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, 1999
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 0-21946
HI-RISE RECYCLING SYSTEMS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 65-0222933
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State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8505 NW 74TH STREET, MIAMI, FLORIDA 33166
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(Address of Principal Executive Offices)
(305) 597-0243
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [ ]
As of November 12, 1999, the Issuer had an aggregate of 13,876,752 shares of its
common stock, par value $.01 per share, issued and outstanding.
Transitional small business disclosure format:
YES [X] NO [ ]
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<TABLE>
<CAPTION>
INDEX
PART I FINANCIAL INFORMATION
PAGE
<S> <C>
Item 1. Consolidated Condensed Financial Statements 3
Consolidated Condensed Balance Sheets as of December 31, 1998 and
September 30, 1999 3
Consolidated Condensed Statements of Operations
for the three and nine months ended
September 30, 1999 and 1998 4
Consolidated Condensed Statement of Changes in
Shareholders' Equity for the nine months ended
September 30, 1999 5
Consolidated Condensed Statements of Cash Flows
for the nine months ended
September 30, 1999 and 1998 6
Notes to Consolidated Condensed 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 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 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
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HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 489,091 $ 324,422
Investments 171,393 170,191
Accounts receivable, net of allowance
for doubtful accounts of $212,418 and
$275,191 at December 31, 1998 and
September 30, 1999, respectively 15,137,010 10,191,195
Inventory 8,754,172 6,344,722
Other assets 1,246,885 836,632
------------ ------------
Total current assets 25,798,551 17,867,162
Property and equipment, net 5,328,448 3,430,230
Net investment in sales type leases 10,900,362 8,068,283
Prepaid Financing Costs 3,049,319 2,152,484
Deferred acquisition costs 238,001 150,454
Goodwill 33,712,374 22,145,585
------------ ------------
Total assets $ 79,027,555 $ 53,814,198
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities 5,471,649 3,865,473
Cash overdraft 961,069 743,146
Current portion of long-term debt 9,183,742 7,889,634
------------ ------------
Total current liabilities 15,616,460 12,498,253
Long-term debt 30,681,375 15,776,508
------------ ------------
Total liabilities 46,297,835 28,274,761
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value per share;
1,000,000 shares authorized; 200 shares issued and
outstanding; 2 2
liquidation preference of $2,000,000
Common stock, $.01 par value;
20,000,000 shares authorized,
11,413,352 and 13,641,998 shares issued and
outstanding 136,419 114,133
Additional paid-in capital 33,231,001 28,870,295
Accumulated deficit (638,202) (3,444,993)
------------ ------------
Total shareholders' equity 32,729,220 25,539,437
------------ ------------
Total liabilities and shareholders' equity $ 79,027,555 $ 53,814,198
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues: $ 15,471,101 $ 7,679,039 $ 44,586,254 $ 18,567,167
------------ ------------ ------------ ------------
Cost and Expenses:
Cost of goods sold 11,000,922 4,996,074 31,120,344 12,427,952
Selling and marketing 1,048,251 563,427 2,244,059 1,489,993
General and administrative 1,350,618 1,090,050 5,507,200 2,141,006
Product development 40,131 51,110 83,620 72,001
------------ ------------ ------------ ------------
Total operating costs and expenses 13,439,922 6,700,661 38,955,223 16,130,952
------------ ------------ ------------ ------------
Operating Income (loss) 2,031,179 978,378 5,631,031 2,436,215
Other income (expense):
Interest income 430,755 145,224 1,193,747 336,738
Interest expense (919,221) (255,973) (2,738,987) (696,028)
------------ ------------ ------------ ------------
Income before income taxes 1,542,713 867,629 4,085,791 2,076,925
Provision for income taxes (543,000) -- (1,138,000) --
------------ ------------ ------------ ------------
Net income 999,713 867,629 2,947,791 2,076,925
------------ ------------ ------------ ------------
Net income per
common share
Basic .07 .09 .22 .23
Diluted .07 .07 .21 .16
Weighted average common share
Outstanding
Basic 13,485,252 9,201,870 12,754,385 9,097,708
Diluted 14,446,864 13,115,955 14,600,054 12,923,933
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
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 of December 31, 1998 11,413,352 $ 2 $ 114,133 $28,870,295 $(3,444,993) $25,539,437
Issuance of common stock (unaudited) 2,228,646 22,286 4,219,706 4,241,992
Dividend requirement on preferred
stock (unaudited) 141,000 (141,000)
Net income (unaudited) $ 2,947,791 2,947,791
---------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 13,641,998 $ 2 $ 136,419 $33,231,001 $ (638,202) $32,729,220
========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ 2,076,925 $ 2,947,791
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization 579,833 1,584,000
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable (363,754) (3,962,517)
Inventory (715,690) (1,076,785)
Deferred acquisition costs (55,125) (87,547)
Other assets 49,893 (83,806)
Net investments in sales type leases (1,500,743) (2,832,079)
Accounts payable and accrued liabilities 885,291 794,193
------------ ------------
Net cash (used in) provided by operating activities 956,630 (2,716,750)
------------ ------------
INVESTING ACTIVITIES:
Purchase of business net of cash acquired (4,057,400) (776,045)
Maturity of investments --
Purchase of property and equipment (152,713) (942,536)
------------ ------------
Net cash (used) in investing activities (4,210,113) (1,718,581)
------------ ------------
FINANCING ACTIVITIES:
Payments under lines of credit (9,214,578) --
Draws from line of credit 9,706,770 4,600,000
Payment of long-term debt (270,000) --
Restricted Cash 3,022,035 --
Loan from Officer 500,000 --
------------ ------------
Net cash (used) provided by financing activities 3,744,227 4,600,000
------------ ------------
Net increase in cash and cash equivalents 490,744 164,669
Cash and cash equivalents, beginning of period 1,134,131 324,422
------------ ------------
Cash and cash equivalents, end of period 1,624,875 489,091
------------ ------------
Purchase of business, net of cash acquired
Working capital, other than cash $ (3,957,087) $ (1,730,641)
Property, plant and equipment (213,976) (1,634,681)
Cost in excess of net assets acquired, net (9,357,212) (11,943,923)
Revolving line of credit 3,000,000
Current portion of long term debt --
Long term debt -- 11,583,200
Common stock issued 6,470,875 2,950,000
------------ ------------
Net cash used to acquire business $ (4,057,400) $ (776,045)
============ ============
</TABLE>
6
<PAGE>
The accompanying notes are an integral part of these financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(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 of Hi-Rise Recycling Systems, Inc. (the "Company"), for the year ended
December 31, 1998 as filed with the Securities and Exchange Commission. The
December 31, 1998 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 management, 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 nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
3. 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.
4. Net investment in sales type leases consists of the following at September
30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Minimum Lease Payments $11,688,789
Unearned Income (1,288,229)
Estimated Residual Value on Leased Equipment 499,802
-----------
Total $10,900,362
===========
</TABLE>
5. In February 1999, the Company acquired all of the outstanding capital stock
of DeVivo Industries, Inc. ("DeVivo") and Ecological Technologies, Inc. ("ETI").
Devivo is in the business of manufacturing and supplying waste handling and
recycling equipment while ETI owns certain patent rights relating to DeVivo's
business. The aggregate purchase price of approximately $14,600,000 consisted of
approximately $11,700,000 in cash and 1,463,400 shares of the Company's common
stock valued at approximately $2,900,000. The Company funded the cash portion of
the purchase price through borrowings available under its revolving and term
credit facilities with General Electric Capital Corporation.
The acquisitions consummated by the Company have been accounted for using the
purchase method of accounting. Accordingly, the results of operations of an
acquired company are included in the Company's consolidated results of
operations from the respective dates of acquisition.
The following information presents the unaudited pro forma condensed results of
operations for the periods January 1, 1998 through September 30, 1998 and
January 1, 1999 through September 30, 1999, as if the Company's acquisition of
De-Vivo and ETI, described above and the acquisitions of Bes-Pac, Inc. and Hesco
Sales, Inc. which were consummated during 1998, had occurred on January 1, 1998.
The pro forma results are presented for informational purposes only and are not
necessarily indicative of the future results of operation of the Company or the
results of operation of the Company had the acquisitions occurred on January 1,
1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
(UNAUDITED)
-------------------------------
<S> <C> <C>
Revenues $46,087,922 $40,316,424
Income from operations 5,790,124 4,406,402
Net income 3,248,829 3,048,196
Earnings per share of common stock
Basic 0.22 0.24
Diluted 0.21 0.20
</TABLE>
7
<PAGE>
6. SEGMENTS OF THE BUSINESS:
The Company operates in the United States and Canada in two primary
industry segments: (1) Architectural Specified Services which
involves complete handling of waste stream in high-rise buildings and
(2) Parts and Equipment Services which involves the construction,
repair and maintenance of waste handling equipment, trucks and
transfer stations. The following is a summary of selected data for
these business segments:
<TABLE>
<CAPTION>
ARCHITECTURAL PARTS AND EQUIPMENT CONSOLIDATED
SPECIFIED SERVICES SERVICES TOTAL
------------------ ------------------- ------------
NINE MONTHS ENDED
SEPTEMBER 30, 1999
<S> <C> <C> <C>
Revenues $8,775,605 $35,810,649 $44,586,254
Operating Income 455,423 5,131,608 5,587,031
Total assets 53,994,397 25,033,158 79,027,555
NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues $6,896,132 $11,671,035 $18,567,167
Operating Income 50,213 1,921,002 2,436,215
Total assets 10,715,400 22,965,374 33,680,774
</TABLE>
8. PER SHARE DATA
Basic earnings per share is calculated by dividing net income available to
common shareholders by the weighted average common shares outstanding during the
years presented. Diluted earnings per share is calculated by dividing net income
available to common shareholders by weighted average common shares and assumed
dilutive shares outstanding.
Shares used in the dilutive calculation include the weighted average effect of
shares assumed to be issued under options and warrants under the treasury stock
method. In addition, the calculation includes the dilutive effect of the assumed
conversion of the Company's preferred stock into shares of its common stock and
the resulting elimination of the stated dividend requirements, which are payable
in common stock upon conversion of the preferred stock.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company is primarily engaged in manufacturing, distributing, marketing and
selling recycling and solid waste handling equipment. Until February 1997, the
Company was primarily engaged in distributing, marketing and selling the Hi-Rise
System, a proprietary automated system designed to collect source-separated
recyclables and other solid waste in multi-story residential buildings. In
February 1997, the Company expanded its product lines to include sheet metal
fabrication products, consisting primarily of rubbish and laundry chutes. During
the three months ended September 30, 1999 and 1998 sales of sheet metal
fabrication products accounted for approximately 21% and 14%, respectively, of
the Company's revenues. During 1998, the Company further expanded its product
lines to include solid waste handling equipment products through its
acquisitions of Hesco Sales, Inc., a Florida corporation, in February 1998 and
Bes-Pac, Inc., a South Carolina corporation, in October 1998. In November 1998,
the Company acquired Acme Chutes Co., Inc., a Florida corporation engaged in the
sale and service of rubbish and linen chutes ("Acme"). Additionally, in February
1999, the Company acquired DeVivo Industries, Inc. a Connecticut corporation
engaged in the business of manufacturing, marketing and selling solid waste
equipment products. During the nine months ended September 30, 1999, Hesco's,
BesPac's and DeVivos' product lines accounted for approximately 79% of the
Company's total revenues. The Company anticipates that non-mobile waste
equipment will continue to be the Company's single largest source of revenue.
The Company expects that its other principal sources of revenue will be sales of
rubbish and linen chutes, trash compaction systems and the Hi-Rise System and
sales-types leases of the Hi-Rise System.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998.
Total revenue during the three months ended September 30, 1999 was $15,471,101,
an increase of approximately $7,791,000 compared to total revenue of $7,679,039
during the comparable three-month period of 1998. One of the primary sources of
the increase is the inclusion of an aggregate of $8,269,000 of revenues
generated by BesPac and DeVivo during this quarter. In addition, revenue from
chute sales increased by $469,000 during the three months ended September 30,
1999 primarily as a result of the inclusion of revenues generated by Acme. These
increases were offset by a decrease in sales at Hesco of approximately $600,000
as a result of a decrease in sales to two of Hesco's largest customers.
During the three months ended September 30, 1999, the Company recognized
interest income of $430,765, an increase of $286,000 compared to $145,224 during
the comparable three-month period of 1998. The increase in interest income is
primarily attributable to increased interest realized from additional leases of
Hi-Rise Systems and waste equipment in 1999 as compared to 1998.
Total operating expenses during the three months ended September 30, 1999 were
$13,439,922 an increase of $6,739,000 compared to total operating expenses of
$6,700,661 during the comparable three-month period of 1998. A primary
reason for the increase was the inclusion in the three months ended September
30, 1999 of additional cost of sales for BesPac and DeVivo of $5,979,000. Cost
of equipment sold increased by approximately $6,005,000 from $4,996,000 during
the three months ended September 30, 1998 to $11,001,000 during the three months
ended September 30, 1999. As a percentage of revenue, cost of equipment sold
increased to 71% during the three months ended September 30, 1999 from 65%
during the comparable three-month period of 1998. The primary reason for this
increase is a corresponding increase in sales of waste equipment having a higher
cost of sales on a percentage basis. Waste equipment products cost of sale is
approximately 75% of revenues. Selling and marketing expenses during the three
months ended September 30, 1999 were $1,048,251, an increase of $485,000
compared to selling and marketing expenses of $563,427 during the comparable
three-month period of 1998. Selling and marketing expenses for the three months
ended September 30, 1999 include approximately $380,000 of additional expenses
for BesPac and DeVivo and $100,000 for Acme. General and administrative expenses
during the three months ended September 30, 1999 were $1,350,618, an increase of
$261,000 compared to general and administrative expenses of $1,090,050 during
the comparable three-month period of 1998. General and administrative expenses
for the three months ended September 30, 1999 include approximately $1,250,000
of such expenses for BesPac and DeVivo. Interest expense increased by $663,000
to $919,221 during the three months ended September 30, 1999 as a result of
increased borrowings under the Company's credit facilities. Advances under such
credit facilities were used to finance the BesPac, DeVivo and Acme acquisitions.
As a result, the Company realized net income of $999,713 during the three months
ended September 30, 1999, compared to net income of $867,629 during the three
months ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998.
Total revenue during the nine months ended September 30, 1999 was $44,586,254,
an increase of $26,019,000 compared to total revenue of $18,567,167 during the
comparable nine-month period of 1998. One of the primary sources of the increase
is the inclusion of seven months of sales for DeVivo and nine months of sales
for BesPac in this period in the amount of $22,600,000. The remaining increase
is a
9
<PAGE>
result of two months of revenue from Hesco of $1,958,258 and $1,579,000 of
revenues from Acme for the nine months. Revenue from equipment sales, consisting
of sales of Hi-Rise Systems and trash compaction systems, increased by $296,015
to $2,218,000 during the nine months ended September 30, 1999, from $1,900,000
during the comparable nine-month period of 1998. Revenues from trash chute sales
increased by approximately $322,000 to $4,355,000 during the nine months ended
September 30, 1999, from $4,033,000 during the comparable nine-month period of
1998 primarily as a result of increased sales generated by Wilkinson Co., Inc.,
the Company's wholly owned subsidiary, from its dealer network during the nine
months ended September 30, 1999.
During the nine months ended September 30, 1999, the Company recognized interest
income of approximately $1,194,000, an increase of $860,000 compared to $337,000
during the comparable nine-month period of 1998. The increase in interest income
is primarily attributable to increased interest realized from additional leases
of Hi-Rise Systems and waste equipment in 1999 as compared to 1998.
Total operating expenses during the nine months ended September 30, 1999 were
$38,955,223, an increase of approximately $22,800,000 compared to total
operating expenses of $16,130,952 during the comparable nine-month period of
1998. A primary reason for the increase was the inclusion in the nine months
ended September 30, 1999 of cost of sales of approximately $4,511,000 and
$3,044,000 related to sales of products by Bes-Pac and DeVivo, respectively, and
increased cost of sales of $254,613 and $4,109,511 for Wilkinson and Hesco,
respectively. Cost of equipment sold increased to $31,120,344 during the nine
months ended September 30, 1998 from $12,427,000 during the nine months ended
September 30, 1999. As a percentage of revenue, cost of equipment sold increased
to 70% during the nine months ended September 30, 1999 from 65% during the prior
comparable nine-month period. The primary reason for this increase is a
corresponding increase in sales of waste equipment having a higher cost of sales
on a percentage basis. Waste equipment products cost of sales is approximately
75%. Selling and marketing expenses during the nine months ended September 30,
1999 were $2,224,059, an increase of $755,000 compared to selling and marketing
expenses of $1,489,993 during the comparable nine-month period of 1998. Selling
and marketing expenses for the nine months ended September 30, 1999 include an
aggregate of approximately $744,000 for Bes-Pac and DeVivo and an additional
$221,422 of expenses for Hesco for four additional months of 1999. General and
administrative expenses during the nine months ended September 30, 1999 were
$5,507,200 an increase of approximately $3,266,000 compared to general and
administrative expenses of $2,141,006 during the comparable nine-month period of
1998. General and administrative expenses for the nine months ended September
30, 1999 include an aggregate of approximately $1,550,000 for Bes-Pac and DeVivo
and approximately $550,000 for Hesco for four additional months of 1999.
Interest expense increased to $2,738,000 from $696,018 as compared to the
comparable nine-month period of 1998, as a result of increased borrowings under
the Company's credit facilities. Advances under such credit facilities were used
to finance the Hesco, BesPac, DeVivo and Acme acquisitions.
As a result of the foregoing, the Company realized net income of $2,947,790
during the nine months ended September 30, 1999, compared to a net income of
$2,076,925 during the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had working capital of $10,182,091 and cash
and cash equivalents aggregating $489,091, compared to working capital of
$5,368,909 and cash and cash equivalents of $324,422 at December 31, 1998.
During 1998, the Company obtained a $40.0 million credit facility from GECC and
other participating lenders. In September 1999, the aggregate amounts available
under this facility were increased to $61 million. In particular, the Company's
revolving line of credit was increased by $9.0 million, from $8.0 million to
$17.0 million, and its acquisition line of credit was increased by $12 million,
from $8.0 million to $20.0 million. This facility consists of two revolving
lines of credit totaling $26.0 million, a $9.0 million term loan, a $6.0 million
term loan and a $20.0 million acquisition line. Accounts receivable and
inventory of the Company and its subsidiaries collateralize one revolving line
of credit in the amount of up to $8.0 million. The borrowing base is calculated
by taking 80% of the value of eligible receivables and 50% of the value of
eligible inventory. Approximately $8,983,000 was outstanding under this line of
credit as of September 30, 1999. The other revolving line of credit in the
amount of up to $9.0 million is collateralized by leases entered into by the
Company for Hi-Rise systems and other products manufactured by the Company and
its subsidiaries. The borrowing base is calculated by taking 90% of the value of
eligible leases issued by the Company for its equipment. Approximately
$8,850,000 was outstanding under this line of credit as of September 30, 1999.
Both lines of credit bear interest at a rate per annum equal to the prime rate
as announced by THE WALL STREET JOURNAL plus .5% and are due in October 2003.
The term loan is for $9.0 million and bears interest at a fixed rate of 11% for
five years. Interest only on the term loan is payable quarterly for four and
one-half years with principal payable for two quarters in the amount of $1.5
million and a $6.0 million payment due at October 30, 2003. The $6.0 million
term loan has a nine-month period of interest only and principal payments to be
paid on a quarterly basis until October 30, 2003. The acquisition facility also
has a nine-month interest only period and quarterly principal payments due five
years from the funding of the loan. Both the $6.0 million term loan and the
acquisition facility bear interest at a rate of prime, as announced by THE WALL
STREET JOURNAL, plus .5%.
10
<PAGE>
During the nine months ended September 30, 1999, net cash used by operating
activities was $2,716,750, compared to net cash provided by operating activities
of $956,630 during the nine months ended September 30, 1998. Accounts receivable
increased by $3,962,517 as a result of increased sales by Wilkinson, DeVivo and
BesPac during the nine months ended September 30, 1999. The Company anticipates
that sales by Bes-Pac and DeVivo of waste equipment will decrease during the
next two quarters as a result of the seasonality of such companies' historical
operations. In addition, inventory increased by $1,076,785 primarily as a result
of purchases of inventory for equipment and materials to support the Company's
$8 million backlog. Additionally, net investment in sales type leases increased
by $2,832,079 as a result of 35 leases added to the lease portfolio.
Net cash used by investing activities was $1,718,581 during the nine months
ended September 30, 1999. This is primarily the result of cash used for payment
of expenses as part of the DeVivo acquisition and purchase of capital equipment.
Net cash provided by financing activities was $4,600,000 during 1999. This
increase was primarily the result of increased borrowings under the Company's
lines of credit in connection with acquisitions and lease financing.
The Company currently has no outstanding material commitments for capital
expenditures. The Company's primary requirements for capital will be the costs
of equipment sold, leased and rented, strategic acquisitions, marketing and
sales costs associated with the Company's national and international expansion
into new target markets, efforts to establish a nationwide distribution network
and general and administrative expenses associated with the Company's business
plan. The Company anticipates, based on currently proposed plans and assumptions
relating to operations (including the anticipated costs associated with, and
timetable for, its proposed expansion), that cash flow from operations and funds
available under the Company's existing credit facilities will be sufficient to
satisfy the Company's contemplated cash requirements for at least 12 months. In
the event that the Company's plans change, its assumptions change or prove to be
inaccurate or if its existing capital and cash flow otherwise prove to be
insufficient (due to unanticipated expenses, delays, problems, difficulties or
otherwise), the Company could be required to seek additional financing or may be
required to curtail its expansion or other activities. In the event that the
Company requires additional financing, the Company may seek to raise capital
through the sale of its equity securities, including at prices which may
represent significant discounts from the market price of its common stock.
YEAR 2000
The Company has evaluated its computer software and databases to determine
whether or not modifications will be required to prevent problems related to
Year 2000. To date, the Company has spent approximately $50,000 in connection
with the updating of its information systems and equipment to be Year 2000
compliant. The Company has determined that its current operating and accounting
systems are Year 2000 compliant and has received a letter supporting this
determination issue from it's software vendor. Accordingly, the Company does not
intend to incur any further expenses in connection with its Year 2000 readiness.
The Year 2000 issue may also effect the systems and applications of the
Company's customers or suppliers. The Company has initiated formal
communications with a number of its significant suppliers to determine the
extent to which the Company's interface systems are vulnerable to those third
parties' failure to remediate their own Year 2000 issues. The Company will
continue similar communication with major customers, and the balance of its
major suppliers during the remainder 1999 to receive appropriate warranties and
assurances that those parties are, or will be, Year 2000 compliant. Although the
Company currently does not anticipate any material impact on its operations as a
result of Year 2000 issues of its customers or suppliers, no assurance can be
given that the failure by one or more of its major suppliers or customer to
become Year 2000 compliant will not have a material adverse impact on its
operations.
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis or Plan of Operation 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.
11
<PAGE>
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
A. The Annual Meeting of Shareholders (the "Meeting") of the Company
was held on July 7, 1999.
B. The matters voted on at the meeting consisted of the following:
(i) The election of five members to the Company's Board of
Directors. The name of each nominee for election and the
number of shares voted for and against such nominee, as well
as the number of abstentions and broker non-votes with
respect to such nominee, are set forth below:
NAME FOR AGAINST ABSTAIN NON-VOTES
- ---- ---------- ------- ------- ---------
Don Engel 11,604,397 161,612 -0- -0-
Warren Adelson 11,603,897 162,112 -0- -0-
Ira Merritt 11,604,397 161,612 -0- -0-
Joel Pashcow 11,604,397 161,612 -0- -0-
Leonard Toberoff 11,604,397 161,612 -0- -0-
(ii) A proposal to approve the amendment of the Company's 1998
Executive Incentive Compensation Plan and the increase by
1,000,000 shares to 2,000,000 shares of common stock for
issuance pursuant to the 1999 Executive Incentive
Compensation Plan. 6,669,419 shares were voted in favor of
such proposal, 331,264 shares against and 179,500 abstained.
In addition, there were 4,585,854 broker non-votes with
respect to such proposal.
(iii) A proposal to approve the amendment of the Articles of
Incorporation and the increase to authorize 50,000,000
shares of common stock for issuance. 11,538,351 shares were
voted in favor of such proposal, 189,258 shares against and
177,800 abstained.
(iv) A proposal to approve the acquisition of all of the issued
and outstanding common stock of Bes Pac, Inc pursuant to the
terms of and Agreement and plan of merger dated October 9,
1999. 7,014,197 shares were voted in favor of such proposal,
26,158 shares against and 139,800 abstained.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(A) EXHIBITS:
EXHIBITS DESCRIPTION
-------- -----------
27 Financial Data Schedule
(B) REPORT ON FORM 8-K:
None
12
<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, 1999 BY: /S/ DONALD ENGEL
--------------------
Donald Engel, Chairman of the Board
and Chief Executive Officer
(principal executive officer)
Date: November 12, 1999 /S/ BRADLEY HACKER
------------------
Bradley Hacker, Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 489,091
<SECURITIES> 171,393
<RECEIVABLES> 15,412,201
<ALLOWANCES> (275,191)
<INVENTORY> 8,754,172
<CURRENT-ASSETS> 25,798,551
<PP&E> 12,528,896
<DEPRECIATION> 7,200,448
<TOTAL-ASSETS> 79,027,555
<CURRENT-LIABILITIES> 15,616,460
<BONDS> 0
0
2
<COMMON> 136,419
<OTHER-SE> 33,231,001
<TOTAL-LIABILITY-AND-EQUITY> 79,027,555
<SALES> 44,586,254
<TOTAL-REVENUES> 44,586,254
<CGS> 31,120,344
<TOTAL-COSTS> 38,955,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,738,987
<INCOME-PRETAX> 4,085,791
<INCOME-TAX> 1,138,000
<INCOME-CONTINUING> 2,947,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,947,791
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.21
</TABLE>
