U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X} QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO _____________________
Commission File No. 0-21946
HI-RISE RECYCLING SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0222933
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
16255 NW 54TH AVENUE
MIAMI, FLORIDA 33014
(Address of principal executive offices)
(305) 624-9222
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
The number of shares outstanding of the Issuer's Common Stock, $.01 Par Value,
as of November 10, 1996 was 6,231,119
Transitional small business disclosure format:
Yes [ ] No [X]
Page 1
<PAGE>
HI-RISE RECYCLING SYSTEMS, INC.
FORM 10-QSB
INDEX
PART 1. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1995 and 3
September 30, 1996
Consolidated Statements of Operations for the three months 4
and nine months ended September 30, 1995 and 1996
Consolidated Statement of Changes in Shareholders' Equity 5
for the nine months ended September 30, 1996
Consolidated Statements of Cash Flows for the nine months ended 6
September 30, 1995 and 1996
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
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HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
Current Assets:
Cash and cash equivalents $ 5,717,560 $ 2,438,864
Investments 836,056 597,973
Accounts receivable, net of allowance
for doubtful accounts of $120,559 in
1995 and 1996 612,133 991,293
Inventory 579,881 886,026
Other assets 300,837 316,855
------------ ------------
Total current assets 8,046,467 5,231,011
------------ ------------
Property and equipment, net 411,025 600,364
Note receivable from related party 32,847 33,224
Net investment in sales type leases 2,558,350 3,342,960
Goodwill 1,035,281 1,396,699
------------ ------------
Total assets $ 12,083,970 $ 10,604,258
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 279,448 $ 481,720
Revolving line of credit 1,243,858 1,072,625
Current portion of long term debt 200,000 118,000
Unearned service agreements revenue 17,171 23,255
------------ ------------
Total current liabilities 1,740,477 1,695,600
------------ ------------
Long term portion of note payable 300,000 220,000
------------ ------------
Total liabilities $ 2,040,477 $ 1,915,600
============ ============
Shareholders' Equity:
Preferred stock, par value $.01 per share;
1,000,000 shares authorized; 720 and 190
issued and outstanding at December 31,1995
and September 30 1996, respectively $ 7 $ --
Common stock, $.01 par value; 10,000,000
shares authorized; 3,444,563 and 6,231,119
issued and outstanding at December 31, 1995
and September 30, 1996, respectively 34,446 64,827
Additional paid-in capital 13,328,112 14,021,053
Accumulated deficit (3,319,072) (5,397,222)
------------ ------------
Total shareholders' equity 10,043,493 8,688,658
------------ ------------
Total liabilities and shareholders' equity $ 12,083,970 $ 10,604,258
============ ============
The accompanying notes are an integral part of these financial statements
3
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<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES:
Equipment sales $ 720,626 $ 824,651 $ 1,745,111 $ 1,785,652
Shares savings contract
revenue 101,028 102,275 265,362 297,803
Service/Parts revenue 187,660 165,084 417,772 452,758
---------- ---------- ----------- -----------
Total revenue $1,009,314 $1,092,010 $ 2,428,245 $ 2,536,213
========== ========== =========== ===========
COST AND EXPENSES:
Cost of equipment sold,
including direct costs
of service/parts $ 595,010 $ 531,854 $ 1,227,076 $ 1,348,647
Selling and marketing 420,816 445,744 1,143,103 1,354,932
General and administrative 312,876 527,021 917,654 1,504,185
Product development 1,229 6,716 29,537 35,610
Shared savings contract
expense 81,201 71,945 248,390 225,960
---------- ---------- ----------- -----------
Total operating cost and
expenses 1,411,132 1,583,280 3,565,760 4,469,334
---------- ---------- ----------- -----------
Operating loss (401,818) (491,270) (1,137,515) (1,933,121)
---------- ---------- ----------- -----------
Other income (expense):
Settlement expense -- (2,203) -- (77,203)
Interest income 75,001 120,466 251,153 351,522
Interest expense (48,125) (33,107) (112,326) (113,115)
---------- ---------- ----------- -----------
Net loss $ (374,942) $ (406,114) $ (998,688) $(1,771,917)
========== ========== =========== ===========
Net loss per share $ (0.11) $ (0.07) $ (0.30) $ (0.40)
Weighted average common
shares outstanding 3,442,949 6,065,553 3,299,442 5,257,725
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
SHARES OF ADDITIONAL TOTAL
COMMON PREFERRED COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
STOCK STOCK STOCK CAPITAL DEFICIT EQUITY
--------- --------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,444,563 $ 7 $34,446 $13,328,112 $(3,319,072) $10,043,493
Issuance of common stock-Preferred
Conversion 2, 786,556 (7) 29,156 387,933 417,082
Issuance of common stock-Acquisition
Net loss (1,771,917) (1,771,917)
Preferred Stock Dividend 1,225 305,008 (306,233) --
--------- ----- ------- ----------- ----------- -----------
Balance at September 30, 1996 6,231,119 $ -- $64,827 $14,021,053 $(5,397,222) $ 8,688,658
========= ===== ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
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HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
OPERATING ACTIVITIES
Net loss $ (988,688) $ (1,771,917)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 54,000 120,000
(Increase) in accounts receivable (295,888) (304,063)
(Increase) in inventory (125,370) (249,389)
(Increase) in other assets (70,672) (15,558)
(Increase) in net investments in
sales type leases (473,566) (784,610)
(Decrease) Increase in accounts
payable and accrued expenses (96,278) 151,435
Increase in unearned Service
Agreements 14,051 6,084
Increase (Decrease) in note
receivable from related party (14,140) (377)
----------- ------------
Net cash used in operating
activities (2,006,551) (2,848,395)
----------- ------------
INVESTING ACTIVITIES:
Purchase of businesses net of
cash acquired (450,372) 46,982
Maturity of investments 919,515 238,083
Purchasee of equipment and
furniture and fixtures (451,047) (306,814)
----------- ------------
Net cash (used in) provided by
investing activities 18,096 (21,749)
----------- ------------
FINANCING ACTIVITIES:
Private Placement-Net of expenses 842,089 --
Proceeds from Line of Credit 975,000 150,000
Payments under credit line (324,274) (321,233)
Decrease in note payable to
related party (7,464) --
Payment of current portion of
long-term debt -- (120,000)
(Decrease) of Long term portion of
note payable (80,000)
Decrease in deferred acquisition costs 63,061
Conversion of preferred stock -- (7)
Common Stock issued to pay
Note Payable 84,353
Common Stock issued upon exercise of
stock options 9,328 28,335
----------- ------------
Net cash provided by, (used),
in financing activities 1,557,740 (408,552)
----------- ------------
Net increase (decrease) in
cash and cash equivalents (430,715) (3,278,696)
Cash and cash equivalents,
beginning of year 805,774 5,717,560
----------- ------------
Cash and cash equivalents,
end of quarter 375,059 2,438,864
----------- ------------
*Purchase of businesses, net of
cash acquired
Working capital, other than cash (262,436) (12,723)
Property, plant and equipment (25,139) (2,525)
Cost in excess of net assets of
companies acquired, net (927,060) (275,770)
Other assets (8,862) --
Current portion of long term debt 150,000 38,000
Lont term debt 300,000 --
Common stock issued 323,125 300,000
----------- ------------
Net cash used to acquire business (450,372) 46,982
=========== ============
The accompanying notes are an integral part of these financial statements
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on Form
10-KSB for the year ended December 31, 1995 of Hi-Rise Recycling Systems, Inc.
(the "Company"), as filed with the Securities and Exchange Commission. The
December 31, 1995 balance sheet was derived from audited consolidated financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
3. Per share data was computed by dividing net loss as adjusted by the preferred
dividend by the weighted average number of shares outstanding during the period.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is engaged primarily in the business of marketing a proprietary
automated system known as the "hi-rise system" designed to collect and separate
recyclable and other solid waste in multistory buildings. In February 1995, the
Company acquired all of the issued and outstanding capital stock of IDC Systems,
Inc. ("IDC"). IDC is engaged in the business of manufacturing, installing and
servicing trash compaction systems. The Company's results of operation for the
nine months ended September 30, 1995 include the results of IDC from February
23, 1995, while the Company's results of operation for the nine months ended
September 30, 1996 include the results of IDC for the full nine months.
RESULTS OF OPERATION
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995.
Total revenue during the nine months ended September 30, 1996 was $2,536,213, an
increase of $107,968, compared to total revenue of $2,428,245 during the prior
comparable period. Revenue from equipment sales, which includes hi-rise system
sales and IDC compactor sales, increased by $40,541 to $1,785,652 during the
nine months ended September 30, 1996, compared to $1,745,111 during the prior
comparable period. Hi-rise system sales for the current nine months were
$671,144 compared to $1,138,552 for the previous comparable period. The decrease
is a result of the Company's emphasis during the nine months ended September 30,
1996 on equipment sales in new construction buildings. In the case of new
building sales, the period of time between the execution of a sales contract and
installation of the hi-rise system typically ranges from six to twenty-four
months. The Company does not recognize revenue until the installation of the
system. The company has no control for installation of systems in new buildings
as that is dependent on timing of the contract during the construction process.
The longer the installation time period the earlier Hi-Rise was specified in and
contracted to the project. As a result, backlog balance at September 30, 1996
was $3,236,298 as compared to $1,634,434 at September 30,1995. Revenue from
shared savings agreements increased by $32,441 to $297,803 during the nine
months ended September 30, 1996, compared to $265,362 during the prior
comparable period. Pursuant to the shared savings agreements, the Company
manages the customer's solid waste disposal in order to reduce the waste hauling
bill, in return for a percentage of the savings achieved by the Company. The
Company had 33 shared saving agreements in effect at September 30, 1996 compared
to 27 at September 30, 1995. Revenue from service and parts increased by $34,986
to $452,758 during the nine months ended September 30, 1996, compared to
$417,772 during the prior comparable period.
During the nine months ended September 30, 1996, the Company had interest income
of $351,522, an increase of $100,369, compared to $251,153 during the prior
comparable period. The increase in interest income is primarily attributable to
interest realized from sales type lease agreements and interest from
investments.
Total operating costs and expenses during the nine months ended September 30,
1996 were $4,469,334, an increase of $903,574, compared to total operating costs
and expenses of $3,565,760 during the prior comparable period. Cost of equipment
sold increased by $121,571 from $1,227,076 during the nine months ended
September 30, 1995 to $1,348,647 during the current nine months. As a percentage
of equipment sales and service and parts revenue, cost of equipment sold
increased to 60% during the nine months ended September 30, 1996 from 57% during
the prior comparable period. The increase in cost of equipment sold in absolute
dollars and as a percentage of revenue is primarily attributable to the
inclusion of IDC's cost of equipment sold in the amount of $575,700. IDC's cost
of equipment sold as a percentage of its revenues is typically higher than the
cost of equipment sold of
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hi-rise systems as a percentage of revenue from sales of hi-rise systems.
Selling and marketing expenses during the nine months ended September 30, 1996
were $1,354,932 an increase of $211,829 compared to selling and marketing
expenses of $1,143,103 during the prior comparable period. The increase in
selling and marketing expenses was primarily attributable to salaries for
additional sales personnel and related costs, in the amount of $50,000, in
connection with the addition of sales personnel in New York, as well as an
increase of $91,000 in salaries and related costs as a result of the hiring of
additional sales personnel in the Miami and corporate offices. The addition of
sales personnel in the corporate offices is part of the Company's efforts to
establish a nationwide distributor network. In addition, included in selling and
marketing is $50,000 of additional expenses for IDC during the current nine
months as opposed to only seven months last year. General and administrative
expenses during the nine months ended September 30, 1996 were $1,504,185 an
increase of $586,531 compared to general and administrative expenses of $917,654
during the prior comparable period. The increase in general and administrative
expenses was partially attributable to an increase of approximately $200,000 in
salaries and related costs as a result of the hiring of additional executive and
administrative personnel including a new chief executive officer and
administrative assistant. In addition, general and administrative expenses for
the nine months ended September 30, 1996 include approximately $55,000 of such
expenses for IDC above the seven months in 1995. Legal and professional fees
increased by $100,000 primarily as a result of the filing of a registration
statement on Form S-3 during the current nine months and legal fees incurred in
connection with the exercise by certain holders of the Company's Series A
Preferred Stock of their right to convert such shares into shares of the
Company's common stock and recent changes in the Company's management. The
purchase of IDC and Dade County Recycling, Inc. and the depreciation on assets
purchased in 1995 resulted in an additional $105,000 of depreciation and
goodwill expense in the first nine months of 1996. Interest expense was
comparable to the prior nine month period.
In July 1996, the Company agreed to an out of court settlement with Mr. Jeffrey
Daniels, its former president who was terminated in January 1996, and another
former employee. The Company incurred settlement expenses totaling $77,203 in
cash in connection with such settlement. An expense of $75,000 was accrued for
previosly in the second quarter. See "Part II. Item 1.-Legal Proceedings."
As a result, the Company incurred a net loss of $1,771,917 during the nine
months ended September 30, 1996, compared to a net loss of $998,688 during the
nine months ended September 30, 1995.
RESULTS OF OPERATION
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995.
Total revenue during the three months ended September 30, 1996 was $1,092,010,
an increase of $82,696, compared to total revenue of $1,009,314 during the prior
comparable quarter. Revenue from equipment sales, which includes Hi-Rise system
sales and IDC compactor sales, increased by $104,025 to $824,651 during the
three months ended September 30, 1996, compared to $720,626 during the prior
comparable quarter. Hi-rise system sales for the current quarter were $323,021
compared to $472,000 for the previous comparable quarter. The decrease in
hi-rise system sales is primarily the result of the Company's emphasis during
the three months ended September 30, 1996 on equipment sales in new construction
buildings. In the case of new building sales, the period of time between the
execution of a sales contract and installation of the hi-rise system typically
ranges from six to twenty-four months. The Company does not recognize revenue
until installation of the hi-rise system. As a result, backlog continues to grow
and totaled $3,236,298 at September 30,1996 compared to $1,634,434, at September
30, 1995. Revenue from shared savings agreements increased by $1,247 to $102,275
during the three months ended September 30, 1996, compared to $101,028 during
the prior comparable quarter. Pursuant to the shared
9
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savings agreements, the Company manages the customer's solid waste disposal in
order to reduce the waste hauling bill, in return for a percentage of the
savings achieved by the Company. The Company had 33 shared saving agreements in
effect at September 30, 1996 compared to 27 at September 30, 1995. Revenue from
service and parts decreased by $22,576 to $165,084 during the three months ended
September 30, 1996, compared to $187,660 during the prior comparable quarter.
During the three months ended September 30, 1996, the Company had interest
income of $120,466, an increase of $45,465, compared to $75,001 during the prior
comparable period. The increase in interest income is primarily attributable to
interest realized from sales type lease agreements and interest from
investments.
Total operating costs and expenses during the three months ended September 30,
1996 were $1,583,280, an increase of $172,148, compared to total operating costs
and expenses of $1,411,132 during the prior comparable quarter. Cost of
equipment sold decreased by $63,156 from $595,010 during the three months ended
September 30, 1995 to $531,854 during the current three months. As a percentage
of equipment sales and service and parts revenue, cost of equipment sold
decreased to 54% during the three months ended September 30, 1996 from 65%
during the prior comparable period. The decrease is a result of higher margin
items sold in the current quarter as compared to the prior comparable quarter.
Selling and marketing expenses during the three months ended September 30, 1996
were $445,744, an increase of $24,928, compared to selling and marketing
expenses of $420,816 during the prior comparable period. The increase in selling
and marketing expense is a result of the hiring of additional sales personnel in
New York and the corporate offices in Miami. General and administrative expenses
during the three months ended September 30, 1996 were $527,021, an increase of
$214,145, compared to general and administrative expenses of $312,876 during the
prior comparable period. The increase in general and administrative expenses was
partially attributable to an increase of approximately $100,000 in salaries and
related costs as a result of the hiring of additional executive and
administrative personnel including a new chief executive officer and
administrative assistant. The purchase of IDC and Dade County Recycling, Inc.
and the depreciation on assets purchased in 1995 resulted in an additional
$36,000 of depreciation and goodwill expense in the three months ended September
30, 1996. Interest expense was comparable to the prior nine month period.
In July 1996 the Company agreed to an out of court settlement with Mr. Jeffrey
Daniels, its former president who was terminated in January 1996, and another
former employee. The Company incurred settlement expenses totaling $77,203 in
cash in connection with such settlements.
As a result, the Company incurred a net loss of $406,114 during the three months
ended September 30, 1996, compared to a net loss of $374,942 during the three
months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of $3,511,350 and cash
and cash equivalents aggregating $2,438,864 compared to working capital of
$6,305,990 and cash and cash equivalents of $5,717,560 at December 31, 1995.
The Company's primary sources of working capital has been under a $2.0 million
line of credit with Ocean Bank, N.A. ("Ocean Bank") and net proceeds from an
offshore private placement of the Company's Series A Preferred Stock, $.01 par
value (the "Series A Preferred Stock"), in November 1995 for an aggregate
purchase price of $7,200,000. In connection with this private placement, the
Company received proceeds net of expenses of approximately $6,368,000.
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Under the Ocean Bank line of credit, the Company may borrow up to 75% of the
present value of eligible leases of the hi-rise systems entered into since
January 1994. The line of credit is collateralized by leases of the Company's
hi-rise system, bears interest at a rate per annum equal to Citibank's prime
rate plus 2%, and is payable on demand. As of September 30, 1996, the
outstanding balance under this line of credit was $1,072,625.
Under the terms of the offshore private placement the Series A Preferred Stock
became convertible, at the option of the holders thereof, in increments over a
period of 135 days from the consummation of the private placement, into shares
of the Company's Common Stock, $.01 par value (the "Common Stock"), at a
conversion rate based upon the lower of (i) $9.75 per share or (ii) 85% of the
market price of the Common Stock at the time of conversion. The conversion rate
is subject to adjustment on the occurrence of certain events. The Series A
Preferred Stock is mandatorily convertible by the holders thereof on October 27,
1998. Prior to any such conversion of the Series A Preferred Stock, the Company
has the option to redeem the Series A Preferred stock at the then applicable
conversion price. Upon conversion or redemption, the holder will be entitled to
dividends at the rate of 10% per annum, accrued from the date of issuance
through the date of conversion or redemption, as the case may be, payable in
Common Stock in the case of conversion and cash in the case of redemption. To
date, all 720 shares issued of Series A Preferred Stock were converted into
2,704,661 shares of Common Stock at an average per share conversion price of
$2.78.
Net cash used in operating activities was $2,799,142 and $2,006,551, during the
nine months ended September 30, 1996 and 1995, respectively. The increase was
primarily attributable to a net loss of $773,229 more than the prior comparable
period and sales type leases of hi-rise systems entered into in the nine months
ended September 30, 1996. In addition, accounts receivable increased by $308,966
as a result primarily of two cash sales totaling $184,000 installed at the end
of September. In addition, inventory increased by $249,389 as a result of the
increased backlog and inventory needed for the installations to meet this
backlog. Net cash used in financing activities was $408,552 during the nine
months ended September 30, 1996, compared to net cash provided by financing
activities of $1,557,740 during the nine months ended September 30, 1995. Net
cash used by investing activities was $71,002 during the nine months ended
September 30, 1996, compared to net cash provided by investing activities of
$18,096 during the nine months ended September 30, 1995.
The Company currently has no outstanding material commitments for capital
expenditures. The Company's primary requirements for capital will be the cost of
systems sold, leased and rented, strategic acquisitions, marketing and sales
costs associated with the Company's national and international expansion into
new target markets and efforts to establish a nationwide distribution network
and general and administrative expenses associated with the Company's plan for
expansion.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, the Company had been notified that Jeffrey A. Daniels,
its former president whose employment was terminated in January 1996, intended
to pursue claims against the Company resulting from his termination. In July
1996, the Company entered into a compromise agreement with Mr. Daniels pursuant
to which (1)
11
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the Company agreed to pay Mr. Daniels $39,000, in cash less appropriate payroll
taxes and pay his attorney $11,000, and (2) Mr. Daniels agreed to release all
claims against the Company. In addition, the Company entered into a compromise
agreement with another former employee, Tom Witter its sales manger, pursuant to
which (1) the Company agreed to pay such employee $27,500, in cash less
appropriate payroll taxes, and (2) such former former employee agreed to release
all claims against the Company.
On October 7,1996, Milton Payton ("Mr. Payton"), a former employee, filed a
lawsuit in the Circuit Court of Cook County, Illinois County Department, Law
Division against the Company claiming breach of contract and fraud and
misrepresentation. In general, the lawsuit alleges that the Company made written
and verbal representations to Mr. Payton to become General Manager and part
owner of the Company's Midwest Subsidiary. Mr. Payton seeks compensatory damages
of $600,000 for breach of contract and $600,000 for fraud and misrepresentation.
The Company intends to vigorously contest the validity of Mr. Payton's claims
which the Company believes have no merit. The Company does not believe that the
ultimate outcome of this matter will have a material adverse effect on its
financial position or operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The Annual Meeting of Shareholders (the "Meeting") of the Company was
held on July 16, 1996.
B. Not applicable because:
(i) Proxies for the Meeting were solicited pursuant to Regulation
14 under the Securities Exchange Act of 1934;
(ii) There was no solicitation in opposition to management's
nominees as listed in the Company's proxy statement dated June 17,
1996; and
(iii) All such nominees were elected.
C. The matters voted on at the meeting consisted of the following:
(i) The election of five members to the Company's Board of
Directors. The name of each nominee for election and the number of
shares voted for and against such nominee, as well as the number
of abstentions and broker non-votes with respect to such nominee,
are set forth below:
NAME FOR AGAINST ABSTAIN NON-VOTES
- ---- --------- ------- ------- ---------
Don Engel 5,355,397 16,755 -0- 610,619
Mark Shantzis 5,351,397 20,755 -0- 610,619
Warren Adelson 5,355,397 16,755 -0- 610,619
Ira Merritt 5,355,397 16,755 -0- 610,619
Joel Pashcow 5,355,397 16,755 -0- 610,619
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(ii) A proposal to approve the adoption of the Company's 1996
Stock Option Plan and the reservation of 1,000,000 shares of
Common Stock for issuance pursuant to the 1996 Stock Option Plan.
3,958,689 shares were voted in favor of such proposal, 122,076
shares against and 32,325 shares abstained. In addition, there
were 1,869,681 broker non-votes with with respect to such
proposal.
(iii) A proposal to approve the adoption of the Company's 1996
Director's Stock Option Plan and the reservation of 150,000 shares
of Common Stock for issuance pursuant to the 1996 Director's Stock
Option Plan. 4,014,499 shares were voted in favor of such
proposal, 122,961 shares against and 31,225 abstained. In
addition, there were 1,844,086 broker non-votes with with respect
to such proposal.
D. Not applicable.
ITEM 5. OTHER INFORMATION
On September 25, 1996, the Company acquired all of the outstanding capital stock
of Recycltech Enterprises Inc., a Province of Ontario corporation
("Recycltech"), which had, prior to the acquisition, served as the Company's
distributor of hi-rise systems in Toronto, Canada and its immediately
surrounding areas. In consideration for its acquisition of the Recycltech
capital stock, the Company issued an aggregate of 64,243 shares of its Common
Stock, valued at $300,000, to the former shareholders of Recycltech.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBITS DESCRIPTION
-------- -----------
11 Statement re: computation of per share earnings
(B) REPORTS ON FORM 8-K:
None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HI-RISE RECYCLING SYSTEMS, INC.
Date: November 13, 1996 By: /s/ DON ENGEL
-----------------------------------------
Donald Engel, Co- Chairman of the
Board and Chief Executive Officer
(principal executive officer)
Date: November 13, 1996 By: /s/ BRAD HACKER
-----------------------------------------
Bradley Hacker, Controller
(Principal Financial and Accounting Officer)
14
EXHIBIT 11
<PAGE>
<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Shares outstanding: 3,444,563 6,231,119 3,444,563 6,231,119
Weighted avg. shares
outstanding 3,442,949 6,065,553 3,299,442 5,257,735
Net loss $ (374,942) $ (406,114) $ (998,688) $ (1,771,917)
Preferred Dividend -- (25,676 -- (306,223)
------------ ------------ ----------- ------------
Total (374,942) (431,790) (998,688) (2,078,140)
Net loss per share $ (0.11) $ (0.07) $ (0.30) $ (0.40)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-01-1994
<CASH> 2,438,864
<SECURITIES> 597,973
<RECEIVABLES> 991,293
<ALLOWANCES> 120,559
<INVENTORY> 886,026
<CURRENT-ASSETS> 5,221,011
<PP&E> 880,090
<DEPRECIATION> 249,726
<TOTAL-ASSETS> 10,604,258
<CURRENT-LIABILITIES> 1,695,505
<BONDS> 0
0
0
<COMMON> 64,827
<OTHER-SE> 8,623,831
<TOTAL-LIABILITY-AND-EQUITY> 10,604,258
<SALES> 2,536,213
<TOTAL-REVENUES> 2,536,213
<CGS> 1,348,647
<TOTAL-COSTS> 4,469,334
<OTHER-EXPENSES> 77,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,113
<INCOME-PRETAX> (1,771,917)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,771,917)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> 0
</TABLE>
