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, 2004
[ ] 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, 2004 were $14,672,265.
The aggregate market value as at September 24, 2004 of the Common Stock
of the issuer, its only class of voting stock, held by non-affiliates was
approximately $4,930,000 based on the closing price 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 24, 2004 was 7,024,450.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement relating to its 2004 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 and suppliers are located; industry
conditions and trends; 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; the
Company's ability to implement changes in its business strategies and
development plans; and the availability, terms and deployment of debt and equity
capital if needed for expansion. 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
ITEM 1. DESCRIPTION OF BUSINESS.
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GENERAL
The Company was incorporated under the laws of the State of Delaware on
June 30, 1963 under the name Metro-Tel Corp. and changed its name to DRYCLEAN
USA, Inc. on November 7, 1999. Since November 1, 1998, 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 has
been as a supplier of commercial and industrial dry cleaning equipment, laundry
equipment and steam boilers and related activities. Effective July 31, 2002, the
Company sold, to an unaffiliated third party, substantially all of the operating
assets of its Metro-Tel telecommunications segment (which manufactured and sold
telephone test and customer premise equipment), the Company's primary business
until the Merger.
Unless the context otherwise requires, as used in this Report, the
"Company" includes DRYCLEAN USA, Inc. and its subsidiaries.
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 distributing commercial and industrial laundry and dry
cleaning machines and steam boilers manufactured by others;
o selling its own proprietary lines of laundry and dry cleaning
machines under its Aero-Tech(R), Multi-Jet(TM) and Green
Jet(R) brand names;
2
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.
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.
AVAILABLE INFORMATION
The Company files Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q, files or furnishes Current Reports on Form 8-K, files or furnishes
amendments to those reports, and files proxy and information statements with the
Securities and Exchange Commission (the "SEC"). These reports and statements may
be read and copied at the SEC's Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. These reports and
statements, as well as beneficial ownership reports filed by the Company's
officers, directors and beneficial owners of more than 10% of the Company's
common stock, may be obtained without charge through the Company's Internet site
http://www.drycleanusa.com as soon as reasonably practicable after such
materials are filed with, or furnished to, the SEC.
PRODUCT LINES
The Company sells a broad line of commercial and industrial laundry and
dry cleaning equipment and steam boilers, as well as parts and accessories
therefor.
The commercial and industrial laundry equipment distributed by the
Company 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), Multi-Jet(TM) and Green Jet(R)
names, as well as garment presses, finishing equipment, sorting and storage
conveyors and accessories distributed for others.
In December 2001, the Company began shipping its proprietary
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
3
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 products sold by the Company are positioned and priced to appeal to
customers in each of the high-end, mid-range and value priced markets. These
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 products supplied by the Company
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 95% and 94% of fiscal year 2004
and 2003 revenues, respectively.
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
2004 and 2003, the Company's license and franchise segment contributed
approximately 1.9% and 2.4%, respectively, of the Company's revenues from
continuing operations and 20.5% and 12.9%, respectively 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 0.7% and 1.3% of revenue from continuing operations during fiscal
2004 and 2003, respectively.
The Company, through its DRYCLEAN USA Development subsidiary, develops
new turn-key dry cleaning establishments for resale to third parties. During
each of fiscal 2004 and 2003, DRYCLEAN USA Development contributed approximately
1% of revenues from continuing operations.
SALES, MARKETING AND CUSTOMER SUPPORT
The laundry and dry cleaning equipment products marketed by the Company
are sold by it to its customers in the United States, the Caribbean and Latin
America, as well as customers of its DRYCLEAN USA licensing subsidiary. The
Company employs sales executives to market its proprietary and distributed
products, including its Aero-Tech(R), Multi-Jet(TM) and Green Jet(R) products,
in the United States and in international markets. The Company supports product
sales by advertising in trade publications, participating in trade shows and
engaging in regional promotions and sales incentive programs. A substantial
portion of equipment and parts sales orders are obtained by telephone, e-mail
4
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 and Latin
America. The Company continues to develop distributor relationships in North
America for the distribution of its Green Jet(R) dry-wetcleaning(TM) machine and
its Multi-Jet(TM) drycleaning machine. To date, it has entered into
distributoRship arrangements for its 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, cruise lines,
hospitals, nursing homes, government institutions and distributors. In June
2004, as another distributor ceased operations, the Company obtained an
expansion of the territory in which it acts as a distributor for certain laundry
products manufactured by certain manufacturers from southern Florida to
encompass most of Florida, the Company's principal domestic market. No customer
accounted for more than 10% of the Company's revenues during the years ended
June 30, 2004 or June 30, 2003.
FOREIGN SALES
Export sales of laundry and dry cleaning equipment were approximately
$2,209,000 and $2,596,000 during the years ended June 30, 2004 and June 30,
2003, 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.
SOURCES OF SUPPLY
The Company purchases laundry and dry cleaning machines, boilers and
the other products supplied by it from a number of manufacturers, none of which
accounted for more than 20% of the Company's purchases for the years ended June
30, 2004 or June 30, 2003. Historically, the Company has not experienced
difficulty in purchasing products it distributes for others and believes it has
good working relationships with its suppliers. The Company's proprietary 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) and Multi-Jet(TM)
labels 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 its supplier
relationships for the products it distributes for others and its proprietary
products provide the Company with a substantial competitive advantage, including
exclusivity for certain products and certain areas and favorable prices and
terms. Therefore, the loss of certain of these vendor relationships could
adversely affect the Company's business.
5
The Company has a formal contract with a few of its equipment suppliers
and manufacturers and relies on its long-standing relationship with its other
suppliers and manufacturers. The Company collaborates in the design and closely
monitors the quality of its 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 manufacturers of its
Aero-Tech(R) and Multi-Jet(TM) dry cleaning machines prior to the time the
Company has received all of its orders and, in certain instances, places orders
for products it distributes in advance of its receipt of sales orders. However,
because of the Company's close working relationship with its suppliers and
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 arrangements with the manufacturers of its proprietary products 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 one of its Italian manufacturers, 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. There were no open foreign exchange contracts at either June
30, 2004 or 2003.
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, Italy and the European
Union may, from time to time, impose 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) and Multi-Jet(TM) machines.
Customs duties, imposed by the United States, were less than 1% of invoice cost
for the Company's imported dry cleaning machines during each of fiscal 2004 and
2003.
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 primarily on price, product quality, delivery and
support services provided to the customer. In Florida, the Company's principal
domestic market, the Company's primary competition is derived from a number of
full line distributors, which operate throughout Florida. In the export market,
the Company competes with several distributors and anticipates increased
competition as the export market grows. The Company's proprietary dry cleaning
equipment competes with over a dozen manufacturers of dry cleaning equipment
whose products are distributed nationally. In all geographic areas, 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, as to which the Company acts as distributor,
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
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, 2004 and 2003 were $41,184 and $44,009, respectively.
6
PATENTS AND TRADEMARKS
The Company is the owner of United States service mark registrations
for the names Aero-Tech(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 has applied
for registration of its Multi-Jet(TM) tradename. 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 in the United States and
certain foreign countries.
COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT LAWS AND REGULATIONS
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), Multi-Jet(TM) and Green Jet(R)
dry cleaning machines exceed environmental regulation standards 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
believes that it is in compliance in all material respects with these laws.
EMPLOYEES
The Company currently employs 34 employees on a full-time basis, of
whom 4 serve in executive management capacities, 12 are engaged in sales and
marketing, 11 are administrative and clerical personnel, and 7 serve as
warehouse support. None of the Company's employees are subject to a collective
bargaining agreement, nor has the Company experienced any work stoppages. The
Company believes that its relations with employees are satisfactory.
7
ITEM 2. DESCRIPTION OF PROPERTIES.
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The Company's executive offices and the main distribution center for
its products are housed in three leased adjacent facilities totaling
approximately 45,000 square feet in Miami, Florida. The Company believes its
facilities are adequate for its present and anticipated future needs. The
following table sets forth certain information concerning the leases at these
facilities:
Approximate
Facility Sq. Ft. Expiration
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Miami, Florida (1) 27,000 October 2004
Miami, Florida 8,000 March 2006 (2)
Miami, Florida 10,000 December 2005
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(1) Leased from William K. Steiner, a director of the Company. The lease
includes an option to renew the lease for a ten-year term at a rent to
be agreed upon by the parties. The Company is in the process of
negotiating a renewal of this lease.
(2) The Company has a two-year renewal option.
ITEM 3. LEGAL PROCEEDINGS.
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The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
8
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Company's Common Stock is traded on the American Stock Exchange
(the "Amex") and on the Chicago Stock Exchange, each under the symbol "DCU." The
following table sets forth, for the Company's Common Stock, the high and low
sales prices on the Amex, as reported by Amex, for the periods reflected below.
HIGH LOW
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Fiscal 2003
-----------
First Quarter $ .65 $ .35
Second Quarter .62 .31
Third Quarter .97 .55
Fourth Quarter .79 .57
Fiscal 2004
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First Quarter $ 1.46 $ .60
Second Quarter 2.04 1.03
Third Quarter 2.10 1.50
Fourth Quarter 1.95 1.55
As of September 24, 2004 there were approximately 490 holders of record
of the Company's Common Stock.
The Company paid a $.05 per share annual dividend on October 31, 2003
to stockholders of record on October 17, 2003. No dividends were paid on the
Company's Common Stock during fiscal 2003. On September 27, 2004, the Company's
Board of Directors declared an annual dividend of $.06 per share, payable on
November 1, 2004 to holders of the Company's Common Stock of record on October
15, 2004. The Company is a party to a Loan and Security Agreement with a
commercial bank, which, among other things, provides that the Company may
declare or pay dividends only to the extent that the dividend payment would not
reasonably likely result in a failure by the Company to maintain specified
consolidated debt service or short-term debt to equity ratios.
The Company did not sell any equity securities during the year ended
June 30, 2004 that were not registered under the Securities Act of 1933, as
amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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GENERAL
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which appear in Item 7 of
this Report.
OVERVIEW
The Company's net earnings from continuing operations in fiscal 2004
approximated fiscal 2003 levels. However, primarily as a result of a $67,659
gain on the disposal of the Company's discontinued telecommunications segment
recognized in fiscal 2003, net earnings for fiscal 2003 were $57,576 higher than
in fiscal 2004.
9
Although aggregate revenues increased by approximately 1% in fiscal
2004 over fiscal 2003 as a result of a 2.6% increase in product sales, overall
costs also increased slightly. While the Company was able to increase domestic
sales of laundry equipment, steam boilers and spare parts, foreign sales
continued to be adversely impacted by the continuing unstable economy in Latin
America, a principal market for the Company's products. The Company does not
foresee an improvement in the near future in the economy of Latin America and
has, therefore, been focusing its efforts on the United States market.
In this regard, the Company:
o hired a new Executive Vice President and Chief Operating
Officer in May 2004, who acquired a 21.5% equity position in the
Company from the Company's two principal stockholders in July 2004;
o obtained an expansion of the territory beginning in June 2004
in which it acts as a distributor for certain laundry products to
cover most of Florida as another distributor ceased operations; and
o added two experienced sales engineers in June 2004 to
adequately cover the expanded territory and to expand sales of the
other products marketed by the Company in that geographic area.
While expenses are expected increase in fiscal 2005 as a result of
these actions, the Company believes these investments should generate increased
sales and profitability over the long-term.
As a result of the increased sales in June 2004, accounts receivables,
as well as inventories, increased significantly toward the end of fiscal 2004. A
significant portion of the increase in receivables relates to invoices for sales
made in June 2004 that had not yet become due. The Company believes that the
level of receivables will stabilize as collections are received but nevertheless
will continue to be higher than historical levels. Inventories are likely to
further increase in fiscal 2005 to support this expansion.
Despite the use of cash to support this expansion and to pay a $.05 per
share, or an aggregate of $350,723, annual cash dividend, the Company increased
its cash position in the fiscal 2004 by $128,110. On September 27, 2004, the
Company declared an annual cash dividend of $.06 per share (which will result in
the expenditure of an aggregate of approximately $421,500), payable on November
1, 2004 to stockholders of record on October 15, 2004.
With the pre-payment of its term loan in fiscal 2003, the Company has
been debt free. The Company does not presently anticipate borrowing to fund its
expansion.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2004, the Company continued to add to its financial
strength with cash increasing by $128,110 (after the payment of a $350,722 cash
dividend) and by $349,784 in fiscal 2003 (after the payment of the $800,000
balance of the Company's term loan enabling the Company to become debt free).
The following table summarizes the Company's Consolidated Statement of Cash
Flows:
Years Ended June 30,
2004 2003
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Net cash provided (used) by:
Operating activities $391,611 $787,620
Investing activities 69,221 362,164
Financing activities (332,722) (800,000)
Cash provided by operating activities decreased by $396,009 in fiscal
2004 compared to cash provided by operating activities in fiscal 2003. Among the
primary components of the change was a significant reduction in bad debt expense
($42,782 in fiscal 2004 compared to $126,210 in fiscal 2003)
10
attributable to tighter controls on accounts receivable coupled with an
improving economy. Above average sales at year end resulting from sales in the
additional territory in Florida added in June 2004 accounted for the increase in
accounts and lease receivables of $251,761 during fiscal 2004 compared to a
decrease of $18,172 in fiscal 2003. In addition, inventories increased by
$394,865 during fiscal 2004 as the Company geared up to supply a larger
geographical sales territory. Commensurate with the higher inventory levels was
an increase in accounts payable and accrued expenses of $161,212 during fiscal
2004. These components of operating activities are expected to stabilize during
fiscal 2005. However, receivables are expected to continue to be higher than
historical levels and inventories are expected to further increase. Customer
deposits increased by $214,836 in fiscal 2004 from a decrease of $204,280 in
fiscal 2003 reflecting the increase in the number of customers associated with
the larger territory. Income taxes payable decreased by $111,054 as the Company
increased its tax deposits during the year.
Investing activities provided cash of $69,221 in fiscal 2004 compared
to $362,164 provided in fiscal 2003. Payments received on an outstanding note
associated with the sale of the telecommunications segment were less in fiscal
2004 due to a $50,000 pre-payment in fiscal 2003. All monthly payments were
current at fiscal 2004 year end. In addition, in fiscal 2004, the Company
increased its capital spending for equipment and patents to $74,826 from $28,788
in fiscal 2003. Patent protection is shortly expected covering our Green-Jet(R)
innovations.
Financing activities used cash of $332,723 in fiscal 2004,
substantially less then the $800,000 used in fiscal 2003. In fiscal 2004, the
Company declared and paid a dividend of $.05 per share (an aggregate of
$350,722), while in fiscal 2003, the Company prepaid its bank term loan using
$800,000 to become debt free. The expenditures in fiscal 2004 were partially
offset by $18,000 from the proceeds of the exercise of stock options to purchase
18,000 shares of Common Stock by two employees.
On September 27, 2004, the Company's Board of Directors declared a $.06
per share annual dividend (or an aggregate of $422,000) payable on November 1,
2004 to shareholders of record on October 15, 2004.
The Company has a $2,250,000 revolving line of credit facility which,
as extended in October 2002 and October 2003, is presently scheduled to expire
on October 30, 2004. Revolving credit borrowings, which bear interest at 2.50%
per annum above the Adjusted LIBOR Market Index Rate, are limited by a borrowing
base of 60% of eligible accounts receivable and 60% of certain, and 50% of
other, eligible inventories. As of June 30, 2004, the Company had no outstanding
borrowings under the line of credit. The Company believes it will be able to
renew this facility with the same lender on similar terms.
The Company believes that its present cash position, the cash it
expects to generate from operations and cash borrowings available under its 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
Year Ended June 30,
2004 2003
--------------------------------------------------------------------------------------------
Net sales $14,020,703 $13,671,187 +2.6%
Development fees, franchise and license
fees, commissions and other 651,562 846,280 -23.0%
--------------------------------------------------------------------------------------------
Total revenues $14,672,265 $14,517,467 +1.0%
--------------------------------------------------------------------------------------------
11
Revenues for the year ended June 30, 2004 increased by $154,798 (1.0%)
over fiscal 2003. Net sales of the commercial laundry and dry cleaning segment
increased by $349,516 (2.6%) due primarily to an increase of 13.1% in parts
sales as a result of more equipment being in service, combined with the
Company's expansion into most of Florida beginning in June 2004 under a
distribution arrangement for certain products. In fiscal 2004, the Company had
increased sales of 1.6% and 4.0% of laundry equipment and boiler sales,
respectively, which were offset, in part, by a decrease of 2.1% in sales of dry
cleaning equipment. A 14.9% decrease in foreign sales attributable to the
continuing unstable economy in Latin America was offset by the increases in
domestic sales.
Development fees, franchise and license fees and commission revenues
decreased by $194,711 (23.0%), principally due to an 18.0% decrease in the
License and Franchise segment caused by the troubled Latin American economy. The
revenues of each of the Steiner Development division and the Brokerage division
are less than 1% of total Company revenues.
Overall expenses of the Company, including costs of sales, were 94.3%
of total revenues in fiscal 2004, compared to 94.0% in fiscal 2003, reflecting
relatively stable overall costs.
Year Ended June 30,
2004 2003
-------------------------------------------------------------------------------------------
As a percentage of net sales:
Cost of sales 72.3% 72.2%
As a percentage of revenues:
Selling, general and administrative expenses 25.0% 25.6%
Research and development .3% .3%
Total expenses 94.3% 94.0%
-------------------------------------------------------------------------------------------
Cost of sales, expressed as a percentage of net sales, remained
essentially flat. The slight fluctuation was the result of the relative mix of
products sold in the periods.
Selling, general and administrative expenses decreased by $56,763
(1.5%) and improved as a percentage of revenues to 25.0% in fiscal 2004 from
25.6% in fiscal 2003. A significant reduction in bad debt expense of $83,428,
due to tighter controls on accounts receivable coupled with an improving
economy, was partially offset by increased commission expense of $93,323
primarily related to an independent sales representative, who served until May
2004, related to the distribution of the Company's Green-Jet(R) machine. All
other expenses in this category experienced slight year to year fluctuations in
the normal course of business.
Research and development expenses declined by $2,825 (6.4%) in fiscal
2004 from fiscal 2003. These expenses were associated with on going research on
the Company's Green-Jet(R) dry-wetcleaning(TM) machine and the Company's new
Multi-Jet(R) dry cleaning machine.
Interest income decreased by $4,915 (17.1%), primarily due to the lower
outstanding principal balance of the note received by the Company as part of the
consideration for the sale of the Metro-Tel telecommunications segment in July
2002.
There was no interest expense during fiscal 2004 as the Company's bank
term loan was prepaid in full in May 2003 and there were no borrowings under the
Company's line of credit during the period. Interest expense of $24,562 in
fiscal 2003 related to the then outstanding term loan.
The Company's effective income tax rate of 37.2% in fiscal 2004
approximated its effective income tax rate of 37.9% in fiscal 2003.
12
Effective July 31, 2002, the Company sold substantially all of the
operating assets of its Metro Tel telecommunications segment to an unaffiliated
third party. This discontinued operation 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 segment.
Savings were realized principally in lease termination expenses and 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 is scheduled to
expire 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. The Company is in the process of negotiating a renewal of this
lease.
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 or the transaction is closed. 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 based on older aged amounts, 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, 2004 and 2003 is
adequate. However, actual write-offs might exceed the recorded allowance.
13
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 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
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.
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. 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
(i) the variable interest entity was created before February 1, 2003 and (ii)
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.
14
ITEM 7. FINANCIAL STATEMENTS.
--------------------
DRYCLEAN USA, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm 16
Consolidated Balance Sheets at June 30, 2004 and 2003 17
Consolidated Statements of Operations for the years ended
June 30, 2004 and 2003 18
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 2004 and 2003 19
Consolidated Statements of Cash Flows for the years ended
June 30, 2004 and 2003 20
Summary of Accounting Policies 21
Notes to Consolidated Financial Statements 25
15
Report of Independent Registered Public Accounting Firm
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, 2004 and 2003, 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and 2003, 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 1, 2004, except for
Note 11 as to which the date
is September 27, 2004
16
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2004 2003
- -----------------------------------------------------------------------------------------------------------
ASSETS (Note 5)
CURRENT ASSETS
Cash and cash equivalents $ 1,742,251 $ 1,614,141
Accounts and trade notes receivable, net of allowance for
doubtful accounts of $130,000 and $205,000, respectively 1,600,087 1,382,386
Lease receivables (Note 2) 35,172 53,894
Inventories 2,971,803 2,576,938
Deferred income taxes (Note 4) 97,618 118,525
Note receivable-current (Note 13) 157,143 157,143
Other current assets 112,375 169,094
- -----------------------------------------------------------------------------------------------------------
Total current assets 6,716,449 6,072,121
LEASE RECEIVABLES - due after one year (Note 2) 10,000 -
NOTE RECEIVABLE, LESS CURRENT PORTION (Note 13) 67,857 211,905
EQUIPMENT AND IMPROVEMENTS, net (Note 3) 217,200 233,767
FRANCHISE, TRADEMARKS AND OTHER INTANGIBLE ASSETS, net
(Note 1) 385,756 409,308
DEFERRED INCOME TAXES (Note 4) 26,859 28,541
- -----------------------------------------------------------------------------------------------------------
$ 7,424,121 $ 6,955,642
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,228,062 1,066,860
$
Income taxes payable 1,871 112,925
Customer deposits and other 550,042 335,206
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 1,779,975 1,514,991
- -----------------------------------------------------------------------------------------------------------
Total liabilities 1,779,975 1,514,991
- -----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 6, 8 and 9)
- -----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Notes 11 and 12)
Common stock, $0.025 par value:
Authorized shares - 15,000,000; 7,045,500 and
7,027,500, shares issued and outstanding, at 2004 and 2003,
respectively, including shares held in treasury 176,138 175,688
Additional paid-in capital 2,066,120 2,048,570
Retained earnings 3,404,908 3,219,413
Treasury stock, 31,050 shares at cost (3,020 ) (3,020 )
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,644,146 5,440,651
- -----------------------------------------------------------------------------------------------------------
$ 7,424,121 $ 6,955,642
===========================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
17
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended June 30, 2004 2003
- -------------------------------------------------------------------------------------------------------------
REVENUES:
Net sales $ 14,020,703 $ 13,671,187
Development fees, franchise and license fees, commissions
and other 651,562 846,280
- -------------------------------------------------------------------------------------------------------------
Total 14,672,265 14,517,467
- -------------------------------------------------------------------------------------------------------------
COST OF SALES 10,137,623 9,876,994
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 8 and 9) 3,663,641 3,720,404
RESEARCH AND DEVELOPMENT EXPENSES 41,184 44,009
- -------------------------------------------------------------------------------------------------------------
Total 13,842,448 13,641,407
- -------------------------------------------------------------------------------------------------------------
OPERATING INCOME 829,817 876,060
- -------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 23,810 28,725
Interest expense - (24,562 )
- -------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes 853,627 880,223
Provision for income taxes (Note 4) 317,410 334,089
- -------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 536,217 546,134
Estimated gain on disposal of discontinued operations, net of income
tax expense of $34,788 (Note 13) - 57,659
- -------------------------------------------------------------------------------------------------------------
Net earnings $ 536,217 $ 603,793
- -------------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations, basic and diluted $ .08 $ .08
Earnings per share from discontinued operations, net of taxes, basic
and diluted - .01
- -------------------------------------------------------------------------------------------------------------
Net earnings per share, basic and diluted (Note 10) $ .08 $ .09
=============================================================================================================
Weighted average number of shares of common stock outstanding:
Basic 7,009,188 6,996,450
Diluted 7,032,060 6,996,450
=============================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
18
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Common Stock Additional Treasury Stock
---------------------- Paid-in ----------------------- Retained
Shares Amount Capital Share Cost Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at July 1, 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
Stock options exercised 18,000 450 17,550 18,000
Dividends paid ($.05 per share) (350,722) (350,722)
Net earnings - - - - - 536,217 536,217
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2004 7,045,500$ 176,138 $ 2,066,120 31,050 $ (3,020) $ 3,404,908 $ 5,644,146
=================================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
19
DRYCLEAN USA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED JUNE 30, 2004 2003
- ----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net earnings from continuing operations $ 536,217 $ 546,134
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 114,946 114,941
Bad debt expense 42,782 126,210
Provision for deferred income taxes 22,589 102,154
(Increase) decrease in operating assets:
Accounts, notes and lease receivables (251,761) 18,172
Inventories (394,865) 341,534
Refundable income taxes - 225,167
Other current assets 56,719 16,537
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 161,202 (577,086)
Income taxes payable (111,054) 78,137
Customer deposits and other 214,836 (204,280)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 391,611 787,620
- ----------------------------------------------------------------------------------------------------------------
Net income from discontinued operations - 57,659
Adjustments:
Estimated gain on disposal of assets - (92,447)
Decrease in net operating assets - 34,788
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by discontinued operations - -
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 391,611 787,620
- ----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net proceeds upon disposal of business 210,000
Payments received on note receivable 144,048 180,952
Capital expenditures (40,905) (15,634)
Patent expenditures (33,922) (13,154)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 69,221 362,164
- ----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on term loan - (800,000)
Proceeds from exercise of stock options 18,000 -
Dividends paid (350,722)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (332,722) (800,000)
================================================================================================================
Net increase in cash and cash equivalents 128,110 349,784
Cash and cash equivalents at beginning of year 1,614,141 1,264,357
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,742,251 $ 1,614,141
================================================================================================================
Supplemental Information:
Cash paid for:
Interest $ - $ 24,562
Income taxes 406,000 24,000
================================================================================================================
20
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
NATURE OF BUSINESS DRYCLEAN USA, Inc. and subsidiaries (collectively, the
"Company") sell commercial and industrial laundry and
dry cleaning equipment, boilers and replacement parts;
sell individual and area franchises under the DRYCLEAN
USA name; and act as a business broker in connection
with the purchase and sale of retail dry cleaning
stores and coin laundries. The Company primarily sells
to customers located in the United States, the
Caribbean and Latin America.
PRINCIPLES OF The accompanying consolidated financial statements
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 $245,000 and $317,000 for the years
ended June 30, 2004 and 2003, respectively, are
included as sales and 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. Customer deposits represent primarily
amounts received from customers for future delivery of
equipment or services.
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 drycleaning
and laundry stores. The non-trade 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 is supported by personal
guarantees by the principals of the debtor. All
payments on such note are current. Based on the
information available, management believes the
Company's allowance for doubtful accounts as of June
30, 2004 and 2003 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.
21
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
EQUIPMENT, Property and equipment are stated at cost. Depreciation
IMPROVEMENTS AND and amortization are calculated on accelerated and
DEPRECIATION 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. The Company has determined
that no assets had been impaired as of June 30, 2004
and 2003.
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," as amended by SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and
Disclosure - An Amendment of FASB Statement No. 123."
requires the Company to provide pro forma information
regarding net earnings and net earnings 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. No options were granted in fiscal year 2004 or
2003. Based on these assumptions, under the accounting
provisions of SFAS No. 123, the Company's net earnings
and net earnings per common share would have been as
follows:
22
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
Year ended June 30, 2004 2003
---------------------------------------------------------------------------------
Earnings from continuing operations, as reported $ 536,217 $ 546,134
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards (4,500) (14,377)
---------------------------------------------------------------------------------
Pro forma earnings from continuing operations $ 531,717 $ 531,757
---------------------------------------------------------------------------------
Earnings per common share from continuing
operations:
Basic - As reported $ .08 $ .08
Pro forma .08 .08
Diluted - As reported .08 .08
Pro forma .08 .08
---------------------------------------------------------------------------------
Earnings per common share:
Basic - As reported $ .08 $ .09
Pro forma .08 .08
Diluted - As reported .08 .09
Pro forma .08 .08
---------------------------------------------------------------------------------
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 $157,000 and $179,000 of
advertising costs for the years ended June 30, 2004 and
2003, respectively.
FAIR VALUE OF FINANCIAL The Company's financial instruments consist principally
INSTRUMENTS of cash and cash equivalents, 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.
23
DRYCLEAN USA, Inc. and Subsidiaries
Summary of Accounting Policies
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 (10-15 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 During May 2003, the FASB issued SFAS 150, "Accounting
PRONOUNCEMENTS 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.
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. 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 (i) the variable interest entity was created
before February 1, 2003 and (ii) 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.
24
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
1. INTANGIBLE ASSETS Franchise, trademark and other intangible assets
consist of the following:
---------------------------------------------------------------------------------
Estimated
Useful Lives JUNE 30, June 30,
(in years) 2004 2003
---------------------------------------------------------------------------------
Franchise license agreements 10 $ 529,500 $ 529,500
Trademarks, patents and
tradename 10-15 139,864 105,944
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
669,364 635,444
Less accumulated amortization (283,608) (226,136)
---------------------------------------------------------------------------------
$ 385,756 $ 409,308
---------------------------------------------------------------------------------
Amortization expense amounted to $57,472 in 2004 and
$55,951 in 2003. Amortization expense is expected to
remain relatively consistent during the next five
years.
2. LEASE RECEIVABLES Lease receivables result from customer leases of
equipment under arrangements which qualify as
sales-type leases. At June 30, 2004 and 2003, future
lease payments, net of deferred interest ($891 and
$3,212 at June 30, 2004 and 2003, respectively), due
under these leases amounted to $45,172 and $53,894,
respectively.
3. EQUIPMENT AND Major classes of equipment and improvements consist of
IMPROVEMENTS the following:
June 30, 2004 2003
------------------------------------------------------------------------------------
Furniture and equipment $ 695,836 $ 670,262
Leasehold improvements 330,914 322,514
------------------------------------------------------------------------------------
1,026,750 992,776
Less accumulated depreciation and
amortization (809,550) (759,009)
------------------------------------------------------------------------------------
$ 217,200 $ 233,767
------------------------------------------------------------------------------------
Depreciation and amortization of equipment and
improvements amounted to $57,474 and $55,991 for the
years ended June 30, 2004 and 2003, respectively.
4. INCOME TAXES Income taxes included in the consolidated statements of
operations is as follows:
Year ended June 30, 2004 2003
------------------------------------------------------------------------------------
Continuing operations $ 317,410 $ 334,089
Gain on discontinued operations - 34,788
------------------------------------------------------------------------------------
$ 317,410 $ 368,877
------------------------------------------------------------------------------------
25
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
The following are the components of income taxes
(benefit):
Year ended June 30, 2004 2003
-------------------------------------------------------------------------------------
Current
Federal $ 252,183 $ 227,828
State 42,638 38,895
-------------------------------------------------------------------------------------
294,821 266,723
-------------------------------------------------------------------------------------
Deferred
Federal 19,309 87,134
State 3,280 15,020
-------------------------------------------------------------------------------------
22,589 102,154
-------------------------------------------------------------------------------------
$ 317,410 $ 368,877
-------------------------------------------------------------------------------------
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, 2004 2003
------------------------------------------------------------------------------------
Tax at the statutory rate $ 290,233 $ 330,708
State income taxes,
net of federal benefit 31,086 35,584
Other (3,909) 2,585
------------------------------------------------------------------------------------
$ 317,410 $ 368,877
------------------------------------------------------------------------------------
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, 2004 2003
-----------------------------------------------------------------------------------
Current deferred tax asset (liability):
Allowance for doubtful accounts $ 48,919 $ 77,142
Inventory capitalization 63,742 47,454
Loss on sale of assets - 753
Other (15,043) (6,824)
-----------------------------------------------------------------------------------
97,618 118,525
-----------------------------------------------------------------------------------
Noncurrent deferred tax asset (liability):
Depreciation (12,825) (5,075)
Amortization 39,684 33,616
-----------------------------------------------------------------------------------
26,859 28,541
-----------------------------------------------------------------------------------
Total net deferred income tax asset $ 124,477 $ 147,066
-----------------------------------------------------------------------------------
26
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
5. CREDIT AGREEMENT AND In December 2001, the Company entered into a bank loan
TERM agreement with a facility LOAN 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.
At June 30, 2002, the Company owed $800,000 under the
term loan. In May 2003, the Company prepaid the then
outstanding balance ($533,333) of its term loan.
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 revolving credit facility bear
interest at 2.50% per annum above the Adjusted LIBOR
Market Index Rate, are guaranteed by all of the
Company's subsidiaries and are collateralized by
substantially all of the Company's and its
subsidiaries' assets. The revolving credit facility
matures October 30, 2004. At June 30, 2004 and 2003,
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 The Company leases warehouse and office space from a
TRANSACTIONS principal shareholder of the Company under an operating
lease which expires in October 2004. Annual rental
expense under this lease approximates $83,200. The
lease is renewable for a ten-year term at an amount to
be agreed upon by the parties. The Company is in the
process of renegotiating this lease.
In addition, in fiscal 2004, the Company paid a law
firm, in which a director is of counsel, $43,500 for
legal services performed.
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, 2004 and 2003,
the Company had no outstanding commitments to purchase
foreign currency.
27
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
8. COMMITMENTS In addition to the warehouse and office space leased
from a principal shareholder (see Note 6), the Company
leases two additional office and warehouse spaces under
operating leases expiring in December 2005 and March
2006. As of June 30, 2004, the Company is also
obligated under seven leases for future dry cleaning
stores that aggregate $252,000 to $275,000 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,
2004 approximates the following:
Years ending June 30,
---------------------------------------------------------------------------------
2005 $ 343,000
2006 296,000
2007 262,000
2008 269,000
2009 275,000
Thereafter 12,000
------------------------------------------------------------------------------
Total 1,457,000
---------------------------------------------------------------------------------
Rent expense aggregated $157,387 and $153,841 for the
years ended June 2004 and 2003, respectively.
As of June 30, 2004, the Company had no outstanding
letters of credit.
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 plan wherein it matches employee 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 $9,000 and $10,000 to the Plan during
2004 and 2003, respectively. The plan is tax deferred
under Section 401(k) of the Internal Revenue Code.
28
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
10. EARNINGS PER SHARE The following reconciles the components of the earnings
per share computation:
YEAR ENDED JUNE 30, 2004
---------------------------------------------------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------------------------------------------------------
Earnings from continuing operations $ 536,217 $ 7,009,188 $ .08
Effect of dilutive securities:
Stock options - 22,872 -
---------------------------------------------------------------------------------
Earnings plus assumed dilution $ 536,217 $ 7,032,060 $ .08
---------------------------------------------------------------------------------
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 - - -
---------------------------------------------------------------------------------
Earnings plus assumed dilution $ 546,134 $ 6,996,450 $ .08
---------------------------------------------------------------------------------
There were outstanding stock options to purchase 20,000
and 439,000, shares of the Company's common stock at
June 30, 2004 and 2003, 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. DIVIDENDS The Company paid a $.05 per share annual dividend on
October 31, 2003 to shareholders of record on October
17, 2003. No dividends were paid on the Company's
Common Stock during fiscal 2003. On September 27, 2004,
the Company's Board of Directors declared a dividend of
$.06 per share, payable on November 1, 2004 to holders
of the Company's Common Stock of record on October 15,
2004
12. 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 new 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.
29
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
Pursuant to the plans, the Company may grant incentive
stock options and nonqualified stock options. All
options under the director plan are nonqualified stock
options. Options may have a maximum term of 10 years,
are not transferable and must be granted at an exercise
price of at least 100% of the market value of the
common stock on the date of grant. Incentive stock
options granted to an individual owning more than 10%
of the total combined voting power of all classes of
stock issued by the Company must have an exercise price
of at least 110% of the fair market value of the shares
issuable on the date of the grant and may not have a
term of more than five years. Incentive stock options
granted under the 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).
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. There were no stock options granted in fiscal
2004. Options granted under the plans terminate upon a
merger in which the Company is not the surviving
corporation or in which shareholders before the merger
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, 2004, and changes during the year
then ended is presented below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------------------------------------------------------------------------------
Outstanding at beginning of year 439,000 $ 1.02
Granted - -
Exercised 18,000 1.00
Expired (371,000) 1.00
--------------------------------------------------------------------------------
Outstanding at end of year 50,000 $ 1.36
Options exercisable at year-end 50,000 $ 1.36
Options available for future grant at year-end (a) 500,000
--------------------------------------------------------------------------------
(a) Excludes shares subject to Stock Option Plan
which expired as to future grants in August 2004.
30
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
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
--------------------------------------------------------------------------------
The following table summarizes information about stock
option plan and non-plan options outstanding at June
30, 2004:
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 6/30/04 Life Price 6/30/04 Price
-----------------------------------------------------------------------------------
$ .91-$1.00 30,000 .57 YEARS $ .94 30,000 $ .94
$ 2.00 20,000 .35 YEARS $ 2.00 20,000 $ 2.00
-----------------------------------------------------------------------------------
13. 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 which was payable
$250,000 in cash and a $550,000 promissory note,
bearing interest at prime + 1%, (5.25% at June 30,
2004) and payable monthly over 42 months commencing
October 1, 2002. Transaction costs were approximately
$40,000. 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 obligations 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, 2004, there
was $225,000 outstanding under this note. Principal
payments on this note are scheduled to be collected as
follows:
31
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
Years ending June 30
---------------------------------------------------------------------------------
2005 $ 157,143
2006 67,857
---------------------------------------------------------------------------------
$ 225,000
---------------------------------------------------------------------------------
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, 2002.
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.
14. 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 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.
32
DRYCLEAN USA, Inc. and Subsidiaries
Notes to Consolidated Statement
Financial information for the Company's business
segments is as follows:
Year ended June 30, 2004 2003
----------------------------------------------------------------------------------
Revenues:
Commercial and industrial laundry and dry
cleaning equipment $ 14,396,031 $ 14,180,799
License and franchise operations 276,234 336,668
---------------------------------------------------------------------------------
Total revenues $ 14,672,265 $ 14,517,467
----------------------------------------------------------------------------------
Operating income (loss):
Commercial and industrial laundry
and dry cleaning equipment $ 904,640 $ 1,013,611
License and franchise operations 170,207 112,893
Corporate (245,030 ) (250,444 )
----------------------------------------------------------------------------------
Total operating income $ 829,817 $ 876,060
----------------------------------------------------------------------------------
Identifiable assets:
Commercial and industrial laundry
and dry cleaning equipment $ 6,325,915 $ 5,498,438
License and franchise operations 655,744 759,750
Corporate 442,462 737,454
----------------------------------------------------------------------------------
Total assets $ 7,424,121 $ 6,995,642
---------------------------------------------------------------------------------
For the years ended June 30, 2004 and 2003, export
revenues, principally to the Caribbean and Latin
America, aggregated approximately $2,340,000 and
$2,720,000, respectively, of which approximately
$2,209,000 and $2,596,000, 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 fiscal 2004 or 2003.
33
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 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 the Company's 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, 48, has been President, Chief Executive Officer and
a director of the Company since the effectiveness of the Merger on November 1,
1998 and of Steiner since 1988.
Alan I. Greenstein, 48, has been Executive Vice President and Chief
Operating Officer of the Company since May 2004. Since February 2001, Mr.
Greenstein has been Vice President and a principal shareholder of South Florida
Transport, Inc., a south Florida Thrifty Car rental franchisee. From October
1995 until it was sold in 2000, he was President and principal stockholder of
Professional Cleaners, Inc., an operator of a south Florida chain of drycleaning
and laundry stores, and, since August 2003, has been President and a principal
shareholders of AIGTC, Inc., which reacquired this business. Since he joined the
Company, Mr. Greenstein has been a full time employee of the Company.
William K. Steiner, 74, has been a director of the Company since the
effectiveness of the Merger on November 1, 1998 and Chairman of the Board of
Steiner since he founded Steiner in 1960.
Venerando J. Indelicato, 71, 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, 79, has been a director of the Company since 1977. Mr.
Frank was a member of the law firm of Jenkens & Gilchrist Parker Chapin LLP and
its predecessor from 1977 until the end of 2003 and has been of counsel to that
firm since January 2004. 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, 44, 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
34
of software for specialized business applications, from 1994, when he co-founded
that company, until mid-2002. Since that time, Mr. Blyer has been an independent
consultant.
Alan M. Grunspan, 44, 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.
Stuart Wagner, 72, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998. 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, and served as a
consultant to Diversified Corp., which acquired Wagner Products Corp., from 1997
until 1999 .
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, 41, has served as Vice President and Director of Sales
for the Export Department of Steiner since joining Steiner in May 1993.
Ronald London, 71, has served as Vice President, primarily oversees
sales of the retail Dry Cleaning Equipment Department of Steiner since joining
Steiner in September 1992.
The balance of the information called for by this Item will be
contained in the Company's definitive Proxy Statement with respect to the
Company's 2004 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 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 2004 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 following table sets forth certain information, as at June 30,
2004, with respect to the Company's equity compensation plans:
35
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 COMPENSATION
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS PLANS
------------- ------------------- ------------------- -----
Equity compensation plans
approved by security holders. 50,000 (a) $1.36 560,000 (b)
Equity compensation plans
not approved by security
holders...................... 0 -- 0
-----------------------------------------------------------------------------------
Total...................... 50,000 $1.36 560,000
===================================================================================
(a) Includes 10,000 and 40,000 (10,000 of which have been exercised since
June 30, 2004) 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.
The balance of the information called for by this Item will be contained in the
Company's definitive Proxy Statement with respect to the Company's 2004 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The information called for by this Item will be contained in the Company's
definitive Proxy Statement with respect to the Company's 2004 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, and is incorporated herein by reference to such
information.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits
2(a) Agreement of Merger dated as of July 1, 1998 among the Company,
Metro-Tel Acquisition Corp., Steiner-Atlantic Corp., William K.
Steiner and Michael S. Steiner. (Exhibit A of the definitive
Proxy Statement of the Company filed 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.)
36
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.).
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)(1)(D) Letter agreement dated October 22, 2003 between the Company and
First Union National Bank (Exhibit 4.01 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September
30, 2003. file No. 0-9040.)
37
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).
*14 Code of Ethics for Principal Executive Officer and Senior
Financial Officers.
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, Independent Registered Public
Accounting Firm.
*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.
38
*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, 2004, the Company furnished one
report on Form 8-K, dated (date of earliest event reported) May 13, 2004,
reporting under Item 5, Other Events and Item 12, Results of Operations and
Financial Condition. After the end of the quarter ended June 30, 2004, the
Company filed a report on Form 8-K dated (date of earliest event reported) July
22, 2004 reporting under Item 5, Other Events, and Item 7, Financial Statements
and Exhibits. No financial statements were filed with those reports.
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 2004 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.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DRYCLEAN USA, Inc.
Dated: September 27, 2004
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 day of September, 2004.
Signature Capacity Date
- --------- -------- ----
/s/ Michael S. Steiner President, Chief Executive Officer September 27, 2004
- -------------------------------- (Principal Executive Officer) and
Michael S. Steiner Director
/s/ Venerando J. Indelicato Chief Financial Officer September 27, 2004
- -------------------------------- (Principal Financial and Accounting
Venerando J. Indelicato Officer) and Director
/s/ David Blyer Director September 27, 2004
- --------------------------------
David Blyer
/s/ Lloyd Frank Director September 27, 2004
- --------------------------------
Lloyd Frank
/s/ Alan M. Grunspan Director September 27, 2004
- --------------------------------
Alan M. Grunspan
/s/ William K. Steiner Director September 27, 2004
- --------------------------------
William K. Steiner
/s/ Stuart Wagner Director September 27, 2004
- --------------------------------
Stuart Wagner
40
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).
41
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)(1)(D) Letter agreement dated October 22, 2003 between the Company and
First Union National Bank (Exhibit 4.01 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September
30, 2003. 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).
42
*14 Code of Ethics for Principal Executive Officer and Senior
Financial Officers.
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, Independent Registered Public
Accounting Firm.
*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.
*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.
43