Overview

Revenues for the first six months of fiscal 2009 established a record for the Company. Revenues for the six month and three month periods ended December 31, 2008 increased by 24.9% and 10.1%, respectively, over the same periods of fiscal 2008. Foreign sales continue to be strong, increasing 49.3% for the first six months of fiscal 2009 over the same period of fiscal 2008. The increased revenues were partially attributable to shipments from the Company's accumulated backlog. Net earnings increased by 48.7% and 25.9% for the six and three month periods, respectively. The present financial crisis may affect future sales as many projects are finding it more difficult to secure financing as a result of the current state of the economy; however, to date, the Company has been successful in securing its share of potential orders.

Gross profit margins decreased to 22.5% for the six month period from 23.6% for the same period of fiscal 2008; however, for the three month period gross margins increased to 24.4% from 23.1%. The variation resulted from the mix and size of individual orders.

At December 31, 2008, inventories and accounts receivable were lower than they were at the start of the year, enabling the Company to increase its cash position by $1,320,187.

Liquidity and Capital Resources

Cash increased by $1,320,187 during the first six months of fiscal 2009 compared
to a decrease of $716,343 during the same period of fiscal 2008. The following
summarizes the Company's Condensed Consolidated Statements of Cash Flows:




                                  Six Months Ended December 31,
                                     2008                2007
                                  (Unaudited)         (Unaudited)
Net cash (used) provided by:
Operating activities           $       1,320,187    $      (416,782 )
Investing activities                           -            (18,189 )
Financing activities                           -           (281,372 )

Most of the cash provided by operating activities for the first six months of fiscal 2008 resulted from a $1,488,155 reduction in accounts and trade notes receivable as large shipments made during the quarter were either paid prior to shipment (in the case of foreign shipments) or paid for by customers' deposits. Other cash generated by operating activities during the first six months of fiscal 2009 was provided by the Company's net earnings of $434,691 and non-cash expenses for depreciation and amortization of $65,011 and bad debts of $42,175. Included in bad debt expense was an increase in the provision for bad debts of $20,000 due to the present credit crisis. Record shipments also reduced inventories and provided cash of $163,777. This cash was offset by a decrease in accounts payable and accrued expenses of $471,158 and accrued employee expenses of $187,001. A reduction in customers' deposits also used cash of $150,964. Additional uses of cash were a reduction in earned income of $41,387 associated with the amortization of the initial fee received by the Company from Whirlpool Corporation in January 2005 (which fee was fully amortized at December 31, 2008) and refundable income taxes and income taxes payable aggregating $59,061.

There were no expenditures for investing activities for the first six months of fiscal 2009. The Company expended $18,189 for capital purchases during the first six months of fiscal 2008.

There were no expenditures for financing activities during the first half of fiscal 2009. The Company used cash of $281,372 to pay cash dividends during the same period of fiscal 2008. The Company eliminated the payment of dividends thereafter.

On October 10, 2008, the Company received an extension until October 30, 2009 of its existing $2,250,000 revolving line of credit facility. The Company's obligations under the facility are guaranteed by the Company's subsidiaries and collateralized by substantially all of the Company's and its subsidiaries' assets. No amounts were outstanding under this facility at December 31, 2008 or June 30, 2008.

The Company believes that its present cash position and cash it expects to generate from operations, as well as, if needed, cash borrowings available under its $2,250,000 revolving line of credit facility, will be sufficient to meet its anticipated operational needs.

Off-Balance Sheet Financing

The Company has no off-balance sheet financing arrangements within the meaning of item 303(c) of Regulation S-B.

Results of Operations

Revenues.

The following table sets forth certain information with respect to changes in
the Company's revenues for the periods presented:



                          Six months ended                      Three months ended
                            December 31,                           December 31,
                         2008           2007         %          2008           2007         %
                     (Unaudited)    (Unaudited)    Change   (Unaudited)    (Unaudited)    Change
Net sales            $ 12,778,550   $ 10,029,432     27.4 %  $ 6,134,405    $ 5,461,381     12.3 %
Development fees,
franchise and
license fees,
commissions and
other                     185,915        352,092    -47.2 %       79,243        183,499    -56.8 %
Total revenues       $ 12,964,465   $ 10,381,524     24.9 %  $ 6,213,648    $ 5,644,880     10.1 %

Revenues of the license and franchise operations segment decreased by $88,208 (49.5%) and $55,875 (55.1%) for the six and three month period, respectively, of fiscal 2009 from the same periods of fiscal 2008. The decrease in both periods is attributable to the economic downturn which resulted in less royalty income and fewer new store openings. In addition, fiscal 2008 was favorably impacted by certain foreign renewal license fees.

Operating Expenses.



                                           Six months ended           Three months ended
                                             December 31,                December 31,
                                          2008          200 7         2008          2007
                                       (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
As a percentage of sales:
Cost of goods sold                        77.5%         76.4%         75.6%         76.9%
As a percentage of revenue:
Selling, general and administrative       18.7%         22.7%         19.9%         21.4%
expenses
Total expenses                            95.0%         96.5%         94.5%         94.8%

Costs of goods sold, expressed as a percentage of sales, increased to 77.5% from 76.4% for the first six months of fiscal 2009, but decreased to 75.6% from 76.9% for the three month period of fiscal 2009, compared to the same periods of fiscal 2008. These variations are attributable to product mix and the dollar size of orders

Selling, general and administrative expenses increased by $63,789 (2.7%) and $29,203 (2.4%) for the six and three month periods, respectively, of fiscal 2009 from the same periods in fiscal 2008, primarily as a result of increased payroll expenses. The decrease as a percentage of revenues in both periods of fiscal 2009 was due to the increased level of sales, which better absorbed fixed and semi-variable expenses.

Interest income decreased by $40,453 (41.1%) and $17,105 (35.0%) for the six and three month periods of fiscal 2009, respectively, from the same periods of fiscal 2008 as a result of lower prevailing interest rates which, offset higher average outstanding bank balances.

The Company's effective tax rate increased to 38.0% from 36.6% and 39.2% from 37.0% for the six and three month periods of fiscal 2009, respectively, compared to the same periods of fiscal 2008 principally due to the loss of the foreign sales exclusion tax deduction.

Inflation

Inflation has not had a significant effect on the Company's operations during any of the reported periods.

The Company, through its subsidiary Steiner-Atlantic Corp., leases 27,000 square feet of warehouse and office space in Miami, Florida from The Sheila S. Steiner Revocable Trust, of which Sheila Steiner and her husband, William K. Steiner, Chairman of the Board of Directors and a director of the Company, are the co-trustees. Mr. and Mrs. Steiner are also co-trustees of the William K. Steiner Revocable Trust, which is a principal stockholder of the Company.

The lease provides for a three-year term that commenced on November 1, 2005, with two three-year renewal options in favor of Steiner-Atlantic Corp. The first renewal option was exercised on September 29, 2008 and extends the lease until October 31, 2011. The lease provides for an annual rental of $94,500 commencing November 1, 2005, with annual increases commencing November 1, 2006 of 3% over the rent in the prior year. The annual rent for the period November 1, 2008 through October 31, 2009 is $103,263. The Company bears real estate taxes, utilities, maintenance, non-structural repairs and insurance. The Company believes that the terms of the lease are comparable to terms that would be obtained from an unaffiliated third party for similar property in a similar locale.

Critical Accounting Policies

The accounting policies that the Company has identified as critical to its business operations and to an understanding of the Company's results of operations remain unchanged from those described in detail in the Management's Discussion and Analysis or Plan of Operation section of the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2008. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities, and the reported amounts of revenues and expenses during the reported period. Therefore, there can be no assurance that the actual results will not differ from those estimates.

In September 2006, the Financial Accounting Standards Board ("FASB") Issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurement" ("SFAS 157") which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and provides for additional fair value disclosures. In February 2008, the FASB issued FASB Staff Positions ("FSP") SFAS No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions," and FSP SFAS No. 157-2, "Effective Date of FASB Statement No. 157." FSP SFAS 157-1 removes leasing transactions from the scope of SFAS No. 157, while SFAS No. 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities that are to be recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP SFAS 157-2 does not defer recognition and disclosure requirements for financial assets and financial liabilities which became effective as to the Company for its current fiscal year, beginning July 1, 2008, or for nonfinancial assets and nonfinancial liabilities that are to be remeasured at least annually. The Company does not believe SFAS 157 will have a material effect on its consolidated financial statements.

In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB No. 115," which permits, at specified election dates, all entities to choose to measure eligible items at fair value. A business entity is to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected is to be recognized in earnings as incurred and not deferred. SFAS 159 became effective as to the Company for its current fiscal year, beginning July 1, 2008. FSAS 159 did not have a material effect on the Company's consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company will assess the impact of SFAS 141(R) if and when a future acquisition occurs.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with accounting principles generally accepted in the United States of America for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board's amendments to AU Section 411," "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." Any effect of applying the provisions of SFAS No. 162 is to be reported as a change in accounting principle in accordance with SFAS No. 154, "Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No.
3." The Company will adopt SFAS No. 162 once it is effective. The Company is currently evaluating the effect the adoption may have on its consolidated financial statements.

Certain statements in this Report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Report, words such as "may," "should," "seek," "believe," "expect," anticipate," "estimate," "project," "intend," "strategy" and similar expressions are intended to identify forward-looking statements regarding events, conditions and financial trends that may affect the Company's future plans, operations, business strategies, operating results and financial position. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that may cause actual results, trends, performance or achievements of the Company, or industry trends and results, to differ materially from the future results, trends, performance or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others:
general economic and business conditions in the United States and other countries in which the Company's customers are located; industry conditions and trends, including supply and demand; changes in business strategies or development plans; the availability, terms and deployment of debt and equity capital; technology changes; competition and other factors which may affect prices which the Company may charge for its products and its profit margins; the availability and cost of the equipment purchased by the Company; relative values of the United States currency to currencies in the countries in which the Company's customers, suppliers and competitors are located; and changes in, or the failure to comply with, government regulation, principally environmental regulations. These and certain other factors are discussed in this Report and from time to time in other Company reports filed with the Securities and Exchange Commission. The Company does not assume an obligation to update the factors discussed in this Report or such other reports.