SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission file number 0-9040
DRYCLEAN USA, Inc.
(Exact name of small business issuer as specified in its charter)
DELAWARE 11-2014231
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
290 N.E. 68 Street, Miami, Florida 33138
(Address of principal executive offices)
(305) 754-4551
(Issuer's telephone number)
Not Applicable
(Former name)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: Common Stock, $.025 par value per
share - 7,024,450 shares outstanding as of November 8, 2005.
Transitional Small Business Disclosure Format: Yes No X
----- -----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
DRYCLEAN USA, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
- ---------------------------------------------------------------------------------------------------------
For the three months ended
September 30,
2005 2004
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Net sales $3,131,403 $4,045,173
Development fees, franchise and license fees,
commissions and other income 302,897 187,398
- ---------------------------------------------------------------------------------------------------------
Total revenues 3,434,300 4,232,571
Cost of sales 2,315,206 3,075,936
Selling, general and administrative expenses 947,097 965,280
Research and development expenses 2,625 7,550
- ---------------------------------------------------------------------------------------------------------
3,264,928 4,048,766
- ---------------------------------------------------------------------------------------------------------
Operating income 169,372 183,805
Interest income 4,274 3,758
- ---------------------------------------------------------------------------------------------------------
Earnings before income taxes 173,646 187,563
Provision for income taxes 65,985 75,025
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 107,661 $ 112,538
- ---------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share (Note 2) $ .02 $ .02
=========================================================================================================
Weighted average number of shares:
of common stock outstanding (Note 2)
Basic 7,024,450 7,019,232
Diluted 7,030,686 7,031,385
=========================================================================================================
2
DRYCLEAN USA, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
ASSETS
- ----------------------------------------------------------------------------------------------------------
September 30, June 30,
2005 2005
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $2,588,471 $1,582,116
Accounts and trade notes
receivable, net 1,273,930 1,949,750
Inventories 3,056,564 3,090,017
Note receivable 28,572 67,857
Lease receivables 10,512 14,995
Deferred income taxes 103,031 103,031
Other current assets 150,521 118,930
- ----------------------------------------------------------------------------------------------------------
Total current assets 7,211,601 6,926,696
Equipment and improvements, net 219,346 230,352
Franchise, trademarks and other
intangible assets, net 358,426 373,779
Deferred income taxes 10,248 10,248
- ----------------------------------------------------------------------------------------------------------
$7,799,621 $7,541,075
==========================================================================================================
3
DRYCLEAN USA, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
LIABILITIES AND
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
September 30, June 30,
2005 2005
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 662,819 $ 679,505
Accrued employee expenses 157,367 295,440
Unearned income 269,018 289,712
Customer deposits and other 862,967 577,440
Income taxes payable 40,811 -
Dividends payable (Note 5) 280,978 -
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 2,273,960 1,842,097
- -----------------------------------------------------------------------------------------------------------
Total liabilities 2,273,960 1,842,097
- -----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred Stock, $1.00 par value:
Authorized shares - 200,000; none
issued and outstanding - -
Common stock, $0.025 par value:
Authorized shares - 15,000,000;
7,055,500, shares issued and outstanding,
including shares held in treasury 176,388 176,388
Additional paid-in capital 2,075,870 2,075,870
Retained earnings 3,276,423 3,449,740
Treasury stock, 31,050 shares
at cost (3,020) (3,020)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,525,661 5,698,978
- -----------------------------------------------------------------------------------------------------------
$ 7,799,621 $ 7,541,075
===========================================================================================================
4
DRYCLEAN USA, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------
For the three months ended
September 30,
2005 2004
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 107,661 $ 112,538
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 30,381 29,064
Bad debt expense - 679
(Increase) decrease in operating assets:
Accounts, trade notes and lease receivables 680,303 1,750
Inventories 33,453 (186,273)
Other current assets (31,591) (45,864)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (16,686) (43,276)
Customer deposits and other 285,527 218,597
Income taxes payable 40,811 55,025
Unearned income (20,694) -
Accrued employee expenses (138,073) (118,225)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 971,092 24,015
- -----------------------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures, net (2,714) (16,766)
Payments received on note receivable 39,285 39,285
Patent and trademark expenditures (1,308) (791)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 35,263 21,728
- -----------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from exercise of stock options - 10,000
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities - 10,000
- -----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,006,355 55,743
Cash and cash equivalents at beginning of period 1,582,116 1,742,251
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,588,471 $ 1,797,994
===========================================================================================================
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Income taxes $ - $ 20,000
Dividends declared but not yet paid $ 280,978 421,467
5
DRYCLEAN USA, INC. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note (1) - General: The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and
the instructions to Form 10-QSB related to interim period financial statements.
Accordingly, these condensed consolidated financial statements do not include
certain information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. However, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) which, in the opinion
of management, are necessary in order to make the financial statements not
misleading. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the Company's financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended June
30, 2005. The June 30, 2005 balance sheet information contained herein was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB as of that date.
Note (2) - Earnings Per Share: Basic and diluted earnings per share for the
three months ended September 30, 2005 and 2004 are computed as follows:
For the three months ended
September 30,
- -------------------------------------------------------------------------
2005 2004
---- ----
Basic
Net earnings $ 107,661 $ 112,538
Weighted average shares
outstanding 7,024,450 7,019,232
Basic earnings per share $ .02 $ .02
- -------------------------------------------------------------------------
Diluted
Net earnings $ 107,661 $ 112,538
Weighted average shares
outstanding 7,024,450 7,019,232
Plus incremental shares
from assumed
exercise of
stock options 6,236 12,153
- -------------------------------------------------------------------------
Diluted weighted average 7,030,686 7,031,385
common shares
- -------------------------------------------------------------------------
Diluted earnings per $ .02 $ .02
share
=========================================================================
No shares subject to stock options were excluded at September 30, 2005 or 2004.
6
Note (3) - Revolving Credit Line: On October 30, 2005, the Company received an
extension until October 30, 2006 of its existing $2,250,000 revolving line of
credit facility. In addition, the related Loan Agreement was amended to
eliminate the requirement that 51% of the stock of the Company be owned by the
Steiner family or any Steiner trust. On October 28, 2004, the Loan Agreement,
was amended, to eliminate the borrowing base restriction on borrowings under the
revolving credit facility, thereby enabling the Company to borrow up to the full
$2,250,000 amount available under that facility regardless of the Company's
levels of accounts receivable and inventories. The Company's obligations under
the facility continue to be guaranteed by the Company's subsidiaries and
collateralized by substantially all of the Company's and its subsidiaries'
assets. No amounts were outstanding at September 30, 2005 and June 30, 2005.
Note (4) - Stock Options: The Company accounts for its stock-based compensation
plans under Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees. The pro forma information below is based on
provisions of Statement of Financial Accounting Standard ("SFAS") No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting for
Stock-Based Compensation-Transition and Disclosure, issued in December 2002:
For the three months
ended September 30,
2005 2004
- ------------------------------------------------------------------------------
Net earnings, as reported $ 107,661 $ 112,538
Less: Fair value of employee stock
compensation - -
- ------------------------------------------------------------------------------
Pro forma net earnings $ 107,661 $ 112,538
Earnings per common share:
Net earnings as reported - Basic
and diluted $ .02 $ .02
Net earnings, pro forma - Basic
and diluted $ .02 $ .02
There were no options granted during the three months ended September 30, 2005
and 2004 and all options outstanding as of those dates were fully vested. In
August 2004, a director exercised an option to purchase 10,000 shares of the
Company's common stock at an exercise price of $1.00 per share.
Note (5) - Cash Dividends: On September 23, 2005, the Company's Board of
Directors declared a $.04 semi-annual cash dividend (an aggregate of $280,978)
which was paid on November 1, 2005 to shareholders of record on October 14,
2005. On September 27, 2004, the Company's Board of Directors declared a $.06
per share annual cash dividend (an aggregate of $421,467) which was paid on
November 1, 2004 to shareholders of record on October 15, 2004.
7
Note (6) Segment Information: The Company's reportable segments are strategic
businesses that offer different products and services. They are managed
separately because each business requires different marketing strategies. The
Company primarily evaluates the operating performance of its segments based on
the categories noted in the table below. The Company has no sales between
segments.
Financial information for the Company's business segments is as follows:
For the three months ended
September 30,
- ---------------------------------------------------------------------------------------------------------
2005 2004
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Revenues:
Commercial and industrial laundry and dry
cleaning equipment $ 3,343,519 $ 4,135,146
License and franchise operations 90,781 97,425
- ---------------------------------------------------------------------------------------------------------
Total revenues $ 3,434,300 $ 4,232,571
- ---------------------------------------------------------------------------------------------------------
Operating income (loss):
Commercial and industrial laundry and dry
cleaning equipment $ 178,226 $ 167,402
License and franchise operations 66,557 79,558
Corporate (75,411) (63,155)
- ---------------------------------------------------------------------------------------------------------
Total operating income $ 169,372 $ 183,805
- ---------------------------------------------------------------------------------------------------------
SEPTEMBER 30, June 30,
2005 2005
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
Identifiable assets:
Commercial and industrial laundry and dry
cleaning equipment $ 6,700,497 $ 6,525,375
License and franchise operations 892,984 781,416
Corporate 206,140 234,284
- ---------------------------------------------------------------------------------------------------------
Total assets $ 7,799,621 $ 7,541,075
8
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview
- --------
As previously reported, Hurricane Katrina affected the first quarter of fiscal
2006. Sales decreased by 22.6% primarily due to shipping delays from one of our
major laundry equipment suppliers which is located near New Orleans. Our
supplier reported that its plant had no water damage and only slight wind
damage; however, its power and employee availability were disrupted. The
supplier is now back in partial operation and has started shipping. However,
delays during the next three months may impact our second quarter, as well. In
addition, Hurricane Wilma disrupted power to our main offices and warehouses in
Miami forcing the plant to close for a week in October. We are now back in full
operation; however, sales will be adversely affected during the second quarter
of fiscal 2006 due to conditions caused by hurricanes in southern Florida.
We believe the Company will make up any lost sales during the second half of our
fiscal year. Our backlog is now at its highest level, having increased over 100%
since the start of the fiscal year due to the shipment delays in the first
quarter and the receipt of a substantial order. The majority of the backlog is
expected to be shipped during the current fiscal year.
Another factor affecting sales during the first quarter was a $600,000 shipment
made directly from one of our manufacturers to one of our customers. This is a
normal occurrence when dealing with large national customers that have special
national account terms and arrangements with some of our manufacturers. However,
in these cases, the manufacturer awards the dealer a commission, which was
approximately 12% on this sale. Therefore, while our sales were affected because
we did not recognize the revenues from the sale, our earnings remained on par
with the first quarter of fiscal 2004.
Cash on hand has increased substantially during the first quarter due to the
collection of outstanding receivables without commensurate sales to replenish
our receivables, while inventory levels remained relatively flat. Some of this
cash will be used to purchase inventory for, and support the receivables
expected to be generated from, our increased backlog.
On September 23, 2005, our Board of Directors declared a $.04 per share
semi-annual cash dividend (an aggregate of $280,978) paid on November 1, 2005 to
shareholders of record on October 14, 2005.
Liquidity and Capital Resources
During the first quarter of fiscal 2006, cash increased by $1,006,355 compared
to an increase of $55,743 for the same period of fiscal 2005. The following
summarizes the Company's Consolidated Statement of Cash Flows.
9
Three Months Ended September 30,
2005 2004
- -------------------------------------------------------------------------------
Net cash provided by:
Operating activities $ 971,092 $24,015
Investing activities 35,263 21,728
Financing activities - 10,000
Operating activities for the three months ended September 30, 2005 provided cash
of $971,092, derived principally from a decrease in accounts, trade notes and
lease receivables ($680,303) due principally to the collection of outstanding
receivables without commensurate sales to replenish our receivables, an increase
in customer deposits ($285,527) resulting from the increased backlog, and our
net earnings ($107,661). Non-cash expenses for depreciation and amortization
contributed cash of $30,381. Further cash was provided by a decrease in
inventories ($33,453) and an increase in income tax payable ($40,811). These
funds were offset by an increase in other assets ($31,591) and decreases in
accounts payable and accrued expenses ($16,686), unearned income ($20,694) and
accrued employee expenses ($138,073).
Operating activities for the three months ended September 30, 2004 provided cash
of $24,015, which resulted principally from the Company's net earnings of
$112,538 and non-cash expenses for depreciation and amortization of $29,064.
Changes in operating assets and liabilities after June 30, 2004 used cash of
$118,266, mostly to fund an increase in inventories ($186,273) and a reduction
in accounts payable and accrued expenses ($43,276) and accrued employee expenses
($118,225). An increase in customer deposits of $218,597 and an increase in
income taxes payable of $55,025 offset these usages of cash. The increase in
inventory was needed to service our expanded sales territory. As a consequence
of the expanded territory, the Company acquired many new customers who placed
sales orders thereby increasing customer deposits and sales during the period.
Investing activities for the first quarter of fiscal 2006 provided cash of
$35,263, mainly as a result of payments received on a note from the sale of the
Company's telecommunications segment ($39,285), which was partially offset by
expenditures for capital equipment ($2,714) and patent and trademark work
($1,308). Cash of $21,728 was provided during the first quarter of fiscal 2005
as a result of payments on the note ($39,285), offset in part, by capital
equipment purchases ($16,766) and patent and trademark work ($791).
There were no financing activities during the first quarter of fiscal 2006. For
the three months ended September 30, 2004, financing activities provided the
Company with cash of $10,000 received from the exercise of a stock option to
purchase 10,000 shares of the Company's common stock at an exercise price of
$1.00 per share by a director of the Company.
On September 23, 2005, the Company's Board of Directors declared a $.04 per
share semi-annual cash dividend (an aggregate of $280,978) paid on November 1,
2005 to shareholders of record on October 14, 2005. On September 27, 2004, the
Company's Board of Directors declared a $.06 per share annual dividend (an
aggregate of $421,467) payable on November 1, 2004 to shareholders of record on
October 15, 2004.
10
On October 30, 2005, the Company received an extension until October 30, 2006 of
its existing $2,250,000 revolving line of credit facility. In addition, the Loan
Agreement was amended to eliminate the requirement that 51% of the stock of the
Company be owned by the Steiner family or any Steiner trust. On October 28,
2004, the Loan Agreement, was amended, to eliminate the borrowing base
restriction on borrowings under the revolving credit facility, thereby enabling
the Company to borrow up to the full $2,250,000 amount available under that
facility regardless of the Company's levels of accounts receivable and
inventories. The Company's obligations under the facility continue to be
guaranteed by the Company's subsidiaries and collateralized by substantially all
of the Company's and its subsidiaries' assets.
The Company believes that its present cash position and cash it expects to
generate from operations, as well as, if needed, cash borrowings available under
our $2,250,000 line of credit, will be sufficient to meet its operational needs.
Off-balance Sheet Financing
- ---------------------------
The Company has no off-balance sheet financing arrangements within the meaning
of item 303(c) of Regulation S-B.
Results of Operations
- ---------------------
Three Months Ended September 30,
2005 2004
- --------------------------------------------------------------------------------
Net sales $ 3,131,403 $ 4,045,173 -22.6%
Development fees, franchise and
license fees, commissions and
other income 302,897 187,398 +61.6%
- --------------------------------------------------------------------------------
Total revenues $ 3,434,300 $ 4,232,571 -18.9%
Revenues for the three month period ended September 30, 2005 decreased by
$798,271 (18.9%) from the same period of fiscal 2005. The decrease was mostly in
the commercial laundry and dry cleaning segment, which had a sales decrease of
$913,770 (22.6%) due to Hurricane Katrina that disrupted shipments from one of
our major laundry equipment suppliers which is located near New Orleans. See
"Overview," above. The greatest reduction was experienced in the sales of
laundry equipment, which decreased by $809,758 ($45.8%) and boilers sales, which
decreased by $242,540 (62.0%). Dry cleaning equipment also experienced an 8.2%
decrease in sales. However, these decreases were offset by a 9.2% increase in
parts sales. Development fees, franchise and license fees, commissions and other
income increased by 61.6% mostly due to increased commissions received on
manufacturer shipments to customers in our area.
11
Three Months Ended September 30,
2005 2004
- ------------------------------------------------------------------------------
As a percentage of net sales:
Cost of sales 73.9% 76.0%
As a percentage of revenues:
Selling, general and administrative expenses 27.6% 22.8%
Research and development .1% .2%
Total expenses 95.1% 95.7%
Cost of goods sold, expressed as a percentage of sales, decreased to 73.9% from
76.0% for the three months ended September 30, 2005 compared to the same period
of fiscal 2005. The reduction was mostly due to the decrease in sales of laundry
equipment, and the increase in sales of spare parts, which carry a higher markup
than equipment.
Selling, general and administrative expenses decreased by $18,183 (1.9%) in the
first quarter of 2006 from the same period of fiscal 2005. While the Company's
expenses were essentially flat, as a percentage of revenues, this category of
expenses increased to 27.6% in fiscal 2006 from 22.8% in fiscal 2005 as the
Company's fixed expenses could not be absorbed by the reduction in revenues.
Research and development expenses decreased by $4,925 (65.2%) during the first
quarter of fiscal 2006 from the first quarter of fiscal 2005. These expenses
relate to the on-going research on the Green-Jet (R) and Multi-Jet(TM)
technologies and their application to smaller machines for the dry cleaning
market and the hotel industry. These expenses are winding down and are a small
part of the Company's overall operating expenses.
The overall expenses of the Company, as a percentage of revenues, decreased
slightly to 95.1% in the first quarter of fiscal 2006 from 95.7% for the same
period of fiscal 2005. The improved margin percentages in cost of goods sold
offset the increased percentages of selling, general and administrative expenses
keeping total expenses, when expressed a percentage of revenues, relatively
stable.
Interest income increased by $516 (13.7%) for the first quarter of fiscal 2006
compared to the same period of fiscal 2005 due to interest received on the
Company's bank deposit balances, offset, in part, by the lower outstanding
balance on the note received in connection with the sale of our
telecommunication segment in July 2002. Interest rates increased this quarter
compared to last year.
The effective tax rate used during the first quarter of fiscal 2006 was 38%
compared to 40% used in the same period of last year. The reduction in the
effective tax rate was made to better conform to the year end tax rate
experienced over the last several years.
Inflation
- ---------
Inflation has not had a significant effect on the Company's operations during
any of the reported periods.
12
Transactions with Related Parties
- ---------------------------------
The Company leases 27,000 square feet of warehouse and office space from William
K. Steiner, a principal stockholder, Chairman of the Board of Directors and a
director of the Company, under a lease which expires in October 2008. Annual
rental under this lease is approximately $94,500 with annual increases
commencing November 1, 2006 of 3% over the rent in the prior year. The Company
is also to bear real estate taxes, utilities, maintenance, non-structural
repairs and insurance. The lease contains two three-year renewal options in
favor of the Company. The Company believes that the terms of the lease are
comparable to terms that would be obtained from an unaffiliated third party for
similar property in a similar locale.
Critical Accounting Policies
- ----------------------------
The accounting policies that the Company has identified as critical to its
business operations and to an understanding of the Company's results of
operations are described in detail in the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 2005. In many cases, the accounting treatment
of a particular transaction is specifically dictated by accounting principles
generally accepted in the United States of America, with no need for
management's judgment in their application. In other cases, preparation of the
Company's unaudited condensed consolidated financial statements for interim
periods requires us to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reported period. There can be no assurance that
the actual results will not differ from those estimates.
New Accounting Pronouncements
- -----------------------------
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004)
(SFAS 123(R)) "Share-Based Payment." SFAS 123(R) replaces FASB 123, "Accounting
for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS 123(R) will require compensation costs related
to share-based payment transactions to be recognized in the financial
statements. With limited exceptions, the amount of compensation cost will be
measured based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards will be re-measured each
reporting period. Compensation cost will be recognized over the period that an
employee provides service in exchange for the award. This guidance is effective
as of the first interim or annual reporting period beginning after December 15,
2005 (the next fiscal quarter of the Company's current fiscal year) for Small
Business filers such as the Company. SFAS 123(R) does not affect the Company at
the present time but may affect the Company if it issues share-based
compensation in the future.
In December 2004, the FASB issued SFAS No.151, "Inventory Costs," which
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). Under this Statement, such items
will be recognized as current-period charges. In addition, the Statement
requires that allocation of fixed production overhead to the costs of conversion
be based on the normal capacity of the production facilities. This Statement is
effective for inventory costs incurred during fiscal years beginning after June
15, 2005 (the Company's present fiscal year) and must be applied prospectively.
Adoption of this statement is not expected to impact the Company's financial
position or results of operations because the Company does not manufacture
inventory.
13
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets," which amends Accounting Principles Board ("APB") Opinion No. 29,
"Accounting for Nonmonetary Transactions." The amendments made by SFAS 153 are
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. Further, the amendments
eliminate the narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of nonmonetary
assets that do not have "commercial substance." Previously, APB Opinion 29
required that the accounting for an exchange of a productive asset for a similar
productive asset or an equivalent interest in the same or similar productive
asset should be based on the recorded amount of the asset relinquished. The
provisions in SFAS 153 are effective for nonmonetary asset exchanges occurring
in fiscal periods beginning with the Company's present fiscal year. Adoption of
this pronouncement will not materially impact the Company's financial position
or results of operations.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - A Replacement of APB No. 20 and FASB Statement No. 3." Among other
changes, SFAS 154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented
under the new accounting principle, unless it is impracticable to do so. SFAS
154 also provides that (1) a change in method of depreciating or amortizing a
long-lived nonfinancial asset be accounted for as a change in estimate
(prospectively) that was effected by a change in accounting principle, and (2)
correction of errors in previously issued financial statements should be termed
a "restatement." The new standard is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005 (the
Company's next fiscal year). Early adoption of this standard is permitted for
accounting changes and correction of errors made in fiscal years beginning after
June 1, 2005. Adoption of this pronouncement is not expected to materially
impact the Company.
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
14
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.
Item 3. Controls and Procedures
As of the end of the period covered by this report, management of the Company,
with the participation of the Company's President and principal executive
officer and the Company's principal financial officer, evaluated the
effectiveness of the Company's "disclosure controls and procedures," as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that
evaluation, these officers concluded that, as of the date of their evaluation,
the Company's disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed in the Company's
periodic filings under the Securities Exchange Act of 1934 is accumulated and
communicated to the Company's management, including those officers, to allow
timely decisions regarding required disclosure. It should be noted that a
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that it will detect or uncover failures
within the Company to disclose material information otherwise required to be set
forth in the Company's periodic reports.
During the period covered by this Report, there were no changes in the Company's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits:
31.01 Certification of principal executive officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 promulgated under the Securities
Exchange Act of 1934.
31.02 Certification of principal financial officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 promulgated under the Securities
Exchange Act of 1934.
32.01 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.02 Certification of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 10, 2005 DRYCLEAN USA, Inc.
By: /s/ Venerando J. Indelicato
-------------------------------------
Venerando J. Indelicato,
Treasurer and Chief Financial Officer
16
Exhibit Index
31.01 Certification of principal executive officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 promulgated under the Securities
Exchange Act of 1934.
31.02 Certification of principal financial officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 promulgated under the Securities
Exchange Act of 1934.
32.01 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.02 Certification of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
17