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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission file number 0-9040
DRYCLEAN USA, Inc.
(Exact name of small business issuer as specified in its charter)
DELAWARE 11-2014231
(State of other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
290 N.E. 68 Street, Miami, Florida 33138
(Address of principal executive offices)
(305) 754-4551
(Issuer's telephone number)
Not Applicable
(Former name)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X. No
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: Common Stock, $.025 par
value per share - 7,001,250 shares outstanding as of November 10, 2000.
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DRYCLEAN USA, Inc.
Condensed Consolidated Statements of Income
--------------------------------------------------------------------------------
For the three months ended
September 30,
2000 1999
(Unaudited) (Unaudited)
--------------------------------------------------------------------------------
Net sales 4,574,476 $ 4,559,810
Management and franchise fees,
commissions and other income 340,875 174,958
--------------------------------------------------------------------------------
Total revenues 4,915,351 4,734,768
Cost of goods sold 3,253,127 3,315,946
Selling, general and
administrative expenses 1,165,522 1,010,419
Research and development 26,672 62,411
--------------------------------------------------------------------------------
Total 4,445,321 4,388,776
Operating Income 470,030 345,992
Interest income 13,752 9,378
Interest expense (38,300) (42,643)
--------------------------------------------------------------------------------
Earnings before provision for income taxes 445,482 312,727
Provision for income taxes 178,200 125,091
--------------------------------------------------------------------------------
Net earnings $ 267,282 $ 187,636
================================================================================
Basic earnings per share $ .04 $.03
Diluted earnings per share $ .04 $.03
================================================================================
Weighted average number of shares
Basic 7,001,250 6,925,000
Diluted 7,252,856 7,308,768
================================================================================
2
See Notes to Condensed Consolidated Financial Statements
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DRYCLEAN USA, Inc
Condensed Consolidated Balance Sheets
ASSETS
--------------------------------------------------------------------------------
September 30, June 30,
2000 2000
(Unaudited)
--------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 479,280 $ 982,588
Accounts receivable, net 2,515,155 2,065,761
Inventories 4,466,190 4,103,680
Lease receivables 82,500 105,394
Deferred income taxes 46,135 46,135
Prepaid expenses and other 261,447 270,170
--------------------------------------------------------------------------------
Total current assets 7,850,707 7,573,728
Lease receivables, due after one year 30,968 45,519
Equipment and improvements - net of
accumulated depreciation and amortization 321,129 340,342
Franchise, trademarks and other
intangible assets, net 681,408 621,941
Deferred tax asset 2,514 2,514
--------------------------------------------------------------------------------
$ 8,886,726 $ 8,584,044
================================================================================
3
See Notes to Condensed Consolidated Financial Statements
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DRYCLEAN USA, Inc.
Condensed Consolidated Balance Sheets
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
September 30,
2000 June 30,
(Unaudited) 2000
--------------------------------------------------------------------------------
Current Liabilities
Accounts payable and
accrued expenses $ 1,178,213 $ 1,301,537
Line of credit 228,613 ---
Income taxes payable 126,695 281,944
Customer deposits 568,505 374,396
Current portion of long term debt 480,000 480,000
--------------------------------------------------------------------------------
Total current liabilities 2,582,026 2,437,877
Term loan, less current portion 1,040,000 1,160,000
--------------------------------------------------------------------------------
Total liabilities 3,622,026 3,597,877
Stockholders' Equity
Common stock, $.025 par value;
15,000,000 shares authorized;
7,027,500 and 7,016,250 shares
issued and outstanding at
September 30 and June 30, 2000,
respectively, including 26,250
shares held in treasury 175,688 175,406
Additional paid-in capital 2,048,571 2,037,602
Retained earnings 3,040,441 2,773,159
--------------------------------------------------------------------------------
Total stockholders' equity 5,264,700 4,986,167
--------------------------------------------------------------------------------
$ 8,886,726 $ 8,584,044
================================================================================
See Notes to Condensed Consolidated Financial Statements
4
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<TABLE>
<CAPTION>
DRYCLEAN USA, Inc.
Condensed Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------------------
For the three months ended
September 30,
2000 1999
(Unaudited) Unaudited)
--------------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C>
Net earnings $ 267,282 $ 187,636
Adjustments to reconcile net earnings
to cash (used) provided by operating activities
Depreciation and amortization 38,701 34,846
Bad debts 81,619 1,383
(Increase) decrease in operating assets:
Accounts and lease receivables (493,568) 261,369
Inventories (362,510) 24,033
Prepaid expenses and other 8,723 31,569
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (123,324) (362,811)
Income taxes payable (155,249) 38,666
Customer deposits 194,109 119,730
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Net cash (used) provided by operating activities (544,217) 336,421
--------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures (78,954) (77,862)
Acquisition of Franchise and Licensing
agreements --- (550,000)
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Net cash used by investing activities (78,954) (627,862)
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Financing activities:
Borrowings under line of credit 228,613 27,451
Payments on term loan (120,000) (120,000)
Proceeds from exercise of stock options 11,250 ---
--------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 119,863 (92,549)
--------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (503,308) (383,990)
Cash and cash equivalents at beginning of period 982,588 964,768
--------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 479,280 $ 580,778
============================================================================================
Supplemental disclosures of cash flow
information
Cash paid during the period for
Interest $ 38,300 $ 42,643
Income taxes $ 333,449 $ 117,225
--------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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DRYCLEAN USA, Inc.
Notes To Condensed Consolidated Financial Statements
----------------------------------------------------
Note (1) - General: The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles 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 generally accepted accounting principles for complete
financial statements. However, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary in order
to make the financial statements not misleading. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the Company's financial
statements and footnotes thereto in the Company's Annual Report on Form 10-KSB
for the year ended June 30, 2000. The June 30, 2000 balance sheet information
was derived from audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB as of that date.
Note (2) - New Accounting Pronouncements: In March 2000, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 44
(Interpretation 44), Accounting for Certain Transactions Involving Stock
Compensation. Interpretation 44 provides criteria for the recognition of
compensation expense in certain stock-based compensation arrangements that are
accounted for under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. Interpretation 44 is effective July 1, 2000, with
certain provisions that are effective retroactively to December 15, 1998 and
January 12, 2000. Interpretation 44 did not have an impact on the Company's
consolidated financial statements.
Note (3) - 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. 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.
6
<PAGE>
Note (3) continued
Financial information for the Company's business segments is as follows:
For the three months ended
September 30,
2000 1999
(Unaudited) (Unaudited)
--------------------------------------------------------------------------------
Revenues:
Commercial and industrial laundry and
dry cleaning equipment 3,803,088 $3,939,736
Manufacturing and sales of telephone
test equipment 907,544 754,793
License and franchise operations 204,719 40,239
--------------------------------------------------------------------------------
Total revenues $4,915,351 $4,734,768
================================================================================
Operating income (loss)
Commercial and industrial laundry and
dry cleaning equipment $ 260,307 $ 360,225
Manufacturing and sales of telephone
test equipment 32,843 (30,859)
License and franchise operations 176,880 16,626
--------------------------------------------------------------------------------
Total operating income $ 470,030 $ 345,992
===============================================================================
Identifiable assets:
Commercial and industrial laundry and
dry cleaning equipment $5,570,320 $4,682,484
Manufacturing and sales of telephone
test equipment 2,487,140 2,247,802
License and franchise operations 829,266 661,624
--------------------------------------------------------------------------------
Total assets $8,886,726 $7,591,910
================================================================================
7
<PAGE>
Management's Discussion and Analysis Or Plan of Operation
Liquidity and Capital Resources
-------------------------------
For the three months ended September 30, 2000, cash decreased by $503,308. For
the three month period ended September 30, 1999, cash decreased by $383,990.
For the first three months of fiscal 2001, operating activities used cash of
$544,217, principally to support an increase in accounts and lease receivables
($493,568) and inventories ($362,510) and to reduce accounts payable and accrued
expenses ($123,324) and income taxes payable ($155,249). These uses were
partially offset by the Company's net income of $267,282, non-cash expenses of
$38,701 for depreciation and amortization and $81,619 in bad debt expense.
Additional cash was provided by an increase in customer's deposits ($194,109)
and a decrease in prepaid expenses ($8,723). Of the cash generated by operating
activities in the first quarter of fiscal 2000 ($336,421), $187,636 was provided
by net income and $34,846 and $1,383 was derived from non-cash expenses for
depreciation and amortization and bad debts, respectively. Additional cash was
provided by a decrease in accounts and lease receivables ($261,369), inventories
($24,033) and pre-paid expenses and other assets ($31,569). Cash was also
provided by an increase in customer deposits ($119,730) and income taxes payable
($38,666) which partially offset a decrease in accounts payable and accrued
expenses ($362,811).
During the first quarter of fiscal 2001, investing activities used cash of
$78,954 to acquire capital assets. During the first quarter of fiscal 2000,
investing activities used cash of $627,862, to fund the acquisition of Dryclean
USA License Corp. for $550,00 and $77,862 to purchase other capital assets.
Financing activities provided cash of $119,863 for the three month period ended
September 30, 2000, principally due to the borrowing of $228,613 under the
Company's line of credit and $11,250 from the exercise of stock options. This
was partially offset by the monthly installment payments made on the Company's
term loan ($120,000). For the same period of fiscal 2000, financing activities
consumed cash of $92,549, mostly to make payments on the Company's term loan
($120,000) which was offset, in part, by the borrowing of $27,451 under the
Company's line of credit.
The Company believes that its present cash, cash it expects to generate from
operations and cash borrowings under its $2,250,000 line of credit will be
sufficient to meet its operational needs.
Results of Operations
---------------------
Total revenues for the three month period ended September 30, 2000 increased by
$180,583 (3.8%) over the same period of fiscal 2000. Revenues of the laundry and
dry cleaning equipment segment decreased by $136,648 (3.5%) principally due to a
reduction in sales volume of laundry equipment. Revenues of the Company's
telecommunication segment increased by $152,751 (20.2%) mostly due to increased
sales volume of outside plant test equipment. The Company's license and
franchise segment, which was acquired in July 1999, increased its revenues for
the
8
<PAGE>
first quarter of fiscal 2001 by $164,480 (408.8%) over the first quarter in
fiscal 2000, mostly due to initial license fees and increased royalty payments
Costs of goods sold, expressed as a percentage of net sales improved to 71.1% in
the first quarter of fiscal 2001 from 72.7% for the first quarter of fiscal
2000. The improvement was principally due to the increase in sales in the
telecommunication division, which historically carries a higher margin, and a
more profitable product mix than sales of laundry and dry cleaning equipment.
For the first quarter of fiscal 2001, selling, general and administrative
expenses increased by $155,103 (15.4%) over the same period of fiscal 2000. The
increase was attributable to increased advertising and sales expense in the
telecommunications division and an increase in the reserve for bad debts in the
laundry and dry cleaning equipment segment. The increase in the reserve for bad
debts was primarily attributable to a $50,000 reserve against amounts receivable
for management fees from an entity controlled by one of the Company's principal
shareholders.
Research and development expenses, which relate solely to the telecommunications
operation, decreased by $ 35,739 (57.3%) in the first quarter of fiscal 2001,
mostly due to a reduction in salary expense while the Company is continuing its
search to replace its former Director of Engineering. In the interim, new
products are being designed with the help of outside consultants. The amount
expended for the outside consultants was less than the amount expended for the
former Director of Engineering.
As a result of the foregoing, operating income increased by $124,038 (35.8%) for
the first quarter of fiscal 2001 over the comparable period of fiscal 2000 and
as a percentage of total revenues increased to 9.6% from 7.3%, respectively.
Interest income increased by $4,374 (46.6%) during the first quarter of fiscal
2001 over the first quarter of fiscal 2000 as a result of additional interest
earned on daily bank balances.
Interest expense decreased by $4,343 (10.2%) in the first quarter of fiscal 2001
from the same period in fiscal 2000, primarily due to a reduction in average
amounts of outstanding debt during the fiscal 2001 period, which was partially
offset by higher interest rates.
The provision for income taxes increased by $53,109 (42.5%) in the first three
months of fiscal 2001 over the same period of fiscal 2000, due to the increase
in pre-tax profit. The effective tax rate in each period was 40.0%.
Net earnings increased by $79,646 (42.4%) in the first quarter of fiscal 2001
over the first quarter of fiscal 2000.
Inflation
---------
Inflation has not had a significant effect on the Company's operations during
the reported periods.
9
<PAGE>
New Accounting Pronouncements
-----------------------------
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), Accounting for Certain Transactions
Involving Stock Compensation. Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. Interpretation 44 is effective
July 1, 2000, with certain provisions that are effective retroactively to
December 15, 1998 and January 12, 2000. Interpretation 44 did not have an impact
on the Company's consolidated financial statements.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders.
At the Company's 2000 Annual Meeting of Stockholders held on November 10,
2000, the Company's stockholders:
(a) Reelected the Company's then existing Board of Directors by the
following votes:
Votes
--------------------------------
For Withheld
-------- --------
Michael S. Steiner 6,494,467 36,642
William K. Steiner 6,494,461 36,648
Venerando J. Indelicato 6,492,125 38,984
David Blyer 6,492,171 38,938
Lloyd Frank 6,494,559 36,550
Alan Grunspan 6,494,559 36,550
Stuart Wagner 6,494,559 36,550
(b) Approved Company's 2000 Stock Option Plan by a vote of 5,602,314
shares in favor and 65,041 shares against, with 7,285 shares abstaining and
856,469 broker non-votes.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the
period covered by this report.
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DRYCLEAN USA, Inc.
Dated: November 10, 2000 By: /s/ Michael S. Steiner
---------------------------
Michael S. Steiner, President
and Chief Executive Officer
Date: November 10, 2000 By: /s/ Venerando J. Indelicato
---------------------------
Venerando J. Indelicato
Treasurer and
Chief Financial Officer
11
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EXHIBIT INDEX
Exhibit Number Description
-------------- ------------
27 Financial Data Schedule
