UNITED STATES
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, 2002
[ ] 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 from continuing operations for its fiscal year ended
June 30, 2002 were $14,288,504.
The aggregate market value as at September 23, 2002 of the Common Stock of
the issuer, its only class of voting stock, held by non-affiliates was
approximately $1,025,000 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, 2002 was 6,996,450.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement relating to its 2002 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 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 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 in
the United States and other countries in which the Company's customers are
located; 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 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; 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(R)
dry-wetcleaning(TM) machine. 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. DESCRIPTION OF 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. Until November 1, 1999, when
Steiner-Atlantic Corp. ("Steiner") was merged with and into, and therefore
became, a wholly-owned subsidiary of the Company, the Company's principal
business was 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 its Metro-Tel
telecommunications segment (the "Metro-Tel Segment"). Since the merger, the
Company's principal business has been as a supplier of commercial and industrial
dry cleaning equipment, laundry equipment and steam boilers and related
activities. To reflect the change in the Company's principal business, the
Company changed its name to DRYCLEAN USA, Inc. on November 7, 1999.
Effective July 31, 2002, the Company sold substantially all of the
operating assets (principally inventory, equipment and intangible assets,
including tradenames) of the Metro-Tel Segment to an unaffiliated third party.
The Company retained all of the cash, accounts receivable and liabilities of the
Metro-Tel Segment. The sales price of $800,000, of which $250,000 was paid in
cash on August 2, 2002 and the remaining $550,000 is evidenced by the
purchaser's promissory note that bears interest at the prevailing prime rate
plus 1% per annum and is payable in 42 equal monthly installments commencing
October 1, 2002. Transaction costs to the Company aggregated approximately
$40,000. Payment and performance of the promissory note is guaranteed by two
companies affiliated with the purchaser and the three principal shareholders of
purchaser and the affiliated companies, and is collateralized by substantially
all of the operating assets of the purchaser and the affiliated companies. The
Company has
2
agreed to subordinate payment of the promissory note, the obligations of the
affiliated companies under their guarantees and the collateral granted by the
purchaser and the affiliated companies to the obligations of the purchaser and
the affiliated companies to two bank lenders, subject to the Company's right to
receive installment payments under the promissory note as long as the purchaser
and the affiliated companies are not in default of their obligations to the
applicable lender. The Company agreed to a three-year covenant not to compete
with the purchaser. The Company had determined to sell the Metro-Tel Segment in
light of the segment's telecommunications business being unrelated to the
Company's core business, the reduction in revenues and increasing losses that
the Metro-Tel Segment had been experiencing and to enable the Company to devote
its resources to its larger and profitable core business activities in the dry
cleaning and laundry equipment industry, including its new Green Jet(R)
dry-wetcleaning(TM) machine. As a result of the determination to sell the
Metro-Tel Segment, the operations of the Metro-Tel Segment are reflected in the
financial statements included in this Report as a discontinued operation and are
not discussed in detail in this Report as the Company is no longer engaged in
that business.
The Company, through Steiner, supplies commercial and industrial dry
cleaning equipment, laundry equipment and steam boilers in the United States,
the Caribbean and Latin American markets. This aspect of the Company's business
services includes:
o 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;
o supplying replacement equipment and parts to its customers;
o providing warranty and preventative maintenance through
factory-trained technicians and service managers;
o selling its own line of laundry and dry cleaning machines under its
Aero-Tech(R)and Green Jet(R)brand names; and
o selling process steam systems and boilers.
In March 1999, the Company 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 the Company's existing customers have become Steiner
Brokerage clients, utilizing the Company's staff and ability to assist them in
the sale of their businesses and associated real property.
In July 1999, the Company acquired certain assets of DRYCLEAN USA Franchise
Company ("DRYCLEAN USA Franchise"), 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 over 400 franchised and
licensed locations in the United States, the Caribbean and Latin America. The
Company intends to increase the number of existing franchisees and licensees of
DRYCLEAN USA through proven sales and advertising methods.
In February 2001, the Company formed DRYCLEAN USA Development Corp.
("DRYCLEAN USA Development") as a new subsidiary to develop new turn-key dry
cleaning establishments for resale to third parties.
Product Lines. The Company offers a broad line of commercial and industrial
laundry and dry cleaning equipment and steam boilers, as well as a comprehensive
parts and accessories inventory. The Company's commercial and industrial laundry
equipment features washers and dryers, including coin-
3
operated machines, boilers, water reuse and heat reclamation systems, flatwork
ironers and automatic folders. The Company's dry cleaning equipment includes
commercial dry cleaning machines sold primarily under the Aero-Tech(R) and Green
Jet(R) names, garment presses, finishing equipment, and sorting and storage
conveyors.
In December 2001, the Company began shipping its new environmentally
friendly Green Jet(R) dry-wetcleaning(TM) machine. This new machine not only
cleans garments efficiently, but it also eliminates the use of perchloroethylene
(Perc) in the dry 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. First deliveries of Green Jet(R) were
made to customers in the second quarter of fiscal 2002.
The Company's products are positioned and priced to appeal to customers in
each of the high-end, mid-range and value priced markets. the Company's products
are offered under a wide range of price points to address the needs of a diverse
customer base. Suggested prices for most of the Company's products range from
approximately $5,000 to $50,000. The Company's products afford the Company's
customers a "one-stop shop" for commercial and industrial laundry and dry
cleaning machines, boilers and accessories. By providing "one-stop" shopping,
the Company believes it is better able to attract and support potential
customers who can choose from the Company's broad product line.
The Company seeks to establish customer satisfaction by offering:
o an on-site training and preventive maintenance program performed by
factory trained technicians and service managers;
o design and layout assistance;
o maintenance of a comprehensive parts and accessories inventory and
same day or overnight availability;
o competitive pricing; and
o a toll-free support line to resolve customer service problems.
In addition, the Company, under the name DRYCLEAN USA, currently franchises
and licenses over 400 retail drycleaning stores in the United States, the
Caribbean and Latin America, making it one of the largest retail drycleaning
license and franchise operations in the dry cleaning industry. During fiscal
2002, the Company's license and franchise segment contributed approximately 2.4%
of the Company's revenues from continuing operations and 19.3% of operating
income from continuing operations.
Through its Steiner Brokerage subsidiary, the Company acts as a business
broker to assist others seeking to buy or sell existing dry cleaning and laundry
businesses. Some of the Company's existing customers have become Steiner
Brokerage clients, utilizing the Company's staff and ability to assist them in
the sale of their businesses and associated real property. This business
contributed under 1% of revenue from continuing operations during fiscal 2002.
The Company, through its DRYCLEAN USA Development subsidiary, develops new
turn-key dry cleaning establishments for resale to third parties. DRYCLEAN USA
Development did not contribute revenues until fiscal 2002, during which it
provided approximately 1% of revenues from continuing operations.
4
Sales, Marketing and Customer Support. The Company's laundry and dry
cleaning equipment products are marketed in the United States, the Caribbean and
Latin America to its customers, as well as customers of its DRYCLEAN USA
Franchise subsidiary. The Company employs sales executives to market its
products, including its Aero-Tech(R) and Green Jet(R) products, in the United
States and in international markets. The Company 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 the Company's equipment sales orders are obtained by telephone,
e-mail and fax inquiries originated by the customer or by representatives of the
Company, and significant repeat sales are derived from existing customers.
Additionally, the Company's Aero-Tech(R) machines are sold through
distributors and dealers throughout the United States, the Caribbean, Latin
America and Europe. The Company is in the process of developing a
distributorship relationship in North America and Europe for the distribution of
its Green Jet(R) dry-wetcleaning(TM) machine. To date, it has entered into
distributorship arrangements for the Company's Green Jet(R) dry-wetcleaning(TM)
machines with approximately ten distributors in North America and two
distributors in Europe.
The Company trains its sales and service employees to provide service and
customer support. The Company uses specialized classroom training, instructional
videos and vendor sponsored seminars to educate employees about product
information. In addition, the Company's technical staff has prepared
comprehensive training manuals, written in English and Spanish, relating to
specific training procedures. The Company's technical personnel are continuously
retrained as new technology is developed. The Company monitors service
technicians continued educational experience and fulfillment of requirements in
order to evaluate their competence. All of the Company's service technicians
receive service bulletins, service technicians' tips and continued training
seminars.
Customers and Markets. The Company's customer base consists of
approximately 500 customers in the United States, the Caribbean and Latin
America, including independent and franchise dry cleaning stores and chains,
hotels, motels, hospitals, cruise lines, nursing homes, government institutions
and distributors. No customer accounted for more than 10% of the Company's
revenues during the years ended June 30, 2002 or June 30, 2001.
Sources of Supply. The Company purchases laundry and dry cleaning machines,
boilers and other products from a number of manufacturers, none of which
accounted for more than 20% of the Company's purchases for the years ended June
30, 2002 or June 30, 2001. The Green Jet(R) dry-wetcleaning(TM) machines are
currently manufactured exclusively for the Company by one manufacturer in the
United States. Substantially all of the Company's remaining dry cleaning
equipment sold under the Aero-Tech(R) label is currently manufactured
exclusively for the Company by one manufacturer in Italy. The Company has
established long-standing relationships with these manufacturers. The Company's
management believes these supplier relationships provide the Company with a
substantial competitive advantage, including exclusivity in certain products and
areas and favorable prices and terms. Therefore, the loss of one of these vendor
relationships could adversely affect the Company's business. Historically, the
Company has not experienced difficulty in purchasing desired products from its
suppliers and believes it has good working relationships with its suppliers.
The Company has a formal contract with a few of its equipment manufacturers
and relies on its long-standing relationship with its other suppliers. The
Company collaborates in the design, closely monitors the quality of the
manufactured product and believes its Aero-Tech(R) and Green Jet(R) machines
exceed the environmental regulations set by safety and environmental regulatory
agencies. The Company must place its orders with its United States manufacturer
of the Green Jet(R) dry-wetcleaning(TM) machine and with its Italian
manufacturer of the remainder of its Aero-Tech(R) dry cleaning machines prior to
the time the Company has received all of its orders. However, because of the
Company's close working relationship with its manufacturers, the Company can
usually adjust orders rapidly and efficiently to reflect a change in
5
customer demands. The Company believes that if, for any reason its arrangement
with these manufacturers were to cease or in the event the cost of these
products were to be adversely affected, it will be able to have these products
manufactured by other suppliers.
Under its arrangement with the Italian manufacturer, the Company purchases
dry cleaning machines in Euros. The Company's new bank revolving credit facility
includes a $250,000 foreign exchange subfacility for the purpose of enabling the
Company to mitigate its currency exposure in connection with its import
activities through spot foreign exchange and forward exchange contracts.
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 the Company's
margins on its Aero-Tech(R) machines. United States customs duties presently are
less than 1% of invoice cost for the Company's dry cleaning machines.
Competition. The commercial and industrial 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. The
Company's management believes that no one distributor has a major share of the
market and that substantially all 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, the
Company's principal domestic market, the Company's primary competition is
derived from two full-line distributors which operate out of the Miami area. In
the export market, the Company competes with several distributors and
anticipates increased competition as the export market grows. On a national
level, the Company competes with over a dozen manufacturers of dry cleaning
equipment whose products are distributed nationally. The Company 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, competitive special features and, with respect to
certain products, exclusivity. 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.
RESEARCH AND DEVELOPMENT
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The Company has designed its new Green Jet(R) dry-wetcleaning(TM) machine
and continues to improve this product line. The amounts of research and
development expenses for the years ended June 30, 2002 and 2001 were $31,499 and
$50,743.
PATENTS AND TRADEMARKS
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The Company is the owner of United States service mark registrations for
the names Aero-Tech(R), Logitrol(R), Petro-Star(R), Enviro-Star(R) and Green
Jet(R), which are used in connection with its laundry and dry cleaning
equipment, and of DRYCLEAN USA(R), which is licensed by it to retail dry
cleaning establishments. 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. Patents have been applied for to protect the Company's new Green
Jet(R) dry-wetcleaning(TM) machine.
6
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, including with respect to
perchloroethylene (Perc), the primary cleaning agent historically used in
commercial and industrial dry cleaning process. A number of industries,
including the commercial and industrial dry cleaning and laundry equipment
industries, 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 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.
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.
The Company is also subject to Federal Trade Commission (the "FTC")
regulations and various state laws regulating the offer and sale of franchises.
The FTC and various state laws require the Company to, among other things,
furnish to prospective franchisees a franchise offering circular containing
prescribed information. Certain states in the United States require separate
filings in order to offer franchises. The Company is currently registered in
four of those states. The Company believes that it is in compliance in all
material respects with these laws.
EMPLOYEES
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The Company currently employs 34 employees on a full-time basis, of whom
three serve in executive management capacities, 11 are engaged in sales and
marketing, 12 are administrative and clerical personnel, four are engaged in
production and four serve as warehouse support. 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
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Export sales of the Company's laundry and dry cleaning business were
approximately $2,081,287 and $4,166,033 during the years ended June 30, 2002 and
June 30, 2001, respectively, and were made principally to Latin America and the
Caribbean. See "Customers and Markets".
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, as well as the strength of
the economies of the countries in which the Company's customers are located.
7
ITEM 2. DESCRIPTION OF PROPERTIES.
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The Company's executive offices and the main distribution center for its
products are housed in three leased adjacent facilities totaling approximately
45,000 square feet in Miami, Florida. 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
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Miami, Florida (1) 27,000 October 2004
Miami, Florida 8,000 March 2004 (2)
Miami, Florida 10,000 December 2002(3)
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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.
(2) In addition, the Company has two separate two-year renewal options.
(3) In addition, the Company has one three-year renewal option.
ITEM 3. LEGAL PROCEEDINGS.
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The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Not applicable.
8
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Company's Common Stock is traded on the American Stock Exchange (the
"Amex") and on the Chicago Stock Exchange, each under the symbol "DCU." The
following table sets forth, for the Company's Common Stock, the high and low
sales prices on the Amex, as reported by Amex, for the periods reflected below.
HIGH LOW
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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
Fiscal 2002
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First Quarter $ .85 $ .50
Second Quarter .60 .42
Third Quarter .99 .50
Fourth Quarter .89 .55
As of September 23, 2002 there were approximately 600 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. The Company is a party to a Loan and Security
Agreement with a commercial bank, which, among other things, provides that the
Company may declare or pay dividends only to the extent that the dividend
payment would not reasonably likely result in a failure by the Company to
maintain specified consolidated debt service or short-term debt to equity
ratios. The Company does not intend to pay cash dividends in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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GENERAL
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The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which appear in Item 7 of
this Report.
Effective July 31, 2002, the Company sold substantially all of the
operating assets (principally inventory, equipment and intangible assets,
including tradenames) of its Metro-Tel telecommunications segment to an
unaffiliated third party. The Company retained all of the cash, accounts
receivable and liabilities of the segment. The sales price was $800,000, of
which $250,000 was paid in cash on August 2, 2002 and the remaining $550,000 is
evidenced by the purchaser's promissory note that bears interest at the
prevailing prime rate plus 1% per annum and is payable in 42 equal monthly
installments commencing October 1, 2002. Transaction costs of the Company
aggregated approximately $40,000. Payment and performance of the promissory note
is guaranteed by two companies affiliated with the purchaser and the three
principal shareholders of purchaser and the affiliated companies, and is
collateralized by substantially all of the operating assets of the purchaser and
the affiliated companies. The Company has agreed to subordinate payment of the
promissory note, the obligations of the affiliated
9
companies under their guarantees and the collateral granted by the purchaser and
the affiliated companies to the obligations of the purchaser and the affiliated
companies to two bank lenders, subject to the Company's right to receive
installment payments under the promissory note as long as the purchaser and the
affiliated companies are not in default of their obligations to the applicable
lender. The Company agreed to a three-year covenant not to compete with the
purchaser.
During fiscal 2002 and 2001 the Metro-Tel telecommunications segment
experienced losses, before tax benefits, of $332,779 and $311,442, respectively,
on sales of $1,647,587 and $2,916,697, respectively. The Company's determination
to sell the Metro-Tel telecommunications segment was based on the segment's
business being unrelated to the Company's core business, the reduction in
revenues and increasing losses that the segment had been experiencing and to
enable the Company to devote its resources to its larger and profitable core
business activities in the commercial and industrial dry cleaning and laundry
equipment industry, including its new Green Jet(R) dry-wetcleaning(TM) machine.
The results of operations of the Metro-Tel telecommunications segment are
not discussed in detail here as they have been classified in both fiscal 2002
and 2001 to reflect the segment as a discontinued operation in the statements of
operations and cash flows and the Metro-Tel segment's assets have been included
as separate line items on the Company's fiscal 2002 and 2001 balance sheets.
LIQUIDITY AND CAPITAL RESOURCES
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For the year ended June 30, 2002, cash increased by $888,445 compared to a
decrease of $606,676 for the year ended June 30, 2001.
Cash provided by operating activities in fiscal 2002 was $1,251,708.
Continuing operations provided $1,202,701 of the net cash. In generating cash
from operations, the Company's net income from continuing operations of $479,978
was supplemented by $113,102 of non-cash expenses for depreciation and
amortization and partially offset by deferred taxes of $167,097. Changes in
operating assets and liabilities contributed $786,144 to net cash due to a
decrease of $498,989 in accounts, notes and lease receivables resulting
primarily from decreased sales and an improvement in the collection of
receivables and a $261,660 increase in accounts and accrued expenses payable
resulting primarily from accrued expenses of the discontinued Metro-Tel
telecommunications segment. Discontinued operations provided cash of $89,007.
For fiscal 2001, operating activities used cash of $34,285. While
continuing operations provided $648,935 of cash, which was produced by income
from continuing operations of $314,668 supplemented by non-cash expenses for
depreciation and amortization ($189,067) and bad debts ($178,674), changes in
operating assets and liabilities used $635,299 of cash to support increases in
inventories ($418,487), refundable income taxes ($257,363) and accounts, notes
and lease receivables ($129,225), and a decrease in income taxes payable
($281,944). These uses of cash were partially offset by increases in accounts
payable and accrued expenses ($173,196) and customer deposits ($198,902). The
use of $539,307 for income taxes compared to providing $201,270 in the prior
year was primarily due to timing of estimated tax payments and the decline in
profits the Company experienced during the fourth quarter of fiscal 2001.
Discontinued operations used cash of $47,921.
Net cash used by investing activities in fiscal 2002 was $243, as equipment
purchases used $97,969 of cash and patent expenditures used cash of $16,769.
These were substantially offset by $114,495 provided by the collection of a
related party receivable. Net cash of $103,641 used by investing activities in
fiscal 2001 consisted of equipment purchases of $90,268 and patent expenditures
of $13,373.
10
Financing activities in fiscal 2002 used cash of $363,020 to make payments
on the Company's term loan ($360,000) and the purchase of Company common stock
($3,020). Net cash of $468,750 was used in financing activities in fiscal 2001
to make payments on the Company's term loan ($480,000), partially offset by
$11,250 obtained from the proceeds of stock options exercised.
The Company has no capital commitments for capital expenditures, but
expects to purchase equipment at levels consistent with past levels.
In December 2001, the Company entered into a bank loan agreement to replace
its existing bank credit facility. The new facility consists of a term loan of
$960,000 and a revolving credit facility of $2,250,000, including a $1,000,000
letter of credit subfacility and $250,000 foreign exchange subfacility.
Revolving credit borrowings are limited by a borrowing base of 60% of eligible
accounts receivable and 60% of certain, and 50% of other, eligible inventories.
As of June 30, 2002, the borrowing base was approximately $1,750,000, against
which no amounts were drawn. Borrowings under the term loan facility and
revolving credit facility bear interest at 2.65% and 2.50% per annum, above the
Adjusted LIBOR Market Index Rate, are guaranteed by all of the Company's
subsidiaries and are collateralized by substantially all of the Company's and
its subsidiaries' assets. The outstanding principal balance of the term loan at
June 30, 2002 was $800,000. The term loan is repayable in equal monthly
installments of $26,667 through December 31, 2004. The line of credit is
scheduled to mature on October 30, 2002. The Company believes it can negotiate
an extension of this, or a new, line of credit facility by October 30, 2002. In
connection with the Company's sale of its Metro-Tel telecommunications segment,
the bank lender consented to sale of the segment and amended the loan covenants
for the year ended June 30, 2002 to exclude the effects of discontinued
operations from the debt service coverage ratio that the Company is required to
maintain. The loan agreement requires the Company to maintain certain financial
ratios and contains other covenants which place limitations on the extent to
which the Company and its subsidiaries may make dividends and other
distributions, incur additional indebtedness, guarantee indebtedness of others,
grant liens, sell assets and make investments. At June 30, 2002, the Company was
in compliance with the ratios and covenants contained in the loan agreement. See
Note 5 of the Notes to Consolidated Financial Statements for additional
information concerning this credit facility.
The Company believes that its present cash position and cash it expects to
generate from operations will be sufficient to meet its operational needs.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
- --------------------------------------------------
The following sets forth a schedule of payments required as of June 30,
2002 under the Company's contractual obligations described below:
Due by Period
--------------------------------------------------------------
Less
Than After
Contractual Obligations Total 1 Year 1-3 years 4-5 years 5 years
- ----------------------- ----- ------ --------- --------- -------
Term Loan $800,000 $320,000 $480,000 - -
Operating leases $615,000 $199,000 $345,000 $71,000 -
-------- -------- -------- ------- --------
Total contractual cash
Obligations $1,415,000 $519,000 $825,000 $71,000 -
========= ======= ======== ======== =========
Included in the above are two leases for future dry cleaning stores that
the Company anticipates assigning to dry cleaning franchises or other customers
when the leased facilities are available for occupancy. The maximum potential
payment commitment under these two leases is $71,000 in annual base rent per
year for five years beginning upon completion of site building. Although the
actual
11
completion date is presently uncertain, it is probable that completion of each
location will be in fiscal 2003.
OFF-BALANCE SHEET FINANCING
- ---------------------------
Except for the operating leases, the Company has no off-balance sheet
financing arrangements. The Company's bank revolving credit facility includes a
$250,000 foreign exchange subfacility for the purpose of enabling the Company to
mitigate its Euro currency exposure in connection with its import activities of
equipment manufactured in Italy through spot foreign exchange and forward
exchange contracts.
RESULTS OF OPERATIONS
- ---------------------
Revenues from continuing operations for the fiscal year ended June 30, 2002
decreased by $1,515,781 (9.5%) from fiscal 2001, primarily as a result of a
decrease of $1,407,097 (9.1%) in the laundry and dry cleaning segment. Export
sales decreased by $2,084,746 (50.0%) due to the downturn in the economy,
primarily in Caribbean and Latin America markets. The decrease was due to a
reduction in sales of most categories of equipment attributable to the downturn
in the economy, especially in the hospitality industry in which the Company has
significant customers. These reductions were offset, in part, by sales of the
Company's new, environmentally friendly, Green Jet(R) dry-wetcleaning(TM)
machine, introduced in December 2001 and revenues of its development division,
which contributed $145,000 in its first year of operations. Revenues from the
Company's license and franchise segment decreased by $108,397 (24.1%) primarily
due to the slower economy in the United States and Latin America causing the
Company to open fewer licensed and franchised units.
Cost of goods sold, expressed as a percentage of net sales decreased to
72.5% in fiscal 2002 from 75.1% in fiscal 2001. The improvement was primarily
attributable to the increased sales of the Green Jet(R) dry-wetcleaning(TM)
machine, which has higher margins than the Company's historical dry and wet
cleaning machines.
Selling, general and administrative expenses decreased by $70,171 (1.8%) in
fiscal 2002 from fiscal 2001 as a result of a decreases in bad debts ($169,248)
primarily from the collection of $100,000 previously reserved, telephone expense
($31,051) and other general and administrative expense categories. These
decreases were partially offset by increases in advertising ($50,597) due to
initial advertising associated with the introduction of the Green Jet(R)
dry-wetcleaning(TM) machine and the Company hosting its biennial trade show and
insurance ($26,751) expenses.
Research and development expense decreased by $19,244 (37.9%) in fiscal
2002 from fiscal 2001 as development costs of the Company's Green Jet(R)
dry-wetcleaning(TM) machine were reduced with the bringing to market of this
product.
Interest income decreased by $19,777 (64.6%) as a result of a reduction in
interest earned on daily bank balances due to lower average cash balances on
hand during the year and lower interest rates.
Interest expense decreased by $79,409 (59.5%) due to a reduction in
outstanding debt and lower prevailing interest rates on the Company's variable
rate debt, partially offset by periodic borrowings against the Company's
revolving credit facility.
The provision for income tax on continuing operations increased by $99,834
(51.1%) due primarily to the increase in earnings from continuing operations.
The effective tax rate applicable to the Company's pre-tax income from
continuing operations was 38.0% compared to 38.2% in fiscal 2001. See Note 4 to
the Consolidated Financial Statements for further information concerning the
provision for income taxes
12
The loss from discontinued operations in fiscal 2002 of $204,999, net of
tax benefit, and the estimated loss on the disposal of discontinued operations
of $554,996, net of tax benefit, relate to the Metro-Tel telecommunications
segment sold effective July 31, 2002, including a provision to reduce the
carrying value of the assets sold to their net estimated realizable value and
transaction and other costs associated with the discontinuance of the business.
See "General," above.
INFLATION
- ---------
Inflation has not had a significant effect on the Company's operations
during any of the reported periods.
TRANSACTIONS WITH RELATED PARTIES
- ---------------------------------
The Company leases 27,000 square feet of warehouse and office space from
William K. Steiner, a principal shareholder, Chairman of the Board of Directors
and a director of the Company, under a lease which expires in October 2004.
Annual rental under this lease is approximately $83,200. The Company believes
that the terms of the lease are comparable to terms that would be obtained from
an unaffiliated third party for similar property in a similar locale.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Financial Reporting Release No. 60, which was recently released by the U.S.
Securities and Exchange Commission, encourages all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Management believes the following critical accounting
policies affect the significant judgments and estimates used in the preparation
of the Company's financial statements:
REVENUE RECOGNITION
Sales of products are generally recorded as they are shipped. 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.
FRANCHISE LICENSE TRADEMARK AND OTHER INTANGIBLE ASSETS
The franchise license, trademark and other intangible assets are stated at
cost less accumulated amortization. Those assets are amortized on a
straight-line 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.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates these estimates,
including those related to allowances for doubtful accounts receivable, the
carrying value of inventories and long-lived assets, the timing of revenue
recognition for initial license and franchise fees from sales of franchise
arrangements and continuing license and franchise service fees, as well as sales
returns. Management
13
bases these estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the recognition of revenues and
expenses and the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
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, 2002, the net carrying amount of intangible
assets is $455,104. Amortization expense during the years ended June 30, 2002
and 2001 was $57,379 and $68,388, respectively. There was no goodwill at June
30, 2002. The Company does not believe the adoption of SFAS 141 and SFAS 142 on
July 1, 2002 will have a significant impact on its financial position or results
of operations.
In August 2001, the FASB issued SFAS 144, Accounting for Impairment or
Disposal of Long-Lived Assets. This statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB opinion No.
30, "Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends ARB No. 51, "Consolidated Financial Statements" to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged. The provisions of this Statement generally are to be applied
prospectively. The Company does not believe the adoption of SFAS 144 will have a
significant impact on its financial position or results of operations.
14
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This statement
supercedes the guidance provided by Emerging Issues Task Force 94-3, "Liability
Recognition for Certain Costs Incurred in a Restructuring)." SFAS 146 is
required to be adopted for exit or disposal activities initiated after December
31, 2002. The Company does not believe the adoption of SFAS 146 will have a
significant impact on its financial position or results of operations.
ITEM 7. FINANCIAL STATEMENTS.
---------------------
DRYCLEAN USA, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants 16
Consolidated Balance Sheets at June 30, 2002 and 2001 17
Consolidated Statements of Operations for the years ended
June 30, 2002 and 2001 18
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 2002 and 2001 19
Consolidated Statements of Cash Flows for the years ended
June 30, 2002 and 2001 20
Summary of Accounting Policies 21
Notes to Consolidated Financial Statements 25
15
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, 2002 and 2001, and the related consolidated
statements of operations, 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, 2002 and 2001, 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 23, 2002, except for Note 5(b)
which is as of September 23, 2002
16
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2002 2001
- -----------------------------------------------------------------------------------------------------------
ASSETS (Note 5)
CURRENT ASSETS
Cash and cash equivalents $ 1,264,357 $ 375,912
Accounts and notes receivable, net of allowance for doubtful
accounts of $130,000 and $51,800 at 2002 and 2001,
respectively 1,542,691 2,122,493
Lease receivables (Note 2) 37,290 39,494
Inventories 2,918,472 2,918,161
Refundable income taxes 225,167 257,363
Deferred income taxes (Note 4) 240,351 69,337
Current assets of discontinued operations (Note 12) 745,000 1,455,358
Other current assets, net of allowance for doubtful
accounts of $100,000 at 2001 (Note 6) 185,631 190,548
- -----------------------------------------------------------------------------------------------------------
Total current assets 7,158,959 7,428,666
LEASE RECEIVABLES - due after one year (Note 2) 681 5,238
EQUIPMENT AND IMPROVEMENTS, net (Note 3) 274,124 231,878
FRANCHISE, TRADEMARKS AND OTHER INTANGIBLE ASSETS, net
(Note 1) 455,104 495,714
DEFERRED INCOME TAXES (Note 4) 8,869 12,786
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS (NOTE 12) 15,000 153,637
- -----------------------------------------------------------------------------------------------------------
$ 7,912,737 $ 8,327,919
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,736,393 $ 1,474,733
Customer deposits and other 539,486 573,298
Current portion of term loan (Note 5) 320,000 1,160,000
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 2,595,879 3,208,031
TERM LOAN, less current portion (Note 5) 480,000 -
- -----------------------------------------------------------------------------------------------------------
Total liabilities 3,075,879 3,208,031
- -----------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 6, 8 and 9)
- -----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Note 11) Common stock, $0.025 par value:
Authorized shares - 15,000,000; 7,027,500
shares issued and outstanding, including shares held in
treasury 175,688 175,688
Additional paid-in capital 2,048,570 2,048,570
Retained earnings 2,615,620 2,895,630
Treasury stock, 31,050 and 26,250 shares at cost (3,020) -
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,836,858 5,119,888
- -----------------------------------------------------------------------------------------------------------
$ 7,912,737 $ 8,327,919
- -----------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
17
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended June 30, 2002 2001
- ---------------------------------------------------------------------------------------------------------
REVENUES:
Net sales $ 13,330,158 $ 15,036,008
Development fees, franchise and license fees, commissions
and other 958,346 768,277
- ---------------------------------------------------------------------------------------------------------
Total 14,288,504 15,804,285
- ---------------------------------------------------------------------------------------------------------
COST OF SALES 9,667,630 11,299,508
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 8 and 9) 3,771,210 3,841,381
RESEARCH AND DEVELOPMENT EXPENSES 31,499 50,743
- ---------------------------------------------------------------------------------------------------------
Total 13,470,339 15,191,632
- ---------------------------------------------------------------------------------------------------------
OPERATING INCOME 818,165 612,653
- ---------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 10,847 30,624
Interest expense (53,955) (133,364)
- --------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 775,057 509,913
PROVISION FOR INCOME TAXES (Note 4) 295,079 195,245
- --------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 479,978 314,668
Loss from discontinued operations, net of income tax benefit of
$127,787 and $119,245 (Note 12) (204,992) (192,197)
Estimated loss on disposal of discontinued operations, net of income
tax benefit of $347,358 (Note 12) (554,996) -
- --------------------------------------------------------------------------------------------------------
Loss from discontinued operations (759,988) (192,197)
- --------------------------------------------------------------------------------------------------------
NET (LOSS) EARNINGS $ (280,010) 122,471
$
- --------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations, basic $ .07 $ .04
Loss per share from discontinued operations, net of taxes, basic (.11) (.02)
- --------------------------------------------------------------------------------------------------------
Net (loss) earnings per share, basic (Note 10) $ (.04) .02
$
- --------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations, diluted $ .07 $ .04
Loss per share from discontinued operations, net of taxes, diluted (.11) (.02)
- --------------------------------------------------------------------------------------------------------
Net (loss) earnings per share, diluted (Note 10) $ (.04) $ .02
- --------------------------------------------------------------------------------------------------------
Weighted average number of shares of
common stock outstanding:
Basic 6,996,813 7,001,250
Diluted 6,997,342 7,121,155
- --------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to financial statements.
18
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Common Stock Additional Treasury Stock
-------------------- Paid-in ----------------------- Retained
Shares Amount Capital Shares Cost Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------
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
Year ended June 30, 2002:
Treasury stock repurchases - - - 4,800 (3,020) - (3,020)
Net loss - - - - - (280,010) (280,010)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 7,027,500 $ 175,688 $ 2,048,570 31,050 $ (3,020) $ 2,615,620 $ 4,836,858
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to financial statements.
19
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended June 30, 2002 2001
- --------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income from continuing operations $ 479,978 $ 314,668
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 113,102 189,067
Bad debt (recovery) expense (9,425) 178,674
Change in deferred income taxes (167,098) (33,474)
(Increase) decrease in operating assets:
Accounts, notes and lease receivables 498,989 (129,225)
Inventories (311) (418,487)
Refundable income taxes 32,196 (257,363)
Other current assets (12,578) 79,622
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 261,660 173,196
Income taxes payable - (281,944)
Customer deposits and other (33,812) 198,902
- -------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 1,162,701 13,636
- -------------------------------------------------------------------------------------------------------------
Net loss from discontinued operations (759,988) (192,197)
Adjustments: -
Estimated loss on disposal of assets 902,354
Provision for inventory obsolescences 195,513
Increase in operating assets (53,359) (51,237)
- -------------------------------------------------------------------------------------------------------------
Net cash provided (used) by discontinued operations 89,007 (47,921)
- -------------------------------------------------------------------------------------------------------------
Cash provided (used) by operating activities 1,251,708 (34,285)
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures, net (97,969) (90,268)
Collection of related party receivable 114,495 -
Patent expenditures (16,769) (13,373)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (243) (103,641)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on term loan (360,000) (480,000)
Acquisition of treasury stock (3,020) -
Proceeds from exercise of stock options - 11,250
- -------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (363,020) (468,750)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 888,445 (606,676)
Cash and cash equivalents at beginning of year 375,912 982,588
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,264,357 $ 375,912
- -------------------------------------------------------------------------------------------------------------
Supplemental Information:
Cash paid for:
Interest $ 53,955 $ 133,364
Income taxes 171,000 673,120
- -------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to
consolidated financial statements.
20
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
NATURE OF BUSINESS DRYCLEAN USA, Inc. and subsidiaries (collectively, the
"Company") sell commercial and industrial laundry and dry
cleaning equipment, boilers and replacement parts, sell
individual and area franchises under the DRYCLEAN USA name,
and act as a business broker in connection with the purchase
and sale of retail dry cleaning stores and coin laundries.
The Company primarily sells to customers located in the
United States, the Caribbean and Latin America.
PRINCIPLES OF The accompanying consolidated financial statements include
CONSOLIDATION the accounts of DRYCLEAN USA, Inc. and its wholly-
owned subsidiaries. Intercompany transactions and balances
have been eliminated in consolidation.
REVENUERECOGNITION Sales of products are generally recorded as they are
shipped. Shipping, delivering and handling fee income of
approximately $121,000 and $145,000 for the years ended June
30, 2002 and 2001, respectively, are included as other
revenues in the consolidated financial statements. Shipping,
delivering and handling costs are included in cost of sales.
Commissions and management fees are recorded when earned.
Individual franchise arrangements include a license and
provide for the 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 consist principally of finished goods and 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
IMPROVEMENTS AND amortization are calculated on accelerated and straight-line
DEPRECIATION methods over lives of five to seven 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.
21
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 The Company utilizes the asset and liability method wherein
deferred taxes are recognized for differences between
consolidated financial statement and income tax bases of
assets and liabilities.
STATEMENT OF For purposes of this statement, cash equivalents include
CASH FLOWS all highly liquid investments with original maturities of
three months or less.
ESTIMATES The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in
the United States of America 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 anti-dilutive effect on earnings per share are
excluded from the calculations.
ADVERTISING COSTS The Company expenses the cost of advertising as of the
first date of the advertisement. The Company expensed
approximately $218,000 and $167,000 of advertising costs for
the years ended June 30, 2002 and 2001, respectively.
22
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
FAIR VALUE OF The Company's financial instruments consist principally of
FINANCIAL cash and cash equivalents, accounts receivable, lease
INSTRUMENTS receivables, notes receivable, accounts payable and accrued
expenses and debt. Due to their relatively short-term nature
or variable rates, the carrying amounts of such financial
instruments, as reflected in the accompanying consolidated
balance sheets, 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.
FRANCHISE LICENSE, Franchise license, trademark, patents, and other intangible
TRADEMARK AND assets are stated at cost less accumulated amortization.
OTHER INTANGIBLE These assets are amortized on a straight-line basis over
ASSETS 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
generated 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.
NEW ACCOUNTING In June 2001, the Financial Accounting Standard Board issued
PRONOUNCEMENTS 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.
23
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
The Company's previous business combinations were accounted
for using the purchase method. As of June 30, 2002, the net
carrying amount of intangible assets is $455,104.
Amortization expense during the years ended June 30, 2002
and 2001 was $57,379 and $68,388, respectively. There was no
goodwill at June 30, 2002. The Company does not believe the
adoption of SFAS 141 and SFAS 142 on July 1, 2002 will have
a significant impact on its financial position or results of
operations.
In August 2001, the FASB issued SFAS 144, Accounting for
Impairment or Disposal of Long-Lived Assets. This statement
supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions
of APB opinion No. 30, Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the
disposal of a segment of a business (as previously defined
in that Opinion). This Statement also amends ARB No. 51,
Consolidated Financial Statements to eliminate the exception
to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this Statement are
effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods
within those fiscal years, with early application
encouraged. Generally, the provisions of this statement are
to be applied prospectively. The Company does not believe
the adoption of SFAS 144 will have a significant impact on
its financial position or results of operations.
In June 2002, the FASB issued SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146
requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at
the date of a commitment to an exit or disposal plan. This
statement supercedes the guidance provided by Emerging
Issues Task Force 94-3, Liability Recognition for Certain
Costs Incurred in a Restructuring). SFAS 146 is required to
be adopted for exit or disposal activities initiated after
December 31, 2002. The Company does not believe the adoption
of SFAS 146 will have a significant impact on its financial
position or results of operations.
24
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. INTANGIBLE Franchise, trademark and other intangible assets consist of
ASSETS the following:
------------------------------------------------------------------------------
Estimated
Useful Lives JUNE 30, June 30,
(in years) 2002 2001
------------------------------------------------------------------------------
Franchise license agreements 10 $ 529,500 $ 529,500
Trademark, patent and trade name 10-15 93,910 77,141
Covenant not to compete 2 - 23,000
------------------------------------------------------------------------------
623,410 629,641
Less accumulated amortization 168,306 133,927
------------------------------------------------------------------------------
$ 455,104 $ 495,714
------------------------------------------------------------------------------
2. LEASE Lease receivables result from customer leases of equipment
RECEIVABLES under arrangements which qualify as sales-type leases. At
June 30, 2002, annual future lease payments, net of deferred
interest ($4,685 at June 30, 2002), due under these leases
are as follows:
Years ending June 30,
------------------------------------------------------------
2003 $ 37,290
2004 681
------------------------------------------------------------
$ 37,971
------------------------------------------------------------
3. EQUIPMENT AND Major classes of equipment and improvements consist of the
IMPROVEMENTS following:
June 30, 2002 2001
------------------------------------------------------------
Furniture and equipment $ 646,501 $ 554,080
Leasehold improvements 330,877 322,514
------------------------------------------------------------
Less accumulated depreciation 977,378 876,594
and amortization 703,254 644,716
------------------------------------------------------------
$ 274,124 $ 231,878
------------------------------------------------------------
Depreciation and amortization amounted to $55,723 and
$90,268 for the years ended June 30, 2002 and 2001,
respectively.
25
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. INCOME TAXES Income taxes (benefits) included in the consolidated
statements of operations is as follows:
Year ended June 30, 2002 2001
-------------------------------------------------------------
Continuing operations $ 295,079 $ 195,245
Discontinued operations (127,787) (119,245)
Loss on sale of discontinued
operations (347,358) -
-------------------------------------------------------------
$ (180,066) $ 76,000
-------------------------------------------------------------
The following are the components of income taxes
(benefits):
Year ended June 30, 2002 2001
-------------------------------------------------------------
Current
Federal $ (11,721) $ 93,519
State (1,247) 15,955
-------------------------------------------------------------
(12,968) 109,474
-------------------------------------------------------------
Deferred
Federal (150,979) (28,581)
State (16,119) (4,893)
-------------------------------------------------------------
(167,098) (33,474)
-------------------------------------------------------------
$ (180,066) $ 76,000
-------------------------------------------------------------
The reconciliation of income tax expense computed at
the Federal statutory tax rate of 34% to income taxes
(benefits) is as follows:
Year ended June 30, 2002 2001
-------------------------------------------------------------
Tax at the statutory rate $ (166,317) $ 67,480
State income taxes,
net of federal benefit (11,462) 7,302
Other (2,287) 1,218
-------------------------------------------------------------
$ (180,066) $ 76,000
-------------------------------------------------------------
26
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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:
Year ended June 30, 2002 2001
------------------------------------------------------------
Current deferred tax asset
(liability):
Allowance for doubtful
accounts $ 48,919 $ 19,492
Inventory capitalization 65,318 34,433
Compensation - 20,933
Loss on sale of assets 133,929 -
Other (7,815) (5,521)
------------------------------------------------------------
240,351 69,337
------------------------------------------------------------
Noncurrent deferred tax asset
(liability):
Depreciation (18,680) (14,531)
Amortization 27,549 27,317
------------------------------------------------------------
8,869 12,786
------------------------------------------------------------
Total net deferred income taxes $ 249,220 $ 82,123
------------------------------------------------------------
5. CREDIT (a) In December 2001, the Company entered into a bank loan
AGREEMENT agreement to facility of $2,250,000, including a replace its
AND TERM LOAN then existing bank credit facility. The new facility
consists of a $1,000,000 letter of credit subfacility and
term loan of $960,000 and a revolving credit $250,000
foreign exchange subfacility. Revolving credit borrowings
are limited by a borrowing base of 60% of eligible accounts
receivable and 60% of certain, and 50% of other, eligible
inventories. Borrowings under the term loan facility and
revolving credit facility bear interest at 2.65% and 2.50%
per annum, respectively, above the Adjusted LIBOR Market
Index Rate (4.49% at June 30, 2002), are guaranteed by all
of the Company's subsidiaries and are collateralized by
substantially all of the Company's and its subsidiaries'
assets. The term loan is repayable in equal monthly
installments of $26,667 through December 31, 2004. At June
30, 2002 and 2001, the Company owed $800,000 and $1,160,000,
respectively, under the term loan. The revolving credit
facility matures October 30, 2002. At June 30, 2002, there
were no outstanding borrowings under the line of credit. The
loan agreement requires maintenance of certain earnings
based and other financial ratios and contains other
restrictive covenants. The loan agreement also contains
limitations on the extent to which the Company and its
subsidiaries may incur additional indebtedness, guarantee
indebtedness of others, grant liens, sell assets and make
investments.
(b) In connection with the Company's discontinuance of its
telephone test equipment segment on September 23, 2002, the
Bank amended the loan covenants for the year ended June 30,
2002 to exclude the effects of
27
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
discontinued operations from the required ratios and
covenants. The Company was in compliance with these amended
ratios and covenants at June 30, 2002.
The following table summarizes the maturities of the
Company's long-term debt as of June 30, 2002:
Years ending June 30,
------------------------------------------------------------
2003 $ 320,000
2004 320,000
2005 160,000
------------------------------------------------------------
Total $ 800,000
------------------------------------------------------------
6. RELATED PARTY During the year ended June 30, 2001, the Company recorded a
TRANSACTIONS $100,000 provision for doubtful accounts on amounts due from
an entity controlled by one of the principal shareholders of
the Company. At June 30, 2001, $114,495, net of $100,000
allowance for doubtful accounts, was due the Company. During
the year ended June 30, 2002, the full $114,495 was
collected.
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.
7. CONCENTRATIONS The Company places its excess cash in overnight deposits
OF CREDIT RISK with a large national is limited due to a large customer
base. Trade and lease bank. Concentration of credit risk
with respect to trade and lease receivables receivables are
generally collateralized with equipment sold.
The Company is exposed to foreign currency risk in Europe.
To mitigate such risk, the Company may enter into foreign
exchange forward contracts to reduce its risk to foreign
exchange losses associated with commitments to purchase
equipment denominated in Euros. The Company does not
designate such contracts as hedges and accordingly, all
changes in fair value associated with its forward contracts
are recorded in cost of sales, in the accompanying
statements of operations. At June 30, 2002, the Company had
no outstanding commitments to purchase foreign currency.
28
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. COMMITMENTS In addition to the warehouse and office space leased from a
principal shareholder (see Note 6), the Company leases two
additional office and warehouse spaces under operating
leases expiring in December 2002 and March 2004. As of June
30, 2002, the Company is also obligated under two leases for
future dry cleaning stores that aggregate $71,000 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, 2002 approximates the following:
Years ending June 30,
------------------------------------------------------------
2003 $ 199,000
2004 175,000
2005 99,000
2006 71,000
2007 71,000
------------------------------------------------------------
Rent expense aggregated $151,196 and $146,891 for the years
ended June 2002 and 2001, respectively.
9. DEFERRED The Company has a participatory deferred compensation plan
COMPENSATION wherein it matches plan after three months of service. The
PLAN employee contributions up to 1% of an eligible employee's
yearly compensation. Company contributed $10,077 and $11,855
in Employees are eligible to participate in the fiscal 2002
and 2001, respectively. The plan is tax deferred under
Section 401(k) of the Internal Revenue Code.
29
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. EARNINGS PER The following reconciles the components of the earnings per
SHARE share computation:
YEAR ENDED JUNE 30, 2002
---------------------------------------------------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS $ 479,978 $ 6,996,813 $ .07
EFFECT OF DILUTIVE SECURITIES:
STOCK OPTIONS - 529 -
---------------------------------------------------------------------------------
NET EARNINGS PLUS ASSUMED DILUTION $ 479,978 $ 6,997,342 $ .07
---------------------------------------------------------------------------------
Year ended June 30, 2001
----------------------------------------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------------------------------------
Earnings from continuing operations $ 314,668 $ 7,001,250 $ .04
Effect of dilutive securities:
Stock options - 119,905 -
----------------------------------------------------------------------------------
Net earnings plus assumed dilution $ 314,668 $ 7,121,155 $ .04
----------------------------------------------------------------------------------
There were 497,750 and 60,000 stock options outstanding at
June 30, 2002 and 2001, respectively, that were excluded in
the computation of earnings per share for such years because
the exercise prices of the options were at least the average
market price of the Company's common stock for that year.
11. STOCK OPTIONS The Company has stock option plans that authorize the grant
of options to purchase up to 500,000 shares (until May 2010)
of the Company's common stock to employees and consultants
and options to purchase 100,000 shares (until August 2004)
of the Company's common stock to directors of the Company.
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
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.
30
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 employee plan 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).
The Company also has options outstanding under a stock
option plan that expired as to the grant of new options in
September 2001.
Generally, options granted to date have been exercisable, on
a cumulative basis, 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, In fiscal
2002, the Company granted 25,000 options to two employees,
exercisable upon grant through 2007 at a price of $.56 per
share. There were no stock options granted in fiscal 2001.
Options granted under the plans terminate upon a merger in
which the Company is not the surviving corporation, or in
certain events in which shareholders before the transaction
cease to own at least 50% of the combined voting power in
the elections of directors of the surviving corporation, the
sale of substantially all of the Company's assets or the
liquidation or dissolution of the Company, unless other
provision is made by the board of directors.
SFAS No. 123, Accounting for Stock-Based Compensation,
requires the Company to provide pro forma information
regarding net (loss) income and net (loss) 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
2002: no dividend yield percent; expected volatility of 95%;
risk-free interest rates of approximately 4.2%, 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:
31
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Year ended June 30, 2002 2001
---------------------------------------------------------------------------------
Earnings from continuing operations
As reported $ 479,978 $ 314,668
Pro-forma $ 454,351 $ 293,643
---------------------------------------------------------------------------------
Net (loss) income As reported $ (280,010) $ 122,471
Pro forma $ (305,637) $ 101,466
---------------------------------------------------------------------------------
Earnings per common share from
continuing operations
Basic As reported $ .07 $ .04
Pro-forma $ .06 $ .04
Diluted As reported $ .07 $ .04
Pro-forma $ .06 $ .04
---------------------------------------------------------------------------------
Net (loss) income per common share:
Basic As reported $ (.04) $ .02
Pro forma $ (.04) $ .01
Diluted As reported $ (.04) $ .02
Pro-forma $ (.04) $ .01
---------------------------------------------------------------------------------
A summary of options under the Company's stock option plans
as of June 30, 2002, and changes during the year then ended
is presented below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------------------------------------------------------------------------------
Outstanding at beginning of year 594,750 $ 1.09
Granted 25,000 .56
Expired (97,000 ) 1.22
--------------------------------------------------------------------------------
Outstanding at end of year 522,750 $ 1.04
--------------------------------------------------------------------------------
Options exercisable at year-end 400,812 $ 1.03
--------------------------------------------------------------------------------
Weighted average fair value options granted
during the year $ .45
--------------------------------------------------------------------------------
32
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A summary of the status of the Company's stock option plans
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
-------------------------------------------------------------------------------
The following table summarizes information about stock
option plan and non-plan options outstanding at June 30,
2002:
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 6/30/02 Life Price 6/30/02 Price
-----------------------------------------------------------------------------------
$ .56-1.00 $ 487,750 2.2 YEARS $ .97 377,062 $ .97
$ 2.00 $ 35,000 2.1 YEARS $ 2.00 23,750 $ 2.00
-----------------------------------------------------------------------------------
12. DISCONTINUED In May 2002, the Company initiated a plan to sell
OPERATIONS substantially all of the operating assets (principally
inventory, equipment and intangible assets) of its Metro-Tel
segment, which was engaged in the manufacture and sale of
telephone test equipment.
The sale, to an unaffiliated purchaser, closed July 31,
2002. The purchase price was $800,000 less $40,000 in
estimated transactions costs, consisting of $250,000 in cash
and a $550,000 promissory note, bearing interest at prime +
1%, and payable monthly over 42 months commencing October 1,
2002. The promissory note is guaranteed by certain companies
affiliated with the purchaser and the purchaser's and the
affiliates' principal shareholders and is collateralized by
the operating assets of the purchaser and the affiliated
companies. The Company has agreed to subordinate payment of
the promissory note, obligations of the affiliated companies
of the purchaser under their guarantees and the collateral
granted by the purchaser and the affiliated companies to the
obligation of the purchaser and the affiliated companies to
two bank lenders.
The Company retained all of the accounts receivable, cash
and liabilities existing at the time of closing and agreed
to a three-year covenant not to compete with the purchaser.
In connection with the sale, the Company accrued, at June
30, 2002,
33
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
employee severance cost, estimated loss from discontinued
operations for July 2002, and lease termination costs
aggregating $184,000. Additionally, the Company recorded a
provision of $718,000 to reduce the carrying value of assets
sold to their net realizable value at June 30, 2002. The
loss on the sale of the discontinued operation, net of
income tax benefit, was $555,000.
Net assets and operating results for the discontinued
operations are as follows:
June 30, 2002 2001
-------------------------------------------------------------------------------
Inventory $ 745,000 $ 1,455,358
Property and equipment, net 10,000 97,633
Intangible asset, net 5,000 56,004
--------------------------------------------------------------------------------
Net assets of discontinued operations $ 760,000 $ 1,608,995
--------------------------------------------------------------------------------
June 30, 2002 2001
---------------------------------------------------------------------------------
Revenues $ 1,647,587 $ 2,916,697
Expenses (1,980,366) (3,228,139)
Income tax benefit 127,787 119,245
--------------------------------------------------------------------------------
Loss from discontinued operations $ (204,992) $ (192,197)
--------------------------------------------------------------------------------
13. SEGMENT The Company's reportable segments are strategic businesses
INFORMATION 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 Corp. and
DRYCLEAN USA Development Corp., wholly owned subsidiaries of
the Company, comprise the commercial and industrial laundry
and dry cleaning equipment segment. Steiner-Atlantic Corp.
is a supplier of dry cleaning equipment, laundry equipment
and steam boilers to customers in the United States, the
Caribbean and Latin American markets. Steiner-Atlantic
Brokerage Corp. acts as a business broker to assist others
seeking to buy or sell existing dry cleaning and coin
laundry businesses. DRYCLEAN USA Development Corp. was
formed in fiscal 2001 to develop turn-key dry cleaning
establishments for resale to third parties.
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.
34
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, 2002 2001
------------------------------------------------------------------------------------
Revenues:
Commercial and industrial laundry and dry
cleaning equipment $ 13,947,851 $ 15,355,235
License and franchise operations 340,653 449,050
------------------------------------------------------------------------------------
Total revenues $ 14,288,504 $ 15,804,285
------------------------------------------------------------------------------------
Operating income (loss):
Commercial and industrial laundry
and dry cleaning equipment $ 869,397 $ 520,414
License and franchise operations 157,668 267,837
Corporate (208,900 ) (175,598 )
------------------------------------------------------------------------------------
Total operating income $ 818,165 $ 612,653
------------------------------------------------------------------------------------
Identifiable assets:
Commercial and industrial laundry
and dry cleaning equipment $ 5,585,225 $ 5,076,391
License and franchise operations 789,179 799,430
Corporate 778,333 843,103
Assets of discontinued operations 760,000 1,608,995
------------------------------------------------------------------------------------
Total assets $ 7,912,737 $ 8,327,919
-----------------------------------------------------------------------------------
For the years ended June 30, 2002 and 2001, export sales,
principally to the Caribbean and Latin America, aggregated
approximately $2,081,000 and $4,166,000, respectively.
No single customer accounted for more than 10% of the
Company's revenues.
35
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, 46, 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, 72, 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, 69, 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, 77, 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, 42, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998. Mr. Blyer was Chief Executive
Officer and President of Vento Software, a developer of software for specialized
business applications, from 1994, when he co-founded that company, until
mid-2002. Since that time, Mr. Blyer has been an independent consultant.
Alan M. Grunspan, 42, 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 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, 70 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.
36
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:
Osvaldo Rubio, 39, has served as Vice President and Director of Sales for
the Export Department of Steiner since joining Steiner in May 1993.
Ronald London, 69, has served as Vice President and primarily oversees
sales of the retail Dry Cleaning Equipment Department of Steiner since joining
Steiner in September 1992.
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 2002 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 AND
RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------
The information called for by this Item will be contained in the Company's
definitive Proxy Statement with respect to the Company's 2002 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 2002 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.)
37
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)(A) Loan and Security Agreement, dated as of December 19, 2001, from
the Company in favor of First Union National Bank. (Exhibit
4.1(a) to the Company's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2001, File No. 0-9040).
*4(a)(1)(B) Letter agreement dated September 23, 2002 between the Company and
First Union National Bank.
4(a)(2) Term Note, dated as of December 19, 2001, from the Company in
favor of First Union National Bank. (Exhibit 4.1(b) to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 2001, File No. 0-9040).
4(a)(3) Revolving Credit Note, dated as of December 19, 2001, from the
Company in favor of First Union National Bank. (Exhibit 4.1(c) to
the Company's Quarterly Report on Form 10-QSB for the quarter
ended December 31, 2001, File No. 0-9040).
4(a)(4) Guaranty and Security Agreement, dated as of December 19, 2001,
from Steiner-Atlantic Corp., Steiner-Atlantic Brokerage Company,
DRYCLEAN USA Development Corp. and DRYCLEAN USA License Corp.,
subsidiaries of the Company, in favor of First Union National
Bank. (Exhibit 4.1(d) to the Company's Quarterly Report on Form
10-QSB for the quarter ended December 31, 2001, File No. 0-9040).
10(a)(1) 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.)
38
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 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. (Exhibit 21 to the Company's Annual
Report on Form 10-KSB for the year ended June 30, 2001, File No.
0-9040.)
*23 Consent of BDO Seidman, LLP.
*99(a) Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*99(b) Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- -----------------------
* 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.
ITEM 14. CONTROLS AND PROCEDURES.
------------------------
Not applicable.
39
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 30, 2002
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 30, 2002
- ------------------------------------------- Chief Executive Officer
Michael S. Steiner (Principal Executive Officer) and
Director
/s/ William K. Steiner Director September 30, 2002
- -------------------------------------------
William K. Steiner
/s/ Venerando J. Indelicato Chief Financial Officer September 30, 2002
- ------------------------------------------- (Principal Financial and Accounting
Venerando J. Indelicato Officer) and Director
/s/ Lloyd Frank Director September 30, 2002
- -------------------------------------------
Lloyd Frank
/s/ Alan M. Grunspan Director September 30, 2002
- -------------------------------------------
Alan M. Grunspan
/s/ Stuart Wagner Director September 30, 2002
- -------------------------------------------
Stuart Wagner
/s/ David Blyer Director September 30, 2002
- -------------------------------------------
David Blyer
40
I, Michael S. Steiner, certify that:
1. I have reviewed this annual report on Form 10-KSB of DRYCLEAN USA, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
September 30, 2002
/s/ Michael S. Steiner
- ---------------------------------------------------
Michael S. Steiner
President and Principal Executive Officer
41
I, Venerando J. Indelicato, certify that:
1. I have reviewed this annual report on Form 10-KSB of DRYCLEAN USA, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
September 30, 2002
/s/ Venerando J. Indelicato
- ---------------------------------------------------
Venerando J. Indelicato
Treasurer and Principal Financial Officer
42
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
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)(A) Loan and Security Agreement, dated as of December 19, 2001, from
the Company in favor of First Union National Bank. (Exhibit
4.1(a) to the Company's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2001, File No. 0-9040).
43
*4(a)(1)(B) Letter agreement dated September 23, 2002 between the Company and
First Union National Bank.
4(a)(2) Term Note, dated as of December 19, 2001, from the Company in
favor of First Union National Bank. (Exhibit 4.1(b) to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 2001, File No. 0-9040).
4(a)(3) Revolving Credit Note, dated as of December 19, 2001, from the
Company in favor of First Union National Bank. (Exhibit 4.1(c) to
the Company's Quarterly Report on Form 10-QSB for the quarter
ended December 31, 2001, File No. 0-9040).
4(a)(4) Guaranty and Security Agreement, dated as of December 19, 2001,
from Steiner-Atlantic Corp., Steiner-Atlantic Brokerage Company,
DRYCLEAN USA Development Corp. and DRYCLEAN USA License Corp.,
subsidiaries of the Company, in favor of First Union National
Bank. (Exhibit 4.1(d) to the Company's Quarterly Report on Form
10-QSB for the quarter ended December 31, 2001, File No. 0-9040).
10(a)(1) 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 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. (Exhibit 21 to the Company's Annual
Report on Form 10-KSB for the year ended June 30, 2001, File No.
0-9040.)
*23 Consent of BDO Seidman, LLP.
45
*99(a) Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*99(b) Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- -----------------------
* 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.
46