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, 1997
[ ]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 11, 1997 was 6,468,532.
Transitional small business disclosure format:
Yes___ No__X_
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HI-RISE RECYCLING SYSTEMS, INC.
FORM 10-QSB
INDEX
PART 1. FINANCIAL INFORMATION PAGE
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1997 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 1996 and 1997 4
Consolidated Statement of Changes in Shareholders' Equity
for the nine months ended September 30, 1997 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
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HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
ASSETS (UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
Current assets:
Cash and cash equivalents $1,711,752 $ 1,009,740
Investments 597,973 500,000
Accounts receivable, net of allowance
for doubtful accounts of $147,299 and
$120,559 in 1996 and 1997, respectively 765,024 2,970,889
Inventory 1,117,883 1,801,995
Other assets 329,738 752,248
---------- -----------
Total current assets 4,522,370 7,034,872
---------- -----------
Property and equipment, net 757,370 1,184,543
Note receivable from related party 33,223 33,223
Net investment in sales type leases 3,157,812 4,313,438
Deferred acquisition costs 62,281 123,101
Goodwill 1,448,237 3,029,357
---------- -----------
Total assets $9,981,293 $15,718,534
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 193,507 $ 766,531
Revolving line of credit 1,584,814 3,636,690
Current portion of long term debt 150,000 180,000
Unearned service agreement revenue 22,564 19,030
---------- -----------
Total current liabilities 1,950,885 4,602,251
---------- -----------
Long-term debt 150,000 720,000
---------- -----------
Total liabilities $2,100,885 $ 5,322,251
---------- -----------
Shareholders' equity:
Preferred stock, par value $.01 per share;
1,000,000 shares authorized; 100 issued and
outstanding at September 30, 1997 -- 2
Common stock, $.01 par value; 10,000,000
shares authorized; 6,231,119 and 6,468,532
shares issued and outstanding at December 31,
1996 and September 30, 1997, respectively 62,311 64,685
Additional paid-in capital 13,776,320 16,432,179
Accumulated deficit (5,958,223) (6,100,583)
---------- -----------
Total shareholders' equity 7,880,408 10,396,283
---------- -----------
Total liabilities and shareholders' equity $9,981,293 $15,718,534
========== ===========
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HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------ ------------------ ------------------
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Revenues:
Equipment sales $ 824,651 $ 975,973 $1,785,652 $2,919,262
Trash chute sales -- 1,291,380 -- 3,140,132
Shares savings contract revenues 102,275 112,690 297,803 322,826
Service/Parts revenue 165,084 179,105 452,758 535,697
---------- ---------- ---------- ----------
Total revenues 1,092,010 2,559,148 2,536,213 6,917,917
========== ========== ========== ==========
Cost and Expenses:
Cost of equipment sold, including
direct costs of service/parts 531,854 1,589,528 1,348,647 4,298,914
Selling and marketing 445,744 469,352 1,354,932 1,044,545
General and administrative 527,021 391,213 1,504,185 1,491,484
Product development 6,716 12,832 35,610 40,131
Shared savings contract expense 71,945 80,291 225,960 235,138
---------- ---------- ---------- ----------
Total operating expenses 1,583,280 2,543,216 4,469,334 7,110,212
---------- ---------- ---------- ----------
Operating income (loss) (491,270) 15,932 (1,933,121) (192,295)
---------- ---------- ---------- ----------
Other income (expense):
Settlement expense (2,203) -- (77,203) --
Interest income 120,466 107,229 301,522 305,295
Interest expense (33,107) (93,543) (63,115) (255,360)
---------- ---------- ---------- ----------
Total other income (expense) 85,156 13,686 161,204 49,935
---------- ---------- ---------- ----------
Net income (loss) $ (406,114) $ 29,618 $(1,771,917) $ (142,360)
========== ========== =========== ==========
Net income (loss) per share $ (0.07) $ 0.00 $ (0.40) $ (0.02)
Weighted average common
shares outstanding 6,065,553 6,315,298 5,257,735 6,309,222
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The accompanying notes are an integral part of these financial statements
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HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Additional Total
SHARES OF PREFERRED COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
COMMON STOCK STOCK STOCK CAPITAL DEFICIT EQUITY
------------ --------- ------ ---------- ----------- -------------
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Balance at December 31, 1996 6,231,119 $62,311 $13,776,320 $(5,958,223) 7,880,408
Issuance of common stock 237,413 2,374 830,960 833,334
Sale of Preferred stock
and warrants-net 2 1,824,899 1,834,901
Net loss (142,360) (142,360)
--------- - ------- ----------- ----------- ---------
Balance at September 30, 1997 6,468,532 2 64,685 16,432,179 (6,100,583) 10,396,283
========= = ======= =========== =========== ==========
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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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
OPERATING ACTIVITIES:
Net loss $(1,771,917) $ (142,360)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization
of goodwill 120,000 210,923
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable (304,063) (1,399,348)
Inventory (249,389) (152,924)
Deferred acquisition costs -- (123,101)
Other assets (15,558) (422,510)
Net investments in sales type leases (784,610) (1,155,626)
Accounts payable and accrued liabilities 151,435 515,240
Note receivable related party (377) --
Unearned service agreement revenue 6,084 (353)
----------- -----------
Net cash used in operating activities (2,848,395) (2,670,059)
----------- -----------
INVESTING ACTIVITIES:
Purchase of business net of cash acquired 46,982 (1,055,371)
Maturity of investments 238,083 97,973
Purchase of property and equipment (306,814) (24,013)
----------- -----------
Net cash provided (used) by
investing activities (21,749) (981,411)
----------- -----------
FINANCING ACTIVITIES:
Payments under credit lines (321,233) (1,750,871)
Draws from line of credit 150,000 3,063,217
Payment of current portion of
long-term debt (120,000) (75,000)
Payment of long-term debt (80,000) (112,777)
Issuance of preferred stock 1,824,889
Conversion of preferred stock (7)
Common stock issued to pay note payable 84,353
Common stock purchased upon exercise of
stock options 28,335
----------- -----------
Net cash (used) provided by
financing activities (258,552) 2,949,458
----------- -----------
Net (decrease) in cash and
cash equivalents (3,128,696) (702,012)
Cash and cash equivalents,
beginning of period 5,717,560 1,711,752
----------- -----------
Cash and cash equivalents,
end of period 2,588,864 1,009,740
----------- -----------
*Purchase of business, net of
cash acquired
Working capital, other than cash $ -- $(1,280,921)
Property, plant and equipment -- (573,618)
Cost in excess of net assets
acquired, net -- (1,600,832)
Revolving line of credit -- 750,000
Current portion of long term debt -- 180,000
Long term debt -- 720,000
Common stock issued -- 750,000
----------- -----------
Net cash used to acquire business $ -- $(1,055,371)
=========== ===========
The accompanying notes are an integral part of these financial statements
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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, 1996 of Hi-Rise Recycling Systems, Inc.
(the "Company"), as filed with the Securities and Exchange Commission. The
December 31, 1996 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, 1997 are
not necessarily indicative of the results to be expected for the full year.
3. Per share data was computed by dividing net income or 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 at September
30, 1997:
Minimum Lease Payments $ 5,358,934
Unearned Income (1,360,872)
Estimated Residual Value on Lease Equipment 315,376
----------
Total $4,313,438
==========
6. In February 1997, the Company, through a newly formed wholly-owned
subsidiary, pursuant to an asset purchase agreement, bought substantially all of
the assets excluding real property, and assumed certain of the liabilities of
Wilkinson Company, Inc. (Wilkinson), who was engaged in the sale, manufacture,
distribution and installation of sheet metal fabrication products. The aggregate
purchase price of approximately $2,786,000 consisted of approximately $2,486,000
in cash, subject to adjustment under certain circumstances, and 76,272 shares of
the Company's common stock, $.01 par value ("Common Stock"), valued at $300,000.
The Company also entered into a three year agreement with Wilkinson to lease its
manufacturing facility. The Company funded the cash portion of the purchase
price from proceeds under two lines of credit and a term loan from a financial
institution.
7. During October 1996, a former employee of the Company filed a lawsuit against
the Company alleging that the Company had defrauded and breached an employment
contract with the former employee. In general, the lawsuit alleges that the
Company made written and verbal representations to the former employee to become
general manager and part owner of the Company's Midwest subsidiary. The former
employee seeks compensatory damages of $600,000 and punitive damages for
7
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an unstated amount. The Company denies the allegations and intends to contest
vigorously the claims in the lawsuit.
8. On June 25 and July 2, 1997 the Company sold a total of 200 shares of the
Company's newly created Series B Convertible Preferred Stock, $.01 par value ("
Preferred Stock"), and warrants to purchase an aggregate of 888,887 shares of
Common Stock, in a Regulation D private placement for an aggregate purchase
price of $2,000,000. The Preferred Stock is convertible, at the option of the
holders thereof, into shares of the Company's Common Stock, at a conversion
price of $2.25 per share. The conversion price is subject to adjustment on the
occurrence of certain events such as stock dividends and recapitalizations. In
addition, if the average closing bid price (the "Trading Price") of the Common
Stock, as reported on the Nasdaq Small-Cap Market, during the three-month period
commencing on the 270th day after the date of the initial issuance of shares of
the Preferred Stock and ending on the 360th day after such date is less than
135% of the then applicable conversion price, the conversion price shall be
reduced to such price as shall equal the Trading Price divided by 1.35. Upon
conversion the holder is entitled to dividends at the rate of 8% per annum,
accrued from the date of issuance through the date of conversion payable in
Common Stock. The warrants are excercisable to purchase shares of the Company's
Common Stock at an exercise price of $2.25 subject to the same adjustment. The
Company realized aggregate net proceeds of $1,830,145 therefrom after deduction
of offering expenses from these transactions.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
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. As part of its
strategy to (i) expand its network of independent distributors, (ii) offer a
fully integrated waste disposal system for multi-story buildings and (iii)
commence manufacturing the components of the Company's systems, on February 3,
1997, the Company, through its newly-formed wholly-owned subsidiary now known as
Wilkinson Company, Inc. ("Wilkinson"), acquired substantially all of the assets
other than real property (the "Wilkinson Assets") and assumed certain
liabilities of Wilkinson Company, Inc. (the "Wilkinson Seller"). The Wilkinson
Seller was engaged primarily in the sale, manufacture, distribution and
installation of sheet metal fabrication products. The Company, through
Wilkinson, is continuing the business of the Wilkinson Seller. Goodwill which
resulted from the business combination is being amorized over twenty years. The
Company's results of operations for the three and nine months ended September
30, 1997 include the results of Wilkinson from February 3, 1997, while the
Company's results of operations for the three and nine months ended September
30, 1996 do not include the results of Wilkinson.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996.
Total revenue during the three months ended September 30, 1997 was $2,559,148,
an increase of $1,467,138 compared to total revenue of $1,092,010 during the
prior comparable quarter. One of the primary sources of the increase is the
inclusion of three months sales for Wilkinson in this quarter in the amount of
$1,291,380. In addition, revenue from equipment sales, consisting of sales of
hi-rise systems and trash compaction systems, increased by $151,322 to $975,973
during the three months ended September 30, 1997, from $824,651 during the prior
comparable quarter. Hi-rise system sales for the current quarter were $821,409,
an increase of $292,286, compared to $529,123 for the previous comparable
quarter. The increase was a result of installations during the current quarter
of systems for which the Company executed sales contracts during 1995 and 1996.
In 1995 and 1996, the Company's emphasis was on equipment sales in new
construction buildings which resulted in increased backlog. 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, the backlog balance at September 30, 1997 was $4,121,782. This amount
included backlog for Wilkinson of $1,598,722. Revenue from shared savings
agreements increased by $10,415 to $112,690 during the three months ended
September 30, 1997, compared to $102,275 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 35 shared
saving agreements in effect at September 30, 1997 compared to 31 at September
30, 1996. Revenue from service and parts increased by $14,021 to $179,105 during
the three months ended September 30, 1997, compared to $165,084 during the prior
comparable quarter.
9
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During the three months ended September 30, 1997, the Company had interest
income of $107,229, a decrease of $13,237, compared to $120,466 during the prior
comparable period.
Total operating costs and expenses during the three months ended September 30,
1997 were $2,543,216, an increase of $959,932 compared to total operating costs
and expenses of $1,583,280 during the prior comparable quarter. A primary reason
for the increase was the inclusion of three months cost of sales for Wilkinson
in this quarter in the amount of $978,488. The other primary reason for the
increase was the increase in sales of hi-rise systems and increased costs
related to those sales. Cost of equipment sold increased by $1,057,674 from
$531,854 during the three months ended September 30, 1996 to $1,589,528 during
the current three months. As a percentage of equipment sales, trash chute sales
and service and parts revenue, cost of equipment sold decreased to 56% during
the three months ended September 30, 1997 from 63% during the prior comparable
period. The decrease in cost of equipment sold as a percentage of revenue was
primarily attributable to the increase of Hi-rise system sales in this quarter
compared to the previous quarter last year. Cost of equipment sold of hi-rise
systems as a percentage of revenue as compared to the cost of equipment sold of
IDC compactors and trash chute sales is typically lower. Wilkinson's cost of
sales in the quarter was 75% as a percentage of it's total sales. The Company
anticipates that the cost of sales for Wilkinson will continue to be between
70%-75% and may result in an increase in overall cost of sales for the Company,
as a percentage of its total revenue. The Company has started to consolidate
manufacturing and engineering of all of the Company's products at Wilkinson's
manufacturing facility in Stow, Ohio. The Company has begun configuring the
facility to allocate space for new manufacturing. The Company believes that by
consolidating manufacturing of its products, it will be able to reduce the costs
of sales of its hi-rise and trash compaction systems. Selling and marketing
expenses during the three months ended September 30, 1997 were $469,352, a
increase of $23,608, compared to selling and marketing expenses of $445,744
during the prior comparable period. Selling and marketing expenses for the three
months ended September 30, 1997 include approximately $40,000 of additional
expenses for Wilkinson. In addition, the Company incurred additional expenses of
approximately $30,000 for support of the Wilkinson dealer network in the current
quarter. General and administrative expenses during the three months ended
September 30, 1997 were $391,213, an decrease of $135,808 compared to general
and administrative expenses of $527,021 during the prior comparable period.
General and administrative expenses for the three months ended September 30,
1997 include approximately $150,000 of such expenses for Wilkinson. General and
administrative expenses were reduced by reduction of employees and other
miscellaneous expenses. This resulted in savings in the company of approximately
$300,000 for the three months ended September 30, 1997. Interest expense
increased by $60,436 to $93,543 as compared to the prior comparable period, as a
result of increased borrowings under the Company's lines of credit to finance
the acquisition of the Wilkinson Assets.
As a result, the Company realized net income of $29,618 during the three months
ended September 30, 1997, compared to a net loss of $406,114 during the three
months ended September 30, 1996.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996.
Total revenue during the nine months ended September 30, 1997 was $6,917,917, an
increase of $4,381,704 compared to total revenue of $2,536,213 during the prior
comparable period. One of the primary sources of the increase is the inclusion
of eight months sales for Wilkinson in this period in the amount of $2,714,389.
In addition, revenue from equipment sales, consisting of sales of hi-rise
systems and trash compaction systems,
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increased by $1,133,610 to $2,919,262 during the nine months ended September 30,
1997, from $1,785,652 during the prior comparable period. Hi-rise system sales
for the current nine months were $2,349,130, compared to $648,752 for the
previous comparable period. The increase was a result of the installations
during the current period of systems for which the Company executed sales
contracts during 1995 and 1996. In 1995 and 1996, the Company's emphasis was on
equipment sales in new construction buildings which resulted in increased
backlog. 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, the backlog balance at September
30, 1997 was $4,121,782. This included backlog for Wilkinson of $1,598,722.
Revenue from shared savings agreements increased by $25,023 to $322,826 during
the nine months ended September 30, 1997, compared to $297,803 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 35 shared saving agreements in effect at September 30, 1997 compared
to 31 at September 30, 1996. Revenue from service and parts increased by $82,939
to $535,697 during the nine months ended September 30, 1997, compared to
$452,758 during the prior comparable period. This is primarily due to
Wilkinson's revenues from parts in this period of $80,978.
During the nine months ended September 30, 1997, the Company had interest income
of $305,295, an increase of $3,773, compared to $301,522 during the prior
comparable period.
Total operating costs and expenses during the nine months ended September 30,
1997 were $7,110,222 an increase of $2,640,888 compared to total operating
expenses of $4,469,334 during the prior comparable quarter. A primary reason for
the increase was the inclusion of eight months cost of sales for Wilkinson in
this period in the amount of $2,364,249. The other primary reason for the
increase was the increase in sales of hi-rise systems and increased costs
related to those sales. Cost of equipment sold increased by $2,950,277 from
$1,348,647 during the nine months ended September 30, 1996 to $4,298,924 during
the current nine months. As a percentage of equipment sales, trash chute sales
and service and parts revenue, cost of equipment sold increased to 65% during
the nine months ended September 30, 1997 from 60% during the prior comparable
period. The increase in cost of equipment sold as a percentage of revenue was
primarily attributable to the amount of trash chute and compactor sales as it
compares to hi-rise system sales in this period compared to the prior comparable
period. Cost of equipment sold of hi-rise systems as a percentage of revenues
from hi-rise system sales is typically lower than the cost of equipment sold of
IDC compactors and trash chute sales, as a percentage of revenue from such
sales. Wilkinson's cost of sales in this period was 75.1% as a percentage of
total sales. The company anticipates that cost of sales for Wilkinson will
continue to be between 70%-75% and will result in an increase in overall cost of
sales for the Company, as a percentage of its revenue. The Company has started
to consolidate manufacturing and engineering of all of the Company's product at
Wilkinson's manufacturing facility in Stow, Ohio. The Company has begun
configuring the facility to allocate space for new manufacturing. The Company
believes that by consolidating manufacturing of its products, it will be able to
reduce the costs of sales of its hi-rise and trash compaction systems. Selling
and marketing expenses during the nine months ended September 30, 1997 were
$1,044,545, a decrease of $310,387, compared to selling and marketing expenses
of $1,354,932 during the prior comparable period. Selling and marketing expenses
for the nine months ended September 30, 1997 include approximately $50,000 of
additional expenses for Wilkinson for the eight months of 1997. General and
administrative expenses during the nine months ended September 30, 1997 were
$1,491,484, a decrease of $12,701, compared to general and administrative
expenses of $1,504,185 during the prior comparable period. General and
administrative
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expenses for the nine months ended September 30, 1997 include approximately
$300,000 of such expenses for Wilkinson. In January of 1997 the company had a
reduction of employees and also a reduced other sales and administrative
expenses. This reduction has resulted in savings of approximately $500,000 for
the nine months ended September 30, 1997. Interest expense increased by $192,235
to $255,350 as compared to the prior comparable period, as a result of increased
borrowings under the Company's lines of credit to finance the acquisition of the
Wilkinson Assets.
As a result, the Company incurred a net loss of $142,360 during the nine months
ended September 30, 1997, compared to a net loss of $1,771,917 during the nine
months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $2,432,621 and cash
and cash equivalents aggregating $1,009,740 compared to working capital of
$2,571,485 and cash and cash equivalents of $1,711,752 at December 31, 1996.
The Company's primary sources of working capital are the net proceeds of
approximately $1.8 million from the sale of Series B Preferred Stock in June and
July 1997 and a $3.0 million line of credit with Ocean Bank for its lease
financing arrangements.
The Company sold a total of 200 shares of the Company's newly created Series B
Convertible Preferred Stock, $.01 par value (" Preferred Stock"), and warrants
to purchase an aggregate of 888,887 shares of Common Stock, in a Regulation D
private placement for an aggregate purchase price of $2,000,000. The Preferred
Stock is convertible, at the option of the holders thereof, into shares of the
Company's Common Stock, at a conversion price of $2.25 per share.
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 1% and is payable on demand. The line was increased from $2.0 million
to $3.0 million on or about September 30, 1997. As of September 30, 1997, the
outstanding balance under this line of credit was $2,136,699.
In order to fund the cash portion of the purchase price for the Wilkinson
Assets, in February 1997, the Company obtained an $850,000 line of credit and a
$900,000 five-year term loan from Ocean Bank. The line of credit and the term
loan are secured by the Wilkinson Assets and bear interest at a rate per annum
equal to Citibank's prime rate plus 1%. As of September 30, 1997, the
outstanding balance under this line of credit was $849,101. The line of credit
is due in February 1998. The term loan is payable in monthly installments of
principal and interest.
Net cash used in operating activities was $2,670,060 and $2,848,395, during the
nine months ended September 30, 1997 and 1996, respectively. The decrease was
primarily attributable to a net loss of $1,629,557 less than the prior period.
In addition, accounts receivable increased by $1,399,348 and accounts payable
increased by $515,240. The increase in accounts receivable is the result of the
installation of two large sales of hi-rise systems at the end of the third
quarter and Wilkinson and IDC completing the quarter with the highest sales
months since Hi-rise's acquisition of the two companies. Accounts payable
increased as a result of raw material and finished goods purchases for sales in
the month of September and purchases of equipment for systems expected to be
installed in the third quarter the revenues from which will be recognized at the
time
12
<PAGE>
of installation. Net cash provided by financing activities was $2,949,458 during
the nine months ended September 30, 1997. This is mainly the result of proceeds
received from the private placement and draws on the lines of credit in order to
provide working capital and to fund the cash portion of the purchase price for
the Wilkinson Assets. Net cash used in investing activities was $981,411 during
the nine months ended September 30, 1997 relating to the purchase of the
Wilkinson Assets and acquisition of Nu-Retech of Florida.
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.
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations and beliefs concerning
future events. The Company cautions that these statements are further qualified
by important factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, the
following: decline in demand for the Company's products; increases in costs of
sales; and the effect of general economic conditions generally and factors
affecting the waste hauling and construction industries. These statements by
their nature involve substantial risks and uncertainties and actual events or
results may differ as a result of these and other factors.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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
On September 29, 1997, the Company acquired all of the
outstanding capital stock of Nu-Retch of Florida Inc., a Florida Corporation
("Nu-Retech"), which had, prior to the acquisition, served as the Company's
competitor in South Florida In consideration for its acquisition of the
Recycltech capital stock, the Company issued an aggregate of 150,000 shares of
its Common Stock, valued at $450,000, to the former shareholder of Nu-Retech of
Florida.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
13
<PAGE>
(A) EXHIBITS:
EXHIBITS DESCRIPTION
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
(i) During the quarter ended September 30, 1997, the Company
filed a Current Report on Form 8-K dated June 24, 1997 with
respect to Item 5 reporting the sale of Series B Convertible
Preferred Stock and Warrants by the Company to accredited
investors. Filed as exhibits to the Current Report on Form 8-K
were the Form of Subscription Agreement between the Company
and the purchasers of the Preferred Stock, including forms of
Warrant, Registration Rights Agreement and Certificate of
Designation of Preferred Stock.
14
<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 12, 1997 By: /S/ DONALD ENGEL
---------------------------
Donald Engel, Co- Chairman of the
Board and Chief Executive Officer
(principal executive officer)
Date: November 12, 1997 /S/ BRADLEY HACKER
----------------------------
Brad Hacker, Controller
Bradley Hacker, Controller
(Principal Financial and
Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11 Statement re: computation of per share earnings
27 Financial Data Schedule
EXHIBIT 11
<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Shares outstanding: 6,231,119 6,468,532 6,231,119 6,468,532
Weighted average shares outstanding 6,065,553 6,315,298 5,257,735 6,309,222
Net profit (loss) $ (406,114) $ 29,618 $(1,771,917) $ (142,360)
Preferred Dividend $ (25,676) $ -- $ (306,223) $ --
Net income (loss) per share $ (0.07) $ 0.00 $ (0.40) $ (0.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,009,740
<SECURITIES> 500,000
<RECEIVABLES> 2,970,889
<ALLOWANCES> 120,559
<INVENTORY> 1,801,995
<CURRENT-ASSETS> 7,034,872
<PP&E> 1,184,543
<DEPRECIATION> 314,203
<TOTAL-ASSETS> 15,718,534
<CURRENT-LIABILITIES> 4,602,251
<BONDS> 0
0
0
<COMMON> 64,685
<OTHER-SE> 16,432,179
<TOTAL-LIABILITY-AND-EQUITY> 15,718,534
<SALES> 6,917,917
<TOTAL-REVENUES> 6,917,917
<CGS> 4,534,052
<TOTAL-COSTS> 4,334,052
<OTHER-EXPENSES> 2,576,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255,360
<INCOME-PRETAX> (142,360)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142,360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,360)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
