1. General
| Nature of Business | EVI Industries, Inc., indirectly through its subsidiaries (EVI Industries, Inc. and its subsidiaries, collectively, the “Company”), is a value-added distributor, and provides advisory and technical services to customers located primarily in the United States, Canada, the Caribbean, and Latin America. Through its sales organization, the Company provides its customers with planning, designing, and consulting services related to their commercial laundry operations. The Company sells and/or leases its customers commercial laundry equipment, specializing in washing, drying, finishing, material handling, water heating, power generation, and water reuse applications. In support of the suite of products it offers, the Company sells related parts and accessories. Additionally, through the Company’s network of commercial laundry technicians, the Company provides its customers with installation, maintenance, and repair services. The Company’s customers include government, institutional, industrial, commercial and retail customers. Product purchases made by customers range from parts and accessories, to single or multiple units of equipment, to large complex systems. The Company also provides its customers with the services described above. The Company reports its results of operations through a single operating and reportable segment. |
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| “Buy-and-Build” Growth Strategy | Beginning in 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 “build” component of the strategy involves implementing a growth culture at acquired businesses based on the exchange of ideas and business concepts among the management teams of the Company and the acquired businesses as well as through certain initiatives, which may include investments in additional sales and service personnel, new product lines, enhanced service operations and capabilities, new and improved facilities, and advanced technologies. The businesses acquired by the Company generally distribute commercial, industrial, and vended laundry products and provide installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. Acquisitions are generally effected by the Company through a separate wholly-owned subsidiary formed by the Company for the purpose of effecting the transaction, whether by an asset purchase or merger, and operating 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. See Note 3 for information about the acquisitions consummated by the Company during the fiscal year ended June 30, 2024 (“fiscal 2024”) and the fiscal year ended June 30, 2023 (“fiscal 2023”), as well as the acquisition consummated by the Company subsequent to the fiscal 2024 year-end. |
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2. Summary of Significant Accounting Policies
| Principles of Consolidation | The accompanying consolidated financial statements include the accounts of EVI Industries, Inc. and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions and balances have been eliminated in consolidation. |
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| Revenue Recognition | The Company recognizes revenue, net of sales taxes, when a sales arrangement with a customer exists (sales contract, purchase or sales order, or other indication of an arrangement), the transaction price is fixed and determinable, and the Company has satisfied the performance obligation(s) per the sales arrangement. Performance Obligations and Revenue Over Time Revenue primarily consists of revenues from the sale or leasing of commercial and industrial laundry and dry cleaning equipment and steam and hot water boilers manufactured by others; the sale of related replacement parts and accessories; and the provision of installation and maintenance services. The Company generates revenue primarily from the sale of equipment and parts to customers. Therefore, the majority of the Company’s contracts are short-term in nature and have a single performance obligation (to deliver products), which is satisfied when control of the product is transferred to the customer. Other contracts contain a combination of equipment sales with a service such as connection of the equipment, which is expected to be performed in the near-term. Such services are distinct and accounted for as separate performance obligations. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price out of the total consideration of the contract. Judgment may be required by management to identify the distinct performance obligations within each contract. Revenue is recognized on these contracts when control transfers to the Company’s customers via shipment of products or provision of services and the Company has the right to receive consideration for these products and services. Additionally, from time to time, the Company enters into longer-termed contracts which provide for the sale of equipment by the Company and the provision by the Company of related installation and construction services. The installation on these types of contracts is usually completed within six to twelve months. The Company recognizes a portion of its revenue over time using the cost-to-cost measure of progress, which measures a contract’s progress toward completion based on the ratio of actual contract costs incurred to date to the Company’s estimated costs at completion adjusted for uninstalled materials, as necessary. Significant judgment may be required by management in the cost estimation process for these contracts, which is based on the knowledge and experience of the Company’s project managers, subcontractors and financial professionals. Changes in job performance and job conditions are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and the Company’s revenue recognition. The determination of the total estimated cost and progress toward completion requires management to make significant estimates and assumptions. Total estimated costs to complete projects include various costs such as direct labor, material and subcontract costs. Changes in these estimates can have a significant impact on the revenue recognized each period. From time to time, the Company also enters into maintenance contracts and ad hoc maintenance and installation service contracts. These longer-term contracts, and maintenance and service contracts have a single performance obligation where revenue is recognized over time using the cost-to-cost measure of progress, which best depicts the continuous transfer of control of goods or services to the customer. |
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The Company measures revenue, including shipping and handling fees charged to customers, as the amount of consideration it expects to be entitled to receive in exchange for its goods or services, net of any taxes collected from customers and subsequently remitted to governmental authorities. Costs associated with shipping and handling activities performed after the customer obtains control are accounted for as fulfillment costs and are not promised services that have to be further evaluated under revenue recognition standards. Revenue from products transferred to customers at a point in time include commercial and vended laundry parts and equipment sales and accounted for approximately 83% and 85% of the Company’s revenue for fiscal 2024 and fiscal 2023, respectively. Revenue from products transferred to customers at a point in time is recognized when obligations under the terms of the contract with the Company’s customer are satisfied, which generally occurs with the transfer of control upon shipment. The Company’s products are typically sold with a manufacturer’s warranty. Accordingly, warranty expense and product returns have not been significant. Revenues that are recognized over time include (i) longer-termed contracts that include equipment purchased with installation and construction services, (ii) maintenance contracts, and (iii) service contracts. Revenue from products and services that are recognized over time accounted for approximately 17% and 15% of the Company’s revenue for fiscal 2024 and fiscal 2023, respectively. Contract Assets and Liabilities Contract assets and liabilities are presented in the Company’s consolidated balance sheets. Contract assets consist of unbilled amounts resulting from sales under longer-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. As noted above, the cost estimation process for these contracts may require significant judgment by management. The Company typically receives progress payments on sales under longer-term contracts as work progresses, although for certain contracts, the Company may be entitled to receive an advance payment. Contract assets also include retainage. Retainage represents a portion of the contract amount that has been billed, but for which the contract allows the customer to retain a portion of the billed amount (generally, from 5% to 20% of contract billings) until final contract settlement. Retainage amounts are generally classified as current assets within the Company’s consolidated balance sheets. Retainage that has been billed, but is not due until completion of performance and acceptance by customers, is generally expected to be collected within one year. Contract liabilities consist of advanced payments, billings in excess of costs incurred and deferred revenue.
Costs, estimated earnings and billings on longer-term contracts when the cost-to-cost method of revenue recognition is utilized as of June 30, 2024 and 2023 consisted of the following (in thousands):
| June 30, | 2024 | 2023 |
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| Costs incurred on uncompleted contracts | $1,795 | $13,378 |
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| Estimated earnings | 379 | 2,268 |
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| Less: billings to date | (1,190) | (16,148) |
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| Retainage | 238 | 1,015 |
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| Ending balance | $1,222 | $513 |
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These amounts are included in the Company’s consolidated balance sheets under the following captions (in thousands):
| June 30, | 2024 | 2023 |
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| Contract assets | $1,222 | $1,181 |
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| Contract liabilities | - | (668) |
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| Ending balance | $1,222 | $513 |
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| Contract liabilities are generally associated with contracts with durations of less than one year. Accordingly, such amounts are expected to be realized during the subsequent year. During fiscal 2024, all of the contract liabilities outstanding as of June 30, 2023 were realized. |
| The Company does not account for significant financing components if the period between the time when the transfer of the product or service to the customer occurs and when the customer pays for that service or product will be one year or less. The Company does not disclose the value of remaining performance obligations for contracts with an original expected period of one year or less or performance obligations for which the Company recognizes revenue at the amount that it has the right to invoice for services performed. |
| Goodwill | Goodwill is recorded when the purchase price paid for an acquisition exceeds the fair value of net assets acquired in a business combination. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. If the fair value is determined to be less than the carrying value, a second step is performed to measure the amount of impairment loss. This step compares the current implied goodwill in the reporting unit to its carrying amount. If the carrying amount of the goodwill exceeds the implied goodwill, an impairment is recorded for the excess. The identification and measurement of goodwill impairment involves the estimation of the fair value of the reporting unit and involves uncertainty because management must use judgment in determining appropriate assumptions to be used in the measurement of fair value. The Company performed its annual impairment test on April 1, 2024 using the qualitative assessment to evaluate relevant events and circumstances such as macroeconomic conditions, cost factors, financial performance, and others. Based on the assessment, the Company determined there was no impairment. |
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| Accounts Receivable | Accounts receivable are customer obligations due under what management believes to be customary trade terms. Invoices are typically due upon receipt, however, the Company may grant extended payment terms, typically 30 days, for certain customers. The Company sells its products primarily to hospitals, nursing homes, government institutions, laundry plants, hotels, motels, vended laundry facilities and distributors and dry cleaning stores and chains. The Company performs continuing credit evaluations of its customers’ financial condition and depending on the terms of credit, the amount of the credit granted and management’s history with a customer, |
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| the Company may require the customer to grant a security interest in the purchased equipment as collateral for the receivable. Management reviews accounts receivable on a regular basis to determine whether it is probable that any amounts are impaired. The Company includes any balances that are deemed probable to be impaired in its overall allowance for doubtful accounts. The provision for doubtful accounts is recorded in selling, general and administrative expenses in the consolidated statements of operations. If customary attempts to collect a receivable are not successful, the receivable is then written off against the allowance for doubtful accounts. The Company’s allowance for doubtful accounts was $2.1 million at both June 30, 2024 and June 30, 2023. Actual write-offs may vary from the recorded allowance. |
| Cash | The Company’s cash is maintained in bank accounts which bear interest at prevailing interest rates and are covered by Federal Deposit Insurance Corporation (“FDIC“) insurance. The Company has not historically experienced any losses in its cash accounts and does not currently believe that it is exposed to significant credit risk due to the financial position of the banks in which the Company’s cash is held. The Company monitors the strength and credit worthiness of financial institutions in which it holds its cash. However, there recently have been adverse events related to the soundness of financial institutions, including a number of smaller bank failures, and the Company has exposure to the extent its cash balances exceed the current $250,000 in maximum FDIC coverage. |
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| Inventories | Inventories consist principally of equipment inventories and spare part inventories. Equipment inventories are valued at the lower of cost, determined on the specific identification method or average cost, or net realizable value. Spare part inventories are valued at the lower of cost, determined on average cost or first-in first-out method, or net realizable value. Lower of cost or net realizable value adjustments are recorded in cost of goods sold in the consolidated statement of operations. The Company records a reserve for aging or slow-moving inventory. The Company established reserves of approximately $1.1 million and $994,000 as of June 30, 2024 and 2023, respectively, against slow moving inventory. |
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| Vendor Deposits | Vendor deposits represent advances made to the Company’s vendors for specialized inventory on order. |
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| Equipment, Improvements and Depreciation | Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on straight-line methods over useful lives of five to seven years for furniture and equipment, five years for vehicles, and the shorter of ten years or the remaining lease term (including renewal periods that are deemed reasonably assured) for leasehold improvements. Depreciation and amortization of property and equipment is included in selling, general and administrative expenses in the consolidated statements of operations. Repairs and maintenance costs are expensed as incurred. |
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| Software Capitalization | The Company capitalizes certain costs related to the acquisition and development of internal use software, including implementation costs incurred in a cloud computing arrangement, during the application development stages of projects. The Company amortizes these costs using the straight-line method over the estimated useful life of the software, typically seven years. Costs incurred during the preliminary project or |
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| the post-implementation/operation stages of the project are expensed as incurred. Capitalized computer software, included as a component of equipment and improvements, net and other assets, in the accompanying consolidated balance sheets, net of accumulated amortization, was $848,000 and $576,000 at June 30, 2024 and 2023, respectively. Computer software amortization expense was $189,000 and $112,000 in fiscal 2024 and fiscal 2023, respectively. Amortization of capitalized software is included in selling, general and administrative expenses in the consolidated statements of operations. |
| Customer-Related Intangibles, Tradenames and Other Intangible Assets | Finite-lived intangibles are amortized over their estimated useful life while indefinite-lived intangibles and goodwill are not amortized. Customer-related intangibles, non-compete, and other finite-lived intangible assets are stated at cost less accumulated amortization, and are amortized on a straight-line basis over the estimated future periods to be benefited (5-10 years). The estimates of fair value of the Company’s indefinite-lived intangibles and long-lived assets are based on information available as of the date of the assessment and takes into account management’s assumptions about expected future cash flows and other valuation techniques. Amortization of finite-lived intangibles is included in selling, general and administrative expenses in the consolidated statements of operations. The Company also evaluates indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support an indefinite useful life. The Company performed its annual impairment test on April 1, 2024 using the qualitative assessment to evaluate relevant events and circumstances such as macroeconomic conditions, cost factors, financial performance, and others. Based on the assessment, the Company determined there was no impairment. |
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| Asset Impairments | The Company periodically reviews the carrying amounts of its long-lived assets, including property, plant and equipment and finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of their carrying amount or fair value less estimated costs to sell. The Company has concluded that there was no impairment of long-lived assets in fiscal 2024 or fiscal 2023. |
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| Estimates | The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates these estimates on an ongoing basis. Estimates which may be particularly significant to the Company’s consolidated financial statements include those relating to the determination of impairment of assets (including goodwill and intangible assets), the useful life of property and equipment, the recoverability of deferred income tax assets, allowances for expected credit losses, intangible assets, estimates to complete on contracts where revenue is recognized over time, the carrying value of inventories and long-lived assets, and the timing of revenue recognition. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the recognition of revenues and expenses and the carrying value of assets and liabilities that are not readily apparent from other sources. Assumptions |
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| and estimates may, however, prove to have been incorrect, and actual results may differ from these estimates. |
| Earnings Per Share | The Company computes earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Shares of the Company’s common stock subject to unvested restricted stock awards and restricted stock units are considered participating securities because they contain a non-forfeitable right to cash dividends (in the case of restricted stock awards) or dividend equivalents (in the case of restricted stock units) paid prior to vesting or forfeiture, if any, irrespective of whether the awards or units ultimately vest. During fiscal 2024 and fiscal 2023, the Company granted restricted stock awards of 175,801 and 222,672 shares, respectively, and 85,672 and 128,985 restricted stock units, respectively, under the EVI Industries, Inc. 2015 Equity Incentive Plan, as amended (see Note 17). Shares of restricted stock are deemed to constitute a second class of stock for accounting purposes. Basic and diluted earnings per share for fiscal 2024 and fiscal 2023 are computed as follows (in thousands, except per share data): |
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| For the years ended June 30, |
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| 2024 | 2023 |
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| Net income | $5,646 | $9,719 |
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| Less: distributed and undistributed income allocated to non-vested restricted common stock | 717 | 1,193 |
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| Net income allocated to EVI Industries, Inc. shareholders | $4,929 | $8,526 |
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| Weighted average shares outstanding used in basic earnings per share | 12,650 | 12,553 |
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| Dilutive common share equivalents | 568 | 251 |
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| Weighted average shares outstanding used in diluted earnings per share | 13,218 | 12,804 |
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| Basic earnings per share | $0.39 | $0.68 |
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| Diluted earnings per share | $0.37 | $0.67 |
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At June 30, 2024, other than 1,475,740 unvested shares subject to restricted stock awards or restricted stock units, there were no potentially dilutive securities outstanding. The remaining 354,610 shares of restricted common stock were not included in the calculation of diluted earnings per share because their impact was anti-dilutive. At June 30, 2023, other than 1,028,963 shares subject to restricted stock
| awards or restricted stock units, there were no potentially dilutive securities outstanding. The remaining 732,119 shares of restricted common stock were not included in the calculation of diluted earnings per share because their impact was anti-dilutive. |
| Supplier Concentration | The Company purchases laundry, dry cleaning equipment, boilers and other products from a number of manufacturers and suppliers. Purchases from four manufacturers accounted for a total of approximately 73% of the Company’s purchases for fiscal 2024 and 70% of the Company’s purchases for fiscal 2023. |
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| Advertising Costs | The Company expenses the cost of advertising as of the first date an advertisement is run. The Company incurred approximately $852,000 and $778,000 of advertising costs in fiscal 2024 and fiscal 2023, respectively, which are included in selling, general and administrative expenses in the consolidated statements of operations. |
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| Shipping and Handling | Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through cost of sales as inventories are sold. Shipping and handling costs associated with the delivery of products are included in selling, general and administrative expenses. |
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| Fair Value of Certain Current Assets and Current Liabilities | Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are prioritized based on a three-level hierarchy. The three levels of inputs used to measure fair value are as follows: | |
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| ● | Level 1 - Quoted prices in active markets for identical assets and liabilities. |
| ● | Level 2 - Observable inputs other than quoted prices included in Level 1. This includes dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
| The Company has no assets or liabilities that are adjusted to fair value on a recurring basis. The Company did not have any assets or liabilities measured at fair value on a nonrecurring basis, other than assets and liabilities from acquisitions, during fiscal 2024 or fiscal 2023. | |
| The Company’s cash, accounts receivable and accounts payable are reflected in the accompanying consolidated financial statements at cost, which approximated estimated fair value, using Level 1 inputs. Cash is maintained with various high-quality financial institutions and have original maturities of three months or less. Accounts receivable and accounts payable approximate their fair value due to the short term nature of such accounts. The fair value of the Company’s indebtedness was estimated using Level 2 inputs based on quoted prices for those or similar debt instruments using applicable interest rates as of June 30, 2024 and approximated the carrying value of such debt because it accrues interest at variable rates that are repriced frequently. This approximates fair value based on the variable interest rate. | |
| Customer Deposits | Customer deposits represent advances paid by or amounts billed to customers when placing orders for equipment with the Company, in advance of delivery. |
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| Net Investment in Sales Type Leases | The Company derives a portion of its revenue from leasing arrangements. Such arrangements provide for monthly payments covering the equipment sales, maintenance, and interest. These arrangements meet the criteria to be accounted for as sales type leases. Accordingly, the equipment sale is recognized upon delivery of the system and acceptance by the customer. Upon the recognition of revenue, an asset is established for the investment in sales type leases. Maintenance revenue and interest are recognized monthly over the lease term. |
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| Income Taxes | The Company recognizes income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the |
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| enactment date. If it is determined that it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized. Judgment is required in developing the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowances that might be required against the deferred tax assets. Management evaluates the Company’s ability to realize its deferred tax assets on a quarterly basis and adjusts the valuation allowance when it believes that it is more likely than not that the asset will not be realized. There were no valuation allowance adjustments during fiscal 2024 or fiscal 2023. The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately reflect actual outcomes. The Company does not believe that there are any material unrecognized tax benefits as of June 30, 2024 or 2023 related to tax positions taken on its income tax returns. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of interest expense and general and administrative expense, respectively, in the consolidated statements of operations. |
| Leases | Company as Lessee The Company leases warehouse and distribution facilities and administrative office space, generally for terms of three to ten years. The Company recognizes the lease payments under its short-term leases (which are defined as leases with a term of twelve months or less) in profit or loss on a straight-line basis over the lease term. The Company follows this accounting policy for all classes of underlying assets. In addition, variable lease payments in the period in which the obligation for those payments is incurred are not included in the recognition of a lease liability or right-of-use asset. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, certain of the Company’s leases do not provide a readily determinable implicit rate. For such leases, the Company estimates the incremental borrowing rate to discount lease payments based on information available at lease commencement. The Company uses instruments with similar characteristics when calculating its incremental borrowing rates. The Company has options to extend certain of its operating leases for additional periods of time and the right to terminate several of its operating leases prior to their contractual expirations, in each case, subject to the terms and conditions of the lease. The lease term consists of the non-cancellable period of the lease and the periods covered by Company options to extend the lease when management considers it reasonably certain that the Company will exercise such options. The Company's lease |
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| agreements do not contain residual value guarantees. The Company has elected to not separate non-lease components from the associated lease component for all underlying classes of assets with lease and non-lease components. |
| Recently Issued Accounting Guidance | In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other specified instruments, entities are required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. The guidance was required to be applied using a cumulative-effect transition method. The Company adopted this ASU effective July 1, 2023, the first day of its fiscal year ended June 30, 2024. As a result, the consolidated financial statements for fiscal 2024 are presented under the new standard, while the comparative prior year periods are not adjusted and continue to be reported in accordance with the historical accounting policy. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. Trade receivables as of June 30, 2024 were $40.9 million, net of an allowance for expected credit losses of $2.1 million. The Company measures its allowance for credit losses on trade receivables on a collective (pool) basis when similar risk characteristics exist. Trade receivables are generally pooled based on the type of transaction generating the trade receivable. The Company establishes an estimate for its allowance for credit losses resulting from the failure of customers to make required payments by applying an aging schedule to pools of assets. The Company generally monitors macroeconomic indicators to assess whether adjustments are necessary to reflect current conditions. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) to enhance segment reporting disclosures. ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss, as well as disclosure of the total amount and description of other segment items by reportable segment. This ASU also requires disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. All disclosures about a reportable segment’s profit or loss and assets that are currently required on an annual basis under Segment Reporting (Topic 280) will also be required for interim periods under ASU 2023-07. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with retrospective application. Early adoption is permitted. The Company is currently evaluating the effect of this ASU on its segment disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) to enhance transparency and decision usefulness of income tax disclosures. ASU 2023-09 requires greater standardization and disaggregation of categories within an entity’s tax rate reconciliation disclosure, as well as disclosure of income taxes paid by jurisdiction, among other requirements. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 is effective on a prospective basis, with retrospective application permitted. The Company is currently evaluating the effects of this ASU on its income tax disclosures. Management does not believe that accounting standards and updates which have been issued but are not yet effective will have a material impact on the Company’s consolidated financial position, results of operations or cash flows upon adoption. |
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| 3. Acquisitions | Fiscal 2024 Acquisitions On September 1, 2023, the Company completed the acquisition of 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 |
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industry. The consideration paid by the Company in connection with the acquisition consisted of $987,000 in cash and 8,621 shares of the Company’s common stock, with an acquisition date fair value of approximately $229,000. Fees and expenses related to the acquisition, consisting primarily of legal and other professional fees, were not material and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for fiscal 2024. The acquisition was treated for accounting purposes as a purchase of ALCO using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), pursuant to which the consideration paid by the Company was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to goodwill. The Company allocated $793,000 to goodwill, which is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforce, as well as the expected benefits from the increased scale of the Company as a result of the acquisition. The financial position, including assets and liabilities, of ALCO is included in the Company’s consolidated balance sheet as of June 30, 2024 and the results of operations of ALCO since the September 1, 2023 closing date are included in the Company’s consolidated financial statements for fiscal 2024.
On June 1, 2024, the Company completed the acquisition of Signature Services Corporation (d/b/a Ed Brown Distributors) (“EBD”), a Texas 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. The consideration paid by the Company in connection with the acquisition consisted of $963,000 in cash. Fees and expenses related to the acquisition, consisting primarily of legal and other professional fees, were not material and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for fiscal 2024. The acquisition was treated for accounting purposes as a purchase of EBD using the acquisition method of accounting in accordance with ASC 805, pursuant to which the consideration paid by the Company was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to goodwill. The Company allocated $946,000 to goodwill, which is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforce, as well as the expected benefits from the increased scale of the Company as a result of the acquisition. The financial position, including assets and liabilities, of EBD is included in the Company’s consolidated balance sheet as of June 30, 2024 and the results of operations of EBD since the June 1, 2024 closing date are included in the Company’s consolidated financial statements for fiscal 2024.
Fiscal 2023 Acquisitions
On September 1, 2022, the Company completed the acquisitions of Aldrich Clean-Tech Equipment Corp. (“ACT”), a Massachusetts-based distributor of commercial, industrial, and vended laundry products and provider of installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry, and K&B Laundry Service, LLC (“K&B”), a North Carolina-based distributor of commercial, industrial, and vended laundry products and provider of installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. The total consideration for these
two acquisitions consisted of approximately $1.2 million in cash, net of cash acquired, which the Company funded through borrowings under its credit facility. Fees and expenses related to these acquisitions, consisting primarily of legal and other professional fees, totaled approximately $102,000 and are classified as selling, general and administrative expenses in the Company’s consolidated statements of operations for fiscal 2023. Each acquisition was treated for accounting purposes as a purchase of the acquired business using the acquisition method of accounting in accordance with ASC 805, pursuant to which the consideration paid by the Company was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to intangible assets and goodwill. The Company allocated a total of $793,000 to goodwill, which is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforces, as well as the expected benefits from the increased scale of the Company as a result of these acquisitions. The financial position, including assets and liabilities, of ACT and K&B is included in the Company’s consolidated balance sheets as of June 30, 2023 and 2024, and the results of operations of the businesses since the September 1, 2022 closing date are included in the Company’s consolidated financial statements for fiscal 2023 and fiscal 2024.
On November 1, 2022, the Company acquired substantially all of the assets of Wholesale Commercial Laundry Equipment Company SE, LLC (“WCL”), an Alabama-based distributor of commercial, industrial, and vended laundry products and provider of installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. The consideration paid by the Company in connection with the acquisition consisted of $650,000 in cash and 24,243 shares of the Company’s common stock, with an acquisition date fair value of approximately $503,000. Fees and expenses related to the acquisition, consisting primarily of legal and other professional fees, were not material and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for fiscal 2023. The acquisition was treated for accounting purposes as a purchase of the acquired business using the acquisition method of accounting in accordance with ASC 805, pursuant to which the consideration paid by the Company was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to goodwill. The Company allocated $1,062,000 to goodwill, which is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforce, as well as the expected benefits from the increased scale of the Company as a result of the acquisition. The financial position, including assets and liabilities, of WCL is included in the Company’s consolidated balance sheets as of June 30, 2023 and 2024, and the results of operations of WCL since the November 1, 2022 closing date are included in the Company’s consolidated financial statements for fiscal 2023 and fiscal 2024.
On June 5, 2023, the Company acquired substantially all of the assets of Gluno, Inc. (d/b/a Express Parts and Services) (“EXP”), a Maryland-based distributor of commercial laundry products and a provider of related technical installation and maintenance services. The consideration paid by the Company in connection with the acquisition consisted of $550,000 in cash. Fees and expenses related to the acquisition, consisting primarily of legal and other professional fees, were not material and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for fiscal 2023. The acquisition was treated for accounting purposes as a purchase of the acquired business using the acquisition
method of accounting in accordance with ASC 805, pursuant to which the consideration paid by the Company was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to goodwill. The Company allocated $391,000 to goodwill, which is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforce, as well as the expected benefits from the increased scale of the Company as a result of the acquisition. The financial position, including assets and liabilities, of EXP is included in the Company’s consolidated balance sheets as of June 30, 2023 and 2024, and the results of operations of EXP since the June 5, 2023 closing date are included in the Company’s consolidated financial statements for fiscal 2023 and fiscal 2024.
Supplemental Pro Forma Results of Operations
The following unaudited supplemental pro forma information presents the results of operations of the Company, after giving effect to the acquisitions completed by the Company during fiscal 2024 and 2023 as described above, as if the Company had completed each such transaction on July 1, 2022, using the estimated fair values of the assets acquired and liabilities assumed. These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the Company would have been if the transactions had occurred on the date assumed, nor are they indicative of future results of operations.
| For the year ended June 30, |
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| (in thousands) | 2024 (Unaudited) | 2023 (Unaudited) |
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| Revenues | $356,260 | $362,287 |
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| Net income | 5,816 | 10,533 |
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The Company’s consolidated results of operations for fiscal 2024 include total revenue of approximately $9.7 million and total net income of approximately $599,000 attributable to businesses acquired during fiscal 2024 and fiscal 2023, based on the consolidated effective tax rate. The Company’s consolidated results of operations for fiscal 2023 include total revenue of approximately $6.3 million and total net income of approximately $435,000 attributable to businesses acquired during fiscal 2023, based on the consolidated effective tax rate. These results of acquired businesses do not include the effects of acquisition costs or interest expense associated with consideration paid for the acquisitions.
Subsequent Acquisition
On July 1, 2024, the Company acquired Florida-based Laundry Pro of Florida, Inc. for total consideration of $5.9 million in cash. The Company is in the process of determining the respective fair values of the assets acquired and liabilities assumed. The amounts for these items are subject to change as additional information to assist in determining their respective fair values as of the closing date is obtained during the post-closing measurement period of up to one year.
| 4. Accounts Receivable | Accounts receivable as of June 30, 2024 and 2023 consisted of the following (in thousands): |
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| June 30, | 2024 | 2023 |
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| Accounts receivable - trade | $43,009 | $50,455 |
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| Allowance for expected credit losses | (2,077) | (2,064) |
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| $40,932 | $48,391 |
| 5. Other Current Assets | Other current assets as of June 30, 2024 and 2023 were comprised of the following (in thousands): |
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| June 30, | 2024 | 2023 |
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| Other receivables | $799 | $775 |
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| Prepaid insurance | 337 | 822 |
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| Net investments in sales type leases - current | 1,679 | 1,580 |
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| Other current assets | 2,856 | 5,370 |
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| $5,671 | $8,547 |
| 6. Leases | Company as Lessee |
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| As of June 30, 2024, the Company had 32 facilities, consisting of warehouse facilities and administrative offices, financed under operating leases with lease term expirations between 2024 and 2030. Rent expense consists of monthly rental payments under the terms of the Company’s lease agreements recognized on a straight-line basis. |
| The following table sets forth the Company’s future minimum lease payments under operating lease liabilities recorded on the Company’s condensed consolidated balance sheet as of June 30, 2024. The table below does not include commitments that are contingent on events or other factors that are currently uncertain or unknown. |
| Fiscal years ending June 30, | Maturity of Operating Lease Liabilities (in thousands) |
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| 2025 | $3,395 |
| 2026 | 2,761 |
| 2027 | 1,470 |
| 2028 | 812 |
| 2029 | 519 |
| Thereafter | 633 |
| Total lease payments | $9,590 |
| Less: amounts representing interest | 631 |
| Present value of lease liabilities | $8,959 |
| Less: current portion | 3,110 |
| Long-term portion | $5,849 |
The table below presents additional information related to the Company’s operating leases (in thousands):
| Operating lease cost | Fiscal year ended June 30, 2024 | Fiscal year ended June 30, 2023 |
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| Operating lease cost (1) | $3,995 | $3,526 |
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| Variable lease cost (2) | 4,810 | 3,391 |
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| Total lease cost | $8,805 | $6,917 |
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| (1) | Expenses are classified within selling, general and administrative expenses in the Company’s consolidated statements of operations for the fiscal years ended June 30, 2024 and 2023. |
| (2) | Certain of the Company’s subsidiaries lease space at locations where (i) they install laundry equipment and customers pay for the use of equipment and (ii) the leased space is paid for as part of a revenue sharing arrangement. These expenses are classified within cost of sales in the Company’s consolidated statements of operations for the fiscal years ended June 30, 2024 and 2023. |
| The table below presents lease-related terms and discount rates as of June 30, 2024 and 2023: |
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| June 30, 2024 | June 30, 2023 |
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| Weighted average remaining lease terms |
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| Operating leases | 3.6 years | 4.0 years |
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| Weighted average discount rate |
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| Operating leases | 3.48% | 3.45% |
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The table below presents supplemental cash flow information related to the Company’s long-term operating lease liabilities for the fiscal years ended June 30, 2024 and 2023 (in thousands):
| Fiscal year ended June 30, 2024 | Fiscal year ended June 30, 2023 |
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| Cash paid for amounts included in the measurement of lease liabilities: | $3,995 | $3,526 |
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| Operating lease right-of-use assets obtained in exchange for operating lease liabilities: | $2,955 | $4,403 |
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Company as Lessor
The Company derives a portion of its revenue from equipment leasing arrangements. Such arrangements provide for monthly payments covering the equipment provided, maintenance, and interest. These arrangements meet the criteria to be accounted for as sales type leases. Accordingly, revenue related to the provision of the equipment is recognized upon delivery of the equipment and its acceptance by the customer. Upon the recognition of such revenue, an asset is established for the investment in sales type leases. Maintenance revenue and interest are recognized monthly over the lease term.
The future minimum lease payments receivable for sales type leases are as follows (in thousands):
| Fiscal years ending June 30, · Total Minimum Lease Payments to be Received · Amortization of Unearned Income · Net Investment in Sales Type Leases |
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| 2025 | $4,943 | $3,288 | $1,655 | |
| 2026 | 4,010 | 2,564 | 1,446 | |
| 2027 | 3,164 | 1,842 | 1,322 | |
| 2028 | 2,146 | 1,114 | 1,032 | |
| 2029 | 1,182 | 561 | 621 | |
| Thereafter | 1,338 | 597 | 741 | |
| $6,817 | * |
* Excludes non-guaranteed residual values of $2.9 million.
The total net investments in sales type leases, including stated residual values, as of June 30, 2024 and June 30, 2023 was $9.7 million and $9.0 million, respectively. The current portion of $1.7 million and $1.6 million is included in other current assets in the consolidated balance sheets as of June 30, 2024 and June 30, 2023, respectively, and the long term portion of $8.0 million and $7.4 million is included in other assets in the consolidated balance sheets as of June 30, 2024 and June 30, 2023, respectively.
| 7. Equipment and Improvements | Major classes of equipment and improvements as of June 30, 2024 and 2023 consisted of the following (in thousands): |
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| June 30, | 2024 | 2023 |
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| Furniture and equipment | $18,512 | $15,247 |
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| Leasehold improvements | 3,399 | 2,962 |
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| Vehicles | 7,427 | 6,886 |
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| 29,338 | 25,095 |
| Accumulated depreciation and amortization | (15,388) | (12,142) |
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| $13,950 | $12,953 |
Depreciation and amortization of equipment and improvements totaled approximately $3.9 million in both fiscal 2024 and 2023 and is recorded in selling, general and administrative expenses.
| 8. Goodwill and Intangible Assets | The changes in the carrying amount of goodwill are as follows (in thousands): |
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| Balance at June 30, 2022 | $71,039 |
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| Goodwill from fiscal 2023 acquisitions (as described in Note 3) | 2,246 |
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| Working capital adjustments (1) | 103 |
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| Balance at June 30, 2023 | $73,388 |
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| Goodwill from fiscal 2024 acquisitions (as described in Note 3) | 1,739 |
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| Working capital adjustments (2) | (25) |
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| Balance at June 30, 2024 | $75,102 |
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| (1) | Relates to working capital adjustments from business acquisitions consummated by the Company during fiscal 2023. |
| (2) | Relates to working capital adjustments from business acquisitions consummated by the Company during fiscal 2024. |
Customer-related intangibles, tradenames and other intangible assets as of June 30, 2024 and 2023 consisted of the following (dollars in thousands):
| June 30, | Estimated Useful Lives (in years) | 2024 | 2023 |
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| Customer-related intangibles | 8-10 | $20,887 | $20,887 |
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| Tradenames | Indefinite | 13,005 | 13,005 |
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| Covenants not to compete | 5 | 566 | 566 |
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| License agreements | 10 | 529 | 529 |
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| Trademarks and patents | 10-15 | 176 | 176 |
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| 35,163 | 35,163 |
| Accumulated amortization | | (13,141) | (11,035) |
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| $22,022 | $24,128 |
Amortization expense was approximately $2.1 million in both fiscal 2024 and fiscal 2023, and is included in selling, general and administrative expenses in the consolidated statements of operations. As of June 30, 2024, the weighted average remaining estimated useful lives for customer-related intangibles, covenants not to compete, license agreements, and trademarks and patents were 4.3 years, 0 years, 0 years and 0 years, respectively.
Based on the carrying amount of intangible assets as of June 30, 2024, and assuming no future impairment of the underlying assets, the estimated future amortization at the end of each fiscal year in the five-year period ending June 30, 2029 and thereafter is as follows (in thousands):
| Fiscal years ending June 30, |
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| 2025 | $2,102 |
| 2026 | 2,101 |
| 2027 | 1,778 |
| 2028 | 1,256 |
| 2029 | 716 |
| Thereafter | 1,064 |
| Total | $9,017 |
| 9. Accounts Payable and Accrued Expenses | Accounts payable and accrued expenses as of June 30, 2024 and 2023 were comprised of the following (in thousands): |
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| June 30, | 2024 | 2023 |
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| Accounts payable | $23,101 | $26,690 |
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| Accrued expenses | 6,025 | 10,080 |
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| Sales tax accruals | 1,778 | 1,960 |
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| $30,904 | $38,730 |
| 10. Income Taxes | The following are the components of income taxes provision (benefit) (in thousands): |
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| Fiscal years ended June 30, | 2024 | 2023 |
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| Current |
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| Federal | $2,195 | $3,137 |
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| State | 568 | 786 |
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| 2,763 | 3,923 |
| Fiscal years ended June 30, | 2024 | 2023 |
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| Deferred |
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| Federal | 516 | 220 |
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| State | (41) | 137 |
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| 475 | 357 |
| $3,238 | $4,280 |
The reconciliation of income tax expense computed at the federal statutory tax rate of 21% for the fiscal years ended June 30, 2024 and 2023 to the provision for income taxes is as follows (in thousands):
| Fiscal years ended June 30, | 2024 | 2023 |
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| Tax at the statutory rate | $1,866 | $2,940 |
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| State income taxes, net of federal benefit | 422 | 747 |
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| Nondeductible compensation | 885 | 558 |
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| Other | 65 | 35 |
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| $3,238 | $4,280 |
| Effective tax rate | 36.4% | 30.6% |
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Deferred income taxes reflect the net tax effect of temporary differences between the basis of assets and liabilities for financial reporting purposes and the basis used for income tax purposes. Significant components of the Company’s current and noncurrent deferred tax assets and liabilities as of June 30, 2024 and 2023 were as follows (in thousands):
| As of June 30, | 2024 | 2023 |
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| Deferred tax assets: |
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| Allowance for doubtful accounts | $281 | $418 |
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| Inventory capitalization | 966 | 1,074 |
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| Stock compensation | 1,039 | 1,013 |
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| Accrued liabilities | 1,581 | 1,073 |
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| Other | 163 | 116 |
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| 4,030 | 3,694 |
| Deferred tax liabilities: |
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| Goodwill | (5,755) | (4,946) |
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| Depreciation | (2,228) | (2,104) |
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| Intangible assets | (1,348) | (1,472) |
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| Other | (197) | (195) |
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| (9,528) | (8,717) |
| Net deferred income tax (liabilities) assets | $(5,498) | $(5,023) |
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As of June 30, 2024, the Company was subject to potential federal and state tax examinations for the tax years including and subsequent to 2019.
| 11. Debt | The Company’s long-term debt as of June 30, 2024 and 2023 was as follows (in thousands): |
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| June 30, 2024 | June 30, 2023 |
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| Revolving Line of Credit | $13,000 | $35,000 |
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| Less: unamortized discount and deferred financing costs | (97) | (131) |
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| Total long-term debt | $12,903 | $34,869 |
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The Company is party, as borrower, to a syndicated credit agreement (the “Credit Agreement”) which allows for borrowings in the maximum aggregate principal amount of up to $100 million, with an accordion feature to increase the revolving credit facility by up to $40 million for a total of $140 million. A portion of the revolving credit facility is available for swingline loans of up to a sublimit of $5 million and for the issuance of standby letters of credit of up to a sublimit of $10 million. Borrowings (other than swingline loans) under the Credit Agreement currently bear interest, at a rate, at the Company’s election at the time of borrowing, equal to (a) the Bloomberg Short-Term Bank Yield Index rate (the “BSBY rate”) plus a margin that ranges between 1.25% and 1.75% depending on the Company’s consolidated leverage ratio, which is a ratio of consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (the “Consolidated Leverage Ratio”) or (b) the highest of (i) prime, (ii) the federal funds rate plus 50 basis points, and (iii) the BSBY rate plus 100 basis points (such highest rate, the “Base Rate”), plus a margin that ranges between 0.25% and 0.75% depending on the Consolidated Leverage Ratio. Swingline loans generally bear interest at the Base Rate plus a margin that ranges between 0.25% and 0.75% depending on the Consolidated Leverage Ratio. During November 2023, Bloomberg Index Services Limited announced it will discontinue the BSBY rate on November 15, 2024. Pursuant to the terms of the Credit Agreement, in connection with the discontinuation of the BSBY rate, when determined by the administrative agent under the Credit Agreement, the BSBY rate will be replaced with the Secured Overnight Financing Rate (“SOFR”) plus a SOFR adjustment ranging from a minimum of 0.11% to a maximum of 0.43%. The maturity date of the Credit Agreement is May 6, 2027. 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 June 30, 2024, the Company was in compliance with its covenants under the Credit Agreement and $66.0 million was available to borrow under the revolving credit facility. The obligations of the Company under the Credit Agreement are secured by substantially all of the assets of the Company and certain of its subsidiaries, and are guaranteed, jointly and severally, by certain of the Company’s subsidiaries.
The carrying value of the Company’s long-term debt reported in the condensed consolidated balance sheets herein approximates its fair value since it bears interest at variable rates approximating market rates.
| 12. Related Party Transactions | Certain of the Company’s subsidiaries lease warehouse and office space from one or more of the principals (or former principals) of the Company or its subsidiaries. These leases include the following: 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, which commenced in October 2021. 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 $252,000 and $228,000 during fiscal 2024 and fiscal 2023, respectively. 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, which commenced in October 2022. Base rent for the first renewal term is $25,000. In addition to base rent, Tri-State is responsible under the leases for costs related to real estate taxes, utilities, maintenance, repairs and insurance. From May 1, 2023 through May 31, 2024, Tri-State Technical Services also leased an additional 50,000 square feet of space from Mr. Stephenson for a base rental payment of $15,000 per month. Payments under these leases totaled approximately $493,000 and $306,000 during fiscal 2024 and fiscal 2023, respectively. 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 this lease totaled approximately $464,000 and $432,000 during fiscal 2024 and fiscal 2023, respectively. 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 |
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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 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 $150,000 and $146,000 during fiscal 2024 and fiscal 2023, respectively.
| 13. Concentrations of Credit Risk | The Company believes that concentrations of credit risk with respect to trade receivables are limited due to the Company’s large customer base. Also, based on the Company’s credit evaluation, trade receivables are often collateralized by the equipment sold. No single customer or contract accounted for more than 10% of the Company’s revenues for fiscal 2024 or fiscal 2023. As of June 30, 2024, there were no accounts receivable due from any customer which accounted for greater than 10% of the Company’s accounts receivable. |
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| 14. Commitments and Contingencies | In the ordinary course of business, certain of the Company’s contracts require the Company to provide performance and payment bonds related to projects in process. These bonds are intended to provide a guarantee to the customer that the Company will perform under the terms of the contract and that the Company will pay subcontractors and vendors. If the Company fails to perform under the contract or pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. The Company is required to reimburse the surety for expenses or outlays it incurs. As of June 30, 2024, outstanding performance and payment bonds totaled $1.2 million. No such performance or payment bonds were outstanding at June 30, 2023. The Company may from time to time become subject to litigation and other legal and regulatory proceedings. Litigation and other proceedings may require the Company to incur significant expenses, including those relating to legal and other professional fees, as well as damages or other payments. Litigation and other proceedings are inherently uncertain, and adverse outcomes in litigation or other proceedings could adversely affect the Company’s financial condition, cash flows, and operating results. |
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| 15. Retirement Plan | The Company has participatory deferred compensation plans under which it matches 50% of employee contributions up to 6% of an eligible employee’s yearly compensation on a discretionary basis. Beginning on July 1, 2023, employees are eligible to participate in the plans after six months of service. Prior to July 1, 2023, employees were eligible to participate in the plans after one year of service. The Company contributed approximately $821,000 and $643,000 to the plans during fiscal 2024 and fiscal 2023, respectively. The plans are qualified plans under Section 401(k) of the Internal Revenue Code. |
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| 16. Shareholders’ Equity | The declaration and payment of cash dividends with respect to the Company’s common stock is determined by the Company’s Board of Directors based on the Company’s financial condition and liquidity needs and other factors deemed relevant by the Company’s Board of Directors. In addition, the Company’s Credit Agreement contains certain covenants which may, among other things, restrict the Company’s ability to pay dividends, and any future facilities may contain similar or more stringent requirements. On October 4, 2023, the Company’s Board of Directors declared a special cash dividend on the Company’s common stock of $0.28 per share (totaling approximately $4.1 million in the aggregate), which was paid on October 26, 2023 to stockholders of record at the close of business on October 16, 2023. No dividends were declared or paid during fiscal year 2023. On September 11, 2024, the Company’s Board of Directors declared a special cash dividend on the Company’s common stock of $0.31 per share to be paid on October 7, 2024 to stockholders of record at the close of business on September 26, 2024. |
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| 17. Equity Plan | Equity Incentive Plan During 2015, the Company’s board of directors and stockholders approved the Company’s 2015 Equity Incentive Plan (the “Plan”). During December 2020, the Company’s stockholders approved an amendment to the Plan to increase the number of shares of the Company’s common stock authorized for issuance pursuant to awards granted under the Plan from 1,500,000 shares to 3,000,000 shares. The fair value of awards granted under the Plan is expensed on straight-line basis over the vesting period of the awards. Share-based compensation expense is included in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations. Non-cash share-based compensation expense under the Plan totaled $5.0 million and $3.1 million for fiscal 2024 and fiscal 2023, respectively. Included within the non-cash share-based compensation expense for fiscal 2024 is an additional expense of $1.2 million related to the acceleration of vesting of 120,851 restricted stock awards and 30,000 restricted stock units, in each case, pursuant to the terms of the applicable award agreement. During fiscal 2024, restricted stock awards of a total of 175,801 shares and 85,672 restricted stock units were granted under the Plan. A portion of the restricted stock awards granted during fiscal 2024 is scheduled to vest ratably over four years and the remainder is scheduled to vest in 10 years from the date of grant. The total grant date fair value, determined by using the closing stock price on the date of grant, of such restricted stock awards was $4.8 million. A portion of the restricted stock units granted during fiscal 2024 is scheduled to vest ratably over four years and the remainder is scheduled to vest in 4 to 22 years from the date of grant. The total grant date fair value of such restricted stock units was $2.2 million. During fiscal 2023, restricted stock awards of a total of 222,672 shares and 128,985 restricted stock units were granted under the Plan. A portion of the restricted stock awards granted during fiscal 2023 is scheduled to vest ratably over four years and the remainder is scheduled to vest in 10 years from the date of grant. The total grant date fair value, determined by using the closing stock price on the date of grant, of such restricted stock awards was $3.6 million. A portion of the restricted stock units granted during fiscal 2023 is scheduled to vest ratably over four years and the remainder is scheduled to vest in 4 to 40 years from the date of grant. The total grant date fair value of such restricted stock units was $2.1 million. During fiscal 2024, 107,859 shares of restricted stock awards and 34,955 restricted stock units vested and 50,671 shares of common stock with an aggregate fair market value of $1.2 million were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of such restricted stock. During fiscal 2023, 20,973 shares of restricted stock awards and 10,784 restricted stock units vested and 6,200 shares of common stock with an aggregate fair market value of $125,000 were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of such restricted stock. As of June 30, 2024, the Company had $21.2 million and $10.3 million of total unrecognized compensation expense related to non-vested restricted stock awards and restricted stock units, respectively, which is expected to be recognized over the weighted-average period of 13.1 years and 9.7 years, respectively. |
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The following is a summary of non-vested restricted stock activity as of, and for the fiscal year ended, June 30, 2024:
| Restricted Stock Awards | Restricted Stock Units |
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| Shares | Weighted- Average Grant Date Fair Value | Shares | Weighted- Average Grant Date Fair Value |
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| Non-vested restricted stock outstanding at June 30, 2023 | 1,227,882 | $20.56 | 533,200 | $24.20 |
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| Granted | 175,801 | 27.02 | 85,672 | 26.25 |
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| Vested | (107,859) | 25.04 | (34,955) | 27.39 |
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| Forfeited | - | - | (35,393) | 26.05 |
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| Non-vested restricted stock outstanding at June 30, 2024 | 1,295,824 | 21.06 | 548,524 | 24.20 |
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Employee Stock Purchase Plan During 2017, the Company’s stockholders approved the Company’s 2017 Employee Stock Purchase Plan (the “ESPP”). Subject to the terms and conditions thereof, the ESPP allows eligible employees the opportunity to purchase shares of the Company’s common stock at a 5% discount. The ESPP provides for six-month offering periods ending on December 31 and June 30 of each year. During fiscal 2024, 5,716 shares of common stock were purchased under the ESPP for which the Company received net proceeds of $116,000. During fiscal 2023, 5,432 shares of common stock were purchased under the ESPP for which the Company received net proceeds of $118,000.
