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 March 31, 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, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 - 6,975,000 shares outstanding as of May 1. 2000.
<PAGE>
DRYCLEAN USA, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------- -------------------------------------------
For the nine months For the three months
ended March 31, ended March 31,
2000 1999 2000 1999
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C>
Sales $13,726,000 $13,447,294 $5,085,375 $4,846,630
Management fees,
commissions and
other income 584,386 390,791 184,589 101,258
----------- ----------- ---------- -----------
Total revenues 14,310,386 13,838,085 5,269,964 4,947,888
Cost of goods sold 9,696,738 9,977,613 3,571,508 3,563,432
Selling, general and
administrative expenses 3,266,310 2,758,449 1,127,686 920,539
Research and development 198,537 105,249 69,716 64,343
----------- ------------ ----------- -----------
13,161,585 12,841,311 4,768,910 4,548,314
Operating income 1,148,801 996,774 501,054 399,574
Other income and expenses
Other expense (2,000) - (2,000) -
Interest income 21,092 48,090 5,999 16,613
Interest expense (124,461) (128,748) (40,233) (44,643)
------------ --------- -------- --------
(105,369) (80,658) (36,234) (28,030)
Earnings before taxes 1,043,432 916,116 464,820 371,544
Provision for income taxes (3) 417,373 253,017 185,928 148,618
----------- ------- ------- -------
Net earnings $ 626,059 $ 663,099 $ 278,892 $ 222,926
==============================================================================================================================
Basic earnings per share (4) $ .09 $ .11 $ .04 $ .03
Diluted earnings per share (4) $ .09 $ .10 $ .04 $ .03
Weighted average number of
shares outstanding (4)
Basic 6,940,556 5,917,646 6,958,333 6,875,000
Diluted 7,338,037 6,414,632 7,431,297 7,371,986
==============================================================================================================================
PRO FORMA AMOUNTS (Unaudited)
Earnings before taxes $ 916,116 $ 371,544
Provision for income taxes (3) 366,446 148,618
------------ --------------
Proforma net earnings $ 549,670 $ 222,926
==============================================================================================================================
Proforma basic earnings per share $ .09 $ .03
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
shares of common stock
outstanding 5,917,646 6,875,000
</TABLE>
-2-
<PAGE>
DRYCLEAN USA, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 617,222 $ 964,768
Accounts receivable, net 1,918,778 1,741,698
Inventories 4,271,107 4,243,348
Current portion of lease receivables 117,774 116,927
Deferred income taxes 43,141 43,141
Prepaid expenses and other 174,718 143,885
---------- ----------
Total current assets 7,142,740 7,253,767
Lease receivables due after one year 61,868 90,882
Equipment and improvements - at cost 1,045,493 924,116
Less accumulated depreciation 598,406 590,411
---------- -----------
447,087 333,705
Franchise, trademarks and other
intangible assets, net of accumulated
amortization of $45,117 521,681 -
Deferred tax asset 22,884 22,884
---------- ----------
$8,196,260 $7,701,238
========== ==========
</TABLE>
-3-
<PAGE>
DRYCLEAN USA, Inc.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued
expenses $ 1,307,423 $ 1,266,838
Current portion of bank loan 480,000 440,000
Customer deposits 276,338 278,008
Income taxes payable 220,722 80,674
------------- --------------
Total current liabilities 2,284,483 2,065,520
Long term loan less current portion 1,280,000 1,680,000
------------ ------------
Total liabilities 3,564,483 3,745,520
SHAREHOLDER'S EQUITY
Common stock, $.025 par value,
15,000,000 shares authorized;
7,001,250 and 6,951,250 shares issued,
including shares held in treasury 175,031 173,781
Additional paid-in capital 2,022,977 1,974,227
Retained earnings 2,433,769 1,807,710
Treasury shares, 26,250 shares at cost - -
------------ ------------
Total shareholder's equity 4,631,777 3,955,718
------------ ------------
$ 8,196,260 $ 7,701,238
=========== ===========
</TABLE>
-4-
<PAGE>
DRYCLEAN USA, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended Nine months ended
March 31, March 31,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Operating activities:
Net earnings $ 626,059 $ 663,099
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Bad debt expense 3,641 4,145
Depreciation and amortization 98,229 27,042
Net changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and lease receivables (152,554) (203,569)
Inventories (27,759) 326,434
Prepaid expenses and other assets (30,833) (55,106)
Increase (decrease) in:
Accounts payable and accrued expenses 40,585 (1,416,136)
Customer deposits (1,670) (89,501)
Income taxes payable 140,048 119,079
------- -------
Net cash provided (used) by operating activities 695,746 (624,513)
------- -------
Investing activities:
Capital expenditures (733,292) (60,204)
Cash of acquired company - 384,888
------- -------
Net cash provided (used) by investing activities (733,292) 324,684
------- -------
Financing activities:
Repayments under line of credit - (1,000,000)
Payments on term loan (360,000) (576,613)
Borrowings under new term loan - 2,400,000
Proceeds from exercise of stock options 50,000
Cash distribution to shareholders - (727,394)
------- -------
Net cash provided (used) in financing activities (310,000) 95,993
------- -------
Net decrease in cash and cash equivalents (347,546) (203,836)
Cash and cash equivalents at beginning of period 964,768 828,390
------- -------
Cash and cash equivalents at end of period $ 617,222 $ 624,554
Supplemental information:
Cash paid for interest $ 124,461 $ 128,748
Cash paid for income taxes 277,325 125,000
Non-cash transactions
Acquisition of net assets of acquired company - $ 1,541,807
</TABLE>
-5-
<PAGE>
DRYCLEAN USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note (1) - General: The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB related to interim
period financial statements. Accordingly, these financial statements do not
include certain information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
accompanying unaudited 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, 1999. The June 30, 1999
balance sheet was derived from audited financial statements as of that date.
Note (2) - Basis of Presentation: On November 1, 1998, Steiner-Atlantic Corp.
("Steiner") was merged (the "Merger") with and into, and became a wholly-owned
subsidiary of, the Company. As a result of the Merger, the Company has added
Steiner's operations as a supplier of dry cleaning, industrial laundry equipment
and steam boilers to its own telecommunications operations as a manufacturer and
seller of telephone test sets and customer premise equipment.
On November 5,1999, the Company filed an amendment to its Certificate of
Incorporation pursuant to which, effective November 7, 1999, the Company's name
was changed from Metro-Tel Corp. to DRYCLEAN USA, Inc.
For financial accounting (but not corporate law) purposes, the Merger is treated
as a "reverse" acquisition of the Company by Steiner utilizing the "purchase"
method of accounting. As a result, all financial statements of the Company
included in reports filed by the Company following the Merger covering periods
prior to November 1, 1998 reflect only the results of operations, financial
position and cash flows of Steiner on a stand alone basis. All consolidated
financial statements of the Company for periods commencing November 1, 1998 in
addition include the results of operations, financial position and cash flows of
the Company's telecommunications operations from and after November 1, 1998.
Accordingly, the results for the nine month period ended March 31, 1999 include
only five months of operations of the telecommunications division.
Note (3) - Proforma Income Tax: Prior to November 1, 1998, Steiner was a
Subchapter S corporation under the Internal Revenue Code of 1986, as amended
(the "Code"), and accordingly, its shareholders, rather than it, were subject to
income taxation on Steiner's earnings. The proforma provision for income taxes
represents the provision for income taxes that would have been recorded had
Steiner been taxed under Subchapter C of the Code for the periods shown.
Note (4) - Earnings Per Common Share: In 1997, the FASB issued Statement No.
128, "Earnings per share." Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock options. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to the Statement No. 128 requirements.
-6-
<PAGE>
Note (5) - 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.
Financial information for the Company's business segments is as follows:
<TABLE>
<CAPTION>
For the nine months For the nine months
ended March 31, ended March 31,
2000 1999 2000 1999
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commercial and industrial
laundry and drycleaning $11,788,615 $12,647,550 $4,313,165 $4,281,005
Manufacturing and sales of
telephone test equipment 2,521,771 1,190,535 956,799 666,883
- ----------------------------------------------------------------------------------------------------------------------
Total revenues $14,310,386 $13,838,085 $5,269,964 $4,947,888
=============================================================================== ======================================
Operating income (loss)
Commercial and industrial $1,176,292 $1,183,049 $ 421,972 $ 514,500
laundry and drycleaning
Manufacturing and sales of
telephone test equipment (27,491) (186,275) 79,082 (114,926)
- ----------------------------------------------------------------------------------------------------------------------
Total operating income (loss) $1,148,801 996,774 $ 501,054 $ 399,574
=============================================================================== ======================================
March 31, 2000 June 30, 1999
(Unaudited)
Identifiable assets:
Commercial and industrial $ 5,559,634 $ 5,585,195
laundry and drycleaning
Manufacturing and sales of
telephone test equipment 2,636,626 2,116,043
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 8,196,260 $ 7,701,238
=============================================================================== ======================================
</TABLE>
Note (6) - Acquisition of DRYCLEAN USA Assets: On July 9,1999, the Company
acquired the worldwide rights to the name DRYCLEAN USA, along with existing
franchise and license agreements, from Dryclean USA Franchising Company for
$550,000.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the nine month period ended March 31, 2000, cash decreased by $347,546.
Operating activities provided cash of $695,746, of which $626,059 was generated
by net income and $98,229 and $3,641 was derived from non-cash expenses for
depreciation and amortization and from bad debts, respectively. Of the cash
generated by operating activities, $152,554 was used to support an increase in
accounts receivable, $27,759 was used to increase inventories and $30,883 was
used to increase prepaid expenses. Additional cash was generated by an increase
in accounts payables ($40,585) and the liability for income taxes payable
($140,048) offset in part by a decrease in customer deposits ($1,670). Investing
activities used cash of $733,292, primarily to fund the acquisition of the
worldwide rights to the name DRYCLEAN USA, along with existing franchise and
license agreements, for $550,000 and $91,341 for transaction costs. Cash of
$80,000 was used to acquire the rights to certain products already marketed by
Metro Tel under a royalty agreement and the balance of $11,951 was used to
purchase other capital assets. Financing activities used cash of $310,000 to
make required monthly installments of principal under the Company's term loan
($360,000) partially offset by proceeds from the exercise of stock options
($50,000). The Company believes that its present cash, cash it expects to
generate from operations and cash available against its $2,250,000 line of
credit, will be sufficient to meet its operational needs.
RESULTS OF OPERATIONS
- ---------------------
The results for the nine month period ended March 31, 1999 reflect the results
of drycleaning and laundry equipment and steam boiler supplier operations for
the full period along with five months of operations of the telecommunications
division. Both operations are fully included in the results for all of the other
reported periods.
Net sales for the nine and three month periods ended March 31, 2000 increased by
$278,706 (2.0%) and $238,745 (4.9%), respectively, when compared to the same
periods of fiscal 1999. The increase in sales for the nine month period was
principally due to the inclusion of the telecommunication operations for the
entire period compared to five months in the prior comparable period. For the
three month period in fiscal 2000, telecommunication operations sales increased
by 43.5% over the prior year's comparable period which offset a slight decrease
in the sales of Steiner (2.5%). Sales of new products and an increase in sales
of core telecommunication products accounted for the strong performance of the
telecommunication division over the comparable period of fiscal 1999.
Management fees, commissions and other income increased by $193,595 (49.5%) and
$83,331 (82.3%) for the nine and three month periods, respectively, in fiscal
2000 over the same periods of fiscal 1999. The increases in each fiscal 2000
period were mainly due to commissions and license fees generated by the
Company's new drycleaning brokerage and licensing subsidiaries which offset a
reduction in drycleaning management fees from an affiliated company.
Costs of goods sold, expressed as a percentage of sales, improved to 70.6% and
70.2% for the nine and three month periods, respectively, of fiscal 2000 from
74.2% and 73.5% for the comparable periods of fiscal 1999. The improvement in
the nine month period was mainly due to the inclusion of telecommunication
sales, which historically have a higher margin. The improvement in the three
month period was due to increased sales of the telecommunications division which
enabled it to better absorb fixed costs.
-8-
<PAGE>
Selling, general and administrative expenses increased by $507,861 (18.4%) and
$207,147 (22.5%) for the nine and three month periods, respectively, in fiscal
2000 from the comparable periods of fiscal 1999. The increase in the nine month
period was attributed to the inclusion of the telecommunications division which
offset a reduction in this category of expenses at the commercial drycleaning
and laundry division caused by a decrease in executive compensation as a result
of the merger. For the three month period the increase was due to expenses
attributable to the new drycleaning brokerage and licensing subsidiaries which
offset a reduction in administrative expense in the telecommunications division.
Research and development expenses, which relate solely to telecommunications
operations, increased by $93,288 (88.6%) and $5,373 (8.4%) for the nine and
three month periods, respectively, over the same periods of a year ago mainly
due to the fact that only five months of telecommunication operations were
included in the nine month period ended March 31, 1999, while the increase for
the three month period was attributable to increased salaries.
Interest income decreased by $26,998 (56.1%) and $10,614 (63.9%) during the nine
and three month periods, respectively, of fiscal 2000 from the comparable
periods in fiscal 1999 as a result of fewer customer equipment leases (which
qualify as sales-type leases) being outstanding.
Interest expense decreased by $4,287 (3.3%) and $4,410 (9.9%) during the nine
and three month periods, respectively, of fiscal 2000 from the comparable
periods of fiscal 1999 due to a reduction in outstanding debt which was
partially offset by higher interest rates.
The provision for income taxes increased by $164,356 (65.0%) in the first nine
months of fiscal 2000 over the same period of fiscal 1999 because, for the first
four months of fiscal 1999, Steiner was a Subchapter S Corporation under the
Internal Revenue Code of 1986, as amended, and accordingly its shareholders,
rather than it, were subject to income taxation on Steiner's earnings. (See Note
3.)
-9-
<PAGE>
PART 11 - OTHER INFORMATION
Item 2. Changes in Securities
(a) On October 29, 1999 and November 17, 1999, Michael Epstein, a
former director of the Company, exercised options to purchase 17,500 and 2,500
shares of the Company's Common Stock under the Company's 1984 Non-Employee
Director Stock Option Plan (10,000 shares) and 1994 Non-Employee Director Stock
Option Plan (10,000 shares). In connection with the exercise of those options,
Mr. Epstein represented, among other things, that he was acquiring such shares
for his own account, for investment only and not with a view to the resale or
distribution thereof.
(b) On each of February 11, 2000 and March 13, 2000, Michael
Michaelson, a former director of the Company, exercised an option to purchase
10,000 shares of the Company's Common Stock (an aggregate of 20,000 shares)
granted to him on June 15, 1991 and May 4, 1993, respectively. In connection
with the exercise of those options, Mr. Michaelson represented, among other
things, that he was acquiring such shares for his own account, for investment
only and not with a view to the resale or distribution thereof.
(c) On January 25, 2001, Simon Tam, an employee of the Company,
exercised an option to purchase 10,000 shares of the Company's Common Stock
granted to him on June 26, 1997 under the Company's 1991 Stock Option Plan. Mr.
Tam has represented to the Company, among other things, that such shares were
being acquired by him for investment, for his own account and not with a view to
the distribution or resale thereof.
The Company believes that the exemption afforded by Section 4(2) of the
Securities Act of 1933, as amended, is applicable to each of the above issuances
as transactions by an issuer not involving any public offering.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial data schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
March 31, 2000.
-10-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: May 12, 2000 DRYCLEAN USA, Inc.
/s/ Venerando J. Indelicato
-----------------------------------
By: Venerando J. Indelicato
Treasurer and Chief Financial Officer
-11-
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 617,222
<SECURITIES> 0
<RECEIVABLES> 1,970,173
<ALLOWANCES> 51,395
<INVENTORY> 4,271,107
<CURRENT-ASSETS> 7,142,740
<PP&E> 1,045,493
<DEPRECIATION> 598,406
<TOTAL-ASSETS> 8,196,260
<CURRENT-LIABILITIES> 2,284,483
<BONDS> 0
<COMMON> 175,031
0
0
<OTHER-SE> 4,456,746
<TOTAL-LIABILITY-AND-EQUITY> 8,196,260
<SALES> 13,726,000
<TOTAL-REVENUES> 14,310,386
<CGS> 9,696,738
<TOTAL-COSTS> 13,161,585
<OTHER-EXPENSES> 2,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,461
<INCOME-PRETAX> 1,043,432
<INCOME-TAX> 417,373
<INCOME-CONTINUING> 626,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 626,059
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
