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 December 31, 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 February 4, 2004.
Transitional Small Business Disclosure Format: Yes No X
--- ---
DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended For the three months ended
December 31, December 31,
2004 2003 2004 2003
(Unaudited) (Unaudited)
---------- ---------- ---------- ----------
Sales $8,890,503 $7,109,029 $4,845,330 $3,993,748
Development, franchise and license fees,
commissions and other income 484,291 332,143 296,893 147,563
---------- ---------- ---------- ----------
Total revenues 9,374,794 7,441,172 5,142,223 4,141,311
Cost of goods sold 6,708,531 5,149,662 3,632,595 2,901,937
Selling, general and
administrative expenses 2,034,705 1,819,762 1,069,425 906,840
Research and development 15,325 18,875 7,775 9,325
---------- ---------- ---------- ----------
Total operating expenses 8,758,561 6,988,299 4,709,795 3,818,102
---------- ---------- ---------- ----------
Operating income 616,233 452,873 432,428 323,209
Interest income 6,436 12,539 2,678 3,604
---------- ---------- ---------- ----------
Earnings before provision for taxes 622,669 465,412 435,106 326,813
Provision for income taxes 249,068 186,165 174,043 130,725
Net earnings $ 373,601 $ 279,247 $ 261,063 $ 196,088
========== ========== ========== ==========
Basic and diluted earnings per share $ .05 $ .04 $ .04 $ .03
========== ========== ========== ==========
Weighted average number of shares
Basic 7,021,841 7,003,983 7,024,450 7,011,515
Diluted 7,034,554 7,035,662 7,037,722 7,074,872
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements
2
DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2004 June 30, 2004
---------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 865,118 $1,742,251
Accounts and trade notes receivable, net 2,161,127 1,600,087
Inventories 3,258,055 2,971,803
Note receivable (Note 2) 146,429 157,143
Lease receivables 24,147 35,172
Deferred income tax asset 97,618 97,618
Other assets, net 155,605 112,375
---------- ----------
Total current assets 6,708,099 6,716,449
Lease receivables, due after one year 4,000 10,000
Note receivable, less current portion - 67,857
Equipment and improvements - net 218,766 217,200
Franchise, trademarks and other
intangible assets, net 373,544 385,756
Deferred tax asset 26,859 26,859
---------- ----------
$7,331,268 $7,424,121
========== ==========
See Notes to Condensed Consolidated Financial Statements
3
DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 2004 June 30, 2004
----------- -----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,126,713 $ 1,228,062
Income taxes payable 77,939 1,871
Customer deposits 520,336 550,042
----------- -----------
Total current liabilities 1,724,988 1,779,975
----------- -----------
Total liabilities 1,724,988 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 December 31, 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 3,357,042 3,404,908
Treasury stock, 31,050 shares at cost (3,020) (3,020)
----------- -----------
Total shareholders' equity 5,606,280 5,644,146
----------- -----------
$ 7,331,268 $ 7,424,121
=========== ===========
See Notes to Condensed Consolidated Financial Statements
4
DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Six months ended
December 31, 2004 December 31, 2003
(Unaudited) (Unaudited)
----------- -----------
Operating activities:
Net earnings $ 373,601 $ 279,247
Adjustments to reconcile net earnings to net cash (used)
provided by operating activities:
Bad debt expense 21,181 10,296
Depreciation and amortization 58,106 57,920
(Increase) decrease in operating assets:
Accounts, trade notes and lease receivables (565,196) (200,083)
Inventories (286,252) (20,389)
Other current assets (43,230) (214,280)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (101,349) 166,178
Customer deposits (29,706) 128,814
Income taxes payable 76,068 (83,835)
----------- -----------
Net cash (used) provided by operating activities (496,777) 123,868
----------- -----------
Investing activities:
Proceeds from note receivable 78,571 52,381
Capital expenditures (30,866) (12,175)
Patent and trademark expenditures (16,594) (1,985)
----------- -----------
Net cash provided by investing activities 31,111 38,221
----------- -----------
Financing activities
Dividends paid (421,467) (350,723)
Proceeds from exercise of stock options 10,000 18,000
----------- -----------
Net cash used by financing activities (411,467) (332,723)
----------- -----------
Net decrease in cash and cash equivalents (877,133) (170,634)
Cash and cash equivalents at beginning of period 1,742,251 1,614,141
----------- -----------
Cash and cash equivalents at end of period $ 865,118 $ 1,443,507
=========== ===========
Supplemental information:
Cash paid for income taxes $ 153,000 $ 270,000
See Notes to Condensed Consolidated Financial Statements
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 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 of America 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 and six months ended December 31, 2004 and 2003 are computed as follows:
For the six months ended For the three months ended
December 31, December 31,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Basic
Net earnings $ 373,601 $ 279,247 $ 261,063 $ 196,088
Weighted average shares
outstanding 7,021,841 7,003,983 7,024,450 7,011,515
========== ========== ========== ==========
Basic earnings per share $ .05 $ .04 $ .04 $ .03
========== ========== ========== ==========
Diluted
Net earnings $ 373,601 $ 279,247 $ 261,063 $ 196,088
Weighted average shares
outstanding 7,021,841 7,003,983 7,024,450 7,011,515
Plus incremental shares
from assumed
exercise of
stock options 12,713 31,679 13,272 63,357
---------- ---------- ---------- ----------
Diluted weighted average
common shares 7,034,554 7,035,662 7,037,722 7,074,872
========== ========== ========== ==========
Diluted earnings per
share $ .05 $ .04 $ .04 $ .03
========== ========== ========== ==========
Stock options to purchase 439,000 shares of the Company's common stock at
December 31, 2003 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 (the "Loan Agreement"). In addition, 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 the 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 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 six months For the three months
ended December 31, ended December 31,
2004 2003 2004 2003
----------- --------- ----------- ---------
Net earnings, as reported $ 373,601 $ 279,247 $ 261,063 $ 196,088
Less: Fair value of employee stock
compensation - (3,000) - (1,500)
----------- --------- ----------- ---------
Pro forma net earnings $ 373,601 $ 276,247 $ 261,063 $ 194,588
=========== ========= =========== =========
Earnings per common share:
Net earnings as reported - Basic
and diluted $ .05 $ .04 $ .04 $ .03
Net earnings, pro forma - Basic
and diluted $ .05 $ .04 $ .04 $ .03
=========== ========= =========== =========
There were no options granted during the six months ended December 31, 2004 and
2003. 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. In
October 2003, two employees exercised options to purchase an aggregate of 18,000
shares of the Company's common stock for $1.00 per share. In November 2003,
stock options to purchase an aggregate of 389,000 shares expired unexercised.
Note (5) - Cash Dividends: On September 27, 2004, the Company's Board of
Directors declared a $.06 per share cash dividend (an aggregate of $421,467),
which was paid on November 1, 2004 to shareholders of record on October 15,
2004. On September 26, 2003, the Company's Board of Directors declared a $.05
per share cash dividend (an aggregate of $350,723), which was paid on October
31, 2003 to shareholders of record on October 17, 2003.
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 technology and marketing
strategies. The Company primarily evaluates the
7
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 six months ended For the three months ended
December 31, December 31,
2004 2003 2004 2003
(Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Revenues:
Commercial and industrial laundry and
dry cleaning equipment $ 9,142,427 $ 7,264,761 $ 5,007,281 $ 4,081,441
License and franchise operations 232,367 176,411 134,942 59,870
----------- ----------- ----------- -----------
Total revenues $ 9,374,794 $ 7,441,172 $ 5,142,223 $ 4,141,311
----------- ----------- ----------- -----------
Operating income (loss)
Commercial and industrial laundry and
dry cleaning equipment $ 603,449 $ 461,629 $ 436,047 $ 384,898
License and franchise operations 178,865 117,566 99,307 24,446
Corporate (166,081) (126,322) (102,926) (86,135)
----------- ----------- ----------- -----------
Total operating income $ 616,233 $ 452,873 $ 432,428 $ 323,209
----------- ----------- ----------- -----------
December 31, 2004 June 30, 2004
(Unaudited)
---------- ----------
Identifiable assets:
Commercial and industrial laundry and
dry cleaning equipment $6,290,170 $6,348,504
License and franchise operations 737,575 655,744
Corporate 303,523 419,873
---------- ----------
Total assets $7,331,268 $7,424,121
========== ==========
8
Note (7) - New Accounting Pronouncements: In December 2004, the FASB issued SFAS
No. 123 (Revised 2004) (SFAS 123(R)) "Share-based payment". 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. FASB 123 (R)
replaces FASB 123, Accounting for Stock-Based Compensation and supersedes APB
option No. 25, Accounting for Stock Issued to Employees. This guidance is
effective as of the first interim or annual reporting period after December 15,
2005 for Small Business filers.
Note (8) - Subsequent Events: On January 3, 2005, the Company entered into a
Patent License Agreement with Whirlpool Corporation ("Whirlpool") in which the
Company granted Whirlpool an exclusive license until December 31, 2008 and
thereafter a non-exclusive license to make and sell laundry appliances
incorporating the Company's patent applications and other intellectual property
related to fabric treatment technology for improving the drying and refreshing
of garments in home clothes dryers. Under the agreement, Whirlpool is to pay, in
the third quarter of fiscal 2005, a $350,000 one time payment. In addition,
Whirlpool is to pay the Company a per unit royalty for dryers using the licensed
technology that are sold during the three year period following the first sale
following commercial production of dryers using the license technology, as well
as a to-be-negotiated royalty with respect to the sale of licensed after market
kits (to retrofit existing home dryers) for which the Company has retained
marketing rights but granted Whirlpool a non-exclusive license.
9
Item 2: Management's Discussion and Analysis or Plan of Operations
Overview
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. The
Company added two experienced sales engineers and an experienced service
technician to cover the expanded territory and to expand sales of the other
products marketed by the Company in that geographical area.
During the six month and three month periods ended December 31, 2004, in which
the Company has operated with the expanded territory, sales increased by 26.5%
and 21.3%, respectively. Although gross profit margins were reduced due to
larger volume sales and a strategically planned sales campaign, the Company
still increased its operating income by 36.1% for the six month period and 33.8%
for the three month period.
As expected, inventory levels have increased by $286,252 from June 30, 2004 to
adequately service the increased sales and the greater number of customers.
Accounts receivable increased by $565,196 as a result of the increase in sales.
Expenses, have been kept under control, although sales payroll has increased as
expected.
Cash on hand has been adequate to fund this expansion as well as pay the $.06
per share dividend ($421,467) on November 1, 2004 without the need to borrow
against our credit facility.
In January 2005, the Company signed an exclusive license agreement of its Green
Jet(R) dry-wetcleaning(TM) machine with Whirlpool Corporation ("Whirlpool"),
licensing Whirlpool to make and sell laundry appliances incorporating the
Company's patent applications and other intellectual property related to fabric
treatment technology for improving the drying and refreshing of garments in home
clothes dryers. Under the agreement, Whirlpool is to pay, in the third quarter
of fiscal 2005, a $350,000 one time payment and is to pay royalties during the
three year period following the introduction of Whirlpool manufactured products
using this technology. After this period, Whirlpool will retain a non-exclusive
license and the Company is free to license its technology to other
manufacturers.
Liquidity and Capital Resources
Cash during the first six months of fiscal 2005 decreased by $877,133 compared
to a decrease of $170,634 for the same period of fiscal 2004. The decrease in
fiscal 2005 was mostly attributable to paying the Company's annual dividend
($421,467) and increases in accounts receivable and inventories ($365,113 and
$265,863, respectively) as a result of the Company's expanded territory. The
decrease in cash in fiscal 2004 was attributable to the $350,723 dividend paid
in October 2003.
The following summarizes the Company's Consolidated Statement of Cash Flows.
Six Months Ended December 31,
2004 2003
--------- ---------
Net cash (used) provided by:
Operating activities $(496,777) $ 123,868
Investing activities 31,111 38,221
Financing activities (411,467) (332,723)
10
Operating activities for the six month period ended December 31, 2004, used cash
of $496,777. Changes in operating assets and liabilities used cash of $949,665,
mostly as a result of heavy sales in December, which increased accounts, trade
notes and lease receivables by $565,196, and an increase in inventories by
$286,252 to support increased sales in the new territory. Additional uses of
cash were due to decreases in accounts payable and accrued expenses ($101,349),
and a decrease in customer deposits ($29,706). These uses were partially offset
by cash provided by the Company's net earnings of $373,601, the non-cash
expenses for depreciation and amortization of $58,106 and the provision for bad
debts of $21,181. Additional cash was provided by an increase in income taxes
payable ($76,068).
For the first six months of fiscal 2004, operating activities provided cash of
$123,868. The Company's net earnings of $279,247, coupled with non-cash expenses
for depreciation and amortization of $57,920, provided most of the cash. The
provision for bad debts of $10,296 were substantially below the $75,651
allocated for the first six months of fiscal 2003, as a result of tighter
control over our accounts receivable and an improving economy. Changes in
operating assets and liabilities used cash of $223,595. An increase in accounts,
trade notes and lease receivables used cash of $200,083 due to heavy sales in
the December period, which also led to a $166,178 increase in accounts payable
and accrued expenses to support goods purchased to fill those sales. Incoming
orders were booked at a satisfactory rate as evidenced by an increase in
customer deposits ($128,814). Other current assets used cash of $214,280 due to
cash deposits advanced to foreign companies for the purchase of parts and
equipment.
For the first six months of fiscal 2005, investing activities provided cash of
$31,111 mainly as a result of payments ($78,571) received on a note from the
sale of the Company's telecommunications segment. This increase was partially
offset by capital expenditures of $30,966 and patent and trademark costs of
$16,594. For the same period of fiscal 2004, investing activities provided cash
of $38,221 mostly as a result of payments received on the note ($52,381) offset
in part by capital expenditures of $12,175 and $1,985 for patent and trademark
costs.
For the six months ended December 31, 2004, financing activities used cash of
$411,467, to pay a $.06 per share cash dividend ($421,467) on November 1, 2004.
This was partially offset by $10,000 received from the exercise of a stock
option to purchase 10,000 shares of the Company's common stock at the exercise
price of $1.00 per share by a director of the Company. Financing activities
during the first half of fiscal 2004 used cash of $332,423 to pay a $.05 per
share cash dividend ($350,723) on October 31, 2003. This was partially offset by
the receipt of $18,000 from the exercise of employee stock options in October
2003.
On October 28, 2004, the Company received an extension until October 30, 2005 of
its existing $2,250,000 revolving line of credit facility (the "Loan
Agreement"). In addition, 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.
11
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 are sufficient to meet its current 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
Six months ended Three months ended
December 31, December 31,
Percent Percent
2005 2004 Increase 2005 2004 Increase
--------------- -------------- ------------------- -------------- --------------- ----------
Sales $ 8,890,503 $ 7,109,029 25.1% $ 4,845,330 $ 3,993,748 21.3%
Development fees,
franchise and license
fees, commissions and
other income 484,291 332,143 45.8% 296,893 147,563 101.2%
=============== ============== =================== ============== =============== ==========
Total revenues $ 9,374,794 $ 7,441,172 26.0% $ 5,142,223 $4,141,311 24.2%
=============== ============== =================== ============== =============== ==========
Revenues for the six and three month periods ended December 31, 2004, increased
by $1,933,622 (26.0%) and $1,000,912 (24.2%) respectively, over the same periods
of fiscal 2004.
For the six and three month periods of fiscal 2005, revenues of the commercial
laundry and dry cleaning segment increased by $1,877,666 (20.5%) and $925,840
(22.7%), respectively, over the comparable periods of fiscal 2004. Sales
increases were experienced in all product lines and were mostly attributable to
the expanded sales territory and increased number of sales staff. For the six
month period of fiscal 2005, parts sales increased by 15.6%, laundry equipment
increased 29.9%, boilers increased 73.7% and dry cleaning equipment increased
13.1%. Similar results were achieved for the three month period ended December
31, 2004, with an increase of 13.7% in parts sales, coupled with increases in
laundry equipment sales (27.2%), boilers (14.4%) and dry cleaning equipment
(21.4%).
Development, franchise and license fees increased by $152,145 (45.8%) and
$149,330 (101.2%) for the six and three month periods, respectively, of fiscal
2005 over the same periods of fiscal 2004. This improved performance was
attributable to an improved domestic economy.
12
Six months ended Three months ended
December 31 December 31,
2004 2003 2004 2003
---- ---- ---- ----
As a percentage of sales 75.5% 72.4% 75.0% 72.7%
Cost of goods sold
As a percentage of revenue
Selling, general and
administrative expenses 21.7% 25.6% 20.8% 21.9%
Research and development .2% .3% .2% .2%
Total expenses 93.4% 93.9% 91.6% 92.2%
Costs of goods sold, expressed as a percentage of sales, increased to 75.5% from
72.4% and 75.0% from 72.7% for the six and three month periods, respectively, of
fiscal 2005 when compared to the same periods of fiscal 2004. The increased
costs were due to larger volume sales which carry a smaller margin and a sales
campaign to increase the Company's market share in the new territory.
Selling, general and administrative expenses increased by $214,943 (11.8%) and
$162,585 (17.9%) for the six and three month periods, respectively, of fiscal
2005 compared to fiscal 2004 as the result of increased payroll costs associated
with the increased number of sales and service staff. However, as a percentage
of revenue, these categories of expenses decreased from 25.6% to 21.7% for the
six month period and from 21.9% to 20.8% for the three month period due to the
significant sales increase.
Research and development expenses, as a percentage of revenues, remained
essentially flat and are a very small part of the total company operating
expenses. These expenses relate to the ongoing research on the Green-Jet(R)
technologies and the application of these technologies to smaller machines for
the dry cleaning and hotel industry.
The overall expenses of the Company, as a percentage of revenues decreased for
the first six months of fiscal 2005 to 93.4% from 93.9%. For the three month
period these expenses decreased to 91.6% from 92.2%. Except for the increased
sales and service expense which was planned in connection with the increase in
sales, most expenses in this category did not increase to the same degree as the
increased sales level.
Interest income declined for both periods of fiscal 2005 from the same periods
in fiscal 2004 due to the lower outstanding balance on the note receivable
received in connection with the sale of the telecommunications segment. This
reduction was partially offset by an increase in interest rate applicable to
this note.
The effective tax rate used in each period was 40%.
Inflation
Inflation has not had a significant effect on the Company's operations during
any of the reported periods.
13
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 the Company 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:
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) (SFAS 123(R))
"Share-based payment". 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. FASB 123 (R) replaces FASB 123, Accounting
for Stock-Based Compensation and supersedes APB option No. 25, Accounting for
Stock Issued to Employees. This guidance is effective as of the first interim or
annual reporting period after December 15, 2005 for Small Business filers.
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
14
Company's customers are located; industry conditions and trends, including
supply and demand; changes in business strategies or development plans; the
availability, terms and deployment of debt and equity capital; 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 certain of 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 market and sell at acceptable profit
margins its Green Jet(R) dry-wetcleaning(TM) machine and Multi-Jet(TM) dry
cleaning machine. 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 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.
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: February 11, 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