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 June 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.
-------------------------------
(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
-----------------------------------------
(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 [ ]
The number of shares outstanding of the Issuer's Common Stock, $.01 Par Value,
as of August 13, 1999 was 12,876,752.
Transitional small business disclosure format:
YES [X] NO [ ]
<PAGE>
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1999 3
Consolidated Statements of Operations
for the three and six months ended
June 30, 1998 and 1999 4
Consolidated Statement of Changes in
Shareholders' Equity for the six months ended
June 30, 1999 5
Consolidated Statements of Cash Flows
for the six months ended
June 30, 1998 and 1999 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 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
SIGNATURES 13
2
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<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND JUNE 30, 1999
(UNAUDITED)
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 324,422 $ 674,938
Investments 170,191 171,393
Accounts receivable, net of allowance
for doubtful accounts of $212,418 and
$275,191 in 1998 and 1999, respectively 10,191,195 16,454,343
Inventory 6,344,722 8,581,464
Other assets 836,632 436,658
------------ ------------
Total current assets 17,867,162 26,318,796
Property and equipment, net 3,430,230 5,333,856
Net investment in sales type leases 8,068,283 9,471,963
Prepaid Financing Costs 2,152,484 2,444,676
Deferred acquisition costs 150,454 -0-
Goodwill 22,145,585 32,645,649
------------ ------------
Total assets $ 53,814,198 $ 76,214,940
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities 3,865,473 4,830,605
Cash overdraft 743,146 1,631,463
Current portion of long-term debt 7,889,634 9,583,742
------------ ------------
Total current liabilities 12,498,253 16,045,810
Long-term debt 15,776,508 29,639,090
------------ ------------
Total liabilities 28,274,761 45,684,900
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Shareholders' equity:
Preferred stock, $.01 par value per share;
1,000,000 shares authorized; 200 shares issued and
outstanding at December 31, 1998 and June 30, 1999, 2 2
liquidation preference of $2,000,000
Common stock, $.01 par value;
20,000,000 shares authorized,
11,413,352 and 12,876,752 shares issued and
outstanding at December 31, 1998
and June 30, 1999, respectively 114,133 128,768
Additional paid-in capital 28,870,295 31,946,807
Accumulated deficit (3,444,993) (1,545,537)
------------ ------------
Total shareholders' equity 25,539,437 30,530,040
------------ ------------
Total liabilities and shareholders' equity $ 53,814,198 $ 76,214,940
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
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<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues: $ 16,850,062 $ 7,312,856 $ 29,116,722 $ 10,888,128
------------ ------------ ------------ ------------
Cost and Expenses:
Cost of goods sold 11,762,075 4,917,009 20,119,422 7,015,698
Selling and marketing 600,804 493,745 1,195,808 892,408
General and administrative 2,212,193 906,396 4,156,582 1,566,980
Product development 12,786 25,807 65,489 52,984
------------ ------------ ------------ ------------
Total operating costs and expenses 14,587,858 6,342,957 25,537,301 9,528,070
============ ============ ============ ============
Operating Income 969,899 2,262,204 3,579,421 1,360,058
Other income (expense):
Interest income 398,398 145,224 763,492 281,256
Interest expense (1,128,522) (287,379) (1,819,766) (396,018)
============ ============ ============ ============
Income before income taxes 1,532,080 827,744 2,523,147 1,245,296
Provision for income taxes (399,703) -- (414,703) --
------------ ------------ ------------ ------------
Net income 1,132,377 827,744 2,108,444 1,245,296
============ ============ ============ ============
Net income per
common share
Basic .09 .08 .17 .15
Diluted .08 .07 .15 .10
Weighted average common share
Outstanding
Basic 13,016,752 9,054,879 12,528,952 8,190,908
Diluted 14,918,217 13,002,444 14,676,649 12,367,433
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
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) 1,463,400 $ 14,635 $ 2,867,424 $ 2,882,059
Dividend requirement on preferred
stock (unaudited) $ 209,088 $ (209,088)
Net income (unaudited) $ 2,108,544 $ 2,108,544
---------- -- -------- ----------- ----------- -----------
Balance at June 30, 1999 12,876,752 $2 $128,768 $31,946,807 $(1,545,537) $30,530,040
========== == ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
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<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1999
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<S> <C> <C>
Operating Activities:
Net income $ 1,209,296 $ 2,108,444
Adjustments to reconcile net income
to net cash (used in)
operating activities:
Depreciation and amortization 225,200 1,078,418
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (1,727,329) (4,508,275)
Inventory (80,627) (904,086)
Other assets 133,544 626,421
Net investment in sales type leases (488,019) (1,403,680)
Accounts payable and accrued liabilities 150,808 94,159
Unearned service agreement revenue 6,424 --
------------ ------------
Net cash (used in) provided by operating activities (570,703) (2,908,599)
------------ ------------
Investing Activities:
Purchase of business net of cash acquired (4,057,400) (468,492)
Purchase of property and equipment (114,941) (247,393)
------------ ------------
Net cash used in investing activities (4,172,341) (715,885)
------------ ------------
Financing Activities:
Restricted cash 3,022,035 --
Loan from Officer 500,000 --
Payments under credit line (5,457,740) --
Draws from line of credit 6,815,070 3,975,000
Issuance of preferred stock -- --
Payment of long-term debt (270,000) --
------------ ------------
Net cash provided by financing activities 4,609,365 3,975,000
------------ ------------
Net (decrease) increase in cash and cash equivalents (133,679) 350,516
Cash and cash equivalents, beginning of period 1,134,131 324,422
------------ ------------
Cash and cash equivalents, end of period $ 1,000,452 $ 674,938
------------ ------------
Purchase of business, net of cash acquired
Working capital, other than cash $ (4,097,621) $ (1,730,641)
Property, plant and equipment (73,442) (1,634,681)
Cost in excess of net assets acquired, net (9,457,332) (11,636,370)
Revolving line of credit 3,000,000 --
Current portion of long-term debt -- --
Long-term debt -- 11,583,200
Common stock issued 6,570,995 2,950,000
------------ ------------
Net cash used to acquire business $ (4,057,400) $ (468,492)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1999
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, 1998 of Hi-Rise Recycling Systems, Inc.
(the "Company"), 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 six months ended June 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 June 30,
1999:
Minimum Lease Payments $10,274,083
Unearned Income (1,301,922)
Estimated Residual Value on Leased Equipment 499,802
-----------
Total $ 9,471,963
===========
5. In February 1999, the Company acquired all 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 the Company's revolving
and term credit facilities with GECC.
6. The acquisitions made by the Company have been accounted for using the
purchase method of accounting. Accordingly, the results of operations of the
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 June 30, 1998 and January 1,
1999 through June 30, 1999, as if the Company's acquisition of De-Vivo and
Ecological Technologies, described above and Bes-Pac and Hesco wich incurred in
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.
SIX MONTHS ENDED JUNE 30,
1999 1998
----------- -----------
Revenues $30,616,922 $26,316,424
Income from operations 3,759,124 3,406,402
Net income 2,248,829 2,048,196
Earnings per share of common stock
Basic 0.17 0.15
Diluted 0.15 0.14
7
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7. 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 station.
The following is a summary of selected data for these business
segments:
<TABLE>
<CAPTION>
ARCHITECTURAL PARTS AND EQUIPMENT CONSOLIDATED
SPECIFIED SERVICES SERVICES TOTAL
------------------ ------------------- ---------------
<S> <C> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1999
Revenues $ 5,303,605 $ 23,813,117 $29,116,722
Operating Income 255,423 3,323,998 3,579,421
Total assets 53,997,397 22,217,543 76,214,940
SIX MONTHS ENDED
JUNE 30, 1998
Revenues $ 3,182,066 $ 7,706,062 $ 10,888,128
Operating Income 215,998 1,108,060 1,360,058
Total assets 10,712,844 8,472,006 19,184,850
</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 optionis and warrants under the
treasury stock method. In addition, the calculation includes the dilutive effect
of the assumed conversion into common shares of the Company's preferred 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
Hi-Rise Recycling Systems, Inc., a Florida corporation (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 June 30, 1999 and 1998 sales of sheet metal fabrication products
accounted for approximately 15% and 21%, respectively, of the Company's
revenues. In February 1998, the Company acquired Hesco Sales Inc., a Florida
corporation ("Hesco"), a company engaged in the business of manufacturing,
marketing and selling solid waste handling equipment products. Hesco's product
lines include waste containers and trash compaction systems. In October 1998 the
Company acquired BesPac, Inc., a South Carolina corporation engaged, the
business of manufacturing, marketing and selling solid waste equipment products.
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 six months ended June 30, 1999,
Hesco's BesPac's and DeVivos product lines accounted for approximately 84% of
the Company's revenues. The Company anticipates that in the future non-mobile
waste equipment will continue to be the Company's single largest source of
revenue. In addition, 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 JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998.
Total revenue during the three months ended June 30, 1999 was $16,850,062, an
increase of $9,537,206 compared to total revenue of $7,312,856 during the prior
comparable three-month period of 1998. One of the primary sources of the
increase is the inclusion of BesPac and Devivo sales in this quarter in the
aggregate amount of $9,414,222. In addition, revenue from equipment sales,
consisting of sales of Hi-Rise Systems and trash compaction systems, increased
by $105,221 to $1,261,333 during the three months ended June 30, 1999, from
$1,156,112 during the prior comparable three-month period of 1998.
During the three months ended June 30, 1999, the Company had interest income of
$398,398 an increase of $253,174 compared to $145,224, during the prior
comparable three-month period of 1998. The increase in interest income is
primarily attributable to increased interest realized from additional leases in
1999 as compared to 1998.
Total operating expenses during the three months ended June 30, 1999 were
$14,587,858 an increase of $8,244,901 compared to total operating expenses of
$6,342,957, during the prior comparable three-month period. A primary reason for
the increase was the inclusion in the three months ended June 30, 1999 of
additional cost of sales for BesPac and DeVivo of $8,186,450. Cost of equipment
sold increased by $6,845,066 from $4,917,009 during the three months ended June
30, 1998 to $11,762,075 during the three months ended June 30, 1999. As a
percentage of revenue cost of equipment sold increased to 69% during the three
months ended June 30, 1999 from 67% during the prior comparable three-month
period. The primary reason for the increase the inclusion of the waste equipment
cost of sales which approximate 84% of revenue. Waste equipment products cost of
sales is approximately 70%. Selling and marketing expenses during the three
months ended June 30, 1999 were $600,804, an increase of $107,059 compared to
selling and marketing expenses of $493,745 during the prior comparable
three-month period. Selling and marketing expenses for the three months ended
June 30, 1999 include approximately $100,422 of additional expenses for Bes Pac
and DeVivo for the three month period. General and administrative expenses
during the three months ended June 30, 1999 were $2,212,193 an increase of
$1,305,797 compared to general and administrative expenses of $906,396 during
the prior comparable three-month period. General and administrative expenses for
the three months ended June 30, 1999 include approximately $1,286,277 of such
expenses for Bes Pac and DeVivo. Interest expense increased by $841,143 to
$1,128,522 as compared to the prior comparable three-month period, as a result
of increased borrowings under the Company's lines of credit to finance the Bes
Pac and Devivo Acquisitions.
As a result, the Company realized net income of $1,132,377 during the three
months ended June 30, 1999, compared to net income of $827,744 during the three
months ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998.
Total revenue during the six months ended June 30, 1999 was $29,116,722, an
increase of $18,228,594 compared to total revenue of $10,888,128 during the
prior comparable six-month period. One of the primary sources of the increase is
the inclusion of four months of sales of DeVivo and six months of BesPac in this
quarter in the amount of $14,357,123. The remaining increase is a result of two
months of revenue from Hesco of $1,958,258 and $1,010,258 of revenues from Acme
for the six months. Revenue from equipment sales, consisting of sales of Hi-Rise
Systems and trash compaction systems, increased by $296,015 to $1,619,854 during
the six months ended June 30, 1999, from $1,323,839 during the prior comparable
six-month period. Revenues from trash chute sales
9
<PAGE>
increased by $322,865 to $2,829,100 during the six months ended June 30, 1999,
from $2,506,235 during the prior comparable six-month period. This is primarily
a result of increased Wilkinson sales from the dealer network during the six
months ended June 30, 1999.
During the six months ended June 30, 1999, the Company had interest income of
$763,492, an increase of $482.236 compared to $281,256 during the prior
comparable six-month period. The increase in interest income is primarily
attributable to increased interest realized from investments and additional
leases in 1999 as compared to 1998.
Total operating expenses during the six months ended June 30, 1999 were
$25,537,301, an increase of $16,009,231 compared to total operating expenses of
$9,528,070 during the prior comparable six-month period. A primary reason for
the increase was the inclusion in the six months ended June 30, 1999 of
additional cost of sales for Wilkinson of $254,613 and for Hesco of $4,109,511.
Cost of equipment sold increased to $20,119,422 during the six months ended June
30, 1998 from $7,015,698 during the six months ended June 30, 1999. As a
percentage of revenue, cost of equipment sold increased to 69% during the six
months ended June 30, 1999 from 65% during the prior comparable six-month
period. The primary reason for the increase the inclusion of the waste equipment
cost of sales which approximate 84% of revenue. Waste equipment products cost of
sales is approximately 70%. Selling and marketing expenses during the six months
ended June 30, 1999 were $1,195,808, an increase of $303,400 compared to selling
and marketing expenses of $892,408 during the prior comparable six-month period.
Selling and marketing expenses for the six months ended June 30, 1999 include
approximately $221,422 of additional expenses for Hesco for four months of 1999.
General and administrative expenses during the six months ended June 30, 1999
were $4,156,582 an increase of $2,589,602 compared to general and administrative
expenses of $1,566,980 during the prior comparable six-month period. General and
administrative expenses for the six months ended June 30, 1999 include
approximately $550,000 of such expenses for Hesco. Interest expense increased to
$1,819,766 from $396,018 as compared to the prior comparable six-month period,
as a result of increased borrowings under the Company's lines of credit to
finance the Hesco, BesPac and Devivo Mergers.
As a result, the Company realized net income of $2,108,444 during the six months
ended June 30, 1999, compared to a net income of $1,245,296 during the six
months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had working capital of $10,272,986 and cash and
cash equivalents aggregating $674,938, compared to working capital of $5,368,909
and cash and cash equivalents of $624,422 at December 31, 1998.
During 1998, the Company obtained a $40 million credit facility from GECC and
other participating lenders. This facility consists of two revolving lines of
credit totaling $17 million, a $9 million term loan funded at closing, a $6
million term loan which was funded in connection with the Company's acquisition
of the DeVivo Companies and an $8 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 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 June 30, 1999. The other revolving line of credit in the
amount of up to $9 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
$8,150,000 was outstanding under this line of credit as of June 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 funded at closing is for $9 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 million dollar payment due at October 30, 2003. The $6
million dollar term loan has a six-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 six-month interest only period and quarterly principal
payments due five years from the funding of the loan. Both the $6 million term
loan and the acquisition facility bear interest at a rate of prime, as announced
by THE WALL STREET JOURNAL, plus .5%. As part of the credit facility provided by
GECC and other lenders, the Company issued warrants to the lenders to purchase
an aggregate of 1,476,259 shares of the Company's Common Stock.
In June 1998, the Company had entered into a lease financing arrangement with
Western Finance and Lease, Inc., formerly known as First Sierra, Inc. ("Western
Finance"), pursuant to which Western Finance has agreed to purchase, from time
to time, eligible leases of Hi-Rise Systems from the Company for a purchase
price equal to the discounted present value of the leases purchased. During
1998, the Company sold the anticipated cash flow relating to twelve (12) Hi-Rise
System leases to Western Finance for an aggregate of $1,710,588.
During the six months ended June 30, 1999, net cash used by operating activities
was $2,908,599, compared to net cash used in operating activities of $570,703
during the six months ended June 30, 1998. Accounts receivable increased by
$4,508,275 as a result of increased sales by Wilkinson, Devivo and Bes-Pac
during the six months ended June 30, 1999. The month of June was the highest
10
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revenue month of the year to date and resulted in a large increase at the end of
the quarter. In addition, inventory increased by $904,086 primarily as a result
of purchases of inventory for equipment and material to support the Company's $9
million backlog. Also net investment in sales type leases increased by
$1,403,680 as a result of 25 leases added to the lease portfolio.
Net cash used by investing activities was $715,885 during the six months ended
June 30, 1999. This is primarily the result of cash used for payment of expenses
as part of the DeVivo acquistion. Net cash provided by financing activities was
$3,975,000 during 1999. This increase was primarily the result of proceeds on
draws from the lines of credit from the GECC credit facility.
The Company currently has no outstanding material commitments for capital
expenditures. The Company's primary requirements for capital will be the cost 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 to 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 the Common Stock.
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.
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. At this time, the Company has determined the cost of evaluating its
computer software or databases or of making any modifications required
correcting any Year 2000 problems is immaterial. The Company has determined that
its current operating and accounting systems are Year 2000 compliant and has
received letter supporting this issue from it's software vendor. 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 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, at this stage of its review, 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.
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.
11
<PAGE>
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: August 12, 1999 BY: /S/ DONALD ENGEL
-------------------------------------------
Donald Engel, Chairman of the Board
and Chief Executive Officer
(principal executive officer)
Date: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1999
<CASH> 674,398
<SECURITIES> 171,393
<RECEIVABLES> 16,454,343
<ALLOWANCES> (275,191)
<INVENTORY> 8,581,464
<CURRENT-ASSETS> 26,318,796
<PP&E> 12,487,525
<DEPRECIATION> 7,153,669
<TOTAL-ASSETS> 76,214,940
<CURRENT-LIABILITIES> 16,045,810
<BONDS> 0
0
2
<COMMON> 128,768
<OTHER-SE> 30,401,270
<TOTAL-LIABILITY-AND-EQUITY> 76,214,940
<SALES> 29,116,722
<TOTAL-REVENUES> 29,116,722
<CGS> 20,119,422
<TOTAL-COSTS> 25,537,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,819,766
<INCOME-PRETAX> 2,523,147
<INCOME-TAX> 414,703
<INCOME-CONTINUING> 2,108,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,108,444
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.15
</TABLE>
