SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-9040
DRYCLEAN USA, Inc.
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(Name of small business issuer in its charter)
Delaware 11-2014231
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
290 N.E. 68th Street, Miami, Florida 33138
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 305-754-4551
Securities registered under Section 12(b) of the Exchange Act: Common Stock, $.025 par value
Securities registered under Section 12(g) of the Exchange Act: None
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 [
]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Company's revenues for its fiscal year ended June 30, 2001 were
$18,720,982.
The aggregate market value as at September 14, 2001 of the Common Stock
of the issuer, its only class of voting stock, held by non-affiliates was
approximately $1,200,000, calculated on the basis of the mean between the high
and low sales prices of the Company's Common Stock on the American Stock
Exchange on that date. Such market value excludes shares owned by all executive
officers and directors (and their spouses); this should not be construed as
indicating that all such persons are affiliates.
The number of shares outstanding of the issuer's Common Stock as at
September 17, 2001 was 7,027,500.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement relating to its 2001 Annual
Meeting of Stockholders are incorporated by reference into Items 10, 11 and 12
in Part III of this Report.
Transitional Small Business Disclosure Format Yes [ ] No [X]
FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT UNDER THE CAPTIONS "ITEM 1.
BUSINESS," "ITEM 2. PROPERTIES" AND "ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION," ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). WHEN USED IN THIS REPORT, WORDS SUCH AS "MAY,"
"SHOULD," "SEEK," "BELIEVE," "EXPECT," ANTICIPATE," "ESTIMATE," "PROJECT,"
"INTEND," "STRATEGY" AND "PRO FORMA" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS REGARDING EVENTS, CONDITIONS AND FINANCIAL
TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS, OPERATIONS, BUSINESS
STRATEGIES, OPERATING RESULTS AND FINANCIAL POSITION. FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO A NUMBER OF KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT MAY
CAUSE ACTUAL RESULTS, TRENDS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR
INDUSTRY TRENDS AND RESULTS, TO DIFFER MATERIALLY FROM THE FUTURE RESULTS,
TRENDS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS: GENERAL ECONOMIC
AND BUSINESS CONDITIONS, AS WELL AS INDUSTRY CONDITIONS AND TRENDS, INCLUDING
SUPPLY AND DEMAND; CHANGES IN BUSINESS STRATEGIES OR DEVELOPMENT PLANS; THE
AVAILABILITY, TERMS AND DEPLOYMENT OF DEBT AND EQUITY CAPITAL; TECHNOLOGY
CHANGES; COMPETITION AND OTHER FACTORS WHICH MAY AFFECT PRICES WHICH THE COMPANY
MAY CHARGE FOR ITS PRODUCTS AND ITS PROFIT MARGINS; THE AVAILABILITY AND COST OF
THE EQUIPMENT AND RAW MATERIALS PURCHASED BY THE COMPANY; RELATIVE VALUES OF THE
UNITED STATES CURRENCY TO CURRENCIES IN THE COUNTRIES IN WHICH THE COMPANY'S
CUSTOMERS, SUPPLIERS AND COMPETITORS ARE LOCATED; AVAILABILITY OF QUALIFIED
PERSONNEL; CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT REGULATION,
PRINCIPALLY ENVIRONMENTAL REGULATIONS; AND THE COMPANY'S ABILITY TO SUCCESSFULLY
INTRODUCE, MARKET AND SELL AT ACCEPTABLE PROFIT MARGINS ITS NEW GREEN JET(TM)
DRY CLEANING MACHINES. THESE AND CERTAIN OTHER FACTORS ARE DISCUSSED IN THIS
REPORT AND FROM TIME TO TIME IN OTHER COMPANY REPORTS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. THE COMPANY DOES NOT ASSUME AN OBLIGATION TO UPDATE THE
FACTORS DISCUSSED IN THIS REPORT OR SUCH OTHER REPORTS.
PART I
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ITEM 1. BUSINESS.
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GENERAL
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The Company was incorporated under the laws of the State of Delaware on
June 30, 1963 under the name Metro-Tel Corp. The Company changed its name to
DRYCLEAN USA, Inc. on November 7, 1999 to reflect a change in the primary nature
of its consolidated operations which had occurred since November 1, 1998.
On November 1, 1998, Steiner-Atlantic Corp. ("Steiner") was merged (the
"Merger") with and into, and therefore became, a wholly-owned subsidiary of
Metro-Tel Corp. ("Metro-Tel" and collectively with Steiner and Steiner's
wholly-owned subsidiaries, 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 Metro-Tel's operations as a manufacturer
and seller of telephone test and customer premise equipment.
Steiner is a supplier of dry cleaning equipment, industrial laundry
equipment and steam boilers to customers, including customers of its DRYCLEAN
USA Franchise Company subsidiary, in the United States, the Caribbean and Latin
American markets. This aspect of Steiner's services includes: (1) designing and
planning "turn-key" laundry and/or dry cleaning systems to meet the layout,
volume and budget needs of a variety of institutional and retail customers, (2)
supplying replacement equipment and parts to its customers, (3) providing
warranty and preventative maintenance through factory-trained technicians and
2
service managers, (4) selling its own line of dry cleaning systems under its
Aero-Tech brand name; and (5) selling process steam systems and boilers.
In March 1999, Steiner formed a new subsidiary, Steiner-Atlantic
Brokerage Corp. ("Steiner Brokerage"), to act as a business broker to assist
others seeking to buy or sell existing dry cleaning stores and coin laundry
businesses. Some of Steiner's existing customers have become Steiner Brokerage
clients, utilizing Steiner's staff and ability to assist them in the sale of
their businesses and associated real property.
In July 1999, Steiner acquired certain assets of DRYCLEAN USA Franchise
Company, including, among other things, the worldwide rights to the name
DRYCLEAN USA along with existing franchise and license agreements. DRYCLEAN USA
is one of the largest franchise and license operations in the dry cleaning
industry, currently consisting of approximately 400 franchised and licensed
locations in the United States, the Caribbean and Latin America. Steiner expects
to aggressively increase the number of existing franchisees and licensees of
DRYCLEAN USA through proven sales and advertising methods with an expanded sales
staff. In addition, it has begun to advertise its franchise and license program
on an internet website. The website is also expected to provide interactive
information and solutions to clothing and textile problems in the home and
office.
In February 2001, Steiner formed DRYCLEAN USA Development Corp. as a
new subsidiary to develop new turn-key dry cleaning establishments for resale to
third parties. During fiscal 2001, activities of this subsidiary were limited to
entering into leases in two commercial shopping centers in South Florida for
locations intended to be developed into dry cleaning establishments and sold to
third parties.
The Company's Metro-Tel division is engaged in the manufacture and sale
of telephone test and customer premise equipment utilized by telephone and
telephone interconnect companies in the installation and maintenance of
telephone equipment. Through internal research and development and through
acquisition, Metro-Tel has added various product lines to its telephone test and
customer premise product lines. The Company has retained an investment banking
firm to consider alternatives for its telecommunications segment, which could
involve the sale of the segment.
STEINER'S OPERATIONS
--------------------
History. Steiner was founded in 1960 by William K. Steiner, initially
operating as a distributor of dry cleaning systems and boilers, and as a
rebuilder of laundry, dry cleaning and boiler equipment. Steiner expanded in
1972, when it began distributing institutional laundry equipment to hotels,
motels and hospitals. In 1980, Steiner began importing dry cleaning systems from
an English manufacturer and, four years later, Steiner replaced this
manufacturer with a relationship with an Italian manufacturer of dry cleaning
systems. In 1990, Steiner established its own branded product line with the
introduction of an updated dry cleaning system under the Aero-Tech label.
Product Lines. Steiner offers a broad line of laundry and dry cleaning
equipment and steam boilers, as well as a comprehensive parts and accessories
inventory. Steiner's laundry equipment features washers and dryers, including
coin-operated machines, boilers, water reuse and heat reclamation systems,
flatwork ironers and automatic folders. Steiner's dry cleaning equipment
includes dry cleaning machines, garment presses, finishing equipment, and
sorting and distributing conveyors. Substantially all of the Company's dry
cleaning equipment sold under the Aero-Tech label is currently manufactured
exclusively for Steiner in Italy.
In fiscal 2000, Steiner's Aero-Tech division entered into a license
agreement with Green Earth Solutions to use the Green Earth cleaning system in
Steiner's Green Jet(TM) dry cleaning machines. This new machine not only cleans
garments efficiently, but it also eliminates the use of perchloroethylene (Perc)
in
3
the cleaning process, thereby eliminating the health and environmental concerns
that Perc poses to our customers and their landlords. It also alleviates
flammability, odor and cost issues inherent in alternative solvents and cleaning
processes. Patents have been applied for to protect this innovative approach to
garment cleaning. Production has started and first deliveries are expected to
start during the second quarter of fiscal 2002. The machine will be sold through
distributors and dealers throughout the United States, South America and Asia.
Steiner's product lines are positioned and priced to appeal to
customers in each of the high-end, mid-range and value priced markets. Steiner's
product lines are offered under a wide range of price points to address the
needs of a diverse customer base. Suggested prices for most of Steiner's
products range from approximately $5,000 to $50,000. Steiner's product line
offers its customers a "one-stop shop" for laundry and dry cleaning systems,
boilers and accessories. By providing "one-stop" shopping, Steiner believes it
is better able to attract and support potential customers who can choose from
Steiner's broad product line.
Steiner seeks to establish customer satisfaction by offering (1) an
on-site training and preventive maintenance program performed by factory trained
technicians and service managers; (2) design and layout assistance; (3)
maintenance of a comprehensive parts and accessories inventory and same day or
overnight availability; and (4) competitive pricing. Steiner provides a
toll-free support line to resolve customer service problems.
In March 1999, Steiner formed Steiner Brokerage as a new subsidiary to
act as a business broker to assist others seeking to buy or sell existing dry
cleaning and laundry businesses. Some of Steiner's existing customers have
become Steiner Brokerage clients, utilizing Steiner's staff and ability to
assist them in the sale of their businesses and associated real property.
In July 1999, Steiner acquired certain assets of DRYCLEAN USA Franchise
Company, including the worldwide rights to the name DRYCLEAN USA along with
existing franchisees and licensees and associated annual revenues. DRYCLEAN USA
is one of the largest franchise and license operations in the dry cleaning
industry, currently consisting of approximately 400 franchised and licensed
locations in the United States, the Caribbean and Latin America.
In February 2001, Steiner formed DRYCLEAN USA Development Corp., a new
subsidiary to develop new turn-key dry cleaning establishments for resale to
third parties. DRYCLEAN USA Development Company did not contribute revenues in
fiscal 2001. During fiscal 2001, activities of this subsidiary were limited to
entering into leases in two commercial shopping centers in South Florida for
locations intended to be developed into dry cleaning establishments and sold to
third parties.
Sales, Marketing and Customer Support. Steiner's laundry and dry
cleaning equipment products are marketed in the United States, the Caribbean and
Latin America. Steiner employs sales executives to market its products,
including its Aero-Tech products, in the United States and in international
markets. Steiner supports its products by representative advertising in trade
publications, participating in trade shows and engaging in regional promotions
and sales incentive programs. A substantial portion of Steiner's equipment sales
orders are obtained by telephone, e-mail and fax inquiries originated by the
customer or by Steiner and significant repeat sales are derived from existing
customers.
Steiner trains its sales and service employees to provide service and
customer support. Steiner uses specialized classroom training, instructional
videos and vendor sponsored seminars to educate employees about product
information. In addition, Steiner's technical staff has prepared comprehensive
training manuals, written in English and Spanish, relating to specific training
procedures. Steiner's technical personnel are continuously updated and retrained
as new technology is developed. Steiner monitors service technicians' continued
educational experience and fulfillment of requirements in order to evaluate
their
4
competence. All of Steiner's service technicians receive service bulletins,
service technicians' tips and continued training seminars.
Customers and Markets. Steiner's customer base consists of
approximately 500 customers in the United States, the Caribbean and Latin
America, including independent and franchise dry cleaning chains and
institutions, hotels, motels, hospitals, cruise lines, nursing homes, government
institutions and distributors. No customer accounted for more than 10% of
Steiner's revenues during the years ended June 30, 2001 or June 30, 2000.
Sources of Supply. Steiner purchases laundry and dry cleaning systems,
boilers and other products from a number of manufacturers, none of which
accounted for more than 20% of Steiner's purchases for the years ended June 30,
2001 or June 30, 2000. Steiner has established long-standing relationships with
many of the leading laundry, dry cleaning and boiler manufacturers. Steiner's
management believes these supplier relationships provide Steiner with a
substantial competitive advantage, including exclusivity in certain products and
areas and favorable prices and terms. Therefore, the loss of a major vendor
relationship could adversely affect Steiner's business. Historically, Steiner
has not experienced difficulty in purchasing desired products from its suppliers
and believes it has good working relationships with its suppliers.
Steiner has a formal contract with only one of its equipment
manufacturers and relies on its long-standing relationship with its other
suppliers. Steiner collaborates in the design, closely monitors the quality of
the manufactured product and believes its Aero-Tech systems exceed the
environmental regulations set by safety and environmental regulatory agencies.
Steiner must place its orders with its Italian manufacturer of its Aero-Tech
product line prior to the time Steiner has received all of its orders. However,
because of Steiner's close working relationship with the Italian manufacturer,
Steiner can usually adjust orders rapidly and efficiently to reflect a change in
customer demands.
According to its arrangement with the Italian manufacturer, Steiner
purchases dry cleaning systems in Italian lira. Imports into the United States
are also affected by the cost of transportation, the imposition of import duties
and increased competition from greater production demands abroad. The United
States and Italy may, from time to time, impose new quotas, duties, tariffs or
other restrictions or adjust prevailing quotas, duties or tariff levels, which
could affect Steiner's margins on its Aero-Tech systems. United States customs
duties presently are approximately 1% of invoice cost on dry cleaning systems.
Steiner believes that if, for any reason its arrangement with its Italian
manufacturer were to cease or in the event the cost of its Aero-Tech systems
were to be adversely affected, it has the ability to have its Aero-Tech line
manufactured by other international suppliers.
Competition. The laundry and dry cleaning equipment distribution
business is highly competitive and fragmented with over 100 full-line or
partial-line equipment distributors in the United States. Steiner's management
believes that no distributor supplies more than 6% of the market and that
substantially all such distributors are independently owned and, with the
exception of several regional distributors, operate primarily in local markets.
Competition is based on price, product quality, delivery and support services
provided by the distributor to the customer. In South Florida, Steiner's
principal domestic market, Steiner's primary competition is derived from two
full-line distributors which operate out of the Miami area. In the export
market, Steiner competes with several distributors and anticipates increased
competition as the export market grows. In its sale of its Aero-Tech line to its
distributors on a national level, Steiner competes with over a dozen
manufacturers of dry cleaning equipment whose products are distributed
nationally. Steiner competes by offering an extensive product selection,
value-added services, such as product inspection and quality assurance,
toll-free customer support line, reliability, warehouse location, price and,
with the Aero-Tech line, competitive special features and exclusivity.
5
As a franchisor/licensor of retail dry cleaning stores, DRYCLEAN USA
competes with several other franchisors and turn-key suppliers of dry cleaning
stores primarily on the basis of trademark recognition and reputation. As a
broker in the purchase and sale of retail dry cleaning stores and coin laundry
business, Steiner Brokerage competes with business brokers generally, as well as
with other professionals with contacts in the retail dry cleaning and coin
laundry business. Competition in this latter area is primarily based on
reputation, advertising and, to a lesser degree, on the level of fees charged.
METRO-TEL'S OPERATIONS.
-----------------------
History. Since its inception in 1963, Metro-Tel has been engaged in the
manufacture and sale of telephone test and customer premise equipment utilized
by telephone and telephone interconnect companies in the installation and
maintenance of telephone equipment. Through internal research and development
and through acquisition, Metro-Tel has added various product lines to its
telephone test and customer premise product lines. The Company has retained an
investment banking firm to consider alternatives for its telecommunications
segment, which could involve the sale of the segment.
Product Lines. Metro-Tel is primarily engaged in the manufacture and
sale of telephone test equipment and customer premise equipment.
TELEPHONE TEST EQUIPMENT. Most of Metro-Tel's sales are of telephone
test equipment and transmission test equipment. Metro-Tel's telephone test
equipment includes portable test sets designed for use in locating high
resistance faults resulting from moisture in exchange cables and by cable
splicers on exchange and toll cables for identification of cable wires and other
tone-testing purposes; linemen's rotary and/or touch-tone testing handsets and
portable line test sets for use by telephone installers, repairmen and central
office personnel; hand and pole exploring coils which are used in cable fault
finding; solid state conversion amplifier kits; Volt-Ohmmeter test sets; and
Cable Hound(R), a portable electronic unit that locates and determines the deptH
of underground cable and metal pipes primarily for the telephone, utility and
construction industries.
Metro-Tel's transmission test equipment is used in telephone company
central office installations by operating companies, long distance telephone
resellers and large companies who own their own networks. Among these products
are digital and analog rack-mounted test systems, portable transmission test
sets, remote test systems and fiber optic test sets.
CUSTOMER PREMISE EQUIPMENT. Metro-Tel also manufactures and markets a
line of telephone station and peripheral products. These products include a
series of specialty telephone products, including call diverters (call
forwarding devices used both by end-users and in telephone company central
offices), and specialty telephones.
OTHER PRODUCTS AND SERVICES. Additionally, Metro-Tel sells spare parts
for its product lines and provides repair services for its products.
Methods of Distribution. Metro-Tel presently sells its products through
its own regional sales managers and sales representatives who assist Metro-Tel's
national telephone equipment distributors. Sales managers are presently based in
Georgia and the state of Washington. In addition, Metro-Tel maintains an
in-house sales staff at its facilities in Milpitas, California.
Principal Customers. Metro-Tel is not dependent upon any single
customer. However, North Supply Company, a national distributor of telephone
products, accounted for approximately 11% and 13% of Metro-Tel's net sales for
the years ended June 30, 2001 and June 30, 2000, respectively, but less than 10%
of the Company's consolidated revenues for those years. Metro-Tel believes that,
should it for any
6
reason lose either of these distributors, Metro-Tel could be adversely impacted
although these sales would normally be absorbed by other Metro-Tel distributors.
Ameritech, a Regional Bell Operating Company, accounted for 15.8% of Metro-Tel's
net sales for the year ended June 30, 2001 but less than 10% of the Company's
consolidated revenues for the year ended June 30, 2000.
Sources of Supply. The basic materials used in the manufacture of
Metro-Tel's telephone test equipment and telephone station and peripheral
telephone equipment consist of electronic components. Metro-Tel utilizes many
suppliers and is not dependent on any supplier. Its raw materials generally are
readily available from numerous suppliers.
Competition. Competition is high with respect to each of Metro-Tel's
product lines. However, as the products contained in such lines are varied and
similar products contain varying features, neither Metro-Tel nor any of its
competitors is a dominant factor in any product line market, except for
linemen's test sets for which Dracon, a division of Harris Corporation, is
dominant.
The principal method of competition for each of Metro-Tel's products is
price and product features, with service and warranty having a relatively less
significant impact. Metro-Tel believes its product lines are competitively
priced. Many of Metro-Tel's competitors have greater financial resources and
have more extensive research and development and marketing staffs than
Metro-Tel.
Research and Development. Metro-Tel is regularly engaged in the design
of new products and improvement of existing products for all of its
telecommunication equipment products lines. The amounts specifically allocated
to research and development expenses for the years ended June 30, 2001 and 2000
were $126,679 and $231,219, respectively. The reduction in Research and
Development was primarily due to reduced salary expense while Metro-Tel
continues its search for a new Director of Engineering.
PATENTS AND TRADEMARKS
----------------------
The Company is the owner of United States service mark registrations
for the names Aero-Tech(R), Logitrol(R), Petro-Star(R), Aqua Star(R) and
Enviro-Star(R), which are used in connection with its laundry ANd dry cleaning
business lines, and of DRYCLEAN USA, which is licensed by it to retail dry
cleaning establishments. Patents have been applied for to protect the Company's
new Green Jet dry cleaning machines. The Company intends to use and protect
these or related service marks, as necessary. The Company believes its
trademarks and service marks have significant value and are an important factor
in the marketing of its products.
The Company has obtained a number of trademarks which are used to
identify its telephone test and customer premise product lines. None of these
trademarks is considered to be material to the Company's telecommunication's
product lines. The Company also pays royalties to a third party under
arrangements permitting the Company to manufacture certain products.
COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT LAWS AND REGULATIONS
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Over the past several decades in the United States, federal, state and
local governments have enacted environmental protection laws in response to
public concerns about the environment. A number of industries, including the dry
cleaning and laundry equipment industry, are subject to these evolving laws and
implementing regulations. As a supplier to the industry, the Company serves
customers who are primarily responsible for compliance with environmental
regulations. Among the federal laws that the Company believes are applicable to
the industry are the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), which provides for the investigation and
remediation of hazardous waste sites; The Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), which regulates
7
generation and transportation of hazardous waste as well as its treatment,
storage and disposal; and the Occupation Safety and Health Administration Act
("OSHA"), which regulates exposure to toxic substances and other health and
safety hazards in the workplace. Most states and a number of localities have
laws that regulate the environment which are at least as stringent as the
federal laws. In Florida, for example, in which a significant amount of the
Company's dry cleaning and laundry equipment sales are made, environmental
matters are regulated by the Florida Department of Environmental Protection
which generally follows the Environmental Protection Agency's ("EPA") policy in
the EPA's implementation of CERCLA and RCRA and closely adheres to OSHA's
standards.
Certain of the Company's customer premise equipment products that
connect to public telephone networks need Federal Communications Commission (or,
in the case of foreign sales, the equivalent agency in the foreign country in
which they will be sold) approval prior to their sale.
The Company does not believe that compliance with Federal, state and
local environmental and other laws and regulations which have been adopted have
had, or will have, a material effect on its capital expenditures, earnings or
competitive position.
EMPLOYEES
---------
The Company currently employs 55 employees on a full-time basis, of
whom three are in executive management, 12 are engaged in sales and marketing,
20 are administrative and clerical, one is an engineer, 12 are engaged in
production and seven are in warehouse support. Of the Company's employees, [35]
are employed exclusively with respect to the Company's laundry and dry cleaning
equipment operations, 18 are employed exclusively with respect to the Company's
telecommunications equipment operations and two currently divide their time
between the two operations. None of the Company's employees are subject to a
collective bargaining agreement, nor has the Company experienced any work
stoppages. The Company believes that its relations with employees are
satisfactory.
FOREIGN AND GOVERNMENT SALES
----------------------------
Steiner's export sales of the Company's laundry and dry cleaning
business were approximately $4,166,033 and $3,387,147 during the years ended
June 30, 2001 and June 30, 2000, respectively. Such export sales were made
principally to Latin America and the Caribbean. See "--Steiner's
Operations-Customers and Markets".
Metro-Tel's export sales of telephone test and customer premise
equipment were approximately $237,113 and $265,000 for the years ended June 30,
2001 and June 30, 2000, respectively. Such export sales were made principally to
Europe, Canada and South America. Some of Metro-Tel's export sales are made
through distributors and agents.
All of the Company's export sales require the customer to make payment
in United States dollars. Accordingly, foreign sales may be affected by the
strength of the United States dollar relative to the currencies of the countries
in which their customers and competitors are located.
Revenues from sales to the United States government (none of the
contracts relating thereto being subject to renegotiation of profits or
termination at the election of the government) are immaterial.
ITEM 2. PROPERTIES.
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The Company's executive offices and the main distribution center for
its laundry and dry cleaning equipment products are housed in three leased
adjacent facilities totaling approximately 47,000 square feet
8
in Miami, Florida, and the manufacturing and distribution facility for its
telephone test and customer premise equipment operations is located in
approximately 21,500 square feet of leased space in Milpitas, California. The
Company believes its facilities are adequate for its present and anticipated
future needs. The following table sets forth certain information concerning the
leases at these facilities:
Approximate
Facility Sq. Ft. Expiration
-------- ------- ----------
Miami, Florida (1) 27,000 October 2004
Miami, Florida 8,000 Month to Month
Miami, Florida 12,000 Month to Month
Milpitas California 21,500 March 2002
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(1) Leased from William K. Steiner, a director of the Company. The lease
includes an option to renew the lease for a ten-year term at a rent to
be agreed upon by the parties.
ITEM 3. LEGAL PROCEEDINGS.
------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
9
PART II
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ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Company's Common Stock has been traded on the American Stock
Exchange (the "Amex") under the symbol "DCU" since November 10, 1999 and on the
Chicago Stock Exchange from January 11, 1999 until November 9, 1999 under the
symbol "MTF" and thereafter under the symbol "DCU." From January 11, 1999 until
November 9, 1999, the Company's Common Stock was also quoted on the Nasdaq
Electronic Bulletin Board and prior thereto on The Nasdaq Stock Market Small Cap
Market, each under the symbol "MTRO." The following table sets forth, for the
Company's Common Stock, the high and low sales prices on the Amex since November
10, 1999, as reported by Amex, and high and low bid prices, as reported by
Nasdaq, for the period prior thereto. The Nasdaq quotations are without retail
markups, markdowns or commissions and may not represent actual transactions.
HIGH LOW
---- ---
Fiscal 2000
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First Quarter $3.39 $1.75
Second Quarter 2.88 1.00
Third Quarter 5.88 1.25
Fourth Quarter 3.88 1.31
Fiscal 2001
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First Quarter 2.63 1.50
Second Quarter 1.63 1.00
Third Quarter 1.56 .55
Fourth Quarter .90 .50
As of September 17, 2001 there were approximately 881 holders of record
of the Company's Common Stock.
No dividends have been paid on the Company's Common Stock during either
of the last two fiscal years. Steiner is a party to a Loan and Security
Agreement with a commercial bank, loans under which are guaranteed by Metro-Tel
and secured by substantially all of the assets of the Company. Among other
things, this agreement provides that the Company may not declare or pay
dividends if such payment would likely cause it to fail to maintain a specified
consolidated debt service ratio or a specified ratio of consolidated liabilities
to tangible net worth. The Company does not intend to pay cash dividends in the
foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
For the year ended June 30, 2001, cash decreased by $606,676 compared
to an increase of $17,820 for the year ended June 30, 2000.
For fiscal 2001, operating activities provided cash of $4,209,
principally as a result of net income ($122,471), adjusted for non-cash expenses
for depreciation and amortization ($223,189), bad debts ($178,674), and
provision for impairment of inventory ($195,513). Also, cash was provided by a
decrease in other assets ($79,622) and increases in accounts payable and accrued
expenses ($173,196) and customer's deposits and other ($198,902). These were
partially offset by increases in accounts, notes and lease receivables
($129,225), inventories ($465,352), deferred income tax benefit ($33,474) and a
decrease in income taxes payable ($539,307). The above mentioned fluctuations in
operating assets and operating liabilities are primarily the result of ordinary
timing differences. Income taxes used $539,307 compared to having provided
$201,270 in the prior year primarily due to timing of estimated tax payments and
the decline in profits the company experienced during the fourth quarter of
fiscal 2001.
Cash provided by operating activities in fiscal 2000 ($1,200,432) was
principally as a result of net income ($965,449), non-cash expenses for
depreciation and amortization ($139,033), bad debt expense ($20,614), deferred
income taxes ($17,376), a decrease in inventories ($139,668), and increases in
income taxes payable ($201,270) and customer deposits ($96,388), which were
partially offset by increases in accounts and lease receivables ($287,783) and
other assets ($126,285).
Net cash used in investing activities in fiscal 2001 was $142,135,
principally to purchase equipment. Net cash used in investing activities in
fiscal 2000 was $767,612, principally due to the purchase of equipment
($137,612) and the acquisition of a franchise license for $550,000 and other
licenses for $80,000.
In fiscal 2001, financing activities used cash of $468,750, principally
to make payments on the Company's term loan ($480,000), partially offset by
$11,250 obtained from the exercise of stock options. Net cash used in financing
activities in fiscal 2000 amounted to $415,000, resulting principally from
payments on the Company's term loan ($480,000), partially offset by proceeds
from the exercise of stock options ($65,000).
The Company believes that its present cash ($375,912 at June 30, 2001),
cash it expects to generate from operations and borrowings available under its
$2,250,000 line of credit will be sufficient to meet its operational and capital
expenditure needs. The Company has no present borrowings outstanding under this
line of credit (which, as extended, matures on October 30, 2001, subject to
renewal at the discretion of the lender), although the Company did borrow under
this line of credit during fiscal 2001. The Company believes it will be able to
negotiate a new line prior to that time. As to the $1,160,000 principal amount
outstanding under its term loan at June 30, 2001, the Company is required to
make monthly payments of $40,000 until January 2002, when the remaining $960,000
will become due. The Company believes it will be able to refinance such debt
prior to that time. As of June 30, 2001, the Company was not in compliance with
the above mentioned credit facilities' financial covenants. The bank has granted
a waiver of the covenant violations.
11
RESULTS OF OPERATIONS
---------------------
Total revenues for the fiscal year ended June 30, 2001 decreased by
$803,517 (4.1%) from fiscal 2000. Revenues of the laundry and dry cleaning
segment decreased by $132,264 (.9%), due primarily to an absence of management
fees ($118,392 of management fees was earned in fiscal 2000) and a $113,262
reduction in brokerage commissions, which offset a $88,294 increase in equipment
sales. Revenues from the Company's license and franchise segment, which was
acquired in July 1999, decreased by $87,290 (16.3%), primarily as the result of
the opening of a fewer number of licensed and franchised units. Sales of the
Company's telecommunications segment decreased by $583,963 (16.7%) in fiscal
2001 from fiscal 2000, as a result of an industry-wide slowdown which became
more acute during the company's fourth quarter. Although the telecommunications
segment implemented some selective price increases on January 1, 2001, its
effect on results of operations for the six month period was not material. The
Company has retained an investment banking firm to consider alternatives for its
telecommunications segment, which could involve the sale of the segment.
Costs of goods sold, expressed as a percentage of sales, increased to
75.4% in fiscal 2001 from 71.6% in fiscal 2000. The increase was mostly due to
the reduced sales volume of the telecommunications operations, which affected
the segment's ability to absorb its fixed expenses, coupled with a $54,250
increase in freight charges in the laundry and dry cleaning segment which also
impacted margins. Additionally, during fiscal 2001, the Company recorded a
$195,513 provision for inventory obsolescence for certain specific inventory
items in the Company's telecommunication segment to reduce the items to
estimated realizable value, in light of the industry slowdown.
Selling, general and administrative expenses increased by $285,566
(6.5%) in fiscal 2001 over fiscal 2000, primarily as a result of a $133,859
increase in bad debts, a $43115 increase in payroll expense, a $65,390 increase
in depreciation and amortization and an overall increase in general and
administrative expenses of $62,137 in the commercial and industrial laundry and
dry cleaning segment, and a $73,263 increase in selling expenses in the
telecommunications segment. The increase in bad debt expense was primarily
attributable to a $100,000 provision for doubtful accounts with an entity
controlled by one of the Company's principal shareholders and bankruptcy
proceedings filed by another customer of the laundry and dry cleaning segment.
These increases offset a $92,769 reduction in administrative expense in the
telecommunications segment. Selling and administrative expenses for the
franchise and brokerage operations remained relatively flat when compared to
last year.
Research and development expenses, which primarily relate to the
telecommunications segment, decreased by $53,509 (23.1%) in fiscal 2001 from
fiscal 2000. The reduction was primarily due to a reduction in salary expense of
$106,273 while the segment is continuing its search for a new Director of
Engineering. This reduction offset start-up research and development expenses of
$50,743 in the dry cleaning and laundry segment associated with the new
environmentally safe dry cleaning machine.
Interest income decreased by $5,368 (14.9%) as a result of fewer
outstanding customer leases of laundry and dry cleaning equipment and a
reduction in interest earned on daily bank balances due to the lower average
cash balances on hand during the year and lower prevailing interest rates on
invested cash. These decreases were partially offset with interest earned on
trade notes receivable during fiscal 2001.
Interest expense decreased by $30,890 (18.8%) due to a reduction in
average amount outstanding of Company debt and reduced interest rates, partially
offset by periodic borrowings against the Company's line of credit.
12
The provision for income taxes decreased by $488,000 (86.5%) due
primarily to the decrease in pre-tax profit in fiscal 2001 over fiscal 2000. The
effective tax rate applicable to the Company's pre-tax income was 38.3% in
fiscal 2001, compared to 36.9% in fiscal 2000.
INFLATION
---------
Inflation has not had a significant effect on the Company's operations
during any of the reported periods.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In June 2001, the Financial Accounting Standard Board issued FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS No. 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using
the purchase method. As of June 30, 2001, the net carrying amount of other
intangible assets is $551,718. Amortization expense during the years ended June
30, 2001 and 2000 was $83,596 and $74,327, respectively. There was no goodwill
at June 30, 2001. Currently, the Company is assessing but has not yet determined
how the adoption of SFAS 141 and SFAS 142 will impact its financial position and
results of operations.
13
ITEM 7. FINANCIAL STATEMENTS.
---------------------
DRYCLEAN USA, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants 15
Consolidated Balance Sheets at June 30, 2001 and 2000 16
Consolidated Statements of Income for the years ended
June 30, 2001 and 2000 17
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 2001 and 2000 18
Consolidated Statements of Cash Flows for the years ended
June 30, 2001 and 2000 19
Summary of Accounting Policies 20-22
Notes to Consolidated Financial Statements 23-33
14
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
DRYCLEAN USA, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of DRYCLEAN USA,
Inc. and subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
DRYCLEAN USA, Inc. and subsidiaries as of June 30, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
Miami, Florida BDO Seidman, LLP
August 30, 2001
15
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Balance Sheets
40
JUNE 30, 2001 2000
---------------------------------------------------------------------------------------------------------------
ASSETS (Note 6)
CURRENT ASSETS
Cash and cash equivalents $ 375,912 $ 982,588
Accounts and notes receivable, net of allowance for doubtful
Accounts of $51,800 and $36,000 at 2001 and 2000,
Respectively 2,122,493 2,065,761
Lease receivables (Note 2) 39,494 105,394
Inventories (Note 3) 4,373,519 4,103,680
Refundable income taxes 257,363 -
Deferred income tax asset (Note 5) 69,337 46,135
Other current assets, net of allowance for doubtful accounts of
$100,000 at 2001 (Note 7) 190,548 270,170
---------------------------------------------------------------------------------------------------------------
Total current assets 7,428,666 7,573,728
LEASE RECEIVABLES - due after one year (Note 2) 5,238 45,519
EQUIPMENT AND IMPROVEMENTS, net (Note 4) 329,511 340,342
FRANCHISE, TRADEMARKS AND OTHER INTANGIBLE ASSETS, net
(Note 1) 551,718 621,941
DEFERRED INCOME TAX ASSET (Note 5) 12,786 2,514
---------------------------------------------------------------------------------------------------------------
$ 8,327,919 $ 8,584,044
---------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,474,733 $ 1,301,537
Income taxes payable - 281,944
Customer deposits and other 573,298 374,396
Current portion of term loan (Note 6) 1,160,000 480,000
---------------------------------------------------------------------------------------------------------------
Total current liabilities 3,208,031 2,437,877
TERM LOAN, less current portion (Note 6) - 1,160,000
---------------------------------------------------------------------------------------------------------------
Total liabilities 3,208,031 3,597,877
---------------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 7, 9 and 10)
---------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Note 12)
Common stock, $0.025 par value:
Authorized shares - 15,000,000; 7,027,500 and 7,016,250
shares issued and outstanding at 2001 and 2000,
respectively, including shares held in treasury 175,688 175,406
Additional paid-in capital 2,048,570 2,037,602
Retained earnings 2,895,630 2,773,159
Treasury stock, 26,250 shares at cost - -
---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,119,888 4,986,167
---------------------------------------------------------------------------------------------------------------
$ 8,327,919 $ 8,584,044
---------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Income
YEAR ENDED JUNE 30, 2001 2000
---------------------------------------------------------------------------------------------------------
REVENUES:
Net sales $ 17,952,705 $ 18,447,560
Management fees, franchise and license fees, commissions
and other (Note 7) 768,277 1,076,939
---------------------------------------------------------------------------------------------------------
Total 18,720,982 19,524,499
---------------------------------------------------------------------------------------------------------
COST OF SALES (Note 3) 13,534,366 13,213,440
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 7, 9 and 10) 4,707,697 4,422,131
RESEARCH AND DEVELOPMENT EXPENSES 177,710 231,219
---------------------------------------------------------------------------------------------------------
Total 18,419,773 17,866,790
---------------------------------------------------------------------------------------------------------
OPERATING INCOME 301,209 1,657,709
---------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 30,626 35,994
Interest expense (133,364 ) (164,254 )
---------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 198,471 1,529,449
PROVISION FOR INCOME TAXES (Note 5) 76,000 564,000
---------------------------------------------------------------------------------------------------------
NET EARNINGS $ 122,471 $ 965,449
---------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE (Note 11)
Basic earnings per share $.02 $.14
Diluted earnings per share $.02 $.13
---------------------------------------------------------------------------------------------------------
Weighted average number of shares of
Common stock outstanding:
Basic 7,001,250 6,952,083
Diluted 7,121,155 7,305,931
---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
COMMON STOCK ADDITIONAL TREASURY STOCK
-------------------- PAID-IN ----------------------- RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TOTAL
---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 6,951,250 $ 173,781 $ 1,974,227 26,250 $ - $ 1,807,710 $ 3,955,718
YEAR ENDED JUNE 30, 2000:
Stock options exercised 65,000 1,625 63,375 - - - 65,000
Net income - - - - - 965,449 965,449
---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 7,016,250 $ 175,406 $ 2,037,602 26,250 $ - $ 2,773,159 $ 4,986,167
YEAR ENDED JUNE 30, 2001:
Stock options exercised 11,250 282 10,968 - - - 11,250
Net income - - - - - 122,471 122,471
---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001 7,027,500 $ 175,688 $ 2,048,570 26,250 $ - $ 2,895,630 $ 5,119,888
---------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED JUNE 30, 2001 2000
--------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 122,471 $965,449
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 223,189 139,033
Bad debt expense 178,674 20,614
Deferred income taxes (33,474) 17,376
Provision for inventory obsolescence 195,513 -
(Increase) decrease in operating assets:
Accounts, notes and lease receivables (129,225) (287,783)
Inventories (465,352) 139,668
Refundable income taxes (257,363) -
Other current assets 79,622 (126,285)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 173,196 34,702
Income taxes payable (281,944 ) 201,270
Customer deposits and other 198,902 96,388
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,209 1,200,432
--------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures, net (128,762) (137,612)
Acquisition of franchise and license agreements - (630,000)
Increase in patents (13,373) -
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (142,135) (767,612)
--------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on term loan (480,000) (480,000)
Proceeds from exercise of stock options 11,250 65,000
--------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (468,750) (415,000)
--------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (606,676) 17,820
Cash and cash equivalents at beginning of year 982,588 964,768
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 375,912 $982,588
--------------------------------------------------------------------------------------------------------------
Supplemental Information:
Cash paid for:
Interest $ 133,364 $164,254
Income taxes $ 673,120 $345,625
--------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
NATURE OF BUSINESS DRYCLEAN USA, Inc. and Subsidiaries (collectively, the "Company")
are engaged in the sale of commercial and industrial laundry and dry cleaning
equipment, boilers and replacement parts, the sale of individual and area
franchises under the DRYCLEAN USA name, acting as a business broker in
connection with the purchase and sale of retail dry cleaning stores and coin
laundries and the manufacture and sale of telephone test equipment and customer
premise equipment, as well as related accessories.
The Company primarily sells to customers located in the United States, the
Caribbean and Latin America.
PRINCIPLES OF The accompanying consolidated financial statements include the accounts of
CONSOLIDATION DRYCLEAN USA, Inc. and its wholly-owned subsidiaries. Intercompany
transactions and balances have been eliminated in consolidation.
REVENUE RECOGNITION Sales of products are generally recorded as they are shipped. Shipping and
handling fee income of approximately, $145,000 and $125,000 as of June 30, 2001
and 2000, respectively, are included as other revenues in the consolidated
financial statements. Commissions and management fees are recorded when earned.
Individual franchise arrangements include a license and provide for payment of
initial fees, as well as continuing service fees. Initial franchise fees are
generally recorded upon the opening of the franchised store. Continuing services
fees are recorded when earned.
INVENTORIES Inventories are valued at the lower of cost or market determined on
the first-in first-out method.
EQUIPMENT, Property and equipment are stated at cost. Depreciation and amortization are
IMPROVEMENTS AND calculated on accelerated and straight-line methods over lives of five to seven
DEPRECIATION years for furniture and equipment and the life of the lease for leasehold
improvements for both financial reporting and income tax purposes, except that
leasehold improvements are amortized over 31 years for income tax purposes.
FRANCHISE LICENSE, The franchise license, trademark and other intangible assets are stated at cost
TRADEMARK AND OTHER less accumulated amortization. These assets are amortized on a straight-line
INTANGIBLE ASSETS basis over the estimated future periods to be benefited (2-15 years). The
Company reviews the recoverability of intangible assets based primarily upon an
analysis of undiscounted cash flows from the acquired assets. In the event the
expected future net cash flows should become less than the carrying amount of
the assets, an impairment loss will be recorded in the period such determination
is made based on the fair value of the related assets.
20
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
ASSET IMPAIRMENTS The Company periodically reviews the carrying value of certain of its assets in
relation to historical results, current business conditions and trends to
identify potential situations in which the carrying value of assets may not be
recoverable. If such reviews indicate that the carrying value of such assets may
not be recoverable, the Company would estimate the undiscounted sum of the
expected future cash flows of such assets or analyze the fair value of the
asset, to determine if permanent impairment exists. If a permanent impairment
exists, the Company would determine the fair value by using quoted market
prices, if available, for such assets, or if quoted market prices are not
available, the Company would discount the expected future cash flows of such
assets.
INCOME TAXES For the purpose of the provision for income taxes, the Company has adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, for all periods presented. Under the asset and
liability method of SFAS No. 109, deferred taxes are recognized for differences
between consolidated financial statement and income tax bases of assets and
liabilities.
STATEMENT OF CASH FLOWS For purposes of this statement, cash equivalents include all highly liquid
investments with original maturities of three months or less.
ESTIMATES The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE Basic earnings per share are computed on the basis of the weighted average
number of common shares outstanding during each year. Diluted earnings per share
are computed on the basis of the weighted average number of common shares and
dilutive securities outstanding during each year. Securities having an
antidilutive effect on earnings per share are excluded from the calculation of
diluted earnings per share.
ADVERTISING COSTS The Company expenses the costs of advertising as of the first date the
advertisements take place. The Company expensed approximately $343,000 and
$200,000 of advertising costs for the years ended June 30, 2001 and 2000,
respectively.
FAIR VALUE OF The Company's financial instruments consist principally of cash, accounts
FINANCIAL INSTRUMENTS receivable, leases receivables, notes receivable, accounts payable and accrued
expenses and debt. Due to their relatively short-term nature and variable
rates, the carrying amounts of such financial instruments as reflected in the
accompanying consolidated balance sheets
21
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
approximate their estimated fair value. Their estimated fair value is not
necessarily indicative of the amounts the Company could realize in a current
market exchange or of future earnings or cash flows.
SEGMENTS The Company applies the provisions of Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), Segments of an Enterprise and Related
Information, in determining its segments and reporting. Information regarding
the Company's segments is reported in Note 13.
NEW ACCOUNTING In June 2001, the Financial Accounting Standard Board issued FASB Statements No.
PRONOUNCEMENTS 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS No. 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of June 30, 2001, the net carrying amount of other
intangible assets is $551,718. Amortization expense during the years ended June
30, 2001 and 2000 was $83,596 and $74,327, respectively. There was no goodwill
at June 30, 2001. Currently, the Company is assessing but has not yet determined
how the adoption of SFAS 141 and SFAS 142 will impact its financial position and
results of operations.
22
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
40
1. ACQUISITION AND On July 9, 1999, the Company acquired DRYCLEAN USA Franchise Company and the
INTANGIBLE ASSETS worldwide rights to the name DRYCLEAN USA along with existing franchise and
license agreements for $550,000 cash. In connection with this acquisition, the
Company acquired $50,000 of current assets, $10,000 of fixtures and equipment,
$610,000 of franchise license, trademark and other intangibles, and assumed
$80,000 of current liabilities. The pro forma effect of the transaction was
insignificant to the consolidated statement of income for 2000.
Franchise, trademark and other intangible assets consist of the following:
---------------------------------------------------------------------------------
ESTIMATED
USEFUL LIVES JUNE 30, June 30,
(IN YEARS) 2001 2000
---------------------------------------------------------------------------------
Franchise license agreements 10 $529,500 $529,500
Product license agreement 5 80,000 80,000
Trademark, patent and trade name 15 77,141 63,768
Covenant not to compete 2 23,000 23,000
---------------------------------------------------------------------------------
709,641 696,268
Less accumulated amortization 157,923 74,327
---------------------------------------------------------------------------------
$551,718 $621,941
---------------------------------------------------------------------------------
2. LEASE RECEIVABLES Lease receivables result from customer leases of equipment under arrangements
which qualify as sales-type leases. At June 30, 2001, annual future lease
payments, net of deferred interest ($4,141 at June 30, 2001), due under these
leases are as follows:
YEARS ENDING JUNE 30,
--------------------------------------------------------------------------------
2002 $ 39,494
2003 3,814
2004 1,424
--------------------------------------------------------------------------------
$ 44,732
--------------------------------------------------------------------------------
23
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. INVENTORIES The components of inventories are summarized as follows:
JUNE 30, 2001 2000
--------------------------------------------------------------------------------
Raw materials $ 602,615 $ 709,606
Work-in-process 298,331 311,384
Finished goods 3,472,573 3,082,690
--------------------------------------------------------------------------------
$ 4,373,519 $ 4,103,680
--------------------------------------------------------------------------------
Included in cost of sales for the year ended June 30, 2001, is a provision for
inventory obsolescence in the amount of $195,513.
4. EQUIPMENT AND Major classes of equipment and improvements consist of the following:
IMPROVEMENTS
JUNE 30, 2001 2000
----------------------------------------------------------------------------------
Furniture and equipment $ 690,625 $ 696,728
Leasehold improvements 331,279 298,764
----------------------------------------------------------------------------------
Total 1,021,904 995,492
Less accumulated depreciation and
amortization 692,393 655,150
----------------------------------------------------------------------------------
$ 329,511 $ 340,342
----------------------------------------------------------------------------------
Depreciation and amortization amounted to $139,593 and $64,706 for the years
ended June 30, 2001 and 2000, respectively.
24
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. INCOME TAXES The following are the components of income tax expense:
YEAR ENDED JUNE 30, 2001 2000
-----------------------------------------------------------------------------------
Current
Federal $ 93,519 $ 466,729
State 15,955 79,895
-----------------------------------------------------------------------------------
109,474 546,624
-----------------------------------------------------------------------------------
Deferred
Federal (28,581 ) 15,803
State (4,893 ) 1,573
-----------------------------------------------------------------------------------
(33,474 ) 17,376
-----------------------------------------------------------------------------------
Total $ 76,000 $ 564,000
-----------------------------------------------------------------------------------
The reconciliation of income tax expense computed at the Federal statutory tax
rate of 34% to the provision for income taxes is as follows:
YEAR ENDED JUNE 30, 2001 2000
-----------------------------------------------------------------------------------
Tax at the statutory rate $ 67,480 $ 520,013
State income taxes,
net of federal benefit 7,302 53,769
Other 1,218 (9,782 )
-----------------------------------------------------------------------------------
Total $ 76,000 $ 564,000
-----------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effect of temporary differences
between the bases of assets and liabilities for financial reporting purposes and
the bases used for income tax purposes. Significant components of the Company's
current and noncurrent deferred tax assets and liabilities are as follows:
25
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
YEAR ENDED JUNE 30, 2001 2000
---------------------------------------------------------------------------------
Current deferred tax asset (liability):
Allowance for doubtful accounts $ 19,492 $ 13,680
Inventory capitalization 34,433 18,414
Compensation 20,933 21,845
Other (5,521 ) (7,804 )
---------------------------------------------------------------------------------
69,337 46,135
---------------------------------------------------------------------------------
Noncurrent deferred tax asset (liability):
Depreciation (14,531 ) (9,452 )
Amortization 27,317 11,966
---------------------------------------------------------------------------------
12,786 2,514
---------------------------------------------------------------------------------
Total net deferred tax asset $ 82,123 $ 48,649
---------------------------------------------------------------------------------
6. CREDIT AGREEMENT The Company is a party to a loan agreement facility consisting of a line of
credit of $2,250,000 and a term loan of $2,400,000. Borrowings under the
agreement are guaranteed by the Company, bear interest at the Adjusted LIBOR
Market Index Rate (6.63% at June 30, 2001) and are collateralized by
substantially all of the Company's assets. The line of credit matures October
2001. The term loan is due January 2002. At June 30, 2001 and 2000, there were
no outstanding borrowings under the line of credit and, therefore, the Company
could borrow $2,250,000. At June 30, 2001 and 2000, the Company owed $1,160,000
and $1,640,000, respectively, under the term loan. The term loan requires
monthly payments of $40,000 plus interest, with a $960,000 balloon payment in
January 2002. The agreement requires maintenance of certain financial ratios and
contains other restrictive covenants. The Company was not in compliance with
these ratios and covenants at June 30, 2001. The Company has obtained a waiver
of the covenant violations.
7. RELATED PARTY TRANSACTIONS During the year ended June 30, 2000, the Company charged management fees of
$118,391 to an entity controlled by one of the principal shareholders of the
Company. At June 30, 2000, $86,391 was due from that company and is included in
other current assets in the accompanying balance sheets. Advances to or from
that affiliate are non-interest bearing and are due on demand. During the year
ended June 30, 2001, no management fees were charged and the Company recorded a
$100,000 provision for doubtful accounts on amounts due from the related party
entity. At June 30, 2001, $14,495, net of allowance for doubtful accounts was
due to the Company.
26
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company leases warehouse and office space from a principal shareholder of
the Company under an operating lease which expires in October 2004. Annual
rental commitments under this lease approximate $83,200. The lease is renewable
for a ten-year term, at an amount to be agreed upon by the parties.
8. CONCENTRATIONS OF CREDIT The Company places its excess cash in overnight deposits with a large national
RISK bank. Concentration of credit risk with respect to trade and lease receivables
is limited due to a large customer base. Trade and lease receivables are
generally collateralized with equipment sold.
The Company is exposed to foreign currency risk in Italy. To mitigate such risk,
the Company enters into foreign exchange forward contracts to hedge transactions
related to firm commitments to purchase equipment denominated in Italian Lira.
At June 30, 2001, the Company is committed to purchase, for aggregate
consideration of $423,000, 900 million Italian Lira, for delivery in July
through August 15, 2001. The market value of these contracts at June 30, 2001 is
approximately $395,000.
9. COMMITMENTS Rent
----
In addition to the warehouse and office space leased from a principal
shareholder, (see Note 7), the Company leases additional office and warehouse
space under an operating lease expiring in March 2002 and two leases on a
monthly basis. As of June 30, 2001, the Company is also obligated under two
leases for future dry cleaning stores that aggregate $76,000 in annual base rent
per year for the next five years. The Company anticipates assigning such leases
to dry cleaning franchisees or other customers when the leased facilities are
available for occupancy.
Minimum future rental commitment for leases in effect at June 30, 2001
approximates the following:
YEARS ENDING JUNE 30,
--------------------------------------------------------------------------------
2002 $ 295,000
2003 159,000
2004 159,000
2005 104,000
2006 76,000
--------------------------------------------------------------------------------
Total $ 793,000
--------------------------------------------------------------------------------
Rent expense aggregated $324,293 and $309,794 for the years ended June 2001 and
2000, respectively.
27
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
License Agreements
------------------
The Company is a party to a license agreement under which it is obligated to pay
10% of annual sales of certain products. The agreement may be canceled by the
Company annually upon sixty days notice. In February 2000, the Company acquired,
for $80,000, all the manufacturing rights under another license agreement under
which it was previously obligated to pay the greater of 10% of sales of certain
products or $75,000 per year. The Company recorded the license as an intangible
asset in the accompanying consolidated balance sheets. During the years ended
June 30, 2001 and 2000, royalty expense aggregated $8,129 and $40,677,
respectively.
10. DEFERRED The Company has a participatory deferred compensation plan wherein it matches
COMPENSATION employee contributions up to, at the Company's option, for all employees
PLAN determined annually, 1% or 2% of an eligible employee's yearly compensation.
Employees are eligible to participate in the plan after three months of service.
The Company contributed $26,170 and $23,926 in fiscal 2001 and 2000,
respectively. The plan is tax exempt under Section 401(k) of the Internal
Revenue Code.
The Company also maintains a profit-sharing plan which covers substantially all
employees. Annual contributions are determined at the discretion of the Board of
Directors. There were no contributions for fiscal years 2001 and 2000.
11. EARNINGS PER SHARE The following reconciles the components of the earnings per share computation:
YEAR ENDED JUNE 30, 2001
---------------------------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------------------------------------------------------
NET EARNINGS $122,471 7,001,250 $0.02
EFFECT OF DILUTIVE SECURITIES:
STOCK OPTIONS - 119,905 -
---------------------------------------------------------------------------------
NET EARNINGS PLUS ASSUMED DILUTION $122,471 7,121,155 $0.02
---------------------------------------------------------------------------------
28
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
YEAR ENDED JUNE 30, 2000
---------------------------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------------------------------------------------------
Net earnings $965,449 6,952,083 $0.14
Effect of dilutive securities:
Stock options - 353,848 (.01 )
---------------------------------------------------------------------------------
Net earnings plus assumed dilution $965,449 7,305,931 $0.13
---------------------------------------------------------------------------------
There were 60,000 stock options outstanding at June 30, 2001 that were excluded
in the computation of earnings per share for 2001 because the exercise prices of
the options were more than the average market price of the common shares for
that year.
12. STOCK OPTIONS The Company has stock option plans that authorize the grant of options to
purchase 850,000 shares (until September, 2001) and 100,000 shares (until
August, 2004), respectively, of the Company's common stock to employees and
directors of the Company and options to purchase 500,000 shares of the Company's
common stock to employees, directors and consultants. The Company applies APB
Opinion 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for stock options to employees and directors.
Under APB Opinion 25, because the exercise price of the Company's stock options
equals or exceeds the market price of the underlying stock on the date of grant,
no compensation cost has been recognized. No options have been granted to
consultants.
Pursuant to the plans, the Company may grant incentive stock options and
nonqualified stock options. All options under the director plan are nonqualified
stock options. Options may have a maximum term of 10 years, are not transferable
and must be granted at an exercise price of at least 100% of the market value of
the common stock on the date of grant. Incentive stock options granted to an
individual owning more than 10% of the total combined voting power of all
classes of stock issued by the Company must have an exercise price of at least
110% of the fair market value of the shares issuable on the date of the grant
and may not have a term of more than five years. Incentive stock options granted
under the plans are subject to the limitation that the aggregate fair market
value (determined as of the date of grant) of those options which may first
become exercisable in any calendar year cannot exceed $100,000. Generally,
options terminate three months following termination of service (except
generally one year in the case of termination of service by reason of death or
disability).
29
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Generally, options granted to date have been exercisable as to one-fourth of the
shares covered thereby on the first anniversary of grant and one-fourth on the
next three anniversaries of grant. However, options granted under the directors
plan become immediately exercisable upon certain events which are deemed to be a
"change in control" of the Company. Options granted under the employee plan
terminate upon a merger in which the Company is not the surviving corporation, a
capital reorganization in which more than 50% of the Company's common stock is
exchanged, or the liquidation or dissolution of the Company, unless other
provision is made by the board of directors.
In fiscal 2000, the Company granted 10,000 options to an employee, exercisable
at a price of $2.00 per share. There were no stock options granted in fiscal
2001.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the Company to
provide pro forma information regarding net income and net income per share as
if compensation cost for the Company's stock options had been determined in
accordance with the fair value based method prescribed in SFAS No. 123. The
Company estimates the fair value of each stock option at the grant date by using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal year 2000: no dividend yield percent;
expected volatility of 46.1%; risk-free interest rates of approximately 6.36%,
and expected lives of 5 years. No options were granted in fiscal year 2001.
Based on these assumptions, under the accounting provisions of SFAS No. 123, the
Company's net income and net income per common share would have been as follows:
YEAR ENDED JUNE 30, 2001 2000
---------------------------------------------------------------------------------
Net income As reported $122,471 $965,449
Pro forma $122,471 $957,649
---------------------------------------------------------------------------------
Net income per common share:
Basic As reported $.02 $.14
Pro forma $.02 $.14
---------------------------------------------------------------------------------
Diluted As reported $.02 $.13
Pro forma $.02 $.13
---------------------------------------------------------------------------------
30
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A summary of options under the Company's stock option plans and non-plan options
as of June 30, 2001, and changes during the year then ended is presented below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------------------------------------------------------------------------------
Outstanding at beginning of year 610,000 $1.09
Granted - -
Exercised (11,250 ) 1.00
Expired (4,000 ) 1.00
-------------------------------------------------------------------------------
Outstanding at end of year 594,750 1.09
-------------------------------------------------------------------------------
Options exercisable at year-end 319,875 $1.08
-------------------------------------------------------------------------------
A summary of the status of the Company's stock option plan and non-plan options
as of June 30, 2000, and changes during the year then ended is presented below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------------------------------------------------------------------------------
Outstanding at beginning of year 720,000 $1.10
Granted 10,000 2.00
Exercised (65,000 ) 1.00
Expired (55,000 ) 1.42
-------------------------------------------------------------------------------
Outstanding at end of year 610,000 1.09
-------------------------------------------------------------------------------
Options exercisable at year-end 172,500 $1.01
-------------------------------------------------------------------------------
Weighted-average fair value per share
of options granted during the year $1.18
-------------------------------------------------------------------------------
31
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table summarizes information about stock option plan and non-plan
options outstanding at June 30, 2001:
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 6/30/01 LIFE PRICE 6/30/01 PRICE
------------------------------------------------------------------------------------
$ 0.81-2.00 594,750 2.30 $1.09 319,875 $1.08
------------------------------------------------------------------------------------
13. 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. Steiner-Atlantic Corp.,
Steiner-Atlantic Brokerage Company, Inc. and DRYCLEAN USA Development Corp.,
comprise the commercial and industrial laundry and dry cleaning equipment
segment. Steiner-Atlantic Corp. is a supplier of dry cleaning equipment,
industrial laundry equipment and steam boilers to customers in the United
States, the Caribbean and Latin American markets. Steiner-Atlantic Brokerage
Company, Inc. acts as a business broker to assist others seeking to buy or sell
existing dry cleaning and laundry businesses. DRYCLEAN USA Development Corp. was
formed in fiscal 2001 to develop turn-key dry cleaning establishments for resale
to third parties. Metro-Tel Corp. comprises the manufacture and sale of
telephone test equipment segment. This segment is engaged in the manufacture and
sale of telephone test and customer premise equipment utilized by telephone and
telephone interconnect companies in the installation and maintenance of
telephone equipment. DRYCLEAN USA License Corp. comprises the license and
franchise operations segment. 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.
For the years ended June 30, 2001 and 2000, export sales, principally to the
Caribbean and Latin America, aggregated approximately $4,403,146 and $3,652,147,
respectively.
No single customer accounted for more than 10% of the Company's revenues.
32
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Financial information for the Company's business segments is as follows:
YEAR ENDED JUNE 30, 2001 2000
------------------------------------------------------------------------------------
Revenues:
Commercial and industrial laundry and dry
cleaning equipment $15,355,235 $15,487,499
Manufacture and sale of telephone test 2,916,697 3,500,660
equipment
License and franchise operations 449,050 536,340
------------------------------------------------------------------------------------
Total revenues $18,720,982 $19,524,499
------------------------------------------------------------------------------------
Operating income (loss):
Commercial and industrial laundry
and dry cleaning equipment $520,412 $1,272,313
Manufacture and sale of telephone test (487,040 ) 21,414
equipment
License and franchise operations 267,837 363,982
------------------------------------------------------------------------------------
Total operating income $301,209 $1,657,709
------------------------------------------------------------------------------------
Identifiable assets:
Commercial and industrial laundry
and dry cleaning equipment $5,076,391 $5,043,287
Manufacture and sale of telephone test 2,452,098 2,559,252
equipment
License and franchise operations 799,430 981,505
-----------------------------------------------------------------------------------
Total assets $8,327,919 $8,584,044
-----------------------------------------------------------------------------------
33
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A)OF THE EXCHANGE ACT.
-------------------------------------------------
The following information is presented with respect to the background
of each of the directors and executive officers of the Company:
Michael S. Steiner, 45, has been President and Chief Executive Officer
of the Company since the effectiveness of the Merger on November 1, 1998 and of
Steiner since 1988. Mr. Steiner has been a director of the Company since the
effectiveness of the Merger on November 1, 1998.
William K. Steiner, 71, has been Chairman of the Board of Steiner since
he founded Steiner in 1960. Mr. Steiner has been a director of the Company since
the effectiveness of the Merger on November 1, 1998.
Venerando J. Indelicato, 68, was President of the Company from December
1967 until the effectiveness of the Merger on November 1, 1998 and has been
Treasurer and Chief Financial Officer of the Company since December 1969.
Lloyd Frank, 76, has been a member of the law firm of Jenkens &
Gilchrist Parker Chapin LLP and its predecessor since 1977. Mr. Frank has been a
director of the Company since 1977. The Company retained Jenkens & Gilchrist
Parker Chapin LLP during the Company's last fiscal year and is retaining that
firm during the Company's current fiscal year. Mr. Frank is also a director of
Park Electrochemical Corp. and Volt Information Sciences. Inc.
David Blyer, 41, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998. Mr. Blyer has been Chief
Executive Officer and President of Vento Software, since he co-founded that
company in 1994. Vento Software develops software for specialized business
application. Before founding Vento Software, Mr. Blyer served as Senior Account
Manager of the South Florida and Caribbean regions for Tandem Computers.
Alan M. Grunspan, 41, has served as a director of the Company since May
1999. Mr. Grunspan has been a member of the law firm of Kaufman Dickstein &
Grunspan P. A. since 1991. The Company has retained Kaufman Miller Dickstein &
Grunspan P. A. during the Company's last fiscal year and is retaining that firm
during the Company's current fiscal year.
Stuart Wagner, 69, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998 and has been retained as a
consultant for Diversitech Corp. since 1997. From 1975 to 1997, Mr. Wagner
served as President of Wagner Products Corp., a manufacturer and distributor of
products in the HVAC industry, a company which he founded.
Mr. Michael S. Steiner is the son of Mr. William K. Steiner. There are
no other family relationships among any of the directors and executive officers
of the Company. All directors serve until the next annual meeting of
stockholders and until the election and qualification of their respective
successors. All officers serve at the pleasure of the Board of Directors.
The following information is presented with respect to the background
of each person who is not an executive officer but who is expected to continue
to make a significant contribution to the Company:
34
Osvaldo Rubio, 38, has served as Vice President and Director of Sales
for the Export Department of Steiner since joining Steiner in May 1993.
Ronald London, 68, has served as Vice President and primarily oversees
sales of the retail Dry Cleaning Equipment Department of Steiner since joining
Steiner in September 1992.
Jon D. Robinette, 43, has, since July 1999, served as Vice President
and General Manager of the Company's telecommunications operations, responsible
for managing and coordinating operations in the Company's Milpitas, California
facility. Prior thereto, Mr. Robinette served as Operations Manager for the
Company's telecommunications operations from October 1984.
ITEM 10. EXECUTIVE COMPENSATION.
-----------------------
The information called for by this Item will be contained in the
Company's definitive Proxy Statement with respect to the Company's 2001 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The information called for by this Item will be contained in the
Company's definitive Proxy Statement with respect to the Company's 2001 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information called for by this Item will be contained in the
Company's definitive Proxy Statement with respect to the Company's 2001 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits
2(a) Agreement of Merger dated as of July 1, 1998 among the
Company, Metro-Tel Acquisition Corp., Steiner-Atlantic Corp.,
William K. Steiner and Michael S. Steiner. (Exhibit A of the
definitive Proxy Statement of the Company filed with the
Commission on October 5, 1998, File No. 0-9040.)
3(a)(1) Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on June 30, 1963.
(Exhibit 4.1(a) to the Company's Current Report on Form 8-K
dated (date of earliest event reported) October 29, 1998.)
3(a)(2) Certificate of Amendment to the Certificate of Incorporation
of the Company, as filed with the Secretary of State of the
State of Delaware on March 27, 1968. (Exhibit 4.1(b) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(3) Certificate of Amendment to the Certificate of Incorporation
of the Company, as filed with the Secretary of State of the
State of Delaware on November 4, 1983. (Exhibit 4.1(c) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
35
3(a)(4) Certificate of Amendment to the Certificate of Incorporation
of the Company, as filed with the Secretary of State of the
State of Delaware on November 5, 1986. (Exhibit 4.1(d) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(5) Certificate of Change of Location of Registered Office and of
Agent, as filed with the Secretary of State of the State of
Delaware on December 31, 1986. (Exhibit 4.1(e) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(6) Certificate of Ownership and Merger of Design Development
Incorporated into the Company, as filed with the Secretary of
State of the State of Delaware on June 30, 1998. (Exhibit
4.1(f) to the Company's Current Report on Form 8-K dated (date
of earliest event reported) October 29, 1998.)
3(a)(7) Certificate of Amendment to the Company's Certificate of
Incorporation as filed with the Secretary of State of the
State of Delaware on October 30, 1998. (Exhibit 4.1(g) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(8) Certificate of Amendment to the Company's Certificate of
Incorporation, as filed with the Secretary of State of the
State of Delaware on November 5, 1999. (Exhibit 4.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1999, File No. 0-9040.)
3(b) By-Laws of the Company, as amended. (Exhibit 4.2 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1999, File No. 0-9040.)
4(a)(1) Loan and Security Agreement dated November 2, 1998 between
Steiner-Atlantic Corp. and First Union National Bank. (Exhibit
4.2(a) to the Company's Current Report on Form 8-K dated (date
of earliest event reported) October 29, 1998.)
4(a)(2) Guaranty and Security Agreement dated November 2, 1998 by the
Company in favor of First Union National Bank. (Exhibit 4.2(b)
to the Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
10(a)(1)(i) Lease dated April 1, 1991 between the Company and CB
Institutional Fund VII with respect to the Company's
facilities at 240 South Milpitas Boulevard, Milpitas,
California. (Exhibit 10(a)(2) to the Company's Annual Report
on Form 10-K for the year ended June 30, 1991, File No.
0-9040.)
10(a)(1)(ii) Second Amendment to Lease dated November 1, 1998 between the
Company and The Realty Associates Fund III, L. P.
(successor-in-interest to CB Institutional Fund VII) with
respect to the Company's facilities at 240 South Milpitas
Boulevard, Milpitas, California. (Exhibit 10(a)(1)(ii) to the
Company's Transition Report on Form 10-KSB for the transition
period from January 1, 1998 to June 30, 1998, File No.
0-9040.)
10(a)(2) Lease dated October 6, 1995 between Steiner and William, K.
Steiner with respect to Steiner's facilities located 290 N.E.
68th Street, 297 N.E. 67 St. and 277 N.E. 67 St. Miami,
Florida. (Exhibit 10(a)(2) to the Company's Transition Report
on Form 10-KSB for the transition period from January 1, 1998
to June 30, 1998, File No. 0-9040.)
36
10(b)(1)(i)+ Employment Agreement dated July 1, 1981 between the Company
and Venerando J. Indelicato. (Exhibit 10(b)(1)(i) to the
Company's Annual Report on Form 10-KSB for the year ended June
30,1995, File No. 0-9040.)
10(b)(1)(ii)+ Amendment No. 1 dated July 1, 1983 to the Employment Agreement
dated July 1, 1981 between the Company and Venerando J.
Indelicato. (Exhibit 10(b)(l)(ii) to the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1995, File
No. 0-9040.)
10(b)(1)(iii)+ Amendment No. 2 dated October 30, 1998 to the Employment
Agreement dated July 1, 1981 between the Company and Venerando
J. Indelicato. (Exhibit 10(b)(1)(iii) to the Company's
Transition Report on Form 10-KSB for the transition period
from January 1, 1998 to June 30, 1998, File No. 0-9040.)
10(c)(l)+ The Company's 1991 Stock Option Plan, as amended. (Exhibit
99.3 to the Company's Current Report on Form 8-K dated (date
of earliest event reported) October 29, 1998, File No.
0-9040.)
10(c)(2)+ The Company's 1994 Non-Employee Director Stock Option Plan.
(Exhibit A to the Company's Proxy Statement dated October 14,
1994 used in connection with the Company's 1994 Annual Meeting
of Stockholders, File No. 0-9040.)
10(c)(3)+ The Company's 2000 Stock Option Plan. (Exhibit 99.1 to the
Company's Registration Statement on Form S-8, File No.
333-37582.)
10(c)(4)+ Form of Stock Option Agreement dated June 25, 1991 entered
into between the Company and each of Sheppard Beidler (option
has since expired), Lloyd Frank (option has since expired) and
Michael Michaelson (option has since been exercised), together
with a schedule identifying the details in which the actual
agreements differ from the exhibit filed herewith. (Exhibit
10(c)(4) to the Company's Annual Report on Form 10-K for the
year ended June 30, 1991, File No. 0-9040.)
10(c)(5)+ Form of Stock Option Agreement dated May 4, 1993 entered into
between the Company and each of Sheppard Beidler (option has
since expired), Lloyd Frank and Michael Michaelson (option has
since been exercised), together with a schedule identifying
the details in which the actual agreements differ from the
exhibit filed herewith. (Exhibit 10(c)(4) to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1993,
File No. 0-9040.)
*21 Subsidiaries of the Company.
*23 Consent of BDO Seidman, LLP.
-----------------------
* Filed with this Report. All other exhibits are incorporated herein by
reference to the filing indicated in the parenthetical reference
following the exhibit description.
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DRYCLEAN USA, Inc.
Dated: September 27,200l
By: /s/Michael S. Steiner
---------------------------------------------
Michael S. Steiner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Michael S. Steiner President, September 27, 2001
------------------------------------------- Chief Executive Officer
Michael S. Steiner (Principal Executive Officer) and
Director
/s/ William K. Steiner Director September 27, 2001
-------------------------------------------
William K. Steiner
/s/ Venerando J. Indelicato Chief Financial Officer September 27, 2001
------------------------------------------- (Principal Financial and Accounting
Venerando J. Indelicato Officer) and Director
/s/ Lloyd Frank Director September 27, 2001
-------------------------------------------
Lloyd Frank
Director
-------------------------------------------
Alan M. Grunspan
Director
-------------------------------------------
Stuart Wagner
Director
-------------------------------------------
David Blyer
38
2(a) Agreement of Merger dated as of July 1, 1998 among the
Company, Metro-Tel Acquisition Corp., Steiner-Atlantic Corp.,
William K. Steiner and Michael S. Steiner. (Exhibit A of the
definitive Proxy Statement of the Company filed with the
Commission on October 5, 1998, File No. 0-9040.)
3(a)(1) Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on June 30, 1963.
(Exhibit 4.1(a) to the Company's Current Report on Form 8-K
dated (date of earliest event reported) October 29, 1998.)
3(a)(2) Certificate of Amendment to the Certificate of Incorporation
of the Company, as filed with the Secretary of State of the
State of Delaware on March 27, 1968. (Exhibit 4.1(b) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(3) Certificate of Amendment to the Certificate of Incorporation
of the Company, as filed with the Secretary of State of the
State of Delaware on November 4, 1983. (Exhibit 4.1(c) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(4) Certificate of Amendment to the Certificate of Incorporation
of the Company, as filed with the Secretary of State of the
State of Delaware on November 5, 1986. (Exhibit 4.1(d) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(5) Certificate of Change of Location of Registered Office and of
Agent, as filed with the Secretary of State of the State of
Delaware on December 31, 1986. (Exhibit 4.1(e) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(6) Certificate of Ownership and Merger of Design Development
Incorporated into the Company, as filed with the Secretary of
State of the State of Delaware on June 30, 1998. (Exhibit
4.1(f) to the Company's Current Report on Form 8-K dated (date
of earliest event reported) October 29, 1998.)
3(a)(7) Certificate of Amendment to the Company's Certificate of
Incorporation as filed with the Secretary of State of the
State of Delaware on October 30, 1998. (Exhibit 4.1(g) to the
Company's Current Report on Form 8-K dated (date of earliest
event reported) October 29, 1998.)
3(a)(8) Certificate of Amendment to the Company's Certificate of
Incorporation, as filed with the Secretary of State of the
State of Delaware on November 5, 1999. (Exhibit 4.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1999, File No. 0-9040.)
3(b) By-Laws of the Company, as amended. (Exhibit 4.2 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1999, File No. 0-9040.)
4(a)(1) Loan and Security Agreement dated November 2, 1998 between
Steiner-Atlantic Corp. and First Union National Bank. (Exhibit
4.2(a) to the Company's Current Report on Form 8-K dated (date
of earliest event reported) October 29, 1998.)
39
4(a)(2) Guaranty and Security Agreement dated November 2, 1998 by the
Company in favor of First Union National Bank. (Exhibit 4.2(b)
to the Company's Current Report on Form 8-K dated (date of
earliest event reported) October 29, 1998.)
10(a)(1)(i) Lease dated April 1, 1991 between the Company and CB
Institutional Fund VII with respect to the Company's
facilities at 240 South Milpitas Boulevard, Milpitas,
California. (Exhibit 10(a)(2) to the Company's Annual Report
on Form 10-K for the year ended June 30, 1991, File No.
0-9040.)
10(a)(1)(ii) Second Amendment to Lease dated November 1, 1998 between the
Company and The Realty Associates Fund III, L. P.
(successor-in-interest to CB Institutional Fund VII) with
respect to the Company's facilities at 240 South Milpitas
Boulevard, Milpitas, California. (Exhibit 10(a)(1)(ii) to the
Company's Transition Report on Form 10-KSB for the transition
period from January 1, 1998 to June 30, 1998, File No.
0-9040.)
10(a)(2) Lease dated October 6, 1995 between Steiner and William, K.
Steiner with respect to Steiner's facilities located 290 N.E.
68th Street, 297 N.E. 67 St. and 277 N.E. 67 St. Miami,
Florida. (Exhibit 10(a)(2) to the Company's Transition Report
on Form 10-KSB for the transition period from January 1, 1998
to June 30, 1998, File No. 0-9040.)
10(b)(1)(i)+ Employment Agreement dated July 1, 1981 between the Company
and Venerando J. Indelicato. (Exhibit 10(b)(1)(i) to the
Company's Annual Report on Form 10-KSB for the year ended June
30,1995, File No. 0-9040.)
10(b)(1)(ii)+ Amendment No. 1 dated July 1, 1983 to the Employment Agreement
dated July 1, 1981 between the Company and Venerando J.
Indelicato. (Exhibit 10(b)(l)(ii) to the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1995, File
No. 0-9040.)
10(b)(1)(iii)+ Amendment No. 2 dated October 30, 1998 to the Employment
Agreement dated July 1, 1981 between the Company and Venerando
J. Indelicato. (Exhibit 10(b)(1)(iii) to the Company's
Transition Report on Form 10-KSB for the transition period
from January 1, 1998 to June 30, 1998, File No. 0-9040.)
10(c)(l)+ The Company's 1991 Stock Option Plan, as amended. (Exhibit
99.3 to the Company's Current Report on Form 8-K dated (date
of earliest event reported) October 29, 1998, File No.
0-9040.)
10(c)(2)+ The Company's 1994 Non-Employee Director Stock Option Plan.
(Exhibit A to the Company's Proxy Statement dated October 14,
1994 used in connection with the Company's 1994 Annual Meeting
of Stockholders, File No. 0-9040.)
10(c)(3)+ The Company's 2000 Stock Option Plan. (Exhibit 99.1 to the
Company's Registration Statement on Form S-8, File No.
333-37582.)
10(c)(4)+ Form of Stock Option Agreement dated June 25, 1991 entered
into between the Company and each of Sheppard Beidler (option
has since expired), Lloyd Frank (option has since expired) and
Michael Michaelson (option has since been exercised), together
with a schedule identifying the details in which the actual
agreements differ from the exhibit filed herewith. (Exhibit
10(c)(4) to the Company's Annual Report on Form 10-K for the
year ended June 30, 1991, File No. 0-9040.)
40
10(c)(5)+ Form of Stock Option Agreement dated May 4, 1993 entered into
between the Company and each of Sheppard Beidler (option has
since expired), Lloyd Frank and Michael Michaelson (option has
since been exercised), together with a schedule identifying
the details in which the actual agreements differ from the
exhibit filed herewith. (Exhibit 10(c)(4) to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1993,
File No. 0-9040.)
*21 Subsidiaries of the Company.
*23 Consent of BDO Seidman, LLP.
-----------------------
* Filed with this Report. All other exhibits are incorporated herein by
reference to the filing indicated in the parenthetical reference
following the exhibit description.
+ Management contract or compensatory plan or arrangement.
41