable, related party is due to Pan American Products, a company owned by the current president of UTS. 4. Income taxes The provision for income taxes for the three months ended December 31, 2002 and 2003 is based on the expected tax rate for the year. Total deferred tax assets and liabilities are as follows: September 30, December 31, 2003 2003 --------- ---------- Non current deferred tax assets $ 68,400 $ 68,400 Non current deferred tax liabilities (73,000) (74,365) --------- --------- Net non-current deferred taxes $ (4,600) $ (5,965) =========== =========== -8- 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. Management's Discussion and Analysis of Financial Condition and Results of Operations At December 31, 2003, the Company had consolidated working capital of $380,226 derived primarily from contract sales and contract service, as compared to $361,991 at September 30, 2003. At December 31, 2003, the components of working capital were $1,079,912 for Clancy and working capital deficit of $ (699,686) for UTS compared to $1,007,082 for Clancy and $(645,091) for UTS at September 30, 2003. 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, 2004. REVENUES. From the quarter ended December 31, 2002 to the quarter ended December 31, 2003 revenues increased by $65,471 or 9.3% from $700,512 to $765,983. For Clancy only, revenues increased $26,937 or 5.9%, from $456,352 to $483,289. For UTS, revenues increased $38,534 or 15.8% from $244,160 to $282,694 for UTS. The increase in revenues is due to the addition of new customers and products during the quarter ended December 31, 2003. COST OF SERVICES. From the quarter ended December 31, 2002 to the quarter ended December 31, 2003, cost of services increased by $109,536 or 89.7% from $122,096 to $231,632 for the Company. Cost of services as a percentage of service contract income was 19.6% for the 2002 quarter and 35.1% for the 2003 quarter. -9- For Clancy only, the cost of services was $179,900 for the quarter ended December 31, 2003 compared to $115,329 for the comparable period of 2002. The increase is of $64,571 or 56.0% is primarily due to an increase in depreciation expense and increases in cost of tickets/envelopes. The Company has gone from a 5 year straight line depreciation schedule to a 3 year straight line depreciation schedule. Paper costs have escalated and been reflected in billings from the Company's ticket and envelope suppliers. Cost of services as a percentage of service contract income was 30.57% for the 2002 quarter and 47.7% for the 2003 quarter. For UTS, cost of services increased by $44,965 or 664.5% from $6,767 in the quarter ended December 31, 2002 to $51,732 for the quarter ended December 31, 2003. The increase is due to moving expenses, service and ticket fees and increased depreciation. UTS has also gone from a 5 year straight line depreciation schedule to a 3 year straight line depreciation schedule. Cost of services as a percentage of service contract income was 2.77% for the 2002 quarter and 18.3 for the 2003 quarter. The company is now issuing tickets at two of its cities. While this will increase revenues, this has also increased basic cost of services. RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems research and development costs increased from $8,925 to $14,022, or 57.1%, from the quarter ended December 31, 2002 to 2003. Product development and improvement is still paramount to the Company, and costs have been incurred for development of several new items during the quarter ended December 31, 2003. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by $106,512 or 31.4% from $338,928 to $445,440 for the quarter ended December 31, 2003 and 2002. For Clancy, general and administrative expenses increased $41,682 or 29.7% from $140,422 to $182,104 and UTS increased $64,830 or 32.7% from $198,506 to $263,336. The increase in general and administrative costs for the Company is primarily due to the increase in directors and officers insurance, accounting and other professional services, increased salaries and related expenses of expanding operations and increases due more stringent and comprehensive securities laws and corporate governance requirements under Sarbanes-Oxley Act of 2002. NET INCOME. For the quarter ended December 31, 2003, the Company reported net income of $30,601 ($69,513 for Clancy directly and a loss of $38,912 for UTS) compared to $87,799 ($82,028 for Clancy directly and $5,771 for UTS) for the quarter ended December 31, 2002. The primary reason for the decrease in net income of $57,198 is the increase in cost of services and general and administrative expense which are discussed above. During the next twelve months, the Company will continue to expand its Internet parking services and operations. A concentrated effort will be put on "Park-by-phone" which will include an aggressive advertising campaign. The Company will also be manufacturing its printer in a new and smaller case. 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. -10- 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 type 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,he dedicates as much time as the company requires to develop and enhance its products. The engineer also does R&D 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. 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 Company's loan to its primary bank and private lender have been paid back by the Company's cash flows. 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 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 -11- payable current, reducing unnecessary expenses and reducing debt obligations. The Company expects to see an improvement to UTS profitability during the 2003-2004 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. 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; (ii) additional legal costs due to compliance with new corporate governance mandates. The Company now utilizes five different accounting firms for preparation of financial statements and 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 not longer able to qualify. The Company's newest equipment has proven to be a capital intense 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. 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 -12- 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, 2004. 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, 2004. 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 and average of $200,000 per month in transactions. The Company has observed a continuing increase in activity monthly. In addition, for Clancy,current outstanding ticket fines of approximately $200,000 and for UTS, outstanding ticket fines of approximately $195,000, have not been recognized as revenue at December 31, 2003. -13- CONTRACTUAL OBLIGATIONS The following obligations are the debt of UTS. Clancy does not have any debt obligations other than operating leases for its office space. Payment Due by Period Contractual Less than Obligations Total 1 year 1-3 years 4-5 years Over Long Term Debt $ 323,384 $ 253,946 $ 69,438 $ - $ - Capital Lease Obligations 192,641 118,754 63,440 10,447 - Operating Expenses UTS 9,600 3,600 6,000 - - Clancy 21,798 21,798 Purchase Obligations - - - - - Other Long- term obligations - - - - - --------- --------- ---------- ---------- --------- Total Contractual Cash Obligations $ 547,423 $ 398,098 $ 138,878 $ 10,447 $ - ========= ========== ========= ========== ========== 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. -14- 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 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 will no longer be amortized, but will be tested for impairment 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. -15- PART II - OTHER INFORMATION Item 1. Legal Proceedings See status of Legal Proceedings disclosed in form 10-KSB for period ended September 30, 2003. 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 180 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. (b) Reports on form 8-K None 16 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: February 20, 2004 CLANCY SYSTEMS INTERNATIONAL, INC. (Registrant) By: /s/ Stanley J. Wolfson Stanley J. Wolfson, President and Chief Executive Officer -17-