SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9040
DRYCLEAN USA, Inc.
(Exact name of small business issuer as specified in its charter)
DELAWARE 11-2014231
State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
290 N.E. 68 Street, Miami, Florida 33138
(Address of principal executive offices)
(305) 754-4551
(Issuer's telephone number)
Not Applicable
(Former name)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: Common Stock, $.025 par value per
share - 7,014,450 shares outstanding as of February 6, 2004.
Transitional Small Business Disclosure Format: Yes No X
-------- ------
DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months For the three months
ended December 31, ended December 31,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Sales $ 7,109,029 $ 6,925,989 $ 3,993,748 $ 3,335,684
Development fees, franchise
and license fees, commissions
and other income 332,143 355,649 147,563 134,281
Total revenues 7,441,172 7,281,638 4,141,311 3,469,965
Cost of goods sold 5,149,662 5,066,450 2,901,937 2,511,583
Selling, general and
administrative expenses 1,819,762 1,877,835 906,840 946,507
Research and development 18,875 20,444 9,325 8,175
----------- ----------- ----------- -----------
Total operating expenses 6,988,299 6,964,729 3,818,102 3,466,265
Operating income 452,873 316,909 323,209 3,700
Interest income 12,539 12,872 3,604 11,712
Interest expense -- (16,191) -- (7,468)
Earnings from continuing 465,412 313,590 326,813 7,944
operations before taxes
Provision for income taxes 186,165 125,436 130,725 3,178
----------- ----------- ----------- -----------
Net earnings from continuing
operations $ 279,247 $ 188,154 $ 196,088 $ 4,766
Net reduction in reserve
associated with sale of
discontinued operations -- 39,976 -- 39,976
----------- ----------- ----------- -----------
Net earnings $ 279,247 $ 228,130 $ 196,088 $ 44,742
=========== =========== =========== ===========
Basic and diluted earnings
per share from continuing
operations $ .04 $ .03 $ .03 $ --
Basic and diluted
earnings per share from
discontinued operations $ -- $ -- $ -- $ .01
----------- ----------- ----------- -----------
Basic and diluted earnings
per share $ .04 $ .03 $ .03 $ .01
=========== =========== =========== ===========
Weighted average number
of shares outstanding
Basic 7,003,983 6,996,450 7,011,515 6,996,450
Diluted 7,035,662 6,996,450 7,074,872 6,996,450
=========== =========== =========== ===========
Dividends per share $ .05 -- $ .05 --
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements
2
DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2003 June 30, 2003
---------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,443,507 $1,614,141
Accounts and trade notes
receivable, net 1,612,142 1,382,386
Inventories 2,597,327 2,576,938
Note receivable - current portion 157,143 157,143
Lease receivables 13,925 53,894
Deferred income taxes 118,525 118,525
Other assets, net 383,374 169,094
---------- ----------
Total current assets 6,325,943 6,072,121
Note receivable, less current portion 159,524 211,905
Equipment and improvements- net 216,943 233,767
Franchise, trademarks and other
intangible assets, net 382,376 409,308
Deferred income taxes 28,541 28,541
---------- ----------
$7,113,327 $6,955,642
========== ==========
See Notes to Condensed Consolidated Financial Statements
3
DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2003 June 30, 2003
----------- -----------
(Unaudited)
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 1,233,038 $ 1,066,860
Customer deposits 464,020 335,206
Income taxes payable 29,090 112,925
----------- -----------
Total current liabilities 1,726,148 1,514,991
----------- -----------
Total liabilities 1,726,148 1,514,991
SHAREHOLDERS' EQUITY
Common stock, $.025 par value;
15,000,000 shares authorized;
7,045,500 and 7,027,500
shares issued and outstanding
at December 31, 2003 and June 30, 2003,
respectively, including shares
held in treasury 176,138 175,688
Additional paid-in capital 2,066,120 2,048,570
Retained earnings 3,147,941 3,219,413
Treasury stock, 31,050 shares
at cost (3,020) (3,020)
----------- -----------
Total shareholders' equity 5,387,179 5,440,651
----------- -----------
$ 7,113,327 $ 6,955,642
=========== ===========
See Notes to Condensed Consolidated Financial Statements
4
DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Six months ended
December 31, December 31,
2003 2002
(Unaudited) (Unaudited)
----------- -----------
Operating activities:
Net earnings from continuing operations $ 279,247 $ 188,154
Adjustments to reconcile net earnings from continuing
operations to net cash provided by operating
activities:
Bad debt expense 10,296 75,651
Depreciation and amortization 57,920 64,252
(Increase) decrease in operating assets:
Accounts, trade notes and lease receivables (200,083) (97,564)
Inventories (20,389) 123,650
Other current assets (214,280) 12,870
Refundable income taxes -- 128,086
Increase (decrease) in:
Accounts payable and accrued expenses 166,178 (552,922)
Customer deposits 128,814 72,571
Income taxes payable (83,835) --
----------- -----------
Net cash provided by operating activities 123,868 14,748
----------- -----------
Discontinued operations:
Net reduction in reserve associated with
sale of discontinued operations -- 39,976
----------- -----------
Cash provided by discontinued operations -- 39,976
----------- -----------
Investing activities: -- 210,000
Net proceeds from disposal of business
Proceeds from note receivable 52,381 39,286
Capital expenditures (12,175) --
Patent and trademark expenditures (1,985 (11,250)
----------- -----------
Net cash provided by investing activities 38,221 238,036
----------- -----------
Financing activities
Payments on term loan -- (160,000)
Dividend paid (350,723) --
Proceeds from exercise of stock options 18,000 --
----------- -----------
Net cash used by financing activities (332,723) (160,000)
----------- -----------
Net (decrease) increase in cash and cash equivalents (170,634) 132,760
Cash and cash equivalents at beginning of period 1,614,141 1,264,357
----------- -----------
Cash and cash equivalents at end of period $ 1,443,507 $ 1,397,117
=========== ===========
Supplemental information
Cash paid for interest $- $ 16,191
Cash paid for income taxes 270,000 24,000
See Notes to Condensed Consolidated Financial Statements
5
DRYCLEAN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE (1) GENERAL: The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and
the instructions to Form 10-QSB related to interim period financial statements.
Accordingly, these condensed consolidated financial statements do not include
certain information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
However, the accompanying unaudited condensed consolidated financial statements
contain all adjustments (consisting only of normal recurring accruals) which, in
the opinion of management, are necessary in order to make the financial
statements not misleading. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the Company's financial statements and footnotes
thereto in the Company's Annual Report on Form 10-KSB for the year ended June
30, 2003. The June 30, 2003 balance sheet information contained herein was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB as of that date.
NOTE (2) - EARNINGS PER SHARE: Basic and diluted earnings per share for the
three and six months ended December 31, 2003 and 2002 are computed as follows:
For the six months ended For the three months ended
2003 2002 2003 2002
--------- --------- --------- ---------
Basic
Net earnings $ 279,247 $ 228,130 $ 196,088 $ 44,742
Weighted average shares
outstanding 7,003,983 6,996,450 7,011,515 6,996,450
========= ========= ========= =========
Basic earnings per share $ .04 $ .03 $ .03 $ .01
========= ========= ========= =========
Diluted
Net earnings $ 279,247 $ 228,130 $ 196,088 $ 44,742
Weighted average shares
outstanding 7,003,983 6,996,450 7,011,515 6,996,450
Plus incremental shares
from assumed
exercise of
Stock options 31,679 -- 63,357 --
========= ========= ========= =========
Diluted weighted average
common shares 7,035,662 6,996,450 7,074,872 6,996,450
========= ========= ========= =========
Diluted earnings per $
share $ .04 $ .03 $ .03 .01
========= ========= ========= =========
6
There were 20,000 and 439,000 stock options outstanding at December 31, 2003 and
2002, respectively, that were excluded in the computations of earnings per share
for such periods because the exercise prices of the options were at least the
average market prices of the Company's common stock during these periods.
NOTE (3) - REVOLVING CREDIT LINE: On October 22, 2003, the Company received an
extension, until October 30, 2004, 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, and 50% of other,
eligible inventories. As of December 31, 2003 the Company had no outstanding
borrowings under the line of credit.
NOTE (4) - STOCK OPTIONS: The Company accounts for its stock-based compensation
plans under Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees. The pro forma information below is based on
provisions of Statement of Financial Accounting Standard ("FAS") No. 123,
Accounting for Stock-Based Compensation, as amended by FAS 148, Accounting for
Stock-Based Compensation-Transition and Disclosure, issued in December 2002:
For the six months For the three months
ended December 31, ended December 31,
---------------------- ----------------------
2003 2002 2003 2002
Net earnings, as reported $ 279,247 $ 228,130 $ 196,088 $ 44,742
Less: Fair value of employee stock
compensation (3,000) (7,000) (1,500) (3,500)
--------- --------- --------- ------
Pro forma net earnings $ 276,247 $ 221,130 $ 194,588 41,242
Earnings per common share:
Net income as reported-Basic
and diluted $ .04 $ .03 $ .03 $ .01
Net income, pro forma-Basic
and diluted $ .04 $ .03 $ .03 $ .01
There were no options granted during the six months ended December 31, 2003 and
2002. In October 2003, two employees exercised options to purchase 18,000 shares
of the Company's common stock for $1.00 per share. In November 2003, 389,000
stock options expired unexercised.
NOTE (5) - CASH DIVIDENDS: On September 26, 2003, the Company's Board of
Directors declared a $.05 per share cash dividend ( an aggregate of $350,723)
which was paid on October 31, 2003 to shareholders of record on October 17,
2003.
NOTE (6) - 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 marketing strategies. The
Company primarily
7
evaluates the operating performance of its segments based on the categories
noted in the table below. The Company has no sales between segments.
Financial information for the Company's business segments is as follows:
For the six months For the three months
ended December 31, ended December 31,
----------- ----------- ----------- -----------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenues: $ 7,264,761 $ 7,161,434 $ 4,081,441 $ 3,396,625
Commercial and industrial laundry
and dry cleaning equipment
License and franchise operations 176,411 120,204 59,870 73,340
----------- ----------- ----------- -----------
Total revenues $ 7,441,172 $ 7,281,638 $ 4,141,311 $ 3,469,965
=========== =========== =========== ===========
Operating Income: $ 461,629 $ 432,288 $ 384,898 $ 55,462
Commercial and industrial laundry
and dry cleaning equipment
License and franchise operations 117,566 17,487 24,446 29,817
Corporate (126,322) (132,866) (86,135) (81,579)
----------- ----------- ----------- -----------
Total operating income $ 452,873 $ 316,909 $ 323,209 $ 3,700
=========== =========== =========== ===========
December 31, 2003 June 30, 2003
---------- ----------
(Unaudited)
Identifiable assets:
Commercial and industrial laundry
and dry cleaning equipment $5,926,796 $5,458,438
License and franchise operations 603,771 759,750
Corporate 582,760 737,454
---------- ----------
Total assets $7,113,327 $6,955,642
========== ==========
NOTE (7) - NEW ACCOUNTING PRONOUNCEMENTS:
In May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". The statement
requires that an issuer classify financial instruments that are within its scope
as a liability. Many of those instruments were classified as equity under
previous guidance. SFAS No. 150 is effective for all financial instruments
entered into or modified after May 31, 2003. Otherwise, it is effective on July
1, 2003 except for mandatorily redeemable non-controlling (minority) interest
which, on October 29,2003, the FASB decided to defer indefinitely. The adoption
of SFAS No. 150 did not materially impact the Company's financial position or
results of operations.
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
8
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. On October 9, 2003, the FASB
issued FASB Staff Position No, FIN 46-6 "Effective Date of FASB Interpretation
No. 46, Consolidation of Variable Interest Entities," which defers the
implementation date for public entities that hold an interest in a variable
interest entity or potential variable interest entity from the first fiscal year
or interim period beginning after June 15, 2003 to the end of the first interim
or annual period ending after December 15, 2003. This deferral applies only if
(1) the variable interest equity was created before February 1, 2003 and (2) the
public entity has not issued financial statements reporting that variable
interest entity in accordance with FIN 46, other than disclosures required by
paragraph 26 of FIN 46. The adoption of FIN 46 did not have a material impact on
the Company's financial position, liquidity, or results of operations.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
Some shipments in the second quarter were originally scheduled for the first
quarter of fiscal 2004, but were delayed due to construction site problems.
Therefore, it is more meaningful to analyze operating results for the full
six-month period rather than by quarters.
Effective July 31, 2002, the Company sold substantially all of the operating
assets (principally inventory, equipment and intangible assets, including
tradenames) of its Metro-Tel telecommunications segment to an unaffiliated third
party. The Company retained all of the cash, accounts receivable and liabilities
of the segment. The sales price was $800,000, of which $250,000 was paid in cash
on August 2, 2002 and the remaining $550,000 is evidenced by the purchaser's
promissory note that bears interest at the prevailing prime rate plus 1% per
annum and is payable in 42 equal monthly installments commencing October 1,
2002. In March 2003, the purchaser prepaid $50,000 of the outstanding promissory
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 the 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.
9
The following discussion relates to the Company's continuing operations.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 31, 2003, cash decreased by $170,634, compared
to an increase of $132,760 for the six months period ended December 31, 2002.
The primary reason for the change was a cash dividend of $.05 per share, or an
aggregate of $350,723, paid in the fiscal 2004 period.
For the first six months of fiscal 2004, operating activities provided cash of
$123,868. The Company's net earnings of $279,247, coupled with non-cash expenses
for depreciation and amortization of $57,920 provided most of the cash. The
provision for bad debts of $10,296 were substantially below the $75,651
allocated for the first six months of fiscal 2003, indicating tighter control
over our accounts receivable and an improving economy. Changes in operating
assets and liabilities used cash of $223,595. An increase in accounts, trade
notes and lease receivables used cash of $200,083 due to heavy shipments in the
December period, which also led to a $166,178 increase in accounts payable and
accrued expenses to support goods purchased to fill those shipments. Incoming
orders were booked at a satisfactory rate as evidenced by an increase in
customer deposits of $128,814. Other current assets used cash of $214,280 due to
cash deposits advanced to foreign companies for the purchase of parts and
equipment.
For the six month period ended December 31, 2002, operating activities provided
cash of $14,748. The Company's net earnings from continuing operations of
$188,154 and non-cash expenses of $64,252 for depreciation and amortization and
a provision for bad debts of $75,651 provided an aggregate of $328,057 of cash.
Changes in operating assets and liabilities used cash of $313,309 mostly due to
a reduction of $552,922 in accounts payable and accrued expenses, which was
offset by $128,086 in refundable income taxes associated with losses from the
sale of the telecommunications segment. Cash of $123,650 was provided by a
decrease in inventory and $72,571 was provided by increases in customer
deposits.
Discontinued operations provided a non-cash gain of $39,976, net after taxes on
the settlement of liabilities associated with accruals of transaction costs
connected with the sale of Metro-Tel telecommunications segment. These estimated
expenses were accrued for in fiscal 2002. Savings were realized principally in
rent expenses and professional fees and other transaction costs.
Investing activities for the six months ended December 31, 2003 provided cash of
$38,221, as a result of payments received on a note from the sale of the
Company's telecommunication segment ($52,381), offset, in part, by $12,175 spent
on capital equipment and $1,985 used on patent and trademark legal fees. Net
cash provided by investing activities for the first six months of fiscal 2003
was $238,036, principally as a result of $210,000 provided by the net proceeds
from the sale of the telecommunications
10
segment and $39,286 from collections on a note issued in conjunction with that
sale. These were partially offset by $11,250 used to fund patent work.
Financing activities during the first half of fiscal 2004 used cash of $332,723,
principally to pay a $.05 per share cash dividend ($350,723) on October 31,
2003. This was partially offset by the receipt of $18,000 from the exercise of
employee stock options in October 2003. During the first six months of fiscal
2003, the Company used $160,000 to pay monthly installments on its then term
loan. The Company prepaid the remaining balance of its term loan in the fourth
quarter of fiscal 2003.
On October 22, 2003, the Company received an extension, until October 30, 2004,
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, and 50% of other, eligible inventories. As of
December 31, 2003, the Company had no outstanding borrowings under the line of
credit.
On September 26, 2003, the Company's Board of Directors declared a $.05 per
share cash dividend (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 the cash it expects to
generate from operations and cash borrowings available under its $2,250,000 line
of credit will be sufficient to meet its presently contemplated 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.
RESULTS OF OPERATIONS
Total revenues for the six month and three month periods ended December 31, 2003
increased by $159,534 (2.2%) and $671,346 (19.3%), respectively, from the same
periods of fiscal 2003.
For the six and three month periods of fiscal 2004, revenues of the commercial
laundry and dry cleaning segment increased by $103,327 (1.4%) and $684,816
(20.1%), respectively, from the comparable periods of fiscal 2003. The increases
in sales were due primarily to increased parts sales and, to a lesser degree,
increased sales of drycleaning equipment. As previously mentioned, some
shipments in the second quarter were originally scheduled for the first quarter
of fiscal 2004, but were delayed due to construction site problems. Therefore,
it is more meaningful to analyze sales for the full six-month period rather than
by quarters.
Revenues of the licensing and franchise segment increased by $56,207 (46.8%) for
the six month period ended December 31, 2003, but decreased by $13,470 (18.4%)
for the
11
second quarter of fiscal 2004 when compared to similar periods of fiscal 2003.
The increase for the six month period was mainly due to increased commissions
received in the first quarter as consultants. This segment of the Company
continues to be negatively impacted by the economic and political conditions in
South America where the Company has a number of franchises.
Costs of goods sold, expressed as a percentage of sales, improved to 72.4% for
the first six months of fiscal 2004, from 73.2% from the comparable period a
year ago. For the second quarter of fiscal 2004, costs of goods sold improved to
72.7% from 75.3%. The improvements in both fiscal 2004 periods was due to the
increased sale of coin laundry machines and Green-Jet-(R)-dry-wetcleaning
machines, which have a higher margin than most of the Company's other products.
Selling prices for both periods remained essentially flat.
Selling, general and administrative expenses decreased by $58,073 (3.1%) and
decreased by $39,667 (4.2%) for the six and three month periods, respectively,
in fiscal 2004 from the comparable periods of fiscal 2003. For the six month
period the Company reduced advertising by $14,242, professional fees by $21,738
and the provision for bad debts by $57,729. The comparable period reduction in
professional fees was the result of costs in the fiscal 2003 period attributed
to the sale of the telecommunications segment. These reductions were offset by
increases in commissions paid ($43,768), exhibits and conventions ($12,959) and
bank charges for customer credit card use ($9,337). For the three month period
ended December 31, 2003, advertising expenses were reduced by $23,016 and the
provision for bad debts was reduced by $57,392. However, the Company increased
spending for commissions paid ($10,130) and office expenses ($9,326).
Research and development expenses decreased by $1,569 (7.7%) for the first six
months of fiscal 2004, but they increased by $1,150 (14.1%) for the second
quarter when compared to similar periods of a year ago. The slight dollar
changes reflect consulting expenses in connection with continuing work on the
Green Jet-(R)-dry-wetcleaning machine and other products.
Interest income decreased by $333 (2.6%) and $8,108 (69.2%) for the six and
three month periods, respectively, of fiscal 2004 from the comparable periods of
fiscal 2003, mostly due to a reduction in interest rates and a reduction in the
outstanding principal amount of a note associated with the sale of the
telecommunications segment.
There was no interest expense during the six and three month periods of fiscal
2004, as the Company's term loan was prepaid in full in May 2003 and there were
no amounts outstanding on the Company's line of credit during these periods,
making the Company debt free. Interest expense of $16,191 and $7,468 for the six
and three month periods, respectively, of fiscal 2003 relate to the Company's
then outstanding term loan.
The effective tax rate used in each of the periods was 40%.
12
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 stockholder, Chairman of the Board of Directors and a
director of the Company, under a lease which expires in October 2004. Annual
rental under this lease is approximately $83,200. The Company believes that the
terms of the lease are comparable to terms that would be obtained from an
unaffiliated third party for similar property in a similar locale.
CRITICAL ACCOUNTING POLICIES
The accounting policies that the Company has identified as critical to its
business operations and to an understanding of the Company's results of
operations are described in detail in the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 2003. In many cases, the accounting treatment
of a particular transaction is specifically dictated by accounting principles
generally accepted in the United States of America, with no need for
management's judgment in their application. In other cases, preparation of the
Company's unaudited condensed consolidated financial statements for interim
periods requires us to make significant estimates and assumptions that affect
the reported amount of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reported period. There can be no
assurance that the actual results will not differ materially from those
estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". The statement
requires that an issuer classify financial instruments that are within its scope
as a liability. Many of those instruments were classified as equity under
previous guidance. SFAS No. 150 is effective for all financial instruments
entered into or modified after May 31, 2003. Otherwise, it is effective on July
1, 2003 except for mandatorily redeemable non-controlling (minority) interest
which, on October 29,2003, the FASB decided to defer indefinitely. The adoption
of SFAS No. 150 did not materially impact the Company's financial position or
results of operations.
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
13
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. On October 9, 2003, the FASB issued FASB Staff Position No, FIN 46-6
"Effective Date of FASB Interpretation No. 46, Consolidation of Variable
Interest Entities," which defers the implementation date for public entities
that hold an interest in a variable interest entity or potential variable
interest entity from the first fiscal year or interim period beginning after
June 15, 2003 to the end of the first interim or annual period ending after
December 15, 2003. This deferral applies only if (1) the variable interest
equity was created before February 1, 2003 and (2) the public entity has not
issued financial statements reporting that variable interest entity in
accordance with FIN 46, other than disclosures required by paragraph 26 of FIN
46. The adoption of FIN 46 did not have a material impact on the Company's
financial position, liquidity, or results of operations.
ITEM 3. 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 II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
At the Company's 2003 Annual Meeting of Stockholders held on November 13, 2003,
the Company's stockholders reelected the Company's then existing Board of
Directors by the following votes:
Votes
---------------------
For Withheld
--------- -----
Michael S. Steiner 6,737,284 8,532
William K. Steiner 6,737,284 8,532
Venerando J. Indelicato 6,737,284 8,532
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Votes
---------------------
For Withheld
--------- -----
David Blyer 6,737,353 8,463
Lloyd Frank 6,737,131 8,685
Alan Grunspan 6,737,213 8,603
Stuart Wagner 6,737,389 8,427
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.01 Certification of principal executive officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 promulgated under the Securities
Exchange Act of 1934.
31.02 Certification of principal financial officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 promulgated under the Securities
Exchange Act of 1934.
32.01 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.02 Certification of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
During the quarter ended December 31, 2003, the Company furnished one report on
Form 8-K, dated November 12, 2003 (date of earliest event reported), reporting
under Item 12, Results of Operations and Financial Condition. No financial
statements were filed with that Report.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February 12, 2004 DRYCLEAN USA, Inc.
By: /s/ Venerando J. Indelicato
-------------------------------------
Venerando J. Indelicato,
Treasurer and Chief Financial Officer
16
Exhibit Index
31.01 Certification of principal executive officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 promulgated under the Securities
Exchange Act of 1934.
31.02 Certification of principal financial officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 promulgated under the Securities
Exchange Act of 1934.
32.01 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.02 Certification of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
17