SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
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 0-9040
DRYCLEAN USA, Inc.
(Exact name of small business issuer as specified in its charter)
DELAWARE 11-2014231
(State of other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
290 N.E. 68 Street, Miami, Florida 33138
(Address of principal executive offices)
(305) 754-4551
(Issuer's telephone number)
METRO-TEL CORP.
(Former name)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: Common Stock, $.025 par
value per share - 6,945,000 shares outstanding as of November 9, 1999.
DRYCLEAN USA, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------
For the six months For the three months
ended December 31, ended December 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------
Sales $8,640,625 $8,600,664 $4,080,815 $5,106,250
Management fees,
commissions and
other income 399,797 289,533 224,839 237,317
---------- ----------- ----------- -----------
Total revenues 9,040,422 8,890,197 4,305,654 5,343,567
Cost of goods sold 6,125,230 6,414,181 2,809,284 3,793,986
Selling, general and
administrative expenses 2,138,625 1,837,910 1,128,206 1,027,622
Research and development 128,821 40,906 66,410 40,906
---------- ---------- ---------- -----------
8,392,676 8292,997 4,003,900 4,862,514
Operating income 647,746 597,200 301,754 481,053
Other income and expenses:
Interest income 15,093 31,477 5,715 17,616
Interest expense (84,228) (84,105) (41,585) (59,854)
---------- ---------- ---------- ----------
(69,135) (52,628) (35,870) (42,238)
Earnings before taxes 578,611 544,572 265,884 438,815
Provision for income
taxes (4) 231,444 104,399 106,354 104,399
-------- -------- -------- --------
Net earnings $ 347,167 $ 440,173 $ 159,530 $ 334,416
=======================================================================================================
Basic earnings per share (3) $ .05 $ .08 $ .02 $ . 05
Diluted earnings per share(3) $ .05 $ .07 $ .02 $ .05
Weighted average number
of shares outstanding (3)
Basic 6,931,667 5,438,969 6,938,333 6,156,985
Diluted 7,281,210 5,940,892 7,314,559 6,658,908
=======================================================================================================
PRO FORMA AMOUNTS
Earnings before taxes $ 544,572 $ 438,815
Provision for income taxes (4) 217,829 175,526
--------- --------
Pro forma net earnings $ 326,743 $ 263,289
=======================================================================================================
Proforma basic earnings per share $ .06 $ .04
Weighted average number of shares
of common stock outstanding 5,438,969 6,156,985
2
DRYCLEAN USA, Inc.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 June 30, 1999
----------------- -------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 362,506 $ 964,768
Accounts receivable, net 1,371,174 1,741,698
Inventories 4,651,396 4,243,348
Current portion of lease receivables 93,321 116,927
Deferred income taxes 43,141 43,141
Prepaid expenses and other 137,915 143,885
---------- ----------
Total current assets 6,659,453 7,253,767
Lease receivables due after one year 49,263 90,882
Equipment and improvements - at cost 953,542 924,116
Less accumulated depreciation 622,918 590,411
---------- ----------
330,624 333,705
Franchise, trademarks and other
intangible assets, net 581,844
Deferred tax asset 22,884 22,884
------------ ------------
$7,644,068 $7,701,238
========== ==========
3
DRYCLEAN USA, Inc.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 1999 June 30, 1999
----------------- -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 987,422 $1,266,838
Line of credit 64,000
Current portion of bank loan 480,000 440,000
Customer deposits 354,968 278,008
Income taxes payable 34,793 80,674
---------- ----------
Total current liabilities 1,921,183 2,065,520
Long term loan less current portion 1,400,000 1,680,000
--------- ---------
Total liabilities 3,321,183 3,745,520
SHAREHOLDER'S EQUITY
Common stock, $.025 par value,
15,000,000 shares authorized;
6,971,250 shares issued, including
26,250 shares held in treasury 174,281 173,781
Additional paid-in capital 1,993,727 1,974,227
Retained earnings 2,154,877 1,807,710
---------- ----------
Total shareholder's equity 4,322,885 3,955,718
---------- ----------
$7,644,068 $7,701,238
========== ==========
4
DRYCLEAN USA, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Six months ended
December 31 December 31
1999 1998
(Unaudited) (Unaudited)
----------- -----------
Operating activities:
Net earnings $347,167 $ 440,173
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Bad debt expense 3,641 4,145
Depreciation and amortization 62,578 15,624
Net changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and lease receivables 432,108 (391,685)
Inventories (408,048) 252,217
Prepaid expenses and other assets 5,970 (96,487)
Increase (decrease) in:
Accounts payable and accrued expenses (279,416) (807,661)
Customer deposits 76,960 (44,786)
Income taxes payable (48,881) 41,008
---------- ---------
Net cash (used in) provided by operating activities 195,079 (587,452)
---------- ---------
Investing activities:
Capital expenditures (641,341) (31,459)
Cash of acquired company 384,888
---------- ---------
Net cash (used in) provided by investing activities (641,341) 353,429
--------- -------
Financing activities:
(Repayments) borrowings under line of credit 64,000 (1,000,000)
Payments on term loan (net) (240,000) (456,613)
Borrowings under new term loan 2,400,000
Proceeds from exercise of stock options 20,000
Cash distribution to shareholders (727,394)
---------- ---------
Net cash (used in) provided by financing activities (156,000) 215,993
---------- ---------
Net (decrease) in cash and cash equivalents (602,262) (18,030)
Cash and cash equivalents at beginning of period 964,768 828,390
---------- ---------
Cash and cash equivalents at end of period $ 362,506 $ 810,360
==================================================================================================
Supplemental information:
Cash paid for interest $ 84,228 $ 84,105
Cash paid for income taxes 277,325
Non-cash transactions
Acquisition of net assets of acquired company $ 1,541,807
5
DRYCLEAN USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note (1) General: The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB related to interim
period financial statements. Accordingly, these financial statements do not
include certain information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management, are
necessary in order to make the financial statements not misleading. The results
of operations for interim periods are not necessarily indicative of the results
to be expected for the full year. For further information, refer to the
Company's financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1999. The June 30, 1999
balance sheet was derived from audited financial statements as of that date.
NOTE (2) Basis of Presentation: On November 1, 1998, Steiner-Atlantic Corp.
("Steiner") was merged (the "Merger") with and into, and became a wholly-owned
subsidiary of, the Company. As a result of the Merger, the Company added
Steiner's operations as a supplier of dry cleaning, industrial laundry equipment
and steam boilers to its own telecommunications operations as a manufacturer and
seller of telephone test sets and customer premise equipment.
On November 5,1999, the Company filed an amendment to its Certificate of
Incorporation pursuant to which, effective November 7, 1999, the Company's name
was changed from Metro-Tel Corp. to DRYCLEAN USA, Inc.
For financial accounting (but not corporate law) purposes, the Merger is treated
as a "reverse" acquisition of the Company by Steiner, utilizing the "purchase"
method of accounting. As a result, all financial statements of the Company
included in periodic reports filed by the Company following the Merger covering
periods prior to November 1, 1998 reflect only the results of operations,
financial position and cash flows of Steiner on a stand alone basis. All
consolidated financial statements of the Company for periods commencing November
1, 1998, in addition. include the results of operations, financial position and
cash flows of the Company's telecommunications operations from and after
November 1, 1998. Accordingly, the results for the six month and three month
periods ended December 31, 1998 includes two months of operations of the
telecommunications operations.
NOTE (3) Earnings Per Common Share: In 1997, the FASB issued Statement No. 128,
"Earnings per share". Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock options. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to the Statement No. 128 requirements.
6
Note (4) - Proforma Income Tax: Prior to November 1, 1998, Steiner was a
Subchapter S corporation under the Internal Revenue Code of 1986, as amended
(the "Code"), and accordingly, its shareholders, rather than it, were subject to
income taxation on Steiner's earnings. The proforma provision for income taxes
represents the provision for income taxes that would have been recorded had
Steiner been taxed under Subchapter C of the Code for the periods shown.
Note (5) - Segment Information: The Company's reportable segments are strategic
businesses that offer different products and services. They are managed
separately because each business requires different technology and marketing
strategies. The Company primarily evaluates the operating performance of its
segments based on the categories noted in the table below. The Company has no
sales between segments.
Financial information for the Company's business segments is as follows:
For the six months For the three months
ended December 31, ended December 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues:
Commercial and industrial
laundry and drycleaning $7,475,450 $8,366,545 $3,495,475 $4,819,915
Manufacturing and sales of
telephone test equipment 1,564,972 523,652 810,179 523,652
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues $9,040,422 $8,890,197 $4,305,654 $5,343,567
====================================================================================================================================
Operating income (loss)
Commercial and industrial $ 754,320 $ 668,549 $ 377,469 $ 552,402
laundry and drycleaning
Manufacturing and sales of
telephone test equipment (106,574) (71,349) (75,715) (71,349)
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating income (loss) $ 647,746 $ 597,200 $ 301,754 $ 481,053
====================================================================================================================================
December 31, 1999 June 30, 1999
(Unaudited)
Identifiable assets:
Commercial and industrial
laundry and drycleaning $ 5,916,040 $ 6,016,193
Manufacturing and sales of
telephone test equipment 1,728,028 1,685,045
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,644,068 $ 7,701,238
====================================================================================================================================
Note (6) - Acquisition of DRYCLEAN USA Assets: On July 9,1999, the Company
acquired the worldwide rights to the name DRYCLEAN USA, along with existing
franchise and license agreements, from Dryclean USA Franchising Company for
$550,000.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the six month period ended December 31, 1999, cash decreased by $602,262.
Operating activities generated $195,079 of cash with $347,167 provided by net
income and $62,578 and $3,641 derived from non-cash expenses for depreciation
and amortization and from bad debts, respectively. Additional cash was generated
by a decrease in accounts and lease receivables ($432,108), and pre-paid
expenses ($5,970) which was substantially offset by an increase in inventories
($408,048) as a result of purchases made to achieve annual purchase discounts
and as a result of delays in customers taking delivery. Cash was also provided
by an increase in customer deposits ($76,960). Decreases in accounts payable and
accrued expenses ($279,416) and income taxes payable ($48,881) resulted in the
other uses of cash in operating activities. Investing activities used cash of
$641,341 primarily to fund the acquisition by Steiner of the worldwide rights to
the name DRYCLEAN USA, along with existing franchise and license agreements for
$550,000 and $91,341 for transaction costs and to purchase capital assets.
Financing activities used cash of $156,000 to make required monthly installments
of principal under the Company's term loan ($240,000) partially offset by
borrowing $64,000 under the Company's line of credit and proceeds from the
exercise of stock options ($20,000). The Company believes that its present cash,
cash it expects to generate from operations and borrowing available under its
$2,250,000 line of credit will be sufficient to meet its operational needs.
Y2000 COMPLIANT
- ---------------
As part of its Year 2000 compliance program, the Company upgraded its software
programs and carried out tests of its accounts receivable and accounts payable
files prior to the end of 1999, and concluded that its internal management
information systems, billing, payroll and other information services were Year
2000 compliant. Since January 1, 2000, the Company has not experienced any
difficulties with its operating systems and does not contemplate any problems in
the future associated with Year 2000 concerns.
RESULTS OF OPERATIONS
- ---------------------
The results of both the six and three month periods ended December 31, 1998,
reflect the results of drycleaning and laundry equipment and steam boiler
supplier operations for the full periods along with two months of operations of
the telecommunications division. Both operations are fully included in the
results for the six and three month periods ended December 31, 1999.
Net sales for the six month period ended December 31, 1999 increased by $39,961
over the same period of fiscal 1999, but decreased by $1,025,435 (20.1%) during
the second quarter of fiscal 2000 compared to the same period of fiscal 1999.
The increase in sales in the six month period of fiscal 2000 was mainly due to
the inclusion of the telecommunications operations for the entire period
compared to two months in the prior comparable
8
period. Steiner experienced a reduction in sales across all product lines during
the three month period of fiscal 2000, which the Company believes was due to
deferred purchasing due to Year 2000 concerns. Price increases were immaterial.
Management fees, commissions and other income for the six month period ended
December 31, 1999 increased by $110,264 (38.1%) over the same period of a year
ago, mainly due to commissions and license fees generated by new drycleaning
brokerage and licensing subsidiaries. For the three month period ended December
31, 1999, other revenues decreased by $12,478 (5.3%) mainly due to a reduction
in management fees which was partially offset by generated brokerage and license
fees.
Costs of goods sold, expressed as a percentage of sales, improved to 70.9% and
68.9% for the six and three month periods, respectively, of fiscal 2000 from
74.6% and 74.3% for the respective comparable periods of fiscal 1999. The
improvements were mainly due to the inclusion of telecommunication sales, which
historically have a higher margin.
Selling, general and administrative expenses increased by $300,715 (16.4%) and
$100,584 (9.8%) for the six and three month periods, respectively, in fiscal
2000 from the comparable periods of fiscal 1999. The increases in each period
were attributed to the inclusion of the telecommunications division which offset
a reduction in this category of expenses at Steiner caused by a decrease in
executive compensation as a result of the merger.
Research and development expenses, which relate solely to telecommunications
operations, increased by $87,915 (214.9%) and $25,504 (62.3%) for the six and
three month periods, respectively, over the same periods of a year ago mainly
due to the fact that only two months of telecommunication operations were
included in both the six and three month periods ended December 31, 1998.
Interest income decreased by $16,384 (52.1%) and $11,901 (67.6%) during the six
and three month periods, respectively, of fiscal 2000 from fiscal 1999, as a
result of fewer customer equipment leases (which qualify as sales-type leases)
being outstanding.
Interest expense was approximately the same during the first six months of
fiscal 2000 and fiscal 1999. During the three month period of fiscal 2000
interest expense decreased by $18,269 (30.5%) from the comparable period of
fiscal 1999 due to a reduction in outstanding debt.
The provision for income taxes increased by $127,045 (121.7%) in the first six
months of fiscal 2000 over the same period of fiscal 1999 because, for the first
four months of fiscal 1999, Steiner was a Subchapter S Corporation under the
Internal Revenue Code of 1986, as amended, and accordingly its shareholders,
rather than it, were subject to income taxation on Steiner's earnings. (See Note
4)
9
PART 11 - OTHER INFORMATION
Item 7. Exhibits and reports on Form 8-K
(a) Exhibits
27. Financial data schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended December 31,
1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February 11, 2000 DRYCLEAN USA, Inc.
By: /s/ Venerando J. Indelicato
----------------------------
Venerando J. Indelicato
Treasurer and Chief Financial
Officer
10
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule