SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 23, 1999
HI-RISE RECYCLING SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
FLORIDA 0-21946 65-222933
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
8505 N.W. 74TH STREET, MIAMI, FLORIDA 33166
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (305) 597-0243
-----------------------
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The following financial statements are included as Exhibit 99.1 to this
Report:
Audited Financial Statements of DeVivo Industries, Inc.:
Independent Auditors' Report on Financial Statements
Balance Sheets at December 31, 1998 and 1997
Statements of Income and Retained Earnings for the years ended
December 31, 1998 and 1997
Statements of Cash Flows for the years ended December 31, 1998
and 1997
Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION.
The following pro forma financial information with respect to the
Registrant is included as Exhibit 99.2 to this Report:
Consolidated Balance Sheet Post Acquisitions
Pro Forma Condensed Consolidated Statements of Operations
(c) EXHIBITS.
*2.1 Stock Purchase Agreement dated as of February 23, 1999 among
Hi-Rise Recycling Systems, Inc., DII Acquisition Corp., DeVivo
Industries, Inc., Ecological Technologies, Inc., Mario DeVivo,
Mariano Tucciarone and Anthony Rosati
23.1 Consent of Tait & Company, P.A.
99.1 Financial Statements of DeVivo Industries, Inc.
99.2 Pro forma financial information with respect to the
Registrant's acquisition of DeVivo Industries, Inc.
- ----------------------------
* Previously filed.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
HI-RISE RECYCLING TECHNOLOGIES, INC.
Dated: May 7, 1999 By: /S/ BRAD HACKER
-----------------------------
Brad Hacker
Chief Financial Officer
-3-
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Form 8-K for Hi-Rise Recycling
Systems, Inc. of our report dated February 12, 1999, on our audits of the
financial statements of DeVivo Industries, Inc. as of December 31, 1998 and
1997, and for the years ended December 31, 1998 and 1997.
TAIT & COMPANY, P.A.
Miami, Florida
May 6, 1999
DEVIVO INDUSTRIES, INC.
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
PAGE
Independent Auditors' Report on Financial Statements 1
Financial Statements:
Balance Sheets 2 - 3
Statements of Income and Retained Earnings 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 14
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Shareholders of
DeVivo Industries, Inc.
We have audited the accompanying balance sheets of DeVivo Industries, Inc. as of
December 31, 1998 and 1997, and the related statements of income and retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DeVivo Industries, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ TATE & COMPANY, P.A.
February 12, 1999
Page 1 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
A S S E T S
1998 1997
----------- ---------
CURRENT ASSETS
Cash $ 1,110 $ 500
Accounts receivable - trade 1,854,937 787,656
Loans receivable - officers (Note 3) 91,254
Other receivables 4,689
Inventories (Note 4) 1,434,550 1,015,236
Prepaid income taxes 100,352
--------- -----------
Total current assets 3,486,892 1,803,392
--------- -----------
PROPERTY AND EQUIPMENT
Machinery and equipment 1,364,548 1,032,417
Leasehold improvements 1,100,163 1,032,671
Transportation equipment 402,843 377,793
Computer equipment 105,696 88,982
Office furniture and equipment 82,155 78,807
Property under capital lease 18,750 18,750
Construction in progress 26,831
---------- ----------
3,100,986 2,629,420
Less accumulated depreciation
and amortization 1,662,512 1,495,904
---------- ----------
1,438,474 1,133,516
---------- ----------
OTHER ASSETS
Loans receivable - officers 14,613
Deposits and other assets 8,114 9,998
---------- ----------
8,114 24,611
---------- ----------
Total assets $ 4,933,480 $ 2,961,519
=========== ===========
See accompanying notes to financial statements
Page 2 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<TABLE>
<CAPTION>
1998 1997
----------- ----------
CURRENT LIABILITIES
<S> <C> <C>
Bank overdraft $ 286,693 $ 103,152
Accounts payable 1,024,552 482,226
Current portion of notes payable (Note 6) 188,053 255,446
Current portion of obligation under
capital lease (Note 11) 3,416 3,034
Revolving line of credit (Note 5) 70,508
Income taxes payable 182,974 98,985
Notes payable - officers (Note 7) 40,000
Notes payable - employees (Note 8) 22,000
Accrued profit sharing contribution (Note 13) 142,810
Customer deposits 32,782 35,850
Other current liabilities 93,542 132,327
--------- ---------
Total current liabilities 1,812,012 1,386,338
LONG-TERM LIABILITIES
Notes payable, net of current portion (Note 6) 778,159 881,215
Obligation under capital lease, net of
current portion (Note 11) 11,366 14,782
Other long-term liabilities 6,442 6,442
--------- ---------
Total liabilities 2,607,979 2,288,777
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
STOCKHOLDERS' EQUITY
Common stock, no par value; 5,000 shares
authorized; issued and outstanding 1,000 1,000
Additional paid-in capital 6,000 6,000
Retained earnings (As restated for 1997)
(Note 16) 2,318,501 665,742
--------- ---------
Total stockholders' equity 2,325,501 672,742
--------- ---------
Total liabilities and stockholders'
equity $ 4,933,480 $ 2,961,519
=========== ===========
</TABLE>
See accompanying notes to financial statements
Page 3 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- ------
SALES $12,496,685 $8,055,659
COSTS OF SALES 9,266,830 6,222,664
------------ ----------
Gross profit 3,229,855 1,832,995
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Note 15) 1,276,771 1,279,014
------------ ----------
Income from operations 1,953,084 553,981
OTHER INCOME (EXPENSE)
Interest income 5,862
Interest expense (109,482) (76,695)
Other 467 590
------------- -----------
Income before taxes 1,844,069 483,738
PROVISION FOR INCOME TAXES (Note 9) 191,310 192,981
------------ ------------
NET INCOME 1,652,759 290,757
RETAINED EARNINGS - Beginning (Restated)
(Note 16) 665,742 374,985
----------- -----------
RETAINED EARNINGS - Ending $2,318,501 $ 665,742
=========== ===========
See accompanying notes to financial statements
Page 4 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ --------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,652,759 $ 290,757
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 168,492 161,399
Bad debt expense 1,932 521
Deferred tax expense 7,417
Changes in assets and liabilities:
(Increase) in accounts receivable - trade (1,069,213) (12,505)
(Increase) in other receivables (4,689)
(Increase) decrease in loans receivable -
officers (76,641) 7,387
(Increase) in inventories (419,314) (114,512)
(Increase) decrease in prepaid income taxes (100,352)
Decrease in prepaid expenses and taxes 29,295
(Increase) in deposits and other assets (985)
Increase in accounts payable 542,326 232,354
Increase in income taxes payable 83,989 4,785
(Decrease) in accrued taxes and expenses (31,907)
Increase (decrease) in loans payable - officers (40,000) 4,000
(Decrease) in loans payable - employees (22,000) (8,000)
Increase (decrease) in accrued profit
sharing contribution (142,810) 17,810
Increase (decrease) in customer deposits (3,068) 35,850
(Decrease) in other current liabilities (38,785) (14,385)
----------- -----------
Net cash provided by operating activities 532,626 609,281
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (471,566) (674,129)
----------- -----------
Net cash provided by (used in) investing
activities (471,566) (674,129)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (170,449) (159,486)
Net proceeds (payments) on revolving line
of credit (70,508) 70,508
Payments on obligation under capital lease (3,034)
Net proceeds on obligation under capital lease 17,816
----------- -----------
Net cash provided by (used in) financing
activities (243,991) (71,162)
----------- -----------
Net (decrease) in cash and cash equivalents (182,931) (136,010)
CASH AND CASH EQUIVALENTS - Beginning of year (102,652) 33,358
----------- -----------
CASH AND CASH EQUIVALENTS - End of year $ (285,583) $ (102,652)
=========== ===========
</TABLE>
See accompanying notes to financial statements
Page 5 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. BUSINESS
DeVivo Industries, Inc. (the "Company") manufactures waste collection
containers and disposal equipment in Newtown, Connecticut. Its
principal market is the northeastern United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company classifies cash on hand, cash in banks and the bank
overdraft as cash and cash equivalents.
BAD DEBTS
All bad debts are recognized on the direct write-off method in the year
in which the account receivable is determined to be uncollectible.
While the direct write-off method is not in accordance with generally
accepted accounting principles ("GAAP"), it may approximate GAAP. For
the Company, such direct write-off method approximates GAAP. At
December 31, 1998 and 1997, the Company's management considered all
outstanding accounts receivable to be collectible.
INVENTORIES
Raw material is valued at the lower of cost or market using the
first-in, first-out method. Work-in-process and finished goods are
stated at actual cost, but do not exceed current market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
provided over the estimated useful lives of the assets. For financial
reporting purposes, the Company uses a straight-line method for
depreciating assets. When the assets are sold, replaced or otherwise
retired, the costs and related accumulated depreciation are removed
from the accounts and any related gains or losses are include in
operations. For federal income tax purposes, depreciation is computed
using the accelerated cost recovery system and modified accelerated
cost recovery system. Expenditures for major renewals and betterments
that extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as
incurred.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
fixed assets for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes are
classified as current or long-term, depending on the sources of the
temporary differences to which they relate.
Page 6 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Effective January 1, 1998, the Company elected to be treated as a small
business corporation under Section 1362 of the Internal Revenue Code.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of products to customers.
3. LOANS RECEIVABLE - OFFICERS
At December 31, 1998 and 1997 there were advances made to officers of
$91,254 and $14,613, respectively. These advances bear no interest and
are due upon demand.
4. INVENTORIES
Inventories at December 31 consisted of the following:
1998 1997
---------- ----------
Raw materials $ 780,080 $ 171,837
Work-in-process 205,731 36,296
Finished goods 448,739 807,103
----------- -----------
$ 1,434,550 $ 1,015,236
=========== ===========
5. REVOLVING LINE OF CREDIT
The Company has a revolving line of credit agreement with a financial
institution. The balances at December 31, 1998 and 1997 were $0 and
$70,508, respectively. The revolving credit loan agreement provides for
borrowing up to a maximum of $1,000,000 and is collateralized by all
property and assets of the Company. The revolving line credit of is
payable on demand and bears interest at a variable rate plus 0.25%
(8.00% at December 31, 1998).
Page 7 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
6. NOTES PAYABLE
Notes payable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ------
<S> <C> <C>
Note payable to a bank. The note is payable in
variable monthly installments with a fixed
principal payment of $4,167 per month plus
interest. Interest is at the bank's prime rate plus
0.25% (8.00% at December 31, 1998). The note
matures in December 2004. The note is
collateralized by all property and assets of the
Company. $ 300,000 $ 345,833
Note payable to a bank. The note is payable in
variable monthly installments with a fixed
principal payment of $5,000 per month plus
interest. Interest is at the bank's prime rate plus
0.25% (8.00% at December 31, 1998). The note
matures in April 2001. The note is collateralized
by all property and assets of the Company. 140,000 195,000
Note payable to a bank. The note is payable in
variable monthly installments with a fixed
principal payment of $1,783 per month plus
interest. Interest is at the bank's prime rate plus
0.25% (8.00% at December 31, 1998). The note
matures in December 2001. The note is
collateralized by all property and assets of the
Company. 64,200 83,817
Note payable to credit corporation. The note is
payable in monthly installments of $1,063,
including principal and interest. Interest is at
8.95%. The note matures in August 2001. The note is
collateralized by transportation equipment. 30,405 40,173
--------- ---------
Subtotal $ 534,605 $ 664,823
</TABLE>
Page 8 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
6. NOTES PAYABLE - (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
$ 534,605 $ 664,823
Note payable to a bank. The note is payable in
monthly installments of $265 including principal
and interest. Interest is at 8.23%. The note
matures in March 2002. The note is collateralized
by transportation equipment. 9,244 11,559
Note payable to DeVivo Associates, a related party.
DeVivo Associates is a partnership whose principal
partner is the majority shareholder of the Company.
This note is unsecured and is payable in monthly
installments of $5,412, including principal and
interest. Interest is at 5.32% and the note matures
in December 2006. 422,363 460,279
---------- --------
996,212 1,136,661
Less current portion 188,053 255,446
---------- ---------
Notes payable, net of current portion $ 778,159 $ 881,215
========== =========
</TABLE>
The following is a summary of scheduled principal payments of the
December 31, 1998 notes payable:
Year ending
December 31,
1999 $ 188,053
2000 191,564
2001 151,005
2002 102,078
2003 103,818
Thereafter 229,694
----------
$ 966,212
==========
The Company's line of credit and other borrowing arrangements with the bank
include various covenants, including among others the following: a prohibition
against incurring further indebtedness, paying dividends, changes in capital
stock and the transfer, sale or lease of significant assets. The covenants also
require the Company to maintain certain ratios. In addition, a shareholder has
personally guaranteed substantially all indebtedness.
Page 9 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
7. NOTES PAYABLE - OFFICERS
At December 31, 1997, the Company, through a promissory note, owed
$40,000 to a shareholder. The note was paid in full in 1998 and bore
interest at 6%.
8. NOTES PAYABLE - EMPLOYEES
At December 31, 1997, the Company, through a promissory note, owed
$22,000 to an employee. The note was paid in full in 1998 and bore
interest at 6%.
9. INCOME TAXES
The Company has adopted Statement of Financial Accounting Standard
(SFAS) No. 109 "Accounting for Income Taxes," which requires the use of
the liability method of accounting for deferred income taxes. The
provision for income taxes includes Federal and state income taxes
currently payable and those deferred, if significant, because of
temporary differences between the financial statement and tax bases of
assets and liabilities. For the year ended December 31, 1998, a
provision for deferred taxes was not required as there were no
significant differences between the financial statement and tax bases
of assets and liabilities. For the year ended December 31, 1997, the
deferred tax provision was approximately $7,000. Since the Company
elected to be treated as a small business corporation effective January
1, 1998, for Federal income tax purposes the income or loss under this
election is taxable or beneficial directly to the stockholders.
However, for state income tax purposes, the Company is taxed on
seventy-five percent of its income. The remaining twenty-five percent
is taxable directly to the stockholders. The provision for 1998
includes approximately $137,000 of state income taxes and approximately
$54,000 of Federal income taxes. The Federal income taxes represent
payments made in 1998 as a result of Internal Revenue Service audits
for the years ended December 31, 1995 and 1996. The provision for 1997
includes approximately $48,000 of state income taxes and approximately
$138,000 of Federal income taxes.
10. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
Sales to one customer in 1998 and two customers in 1997 exceeded 10% of
total sales. Sales to these customers accounted for approximately 27%
and 41% of total sales for the years ended December 31, 1998 and 1997,
respectively.
Page 10 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
11. COMMITMENTS
The Company entered into a lease agreement January 1, 1995 for its
manufacturing facility. The lease is with DeVivo Associates, Inc., a
related party. Monthly lease payments are $30,000 and the term of the
lease expires at December 31, 1999.
Total rent expense for the years ending December 31, 1998 and 1997 was
$360,000 for each year.
Minimum future lease commitments at December 31, 1998, for all
long-term noncancellable operating leases are as follows:
Year ended
December 31,
1999 $412,032
2000 52,032
2001 34,464
2002 34,464
2003 25,750
Thereafter 11,408
--------
$570,150
========
In addition to the above, the Company leases a forklift under a capital
lease expiring in 2002.
The following is an analysis of leased property under capital lease as
of December 31, 1998:
Equipment $ 18,750
Less accumulated depreciation 3,349
--------
$ 15,401
========
The capital lease is due in 2002 and is payable in monthly installments
of $416, including principal and interest. Interest is at 11.93%.
Page 11 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
11. COMMITMENTS (CONTINUED)
The following is a schedule by years of future minimum lease payments
under the capital lease together with the present value of the net
minimum lease payments as of December 31, 1998.
Year ended
December 31,
1999 $ 4,997
2000 4,997
2001 4,997
2002 3,331
--------
Total minimum lease payments 18,322
Less: Amount representing interest 3,540
--------
Present value of net minimum lease payments $ 14,782
========
12. LOSS CONTINGENCY
The Department of Environmental Protection is in the process of
conducting an examination as to the possibility of the Company
violating certain environmental laws and not obtaining certain required
permits. As of December 31, 1998, the examination was not completed and
the results of the examination are not yet known. The Company has not
determined the materiality of this matter, if any, to business
operations or operating results.
13. PROFIT SHARING PLAN
The Company sponsors a profit sharing plan covering substantially all
full-time employees. Contributions to the plan are at the discretion of
the Company's management. Each participant is credited with their
proportionate share of the contribution. Management has decided not to
fund a contribution for 1998.
14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Statement of cash flows includes cash paid for interest and income
taxes as follows:
1998 1997
---------- -------
Interest $ 109,482 $ 77,116
========== ==========
Income taxes $ 151,363 $ 169,795
========== ==========
Page 12 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following is a schedule of selling, general and administrative
expenses for the years ended December 31, 1998 and 1997.
1998 1997
------------ -------
Advertising and promotion $ 47,144 $ 54,827
Automobile lease 6,292 6,340
Bad debts 1,932 521
Bank charges 2,068 79
Commissions 7,709 28,538
Computer 11,092 8,120
Consulting 82,866 48,404
Depreciation and amortization 43,537 66,772
Donations 3,600 5,255
Dues and subscriptions 3,667 5,408
Education 2,336 16,353
Employee benefits 12,603 7,833
Entertainment 7,483 8,812
Equipment rental 1,098 2,947
Licenses, permits and fees 15,949 5,597
Life insurance - officers 2,775 2,700
Miscellaneous 1,439 6,664
Office 43,386 37,831
Outside services 21,036 6,884
Payroll taxes 67,833 37,278
Profit sharing 142,810
Professional fees 36,752 43,040
Rent 24,000 19,200
Repairs and maintenance 8,869 5,964
Salaries - Office 203,514 233,129
Salaries - Officers 541,861 431,304
Security 488 5,811
Telephone 36,239 18,174
Travel 19,551 12,849
Utilities 19,652 9,570
---------- ----------
Total selling, general and
administrative expenses $1,276,771 $1,279,014
========== ==========
Page 13 of 14
<PAGE>
DEVIVO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
16. PRIOR PERIOD ADJUSTMENTS
The Company has restated its previously issued 1997 and 1996 financial
statements to reflect adjustments principally related to the
understatement of inventories. Such issued financial statements were
reviewed by other accountants. Inventories were understated by
approximately $200,000 and, as such, applicable income taxes were
understated by approximately $94,200. The following reflects previously
reported information and restated amounts:
1997 1996
-------- ------
Income before income taxes:
As previously reported $498,993 $ 77,758
As restated 483,738 276,489
Net income:
As previously reported $306,012 $ (6,267)
As restated 290,757 98,264
Retained earnings:
As previously reported $576,466 $270,454
As restated 665,742 374,985
17. SUBSEQUENT EVENT
The shareholders of the Company have entered into a letter of intent to
sell all of their outstanding stock to Hi-Rise Recycling Systems, Inc.
("Hi-Rise") for approximately $14.6 million comprised of $11.7 million
in cash and $2.9 million of Hi-Rise's common stock. In addition, it is
anticipated that the shareholders of the Company will contribute
capital to the Company in order to repay all outstanding Company debt
that is in existence on the date of sale. The Company's management
anticipates that the transaction will close in February 1999.
Page 14 of 14
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated balance sheet as of
December 31, 1998 reflects the consolidated financial position of Hi-Rise
Recycling Systems, Inc. (the "Company"), after giving effect to the acquisition
of DeVivo Industries, Inc. and Ecological Technoligies, Inc. (collectively
"DeVivo"), as if this transaction had been consummated as of December 31, 1998.
The unaudited pro forma condensed consolidated statement of operations reflects
the acquisition as if the transaction had been consummated at January 1, 1998.
The pro forma adjustments, which are described in the accompanying notes, are
based on available information and certain assumptions that management of the
Company believes are reasonable. The pro forma financial data should not be
considered indicative of actual results that would have been achieved if the
transaction given pro forma effect had been consummated on the dates indicated
and do not purport to indicate results of operations as of any future date or
any future period.
In February 1999, the Company acquired all of the outstanding capital stock of
DeVivo Industries,Inc. and Ecological Technologies, Inc. who are engaged in the
manufacturing of waste collection containers and disposal equipment. The
aggregate purchase price of approximately $14.6 million was comprised of $11.7
million in cash and $2.9 million of the Company's Common Stock.
In November 1998, the Company acquired all of the outstanding capital stock of
Acme Chutes, Inc. who is engaged in the manufacturing and installation of
garbage and linen chutes. The aggregate purchase price of approximately $550,000
was comprised of $500,000 in cash and $50,000 of the Company's Common Stock.
In October 1998, the Company acquired all of the outstanding capital stock of
Bes-Pac,Inc. who is engaged in the manufacturing of waste collection containers
and disposal equipment. The aggregate purchase price of approximately $8.0
million was comprised of $3.0 million in cash and $3.8 million of the Company's
Common Stock and $1.2 million convertible promissory note of the Company
In February 1998, the Company acquired all of the outstanding capital stock of
Hesco Sales, Inc. and subsidiaries and Atlantic Maintenance of Miami, Inc. who
are engaged in the manufacturing of waste collection containers and disposal
equipment. The aggregate purchase price of approximately $11.8 million was
comprised of $8.3 million in cash and $3.5 million of the Company's Common
Stock.
Page 1 of 5
<PAGE>
HI-RISE RECYCLING SYSTEMS,INC
CONSOLIDATED BALANCE SHEET
POST ACQUISTIONS
<TABLE>
<CAPTION>
12/31/98 12/31/98
HI-RISE DEVIVO ADJUSTMENTS Total
------------ ------------ ------------- ------------
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents 324,422 1,110 - 325,532
Investments 170,191 - - 170,191
Accounts receivable,net of -
allowance for doubtful accounts 10,191,195 1,854,937 12,046,132
Inventory 6,344,722 1,434,550 7,779,272
Other assets 836,632 204,409 - 1,041,041
------------- --------- --------- ----------
Total current assets 17,867,162 3,495,006 - 21,362,168
------------- --------- --------- ----------
-
Property and equipment 3,430,230 1,438,474 4,868,704
Deferred financing costs 2,152,484 350,000 a 2,502,484
Deferred acquisition costs 150,454 (150,454) -
net investment in sales type leases 8,068,283 8,068,283
Goodwill 22,145,585 12,251,887 d 34,397,018
============= ========= ========== ==========
Total assets 53,814,198 4,933,480 12,451,433 71,199,111
============= ========= ========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities 3,865,473 1,333,850 - 5,199,323
Cash overdrafts 743,146 286,693 - 1,029,839
Revolving line of credit - - - -
Current portion of long term debt 7,889,634 191,469 - 8,081,103
Unearned service agreement revenue - - -
------------- --------- --------- ----------
Total current liabilities 12,498,253 1,812,012 - 14,310,265
------------- --------- --------- ----------
Long-term debt 15,776,508 795,967 11,850,000 c 28,422,475
------------- --------- --------- ----------
Total liabilities 28,274,761 2,607,979 11,850,000 42,732,740
------------- --------- --------- ----------
Shareholders'equity:
Preferred Stock 2 2
Common stock 114,133 1,000 13,634 b 128,767
Additional paid-in capital 28,870,295 6,000 2,906,300 b 31,782,595
Accumulated (deficit) earnings (3,444,993) 2,318,501 (2,318,501)e (3,444,993)
------------- --------- --------- ----------
Total shareholders' equity 25,539,437 2,325,501 601,433 28,466,371
------------- --------- --------- ----------
============= ========= ========== ==========
Total liabilities and shareholders' equity 53,814,198 4,933,480 12,451,433 71,199,111
============= ========= ========== ==========
</TABLE>
See accompanying notes
Page 2 of 5
<PAGE>
<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
HI-RISE BESPAC ACME HESCO
YEAR ENDED 10 MONTHS 10 MONTHS 2 MONTHS
12/31/98 10/31/98 10/31/98 2/22/98 TOTAL
------------ ----------- --------- --------- ----------
Revenues:
<S> <C> <C> <C> <C> <C>
Sales 31,180,354 12,839,348 1,651,384 1,216,180 46,887,266
Cost and Expenses:
Cost of goods sold 21,145,097 10,705,865 1,069,148 827,112 33,747,222
Selling, general and administrative 6,732,471 2,446,717 333,769 463,209 9,976,166
Other --
Total operating cost and expenses 27,877,568 13,152,582 1,402,917 1,290,321 43,723,388
Operating (loss) 3,302,786 (313,234) 248,467 (74,141) 3,163,878
Other income (expense):
Litigation settlement
Gain (loss) on disposal of equipment --
Other income -- 467 467 --
Interest income 776,047 776,047 -- -- 776,047
Interest expense (1,000,725) (387,545) (1,388,270) (109,482)
Net income before income taxes 3,078,108 (700,779) 248,467 (74,141) 2,551,655
Provision for income taxes 75,000 -- 60,000 15,000 150,000
Net income 3,003,108 (700,779) 188,467 (89,141) 2,401,655
Net income per share - basic .30
===
Net income per share - diluted .27
===
Common shares outstanding 9,095,563 1,450,000
Common shares outstanding - diluted 10,560,775 1,576,000
</TABLE>
<TABLE>
<CAPTION>
DEVIVO
YEAR ENDED PRO FORMA PRO FORMA
12/31/98 ADJUSTMENTS TOTAL
----------- ----------- ----------
Revenues:
<S> <C> <C> <C>
Sales 12,496,685 59,383,951
Cost and Expenses:
Cost of goods sold 9,266,830 43,014,052
Selling, general and administrative 1,276,771 475,000 f 11,727,937
Other
Total operating cost and expenses 10,543,601 475,000 54,741,989
Operating (loss) 1,953,084 (475,000) 4,641,962
Other income (expense):
Litigation settlement --
Gain (loss) on disposal of equipment --
Other income 467 467
Interest income 776,047
Interest expense (109,482) (988,000)g (2,485,752)
Net income before income taxes 1,844,069 (1,463,000) 2,932,724
Provision for income taxes 191,310 (131,000)h 210,310
Net income 1,652,759 (1,332,000) 2,722,414
Net income per share - basic 0.19
====
Net income per share - diluted 0.17
====
Common shares outstanding 12,876,752
Common shares outstanding - diluted 15,669,640
</TABLE>
Page 3 of 5
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The accompanying pro forma financial statements are intended to
present the Company's financial position and results of
operations on a pro forma basis as if, for the purpose of the
pro forma condensed consolidated balance sheet, the transaction
underlying the pro forma adjustments had occurred on December
31, 1998 and, for the purpose of the pro forma consolidated
condensed statement of operations, as if the transaction
underlying the pro forma adjustments had occurred on January 1,
1998.
The Company's historical financial information used in
preparation of the pro forma condensed consolidated financial
statements has been derived from the Company's audited
consolidated financial statements as of and for the year ended
December 31, 1998. DeVivo's historical financial information
used in preparation of the pro forma condensed consolidated
financial statements has been derived from DeVivo's audited
financial statements as of and for the twelve months ended
December 31, 1998.
2) UNAUDITED PRO FORMA ADJUSTMENTS
A description of the adjustments included in the unaudited pro
forma financial statements is as follows:
BALANCE SHEET
a) Represents the elimination of the Company's deferred
acquisition costs related to the acquisition.
b) Represents 1,450,000 shares of common stock issued by the
Company to the former owner of DeVivo and the related
additional paid-in capital.
c) Represents the Company's payment of $11,850,000 in cash to
DeVivo's former owner.
d) Records the goodwill which resulted from the $11.3 million
purchase price and deferred acquisition costs offset by the net
assets purchased by the Company.
e) Adjustment eliminates DeVivo's common stock and retained
earnings.
Page 4 of 5
<PAGE>
STATEMENT OF OPERATION
f) Represents amortization of incremental goodwill created in
the acquisition for a full year. Amortization expense is
calculated using the pro forma balance sheet whereby goodwill
is based on differences between DeVivo's December 31, 1998
balances and those assets purchased and liabilities assumed at
the date of the acquisition. Goodwill is amortized on a
straight-line basis over twenty years.
g) Represents an adjustment for interest expense related to the
$11.8 million in funds borrowed in connection with the
acquisition of DeVivo. The interest rate assumed, based on the
terms of the debt, is prime rate plus 1/2%. The impact of a
1/8% change in the rate would result in an increase in interest
expense of $14,750.
h) Represents an adjustment for the provision for income taxes
based on a 40% effective tax rate.
Page 5 of 5
