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 MARCH 31, 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 May 10, 1996 was 5,772,042.
Transitional small business disclosure format:
Yes____ No [X]
Page 1
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<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
FORM 10-QSB
INDEX
PART 1. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1995 and 3
March 31, 1996
Consolidated Statements of Operations for the three months 4
ended March 31, 1995 and 1996
Consolidated Statement of Changes in Shareholders' Equity 5
for the three months ended March 31, 1996
Consolidated Statements of Cash Flows for the three months 6
ended March 31, 1995 and 1996
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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2
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HI-RISE RECYLING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31, March 31,
1995 1996
------------ ------------
Current Assets:
Cash and cash equivalents $ 5,717,560 $ 4,478,916
Investments 836,056 655,885
Accounts receivable, net of allowance for
doubtful accounts of $120,559 in 1995 and in 1996 612,133 759,157
Inventory 579,881 828,329
Other assets 300,837 287,774
------------ ------------
Total current assets 8,046,467 7,010,061
------------ ------------
Property and equipment, net 411,025 556,764
Note receivable from related party 32,847 33,647
Net investment in sales type leases 2,558,350 2,528,247
Goodwill 1,035,281 1,025,281
----------- -----------
Total assets $ 12,083,970 $ 11,154,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accountws payable and accrued liabilities $ 279,448 $ 186,825
Revolving line of credit 1,243,858 1,123,444
Current portion of long term debt 200,000 130,000
Unearned service agreements 17,171 15,201
----------- -----------
Total current liabilities 1,740,477 1,455,470
------------ -----------
Long term portion of notes payable 300,000 300,000
----------- -----------
Total liabilities $ 2,040,477 $ 1,755,470
============ ===========
Shareholders' Equity:
Preferred stock, par value $.01 per sahre;
1,000,000 shares authorized; 720 and 190 issued
and outstanding at December 31, 1995 and
March 31, 1996, respectively $ 7 $ 2
Common stock, $.01 par value; 10,000,000 shares
authorized; 3,444,563 and 5,427,150 issued and
outstanding at December 31, 1995 and March 31,
1996, respectively 34,446 54,271
Additional paid-in capital 13,328,112 13,488,834
Accumulated deficit (3,319,072) (4,144,577)
------------ -----------
Total shareholders equity 10,043,493 9,398,530
------------ -----------
Total liabilities and shareholders' equity $ 12,083,970 $11,154,000
============ ===========
The accompanying notes are an integral part of these financial statements
3
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HI-RISE RECYLING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1996
-------------- --------------
REVENUES:
Equipment sales $ 300,494 $ 300,767
Shared savings contract revenue 94,427 96,333
Service/Parts revenue 130,081 130,263
-------------- --------------
Total revenue $ 525,002 $ 527,363
============== ==============
COST AND EXPENSES:
Cost of equipment sold,including
direct costs of service/parts $ 223,606 $ 298,212
Selling and marketing 268,522 387,655
General and administrative 308,305 475,729
Product development 13,523 9,526
Shared savings contract expense 77,706 74,179
-------------- --------------
Total operating cost and expenses 891,662 1,245,301
-------------- --------------
Operating loss (366,660) (717,938)
-------------- --------------
Other income (expense):
Interest income 88,779 121,487
Interest expense (13,053) (48,507)
-------------- --------------
Net loss $ (290,934) $ (644,958)
============== ==============
Net loss per share $ (0.09) $ (0.22)
Weighted average common
shares outstanding 3,194,889 3,748,465
The accompanying notes are an integral part of these financial statements
4
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<TABLE>
<CAPTION>
HI-RISE RECYLING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED
MARCH 31, 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 1,982,587 (5) 19,825 19,820
Net loss (644,958) (644,958)
Preferred Stock Dividend 160,722 (180,547) (19,825)
--------- --------- -------- ----------- ----------- -----------
Balance at March 31, 1996 5,427,150 $ 2 $ 54,271 $13,488,834 $(4,144,577) $ 9,398,530
========= ========= ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
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HI-RISE RECYLING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1996
-------------- --------------
OPERATING ACTIVITIES
Net loss $ (290,934) $ (644,958)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 8,000 40,000
(Increase) decrease in accounts receivable 15,481 (147,024)
(Increase) in inventory (28,245) (248,448)
(Increase) decrease in other assets (77,623) 13,063
Decrease in net investments in sales
type leases 384,262 30,103
(Decrease) in accounts payable and
accrued expenses (15,026) (92,623)
Increase in unearned Service Agreements - (1,970)
Increase in note receivable from related party - (800)
-------------- --------------
Net cash used in operating activities (4,085) (1,052,657)
-------------- --------------
INVESTING ACTIVITIES:
Purchase of businessesnet of cash acquired (450,372) -
Maturity of investments 736,327 180,171
Purchase of equipment and furniture
and fixtures (121,213) (175,739)
-------------- --------------
Net cash provided by investing activities 164,742 4,432
-------------- --------------
FINANCING ACTIVITIES:
Payments under credit line (115,070) (120,414)
Decreases in note payable to related party (6,500) -
Payment of current portion of long-term debt - (70,000)
Conversion of preferred stock - (5)
-------------- --------------
Net cash used in financing activities (121,570) (190,419)
-------------- --------------
Net increase (decrease) in cash and
cash equivalents 39,087 (1,238,644)
Cash and cash equivalents, beginning of year 805,774 5,717,560
-------------- --------------
Cash and cash equivalents, end of quarter 844,861 4,478,916
-------------- --------------
*Purchase of businesses, net of cash acquired
Working capital, other than cash (262,436) -
Property, plant and equipment (25,139) -
Cost in excess of net assets of companies
acquired, net (927,060) -
Other assets (8,862) -
Current portion of long term debt 150,000 -
Long term debt 300,000 -
Common stock issued 323,125 -
-------------- --------------
Net cash used to acquire business (450,372) -
============== ==============
The accompanying notes are an integral part of these financial statements
6
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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 months
ended March 31, 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.
4. For financial reporting purposes, the Company reports revenues from
sales type leases as equipment sales. Revenue from sales and sales type
equipment leases is generally recognized when equipment is installed.
5. Net investment in sales type leases consists of the following:
Minimum Lease Payments Due $ 3,441,162
Less: Unearned Income (1,067,635)
Plus: Residual Value on Lease Equipment 154,720
-----------
Total $ 2,528,247
-----------
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is 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 three months
ended March 31, 1995 include the results of IDC from February 23, 1995, while
the Company's results of operation for the three months ended March 31, 1996
include the results of IDC for the full three months.
RESULTS OF OPERATION
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1995.
Total revenue during the three months ended March 31, 1996 was $527,363, an
increase of $2,361, compared to total revenue of $525,002 during the prior
comparable quarter. Revenue from equipment sales increased by $273 to $300,767
during the three months ended March 31, 1996, compared to $300,494 during the
prior comparable quarter. The equipment sales in the current quarter consist
primarily of compactor sales by IDC. Hi-rise system sales for the current
quarter were $49,900 compared to $224,458 for the previous comparable quarter.
The decrease is a result of the Company's emphasis during the quarter ended
March 31, 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
months. The Company does not recognize revenue until the installation of the
system. As a result, backlog balance at March 31, 1996 was $2,101,899. Revenue
from shared savings agreements increased by $1,906 to $96,333 during the three
months ended March 31, 1996, compared to $94,427 during the prior comparable
quarter. 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
29 shared saving agreements in effect at March 31, 1996. Revenue from service
and parts increased by $182 to $130,263 during the three months ended March 31,
1996, compared to $130,081 during the prior comparable quarter.
During the three months ended March 31, 1996, the Company had interest income
of $121,487, an increase of $32,708, compared to $88,779 during the 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 March 31, 1996
were $1,245,301, an increase of $353,639, compared to total operating costs and
expenses of $891,662 during the prior comparable quarter. Cost of equipment sold
increased by $74,606 from $223,606 during the three months ended March 31, 1995
to $298,212
8
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during the current three months. As a percentage of equipment sales and service
and parts revenue, cost of equipment sold increased to 69.2% during the three
months ended March 31, 1996 from 51.9% 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 $181,713. IDC's cost of equipment sold as a percentage of
its revenues is typically higher than the cost of equipment sold of hi-rise
systems as a percentage of revenue from sales of hi-rise systems. Selling and
marketing expenses during the three months ended March 31, 1996 were $387,655,
an increase of $119,133, compared to selling and marketing expenses of $268,522
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 $38,000, in connection with the addition of
sales personnel and related costs in New York, as well as an increase of $61,000
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, selling and marketing expenses for the three
months ended March 31, 1996 include approximately $52,000 of additional expenses
for IDC for the three months of 1996 compared to one month of 1995. General and
administrative expenses during the three months ended March 31, 1996 were
$475,729, an increase of $167,424, compared to general and administrative
expenses of $308,305 during the prior comparable period. The increase in general
and administrative expenses was partially attributable to an increase of
approximately $32,000 in salaries and related costs as a result of the hiring of
additional administrative personnel. In addition, general and administrative
expenses for the three months ended March 31, 1996 include approximately $55,000
of such expenses for IDC above the one month for 1995. Legal and professional
fees increased by $60,000 primarily as a result of the filing of a registration
statement on Form S-3 during the current quarter 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 $32,000 of depreciation and goodwill
expense in the first quarter of 1996. Interest expense increased by $35,454 to
$48,507 as compared to the prior comparable period, as a result of increased
borrowings under the Company's line of credit.
As a result, the Company incurred a net loss of $644,958 during the three months
ended March 31, 1996, compared to a net loss of $290,934 during the three months
ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $5,554,591 and cash and
cash equivalents aggregating $4,478,916 compared to working capital of
$6,305,990 and cash and cash equivalents of $5,717,560 at December 31, 1995.
9
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The Company's primary sources of working capital are a $1.5 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.
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 March 31, 1996, the outstanding
balance under this line of credit was $1,123,444.
Under the terms of the offshore private placement the Series A Preferred Stock
is 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, 580 shares of Series A Preferred Stock were converted into 2,283,478
shares of Common Stock at an average per share conversion price of $2.63.
Net cash used in operating activities was $1,052,657 and $4,085 during the
quarters ended March 31, 1996 and 1995, respectively. The increase was primarily
attributable to a net loss of $354,024 more than the prior quarter and the sale
of sales type leases of hi-rise systems in the quarter ended March 31, 1995. In
addition, accounts receivable increased by $147,024 and inventory by $248,448.
Net cash used in financing activities was $190,419 during the period ended March
31, 1996. Net cash provided by investing activities was $4,432 during the
quarter ended March 31, 1996.
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.
10
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1996, the Company terminated the employment of Jeffrey A. Daniels,
its former President. The Company was recently notified that Mr. Daniels intends
to pursue claims against the Company resulting from his termination. Mr. Daniels
alleges that the termination violated the Company's alleged agreement
guaranteeing him employment for twenty (20) months. Mr. Daniels has alleged that
he is entitled to receive $211,000 plus other amounts from the Company in
connection with his termination, including salary of $108,000 for the thirteen
(13) months allegedly remaining on his employment agreement and additional
payments of $100,000 as compensation for the alleged wrongs committed by the
Company against Mr. Daniels. The Company denies the allegations made by Mr.
Daniels and believes that it has meritorious defenses against any action which
may ultimately be brought against it by Mr. Daniels.
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
Not applicable
ITEM 5. OTHER INFORMATION
CHANGE IN MANAGEMENT. In March 1996, three new directors were elected to the
Board of Directors of the Company: Donald Engel, who was elected Co-Chairman of
the Board and Chief Executive Officer, Ira S. Merritt and Joel M. Pashcow. Mark
D. Shantzis, who had been serving as Chairman of Board and Chief Executive
Officer, was elected Co-Chairman of the Board and President. In addition, David
Friedman resigned as a director.
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
11
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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: May 12, 1996 By: /s/ DONALD ENGEL
-------------------------------------
Donald Engel, Co- Chairman of the
Board and Chief Executive Officer
(principal executive officer)
Date: May 12, 1996 /s/ BRADLEY HACKER
-------------------------------------
Bradley Hacker, Controller
(Principal Financial and Accounting Officer)
12
EXHIBIT 11
HI-RISE RECEYLING SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1996
-------------- --------------
Shares outstanding: 3,224,667 5,427,150
Weighted average shares outstanding 3,194,889 3,748,465
Net loss $ (290,934) $ (644,958)
Preferred Dividend - (180,547)
-------------- --------------
Total (290,934) (825,505)
Net loss per share $ (0.09) $ (0.22)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000906605
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-01-1994
<CASH> 4,478,916
<SECURITIES> 655,885
<RECEIVABLES> 879,716
<ALLOWANCES> 120,559
<INVENTORY> 828,329
<CURRENT-ASSETS> 7,010,061
<PP&E> 726,490
<DEPRECIATION> 169,726
<TOTAL-ASSETS> 11,154,000
<CURRENT-LIABILITIES> 1,455,470
<BONDS> 0
0
2
<COMMON> 54,271
<OTHER-SE> 9,344,259
<TOTAL-LIABILITY-AND-EQUITY> 11,154,000
<SALES> 527,363
<TOTAL-REVENUES> 527,363
<CGS> 381,917
<TOTAL-COSTS> 863,384
<OTHER-EXPENSES> 475,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,507
<INCOME-PRETAX> (766,455)
<INCOME-TAX> 0
<INCOME-CONTINUING> (766,455)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (644,958)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
