SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) OCTOBER 30, 1998
HI-RISE RECYCLING SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-21946 65-0222933
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
8505 N.W. 74TH STREET
MIAMI, FLORIDA 33166
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(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
Audited Financial Statements of Bes-Pac, Inc.:
Report of Independent Auditors
Balance Sheets at July 31, 1998 (unaudited) and October
31, 1997 and 1996
Statements of Operations for the nine month periods ended
July 31, 1998 and 1997 (unaudited) and the years ended
October 31, 1997 and 1996
Statements of Stockholders' Equity for the years ended
October 31, 1996 and 1997 and the nine month period
ended July 31, 1998 (unaudited)
Statements of Cash Flows for the nine month periods ended
July 31, 1998 and 1997 (unaudited) and the years ended
October 31, 1997 and 1996
Notes to Financial Statements
(B) UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Consolidated Balance Sheet (unaudited) at
September 30, 1998
Pro Forma Condensed Consolidated Statements of Operations
(unaudited) for the year ended December 31, 1997
Pro Forma Condensed Consolidated Statements of Operations
(unaudited) for the nine months ended September 30, 1998
(C) EXHIBITS
10.1 Agreement and Plan of Merger, dated as of October 9,
1998, by and among Hi-Rise Recycling Systems, Inc.,
BPI Acquisition Corp., Bes-Pac, Inc. and Ronald J.
McCracken.1
23.1 Consent of Crisp Hughes Evans LLP
- ----------
1 Incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
November 9, 1998.
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bes-Pac, Inc.
Easley, South Carolina
We have audited the balance sheets of Bes-Pac, Inc. as of October 31, 1997 and
1996, and the related statements of operations, stockholders' equity 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 audits 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 Bes-Pac, Inc. as of October 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Crisp Hughes Evans LLP
December 12, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
BES-PAC, INC.
BALANCE SHEETS
ASSETS
YEAR ENDED
NINE MONTHS OCTOBER 31,
ENDED ------------------------------
JULY 31, 1998 1997 1996
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 77,709 $ 2,164 $ 1,327
Receivables:
Trade, net of allowance for doubtful accounts of
$50,000 for the years ended October 31, 1997
and 1996 and the nine months ended July 31,
1998, respectively........................... 3,612,064 2,324,539 2,447,817
Employee........................................ 40,802 42,935 41,401
----------- ----------- -----------
Net receivables............................... 3,652,866 2,367,474 2,489,218
Inventories....................................... 1,778,595 2,246,177 1,796,909
Other current assets.............................. 30,956 4,901 12,264
----------- ----------- -----------
Total current assets............................ 5,540,126 4,620,716 4,299,718
Intangible assets, net............................ 18,082 17,422 32,355
Property and equipment, net....................... 573,927 537,049 702,671
----------- ----------- -----------
$ 6,132,135 $ 5,175,187 $ 5,034,744
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
YEAR ENDED
NINE MONTHS OCTOBER 31,
ENDED ------------------------------
JULY 31, 1998 1997 1996
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Note payable ................................... $ 2,309,524 $ 1,647,908 $ 1,778,601
Current portion of long-term debt............... 118,900 145,272 144,450
Accounts payable................................ 1,231,844 651,622 773,254
Bank overdraft.................................. -- 123,321 110,041
Accrued expenses................................ 367,911 384,140 347,252
----------- ----------- -----------
Total current liabilities................... 4,028,179 2,952,263 3,153,598
Long-term debt, less current portion................. 1,385,182 1,681,185 1,604,000
Deferred income taxes................................ -- 30,000 10,000
Stockholders' equity:
Common stock, no par value; 60,000 shares
authorized, 6,504 shares issued and
outstanding in 1997 and 1996................ 317,500 317,500 317,500
Retained earnings (deficit)..................... 401,274 194,239 (50,354)
----------- ----------- -----------
Total stockholders' equity ................. 718,774 511,739 267,146
----------- ----------- -----------
$ 6,132,135 $ 5,175,187 $ 5,034,744
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
BES-PAC, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED
JULY 31, OCTOBER 31,
-------------------------- --------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................................ $11,375,953 $ 8,627,586 $12,261,933 $14,317,373
Cost of goods sold............................... 9,320,438 7,048,734 9,807,173 11,686,389
----------- ----------- ----------- -----------
Gross profit.................................. 2,055,515 1,578,852 2,454,760 2,630,984
Selling, general and administrative expenses..... 1,448,303 1,125,498 1,759,680 1,777,231
----------- ----------- ----------- -----------
Income from operations........................ 607,212 453,354 695,080 853,753
Other income (expense):
Interest income............................... -- -- -- 1,274
Interest expense.............................. (306,177) (313,252) (422,116) (471,662)
Gain (loss) on disposal of property and equipment -- -- 82,827 (982)
Other......................................... -- 77,907 8,802 41,727
----------- ----------- ----------- -----------
Other expense, net.......................... (306,177) (235,385) (330,487) (429,643)
----------- ----------- ----------- -----------
Income before income tax expense ........... 301,035 217,969 364,593 424,110
Income tax expense............................... 94,000 5,000 120,000 10,000
----------- ----------- ------------ -----------
Net income.................................. $ 207,035 $ 212,969 $ 244,593 $ 414,110
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
BES-PAC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK RETAINED
------------------------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at October 31, 1995................. 5,504 $ 217,500 $ (464,464) $ (246,964)
Stock issuance.............................. 1,000 100,000 -- 100,000
Net income.................................. -- -- 414,110 414,110
------------- ------------ ------------ -------------
Balance at October 31, 1996................. 6,504 317,500 (50,354) 267,146
Net income.................................. -- -- 244,593 244,593
------------- ------------ ------------ -------------
Balance at October 31, 1997................. 6,504 $ 317,500 $ 194,239 $ 511,739
============= ============ ============= =============
Net income (unaudited)...................... -- -- 207,035 207,035
------------- ------------ ------------ -------------
Balance at July 31, 1998 (unaudited)........ 6,504 $ 317,500 $ 401,274 $ 718,774
============= ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
BES-PAC, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED
JULY 31, OCTOBER 31,
--------------------------- -------------------------
1998 1997 1997 1996
----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 207,034 $ 212,969 $ 244,593 $ 414,110
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 147,643 150,777 243,545 245,939
Allowance for doubtful accounts receivable... -- -- (613) (24,387)
Loss (gain) on disposal of property and
equipment.................................... -- 9,380 (82,827) 982
Interest expense accrued and added to the
principal balance of note payable.......... -- -- -- 23,925
Deferred income taxes........................ -- -- 20,000 10,000
Net changes in operating assets and liabilities:
Receivables.................................. (1,312,648) 74,067 123,891 (162,818)
Inventories.................................. 467,582 (689,998) (449,268) 521,293
Other current assets......................... (19,668) (9,440) 7,363 4,553
Accounts payable............................. 247,653 58,839 (121,632) (476,862)
Bank overdraft............................... -- -- 13,280 110,041
Accrued expenses............................. -- -- 36,887 (115,242)
----------- --------- --------- ---------
Net cash (used in) provided by operating
activities............................ (262,404) (193,406) 35,219 551,534
----------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment... -- -- 88,174 --
Purchases of property and equipment............ (172,152) (34,640) (68,337) (130,779)
Acquisition of intangible assets............... -- -- -- (44,800)
Repayments from affiliated company............. -- -- -- 13,364
Advances to employees.......................... -- -- (1,534) (41,401)
----------- --------- --------- ---------
Net cash provided by (used in) investing
activities................................. (172,152) (34,640) 18,303 (203,616)
----------- --------- --------- ---------
Cash flows from financing activities:
(Repayments) Proceeds of revolving line of
credit, net.................................. 661,616 600,832 (130,693) (780,803)
Repayments of long-term debt................... (1,227,185) (72,000) (172,815) (73,765)
Proceeds from issuance of long-term debt....... 304,082 -- -- 502,888
Loans from stockholder......................... 650,000 -- 250,823 --
----------- --------- --------- ---------
Net cash (used in) provided by financing
activities................................. 388,513 528,832 (52,685) (351,680)
----------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents.. (46,043) 300,786 837 (3,762)
Cash and cash equivalents at beginning of year.... 123,751 53,389 1,327 5,089
----------- --------- --------- ---------
Cash and cash equivalents at end of year.......... $ 77,708 $ 354,175 $ 2,164 $ 1,327
=========== ========= ========= =========
Schedule of non-cash financing and investing
activities:
Interest expense accrued and added to the
principal balance of note payable............ $ -- $ -- $ -- $ 23,925
=========== ========= ========= =========
Issuance of common stock through stockholder loan $ -- $ -- $ -- $ 100,000
=========== ========= ========= =========
Purchase of investment through stockholder loan $ -- $ -- $ -- $ 100,000
=========== ========= ========= =========
Reduction in note payable through transfer of
investment.............................. $ -- $ -- $ -- $ 100,000
=========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BES-PAC, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company is engaged in the manufacture of equipment used in the
waste disposal industry and sells to customers throughout the United
States.
INTERIM FINANCIAL INFORMATION
The financial statements and all related footnote information for the
nine month periods ended July 31, 1998 and 1997, respectively, are
unaudited and reflect all normal and recurring adjustments which are in
the opinion of management, necessary for a fair presentation of the
financial position, operating results and cash flows for the interim
periods. The results of operation for the nine month period ended July
31, 1998 are not necessarily indicative of the results to be achieved
for the 1998 fiscal year.
INVENTORIES
Inventories consisting of raw materials and finished goods, are stated
at the lower of cost (first in, first out) or market.
PROPERTY AND EQUIPMENT
Property and equipment, principally machinery, are stated at cost.
Depreciation is provided by the straight-line method, based on the
estimated useful lives of the assets, which range from five to twenty
years. For income tax purposes, depreciation is computed using the
accelerated rates and the periods required by the MACRS depreciation
methods.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash and cash equivalents.
ACCOUNTS RECEIVABLE
The Company performs periodic credit evaluations of its customers and
generally does not require collateral. The Company uses the reserve
method to account for uncollectible accounts receivable.
F-7
<PAGE>
BES-PAC, INC. Notes to Financial Statements (CONTINUED)
- --------------------------------------------------------------------------------
ESTIMATES
The presentation 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.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported
in the financial statements and deferred taxes. Deferred taxes are
recognized for certain transactions treated differently for financial
statement and income tax purposes. The primary differences relate to
depreciable assets (use of different depreciation methods and lives for
financial statements and income tax purposes). The deferred tax
liabilities represent the future tax return consequences of those
differences, which will be taxable when the assets and liabilities are
recovered or settled. Deferred tax assets are recognized for operating
losses and tax credits that are available to offset future taxable
income.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified
to conform to classifications presented in the 1996 financial
statements.
2. CASH AND CASH EQUIVALENTS
The Company maintains cash balances at two banks. Cash accounts at
banks are insured by the Federal Deposit Insurance Corporation ("FDIC")
for up to $100,000. Amounts at one bank exceeded $100,000 at October
31, 1997.
3. INVENTORIES
Inventories consist of the following at October 31:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Raw materials............................................ $ 985,934 $ 1,016,195
Finished goods........................................... 1,371,601 896,927
Less reserve for writedown to estimated net realizable
value.................................................. (111,358) (116,213)
-------------- --------------
$ 2,246,177 $ 1,796,909
============== ==============
</TABLE>
F-8
<PAGE>
BES-PAC, INC. Notes to Financial Statements (CONTINUED)
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment at October 31 includes the following:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Leasehold improvements.................................... $ 260,217 $ 260,217
Machinery and equipment................................... 1,687,290 1,744,534
Office furniture and equipment............................ 213,419 178,449
Vehicles ............................................... 87,500 117,500
-------------- --------------
Total property and equipment........................... 2,248,426 2,300,700
Less accumulated depreciation........................ 1,711,377 1,598,029
-------------- --------------
Net property and equipment........................ $ 537,049 $ 702,671
============== ==============
</TABLE>
5. NOTE PAYABLE
The Company has a revolving credit agreement with a financing
corporation with interest at 2.25% above the lender's prime rate,
payable monthly. This agreement may be terminated by the Company on any
renewal date by giving the lender at least sixty days' prior written
notice or by the lender at any time by giving the Company thirty days'
prior written notice. Under the agreement, the Company may borrow the
lesser of $4,480,000 or 85% of eligible receivables and 55% of eligible
inventory. The balance is $1,647,908 and $1,778,601 at October 31, 1997
and 1996, respectively.
Under the agreement, the Company has pledged substantially all of its
accounts receivable, inventory and equipment as collateral. The
agreement, among other things, requires the Company to limit net losses
to certain amounts and to maintain its working capital and adjusted net
worth at specified minimums. The Company is also restricted from
incurring certain additional debt without the lender's consent.
F-9
<PAGE>
BES-PAC, INC. Notes to Financial Statements (CONTINUED)
- --------------------------------------------------------------------------------
6. LONG-TERM DEBT
Long-term debt at October 31 includes the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Note payable to the Company's former sole stockholder under the
renegotiated purchase agreement due in a lump sum payment of
1,000 shares of stock of an affiliated company (see Note 11) in
1995, then monthly payments of interest only, at 11% from
December 1995 to November 2000, with the balance due in monthly
installments of $21,742 including interest at 11% beginning
October 2000 through September 2005. The former sole stockholder
has agreed that the note will be subordinate to any debt incurred
by the Company for working capital or capital acquisitions. The
note is guaranteed by the principal stockholder of the Company..... $ 1,000,000 $ 1,000,000
Note payable to financing corporation, due in monthly installments
of $8,000 from January 1996 to November 1998 with final payment
of interest and principal on December 1, 1998, with interest at
the bank's prime rate plus 2.25% per annum. The note is
collateralized by certain of the Company's property and equipment,
inventory, and accounts receivable................................. 227,185 400,000
Unsecured note payable to the Company's principal stockholder, with
9% interest payable annually with final payment of interest and
principal due December 31, 1998. The note is subordinated to other
notes.............................................................. 599,273 348,450
------------- -------------
1,826,458 1,748,450
Less current portion............................................... 145,273 144,450
------------- -------------
Long-term debt, less current portion............................... $ 1,681,185 $ 1,604,000
============= =============
</TABLE>
F-10
<PAGE>
BES-PAC, INC. Notes to Financial Statements (CONTINUED)
- --------------------------------------------------------------------------------
Principal maturities of long-term debt obligations after October 31,
1997 are as follows:
1998..................................... $ 145,273
1999..................................... 681,185
2000..................................... 144,852
2001..................................... 855,148
2002..................................... --
--------------
$ 1,826,458
==============
Interest paid during the years ended October 31, 1997 and 1996 amounted
to approximately $422,000 and $447,000, respectively.
The Company is jointly liable, with the major stockholder, for certain
debt secured by the real property utilized in the Company's operations.
The appraised value of the property is $1,695,000. This real property
is owned by the stockholder and leased to the Company (Note 9). The
outstanding balance of this debt at October 31, 1997 was $392,161.
7. INCOME TAXES
In 1997 and 1996, income tax expense differed from the amount computed
by applying the federal corporate statutory rate of 34% to earnings
before income taxes. The differences are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Income tax expense at statutory rate..................... $ 124,000 $ 144,000
Effect of:
Nondeductible meals and entertainment expense....... 8,000 3,000
Nondeductible penalties expense..................... 1,000 1,000
State income tax, net of federal benefit............ 5,000 --
Utilization of net operating loss carryforward...... (18,000) (138,000)
----------- -----------
Actual income tax expense........................ $ 120,000 $ 10,000
----------- -----------
</TABLE>
F-11
<PAGE>
BES-PAC, INC. Notes to Financial Statements (CONTINUED)
- --------------------------------------------------------------------------------
The components of the net deferred income tax liability follow:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Deferred income tax liability:
Tax depreciation greater than book depreciation..... $ 111,000 $ 110,000
Deferred income tax assets:
Net operating loss carryforward..................... (29,000) (40,000)
Accrued expenses not deducted for tax purposes...... (81,000) (100,000)
Valuation allowance................................. 29,000 40,000
------------ -----------
Net deferred income tax liability................ $ 30,000 $ 10,000
============ ===========
</TABLE>
The Company has South Carolina net operating loss carryforwards
available to offset future taxable income of approximately $567,000
that expire from 2000 to 2010.
8. EMPLOYEE BENEFIT PLAN
The Company has in effect a retirement plan under Section 401(k) of the
Internal Revenue Code covering employees meeting certain eligibility
requirements. Under the Plan, the Company matches 50% of each
participant's contributions up to a maximum of 6% of compensation. The
Company contributed approximately $41,000 and $48,000 to the plan for
the years ended October 31, 1997 and 1996, respectively.
9. OPERATING LEASES
The Company leases certain equipment under operating leases. The
equipment leases are for five-year periods expiring at various dates
through 2002.
The Company leases land, office and plant facilities from its principal
stockholder under three month-to-month leases with monthly payments
ranging from $2,000 to $18,000. Rent expense under these leases totaled
$303,000 and $304,000 for the years ended October 31, 1997 and 1996,
respectively. Total rent expense was approximately $417,000 and
$383,000 for the years ended October 31, 1997 and 1996, respectively.
Future minimum payments under noncancellable operating leases follow:
1998........................................... $ 117,560
1999........................................... 108,306
2000........................................... 50,306
2001........................................... 14,704
2002........................................... 9,803
-----------
Total minimum lease payments................... $ 300,679
===========
F-12
<PAGE>
BES-PAC, INC. Notes to Financial Statements (CONTINUED)
- --------------------------------------------------------------------------------
10. MAJOR CUSTOMER
During 1997 and 1996, the Company had sales to one major customer of
approximately $2,221,843 and $1,489,000, respectively, which is
approximately 19% and 10% of total sales for 1997 and 1996,
respectively. Related accounts receivable amounted to approximately
$503,000 and $439,000 at October 31, 1997 and 1996, respectively.
11. COMMON STOCK TRANSACTIONS
On November 1, 1993, the Company agreed to issue 1,000 shares of common
stock to an existing stockholder in exchange for 1,000 shares of common
stock of Bes-Pac Machine Tool Company, an affiliated company.
Simultaneously, the Company agreed to transfer these shares, valued at
$100,000, to a former stockholder as payment on a note payable (see
Note 5). The transfer occurred in December 1995.
F-13
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated balance
sheet as of September 30, 1998 reflects the consolidated financial position of
Hi-Rise Recycling Systems, Inc. (the "Company"), after giving effect to the
acquisition of Bes-Pac, Inc. ("Bes-Pac"), as if this transaction had been
consummated as of September 30, 1998. The unaudited pro forma condensed
consolidated statement of operations for the twelve and nine month periods ended
December 31, 1997 and September 30, 1998 reflects the Bes-Pac acquisition and
the Company's acquisition of Hesco Sales, Inc. and Atlantic Maintenance, Inc.
(collectively "Hesco"), which acquisition was reported in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997, as if the
acquisitions had been consummated at January 1, 1997. 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 1998, the Company acquired all of the outstanding capital
stock of Hesco, who is 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.
In October 1998, the Company acquired all of the outstanding capital
stock of Bes-Pac, which 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 in cash, a $1.2 million convertible
promissory note of the Company and $3.8 million of the Company's Common Stock.
The effects of the Company's acquisitions of NuReTec, Inc. ("NRT") in
July 1997 and Wilkinson Company, Inc. ("Wilkinson") in February 1997 have not
been presented in the pro forma condensed consolidated financial statements. The
results of operations for NRT and Wilkinson were not material for the period
from January 1, 1997 to the date of their respective acquisitions.
F-14
<PAGE>
<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
PRO FORMA PRO FORMA
HI-RISE BES-PAC ADJUSTMENTS TOTAL
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 1,624,875 $ 77,709 $ 4,200,000 b $(2,807,913)
(3,000,000) c
(94,671) h
Investments....................................... 157,101 -- -- 157,101
Accounts receivable-net of allowances............. 6,631,319 3,652,866 -- 10,284,185
Inventory......................................... 4,210,054 1,778,595 -- 5,988,649
Other assets...................................... 604,190 30,956 -- 635,146
----------- ---------- ----------- -----------
Total current assets.............................. 13,227,539 5,540,126 1,105,329 19,872,994
Property, plant and equipment..................... 1,654,440 573,927 -- 2,228,367
Note receivable from related party................ 34,225 -- -- 34,225
Net investment sales type leases.................. 6,389,268 -- -- 6,389,268
Deferred costs.................................... 55,125 -- (55,125) a 1,660,500
600,000 e
1,060,500 f
Goodwill.......................................... 12,320,177 18,082 7,500,000 h 19,838,259
----------- ---------- ----------- -----------
Total assets...................................... $33,680,774 $6,132,135 $10,210,704 $50,023,613
=========== ========== =========== ===========
Accounts payable and accrued liabilities.......... 2,683,475 1,599,755 -- 4,283,230
Note payable to officer........................... 500,000 (500,000) b --
Revolving lines of credit......................... 6,936,541 2,309,524 (9,246,065) b --
10,183,742 b 10,183,742
Current portion of long-term debt................. 613,937 118,900 (732,837) b --
----------- ---------- ----------- -----------
Total current liabilities......................... 10,733,953 4,028,179 (295,160) 14,466,972
Note payable related party........................ 1,200,000 1,219,000 i 2,419,000
9,000,000 b
Long-term debt.................................... 3,650,680 185,182 (3,835,862) b 9,000,000
----------- ---------- ----------- -----------
Total liabilities................................. $14,384,633 $5,413,361 $ 6,087,978 $25,885,972
----------- ---------- ----------- -----------
Shareholder equity:
Preferred stock................................... 2 -- -- 2
(317,500) g
Common stock...................................... 94,956 317,500 37,810 d 132,766
Additional paid-in capital........................ 23,062,316 3,743,190 c 27,866,006
1,060,500 f
Accumulated deficit............................... (3,861,133) 401,274 (401,274) g (3,861,133)
----------- ---------- ----------- -----------
Total shareholder equity.......................... 19,296,141 718,774 4,122,726 24,137,641
----------- ---------- ----------- -----------
Total liabilities and shareholder's equity........ $33,680,774 $6,132,135 $10,210,704 $50,023,613
=========== ========== =========== ===========
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
HI-RISE HESCO BES-PAC
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, OCTOBER 31, OCTOBER 31, PRO FORMA PRO FORMA
1997 1997 1997 ADJUSTMENTS TOTAL
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales.......................................... $10,483,576 $11,962,586 $12,261,933 $ -- $34,708,095
Cost and Expenses:
Cost of goods sold............................. 5,821,096 7,991,143 9,807,173 -- 23,619,412
Selling, general and administrative............ 4,465,342 2,954,560 1,759,680 825,000 j 10,004,582
Other.......................................... 241,048 0 -- -- 241,048
----------- ----------- ----------- ----------- -----------
Total operating cost and expenses................. 10,527,486 10,945,703 11,566,853 825,000 33,865,042
----------- ----------- ----------- ----------- -----------
Operating profit (loss)........................... (43,910) 1,016,883 695,080 (825,000) 843,053
Other income (expense):
Litigation settlement.......................... (100,000) -- -- -- (100,000)
Gain (loss) on disposal of equipment........... -- -- 82,827 -- 82,827
Other income................................... -- 238,462 8,802 -- 247,264
Interest income................................ 558,718 61,584 -- -- 620,302
Interest expense............................... (383,643) (115,877) (422,116) (1,352,364) k (2,274,000)
----------- ----------- ----------- ----------- -----------
Total other income........................... 75,075 184,169 (330,487) (1,352,364) (1,423,607)
Income (loss) before provision for income taxes... 31,165 1,201,052 364,593 (2,177,364) (580,554)
Provision for income taxes........................ 11,000 452,000 120,000 (572,000) l 11,000
----------- ----------- ----------- ----------- -----------
Net income (loss)................................. $ 20,165 $ 749,052 $ 244,593 $(1,605,364) $ (591,554)
=========== =========== =========== =========== ===========
Net income (loss) per share - Basic............... $ 0.00 $ (0.06)
=========== ===========
Net income (loss) per share - Diluted............. $ 0.00 $ (0.06)
=========== ===========
Weighted average common shares outstanding - Basic 6,361,254 9,527,848 m
Weighted average common shares outstanding - Diluted 8,966,000 9,527,848 m
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
HI-RISE RECYCLING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
HI-RISE HESCO BES-PAC
NINE MONTHS PERIOD NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, FEBRUARY 20, JULY 31, PRO FORMA PRO FORMA
1998 1998 1998 ADJUSTMENTS TOTAL
------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales.......................................... $18,567,167 $1,216,180 $11,375,953 $ -- $31,159,300
Cost and Expenses:
Cost of goods sold............................. 12,427,952 827,112 9,320,438 -- 22,575,502
Selling, general and administrative............ 3,630,999 363,209 1,417,881 339,470 j 5,751,559
Other.......................................... 72,001 -- 30,422 -- 102,423
----------- ---------- ----------- ----------- -----------
Total operating costs and expenses................ 16,130,952 1,190,321 10,768,741 339,470 28,429,484
----------- ---------- ----------- ----------- -----------
Operating income (loss)........................... 2,436,215 25,859 607,212 (339,470) 2,729,816
Other income (expense):
Litigation settlement.......................... -- -- -- -- --
Gain (loss) on disposal of equipment........... 0 -- -- --
Other income................................... -- 10,899 -- -- 10,899
Interest income................................ 336,738 1,003 -- -- 337,741
Interest expenses.............................. (696,028) (9,374) (306,177) (693,921) k (1,705,500)
----------- ---------- ----------- ----------- -----------
Total other income (expense)................. (359,290) 2,528 (306,177) (693,921) (1,356,860)
Income before provision for income taxes.......... 2,076,925 28,387 301,035 (1,033,391) 1,372,956
Provision for income taxes........................ -- 10,000 94,000 (104,000) l --
----------- ---------- ----------- ----------- -----------
Net income........................................ $ 2,076,925 $ 18,387 $ 207,035 $ (929,391) $ 1,372,956
=========== ========== =========== =========== ===========
Net income per share - Basic...................... $ 0.22 $ 0.12
=========== ===========
Net income per share - Diluted.................... $ 0.16 $ 0.09
=========== ===========
Common shares outstanding - Basic................. 9,457,228 11,588,012
Common shares outstanding - Diluted............... 12,923,933 15,526,050
</TABLE>
F-17
<PAGE>
HI-RISE RECYCLING SYSTEMS, INC.
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 Bes-Pac and Hesco transactions
underlying the pro forma adjustments had occurred on September 30, 1998
and, for the purpose of the pro forma consolidated condensed statement
of operations, as if the transactions underlying the pro forma
adjustments had occurred on January 1, 1997.
The Company's historical financial information used in preparation of
the pro forma condensed consolidated financial statements has been
derived from the Company's consolidated financial statements as of
September 30, 1998 and for the nine and twelve month periods ended
September 30, 1998 and December 31, 1997, respectively. Bes-Pac's
historical financial information used in preparation of the pro forma
condensed consolidated financial statements has been derived from
Bes-Pac's financial statements as of July 31, 1998 and for the nine and
twelve month periods ended July 31, 1998 and October 31, 1997.
Hesco's financial information used in preparation of the pro forma
condensed consolidated statement of operations has been derived from
Hesco's Statement of Operations for October 31, 1997, and for the
period beginning January 1, 1998 and ending February 20, 1998, which
represents Hesco's operations not already included in the Company's
operations for the nine month period ended September 30, 1998.
2) UNAUDITED PRO FORMA ADJUSTMENTS
The unaudited pro forma consolidated financial statements reflect the
Company's preliminary allocation of the Bes-Pac purchase price and
deferred financing costs associated with the Facility (as defined in
note (b) below), which will be subject to further adjustments as the
Company finalizes such amounts in accordance with generally accepted
accounting principles. 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 Bes-Pac acquisition.
b) In October 1998, the Company entered into a $40.0 million
credit facility (the "Facility") with General Electric Capital
Corp. and other participating lenders (collectively "GECC").
Represents the Company's (i) $19.1 million borrowings from
GECC under the Facility comprised of (A) $10.1 million under
a line of credit and (B) $9.0 million under a term loan to
fund the Bes-Pac acquisition and repay all then
F-18
<PAGE>
outstanding bank debt and (ii) $500,000 to repay a loan from
the Company's CEO.
c) Represents 1,890,500 shares of common stock issued by the
Company to the former owner of Bes-Pac and the related
additional paid-in capital.
d) Represents the Company's payment of $3,000,000 in cash to
Bes-Pac's former owner.
e) Represents fees and expenses paid to GECC in relation to the
financing of the acquisition and refinancing of current debt.
f) Represents preliminary value assigned to warrants to purchase
an aggregate of 1,414,000 shares of the Company's common stock
at a price of $1.50 per share issued to GECC in connection
with the execution of the Facility. Such amount has been
treated as deferred financing costs to be amortized over the
five (5) year term of the Facility.
g) Adjustment eliminates Bes-Pac's common stock and retained
earnings.
h) Records the goodwill which resulted from the $8.0 million
purchase price and deferred acquisition costs offset by the
estimated fair value of the net assets purchased by the
Company.
i) Represents the Company's convertible note payable issued to
Bes-Pac's former owner.
STATEMENT OF OPERATIONS
j) Represents amortization of incremental goodwill created in the
Hesco and Bes-Pac acquisitions as if the acquisitions had
occurred on January 1, 1997; using a 20 year life. Goodwill
resulting from the Hesco and Bes-Pac acquisitions was
approximately $8,500,000 and $7,500,000, respectively.
k) Represents an adjustment for interest expense related to the
$19.1 million in funds borrowed under the Facility in
connection with the acquisition of Bes-Pac and the refinancing
of substantially all of the Company's outstanding bank debt,
as if the acquisitions and refinancing had occurred on January
1, 1997. The interest rate on the $9.0 million term loan is
fixed at 11% and the interest rate payable on amounts drawn
under the line of credit is variable at prime plus 1/4%. For
purposes of the pro forma statement of operations, the
variable component of the borrowing is calculated at 8.5%.
The impact of a one-eighth percent change in the interest rate
on the variable rate debt would result in a charge to interest
expense of approximately $12,500 on an annual basis.
l) Represents an adjustment to eliminate tax provisions recorded
by Hesco and Bes-Pac due to the effect of the pro forma
adjustments and the existence of tax loss carryforwards of
the Company. Absent the existence of tax loss carryforwards,
the pro forma tax provision for the nine months ended
September 30, 1998 would be approximately $800,000.
m) Represents adjusted weighted average shares outstanding
giving effect to the pro forma adjustments and to the issuance
of 1,276,094 and 1,890,500 shares of Common Stock to the
former owners of Hesco and Bes-Pac, respectively. In addition,
the dilutive effect of the warrants issued in connection with
the Facility have been included in the pro forma statement of
operations for the nine months ended September 30, 1998.
F-19
<PAGE>
SIGNATURES
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 thereunto duly authorized.
HI-RISE RECYCLING SYSTEMS, INC.
Dated: January 8, 1999 By: /s/ BRAD HACKER
---------------------------
Brad Hacker
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------
23.1 Consent of Crisp Hughes Evans LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Form 8-K for Hi-Rise Recycling Systems of our
report dated December 12, 1997, on our audits of the financial statements of
Bes-Pac, Inc. as of October 31, 1997 and 1996, and for the years ended October
31, 1997 and 1996.
Crisp Hughes Evans LLP
Greenville, South Carolina
January 6, 1999
