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, 2003
[ ] 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, 2003 were $14,317,448.
The aggregate market value as at September 23, 2003 of the Common Stock
of the issuer, its only class of voting stock, held by non-affiliates was
approximately $3,945,000 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 23, 2003 was 6,996,450.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement relating to its 2003 Annual
Meeting of Stockholders are incorporated by reference into Items 10, 11, 12 and
14 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. 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 and Multi-Jet(TM) dry cleaning 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.
-----------------------
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 "Merger"), 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 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 to the Company aggregated approximately
$40,000. In March 2003 the purchaser prepaid $50,000 of the principal amount of
the outstanding promissory
2
note, which was applied to the last installments to become due. 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 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 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 selling its own lines of laundry and dry cleaning machines under
its Aero-Tech(R)and Green Jet(R)brand names;
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; and
o selling process steam systems and boilers.
In March 1999, the Company formed a 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, through its DRYCLEAN USA LICENSE CORP.
subsidiary, 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.
3
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-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 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. In August 2003, the Company introduced
its Multi-Jet(TM) dry cleaning machine which can use a number of environmentally
safe solvents and will replace certain existing products.
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.
Product sales accounted for approximately 94% of fiscal year 2003 revenues.
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
2003, the Company's license and franchise segment contributed approximately 2.4%
of the Company's revenues from continuing operations and 12.9% 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 1.3% of revenue from continuing operations during fiscal 2003.
4
The Company, through its DRYCLEAN USA Development subsidiary, develops
new turn-key dry cleaning establishments for resale to third parties. During
fiscal 2003, DRYCLEAN USA Development contributed under 1% of revenues from
continuing operations.
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 distributor
relationships in North America and Europe for the distribution of its Green
Jet(R) dry-wetcleaning(TM) machine and its Multi-Jet(TM) dryclean machine. To
date, it has entered into distributorship arrangements for the Company's Green
Jet(R) dry-wetcleaning(TM) machines with approximately 12 distributors in North
America.
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, 2003 or June 30, 2002.
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, 2003 or June 30, 2002. 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 dry cleaning equipment
sold under the Aero-Tech(R) label is currently manufactured exclusively for the
Company by two manufacturers 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 and closely
5
monitors the quality of the manufactured product. 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 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 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 current 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 imported 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, a 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
businesses, 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 and introduced its new Green Jet(R)
dry-wetcleaning(TM) and Multi-Jet(TM) drycleaning machines and continues to
improve these products. The amounts of research and development expenses for the
years ended June 30, 2003 and 2002 were $44,009 and $31,499.
6
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.
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 believes its Aero-Tech(R) and Green Jet(R) machines exceed
the environmental regulations set by safety and environmental regulatory
agencies.
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 and sell franchises in those states. The Company is
presently 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 32 employees on a full-time basis, of
whom three serve in executive management capacities, 11 are engaged in sales and
marketing, 11 are administrative and clerical personnel, and seven serve as
warehouse support. None of the Company's employees are subject to a
7
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
- ----------------------------
Export sales of the Company's laundry and dry cleaning business were
approximately $2,596,000 and $2,081,000 during the years ended June 30, 2003 and
June 30, 2002, 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.
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
-------- ------- ----------
Miami, Florida (1) 27,000 October 2004
Miami, Florida 8,000 March 2004 (2)
Miami, Florida 10,000 December 2005
______________
(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.
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.
---------------------------------------------------
Not applicable.
8
PART II
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ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Company's Common Stock 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
---- ---
Fiscal 2002
-----------
First Quarter $ .85 $ .50
Second Quarter .60 .42
Third Quarter .99 .50
Fourth Quarter .89 .55
Fiscal 2003
-----------
First Quarter $ .65 $ .35
Second Quarter .62 .31
Third Quarter .97 .55
Fourth Quarter .79 .57
As of September 16, 2003 there were approximately 494 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. However, on September 26, 2003, the Company's
Board of Directors declared a dividend of $.05 per share, payable on October 31,
2003 to holders of the Company's Common Stock of record on October 17, 2003. 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 following table sets forth certain information, as at June 30,
2003, with respect to the Company's equity compensation plans:
9
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
ISSUED UPON EXERCISE OF EXERCISE PRICE OF FUTURE ISSUANCE
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS
------------- ------------------- ------------------- ------------------
Equity compensation plans
approved by security holders.. 439,000 (a) $1.02 560,000 (b)
Equity compensation plans
not approved by security
holders....................... -0- -- -0-
-----------------------------------------------------------------------------------
Total...................... 439,000 $1.02 560,000
============================= ======================= =============================
(a) Includes 399,000 and 40,000 shares subject to options granted under the
Company's 1991 Stock Option Plan under which no future options may be
granted and the Company's 1994 Non-Employee Director Stock Option Plan
(the "1994 Plan"), respectively.
(b) Includes 500,000 shares available for future grant under the Company's
2000 Stock Option Plan (the "2000 Plan"), which permits the grant of
options to employees and directors of, and consultants to, the Company,
and 60,000 shares available for grant to future non-employee directors
under the 1994 Plan. Upon the expiration, cancellation or termination
of unexercised options, shares subject to options under the 2000 and
1994 Plans will again be available for the grant of options under the
applicable plan.
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 segment to an unaffiliated third party. A
provision of $555,000 for the estimated loss on the sale was established in the
Company's financial statements for the year ended June 30, 2002. As discussed
below, for the year ended June 30, 2003, the Company recorded a net gain of
$57,659 as a result of the settlement of liabilities associated with the
discontinued operation. The results of operations of the Company's Metro Tel
segment are not discussed in detail below as they have been classified as
discontinued operations. The following discussion relates primarily to the
Company's continuing operations.
LIQUIDITY AND CAPITAL RESOURCES
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For the year ended June 30, 2003, cash increased by $349,784 compared
to an increase of $888,445 for the year ended June 30, 2002.
In fiscal 2003, operating activities provided net cash of $787,620,
compared to $1,251,708 in fiscal 2002. Net earnings from continuing operations
($546,134), together with non-cash expenses for depreciation and amortization
($114,941), a provision for bad debts ($126,210), and a decrease in deferred
income taxes ($102,154) produced an aggregate of $889,439 of cash in fiscal
2003. Changes in operating
10
assets and liabilities used cash of $101,819. The principal uses of cash during
fiscal 2003 were caused by a reduction of accounts payable and accrued expenses
by $577,086 as fiscal 2002 year end levels were higher than at the end of fiscal
2003 due principally to the accrual of expenses related to the sale of the Metro
Tel segment toward the end of fiscal 2002 and lower inventory purchases toward
the end of fiscal 2003, and a result of a reduction in customer deposits by
$204,280. These were partially offset by cash provided by reductions in the
level of inventories ($341,534) due to the lower level of inventory purchases
toward the end of fiscal 2003, accounts and notes receivable ($18,172) and other
assets ($16,537), the collection of refundable income taxes ($225,167) and an
increase in income taxes payable ($78,137). The level of inventory and accounts
and notes receivable vary in the normal course of business.
Cash provided by operating activities in fiscal 2002 was $1,251,708.
Continuing operations provided $1,162,701 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 $167,098. Changes in
operating assets and liabilities contributed $746,144 to net cash due to a
decrease of $489,989 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 payable and accrued expenses
resulting primarily from accrued expenses of the discontinued Metro Tel segment.
Discontinued operations in fiscal 2003 represents the non-cash gain on
the settlement of liabilities of the Metro Tel segment discussed in "General,"
above, net of taxes. In fiscal 2002, these discontinued operations provided cash
of $89,007.
Investment activities provided cash of $362,164 for the fiscal year
ended June 30, 2003, principally as a result of $210,000 provided by the net
proceeds from the sale of the Company's Metro Tel segment and $180,952 from
payments received, including a $50,000 prepayment, on a note received as a
portion of the sales price. Capital expenditures for equipment purchases used
cash of $15,634 and $13,154 was used for patent costs. Net cash used by
investing activities in fiscal 2002 was $243. 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.
In fiscal 2003, financing activities used cash of $800,000 for monthly
payments on the Company's term loan ($266,667) and, on May 7, 2003, to prepay
the balance of that loan ($533,333). Financing activities in fiscal 2002 used
cash of $363,020 to make payments on the Company's term loan ($360,000) and for
the purchase of Company common stock ($3,020).
On October 11, 2002, the Company received an extension, until October
30, 2003, of its existing $2,250,000 revolving line of credit facility.
Revolving credit borrowings are limited by a borrowing base of 60% of eligible
accounts receivable and 60% of certain inventories and 50% of other eligible
inventories. As of June 30, 2003 the Company had no outstanding borrowings under
the line of credit. The Company believes it can negotiate an extension of this,
or a new line of credit facility, by October 30, 2003.
On September 26, 2003, The Company's Board of Directors declared a $.05
per share annual dividend (or an aggregate of approximately $350,000) payable on
October 31, 2003 to shareholders of record on October 17, 2003.
The Company believes that its present cash position and cash it expects
to generate from operations will be sufficient to meet its operational needs.
OFF-BALANCE SHEET FINANCING
- ---------------------------
The Company has no off-balance sheet financing arrangements within the
meaning of item 303(c) of Regulation S-B.
11
RESULTS OF OPERATIONS
- ---------------------
Revenues from continuing operations for the fiscal year ended June, 30,
2003 increased by $28,944 (.2%) over fiscal 2002. Sales of commercial and
industrial laundry and dry cleaning equipment increased by $92,179 (.7%), mostly
due to increases in parts sales of 3% and boiler sales of 4.1%, which offset a
5% decrease in the sales of dry cleaning equipment. Export sales improved by
24.7% in fiscal 2003 over fiscal 2002, which offset a decline in sales to the
domestic market due to the sluggish economy.
Revenues from the Company's license and franchise segment decreased by
$3,985 (1.2%) with a decrease in initial license fee income offset, in part, by
an increase in royalty income.
Cost of goods sold expressed as a percentage of net sales improved to
72.1% in fiscal 2003 from 72.5% in fiscal 2002, primarily due to the relative
mix of products sold in each period.
Selling, general and administrative expenses decreased by $50,806
(1.3%) in fiscal 2003 from fiscal 2002 principally as a result of reductions in
advertising and exhibit expenses ($53,842), commissions ($29,671), supplies and
utilities ($25,479) and professional fees ($34,138), net of increased bad debts
of $126,210 due principally to the economy in Latin America.
Research and development expenses increased by $12,510 (39.7%) in
fiscal 2003 over fiscal 2002. The increase was due to the continuing development
of the Company's Green-Jet(R) dry-wetcleaning(TM) machine and the Company's new
Multi-Jet(TM) dry cleaning machine, the latter of which was introduced at an
industry show in August 2003.
Interest income increased by $17,878 (164.8%), primarily due to
interest earned on a note received by the Company as part of the consideration
for the sale of the Metro Tel segment in July 2002.
Interest expense decreased by $29,393 (54.5%) as a result of lower
average outstanding debt during the year and the prepayment of the balance of
the loan in May 2003.
The provision for income taxes on continuing operations increased by
$39,010 (13.2%) 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% for both fiscal 2003 and fiscal 2002. See
Note 4 to the Consolidated Financial Statements for further information
concerning the provision for income taxes.
Discontinued operations provided a non-cash gain of $57,659, net of
taxes, for fiscal year 2003, as a result of the settlement of estimated
liabilities accrued in fiscal 2002 for the sale of the assets of the Company's
Metro Tel segment to an unaffiliated third party effective July 31, 2002.
Savings were realized principally in lease termination expenses and other
transaction costs.
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
12
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
- ----------------------------
Securities and Exchange Commission Financial Reporting Release No. 60
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 AND ACCOUNTS AND NOTES RECEIVABLE
Sales of products are generally recorded as they are shipped.
Commissions and development fees are recorded when earned, generally when the
services are performed. 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,
which is evidenced by a certificate from the franchisee, indicating that such
store has opened, and collectibility is reasonably assured. Continuing services
fees represent regular contractual payments received for the use of the
"Dryclean USA" marks, which are recognized as revenue when earned, generally on
a straight line basis.
Accounts and trade notes receivable are customer obligations due under
normal trade terms. The Company sells its products primarily to independent
dryclean and laundry stores. Note receivable represents the amounts due from the
sale of the telecommunications business. The Company performs continuing credit
evaluations of its customers' financial condition and depending on the term of
credit, the amount of the credit granted and management's past history with a
customer, the Company may require the debtor to pledge the purchased equipment
as collateral for the receivable. Senior management reviews accounts and notes
receivable on a regular basis to determine if any such amounts will potentially
be uncollectible. The Company includes any balances that are determined to be
uncollectible, along with a general reserve, in its overall allowance for
doubtful accounts. After all attempts to collect a receivable have failed, the
receivable is written off. The Company's non-trade notes receivable are
collateralized by the assets sold and are subject to personal guarantees by the
principals of the debtor. All payments on such notes are current. Based on the
information available to management, it believes the Company's allowance for
doubtful accounts as of June 30, 2003 and 2002 is adequate. However, actual
write-offs might exceed the recorded allowance.
FRANCHISE LICENSE TRADEMARK AND OTHER INTANGIBLE ASSETS
The franchise license, trademark, patents and trade name are stated at
cost less accumulated amortization. Those assets are amortized on a
straight-line basis over the estimated future periods to be benefited (10-15
years). The patents are amortized over the shorter of the patents' useful life
or legal life from the date such patents are granted. The Company reviews the
recoverability of intangible assets based primarily upon an analysis of
undiscounted cash flows from the intangible 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
13
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 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 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement requires the
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date the Company commits to
an exit plan. In addition, this Statement states the liability should be
initially measured at fair value. The Statement is effective for exit or
disposal activities that are initiated after December 31, 2002. The primary
effect to the Company's financial statements would be in the timing of
accounting recognition of potential future exit activities. The adoption of this
pronouncement did not have a material effect on the Company's financial
statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". The Statement amends the
transition provisions of SFAS No. 123 for companies that choose to adopt the
fair value based method of accounting for stock based employee compensation. The
Statement does not amend the provisions of SFAS No. 123, which allow for
entities to continue to apply the intrinsic value-based method prescribed in APB
No. 25, "Accounting for Stock Issued to Employees", however, it does amend some
of the disclosure requirements regardless of the method used to account for
stock-based employee compensation.
During April 2003, the FASB issued SFAS No. 149 - "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities", effective for
contracts entered into or modified after June 30, 2003, except as stated below
and for hedging relationships designated after June 30, 2003. In addition,
except as stated below, all provisions of this Statement should be applied
prospectively. The provisions of this Statement that relate to Statement 133
Implementation Issues that have been effective for fiscal quarters that began
prior to June 15, 2003, should continue to be applied in accordance with their
respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate
to forward purchases or sales of then-issued securities or other securities that
do not yet exist, should be applied to both existing contracts and new contracts
entered into after June 30, 2003. The Company does not participate in such
transactions, however, it is evaluating the effect of this new pronouncement, if
any, and will adopt FASB 149 prospectively as proscribed.
During May 2003, the FASB issued SFAS 150 - "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity",
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a freestanding
financial instrument that is within its scope as a liability (or an asset in
some circumstances). Many of those instruments were previously classified as
equity or in a separate category between debt and equity in a balance sheet.
Some of the provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The Company does not participate in such transactions
however, is evaluating the effect of this new pronouncement, if any, and will
adopt FASB 150 within the proscribed time.
14
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57, and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annul financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and did not have a material effect on the Company's financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (" FIN
46"), "Consolidation of Variable Interest Entities." FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities ("VIE's") created after January 31, 2003, and to
VIE's in which an enterprise obtains an interest after that date. It applies in
the first fiscal year or interim period beginning after June 15, 2003, to VIE's
in which an enterprise holds a variable interest that it acquired before
February 1, 2003. FIN 46 applies to public enterprises as of the beginning of
the applicable interim or annual period. The Company is evaluating the effects,
if any, the adoption of FIN 46 may have on the Company's consolidated financial
position, liquidity, or results of operations.
15
ITEM 7. FINANCIAL STATEMENTS.
--------------------
DRYCLEAN USA, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants 17
Consolidated Balance Sheets at June 30, 2003 and 2002 18
Consolidated Statements of Operations for the years ended
June 30, 2003 and 2002 19
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 2003 and 2002 20
Consolidated Statements of Cash Flows for the years ended
June 30, 2003 and 2002 21
Summary of Accounting Policies 22
Notes to Consolidated Financial Statements 27
16
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, 2003 and 2002, 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, 2003 and 2002, 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
September 10, 2003
17
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2003 2002
- -----------------------------------------------------------------------------------------------------------
ASSETS (Note 5)
CURRENT ASSETS
Cash and cash equivalents $ 1,614,141 $ 1,264,357
Accounts and trade notes receivable, net of allowance for
doubtful 1,382,386 1,542,691
accounts of $205,000 and $130,000, respectively
Lease receivables (Note 2) 53,894 37,290
Inventories 2,576,938 2,918,472
Refundable income taxes - 225,167
Deferred income taxes (Note 4) 118,525 240,351
Current assets of discontinued operations (Note 12) - 745,000
Note receivable-current (Note 12) 157,143 -
Other current assets 169,094 185,631
- ------------------------------------------------------------------------------------------------------------
Total current assets 6,072,121 7,158,959
LEASE RECEIVABLES - due after one year (Note 2) - 681
NOTE RECEIVABLE, LESS CURRENT PORTION (NOTE 12) 211,905 -
EQUIPMENT AND IMPROVEMENTS, net (Note 3) 233,767 274,124
FRANCHISE, TRADEMARKS AND OTHER INTANGIBLE ASSETS, net
(Note 1) 409,308 455,104
DEFERRED INCOME TAXES (Note 4) 28,541 8,869
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS (NOTE 12) - 15,000
- ------------------------------------------------------------------------------------------------------------
$ 6,955,642 $ 7,912,737
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,066,860 $ 1,736,393
Income taxes payable 112,925 -
Customer deposits and other 335,206 539,486
Current portion of term loan (Note 5) - 320,000
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 1,514,991 2,595,879
TERM LOAN, less current portion (Note 5) - 480,000
- -----------------------------------------------------------------------------------------------------------
Total liabilities 1,514,991 3,075,879
- -----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (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 3,219,413 2,615,620
Treasury stock, 31,050 shares at cost (3,020) (3,020)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,440,651 4,836,858
- -----------------------------------------------------------------------------------------------------------
$ 6,955,642 $ 7,912,737
===========================================================================================================
See accompanying summary of accounting policies and notes to consolidated financial statements
18
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended June 30, 2003 2002
- ---------------------------------------------------------------------------------------------------------
REVENUES:
Net sales $ 13,413,145 $ 13,330,158
Development fees, franchise and license fees, commissions
and other 904,303 958,346
- ---------------------------------------------------------------------------------------------------------
Total 14,317,448 14,288,504
- ---------------------------------------------------------------------------------------------------------
COST OF SALES 9,676,975 9,667,630
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 8 and 9) 3,720,404 3,771,210
RESEARCH AND DEVELOPMENT EXPENSES 44,009 31,499
- ---------------------------------------------------------------------------------------------------------
Total 13,441,388 13,470,339
- ---------------------------------------------------------------------------------------------------------
OPERATING INCOME 876,060 818,165
- ---------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 28,725 10,847
Interest expense (24,562) (53,955)
- ---------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes 880,223 775,057
Provision for income taxes (Note 4) 334,089 295,079
- ---------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 546,134 479,978
Loss from discontinued operations, net of income tax benefit of $0
and $127,787, respectively (Note 12) - (204,992)
Estimated gain (loss) on disposal of discontinued operations, net of
income tax expense (benefit) of ($34,788) and $347,358, respectively 57,659 (554,996)
(Note 12)
- ---------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations 57,659 (759,988)
- ---------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 603,793 $ (280,010)
=========================================================================================================
Earnings per share from continuing operations, basic $ .08 $ .07
Earnings (loss) per share from discontinued operations, net of taxes, .01 (.11)
basic
=========================================================================================================
Net earnings (loss) per share, basic (Note 10) $ .09 $ (.04)
=========================================================================================================
Earnings per share from continuing operations, diluted $ .08 $ .07
Earnings (loss) per share from discontinued operations, net of taxes, .01 (.11)
diluted
=========================================================================================================
Net earnings (loss) per share, diluted (Note 10) $ .09 $ (.04)
=========================================================================================================
Weighted average number of shares of
common stock outstanding:
Basic 6,996,450 6,996,813
Diluted 6,996,450 6,997,342
=========================================================================================================
See accompanying summary of accounting policies and notes to consolidated financial statements
19
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Additional
COMMON STOCK Paid-in Treasury Stock
-------------------- ----------------------- Retained
Shares Amount Capital SHARES COST Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------
Balance at July 1, 2001 7,027,500 $ 175,688 $ 2,048,570 26,250 $ - $ 2,895,630 $ 5,119,888
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
Net earnings - - - - - 603,793 603,793
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2003 7,027,500 $ 175,688 $ 2,048,570 31,050 $ (3,020) $ 3,219,413 $ 5,440,651
==============================================================================================================================
See accompanying summary of accounting policies and notes to consolidated financial statements
20
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED JUNE 30, 2003 2002
- --------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net earnings from continuing operations $ 546,134 $ 479,978
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 114,941 113,102
Bad debt (recovery) expense 126,210 (9,425)
Provision for deferred income taxes 102,154 (167,098)
(Increase) decrease in operating assets:
Accounts, notes and lease receivables 18,172 498,989
Inventories 341,534 (311)
Refundable income taxes 225,167 32,196
Other current assets 16,537 (12,578)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (577,086) 261,660
Income taxes payable 78,137 -
Customer deposits and other (204,280) (33,812)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 787,620 1,162,701
- --------------------------------------------------------------------------------------------------------------
Net income (loss) from discontinued operations 57,659 (759,988)
Adjustments:
Estimated (gain) loss on disposal of assets (92,447) 902,354
Decrease (increase) in net operating assets 34,788 (53,359)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by discontinued operations - 89,007
- --------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 787,620 1,251,708
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net proceeds upon disposal of business 210,000 -
Payments received on note receivable 180,952 -
Capital expenditures (15,634) (97,969)
Collection of related party receivable - 114,495
Patent expenditures (13,154) (16,769)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used) in investing activities 362,164 (243)
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on term loan (800,000) (360,000)
Acquisition of treasury stock - (3,020)
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (800,000) (363,020)
- --------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 349,784 888,445
Cash and cash equivalents at beginning of year 1,264,357 375,912
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,614,141 $ 1,264,357
==============================================================================================================
Supplemental Information:
Cash paid for:
Interest $ 24,562 $ 53,955
Income taxes 24,000 171,000
==============================================================================================================
See accompanying summary of accounting policies and notes to consolidated financial statements
21
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
CONSOLIDATION include the accounts of DRYCLEAN USA, Inc. and its
wholly-owned subsidiaries. Intercompany
transactions and balances have been eliminated in
consolidation.
REVENUE RECOGNITION Sales of products are generally recorded as they
are shipped. Shipping, delivering and handling fee
income of approximately $118,000 and $121,000 for
the years ended June 30, 2003 and 2002,
respectively, are included as other revenues in
the consolidated financial statements. Shipping,
delivering and handling costs are included in cost
of sales. Commissions and development fees are
recorded when earned. Individual franchise
arrangements include a license and provide for the
payment of initial fees, as well as continuing
royalty fees. Initial franchise fees are generally
recorded upon the opening of the franchise store.
Continuing royalty fees are recorded when earned.
ACCOUNTS AND NOTES Accounts and trade notes receivable are customer
RECEIVABLE obligations due under normal trade terms. The
Company sells its products primarily to
independent dryclean and laundry stores. Note
receivable represents the amounts due from the
sale of the telecommunications segment. The
Company performs continuing credit evaluations of
its customers' financial condition and depending
on the terms of credit, the amount of the credit
granted and management's history with a customer,
the Company may require the customer to pledge the
purchased equipment as collateral for the
receivable. Senior management reviews accounts and
notes receivable on a regular basis to determine
if any such amounts will potentially be
uncollectible. The Company includes any balances
that are determined to be uncollectible, along
with a general reserve, in its overall allowance
for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable
is written off. The Company's non-trade note
receivable is collateralized by the assets sold
and are subject to personal guarantees by the
principals of the debtor. All payments on such
notes are current. Based on the information
available, management believes the Company's
allowance for doubtful accounts as of June 30,
2003 and 2002 is adequate. However, actual
write-offs might exceed the recorded allowance.
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.
22
EQUIPMENT, Property and equipment are stated at cost.
IMPROVEMENTS AND Depreciation and amortization are calculated on
DEPRECIATION accelerated and straight-line 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.
ASSET IMPAIRMENTS The Company accounts for long-lived assets in
accordance with the provisions of the Financial
Accounting Standards Board ("FASB") Statement of
Financial Accounting Standard ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of
Long-Lived Assets". This statement requires that
long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that
the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held
and used is measured by a comparison of the
carrying amount of an asset to future net cash
flows expected to be generated by the asset. If
such assets are considered to be impaired, the
impairment to be recognized is measured by the
amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the
carrying amount or fair value less estimated costs
to sell.
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.
CASH EQUIVALENTS Cash equivalents include all highly liquid
investments with original maturities of three
months or less.
ESTIMATES The preparation of consolidated financial
statements in conformity with 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.
STOCK BASED SFAS No. 123, Accounting for Stock-Based
COMPENSATION Compensation, requires the Company to provide pro
forma information regarding net income (loss) and
net income (loss) 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; 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 2003. Based
on these assumptions, under the accounting
provisions of SFAS No. 123, the Company's net
income (loss) and net income (loss) per common
share would have been as follows:
23
Year ended June 30, 2003 2002
---------------------------------------------------------------------------------
Earnings from continuing operations, as reported $ 546,134 $ 479,978
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards (14,377) (25,624)
---------------------------------------------------------------------------------
Pro forma earnings from continuing operations $ 531,757 $ 454,354
=================================================================================
Net income (loss), as reported $ 603,793 $ (280,010)
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards (14,377) (25,624)
---------------------------------------------------------------------------------
Pro forma net income (loss) $ 589,416 $(305,634)
=================================================================================
Earnings per common share from continuing
operations:
Basic As reported $ .08 $ .07
Pro forma .08 .06
Diluted As reported .08 .07
Pro forma .08 .06
=================================================================================
Net income (loss) per common share:
Basic As reported $ .09 $ (.04)
Pro forma .08 (.04)
Diluted As reported .09 (.04)
Pro forma .08 (.04)
---------------------------------------------------------------------------------
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 the advertisement is run. The
Company expensed approximately $179,000 and
$218,000 of advertising costs for the years ended
June 30, 2003 and 2002, respectively.
FAIR VALUE OF
FINANCIAL INSTRUMENTS The Company's financial instruments consist
principally of cash and cashequivalents, accounts
receivable, lease 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, and other intangible
TRADEMARK AND OTHER assets are stated at cost less accumulated
INTANGIBLE ASSETS amortization. These assets are amortized on a
straight-line basis over the estimated future
periods to be benefited (10-
24
15 years). Patents are amortized over the shorter
of the patents' useful life or legal life from the
date such patents are granted. The Company reviews
the recoverability of intangible assets based
primarily upon an analysis of undiscounted cash
flows expected to be 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 2002, the FASB issued Statement No. 146,
PRONOUNCEMENTS Accounting for Costs Associated with Exit or
Disposal Activities. This Statement requires the
recognition of a liability for a cost associated
with an exit or disposal activity when the
liability is incurred versus the date the Company
commits to an exit plan. In addition, this
Statement states the liability should be initially
measured at fair value. The Statement is effective
for exit or disposal activities that are initiated
after December 31, 2002. The primary effect to the
Company's financial statements would be in the
timing of accounting recognition of potential
future exit activities. The adoption of this
pronouncement did not have a material effect on
the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation -
Transition and Disclosure". The Statement amends
the transition provisions of SFAS No. 123 for
companies that choose to adopt the fair value
based method of accounting for stock based
employee compensation. The Statement does not
amend the provisions of SFAS No. 123, which allow
for entities to continue to apply the intrinsic
value-based method prescribed in APB No. 25,
"Accounting for Stock Issued to Employees",
however, it does amend some of the disclosure
requirements regardless of the method used to
account for stock-based employee compensation.
During April 2003, the FASB issued SFAS No. 149 -
"Amendment of Statement 133 on Derivative
Instruments and Hedging Activities", effective for
contracts entered into or modified after June 30,
2003, except as stated below and for hedging
relationships designated after June 30, 2003. In
addition, except as stated below, all provisions
of this Statement should be applied prospectively.
25
The provisions of this Statement that relate to
Statement 133 Implementation Issues that have been
effective for fiscal quarters that began prior to
June 15, 2003, should continue to be applied in
accordance with their respective effective dates.
In addition, paragraphs 7(a) and 23(a), which
relate to forward purchases or sales of
then-issued securities or other securities that do
not yet exist, should be applied to both existing
contracts and new contracts entered into after
June 30, 2003. The Company does not participate in
such transactions, however, it is evaluating the
effect of this new pronouncement, if any, and will
adopt FASB 149 prospectively as proscribed.
During May 2003, the FASB issued SFAS 150 -
"Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity",
effective for financial instruments entered into
or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim
period beginning after June 15, 2003. This
Statement establishes standards for how an issuer
classifies and measures certain financial
instruments with characteristics of both
liabilities and equity. It requires that an issuer
classify a freestanding financial instrument that
is within its scope as a liability (or an asset in
some circumstances). Many of those instruments
were previously classified as equity or in a
separate category between debt and equity in a
balance sheet. Some of the provisions of this
Statement are consistent with the current
definition of liabilities in FASB Concepts
Statement No. 6, "Elements of Financial
Statements". The Company does not participate in
such transactions however, is evaluating the
effect of this new pronouncement, if any, and will
adopt FASB 150 within the proscribed time.
In November 2002, the FASB issued Interpretation
No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an
interpretation of FASB Statements No. 5, 57, and
107 and a rescission of FASB Interpretation No.
34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its
interim and annul financial statements about its
obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is
required to recognize, at inception of a
guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and
measurement provisions of the Interpretation are
applicable to guarantees issued or modified after
December 31, 2002 and did not have a material
effect on the Company's financial statements.
In January 2003, the FASB issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation
of Variable Interest Entities." FIN 46 clarifies
the application of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not
have the characteristics of a controlling
financial interest or do not have sufficient
equity at risk for the entity to finance its
activities without additional subordinated
financial support from other parties. FIN 46
applies immediately to variable interest entities
("VIE's") created after January 31, 2003, and to
VIE's in which an enterprise obtains an interest
after that date. It applies in the first fiscal
year or interim period beginning after June 15,
2003, to VIE's in which an enterprise holds a
variable interest that it acquired before February
1, 2003. FIN 46 applies to public enterprises as
of the beginning of the applicable interim or
annual period. The Company is evaluating the
effects, if any, the adoption of FIN 46 may have
on the Company's consolidated financial position,
liquidity, or results of operations.
26
1. INTANGIBLE ASSETS Franchise, trademark and other intangible assets
consist of the following:
---------------------------------------------------------------------------------
Estimated
Useful Lives JUNE 30, June 30,
(in years) 2003 2002
---------------------------------------------------------------------------------
Franchise license agreements 10 $ 529,500 $ 529,500
Trademarks, patents and trade
name 10-15 105,944 93,910
---------------------------------------------------------------------------------
635,444 623,410
Less accumulated amortization (226,136) (168,306)
---------------------------------------------------------------------------------
$ 409,308 $ 455,104
=================================================================================
2. LEASE RECEIVABLES Lease receivables result from customer leases of
equipment under arrangements which qualify as
sales-type leases. At June 30, 2003 and 2002,
future lease payments, net of deferred interest
($3,212 and $4,685 at June 30, 2003 and 2002), due
under these leases amounted to $53,894 and
$37,971, respectively.
3. EQUIPMENT AND Major classes of equipment and improvements
IMPROVEMENTS consist of the following:
June 30, 2003 2002
---------------------------------------------------------------------------------
Furniture and equipment $ 670,262 $ 646,501
Leasehold improvements 322,514 330,877
---------------------------------------------------------------------------------
992,776 977,378
Less accumulated depreciation and
amortization (759,009) (703,254)
---------------------------------------------------------------------------------
$ 233,767 $ 274,124
=================================================================================
Depreciation and amortization of equipment and
improvements amounted to $55,991 and $55,723 for
the years ended June 30, 2003 and 2002,
respectively.
4. INCOME TAXES Income taxes (benefit) included in the
consolidated statements of operations is as
follows:
Year ended June 30, 2003 2002
-----------------------------------------------------------------------------------
Continuing operations $ 334,089 $ 295,079
Discontinued operations - (127,787)
Income (loss) on sale of discontinued
operations 34,788 (347,358)
-----------------------------------------------------------------------------------
$ 368,877 $ (180,066)
===================================================================================
27
The following are the components of income taxes
(benefit):
Year ended June 30, 2003 2002
-----------------------------------------------------------------------------------
Current
Federal $ 227,828 $ (11,721)
State 38,895 (1,247)
-----------------------------------------------------------------------------------
266,723 (12,968)
-----------------------------------------------------------------------------------
Deferred
Federal 87,134 (150,979)
State 15,020 (16,119)
-----------------------------------------------------------------------------------
102,154 (167,098)
-----------------------------------------------------------------------------------
$ 368,877 $ (180,066)
===================================================================================
The reconciliation of income tax expense computed
at the Federal statutory tax rate of 34% to income
taxes (benefit) is as follows:
Year ended June 30, 2003 2002
---------------------------------------------------------------------------
Tax at the statutory rate $ 330,708 $ (166,317)
State income taxes,
net of federal benefit 35,584 (11,462)
Other 2,585 (2,287)
---------------------------------------------------------------------------
$ 368,877 $ (180,066)
===========================================================================
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, 2003 2002
---------------------------------------------------------------------------------
Current deferred tax asset (liability):
Allowance for doubtful accounts $ 77,142 $ 48,919
Inventory capitalization 47,454 65,318
Loss on sale of assets 753 133,929
Other (6,824) (7,815)
---------------------------------------------------------------------------------
118,525 240,351
---------------------------------------------------------------------------------
Noncurrent deferred tax asset (liability):
Depreciation (5,075) (18,680)
Amortization 33,616 27,549
---------------------------------------------------------------------------------
28,541 8,869
---------------------------------------------------------------------------------
Total net deferred income taxes $ 147,066 $ 249,220
---------------------------------------------------------------------------------
28
5. CREDIT AGREEMENT In December 2001, the Company entered into a bank
AND TERM LOAN loan agreement with a facility consisting 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. 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, are guaranteed by all of the Company's
subsidiaries and are collateralized by
substantially all of the Company's and its
subsidiaries' assets. At June 30, 2002, the
Company owed $800,000, under the term loan. In May
2003, the Company pre-paid the then outstanding
balance ($533,333) of its term loan and no amounts
are outstanding at June 30, 2003. The revolving
credit facility matures October 30, 2003. At June
30, 2003 and 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, pay dividends, guarantee
indebtedness of others, grant liens, sell assets
and make investments.
6. RELATED PARTY At June 30, 2001, $114,495, net of $100,000
TRANSACTIONS allowance for doubtful accounts, was due the
Company from an entity controlled by one of the
principal shareholders of 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 OF The Company places its excess cash in overnight
CREDIT RISK deposits with a large national bank. Concentration
of credit risk with respect to trade and lease
receivables is limited due to a large customer
base. Trade and lease receivables are generally
collateralized with equipment sold. The note
receivable is collateralized by the assets sold
and subject to personal guarantees by the
principals of the debtor.
From time to time, the Company purchases inventory
from manufacturers in Europe, as a result, 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. At June 30, 2003 and 2002, the Company had
no outstanding commitments to purchase foreign
currency.
29
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 March 2004 and December 2005. As of June 30,
2003, the Company is also obligated under five
leases for future dry cleaning stores that
aggregate $144,000 to $149,000 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 commitments for leases in
effect at June 30, 2003 approximates the
following:
Years ending June 30,
--------------------------------------------------------------------------------
2004 $ 283,000
2005 208,000
2006 164,000
2007 148,000
2008 149,000
--------------------------------------------------------------------------------
Rent expense aggregated $153,841 and $151,196 for
the years ended June 2003 and 2002, respectively.
As of June 30, 2003 the Company had an outstanding
letter of credit to an Italian manufacturer in the
amount of $134,400, due July 25, 2003 for the
purchase of inventory. The commitment was honored
on schedule.
The Company, through its manufacturers, provides
parts warranties for products sold. These
warranties are the responsibility of the
manufacturer, as such, warranty related expenses
are insignificant to the consolidated financial
statements.
9. DEFERRED The Company has a participatory deferred
COMPENSATION compensation plan wherein it matches employee
PLAN contributions up to 1% of an eligible employee's
yearly compensation.
Employees are eligible to participate in the plan
after three months of service. The Company
contributed approximately $10,000 to the Plan in
each of 2003 and 2002. The plan is tax deferred
under Section 401(k) of the Internal Revenue Code.
30
10. EARNINGS PER SHARE The following reconciles the components of the
earnings per share computation:
YEAR ENDED JUNE 30, 2003
---------------------------------------------------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------------------------------------------------------
Earnings from continuing operations $ 546,134 6,996,450 $ .08
Effect of dilutive securities:
Stock options - - -
---------------------------------------------------------------------------------
Net earnings plus assumed dilution $ 546,134 6,996,450 $ .08
---------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------
There were outstanding stock options to purchase
439,000 and 497,750, shares of the Company's
common stock outstanding at June 30, 2003 and
2002, 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 No. 25,
"Accounting for Stock Issued to Employees," and
related interpretations in accounting for stock
options to employees and directors. Under APB
Opinion No. 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.
31
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 issuance through
2007 at a price of $.56 per share. There were no
stock options granted in fiscal 2003. 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.
A summary of options under the Company's stock
option plans as of June 30, 2003, and changes
during the year then ended is presented below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------------------------------------------------------------------------------
Outstanding at beginning of year 522,750 $ 1.04
Granted - -
Expired (83,750) 1.05
--------------------------------------------------------------------------------
Outstanding at end of year 439,000 $ 1.02
--------------------------------------------------------------------------------
Options exercisable at year-end 436,500 $ 1.02
================================================================================
32
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
--------------------------------------------------------------------------------
The following table summarizes information about
stock option plan and non-plan options outstanding
at June 30, 2003:
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 6/30/03 Life Price 6/30/03 Price
-----------------------------------------------------------------------------------
$ .91-$1.00$ 419,000 .33 years $ 1.00 419,000 $ 1.00
$ 2.00 $ 20,000 1.5 years $ 2.00 17,500 $ 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%,
(5% at June 30, 2003) 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 purchaser prepaid $50,000 of the note
in 2003. As of June 30, 2003, there was $369,048
due the Company under this note. Principal
payments on this note are scheduled to be
collected as follows:
33
Years ending June 30,
-------------------------------------------------
2004 $ 157,143
2005 157,143
2006 54,762
--------------------------------------------------
$ 369,048
==================================================
The Company retained all of the segment's 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
costs, including estimated lease termination
costs, aggregating approximately $184,000 at June
30, 2003. Additionally, the Company recorded a
provision of $718,000 to reduce the carrying value
of assets sold to their estimated net realizable
value at June 30, 2002. The estimated loss on sale
of the discontinued operation, net of income tax
benefit, recorded as of June 30, 2002 was
$555,000.
During the year ended June 30, 2003 the Company
settled certain of these estimated costs,
including lease termination fees and professional
fees for amounts less than previously estimated.
Accordingly, the Company recognized a gain on
disposal of approximately $58,000, net of taxes in
fiscal 2003.
Net assets and operating results for the
discontinued operations are approximately as
follows:
June 30, 2003 2002
-------------------------------------------------------------------------------
Inventory $ - $ 745,000
Property and equipment, net - 10,000
Intangible asset, net - 5,000
-------------------------------------------------------------------------------
Net assets of discontinued operations $ - $ 760,000
-------------------------------------------------------------------------------
June 30, 2003 2002
--------------------------------------------------------------------------------
Revenues $ 55,000 $ 1,648,000
Expenses (55,000) (1,981,000)
Income tax benefit - 128,000
================================================================================
(Loss) from discontinued operations $ - $ (205,000)
--------------------------------------------------------------------------------
13. SEGMENT INFORMATION The Company's reportable segments are strategic
businesses that offer different products and
services. They are managed separately because each
business requires different technology and
marketing strategies.
Steiner-Atlantic Corp., Steiner-Atlantic Brokerage
Corp. and DRYCLEAN USA Development Corp.,
wholly-owned subsidiaries of the
34
Company, comprise the commercial and industrial
laundry and dry cleaning equipment segment.
Steiner-Atlantic Corp. is a supplier of dry
cleaning equipment, industrial laundry equipment
and steam boilers to customers in the United
States, the Caribbean and Latin American markets.
Steiner-Atlantic Brokerage 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.
develops turn-key dry cleaning establishments for
resale to third parties.
DRYCLEAN USA License Corp. is 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.
Financial information for the Company's business
segments is as follows:
Year ended June 30, 2003 2002
------------------------------------------------------------------------------------
Revenues:
Commercial and industrial laundry and dry
cleaning equipment $ 13,980,780 $ 13,947,851
License and franchise operations 336,668 340,653
------------------------------------------------------------------------------------
Total revenues $ 14,317,448 $ 14,288,504
====================================================================================
Operating income (loss):
Commercial and industrial laundry
and dry cleaning equipment $ 1,013,611 $ 869,397
License and franchise operations 112,893 157,668
Corporate (250,444) (208,900)
------------------------------------------------------------------------------------
Total operating income $ 876,060 $ 818,165
------------------------------------------------------------------------------------
Identifiable assets:
Commercial and industrial laundry
and dry cleaning equipment $ 5,498,438 $ 5,585,225
License and franchise operations 759,750 789,179
Corporate 737,454 778,333
Assets of discontinued operations - 760,000
------------------------------------------------------------------------------------
Total assets $ 6,995,642 $ 7,912,737
====================================================================================
For the years ended June 30, 2003 and 2002, export
revenues, principally to the Caribbean and Latin
America, aggregated approximately $2,720,000 and
$2,206,000, respectively of which, approximately
$2,596,000 and $2,081,000 for years ended June 30,
2003 and 2002, respectively, related to the
commercial and industrial laundry and dry cleaning
equipment segment. All such sales are denominated
in U.S. Dollars and accordingly the Company is not
exposed to risks of foreign currency fluctuations
as a result of such sales.
No single customer accounted for more than 10% of
the Company's revenues in 2003 and 2002.
35
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
-----------------------------------
Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES.
-----------------------
As of the end of the period covered by this report, management of the
Company, with the participation of the Company's President and principal
executive officer and the Company's principal financial officer, evaluated the
effectiveness of the Company's "disclosure controls and procedures," as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that
evaluation, these officers concluded that, as of the date of their evaluation,
the Company's disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed in the Company's
periodic filings under the Securities Exchange Act of 1934 is accumulated and
communicated to our management, including those officers, to allow timely
decisions regarding required disclosure.
During the period covered by this Report, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
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, 47, 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, 73, 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, 70, 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, 78, 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, 43, 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.
36
Alan M. Grunspan, 43, 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, 71, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998. Mr. Wagner has been a
consultant for Diversitech Corp. since 1997. From 1975 to 1997, Mr. Wagner
served as President of Wagner Products Corp., a manufacturer and distributor of
products in the HVAC industry, a company which he founded.
Mr. Michael S. Steiner is the son of Mr. William K. Steiner. There are
no other family relationships among any of the directors and executive officers
of the Company. All directors serve until the next annual meeting of
stockholders and until the election and qualification of their respective
successors. All officers serve at the pleasure of the Board of Directors.
The following information is presented with respect to the background
of each person who is not an executive officer but who is expected to continue
to make a significant contribution to the Company:
Osvaldo Rubio, 40, has served as Vice President and Director of Sales
for the Export Department of Steiner since joining Steiner in May 1993.
Ronald London, 70, has served as Vice President, 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 2003 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 2003 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, except that the information as to the Company's equity compensation
plans, contained in the last paragraph of Item 5, of this Report, is
incorporated by reference into this Item 11.
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 2003 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.
37
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 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, File
No. 0-9040.)
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, File No. 0-9040.)
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, File No. 0-9040.)
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, File No. 0-9040.)
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, File No. 0-9040.)
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, File No.
0-9040.)
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, File No. 0-9040.)
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).
38
4(a)(1)(B) Letter agreement dated September 23, 2002 between the Company
and First Union National Bank (Exhibit 4(a)(1)(B) to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 2002, File No. 0-0904.).
*4(a)(1)(C) Letter agreement dated October 11, 2002 between the Company
and Wachovia (Exhibit 4.01 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2002, File
No. 0-9040).
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).
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.
*31(a) Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 promulgated
under the Securities Exchange Act of 1934.
39
*31(b) Certification of principal financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 promulgated
under the Securities Exchange Act of 1934.
*32(a) Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
*32(b) Certification of Principal Financial Officer 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
During the quarter ended June 30, 2003, the Company furnished one
report on Form 8-K, dated May 14, 2003, reporting under Item 7, Financial
Statements, Pro Forma Financial Information and Exhibits, and Item 9, Regulation
FD Disclosure (Information is Being Provided Under Item 12). No financial
statements were filed with that Report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
--------------------------------------
The information called for by this Item will be contained in the
Company's definitive Proxy Statement with respect to the Company's 2003 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.
40
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 29, 2003
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 29, 2003
- --------------------------------- Chief Executive Officer
Michael S. Steiner (Principal Executive Officer) and
Director
/s/ William K. Steiner Director September 29, 2003
- ---------------------------------
William K. Steiner
/s/ Venerando J. Indelicato Chief Financial Officer September 29, 2003
- --------------------------------- (Principal Financial and Accounting
Venerando J. Indelicato Officer) and Director
/s/ Lloyd Frank Director September 29, 2003
- ---------------------------------
Lloyd Frank
/s/ Alan M. Grunspan Director September 29, 2003
- ---------------------------------
Alan M. Grunspan
/s/ Stuart Wagner Director September 29, 2003
- ---------------------------------
Stuart Wagner
Director
- ---------------------------------
David Blyer
41
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 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, File
No. 0-9040.)
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, File No. 0-9040.)
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, File No. 0-9040.)
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, File No. 0-9040.)
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, File No. 0-9040.)
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, File No.
0-9040.)
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, File No. 0-9040.)
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 (Exhibit 4(a)(1)(B) to the
Company's Annual Report on Form 10-KSB for the year ended June
30, 2002, File No. 0-0904.).
42
*4(a)(1)(C) Letter agreement dated October 11, 2002 between the Company
and Wachovia (Exhibit 4.01 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2002, File
No. 0-9040).
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).
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.
*31(a) Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 promulgated
under the Securities Exchange Act of 1934.
*31(b) Certification of principal financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 promulgated
under the Securities Exchange Act of 1934.
*32(a) Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
43
*32(b) Certification of Principal Financial Officer 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.
44