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, 2004
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 - 7,024,450 shares outstanding as of November 8, 2004.
Transitional Small Business Disclosure Format: Yes No X
-------- ------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DRYCLEAN USA, Inc.
Condensed Consolidated Statements of Income
------------------------------------------------------------------------------------------------
For the three months ended
September 30,
2004 2003
(UNAUDITED) (Unaudited)
------------------------------------------------------------------------------------------------
Net sales $ 4,045,173 $ 3,115,281
Development fees, franchise and license fees,
commissions and other income 187,398 184,580
------------------------------------------------------------------------------------------------
Total revenues 4,232,571 3,299,861
Cost of sales 3,075,936 2,247,725
Selling, general and administrative expenses 965,280 912,922
Research and development expenses 7,550 9,550
------------------------------------------------------------------------------------------------
4,048,766 3,170,197
Operating income 183,805 129,664
Interest income 3,758 8,935
------------------------------------------------------------------------------------------------
Earnings before income taxes 187,563 138,599
Provision for income taxes 75,025 55,440
------------------------------------------------------------------------------------------------
Net earnings $ 112,538 $ 83,159
------------------------------------------------------------------------------------------------
Basic and diluted earnings per share (Note 2) $ .02 $ .01
================================================================================================
Weighted average number of shares:
of common stock outstanding (Note 2)
Basic 7,019,232 6,996,450
Diluted 7,031,385 6,996,450
================================================================================================
2
DRYCLEAN USA, Inc
Condensed Consolidated Balance Sheets
ASSETS
------------------------------------------------------------------------------------------------
SEPTEMBER 30, June 30,
2004 2004
(UNAUDITED)
------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 1,797,994 $ 1,742,251
Accounts and trade notes 1,623,654 1,600,087
receivable, net
Inventories 3,158,076 2,971,803
Note receivable-current 157,143 157,143
Lease receivables 12,176 35,172
Deferred income taxes 97,618 97,618
Other current assets 158,239 112,375
------------------------------------------------------------------------------------------------
Total current assets 7,004,900 6,716,449
Note receivable, less current portion 28,572 67,857
Lease receivables, due after one year 7,000 10,000
Equipment and improvements, net 219,273 217,200
Franchise, trademarks and other
intangible assets, net 372,180 385,756
Deferred income taxes 26,859 26,859
------------------------------------------------------------------------------------------------
$ 7,658,784 $ 7,424,121
================================================================================================
3
DRYCLEAN USA, Inc.
Condensed Consolidated Balance Sheets
LIABILITIES AND
SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------
SEPTEMBER 30, June 30,
2004 2004
(UNAUDITED)
-------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 1,066,565 $ 1,228,062
Customer deposits and other 768,639 550,042
Income taxes payable 56,896 1,871
Dividends payable (Note 5) 421,467 -
-------------------------------------------------------------------------------------------------
Total current liabilities 2,313,567 1,779,975
-------------------------------------------------------------------------------------------------
Total liabilities 2,313,567 1,779,975
Shareholders' Equity
Common stock, $.025 par value,
15,000,000 shares authorized;
7,055,500 and 7,045,500 shares
issued and outstanding at
September 30, 2004 and June 30,
2004 respectively, including shares
held in treasury 176,388 176,138
Additional paid-in capital 2,075,870 2,066,120
Retained earnings 3,095,979 3,404,908
Treasury stock, 31,050 shares
at cost (3,020) (3,020)
-------------------------------------------------------------------------------------------------
Total shareholders' equity 5,345,217 5,644,146
-------------------------------------------------------------------------------------------------
$ 7,658,784 $ 7,424,121
=================================================================================================
4
DRYCLEAN USA, Inc.
Condensed Consolidated Statements of Cash Flows
------------------------------------------------------------------------------------------------------------
For the three months ended
September 30,
2004 2003
(UNAUDITED) (Unaudited)
------------------------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 112,538 $ 83,159
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization 29,064 29,055
Bad debt expense 679 714
(Increase) decrease in operating assets:
Accounts, notes and lease receivables 1,750 43,562
Inventories (186,273) (250,943)
Other current assets (45,864) (37,840)
Refundable income taxes - (6,635)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (161,501) 133,506
Customer deposits and other 218,597 47,796
Income taxes payable 55,025 (112,925)
------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 24,015 (70,551)
------------------------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures, net (16,766) (2,675)
Payments received on note receivable 39,285 26,192
Patent and trademark expenditures (791) (1,985)
------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 21,728 21,532
Financing activities:
Proceeds from exercise of stock options 10,000 -
------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 10,000 -
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 55,743 (49,019)
Cash and cash equivalents at beginning of period 1,742,251 1,614,141
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,797,994 $ 1,565,122
===========================================================================================================
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Income taxes $ 20,000 $ 175,000
Dividends declared and not paid $ 421,467 350,963
5
DRYCLEAN USA, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE (1) - GENERAL: The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States 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, 2004. The June 30, 2004 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, 2004 and 2003 are computed as follows:
For the three months ended
September 30,
2004 2003
Basic
-----
Net earnings $ 112,538 $ 83,159
Weighted average shares
outstanding 7,019,232 6,996,450
------------------------------------------------------------------------
Basic earnings per share $ .02 $ .01
------------------------------------------------------------------------
Diluted
-------
Net earnings $112,232 $83,159
Weighted average shares
outstanding 7,019,232 6,996,450
Plus incremental shares
from assumed
exercise of
stock options 12,193 -
------------------------------------------------------------------------
Diluted weighted average 7,031,385 6,996,450
common shares
------------------------------------------------------------------------
Diluted earnings per
share $ .02 $ .01
========================================================================
No stock options were excluded at September 30, 2004. There were 439,000 stock
options outstanding at September 30, 2003 that were excluded in the computations
of earnings per share because the exercise prices of the options were at least
the average market prices of the Company's common stock during these periods.
6
NOTE (3) - REVOLVING CREDIT LINE: On October 28, 2004, the Company received an
extension until October 30, 2005 of its existing $2,250,000 revolving line of
credit facility. In addition, on October 28, 2004, the Loan Agreement, dated as
of December 19, 2001, as amended, under which the revolving line of credit
facility was established, 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.
NOTE (4) - STOCK OPTIONS: The Company accounts for its stock-based compensation
plans under Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees. The pro forma information below is based on
provisions of Statement of Financial Accounting Standard ("FAS") No. 123,
Accounting for Stock-Based Compensation, as amended by FAS 148, Accounting for
Stock-Based Compensation-Transition and Disclosure, issued in December 2002:
For the three months
ended September 30,
2004 2003
--------------------------------------------------------------------------------
Net earnings, as reported $ 112,538 $ 83,159
Less: Fair value of employee stock
compensation - (10,783)
--------------------------------------------------------------------------------
Pro forma net earnings $ 112,538 $ 72,376
Earnings per common share:
Net earnings as reported - Basic
and diluted $ .02 $ .01
Net earnings, pro forma - Basic
and diluted $ .02 $ .01
There were no options granted during the three months ended September 30, 2004.
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 27, 2004, the Company's Board of
Directors declared a $.06 per share cash dividend ( an aggregate of
approximately $421,467) which was paid on November 1, 2004 to shareholders of
record on October 15, 2004
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.
7
Financial information for the Company's business segments is as follows:
For the three months ended
September 30,
---------------------------------------------------------------------------------------------
2004 2003
(UNAUDITED) (Unaudited)
---------------------------------------------------------------------------------------------
Revenues:
Commercial and industrial laundry and dry
cleaning equipment $ 4,135,146 $ 3,183,320
License and franchise operations 97,425 116,541
---------------------------------------------------------------------------------------------
Total revenues $ 4,232,571 $ 3,299,861
---------------------------------------------------------------------------------------------
Operating income (loss):
Commercial and industrial laundry and dry
cleaning equipment $ 167,402 $ 76,731
License and franchise operations 79,558 93,120
Corporate (63,155) (40,187)
---------------------------------------------------------------------------------------------
Total operating income (loss) $ 183,805 $ 129,664
---------------------------------------------------------------------------------------------
September 30, June 30,
2004 2004
(Unaudited)
Identifiable assets:
Commercial and industrial laundry and dry
cleaning equipment $ 6,517,132 $ 6,325,915
License and franchise operations 733,073 655,744
Corporate 408,579 442,462
---------------------------------------------------------------------------------------------
Total assets $ 7,658,784 $ 7,424,121
8
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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
--------
As previously reported, in June 2004, the Company obtained an expansion of the
territory in which it acts as a distributor for certain laundry products to
cover most of Florida as another distributor ceased operations and 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.
The first quarter of fiscal 2005 was the first full quarter that the Company
operated under the conditions of the expanded sales territory with increased
sales staff with representation in Orlando, Jacksonville and Tampa Bay, Florida,
in addition to its previous territory of southeastern Florida. The results were
optimistic with sales increasing by 29.8% over the same period of last year.
Despite a reduced gross profit margin, the Company increased its net income by
35.3% over the first quarter of fiscal 2004. Except for an increase in salaries
due to the additional staff, selling, general and administrative expenses
remained essentially flat as costs were kept under control, resulting in an
improvement of overall selling, general and administrative expenses as a
percentage of total revenues.
As a consequence of the expansion, the Company services a greater number of
customers who have placed increased sales orders resulting in an increase in
customer deposits of $386,637 and increased inventories of $330,195 at September
30, 2004 compared to September 30, 2003. It is expected that inventory levels
will be maintained and possibly increased, depending on sales conditions. Cash
on hand should be adequate to fund this increase, as well as pay a $.06 per
share dividend (an aggregate of $421,467) on November 1, 2004 to shareholders of
record on October 15, 2004.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the first quarter of fiscal 2005, cash increased by $55,743 compared to a
decrease in cash of $49,019 for the same period of fiscal 2004. The following
summarizes the Company's Consolidated Statement of Cash Flows.
Three Months Ended September 30,
2004 2003
------------------------------------------------------------------------------
Net cash provided (used) by:
Operating activities $24,015 $(70,551)
Investing activities 21,728 21,532
Financing activities 10,000 -
Operating activities for the three months ended September 30, 2004 provided cash
of $24,015, which was contributed principally by the Company's net earnings of
$112,538 and the non-cash expenses for depreciation and amortization of $29,064.
Changes in operating assets and liabilities since June 30, 2004 used cash of
$118,266 mostly to fund an increase in inventories of $186,273 and a reduction
in accounts payable and accrued expenses of $161,501. An increase in customer
deposits of $218,597 and an increase in income taxes payable of $55,025 offset
this usage of cash. The increase in inventory was needed to service the expanded
sales territory. As a consequence of this expanded territory the Company
acquired many new customers who placed sales orders thereby increasing customer
deposits and sales during the period.
10
Operating activities for the three months ended September 30, 2003 used net cash
of $70,551. The Company's net earnings ($83,159), together with non-cash
expenses for depreciation and amortization ($29,055) and a provision for bad
debt ($714) produced an aggregate of $112,928 of cash. However, changes in
operating assets and liabilities used cash of $183,479, mostly to support
increases in inventories ($250,943), other assets ($37,840) and refundable
income taxes ($6,635) and as a result of a decrease in income taxes payable
($112,925). The inventory increase was to take advantage of higher discounts
from the Company's vendors and an increase in incoming order activity. Partially
offsetting these uses of cash was cash provided by a decrease in accounts, trade
notes and lease receivables ($43,562) and an increase in accounts payable and
accrued expenses ($133,506) and customer deposits ($47,796).
Investing activities for the first quarter of fiscal 2005 provided cash of
$21,728 mainly as a result of payments ($39,285) received on a note from the
sale of the Company's telecommunications segment, which was partially offset by
expenditures for capital equipment ($16,766) and patent and trademark work
($791). Cash of $21,532 was provided during the first quarter of fiscal 2004 as
a result of payments received on the note ($26,192), offset, in part, by capital
equipment purchases ($2,675) and patent work spending ($1,985). The difference
in note payments between the two periods of $13,093 was attributed to a July
2003 payment which was received a month earlier in June 2003.
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 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.
On October 28, 2004, the Company received an extension until October 30, 2005 of
its existing $2,250,000 revolving line of credit facility. In addition, on
October 28, 2004, the Loan Agreement, dated as of December 19, 2001, as amended,
under which the revolving line of credit facility was established, 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 and cash borrowings available under its $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.
11
RESULTS OF OPERATIONS
---------------------
Three Months Ended September 30,
2004 2003
---------------------------------------------------------------------------------------------------------
Net sales $ 4,045,173 $ 3,115,281 +29.8%
Development fees, franchise and
license fees, commissions and
other income 187,398 184,580 + 3.1%
---------------------------------------------------------------------------------------------------------
Total revenues $ 4,232,571 $ 3,299,861 +28.3%
Revenues for the three month period ended September 30, 2004 increased by
$932,710 (28.3%) over the same period of fiscal 2004. The increase in revenues
was mostly in the commercial laundry and dry cleaning segment, which had a sales
increase of $929,892 (29.8%). Sales increases were experienced in all product
lines and was mostly attributable to the expanded laundry products territory and
increased sales staff. The Company had increased parts sales of 17.7% and
increased laundry sales equipment of 33.7%. In addition, boiler and dry cleaning
equipment sales increased 179.1% and 2.4% respectively. Development, franchise
and license fees also increased, by $2,818 (3.1%), in the first quarter of
fiscal 2005 over the same period of last year. However, franchise and royalty
fees continued to be affected by the unstable economy of South America. This
category of revenues also include the Development and Brokerage divisions which
contribute less than 1% of the Company's total revenues.
Three Months Ended September 30,
2004 2003
------------------------------------------------------------------------------------------------
As a percentage of sales:
Cost of sales 76.0% 72.2%
As a percentage of revenues:
Selling, general and administrative expenses 22.8% 27.7%
Research and development .2% .3%
Total expenses 95.7% 96.1%
The increase in cost of goods sold as a percentage of sales was due to larger
bulk sales which carry smaller margins and a strategically planned sales
campaign to increase the Company's market share in the new territory.
Selling, general and administrative expenses increased by $52,358 (5.7%).
However, as a percentage of revenues, these expenses decreased to 22.8% for the
three month period ended September 30, 2004 compared to the 27.7% during the
same period of fiscal 2004. The dollar increase in expense was primarily due to
the additional salary expense for a new executive officer and sales staff. The
improvement in this category of expenses as a percentage of sales was due to the
significant increase in sales.
Research and development expenses decreased by $2,000 (20.9%) during the first
quarter of fiscal 2005 when compared to the first quarter of fiscal 2004. 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.
12
The overall expenses of the Company, including costs of goods sold, were 95.7%
of total revenues for the first quarter of fiscal 2005, compared to 96.1% for
the same period of fiscal 2004, reflecting relatively stable overall costs
spread over increased sales.
Interest income decreased by $5,177 (57.9%) for the first quarter of fiscal 2004
compared to the same period of fiscal 2003 due to the lower outstanding note
receivable balance due to principal payments of a note received by the Company
as part of the consideration for the sale of the Company's telecommunications
segment in July 2002.
The effective tax rate used for both periods was 40%.
INFLATION
---------
Inflation has not had a significant effect on the Company's operations during
any of the reported periods.
TRANSACTIONS WITH RELATED PARTIES
---------------------------------
The Company leases 27,000 square feet of warehouse and office space from William
K. Steiner, a principal stockholder, Chairman of the Board of Directors and a
director of the Company, under a lease, which expires in October 2005. Annual
rental under this lease is approximately $83,200. The Company believes that the
terms of the lease are comparable to terms that would be obtained from an
unaffiliated third party for similar property in a similar locale.
CRITICAL ACCOUNTING POLICIES
----------------------------
The accounting policies that the Company has identified as critical to its
business operations and to an understanding of the Company's results of
operations are described in detail in the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 2004. 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 effect 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
-----------------------------
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
13
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.
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.
14
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management of the Company,
with the participation of the Company's President and principal executive
officer and the Company's principal financial officer, evaluated the
effectiveness of the Company's "disclosure controls and procedures," as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that
evaluation, these officers concluded that, as of the date of their evaluation,
the Company's disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed in the Company's
periodic filings under the Securities Exchange Act of 1934 is accumulated and
communicated to our management, including those officers, to allow timely
decisions regarding required disclosure.
During the period covered by this Report, there were no changes in the Company's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEM 6. 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.
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, 2004
DRYCLEAN USA, Inc.
By: /s/ Venerando J. Indelicato
--------------------------------------
Venerando J. Indelicato,
Treasurer and Chief Financial Officer
15
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.