EVI INDUSTRIES INC

Previous wording

or at all; risks related to the Company’s indebtedness; the availability, terms and deployment of debt and equity capital if needed for expansion or otherwise; changes in, or the failure to comply with, government regulation, including environmental regulations; litigation risks, including the costs of defending litigation and the impact of any adverse ruling; the availability and cost of inventory purchased by the Company; the relative value of the United States dollar to currencies in the countries in which the Company’s customers, suppliers and competitors are located; risks relating to the recognition of revenue, including the amount and timing thereof (including potential delays resulting from, among other circumstances, delays in installation (including due to delays in construction or the preparation of the customer’s facilities) or in receiving required supplies) and that orders in the Company’s backlog may not be fulfilled as or when expected; risks related to the adoption of new accounting standards and the impact it may have on the Company’s financial statements and results; risks that the Company’s decentralized operating model, and that product, end-user and geographic diversity, may not result in the benefits anticipated and may change over time; risks related to organic growth initiatives and market share and other growth strategies, including that they may not result in the benefits anticipated; risks that investments, initiatives and expenses, including, without limitation, investments in acquired businesses and modernization initiatives, expenses associated with the Company’s implementation of its enterprise resource planning system, and other investments, initiatives and expenses, may not result in the benefits anticipated; risks related to the soundness of financial institutions and the Company’s exposure with respect to its cash balances in depositary accounts in excess of the $250,000 in maximum Federal Deposit Insurance Corporation (“FDIC“) insurance coverage; dividends may not be paid in the future; risks related to the material weakness in the Company’s internal control over financial reporting, the Company’s ability to remediate such weakness in the anticipated timeframe, and the costs incurred in connection therewith; and other economic, competitive, governmental, technological and other risks and factors discussed in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including, without limitation, in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Many of these risks and factors are beyond the Company’s control. Further, past performance and perceived trends may not be indicative of future results. The Company cautions that the foregoing factors are not exclusive. The reader should not place undue reliance on any forward-looking statement, which speaks only as of the date made. The Company does not undertake to, and specifically…

Excerpt shortened here; the source contains the full paragraph.

Current wording

or at all; risks related to the Company’s indebtedness; the availability, terms and deployment of debt and equity capital if needed for expansion or otherwise; risks of cybersecurity threats or incidents, including the potential misappropriation or use of assets or confidential information, corruption of data or operational disruptions; changes in, or the failure to comply with, government regulation, including environmental regulations; litigation risks, including the costs of defending litigation and the impact of any adverse ruling; the availability and cost of inventory purchased by the Company; the relative value of the United States dollar to currencies in the countries in which the Company’s customers, suppliers and competitors are located; risks relating to the recognition of revenue, including the amount and timing thereof (including potential delays resulting from, among other circumstances, delays in installation (including due to delays in construction or the preparation of the customer’s facilities) or in receiving required supplies) and that orders in the Company’s backlog may not be fulfilled as or when expected; the risk that inventory management initiatives may not be successful; risks related to the adoption of new accounting standards and the impact it may have on the Company’s financial statements and results; risks that the Company’s decentralized operating model, and that product, end-user and geographic diversity, may not result in the benefits anticipated and may change over time; risks related to organic growth initiatives and market share and other growth strategies, including that they may not result in the benefits anticipated; risks that investments, initiatives and expenses, including, without limitation, investments in acquired businesses and modernization initiatives, expenses associated with the Company’s implementation of its enterprise resource planning system, and other investments, initiatives and expenses, may not result in the benefits anticipated; risks related to the soundness of financial institutions and the Company’s exposure with respect to its cash balances in depositary accounts in excess of the $250,000 in maximum Federal Deposit Insurance Corporation (“FDIC“) insurance coverage; dividends may not be paid in the future; risks related to the material weakness in the Company’s internal control over financial reporting, the Company’s ability to remediate such weakness in the anticipated timeframe, and the costs incurred in connection therewith; and other economic, competitive, governmental, technological and other risks and factors discussed in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including, without limitation, in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Many of these risks and factors are beyond the Company’s control. Further, past performance and perceived trends may not be indicative of f…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

During 2015, the Company implemented a “buy-and-build” growth strategy. The “buy” component of the strategy includes the consideration and pursuit of acquisitions and other strategic transactions which management believes would complement the Company’s existing business or otherwise offer growth opportunities for, or benefit, the Company. The Company generally seeks to structure acquisitions to include both cash and stock consideration. Acquisitions are effected through a wholly-owned subsidiary which acquires the business or assets of the acquired company, whether by an asset purchase or merger, and operates the acquired business following the transaction. In connection with each transaction, the Company, indirectly through its applicable wholly-owned subsidiary, also assumes certain of the liabilities of the acquired business. The financial position, including assets and liabilities, and results of operations of the acquired businesses following the respective closing dates of the acquisitions are included in the Company’s consolidated financial statements. As described in greater detail in Note 4 to the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, on September 1, 2023, the Company acquired ALVF, Inc. (dba ALCO Washer Center) (“ALCO”), a Pennsylvania based distributor of commercial laundry products and a provider of related technical installation and maintenance services to the on-premise and vended laundry segments of the commercial laundry industry, for consideration consisting of $987,000 in cash and 8,621 shares of the Company’s common stock. The financial position, including assets and liabilities, of ALCO is included in the Company’s consolidated balance sheet as of December 31, 2023 and the results of operations of ALCO since the September 1, 2023 closing date are included in the Company’s unaudited condensed consolidated financial statements for the six and three months ended December 31, 2023.

Current wording

During 2015, the Company implemented a “buy-and-build” growth strategy. The “buy” component of the strategy includes the consideration and pursuit of acquisitions and other strategic transactions which management believes would complement the Company’s existing business or otherwise offer growth opportunities for, or benefit, the Company. The Company generally seeks to structure acquisitions to include both cash and stock consideration. Acquisitions are effected through a wholly-owned subsidiary which acquires the business or assets of the acquired company, whether by an asset purchase or merger, and operates the acquired business following the transaction. In connection with each transaction, the Company, indirectly through its applicable wholly-owned subsidiary, also assumes certain of the liabilities of the acquired business. The financial position, including assets and liabilities, and results of operations of the acquired businesses following the respective closing dates of the acquisitions are included in the Company’s consolidated financial statements. As described in greater detail in Note 4 to the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, on September 1, 2023, the Company acquired ALVF, Inc. (dba ALCO Washer Center) (“ALCO”), a Pennsylvania based distributor of commercial laundry products and a provider of related technical, installation and maintenance services to the on-premise and vended laundry segments of the commercial laundry industry, for consideration consisting of $987,000 in cash and 8,621 shares of the Company’s common stock. The financial position, including assets and liabilities, of ALCO is included in the Company’s consolidated balance sheet as of March 31, 2024 and the results of operations of ALCO since the September 1, 2023 closing date are included in the Company’s unaudited condensed consolidated financial statements for the nine and three months ended March 31, 2024.

Previous wording

The Company pursues market share growth using a variety of strategies aimed at increasing the installed base of the wide range of commercial laundry equipment the Company represents. Certain market share growth tactics may, from time to time, result in lower gross margins. However, the Company believes that a greater installed base of equipment strengthens the Company’s existing customer relationships and may lead to increases in the total number of customers, consequently creating a larger and stronger customer base to which the Company may sell products and services. These may include the sale or provision of certain higher margin products and services and any additional products and services which the Company may offer or sell from time to time as a result of any business acquisitions, the sale or lease of complementary products, and expansion of its service operations. From time to time, the Company also enters into longer-term contracts, including to fulfill large complex laundry projects for divisions of the federal government, where the nature of, and competition for, such contracts may result in a lower gross margin as compared to other equipment sales. Despite the potential for a lower gross margin from such longer-term contracts, the Company believes that the long-term benefit from the increase in its installed equipment will outweigh the possible short-term impact to gross margin.

Current wording

The Company pursues market share growth using a variety of strategies aimed at increasing the installed base of the wide range of commercial laundry equipment the Company represents. Certain market share growth tactics may, from time to time, result in lower gross margins. However, the Company believes that a greater installed base of equipment strengthens the Company’s existing customer relationships and may lead to increases in the total number of customers, consequently creating a larger and stronger customer base to which the Company may sell products and services. These may include the sale or provision of certain higher margin products and services and any additional products and services which the Company may offer or sell from time to time as a result of any business acquisitions, the sale or lease of complementary products, and any expansion of service operations. From time to time, the Company also enters into longer-term contracts, including to fulfill large complex laundry projects for divisions of the federal government, where the nature of, and competition for, such contracts may result in a lower gross margin as compared to other equipment sales. Despite the potential for a lower gross margin from such longer-term contracts, the Company believes that the long-term benefit from the increase in its installed equipment will outweigh the possible short-term impact to gross margin.

Previous wording

Six and Three-Month Period Ended December 31, 2023 Compared to the Six and Three-Month Period Ended December 31, 2022

Current wording

Nine and Three-Month Periods Ended March 31, 2024 Compared to the Nine and Three-Month Periods Ended March 31, 2023

Previous wording

Revenues for the six and three-month periods ended December 31, 2023 increased $13.4 million, or 8%, and $8.7 million, or 11%, respectively, compared to the same periods of the prior fiscal year. The increases in revenue were primarily attributable to price increases established throughout the Company’s product lines and service offerings aimed at maintaining or increasing margins to cover incremental product and operating costs, as well as the revenues generated by the businesses acquired by the Company during fiscal 2023 and the six-month period ended December 31, 2023.

Current wording

Revenues for the nine and three-month periods ended March 31, 2024 increased $3.3 million, or 1%, and decreased $10.1 million, or 11%, respectively, compared to the same periods of the prior fiscal year. The increase in revenues for the nine-month period is primarily attributable to price increases established throughout the Company’s product lines and service offerings aimed at maintaining or increasing margins to cover incremental product and operating costs. The decrease in revenue for the three-month period is due primarily to the Company’s timing of receipt and delivery of products to the Company’s customers due to construction or other delays which impacted the ability of certain customers to receive products. Additionally, there were large industrial jobs completed during the three-month period ended March 31, 2023 which generated significant revenue during such quarter.

Previous wording

Gross profit for the six and three-month periods ended December 31, 2023 increased $2.8 million, or 6%, and $1.6 million, or 6%, respectively, compared to the same periods of the prior fiscal year. The increases were primarily the result of the increased revenues described above. Gross margins slightly decreased from 29.7% for the six-month period ended December 31, 2022 to 29.0% for the six-month period ended December 31, 2023 and from 30.0% for the three-month period ended December 31, 2022 to 28.9% for the three-month period ended December 31, 2023, primarily due to less favorable product and customer mix in the current periods.

Current wording

Gross profit for the nine and three-month periods ended March 31, 2024 increased $2.0 million, or 3%, and decreased $0.8 million, or 3%, respectively, compared to the same periods of the prior fiscal year. The decrease in gross profit for the three-month period was primarily attributable to the decline in revenues described above, partially offset by an increase in gross profit percentage. The increase in gross profit for the nine-month period was attributable to an increase in revenue and a slight increase in gross margin. Margins slightly increased from 29.2% for the nine-month period ended March 31, 2023 to 29.6% for the nine-month period ended March 31, 2024, and from 28.3% for the three-month period ended March 31, 2023 to 30.7% for the three-month period ended March 31, 2024, primarily due to product and customer mix in the current periods and the timing of large projects.

Previous wording

Operating expenses increased $5.2 million, or 13%, and $2.3 million, or 11%, for the six and three-month periods ended December 31, 2023, respectively, compared to the same periods of the prior fiscal year. The increases were primarily attributable to (a) operating expenses of acquired businesses, including additional operating expenses at the acquired businesses in pursuit of future growth and in connection with the Company’s optimization initiatives, (b) increases in selling costs, including commissions, from increases in revenues during the current periods, and (c) increases in salary, rent, technology costs, and stock compensation, including an increase from the acceleration of the vesting of certain restricted stock awards and restricted stock units in accordance with their terms during the six and three month periods ended December 31, 2023.

Current wording

Operating expenses increased $6.5 million, or 10%, and $1.3 million, or 6%, for the nine and three-month periods ended March 31, 2024, respectively, compared to the same periods of the prior fiscal year. The increases were primarily attributable to (a) operating expenses of acquired businesses, including additional operating expenses at the acquired businesses in pursuit of future growth and in connection with the Company’s optimization initiatives, (b) increases in salary, rent, technology costs, professional fees, and insurance costs to support the Company’s growth, and (c) stock compensation, including an increase from the acceleration of the vesting of certain restricted stock awards and restricted stock units in accordance with their terms during the nine and three month periods ended March 31, 2024.

Previous wording

Interest expense for the six and three-month periods ended December 31, 2023 was $1.6 million and $823,000, respectively, compared to $1.0 million and $625,000 for the six and three-month periods ended December 31, 2022, respectively. The increases in interest expense were attributable primarily to an increase in the average effective interest rate incurred on outstanding borrowings.

Current wording

Interest expense for the nine and three-month periods ended March 31, 2024 was $2.3 million and $675,000, respectively, compared to $1.7 million and $717,000 for the nine and three-month periods ended March 31, 2023, respectively. The increase in interest expense for the nine-month period was attributable primarily to an increase in the average effective interest rate and average outstanding borrowings. The decrease in interest expense for the three-month period is attributable primarily to a decrease in average outstanding borrowings.

Previous wording

The Company’s effective tax rate was 34.0% and 37.0% for the six and three-month periods ended December 31, 2023, respectively, compared to 27.8% and 26.3% for the six and three-month periods ended December 31, 2022, respectively. The increases in the effective tax rate are attributable to an increase in the net impact of permanent book-tax differences resulting primarily from nondeductible compensation.

Current wording

The Company’s effective tax rate was 37.3% and 44.8% for the nine and three-month periods ended March 31, 2024, respectively, compared to 27.4% and 26.6% for the nine and three-month periods ended March 31, 2023, respectively. The increases in the effective tax rate are attributable to an increase in the net impact of permanent book-tax differences resulting primarily from nondeductible compensation and lower net income.

Previous wording

Net income for the six and three-months ended December 31, 2023 was $2.6 million and $1.3 million, respectively, compared to net income of $5.1 million and $2.2 million for the six and three-month periods ended December 31, 2022, respectively. The decreases in net income were attributable primarily to the increase in operating expenses, partially offset by an increase in gross profit, all as described in further detail above.

Current wording

Net income for the nine and three-months ended March 31, 2024 was $3.6 million and $1.0 million, respectively, compared to net income of $7.8 million and $2.8 million for the nine and three-month periods ended March 31, 2023, respectively. The decreases in net income were attributable primarily to the increase in operating expenses described above and, with respect to the three-month period ended March 31, 2024, the decline in revenues described above.

Previous wording

The Company’s total assets decreased from $253.8 million at June 30, 2023 to $247.0 million at December 31, 2023. The decrease in total assets was primarily attributable to a decrease in current assets, including inventory and accounts receivable, as described under “Liquidity and Capital Resources - Working Capital” below, and a decrease in cash. The Company’s total liabilities decreased from $122.9 million at June 30, 2023 to $115.4 million at December 31, 2023, which was primarily attributable to a decrease in accounts payable and long-term debt.

Current wording

The Company’s total assets decreased from $253.8 million at June 30, 2023 to $239.3 million at March 31, 2024. The decrease in total assets was primarily attributable to a decrease in current assets, including inventory and accounts receivable, as described under “Liquidity and Capital Resources - Working Capital” below, and a decrease in cash. The Company’s total liabilities decreased from $122.9 million at June 30, 2023 to $105.8 million at March 31, 2024, which was primarily attributable to a decrease in accounts payable and long-term debt, partially offset by an increase in customer deposits.

Previous wording

For the six-month period ended December 31, 2023, cash decreased by approximately $1.7 million compared to an increase of approximately $409,000 during the six-month period ended December 31, 2022. The Company’s primary sources of cash are sales and borrowings under its credit facility. The Company’s primary uses of cash are purchases of the products sold by the Company, employee related costs, and the cash consideration paid in connection with business acquisitions.

Current wording

For the nine-month period ended March 31, 2024, cash decreased by approximately $2.6 million compared to an increase of approximately $48,000 during the nine-month period ended March 31, 2023. The Company’s primary sources of cash are sales and borrowings under its credit facility. The Company’s primary uses of cash are purchases of the products sold by the Company, employee related costs, repayments under its credit facility, and the cash consideration paid in connection with business acquisitions.

Previous wording

Working capital decreased from $49.1 million at June 30, 2023 to $44.7 million at December 31, 2023, primarily reflecting capital generated through the collection of receivables and inventory management used to decrease long-term debt.

Current wording

Working capital decreased from $49.1 million at June 30, 2023 to $38.2 million at March 31, 2024, primarily reflecting the collection of receivables and inventory management used to decrease long-term debt.

Previous wording

The following table summarizes the Company’s cash flow activity for the six months ended December 31, 2023 and 2022 (in thousands):

Current wording

The following table summarizes the Company’s cash flow activity for the nine months ended March 31, 2024 and 2023 (in thousands):

Previous wording

For the six months ended December 31, 2023, operating activities provided cash of $10.9 million compared to $4.9 million of cash used by operating activities during the six months ended December 31, 2022. This $15.8 million increase in cash provided by operating activities was primarily attributable to changes in working capital partially offset by a decrease in net income. The changes in working capital include increases in cash provided by operating activities from changes in operating assets such as accounts receivable, inventories, contract assets, deferred costs, and vendor deposits, partially offset by increases to the cash used by operating activities from changes in accounts payable and customer deposits.

Current wording

For the nine months ended March 31, 2024, operating activities provided cash of $20.3 million compared to $6.6 million of cash used by operating activities during the nine months ended March 31, 2023. This $26.9 million increase in cash provided by operating activities was primarily attributable to changes in working capital partially offset by a decrease in net income. The changes in working capital include increases in cash provided by operating activities from changes in operating assets and liabilities such as decreases in accounts receivable, inventories, and deferred costs, and an increase in customer deposits, partially offset by increases to the cash used by operating activities from decreases in accounts payable and contract liabilities.

Previous wording

Net cash used in investing activities decreased $349,000 to $3.3 million during the six months ended December 31, 2023 compared to $3.7 million during the six months ended December 31, 2022. Cash paid for acquisitions decreased $887,000 and capital expenditures increased $538,000 during the six months ended December 31, 2023 compared to the six months ended December 31, 2022.

Current wording

Net cash used in investing activities increased $403,000 to $4.6 million during the nine months ended March 31, 2024, compared to $4.2 million during the nine months ended March 31, 2023. Cash paid for acquisitions decreased $960,000 and capital expenditures increased $1.4 million during the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023.

Previous wording

For the six months ended December 31, 2023, financing activities used cash of $9.2 million compared to $9.0 million of cash provided by financing activities during the six months ended December 31, 2022. This $18.2 million increase in cash used by financing activities was primarily attributable to repayments on debt and the dividend paid on the Company’s common stock during the quarter ended December 31, 2023 in the total amount of approximately $4.1 million.

Current wording

For the nine months ended March 31, 2024, financing activities used cash of $18.3 million compared to $10.9 million of cash provided by financing activities during the nine months ended March 31, 2023. This $29.2 million increase in cash used by financing activities was primarily attributable to repayments on debt and the dividend paid on the Company’s common stock during the nine months ended March 31, 2024.

Previous wording

The Credit Agreement contains certain covenants, including financial covenants requiring the Company to comply with maximum leverage ratios and minimum interest coverage ratios. The Credit Agreement also contains other provisions which may restrict the Company’s ability to, among other things, dispose of or acquire assets or businesses, incur additional indebtedness, make certain investments and capital expenditures, pay dividends, repurchase shares and enter into transactions with affiliates. At December 31, 2023, the Company was in compliance with its covenants under the Credit Agreement and $55.6 million was available to borrow under the revolving credit facility.

Current wording

The Credit Agreement contains certain covenants, including financial covenants requiring the Company to comply with maximum leverage ratios and minimum interest coverage ratios. The Credit Agreement also contains other provisions which may restrict the Company’s ability to, among other things, dispose of or acquire assets or businesses, incur additional indebtedness, make certain investments and capital expenditures, pay dividends, repurchase shares and enter into transactions with affiliates. At March 31, 2024, the Company was in compliance with its covenants under the Credit Agreement and $58.1 million was available to borrow under the revolving credit facility.

Previous wording

On October 10, 2016, the Company’s wholly-owned subsidiary, Western State Design, entered into a lease agreement pursuant to which it leases 17,600 square feet of warehouse and office space from an affiliate of Dennis Mack, a director and employee of the Company, and Tom Marks, Executive Vice President, Business Development and President of the West Region of the Company. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. Monthly base rental payments were $12,000 during the initial term of the lease. The Company exercised its option to renew the lease for the first three-year renewal term. Base rent for the first renewal term is $19,000 per month. In addition to base rent, Western State Design is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments under this lease totaled approximately $114,000 during each of the six months ended December 31, 2023 and 2022, and $57,000 during each of the three months ended December 31, 2023 and 2022.

Current wording

On October 10, 2016, the Company’s wholly-owned subsidiary, Western State Design, entered into a lease agreement pursuant to which it leases 17,600 square feet of warehouse and office space from an affiliate of Dennis Mack, a director and employee of the Company, and Tom Marks, Executive Vice President, Business Development and President of the West Region of the Company. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. Monthly base rental payments were $12,000 during the initial term of the lease. The Company exercised its option to renew the lease for the first three-year renewal term. Base rent for the first renewal term is $19,000 per month. In addition to base rent, Western State Design is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments under this lease totaled approximately $195,000 and $171,000 during the nine months ended March 31, 2024 and 2023, respectively, and $81,000 and $57,000 during the three months ended March 31, 2024 and 2023, respectively.

Previous wording

On October 31, 2017, the Company’s wholly-owned subsidiary, Tri-State Technical Services, entered into lease agreements pursuant to which it leases a total of 81,000 square feet of warehouse and office space from an affiliate of Matt Stephenson, former President of Tri-State. Monthly base rental payments totaled $21,000 during the initial terms of the leases. Each lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. The Company exercised its option to renew the leases for the first three-year renewal term. Base rent for the first renewal term is $25,000. In addition to such leases, since May 1, 2023, Tri-State Technical Services has also leased an additional 50,000 square feet of space from Mr. Stephenson. Monthly base rental payments for the additional space total $15,000. The term of this lease will expire upon the expiration of the other leases with Mr. Stephenson described above. In addition to base rent, Tri-State is responsible under the leases for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments under these leases totaled approximately $253,000 and $132,000 during the six months ended December 31, 2023 and 2022, respectively, and $134,000 and $66,000 during the three months ended December 31, 2023 and 2022, respectively.

Current wording

On October 31, 2017, the Company’s wholly-owned subsidiary, Tri-State Technical Services, entered into lease agreements pursuant to which it leases a total of 81,000 square feet of warehouse and office space from an affiliate of Matt Stephenson, former President of Tri-State. Monthly base rental payments totaled $21,000 during the initial terms of the leases. Each lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. The Company exercised its option to renew the leases for the first three-year renewal term. Base rent for the first renewal term is $25,000. In addition to such leases, since May 1, 2023, Tri-State Technical Services has also leased an additional 50,000 square feet of space from Mr. Stephenson. Monthly base rental payments for the additional space total $15,000. The term of this lease will expire upon the expiration of the other leases with Mr. Stephenson described above. In addition to base rent, Tri-State is responsible under the leases for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments under these leases totaled approximately $388,000 and $200,000 during the nine months ended March 31, 2024 and 2023, respectively, and $135,000 and $67,000 during the three months ended March 31, 2024 and 2023, respectively.

Previous wording

On November 1, 2018, the Company’s wholly-owned subsidiary, AAdvantage Laundry Systems, entered into a lease agreement pursuant to which it leases warehouse and office space from an affiliate of Mike Zuffinetti, former Chief Executive Officer of AAdvantage. Monthly base rental payments under this lease were $26,000 initially. Pursuant to the lease agreement, on January 1, 2019, the lease expanded to cover additional warehouse space and, in connection therewith, monthly base rental payments under this lease increased to $36,000. In addition to base rent, AAdvantage is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. The Company exercised its option to renew the lease for the first three-year renewal term. Base rent for the first renewal term is $40,000 per month. Payments under the lease totaled approximately $224,000 and $216,000 during the six months ended December 31, 2023 and 2022, respectively, and $116,000 and $108,000 during the three months ended December 31, 2023 and 2022, respectively.

Current wording

On November 1, 2018, the Company’s wholly-owned subsidiary, AAdvantage Laundry Systems, entered into a lease agreement pursuant to which it leases warehouse and office space from an affiliate of Mike Zuffinetti, former Chief Executive Officer of AAdvantage. Monthly base rental payments under this lease were $26,000 initially. Pursuant to the lease agreement, on January 1, 2019, the lease expanded to cover additional warehouse space and, in connection therewith, monthly base rental payments under this lease increased to $36,000. In addition to base rent, AAdvantage is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. The Company exercised its option to renew the lease for the first three-year renewal term. Base rent for the first renewal term is $40,000 per month. Payments under the lease totaled approximately $344,000 and $325,000 during the nine months ended March 31, 2024 and 2023, respectively, and $120,000 and $108,000 during the three months ended March 31, 2024 and 2023, respectively.

Previous wording

On November 3, 2020, the Company’s wholly-owned subsidiary, Yankee Equipment Systems, entered into a lease agreement pursuant to which it leases a total of 12,500 square feet of warehouse and office space from an affiliate of Peter Limoncelli, President of Yankee Equipment Systems. Monthly base rental payments were $11,000 during the initial term of the lease. In addition to base rent, Yankee Equipment Systems is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. The lease had an initial term of three years and provides for three successive three-year renewal terms at the option of the Company. The Company has exercised its option to renew this lease for the first three-year renewal term. Base rent for the first year of the renewal term is $12,500 per month. Payments under this lease totaled approximately $74,000 and $70,000 during the six months ended December 31, 2023 and 2022, respectively, and $36,000 and $35,000 during the three months ended December 31, 2023 and 2022, respectively.

Current wording

On November 3, 2020, the Company’s wholly-owned subsidiary, Yankee Equipment Systems, entered into a lease agreement pursuant to which it leases a total of 12,500 square feet of warehouse and office space from an affiliate of Peter Limoncelli, President of Yankee Equipment Systems. Monthly base rental payments were $11,000 during the initial term of the lease. In addition to base rent, Yankee Equipment Systems is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. The lease had an initial term of three years and provides for three successive three-year renewal terms at the option of the Company. The Company has exercised its option to renew this lease for the first three-year renewal term. Base rent for the first year of the renewal term is $12,500 per month. Payments under this lease totaled approximately $112,000 and $109,000 during the nine months ended March 31, 2024 and 2023, respectively, and $39,000 during each of the three months ended March 31, 2024 and 2023.