<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
April 29, 1996 (April 15, 1996)
RECYCLING INDUSTRIES, INC.
-----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 0-20179 84-1103445
- ---------------------------------------------------------------------------
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
384 INVERNESS DRIVE SOUTH, SUITE 211
ENGLEWOOD, COLORADO 80112
- ---------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
Registrant's telephone number, including area code: (303) 790-7372
NOT APPLICABLE
- ---------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 15, 1996, Recycling Industries of Missouri, Inc., a
wholly-owned subsidiary of the Registrant ("RIMI"), acquired substantially
all of the assets and the business of Mid-America Shredding, Inc.,
("Mid-America"), a privately held metals and paper recycler with operations
in Ste. Genevieve, Missouri. Mid-America's primary markets are midwestern
steel mills and markets along the Mississippi River.
The assets acquired from Mid-America consist of heavy equipment, tools
and rolling stock used in the business of recycling ferrous and non-ferrous
paper. The Registrant also purchased from Mid-America certain real property,
buildings and leasehold improvements used in the metal and paper recycling
business.
The total purchase price for Mid-America was $1,870,000 including the
assumption of Mid-America's current bank debt of $1,210,000 plus accrued
interest; cash of a) $270,000 for payment of current liabilities, b) $18,000
for environmental studies and c) $372,000 for removal and disposal of waste
and environmental remediation. Interest on the assumed loan shall be due and
payable May 15 and June 15, 1996 and principal payments of $10,000 plus
interest shall be made on July 15, August 15, September 15 and October 15,
1996 and thereafter principal payments of $20,500 plus interest shall be made
on the 15th successive day of each month commencing November 15, 1996 through
maturity of May 15, 2001. The purchase price was determined through arms'
length negotiations and based upon an independent appraisal.
The cash paid at the closing of the acquisition was obtained from the
operating cash reserves and working capital of the Registrant.
Pursuant to a separate agreement, RIMI acquired Mid-America's inventory
for approximately $55,000.
The Registrant will continue the metals recycling operations of
Mid-America.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
1. Audited financial statements of Mid-America Shredding, Inc.
-2-
<PAGE>
(b) PRO-FORMA FINANCIAL INFORMATION.
1. Pro-forma consolidated financial statements for Recycling Industries,
Inc. and subsidiaries.
2. Audited consolidated financial statements for Recycling Industries,
Inc.
(c) EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Asset Purchase Agreement dated February 16, 1996 by and among
Recycling Industries of Missouri, Inc., Recycling Industries,
Inc., Mid-America Shredding, Inc. and Linda Lawton.*
10.2 Assumption Without Release and Modification Agreement, dated
April 15, 1996, by and among Mid-America Shredding, Inc.,
Recycling Industries of Missouri, Inc., Recycling Industries,
Inc., Linda F. Lawton, Personal Representative of the Estate of
Robert L. Lawton, Deceased and Linda Lawton.*
10.3 Security Agreement, dated April 15, 1996, between Recycling
Industries of Missouri, Inc. and Southwest Bank of St. Louis.*
10.4 Continuing Unlimited Guaranty Agreement dated April 15, 1996
between Recycling Industries, Inc. and Southwest Bank of St.
Louis*
10.5 Loan Agreement dated April 8, 1992, between Mid-America
Shredding, Inc. and Southwest Bank of St. Louis*
10.6 Promissory Note dated February 8, 1996, between Mid-America
Shredding, Inc. and Southwest Bank, Inc.*
__________
* Previously filed.
-3-
<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 hereunto duly authorized.
RECYCLING INDUSTRIES, INC.
Date: July 12, 1996 By /s/ THOMAS J. WIENS
------------------------------------
Thomas J. Wiens, Chairman and CEO
-4-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Financial Statements:
Pro Forma Explanatory Headnote F-3
For the Year Ended September 30, 1995 (Unaudited)
Unaudited Pro Forma Consolidated Statement of Operations F-5
For the Six Months Ended March 31, 1996 (Unaudited)
Unaudited Pro Forma Consolidated Balance Sheet F-7
Unaudited Pro Forma Consolidated Statement of Operations F-9
Notes to Pro Forma Consolidated Financial Statements F-10
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants F-13
Report of Independent Certified Public Accountants F-14
Financial Statements:
Consolidated Balance Sheets F-15
Consolidated Statements of Operations F-17
Consolidated Statement of Stockholders' Equity (Deficit) F-18
Consolidated Statements of Cash Flows F-19
Notes to Consolidated Financial Statements F-20
Report of Independent Certified Public Accountants on
Supplemental Schedules F-55
Report of Independent Certified Public Accountants on
Supplemental Schedules F-56
Schedule 1 - Condensed Financial Information of Registrant:
Balance Sheets F-57
Statements of Operations F-59
Statements of Cash Flows F-60
Notes to Condensed Financial Information of Registrant F-61
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
MID-AMERICA SHREDDING, INC.
Report of Independent Certified Public Accountants F-62
Financial Statements:
Balance Sheets F-63
Statements of Operations F-64
Statements of Changes in Stockholders' Equity F-65
Statements of Cash Flows F-66
Notes to Financial Statements F-67
F-2
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
===========================================
INTRODUCTION
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisitions by Recycling Industries, Inc. (the Company)
of the entity detailed below and are based on the estimates and assumptions
set forth herein and in the notes to such statements. This pro forma
information has been prepared utilizing the historical financial statements
and notes thereto, which are incorporated by reference herein. The pro forma
financial data does not purport to be indicative of the results which
actually would have been obtained had the acquisitions been effected on the
dates indicated or the results which may be obtained in the future.
The pro forma consolidated balance sheet assumes the acquisition was
consummated at March 31, 1996. The pro forma consolidated statement of
operations for the year ended September 30, 1995 includes the operating
results of the Company for such period and the operating results of Anglo and
Mid-America for the 12 months ended December 31, 1995. The pro forma
consolidated statement of operations for the six months ended March 31, 1996
includes the operating results of the Company, Anglo and Mid-America for such
period. The operating results of Anglo and Mid-America for the three months
beginning October 1, 1995 and ending December 31, 1995 have been included in
the pro forma consolidated statement of operations for both the year ended
September 30, 1995 and the six months ended March 31, 1996.
ANGLO METAL, INC. DBA ANGLO IRON & METAL
On December 11, 1995, the Company acquired substantially all of the assets
and the business of Anglo Metal, Inc. dba Anglo Iron & Metal (Anglo). The
assets acquired from Anglo consisted of a heavy duty automotive shredder,
inventories, metals shearing equipment, balers, heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Company also purchased from Anglo certain real property,
buildings and leasehold improvements used in the business of recycling
ferrous and non-ferrous metals.
The purchase price for Anglo was $6,065,000 comprised of: $2,079,000 in
cash; a $1,865,000 note which is to be paid in ten equal monthly installments
of $186,500 beginning in February 1996; a $446,000 secured promissory note
payable in 60 consecutive monthly installments of $9,000; a $750,000
unsecured note payable in 72 equal consecutive monthly installments of
$10,400; and 227,693 shares of the Company's common stock (Common Stock)
valued at $925,000.
Of the cash paid at the closing of the acquisition, $1,800,000 was obtained
through a sale-leaseback transaction with Ally Capital Corporation,
collateralized by all of Anglo's machinery and equipment, accounts receivable
and inventories, which has been recorded as a capital lease. The terms of
the sale-leaseback provide for 60 consecutive monthly lease payments of
$41,000 with a bargain purchase option at the end of the lease term. The
lease contains numerous covenants for maintaining certain financial ratios
and earnings levels. The remaining $279,000 paid at closing was obtained
from the operating cash reserves and working capital of the Company.
F-3
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
===========================================
The purchase price for Anglo has been allocated as follows:
Equipment under capital lease $ 1,800,000
Contract to purchase land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,365,000
Purchase price in excess of net assets acquired 1,830,000
-----------
Total purchase price 6,065,000
Notes payable (3,061,000)
Common Stock (925,000)
-----------
Cash paid at closing 2,079,000
Capital lease obligation (1,800,000)
-----------
Cash from operating capital $ 279,000
-----------
-----------
MID-AMERICA SHREDDING, INC.
On April 15, 1996, the Company acquired the assets and the business of
Mid-America Shredding, Inc. (Mid-America). The assets acquired from
Mid-America consisted of real property, buildings, inventories, a heavy duty
automotive shredder, a wire chopping plant, heavy equipment and tools used in
the business of recycling ferrous and non-ferrous metals.
The purchase price for Mid-America was $1,925,000, comprised of $660,000 in
cash, a $55,000 note payable in eight equal monthly installments of $6,900,
and the assumption of Mid-America's outstanding bank debt of $1,210,000.
The purchase price for Mid-America has been allocated as follows:
Inventory $ 55,000
Land 310,000
Buildings and improvements 560,000
Machinery and equipment 1,000,000
-----------
Total purchase price 1,925,000
Notes payable (1,265,000)
-----------
Cash paid at closing $ 660,000
-----------
-----------
F-4
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
===========================================
RECYCLING
INDUSTRIES, ANGLO ANGLO
INC. IRON & METAL IRON & METAL
SEPTEMBER 30, DECEMBER 31, PRO FORMA
1995 1995 ADJUSTMENTS
------------- ------------ ------------
REVENUES:
Sales $13,812,000 $15,116,000 $ -
Brokerage - 216,000 -
Other income 41,000 7,000 -
----------- ----------- ---------
13,853,000 15,339,000 -
----------- ----------- ---------
COST AND EXPENSES
Cost of sales 10,869,000 13,739,000 (198,000)(7)
- - 12,000 (3)
Cost of brokerage - 181,000 -
Management fees - - -
Personnel 744,000 414,000 -
Professional services 527,000 66,000 -
Travel 39,000 - -
Occupancy 83,000 - -
Depreciation and
amortization 258,000 11,000 66,000 (3)
- - 167,000 (11)
Interest 407,000 133,000 91,000 (9)
Environmental
remediation costs - - -
Bad debt expense 151,000 - -
Other general and
administrative 477,000 336,000 (328,000)(5)
----------- ----------- ---------
13,555,000 14,880,000 (190,000)
----------- ----------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES 298,000 459,000 190,000
INCOME TAXES (BENEFIT) (711,000) 140,000 (64,000) (8)
----------- ----------- ---------
INCOME(LOSS) FROM
CONTINUING OPERATIONS,
NET OF INCOME TAXES $ 1,009,000 $ 319,000 $ 254,000
----------- ----------- ---------
----------- ----------- ---------
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM
AND INCOME TAXES $ 1,815,000 $ 319,000 $ 254,000
----------- ----------- ---------
----------- ----------- ---------
INCOME PER SHARE:
Income from continuing
operations, net of
income taxes $ .17
-----------
-----------
Net income after
extraordinary item
and income taxes $ .30
-----------
-----------
Weighted average number of
common shares outstanding 6,099,694
-----------
-----------
SEE ACCOMPANYING HEADNOTE AND NOTES TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 1995
===========================================
MID-AMERICA MID-AMERICA CONSOLIDATED
SHREDDING SHREDDING PRO FORMA
DECEMBER 31, PRO FORMA SEPTEMBER 30,
1995 ADJUSTMENTS 1995
------------- ----------- ------------
REVENUES:
Sales $3,866,000 $ - $32,794,000
Brokerage - - 216,000
Other income - - 48,000
---------- ---------- -----------
3,866,000 - 33,058,000
---------- ---------- -----------
COST AND EXPENSES
Cost of sales 3,587,000 (86,000)(3) 27,923,000
- - -
Cost of brokerage - - 181,000
Management fees - - -
Personnel 247,000 - 1,405,000
Professional services 6,000 - 599,000
Travel 1,000 - 40,000
Occupancy - - 83,000
Depreciation and
amortization - - 502,000
- - 756,000
Interest 125,000 - -
Environmental
remediation costs - - -
Bad debt expense - - 151,000
Other general and
administrative 23,000 - 508,000
---------- ---------- -----------
3,989,000 (86,000) 32,148,000
---------- ---------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (123,000) 86,000 910,000
INCOME TAXES (BENEFIT) - (10,000)(8) (645,000)
---------- ---------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS,
NET OF INCOME TAXES $ (123,000) $ 96,000 $ 1,555,000
---------- ---------- -----------
---------- ---------- -----------
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM
AND INCOME TAXES $ (123,000) $ 96,000 $ 2,361,000
---------- ---------- -----------
---------- ---------- -----------
INCOME PER SHARE:
Income from continuing
operations, net of
income taxes $ .25
-----------
-----------
Net income after
extraordinary item
and income taxes $ .37
-----------
-----------
Weighted average number of
common shares outstanding 6,327,387
-----------
-----------
SEE ACCOMPANYING HEADNOTE AND NOTES TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, MID-AMERICA MID-AMERICA CONSOLIDATED
INC. SHREDDING SHREDDING PRO FORMA
MARCH 31, MARCH 31, PRO FORMA MARCH 31,
1996 1996 ADJUSTMENTS 1996
---- ---- ----------- ----
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,240,000 $ 18,000 $ (18,000)(4) $ 1,240,000
Trade accounts receivable, net 2,149,000 109,000 (109,000)(4) 2,149,000
Accounts receivable, related parties 95,000 - - 95,000
Inventories 2,076,000 34,000 21,000 (2) 2,131,000
Prepaid expenses 353,000 - - 353,000
Other current assets 216,000 - - 216,000
Deferred income taxes 500,000 - - 500,000
----------- ---------- ----------- -----------
Total current assets 6,629,000 161,000 (106,000) 6,684,000
PROPERTY, PLANT AND
EQUIPMENT, net 8,421,000 2,823,000 (953,000)(2) 10,291,000
DEFERRED INCOME TAXES, net 741,000 - - 741,000
OTHER ASSETS, net 4,147,000 - - 4,147,000
----------- ---------- ----------- -----------
$19,938,000 $2,984,000 $(1,059,000) $21,863,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
MARCH 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, MID-AMERICA MID-AMERICA CONSOLIDATED
INC. SHREDDING SHREDDING PRO PROFORMA
MARCH 31, MARCH 31, PRO FORMA MARCH 31,
1996 1996 ADJUSTMENTS 1996
---- ---- ----------- ----
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ - $ - $ - $ -
Notes payable - 1,210,000 (1,155,000)(2) 55,000
Notes payable - related party 1,927,000 - - 1,927,000
Trade accounts payable 1,235,000 129,000 (129,000)(4) 1,235,000
Trade accounts payable-related parties 140,000 143,000 (143,000)(4) 140,000
Accrued liabilities:
Interest 30,000 - - 30,000
Payroll and other 267,000 16,000 (16,000)(4) 267,000
Income taxes payable 86,000 - - 86,000
Due to factor, related party 137,000 - - 137,000
Environmental remediation liabilities - - - -
Current portion of long-term debt 94,000 21,000 (21,000)(4) 340,000
- 246,000 (2)
Current portion of long-term debt, related
parties 2,294,000 - - 2,294,000
Current portion of obligation under
capital lease 314,000 - - 314,000
----------- ---------- ----------- -----------
Total Current Liabilities 6,524,000 1,519,000 (1,218,000) 6,825,000
----------- ---------- ----------- -----------
LONG-TERM DEBT:
Long-term debt, net of current portion 124,000 2,000 (2,000)(4) 1,088,000
- - 964,000 (2) -
Long-term debt-related parties, net of
current portion 945,000 - - 945,000
Obligation under capital lease, net of
current portion 1,452,000 - - 1,452,000
Purchase price obligation - - 660,000 (2) 660,000
----------- ---------- ----------- -----------
Total Long-Term Debt 2,521,000 2,000 1,622,000 4,145,000
----------- ---------- ----------- -----------
Total Liabilities 9,045,000 1,521,000 404,000 10,970,000
----------- ---------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A 1,312,000 - - 1,312,000
Common stock 10,000 - - 10,000
Additional paid-in capital 17,909,000 3,055,000 (3,055,000)(2) 17,909
Retained earnings (deficit) (8,338,000) (1,592,000) 1,592,000 (8,338,000)
----------- ---------- ----------- -----------
Total Stockholders' Equity 10,893,000 1,463,000 (1,463,000) 10,893,000
----------- ---------- ----------- -----------
$19,938,000 $2,984,000 $(1,059,000) $21,863,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
F-8
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, ANGLO ANGLO MID-AMERICA MID-AMERICA CONSOLIDATED
INC. IRON & METAL IRON & METAL SHREDDING SHREDDING PRO FORMA
MARCH 31, MARCH 31, PRO FORMA MARCH 31, PRO FORMA MARCH 31,
1996 1996 ADJUSTMENTS 1996 ADJUSTMENTS 1996
---- ---- ----------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales $10,735,000 $ 7,240,000 $(4,433,000)(6) $1,170,000 $ - $14,712,000
Brokerage - - - - - -
Other income 28,000 28,000 (27,000)(6) - - 29,000
----------- ---------- ----------- ---------- -------- -----------
10,763,000 7,268,000 (4,460,000) 1,170,000 - 14,741,000
----------- ---------- ----------- ---------- -------- -----------
COST AND EXPENSES:
Cost of sales 9,352,000 5,923,000 8,000 (3) 1,228,000 (39,000)(3) 12,726
(3,646,000)(6) -
(100,000)(7)
Cost of brokerage - - - - - -
Personnel 862,000 317,000 (225,000)(6) 60,000 - 1,004,000
Professional services 264,000 30,000 - 6,000 - 300,000
Travel 60,000 3,000 (3,000)(6) - - 60,000
Occupancy 28,000 - - - - 28,000
Depreciation and
amortization 101,000 20,000 32,000 (3) - - 175,000
42,000 (11)
- - (20,000)(6) - - -
Interest 245,000 109,000 (54,000)(6) 67,000 - 367,000
Management fee - - - - -
Other general and
administrative 238,000 193,000 (164,000)(5) 9,000 - 201,000
(75,000)(6)
----------- ---------- ----------- ---------- -------- -----------
11,150,000 6,595,000 (4,205,000) 1,370,000 (39,000) 14,871,000
----------- ---------- ----------- ---------- -------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (387,000) 673,000 (255,000) (200,000) 39,000 (130,000)
INCOME TAXES (BENEFIT) (437,000) 229,000 (87,000)(8) - (63,000)(8) (358,000)
----------- ---------- ----------- ---------- -------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS, NET OF INCOME TAXES $ 50,000 $ 444,000 $ (168,000) $ (200,000) $102,000 $ 228,000
----------- ---------- ----------- ---------- -------- -----------
----------- ---------- ----------- ---------- -------- -----------
NET INCOME (LOSS) AFTER EXTRAORDINARY
ITEM AND INCOME TAXES $ 98,000 $ 444,000 $ (168,000) $ (200,000) $102,000 $ 276,000
----------- ---------- ----------- ---------- -------- -----------
----------- ---------- ----------- ---------- -------- -----------
INCOME PER SHARE:
Income from continuing operations, net
of income taxes $ .01 $ .02
----------- ----------
----------- ----------
Net income after extraordinary item
and income taxes $ .01 $ .03
----------- ----------
----------- ----------
Weighted average number of common
shares outstanding 9,789,924 $9,863,495
----------- ----------
----------- ----------
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
F-9
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRO FORMA ADJUSTMENTS
The adjustments relating to the pro forma consolidated statements of
operations are computed assuming the acquisitions of Anglo and Mid-America
were consummated at the beginning of the applicable periods presented. The
adjustments relating to the pro forma consolidated balance sheet are
computed assuming the acquisition of Mid-America was consummated at March
31, 1996 for the March 31, 1996 balance sheet.
NOTE 2 - ACQUISITION OF SUBSIDIARIES
MID-AMERICA
Reflects the acquisition of equipment, inventory, land and buildings for
assumption of debt and cash. The acquisition of Mid-America is recorded
using the purchase method.
NOTE 3 - ADDITIONAL DEPRECIATION AND AMORTIZATION
ANGLO
Reflects additional depreciation of property and equipment due to the
increased cost of the assets acquired. Reflects amortization of goodwill
using the straight line method over 20 years.
MID-AMERICA
Adjusts depreciation of property and equipment due to the allocated cost of
the assets acquired.
F-10
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - UNACQUIRED ASSETS AND LIABILITIES
MID-AMERICA
Removes assets and liabilities that were not acquired or assumed by the
Company.
NOTE 5 - NON-RECURRING EXPENSES
Removes non-recurring expenses paid to former officers and stockholders of
the acquired businesses for salaries and benefits that will not be incurred
in the future under the terms of the acquisition agreements.
NOTE 6 - DUPLICATE TRANSACTIONS FOR ANGLO
Removes 110 days of operations for Anglo subsequent to the acquisition, which
are included in the historical operations of the Company for the six months
ended March 31, 1996. The assets and liabilities of Anglo are included in
the Company's consolidated balance sheet at March 31, 1996.
NOTE 7 - NON-RECURRING REMEDIATION EXPENSES
ANGLO
Removes non-recurring equipment costs, outside labor costs, direct labor
costs and landfill costs incurred for remediation costs in compliance with
the terms of the sale agreement.
F-11
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - PROVISION FOR INCOME TAXES
Records provision for income taxes on the acquired operations including
recognition of benefit from utilization of net operating loss carryforward
and affect of alternative minimum income taxes.
NOTE 9 - INTEREST EXPENSE
Reflects interest expense for notes payable used to finance the acquisition
of Anglo at 14%.
NOTE 10 - WEIGHTED AVERAGE SHARES OUTSTANDING
On a pro forma basis, weighted average shares are adjusted to reflect the
227,693 shares of Common Stock issued in the acquisition of Anglo; which are
assumed to be outstanding for the entire period for all periods presented.
NOTE 11 - NON-COMPETE AND CONSULTING AGREEMENT
Reflects amortization of the non-compete and consulting agreement with the
president of Anglo over a six year term using the straight line method.
F-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
RECYCLING INDUSTRIES, INC.
DENVER, COLORADO
We have audited the accompanying consolidated balance sheet of Recycling
Industries, Inc. and subsidiaries as of September 30, 1995 and the related
consolidated statements of operations, stockholders' equity (deficit) and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Recycling
Industries, Inc. and subsidiaries as of September 30, 1995 and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
DENVER, COLORADO
MAY 17, 1996
F-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
RECYCLING INDUSTRIES, INC.
DENVER, COLORADO
We have audited the accompanying consolidated balance sheet of Recycling
Industries, Inc. (formerly Environmental Recovery Systems, Inc.) and
subsidiaries as of September 30, 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of
the years in the two-year period ended September 30, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Recycling
Industries, Inc. and subsidiaries as of September 30, 1994, and the results
of their operations and their cash flows for each of the years in the
two-year period ended September 30, 1994, in conformity with generally
accepted accounting principles.
AJ.ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
NOVEMBER 3, 1995
F-14
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
===========================
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ MARCH 31,
1995 1994 1996
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 184,000 $ 115,000 $ 1,240,000
Trade accounts receivable, pledged, less allowance for
doubtful accounts of $15,000, $25,000, and $10,000 1,026,000 898,000 2,149,000
Accounts receivable, related party 223,000 - 95,000
Inventories 497,000 243,000 2,076,000
Prepaid expenses 137,000 111,000 353,000
Other - 40,000 216,000
Deferred income taxes - - 500,000
----------- ---------- -----------
Total Current Assets 2,067,000 1,407,000 6,629,000
NOTE RECEIVABLE, related party - 859,000 -
PROPERTY, PLANT AND EQUIPMENT, net 6,686,000 6,590,000 8,421,000
DEFERRED INCOME TAXES, net 800,000 - 741,000
OTHER ASSETS 744,000 762,000 4,147,000
----------- ---------- -----------
$10,297,000 $ 9,618,000 $19,938,000
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-15
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ MARCH 31,
1995 1994 1996
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 61,000 $ 491,000 $ -
Notes payable-related parties - 8,000 1,927,000
Trade accounts payable 655,000 906,000 1,235,000
Trade accounts payable-related parties 73,000 87,000 140,000
Professional services payable - 255,000 -
Accrued liabilities:
Interest 22,000 33,000 13,000
Interest-related party 8,000 11,000 17,000
Payroll and other 107,000 544,000 267,000
Income taxes payable 86,000 - 86,000
Due to related parties - 276,000 -
Due to factor, related party 197,000 461,000 137,000
Current portion of long-term debt 227,000 2,502,000 94,000
Current portion of long-term debt, related parties 218,000 8,000 2,294,000
Current portion of obligation under capital lease 37,000 - 314,000
----------- ----------- -----------
Total Current Liabilities 1,691,000 5,582,000 6,524,000
----------- ----------- -----------
DEFERRED GAIN - 751,000 -
----------- ----------- -----------
LONG-TERM DEBT:
Long-term debt, net of current portion 132,000 402,000 124,000
Long-term debt-related parties, net of current portion 1,979,000 117,000 945,000
Obligation under capital lease, net of current portion 41,000 - 1,452,000
----------- ----------- -----------
Total Long-Term Debt 2,152,000 519,000 2,521,000
----------- ----------- -----------
Total Liabilities 3,843,000 6,852,000 9,045,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares authorized:
Series A 13,000, 38,000 and 13,000 shares
issued and outstanding 1,312,000 3,612,000 1,312,000
Series B 300,000, 591,333 and -0- shares
issued and outstanding 450,000 887,000 -
Common stock, $.001 par value, 50,000,000 shares
authorized, 8,395,785, 3,005,704 and 10,055,193
shares issued and outstanding 8,000 3,000 10,000
Additional paid-in capital 13,120,000 8,269,000 17,909,000
Accrued salary payable in equity security - 246,000 -
Accumulated (deficit) (8,436,000) (10,251,000) (8,338,000)
----------- ----------- -----------
Total Stockholders' Equity 6,454,000 2,766,000 10,893,000
----------- ----------- -----------
$10,297,000 $ 9,618,000 $19,938,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-16
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
AND THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
----------------------------------------- ---------------------------
1995 1994 1993 1996 1995
------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales $13,812,000 $ 4,812,000 $ - $10,735,000 $7,090,000
Other income 41,000 19,000 - 28,000 27,000
---------- ---------- ----------- ---------- ----------
Total Revenues 13,853,000 4,831,000 - 10,763,000 7,117,000
---------- ---------- ----------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 9,156,000 3,516,000 - 8,712,000 4,563,000
Cost of sales, related parties 1,713,000 594,000 - 640 000 760,000
Personnel 744,000 327,000 830,000 862,000 263,000
Professional services 527,000 553,000 432,000 264,000 290,000
Travel 39,000 60,000 43,000 60,000 19,000
Occupancy 83,000 50,000 60,000 28,000 25,000
Depreciation and amortization 258,000 258,000 357,000 101,000 124,000
Interest 407,000 203,000 156,000 245,000 198,000
Bad debt expense 151,000 25,000 - - -
Other general and administrative 477,000 179,000 - 238,000 190,000
Abandonment of projects - 208,000 549,000 - -
Research and development - - 64,000 - -
---------- ---------- ----------- ---------- ----------
Total Costs and Expenses 13,555,000 5,973,000 2,491,000 11,150,000 6,432,000
---------- ---------- ----------- ---------- ----------
INCOME (LOSS) BEFORE EQUITY IN
NET (LOSS) OF JOINT VENTURES,
EQUITY INVESTEE AND
EXTRAORDINARY GAIN 298,000 (1,142,000) (2,491,000) (387,000) 685,000
EQUITY IN NET (LOSS) OF JOINT
VENTURES AND EQUITY INVESTEE - - (467,000) - -
---------- ---------- ----------- ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN 298,000 (1,142,000) (2,958,000) (387,000) 685,000
EXTRAORDINARY GAIN FROM
SETTLEMENT OF DEBTS 806,000 218,000 475,000 48,000 222,000
---------- ---------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES (BENEFIT) 1,104,000 (924,000) (2,483,000) (339,000) 907,000
(BENEFIT) FROM INCOME TAXES (711,000) - - (437,000) -
---------- ---------- ----------- ---------- ----------
NET INCOME (LOSS) $1,815,000 $ (924,000) $(2,483,000) $ 98,000 $ 907,000
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
PRIMARY INCOME (LOSS) PER
COMMON SHARE:
Before extraordinary item $ .17 $ (.46) $ (1.24) $ .01 $ .20
Extraordinary item .13 .09 .20 - .06
---------- ---------- ----------- ---------- ----------
PRIMARY NET INCOME (LOSS) PER
COMMON SHARE $ .30 $ (.37) $ (1.04) $ .01 $ .26
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,099,694 2,504,762 2,376,824 9,773,913 3,495,306
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
FULLY DILUTED INCOME (LOSS)
PER COMMON SHARE:
Before extraordinary item $ .16 $ (.43) $ (1.24) $ .01 $ .19
Extraordinary item .13 .08 .20 - .06
---------- ---------- ----------- ---------- ----------
FULLY DILUTED NET INCOME (LOSS)
PER COMMON SHARE: $ (.29) $ (.35) $ (1.04) $ .01 $ .25
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Weighted average number of common
shares outstanding 6,307,694 $2,623,069 2,376,823 9,981,913 3,703,306
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-17
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995
AND THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
----------------- ---------------- PAID-IN OPTION EQUITY ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL TO CEO SECURITY (DEFICIT) TOTAL
------ ------ ------ ------ ------- ------ -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1992 - $ - 2,367,728 $ 3,000 $ 5,905,000 $ - $ - $(6,844,000) $ (936,000)
Common stock issued
for services - - 20,000 - 149,000 - - - 149,000
Contribution of services - - - - 120,000 - - - 120,000
Dilution of predecessor cost
adjustment property option - - - - 444,000 - - - 444,000
Net (loss) - - - - - - - (2,483,000) (2,483,000)
------- ----------- ---------- ------- ----------- -------- --------- ----------- -----------
Balances, September 30,
1993 - - 2,387,728 3,000 6,618,000 - - (9,327,000) (2,706,000)
Preferred stock issued
for debt 591,333 887,000 - - - - - - 887,000
Preferred stock issued
for acquisition of NRI 38,000 3,612,000 - - - - - - 3,612,000
Common stock issued
for cash - - 30,000 - 56,000 - - - 56,000
Common stock issued
for services - - 39,600 - 242,000 - - - 242,000
Common stock issued
for debt - - 548,376 - 1,351,000 - - - 1,351,000
Contribution to capital - - - - 2,000 - - - 2,000
Conversion of accrued
salary - - - - - - 246,000 - 246,000
Net (loss) - - - - - - - (924,000) (924,000)
------- ----------- ---------- ------- ----------- -------- --------- ----------- -----------
Balances, September 30,
1994 629,333 4,499,000 3,005,704 3,000 8,269,000 - 246,000 (10,251,000) 2,766,000
Redemption of preferred
stock Series A (25,000) (2,300,000) - - - - - - (2,300,000)
Redemption of preferred
stock Series B and
other equity for
Option to CEO (291,333) (437,000) - - - 683,000 (246,000) - -
Common stock issued for
acquisition of MRI - - 120,000 - 1,200,000 - - - 1,200,000
Common stock issued during
private offering, net of
offering costs of
$590,000 - - 3,746,400 4,000 2,778,000 - - - 2,782,000
Common stock issued to
retire debt - - 166,666 - 150,000 - - - 150,000
Common stock issued for
renegotiation of payment
terms for a stockholder
loan - - 10,000 - - - - - -
Common stock issued
for services - - 10,000 - 25,000 - - - 25,000
Common stock issued for
interest on bridge loans - - 17,351 - 16,000 - - - 16,000
Common stock issued on
exercise of option to CEO - - 1,319,445 1,000 682,000 (683,000) - - -
Common stock rounding due
to stock split - - 219 - - - - - -
Net income - - - - - - - 1,815,000 1,815,000
------- ----------- ---------- ------- ----------- -------- --------- ----------- -----------
Balances, September 30,
1995 313,000 1,762,000 8,395,785 8,000 13,120,000 - - (8,436,000) 6,454,000
Common stock issued
for acquisition of
Anglo (unaudited) - - 227,693 - 925,000 - - - 925,000
Conversion of preferred
stock series B
(unaudited) (300,000) (450,000) 12,000 - 450,000 - - - -
Common stock issued
in private offering,
net of offering costs
of $633,000 (unaudited) - - 1,040,636 1,000 2,227,000 - - - 2,228,000
Conversion of bridge
loans (unaudited) - - 323,523 1,000 1,137,000 - - - 1,138,000
Common stock issued for
cash (unaudited) - - 55,556 - 50,000 - - - 50,000
Net income for the period
(unaudited) - - - - - - - 98,000 98,000
------- ----------- ---------- ------- ----------- -------- --------- ----------- -----------
Balances, March 31,
1996 (unaudited) 13,000 $ 1,312,000 10,055,193 $10,000 $17,909,000 $ - $ - $(8,338,000) $10,893,000
------- ----------- ---------- ------- ----------- -------- --------- ----------- -----------
------- ----------- ---------- ------- ----------- -------- --------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-18
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
AND THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------- -------------------------
1995 1994 1993 1996 1995
---------- ----------- ----------- ---------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss) $ 1,815,000 $ (924,000) $(2,483,000) $ 98,000 $ 907,000
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 784,000 392,000 357,000 479,000 454,000
Equity in net loss of affiliates - - 467,000 - -
Extraordinary gain from settlement of
debts (806,000) (218,000) (475,000) (48,000) (222,000)
Abandonment of projects - 208,000 549,000 - -
Contribution of services - - 120,000 - -
Issuance of stock for services 25,000 244,000 149,000 - -
Write-off acquisition costs - 72,000 - - -
Bad debt expense 151,000 25,000 - - -
Deferred income taxes (800,000) - - (441,000) -
Changes in assets and liabilities:
Trade accounts receivable (154,000) (923,000) - (1,123,000) (252,000)
Inventories (254,000) (243,000) - (213,000) 52,000
Prepaid expenses (26,000) (111,000) - (91,000) 5,000
Other current assets 33,000 (40,000) 8,000 (216,000) 32,000
Accounts payable (290,000) 506,000 736,000 647,000 (6,000)
Accrued liabilities (451,000) 150,000 454,000 160,000 (62,000)
Income taxes payable 86,000 - - - -
----------- ----------- -------- ----------- -----------
Net Cash Provided (Used)
by Operating Activities 113,000 (862,000) (118,000) (748,000) 908,000
----------- ----------- -------- ----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Additions to engineering plans - - (66,000) - -
Additions to equipment (472,000) (25,000) - (302,000) (406,000)
Receivables-related party - - 72,000 128,000 (81,000)
Sale of equipment - 48,000 - - -
Collections on note receivable - 41,000 - - -
Additions to acquisition costs and goodwill (103,000) (319,000) (112,000) (604,000) (56,000)
Non-compete agreement - - - (200,000) -
Advances (to) affiliate - (398,000) - -
Investment in equity investee - - (113,000) - -
Advances to related party (238,000) - - - -
Acquisition of Loef (113,000) - - - -
----------- ----------- -------- ----------- -----------
Net Cash (Used) in Investing
Activities (926,000) (255,000) (617,000) (978,000) (543,000)
----------- ----------- -------- ----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Proceeds from borrowings-related parties 321,000 632,000 676,000 1,593,000 -
Proceeds from other borrowings - 434,000 99,000 20,000 -
Principal payments on borrowings (2,756,000) (199,000) (40,000) (401,000) (2,298,000)
Principal payments on borrowings-related
parties (383,000) (152,000) - (411,000) (281,000)
Principal payments on capital lease (34,000) - - (112,000) -
Proceeds from factor 7,335,000 2,450,000 - 3,934,000 3,364,000
Payments to factor (7,599,000) (1,989,000) - (3,994,000) (3,494,000)
Proceeds from issuance of common stock 3,998,000 56,000 - 2,278,000 2,782,000
Deferred offering costs - - - (125,000) (314,000)
----------- ----------- -------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities 882,000 1,232,000 735,000 2,782,000 (241,000)
----------- ----------- -------- ----------- -----------
Increase in cash 69,000 115,000 - 1,056,000 124,000
CASH, beginning of period 115,000 - - 184,000 115,000
----------- ----------- -------- ----------- -----------
CASH, end of period $ 184,000 $ 115,000 $ - $ 1,240,000 $ 239,000
----------- ----------- -------- ----------- -----------
----------- ----------- -------- ----------- -----------
See Note 21
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-19
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[A] GENERAL
Recycling Industries, Inc. (RII or the Company, formerly known as
Environmental Recovery Systems, Inc.) is a Colorado corporation formed
December 1988.
Prior to May, 1994, the Company was a development stage enterprise during
which period it completed the development of technology for recycling
municipal solid waste. While the Company has not obtained a permit nor
constructed or operated a facility utilizing this technology, it is pursuing
the license or sale of such technology. On May 10, 1994 the Company acquired
a subsidiary and began metals recycling operations (see Note 2[A]). All
revenues during 1995 and 1994 were generated by the recycling operations. On
June 27, 1995 the Company changed its name to Recycling Industries, Inc.
REVERSE STOCK SPLIT
Effective June 27, 1995, the Company completed a one-for-five reverse stock
split of its common stock, $.001 par value (Common Stock). All share and per
share amounts have been restated retroactively as a result of this reverse
split.
[B] ACCOUNTING POLICIES
CONSOLIDATION
The Company, its subsidiaries and joint ventures in which it exercises
control through majority ownership are consolidated, and all intercompany
accounts and transactions are eliminated. Joint ventures and investment in
equity investees are accounted for under the equity method of accounting,
whereby the Company recorded only its proportionate share of loss in the
joint ventures and equity investees. The Company currently has no active
joint venture projects.
Nevada Recycling, Inc. (NRI), acquired by the Company in May 1994 (see Note
2[A]), operates a metals recycling facility in Las Vegas, Nevada, serving the
Las Vegas market and steel mills located throughout the western United States.
Recycling Industries of Texas, Inc. d/b/a Anglo Iron & Metal (Anglo), formed
by the Company to acquire the assets of Anglo Metals, Inc. in December 1995
(see Note 2[C]), operates four metals recycling facilities in Brownsville,
Harlingen, McAllen and San Juan, Texas, serving steel mills and markets in
the Rio Grande Valley in southern Texas and northern Mexico.
F-20
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 1[B] - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recycling Industries of Missouri, Inc. d/b/a Mid-America Shredding
(Mid-America), formed by the Company to acquire the assets of Mid-America
Shredding, Inc. in April 1996 (see Note 22), operates a metals recycling
facility in Ste. Genevieve, Missouri, serving midwestern steel mills and
markets along the Mississippi River.
The acquisitions have been accounted for under the purchase method of
business combinations and, accordingly, the results of operations of the
acquired businesses are included in the Company's financial statements only
from the applicable date of acquisition.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the six month periods ended March 31, 1996 and 1995 are presented on a basis
consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for
the interim period ending March 31, 1996 are not necessarily indicative of
the results to be expected for the year ended September 30, 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock Based
Compensation. FAS 123 encourages the accounting for stock based employee
compensation programs to be reported within the financial statements on a
fair value based method. If the fair value based method is not adopted, then
FAS 123 requires pro forma disclosure of net income and earnings per share as
if the fair value based method had been adopted. The Company has not yet
determined how FAS 123 will be implemented or its impact on the financial
statements. FAS 123 is effective for transactions entered into after
December 15, 1995.
ACQUISITIONS COSTS
The Company had capitalized acquisition costs of $61,000, $164,000 and
$200,000 at September 30, 1995 and 1994, and March 31, 1996 respectively,
relating to active letters of intent for potential acquisitions of operating
metals recycling companies. Acquisition costs are allocated to the net
assets acquired if the acquisition is successful, or are charged to
operations if the negotiations are discontinued. Acquisition costs of
$72,000 were written off to operations during 1994 for negotiations that were
no longer active.
F-21
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 1[B] - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At September 30, 1995 and 1994, and
March 31, 1996, accounts receivable balances from significant customers were
$699,000, $711,000 and $1,454,000, or 65%, 79% and 68%, respectively, of the
total accounts receivable balance. Ongoing credit evaluations of customers'
financial condition are performed and, generally, no collateral is required.
The Company maintains reserves for potential credit losses and such losses,
in the aggregate, have not exceeded management's expectations. Customers are
located throughout the western region of the United States and Mexico. Sales
to one customer in Mexico comprised 23.9% of sales for the six months ended
March 31, 1996. There were no significant sales in Mexico prior to the
acquisition of Anglo.
The Company maintains all cash in bank deposit accounts, which at times may
exceed federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, time deposits, accounts
payable, and accrued expenses approximate fair value because of the short
maturity of these items. The fair value of notes payable and amounts due to
factor was estimated based on market values for debt with similar terms.
Management believes that the fair value of that debt approximates its
carrying value.
INVENTORIES
Inventories consist primarily of ferrous and non-ferrous scrap metal.
Inventory costs include material, labor and plant overhead. Inventory is
stated at lower of average cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated
useful lives of 7 to 15 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property, plant and
equipment was $545,000, $147,000, $12,000 and $369,000 for the periods ended
September 30, 1995, 1994 and 1993, and March 31, 1996 respectively.
Maintenance and repairs are charged to expense as incurred and expenditures
for major improvements are capitalized. When assets are retired or otherwise
disposed of, the property accounts are relieved of costs and accumulated
depreciation and any resulting gain or loss is credited or charged to
operations.
F-22
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 1[B] - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED OFFERING COSTS
Costs incurred in connection with the Company's current anticipated public
offering are deferred and will be charged against stockholders' equity upon
the successful completion of the offering or charged to expense if the
offering is not consummated.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in connection with research and development in relation to
work undertaken on new environmental technologies are charged to operations
in the year incurred. No research and development costs have been incurred
since 1993.
REVENUE RECOGNITION
Sales are recorded in the period of shipment.
NET INCOME (LOSS) PER COMMON SHARE
Primary net income (loss) per common share is computed based upon the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Fully diluted computations assume the
conversion of the convertible preferred stock.
Dilutive common equivalent shares consist of stock options and warrants. In
loss periods, dilutive common equivalent shares are excluded as the effect
would be anti-dilutive.
INCOME TAXES
Effective October 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. Under
this method, deferred income taxes are recorded to reflect the tax
consequences in future years of temporary differences between the tax basis
of assets and liabilities and their financial statement amounts at the end of
each reporting period. Valuation allowances will be established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense represents the tax payable for the current
period and the change during the period in deferred tax assets and
liabilities. Deferred tax assets and liabilities have been netted to reflect
the tax impact of temporary differences. The adoption of FAS 109 did not
have a material effect on the Company's consolidated financial statements,
therefore, there was no cumulative effect of this change in accounting for
income taxes at October 1, 1992. There is also no effect on the loss for the
year ended September 30, 1993.
F-23
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 1[B] - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company had not recorded a deferred tax asset at September 30, 1994 and
1993 since it was more likely than not that the tax assets would not be
realized. At September 30, 1995 and March 31, 1996 the Company has recorded
a net deferred tax asset of $800,000 and $1,241,000 primarily reflecting the
benefit of net operating loss carryforwards, which expire in varying amounts
between 2002 and 2009. Realization is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not
that all of the deferred tax asset will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward
period are reduced.
At September 30, 1995 and March 31, 1996 the Company has federal income tax
loss carryforwards of approximately $6,900,000 and $7,200,000 respectively,
which if not utilized to offset future taxable income, expire in the years
2002 through 2009.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could
differ from those estimates and assumptions.
RECLASSIFICATIONS
Certain balances in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 presentation. The reclassifications had
no effect on financial condition or results of operations.
F-24
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 2 - ACQUISITIONS
[A] On May 10, 1994, the Company acquired 100% of the outstanding common
stock of NRI from Nevada Recycling Corporation (NRC) for 38,000 shares of the
Company's Series A convertible preferred stock, valued at $3,612,000. On
that date NRI became a wholly-owned subsidiary of the Company.
A summary of the assets purchased and liabilities assumed is as follows:
Land $ 1,340,000
Building 360,000
Machinery and equipment 5,025,000
Notes payable (3,113,000)
--------------
Net Book Value of Assets Purchased $ 3,612,000
--------------
--------------
On December 30, 1994, the Company and NRC agreed to restructure the terms of
the acquisition of NRI as follows:
(1) NRC returned to the Company 25,000 of the 38,000 shares of Series A
convertible preferred stock (see Note 17).
(2) The Company purchased from NRC its contingent right (granted under the
May 10, 1994 acquisition agreement, to reacquire the stock of NRI) for
$2,300,000 and warrants to purchase 20,000 shares of Common Stock for $1.25
per share for a 10-year term. The $2,300,000 payment consists of a $300,000
note paid on February 28, 1995 and a $2,000,000 note payable in consecutive
monthly installments commencing March 31, 1995 on the basis of an eight-year
amortization with interest at the rate of 10% per year, with remaining
principal due January 10, 1997.
(3) The Company restructured the purchase of land and buildings for a
purchase price of $2,060,000 payable to $1,700,000 before February 28, 1995
with interest of $19,000 per month, $20,000 plus accrued interest payable on
each of December 31, 1994, January 31, 1995 and February 28, 1995, and
$300,000 payable in monthly installments commencing March 31, 1995 on the
basis of an eight-year amortization period with interest at the rate of 10%
per year, with remaining principal due January 10, 1997.
(4) The Company agreed to pay $637,052 of debts totaling $2,382,447 assumed
on the equipment purchased as part of the original NRI acquisition.
F-25
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 2 - ACQUISITIONS (CONTINUED)
All of the above obligations are collateralized by the assets of NRI.
As a result of the restructuring, the Company treated the $2,300,000 payment
obligation as indebtedness incurred to retire the 25,000 shares of preferred
stock. The acquisition of NRI resulted in goodwill of $195,000 which will be
amortized using the straight-line method over 20 years.
[B] On December 30, 1994, the Company acquired Metal Recovery, Inc. (MRI)
whose sole asset is an indirect 19.6% limited partnership interest in a
currently inactive partnership engaged in the business of scrap metal
recovery (the Partnership). The acquisition of MRI resulted in goodwill of
$22,000 which is being written off over 20 years using the straight line
method. The Company acquired MRI from its three stockholders (the ACI
Principals), who also hold the 13,000 shares of the Company's Series A
preferred stock acquired by the ACI Principals from the stockholders of NRC
in a separate transaction. The purchase price for MRI included 120,000
shares of Common Stock and the right to additional shares of Common Stock
upon the satisfaction of certain conditions which have not been met. The
120,000 shares of Common Stock and 13,000 shares of Series A preferred stock
are referred to as the ACI Equity Securities. The Company has agreed to
assist the ACI Principals in liquidating the ACI Equity Securities for at
least $2,400,000 prior to September 30, 1996 by purchasing or arranging for
the sale of these securities, or including the ACI Equity Securities in a
registration statement prior to September 30, 1996 (ACI Sale Obligation).
In connection with the restructuring of the acquisition of NRI, discussed
above, the Company has transferred a portion of MRI's interest in the
Partnership to NRC, and the ACI Principals caused the Partnership to redeem
this interest for $1,170,000 in partial satisfaction of the Company's
February 28, 1995 payment obligations. This amount has been treated as a
loan to the Company.
The ACI Principals have the right to reacquire the Company's interests in MRI
and NRI in exchange for the ACI Equity Securities (the ACI Option) if the
Company:
1) defaults under the terms of the installment note, under [A];
2) fails to meet the ACI Sale Obligation; or
3) if the Company defaults in its other obligations under the various
agreements related to the acquisition of MRI or the restructuring of
the acquisition of NRI, under [A].
In addition, until the Company meets the ACI Sale Obligation, the Company is
subject to certain restrictions on its ability to operate NRI and MRI.
F-26
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 2 - ACQUISITIONS (CONTINUED)
The unaudited pro forma summary financial statements which follow have been
prepared assuming that the exercise of the ACI Option occurred as of
September 30, 1995 for purposes of the pro forma balance sheet and that the
exercise of the ACI Option occurred for purposes of the pro forma statement
of operations. In addition to combining the historical results of operations
of the entities, the pro forma calculations include adjustments for the
estimated effect on the Company's historical results of operations of the
write-off of goodwill related to the acquisition of MRI.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
RECYCLING PRO FORMA
INDUSTRIES, ACI PRO FORMA SEPTEMBER 30,
INC. OPTION ADJUSTMENT 1995
-------------- ----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets $ 2,067,000 $(1,707,000) $ - $ 360,000
Other Assets 8,230,000 (7,475,000) (188,000) 567,000
-------------- ----------- ---------- ------------
$ 10,297,000 $(9,182,000) $ (188,000) $ 927,000
-------------- ----------- ---------- ------------
-------------- ----------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
RECYCLING PRO FORMA
INDUSTRIES, ACI PRO FORMA SEPTEMBER 30,
INC. OPTION ADJUSTMENT 1995
-------------- ----------- ------------ -------------
(UNAUDITED)
Current liabilities $ 1,691,000 $(1,166,000) $ - $ 525,000
Long-term debt 2,152,000 (2,152,000) - -
Stockholders' equity
(deficit) 6,454,000 (5,864,000) (188,000) 402,000
-------------- ----------- ---------- ------------
$ 10,297,000 $(9,182,000) $ (188,000) $ 927,000
-------------- ----------- ---------- ------------
-------------- ----------- ---------- ------------
</TABLE>
F-27
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 2 - ACQUISITIONS (CONTINUED)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
RECYCLING PRO FORMA
INDUSTRIES, ACI PRO FORMA SEPTEMBER 30,
INC. OPTION ADJUSTMENT 1995
----------- ------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $13,853,000 $(13,847,000) $ - $ 6,000
Costs and expenses 13,555,000 (12,007,000) 168,000 1,716,000
----------- ------------- ----------- -----------
Income (loss) before
extraordinary gain 298,000 (1,840,000) (168,000) (1,710,000)
Extraordinary gain from
settlement of debts 806,000 - - 806,000
(Benefit) from income taxes (711,000) 711,000 - -
----------- ------------- ----------- -----------
Net income (loss) $1,815,000 $(2,551,000) $ (168,000) $ (904,000)
----------- ------------- ----------- -----------
----------- ------------- ----------- -----------
(Loss) per common share:
Before extraordinary gain $(.27)
Extraordinary gain .13
-----------
Net (loss) per common share $(.14)
-----------
-----------
</TABLE>
[C] On December 11, 1995, the Company acquired substantially all of the
assets and the business of Anglo Metal, Inc.dba Anglo Iron & Metal (Anglo).
The assets acquired from Anglo consisted of a heavy duty automotive shredder,
inventories, metal shearing equipment, balers, heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Company also purchased from Anglo certain real property,
buildings and leasehold improvements used in the metal recycling business.
The purchase price for Anglo was $6,065,000 comprised of: $2,079,000 in cash;
$1,865,000 note which is to be paid in ten monthly installments of $186,500
beginning in February 1996; a $446,000 secured promissory note payable in 60
consecutive monthly installments of $9,000, including interest; a $750,000
unsecured note payable in 72 equal consecutive monthly installments of
$10,400; and 227,693 shares of Common Stock valued at $925,000.
Of the cash paid at the closing of the acquisition, $1,800,000 was obtained
through a sale-leaseback transaction with Ally Capital Corporation,
collateralized by all of Anglo's machinery and equipment, accounts receivable
and inventories, which has been recorded as a capital lease.
F-28
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 2 - ACQUISITIONS (CONTINUED)
The terms of the sale-leaseback provide for 60 consecutive monthly lease
payments of $41,000 with a bargain purchase option at the end of the lease
term. The lease contained numerous covenants for maintaining certain
financial ratios and earnings levels (see Note 20). The remaining $279,000
paid at closing was obtained from the operating cash reserves and working
capital of the Company.
The Company signed a consulting and non-competition agreement with the
president of Anglo. The term of the non-compete portion is for six years and
is valued at $1,000,000 which will be amortized over the term of the
agreement using the straight line method. The consulting portion is for a
term of six months and is payable $5,000 per month.
RII also entered into a sublease agreement with Anglo for three yard
facilities for $2,500 a month through December 10, 2005.
The real property acquired from Anglo and the Common Stock issued by the
Company have been placed in escrow to provide for the remediation of
environmental contamination related to the operations of Anglo prior to the
acquisition.
The purchase price of Anglo has been allocated as follows:
Equipment under capital lease $ 1,800,000
Contract to acquire land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,365,000
Purchase price in excess of net assets acquired 1,830,000
-----------
Total purchase price 6,065,000
Notes payable (3,061,000)
Common Stock (925,000)
-----------
Cash paid at closing 2,079,000
Capital lease obligation (1,800,000)
Cash paid from operating capital $ 279,000
-----------
-----------
F-29
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 2 - ACQUISITIONS (CONTINUED)
The unaudited pro forma results of operations which follow assume that the
acquisition of NRI had occurred at the beginning of each period for 1994 and
1993. For the year ended September 30, 1995 and the six months ended March
31, 1996, the operations of NRI are included in the consolidated balances of
the Company. The unaudited pro forma results of operations which follow also
assume that the acquisition of Anglo had occurred at the beginning of each
period presented for 1995 and March 1996.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended September 30, March 31,
------------------------------------------ -----------
1995 1994 1993 1996
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $29,192,000 $11,348,000 $ 9,781,000 $13,571,000
Income (loss)from continuing
operations, net of taxes $ 1,582,000 $ (857,000) $(2,807,000) $ 326,000
Net income (loss) after extraordinary
items and income taxes $ 2,388,000 $ (639,000) $(2,332,000) $ 374,000
Income (loss) from continuing
operations, net of taxes per
common share $ .26 $ (.34) $ (1.18) $ .03
Net income (loss) after extraordinary
items and income taxes per
common share $ .39 $ (.25) $ (.98) $ .04
</TABLE>
NOTE 3 - FORMER JOINT VENTURE
In 1993, the Company entered into a settlement with a former joint venture
partner in which the Company agreed to make a series of payments totaling
$622,000 by October 31, 1993. The Company subsequently defaulted on its
payment obligations. On June 30, 1994, the Company and certain related
parties entered into a master agreement providing for the settlement of all
amounts owed to the former joint venture partner. Pursuant to this
agreement, the Company issued 145,000 shares of Common Stock for its
outstanding principal and penalty interest balance of $725,000. Such shares
were issued in connection with the 548,376 shares of Common Stock issued in
1994 on the conversion of $1,351,000 in liabilities (see Note 17).
NOTE 4 - ENGINEERING PLANS
The Company capitalizes all external direct costs associated with permitting
and plant facilities start-up which mainly include engineering, legal and
consulting fees, travel and other costs associated with developing projects
and obtaining permits. Internal costs associated with plant facilities
start-up are expensed as incurred. Capitalized project costs are being
amortized over five years using the straight-line method beginning with the
earlier of the commencement of plant operations or two years from the date
the project begins accumulating costs. During fiscal 1995, 1994 and 1993 the
Company incurred amortization costs of $217,000, $217,000 and $344,000,
respectively.
F-30
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 4 - ENGINEERING PLANS (CONTINUED)
Capitalized engineering plans are those costs related to active projects and
potential plant site locations. At the time a permit application is
infeasible, based upon management's determination, all costs associated with
the project which are not transferable to other projects are charged to
operations. During 1994 and 1993, $208,000 and $549,000, respectively, of
project start-up costs were written off because the permit applications were
determined to be infeasible.
NOTE 5 - FACTORING AGREEMENTS
On May 4, 1994, the Company entered into an agreement with an unrelated third
party whereby such third party agreed to purchase the Company's trade
accounts receivable at 80% of face amount and to collect payments on the
purchased receivables from the Company's customers. The Company was charged
an administrative fee equal to 1% of the face amount of the purchased
receivables and a monthly finance charge in the amount of 3% of the average
daily outstanding balance of all purchased receivables. The Company was
required to repurchase any receivables not collected from customers within 90
days.
On August 12, 1994, the Company entered into an agreement, which replaced
the above factoring agreement, with a partnership comprised of the
stockholders of NRC who are also preferred stockholders of the Company,
whereby the partnership agreed to purchase the Company's trade accounts
receivable at 85% of face value. Under the terms of the factoring agreement,
the partnership is entitled to a finance charge of 1.5% per month of the
average daily outstanding balance. The Company is required to repurchase any
receivables not collected from customers within 90 days. The original term
of the agreement was for a period of 18 months and continues on a
month-to-month basis thereafter unless terminated by either party. Purchased
receivables balances outstanding at September 30, 1995 and 1994 and March 31,
1996 were $197,000, $461,000 and $137,000, respectively. Accrued finance
charges at September 30, 1995 and 1994 and March 31, 1996 were $8,000,
$11,000 and $17,000, respectively. Total finance charges for the years ended
September 30, 1995 and 1994, and for the six months ended March 31, 1996 were
$82,000, $11,000 and $49,000, respectively.
NOTE 6 - INVENTORIES
Inventories which are pledged, consist of the following:
SEPTEMBER 30, MARCH 31,
----------------------- ------------
1995 1994 1996
--------- ---------- ------------
(UNAUDITED)
Raw materials $ 350,000 $ 167,000 $ 1,779,000
Finished goods 147,000 76,000 297,000
--------- ---------- ------------
$ 497,000 $ 243,000 $ 2,076,000
--------- ---------- ------------
--------- ---------- ------------
F-31
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (substantially all of which is pledged)
consists of the following:
SEPTEMBER 30, MARCH 31,
-------------------------- -------------
1995 1994 1996
----------- ------------ -------------
(UNAUDITED)
Land $ 1,640,000 $ 1,340,000 $ 1,710,000
Building and improvements 365,000 365,000 372,000
Heavy machinery and
equipment 1,472,000 1,432,000 1,519,000
Automotive shredder 3,161,000 3,103,000 3,180,000
Assets under capital lease 118,000 - 1,918,000
Transportation equipment 561,000 443,000 712,000
Office equipment 121,000 114,000 131,000
----------- ------------ -------------
Total 7,438,000 6,797,000 9,542,000
Less accumulated depreciation
and amortization (752,000) (207,000) (1,121,000)
----------- ------------ -------------
$ 6,686,000 $ 6,590,000 $ 8,421,000
----------- ------------ -------------
----------- ------------ -------------
F-32
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 8 - OTHER ASSETS
Other assets consist of the following:
SEPTEMBER 30, MARCH 31,
----------------------- ------------
1995 1994 1996
--------- ---------- ------------
(UNAUDITED)
Acquisition costs $ 61,000 $ 164,000 $ 200,000
Goodwill, net of accumulated
amortization of $29,000 and
$7,000 and $40,000
(see Note 2) 188,000 168,000 2,544,000
Investment in affiliate, at cost 277,000 - 277,000
Engineering plans, net of
accumulated amortization of
$899,000, $682,000 and $930,000 188,000 405,000 157,000
Non-compete agreement, net
of accumulated amortization
of $56,000 - - 944,000
Patent rights 25,000 25,000 25,000
Other 5,000 - -
-------- --------- -----------
$744,000 $ 762,000 $ 4,147,000
-------- --------- -----------
-------- --------- -----------
INVESTMENT IN AFFILIATE
Effective June 30, 1995 the Company acquired a 20% interest in The Loef
Company, Inc. (Loef), a ferrous and non-ferrous metals recycler. Under the
terms of an agreement with the 80% stockholder of Loef, the Company's
interest will be maintained at 20% if the Company pays $200,000 to the 80%
stockholder before June 30, 1996, otherwise the interest may be reduced to
15%.
Under the terms of the agreement, the Company paid certain expenses in
connection with the acquisition in the amount of $277,000 and extinguished
certain warrants (see Note 17). The acquisition of the Company's interest in
Loef was recorded using the cost method of accounting.
F-33
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 9 - NOTE RECEIVABLE, RELATED PARTY
On April 11, 1994 the Company sold its 25% ownership interest in a formerly
wholly-owned subsidiary to Caside Associates (CA), a stockholder of the
Company, in exchange for a $2,000,000 note receivable. At September 30,
1994, the sales price was renegotiated to $900,000. The note requires 6%
monthly interest only payments for two years and principal repayments are due
quarterly from 1996 to 1998.
The gain on the sale was recognized using the cost-recovery method since the
collection of the sales price was not reasonably assured. Under the
cost-recovery method, gain on the sale is postponed until all costs are
recovered, then all receipts are recognized as profit. As a result of the
sale, a deferred gain in the amount of $751,000 has been recorded. At
September 30, 1994, no gain has been recognized since all costs had not yet
been recovered.
As of September 30, 1995, management determined that the note receivable from
CA was permanently impaired. Therefore, the Company recorded an allowance
for the total remaining unpaid balance of $874,000 and removed the deferred
gain on the sale, recognizing a bad debt expense of $123,000.
NOTE 10 - INCOME TAXES
Pursuant to the terms of its acquisition of MRI, the Company included a
$3,500,000 capital gain realized prior to such acquisition on its
consolidated 1994 tax return and utilized a portion of its net operating loss
carryforward generated in prior years to offset the capital gain. Management
believes its position has merit based on its interpretation of the Internal
Revenue Code and an opinion by its tax counsel. However, the Company has not
obtained a prior ruling from the Internal Revenue Service (IRS) and has no
assurances that the IRS will concur with its interpretation. If the IRS were
to successfully challenge the position taken on this issue, the Company could
be required to pay approximately $1,200,000 in additional income taxes plus
penalties and interest and the $3,500,000 net operating loss utilized on its
consolidated 1994 tax return would be available to offset future taxable
income generated by the Company.
During fiscal year 1995 and the period ended March 31, 1996, management
determined that the net operating loss generated from prior years in the
amount of $6,900,000 and $7,200,000 was more likely than not to be used in
the near future due to taxable income generated by NRI, Anglo and Mid-
America. Therefore, a net deferred tax asset of $800,000 and $1,241,000 has
been recorded as of September 30, 1995 and March 31, 1996. During 1995, net
operating losses in the amount of $3,700,000 were utilized to reduce taxable
income. However, alternative minimum tax of approximately $86,000 was
payable for 1995 because of the 90% alternative net operating loss
limitation. Net operating loss carryforwards available for future use
through the year 2009 are $6,900,000 at September 30, 1995 and $7,200,000 at
March 31, 1996.
F-34
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 10 - INCOME TAXES (CONTINUED)
The components of deferred tax assets and (liabilities) are as follows:
SEPTEMBER 30, MARCH 31,
------------------------- ------------
1995 1994 1996
----------- ----------- ------------
(UNAUDITED)
Total deferred tax assets $ 1,021,000 $ 2,293,000 $ 1,241,000
Less valuation allowance (221,000) (2,293,000) -
----------- ----------- ------------
800,000 - 1,241,000
Total deferred tax (liabilities) - - -
----------- ----------- ------------
Net deferred tax asset $ 800,000 $ - $ 1,241,000
----------- ----------- ------------
----------- ----------- ------------
The tax effects of temporary differences and net operating loss carryforwards
that give rise to deferred tax assets and (liabilities) are as follows:
SEPTEMBER 30, MARCH 31,
---------------------------- ------------
1995 1994 1996
------------ ------------ ------------
(UNAUDITED)
Temporary differences:
Property and equipment $ (1,743,000) $ (1,674,000) $ (1,718,000)
Valuation allowance (221,000) (2,293,000) -
Research and development costs 78,000 78,000 78,000
Engineering plans 306,000 232,000 325,000
Goodwill 10,000 - 16,000
Allowance for doubtful accounts 3,000 9,000 3,000
Non-compete agreement - - 12,000
Alternative minimum tax credits - - 86,000
Net operating loss carryforwards 2,367,000 3,648,000 2,439,000
----------- ----------- ------------
$ 800,000 $ - $ 1,241,000
----------- ----------- ------------
----------- ----------- ------------
F-35
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 10 - INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following:
SEPTEMBER 30, MARCH 31,
-------------------- ------------------------
1995 1994 1996 1995
---------- ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
Current $ 89,000 $ - $ 4,000 $ -
Deferred (800,000) - (441,000) -
---------- ------ ---------- -------
$ (711,000) $ - $ (437,000) $ -
---------- ------ ---------- -------
---------- ------ ---------- -------
The components of deferred income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-------------------------- ---------------------------
1995 1994 1996 1995
---------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Bad debt expense $ 6,000 $ (8,000) $ - $ 3,000
Depreciation expense 69,000 1,674,000 (25,000) 35,000
Engineering costs (74,000) (145,000) (19,000) (37,000)
Goodwill amortization (10,000) - (6,000) (5,000)
Accrued salaries - officers - 20,000 - -
Net operating loss carryforward 1,281,000 (482,000) (72,000) (776,000)
Valuation allowance (2,072,000) (1,059,000) (221,000) 780,000
Non-compete agreement - - (12,000) -
Alternative minimum
tax credits - - (86,000) -
---------- ----------- ----------- -------------
$ (800,000) $ - $(441,000) $ -
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------
</TABLE>
F-36
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 10 - INCOME TAXES (CONTINUED)
Following is a reconciliation of the amount of income tax (benefit) expense
that would result from applying the statutory federal income tax rates to
pre-tax income and the reported amount of income tax expense:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-------------------------- ---------------------------
1995 1994 1996 1995
---------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Tax expense (benefit) at
federal statutory rates $ 374,000 $ (314,000) $ (115,000) $ (308,000)
Capital gains - MRI 1,190,000 - - 1,190,000
Change in valuation allowance (2,072,000) 480,000 (221,000) (780,000)
Other (203,000) (166,000) (101,000) (102,000)
----------- ----------- ----------- -----------
$ (711,000) $ - $ (437,000) $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTE 11 - ECONOMIC DEPENDENCY
The Company is economically dependent on major customers for annual sales.
Such customers comprised the following percentages of revenues:
SEPTEMBER 30,
-------------------- MARCH 31,
1995 1994 1996
----- ----- -----------
(UNAUDITED)
Customer A 37.9% 29.9% 14.8%
Customer B 16.2% 19.7% 20.6%
Customer C 10.8% 18.7% 7.8%
Customer D - - 23.9%
F-37
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 12 - NOTES PAYABLE
Notes payable outstanding at September 30, 1995 and 1994 consisted of:
SEPTEMBER 30,
------------------------
1995 1994
--------- ---------
Notes to entity, interest at prime (7.75% at
September 30, 1994), for which the Company
is not accruing interest (approximately $160,000
at September 30, 1995). The Company has received
no requests for payment since December 1989
and has recorded an allowance against the note
payable balance and recognized a $300,000 gain
on extinguishment of debt (see Note 18). $ - $ 300,000
Note to individuals, interest at 18%, with
principal due various dates through January
1994 with certain notes cosigned by an officer
and director of the Company, unsecured. 43,000 65,000
Note to an engineering firm, interest at 12%.
The note was discharged in 1995 pursuant to
a negotiated settlement (see Note 18). - 46,000
Note to an individual, interest at prime plus 1%
(9.5% at September 30, 1994) with principal and
all unpaid accrued interest due in January 1993.
Unsecured. The note was paid in 1995. - 50,000
Note to a law firm, interest at 10% to 12%,
principal and interest paid March 1996. 18,000 30,000
--------- ---------
$ 61,000 $ 491,000
--------- ---------
--------- ---------
F-38
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 13 - NOTES PAYABLE - RELATED PARTIES
During the year ended September 30, 1993, First Dominion Holdings, Inc. (FD),
a corporation wholly-owned by the Company's chief executive officer/majority
stockholder, advanced the Company $676,000 for working capital purposes. The
advance was non-interest bearing and due on demand. During the year ended
September 30, 1994, there were advances and repayments on the note and
$887,000 of the balance was converted to 591,333 shares of Series B preferred
stock (see Note 17). At September 30, 1994 the balance on the note was
$8,000. During 1995 the note was paid. During the six months ended March
31, 1996, FD advanced $5,000 to the Company which remains outstanding at
March 31, 1996.
The remaining balance of related parties notes payable at March 31, 1996
consists of $1,472,000 note payable (see Note 2[C] with an original
obligation balance of $1,865,000) related to the Anglo inventory acquisition
and $450,000 of bridge loans. In December 1995 and January 1996, the Company
borrowed $1,575,000 of bridge financing represented by the notes payable -
related parties with interest at 10% per annum. Proceeds from the loans were
used to finance the Anglo acquisition and general corporate expenses. In
January 1996, principal of $1,125,000 and accrued interest of $13,000 were
converted into 323,523 shares of Common Stock. In connection with the bridge
financing, the lenders were issued warrants to purchase a total of 359,250
shares of Common Stock at $1.50 per share, exercisable through the end of a
three-year period commencing on the effective date of a registration
statement covering the underlying Common Stock. Principal and interest
related to the bridge loans, which were not converted into Common Stock, are
due in December, 1996 and January, 1997. If the Company defaults on
repayment of the loans, the notes are convertible to Common Stock at a
conversion price of the lesser of $2.00 or 50% of the average closing price
for the last 30 days after the default. First Equity Capital Securities,
Inc. received a finders fee of $79,000 in connection with the bridge loans.
F-39
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 14 - LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- MARCH 31,
1995 1994 1996
------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to former owners of NRC,
interest at varying amounts with monthly
payments of $38,732; due through February
2003; collateralized by the assets of the
Company. Notes were paid as part of the
restructure of NRI (see Note 2). $ - $2,429,000 $ -
Notes payable to financial institution;
principal and interest at the prime rate
plus 2%, respectively; due on demand; if
no demand is made, then in monthly payments
of $12,190 through 1997; collateralized by
equipment. 122,000 252,000 86,000
Notes payable to financing company; principal
and interest at 7.5%; due October 1997;
monthly payments of $2,418; collateralized by
equipment. 54,000 81,000 41,000
Note to a group of investors; at 5%; principal
and interest due December 31, 1995; unsecured. 125,000 125,000 -
Other obligations, principally payable in
monthly installments including interest
at 9.5% to 18%, collateralized by various
equipment. 58,000 17,000 91,000
-------- ---------- --------
359,000 2,904,000 218,000
Less current portion 227,000 2,502,000 94,000
-------- ---------- --------
Long-Term Debt $132,000 $ 402,000 $124,000
-------- ---------- --------
-------- ---------- --------
</TABLE>
F-40
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 14 - LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows for the periods ending:
SEPTEMBER 30, MARCH 31,
1995 1996
------------ -------------
(UNAUDITED)
1996 $ 227,000 $ -
1997 88,000 94,000
1998 25,000 71,000
1999 12,000 33,000
2000 7,000 15,000
Thereafter - 5,000
----------- ----------
$ 359,000 $ 218,000
----------- ----------
----------- ----------
NOTE 15 - LONG-TERM DEBT - RELATED PARTY
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1995 1994 1996
---------- ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
$2,000,000 note payable to NRC with 22
monthly payments of principal and interest at
10%; due January 1997; monthly payments
of $30,000 and one balloon payment in
January 1997 of $1,671,000; collateralized
by stock, property and equipment. $ 1,902,000 $ - $ 1,813,000
$446,000 note payable to Anglo Metal, Inc.;
monthly payments of principal and interest at
8% of $9,000; due December 2000;
collateralized by real property and buildings. - - 428,000
$750,000 note payable to officer of Anglo
Metal, Inc.; monthly payments of principal and
interest at 9% of $70,000; due December 2001. - - 719,000
</TABLE>
F-41
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 15 - LONG-TERM DEBT - RELATED PARTY (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- MARCH 31,
1995 1994 1996
---------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Other notes due to related parties with
interest at 8.5% to 12%. 295,000 125,000 279,000
---------- -------- ------------
2,197,000 125,000 3,239,000
Less current portion 218,000 8,000 2,294,000
---------- -------- ------------
Long-Term Debt, Related Party $1,979,000 $117,000 $ 945,000
---------- -------- ------------
---------- -------- ------------
</TABLE>
Maturities of long-term debt-related parties are as follows for the
periods ending:
SEPTEMBER 30, MARCH 31,
-------------- -----------
1995 1996
-------------- -----------
(UNAUDITED)
1996 $ 218,000 $ -
1997 1,979,000 2,294,000
1998 - 209,000
1999 - 215,000
2000 - 223,000
2001 - 204,000
2002 - 94,000
----------- -----------
$ 2,197,000 $ 3,239,000
----------- -----------
----------- -----------
Under the terms of the $2,000,000 note payable to NRC the Company is required
1) to maintain adequate insurance coverage for its facilities, equipment and
operations; 2) to maintain certain financial ratios; 3) to conduct the
business of NRI substantially as conducted in December 1994; and 4) to obtain
prior approval of NRC prior to incurring additional debt in excess of
predetermined amounts.
F-42
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 16 - RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the
notes to the financial statements, the following related party transactions
have taken place.
During 1993, a former subsidiary of the Company incurred legal fees of
$60,000 to an attorney who is a stockholder of the Company.
During 1995, 1994 and the six months ended March 31, 1996 and 1995, the
Company purchased raw materials from related entities in the amounts of
$1,713,000, $594,000, $640,000 and $760,000, respectively. The purchase
price of the raw materials approximates the cost paid to other large bulk
suppliers to the Company.
NOTE 17 - STOCKHOLDERS' EQUITY
NON-QUALIFIED STOCK OPTIONS AND WARRANTS
The Company has outstanding options and warrants to acquire an aggregate of
5,658,946 shares of the Company's Common Stock, substantially all of which
have exercise prices ranging from $.90 to $7.50 per share.
STOCK OPTIONS
During 1992, the Company's Board of Directors adopted an incentive stock
option plan and a non-qualified stock option plan, which were both
subsequently approved by the stockholders. The stock option plans provide
for 200,000 and 50,000 shares, respectively, to be reserved. Options under
the non-qualified stock option plan may be issued at such prices and at such
terms as determined by the Board of Directors. Currently, 32,000 options
have been issued under the incentive stock option plan and are exercisable at
$2.50 to $6.25 per share.
1995 STOCK OPTION PLAN
The 1995 Plan provides for the grant of stock options to employees, officers
and employee directors of the Company. An aggregate of 2,000,000 shares of
Common Stock are authorized for issuance under the 1995 Plan. Concurrently
with the adoption of the 1995 Plan by the Board of Directors on December 27,
1995, options to acquire 750,000 shares of Common Stock at an exercise price
of $2.87 per share were granted to certain officers of the Company. These
options and the 1995 Plan are subject to approval by the Company's
shareholders at the 1996 annual meeting of shareholders. The 1995 Plan
terminates on December 27, 2006. Options granted under the 1995 Plan must
have an exercise price of not less than 80% of the fair market value of the
Common Stock on the date of grant, and their term may not exceed ten years.
F-43
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
DIRECTOR STOCK OPTION PLAN
The Director Plan provides for the grant of stock options to existing and
future Independent Directors of the Company. Three individuals who were
serving as Independent Directors on December 27, 1995, each received an
initial grant of 5,000 options (for a total of 15,000 options granted) under
the Director Plan having an exercise price of $2.87 per share, the fair
market value per share of the Common Stock on that date. These options and
the Director Plan are subject to approval by the Company's shareholders at
the 1996 annual meeting of shareholders. The Director Plan terminates on
December 27, 2006. Options granted under the Director Plan will be
exercisable commencing six months after the date of grant and continuing for
five years from the date of grant.
COMMON STOCK
On June 1, 1993, the Company's Board of Directors adopted a Consulting and
Services Compensation Plan (Plan). The Plan provides for 60,000 shares of
Common Stock to be reserved which were contained in a registration statement
filed during June 1993. Under the terms of the Plan, stock options may be
granted in lieu of Common Stock under such terms as determined by the
Company's Board of Directors. At September 30, 1994 and 1993, 39,600 and
20,000 shares of registered Common Stock were issued under the plan for
$242,000 and $149,000 for professional services, respectively.
On January 1, 1994, the Company's Board of Directors adopted a Consulting
Agreement (Agreement). The Agreement provides for 150,000 shares of Common
Stock to be issued for cash and/or services which were contained in a
registration statement filed during June of 1994. During 1994, 30,000 shares
of registered Common Stock were issued for $56,250 in professional services
provided under the Agreement.
During 1994, $1,351,000 of liabilities were converted to 548,376 shares of
Common Stock.
PREFERRED STOCK CONVERSION
On November 9, 1995, 300,000 shares of Series B preferred stock were
converted into 12,000 shares of Common Stock.
During 1993, the chief executive officer/majority stockholder of the Company
converted accrued salary in the amount of $120,000 to additional paid-in
capital. During 1994, the chief executive officer/majority stockholder of
the Company converted accrued salary in the amount of $246,000 to an equity
security payable in the future at a price per share to be determined at the
time of issuance. During 1995, the equity security was converted as partial
compensation for the "W" Right.
F-44
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
PRIVATE PLACEMENT OFFERING DATED FEBRUARY 1, 1995 (FEBRUARY 1995 PRIVATE
PLACEMENT)
As of April 17, 1995, the closing date of the February Private Placement, the
Company received $1,984,000 (net of offering costs of approximately $218,000)
from the sale of 1,946,400 shares of Common Stock and warrants (Series G
Warrants) to acquire up to 1,236,878 shares of Common Stock, including
$450,000 in bridge loans (including accrued interest) that were converted
into units offered under the February Private Placement.
The Series G Warrants are exercisable from the date of their issuance through
the three years from the effective date of the Company's initial registration
statement at $7.50 per share. Under certain conditions as set forth in the
warrant agreement, the Company may redeem the Series G Warrants prior to
their expiration, at a redemption price of $.25 per Series G Warrant upon not
less than 30 days prior written notice to the warrant holders.
In connection with the offering, the Company issued to the placement agent
139,828 warrants (placement agent warrants) to purchase two shares of Common
Stock and one Series H Warrant, which are exercisable for a three year period
commencing one year from the date of issuance, at an exercise price of $1.80.
Upon exercise of the placement agent warrants, the Company will issue up to
139,828 Series H Warrants each to purchase one share of Common Stock at an
exercised price of $7.50 per share. The Series H Warrants are exercisable
for a three year period commencing one year from the date of issuance and are
not redeemable by the Company.
PRIVATE PLACEMENT OFFERING DATED MAY 24, 1995 (MAY 1995 PRIVATE PLACEMENT)
As of July 31, 1995, the closing date of the May Private Placement, the
Company received $1,248,000 (net of offering costs of approximately $372,000)
from the sale of 1,800,000 shares of Common Stock and warrants (Series G
Warrants) to acquire up to 900,000 shares of Common Stock. The Series G
Warrants are exercisable from the date of their issuance through the three
years from the effective date of the Company's initial registration statement
at $7.50 per share. Under certain conditions as set forth in the warrant
agreement, the Company may redeem the Series G Warrants prior to their
expiration, at a redemption price of $.25 per Series G Warrant upon not less
than 30 days' prior written notice to the warrant holders.
F-45
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the offering, the Company issued to the placement agent
73,560 warrants (placement agent warrants) to purchase two shares of Common
Stock and one Series H Warrant, which are exercisable for a three year period
commencing one year from the date of issuance, at an exercise price of $1.80.
Upon exercise of the placement agent warrants, the Company will issue up to
73,560 Series H Warrants each to purchase one share of Common Stock at an
exercised price of $7.50 per share. The Series H Warrants are exercisable
for a three year period commencing one year from the date of issuance and are
not redeemable by the Company.
The Company has issued 2,136,878 Series G Warrants to date. No warrants have
been exercised to date.
PRIVATE PLACEMENT OFFERING DATED JANUARY 31, 1996 (JANUARY 1996 PRIVATE
PLACEMENT)
As of January 31, 1996, the closing date of the January Private Placement,
the Company received $2,228,000 (net of offering costs of approximately
$633,000) from the sales of 1,040,636 shares of Common Stock and warrants
(Series J Warrants) to acquire up to 682,078 shares of Common Stock, in
addition $1,138,000 in bridge loans (including accrued interest) were
converted into units offered under the January 31, 1996 Private Placement
(see Note 13).
The Series J warrants are exercisable for a three-year period commencing on
the effectiveness of a registration statement covering the shares received
upon their exercise. The exercise price of the Series J warrants will be
reduced to $5.40 per share in the event that the Company fails to repurchase
certain shares of Common Stock by May 31, 1996 and will reduce by $.35 per
share for each month subsequent to September 1996 (June 1996 in the event
such stock purchase is not effected by May 31) in which a registration
statement covering the shares issuable upon exercise of the Series J Warrants
is not effective.
In connection with the offering, the Company issued to the placement agent
65,445 warrants (placement agent warrants) to purchase two shares of Common
Stock and one Series H Warrant, which are exercisable for a three year period
commencing one year from the date of issuance, at an exercise price of $2.75.
Upon exercise of the placement agent warrants, the Company will issue up to
65,445 Series H Warrants each to purchase one share of Common Stock at an
exercised price of $7.50 per share. The Series H Warrants are exercisable
for a three year period commencing one year from the date of issuance and are
not redeemable by the Company.
F-46
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK
SERIES A - The Company issued 13,000 shares, as restructured, of Series A
preferred stock in connection with the acquisition of NRI. Series A preferred
stock is without par value, is non-voting and has no liquidation preferences
with respect to any other class or series of the Company's common or
preferred stock. In addition, the holders of Series A preferred stock shall
be entitled to dividends on the same basis as holders of the Company's Common
Stock. They are convertible into Common Stock at a price per share on the
date the Company files a registration statement so that conversion of the
13,000 shares will equal $1,040,000 (see Note 2[A]).
SERIES B - On March 31, 1994, the Company owed FD $887,000. On that date the
Company issued 591,333 shares of Series B preferred stock, no par value, in
exchange for that debt at $1.50 per share. The shares have voting rights
under limited conditions, are redeemable at $1.50 per share at the option of
the Company, and are convertible into Common Stock at one share of Common
Stock for each five shares of preferred stock.
On January 25, 1995, the Company exchanged 291,333 shares of Series B
preferred stock as partial consideration for the "W" right and on November 9,
1995, the remaining 300,000 shares were converted into 12,000 shares of
Common Stock.
W RIGHT
On January 25, 1995, the Company conditionally granted to the chief executive
officer/majority stockholder the right ("W" Right) to acquire shares of
Common Stock valued at $1,187,500 in exchange for: 1) the purchase of MSW
technology owned by FD and the chief executive officer/majority stockholder;
2) 291,333 Series B preferred shares owned by FD; and 3) the forgiveness of
$1,187,500 of accrued salary, royalties and other amounts due to the chief
executive officer/majority stockholder of which $246,000 was recorded as
accrued salary payable in equity security as of September 30, 1994. On
August 8, 1995, the officer/majority stockholder exercised that "W" Right and
was issued 1,319,445 shares of Common Stock.
NOTE 18 - EXTRAORDINARY ITEMS
The Company owed $510,000 for professional services to a law firm. The
Company extinguished $475,000 of the debt in 1993 for $5,000 cash and a
$30,000 promissory note. During 1993, the extinguishment of $475,000 has
been recorded as an extraordinary gain.
During 1994, the Company extinguished $347,000 of debt for $17,000 cash and
$112,000 in notes payable thereby recognizing an extraordinary gain of
$218,000.
F-47
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 18 - EXTRAORDINARY ITEMS (CONTINUED)
During 1995, the Company extinguished $896,000 of debt for $90,000 cash
thereby recognizing an extraordinary gain of $806,000.
NOTE 19 - COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL LIABILITIES
In connection with the recycling and processing of ferrous and non-ferrous
metals, the Company may come in contact with "hazardous materials" as that
term is defined under various environmental laws. Although the Company
screens for "hazardous materials" in its raw materials, certain items
processed may inadvertently contain such materials, which could result in
contamination of the waste by-products and premises. At this time the
Company believes that it is in substantial compliance with all applicable
environmental laws. Due to the nature of the Company's operations, changes
in the environmental laws or inadvertent improper disposal of a hazardous
material may result in a violation of such laws subjecting the Company to
fines and responsibility for costs attributable to remediation.
LONG-TERM DEBT
In conjunction with the acquisition of MRI, previously discussed in Note 2[B],
the Company executed a promissory note on February 28, 1995 in the amount
of $1,200,000 payable to MRI, bearing interest at 8%, due February 28, 1998.
Accrued interest is payable on March 31, 1995, and on June 30, September 30,
December 31, and March 31 of each calendar year thereafter through maturity.
Under the terms of the note payable, the Company was required to transfer
$1,150,000 of the proceeds from the note payable to NRI and is prohibited
from obtaining any repayment from NRI until the ACI Option expires
unexercised. If the ACI Option is exercised, the note payable will no longer
be due to MRI.
INSURANCE
The Company partially self insures for casualty losses on property, plant and
equipment at its NRI subsidiary.
F-48
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 20 - LEASES
OPERATING LEASES
On June 8, 1995, the Company entered into an operating lease agreement for
office space. The term of the lease is through June 2000, with monthly rent
expense beginning at $1,800 and increasing to $3,900 per month.
During December 1995, the Company entered into lease agreements for yard
facilities. The agreement with Anglo requires payments of $2,500 per month
through December 2005 (see Note 2[C]) and the other agreement requires annual
rent of $16,000 payable quarterly through December 2000.
Future minimum lease payments are as follows for the periods ending:
SEPTEMBER 30, MARCH 31,
------------- ------------
1995 1996
------------- ------------
(UNAUDITED)
1996 $ 44,000 $ -
1997 45,000 90,000
1998 45,000 91,000
1999 46,000 92,000
2000 35,000 93,000
2001 52,000
Thereafter - 140,000
----------- ----------
$ 215,000 $ 558,000
----------- ----------
----------- ----------
F-49
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 20 - LEASES (CONTINUED)
Rent expense for the years ended September 30, 1995, 1994, 1993 and the six
months ended March 31, 1996, was approximately $47,000, $48,000, $48,000 and
$42,000, respectively.
CAPITAL LEASES
NRI leases certain equipment under a capital lease obligation through
November 1997. The obligation under the capital lease has been recorded in
the accompanying financial statements at the present value of future minimum
lease payments, discounted at an interest rate of 10.5%.
The Company leases the equipment acquired from Anglo under a capital lease
obligation (see Note 2[C]). In connection with the lease agreement, the
Company issued a warrant to the leasing company to acquire 53,600 shares of
the Company's Common Stock at $5.00 per share exercisable over a period of
three years from the date of issuance. At March 31, 1996, the Company was in
violation with certain covenants under the capital lease obligation. The
lessor has granted the Company a waiver of lease covenant violations through
April 1, 1997 and the Company anticipates negotiating with the lessor to
amend the lease agreement to revise the provisions for which the Company is
not in compliance.
The capitalized cost, accumulated depreciation, and depreciation expense
relating to this equipment was as follows for the periods ended:
SEPTEMBER 30, MARCH 31,
1995 1996
------------- ------------
(UNAUDITED)
Capitalized cost $ 118,000 $ 1,918,000
Accumulated depreciation (6,000) (72,000)
----------- -------------
$ 112,000 $ 1,846,000
----------- -------------
----------- -------------
Depreciation expense $ 6,000 $ 66,000
----------- -------------
----------- -------------
F-50
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 20 - LEASES (CONTINUED)
The future minimum lease payments under the capital lease and net present
value of future minimum lease payments are as follows for the periods ending:
SEPTEMBER 30, MARCH 31,
1995 1996
------------- --------------
(UNAUDITED)
1996 $ 44,000 $ -
1997 41,000 528,000
1998 6,000 512,000
1999 - 486,000
2000 - 486,000
2001 - 366,000
------------ ------------
Total future minimum payments 91,000 2,378,000
Amount representing interest (13,000) (612,000)
------------ ------------
Present value of future minimum
lease payments 78,000 1,766,000
Less current portion (37,000) (314,000)
------------ ------------
$ 41,000 $ 1,452,000
------------ ------------
------------ ------------
F-51
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------ --------------------------
1995 1994 1996 1995
----------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash paid for interest $ 407,000 $ - $ 194,000 $ 222,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Stock issued for conversion
of bridge financing $ 150,000 $ - $ 1,137,000 $ 150,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Acquisition of subsidiaries
for stock $ - $ 6,725,000 $ 925,000 $ 1,200,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Purchase of equipment for
notes payable $ 56,000 $ 5,000 $ 25,000 $ 35,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Sale of 25% interest in
subsidiary for note
receivable $ - $ 900,000 $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Reversal of deferred gain
on sale of subsidiary $ 751,000 $ - $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Common stock issued for
relief of debt $ - $ 1,351,000 $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Preferred stock issued for
extinguishment
of debt $ - $ 887,000 $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Conversion of accrued
salary to equity $ - $ 246,000 $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Restructure of preferred
stock to debt $ 2,300,000 $ - $ - $ 2,300,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Issuance of common
stock to chief executive
officer $ 437,000 $ - $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Acquisition of equipment
under capital lease $ 113,000 $ - $ - $ 113,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Contract to acquire land
and building acquired
for note payable $ - $ - $ 446,000 $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Acquisition of Anglo
inventory for note
payable $ - $ - $ 1,366,000 $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Capital lease obligation
incurred to finance
Anglo acquisition $ - $ - $ 1,800,000 $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Intangible acquired for a
note payable $ - $ - $ 750,000 $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-52
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 22 - SUBSEQUENT EVENTS
PRIVATE PLACEMENT
On April 8, 1996 the Company completed a private placement. The Company
received $228,000 (net of offering costs of $20,000) from the sale of 90,000
shares of Common Stock and warrants (Series J Warrants) to acquire up to
45,000 shares of Common Stock at $7.50 per share. The Series J Warrants are
exercisable for a three-year period commencing on the effectiveness of a
registration statement covering the shares received upon their exercise. The
exercise price of the Series J Warrants will be reduced to $5.40 per share in
the event that the Company fails to repurchase certain shares of Common Stock
by May 31, 1996 and will reduce by $.35 per share for each month subsequent
to September 1996 (June 1996 in the event such stock purchase is not effected
by May 31) in which a registration statement covering the shares issuable
upon exercise of the Series J warrants is not effective.
In connection with the offering, the Company issued to the placement agent
4,500 warrants (placement agent warrants) to purchase two shares of Common
Stock and one Series H Warrant, which are exercisable for a three year period
commencing one year from the date of issuance, at an exercise price of $2.75.
Upon exercise of the placement agent warrants, the Company will issue up to
4,500 Series H Warrants each to purchase one share of Common Stock at an
exercised price of $7.50 per share. The Series H Warrants are exercisable
for a three year period commencing one year from the date of issuance and are
not redeemable by the Company.
ACQUISITION OF MID-AMERICA
On April 15, 1996, the Company acquired substantially all of the assets
(excluding cash and accounts receivable) of Mid-America Shredding, Inc. The
assets acquired consist of real property, buildings, a heavy duty automotive
shredder mill, a wire chopping plant and heavy equipment and tools used in
the business of recycling ferrous and non-ferrous metals. The purchase price
totaled $1,925,000, settled through the assumption of outstanding bank debt
of $1,210,000, $660,000 cash paid at closing and a $55,000 note, payable over
eight months. The purchase price is allocated as follows:
Inventories $ 55,000
Land 310,000
Buildings and improvements 560,000
Machinery and equipment 1,000,000
------------
Total $ 1,925,000
------------
------------
F-53
<PAGE>
NOTE 22 - SUBSEQUENT EVENTS (CONTINUED)
AGREEMENT TO ACQUIRE WEISSMAN
In April 1996, the Company reached agreement for the purchase of the stock of
Weissman Iron and Metal for cash of $12,400,000, subject to adjustment at
closing. Weissman operates in the business of recycling ferrous and
non-ferrous metals in and around Waterloo, Iowa. The purchase price is
anticipated to be funded through a combination of a public offering of the
Company's securities and bank debt.
PROPOSED FINANCING AGREEMENT
In April 1996, the Company entered into a letter of intent for a $10,000,00
to $11,000,000 financing agreement. Advances would be subject to certain
asset eligibility computations and interest would be at the Bank of America
Reference Rate plus 2% except for the over advance facility which would be
plus 3%. The agreement would be collateralized by a first security interest
on all of the Company's assets. Closing of the financing agreement is
conditional upon completion of the lender due diligence including, among
other things, appraisals, documentations and certain financial requirements.
PROPOSED PUBLIC OFFERING
On March 27, 1996, the Company entered into a letter of intent with an
underwriter to sell 4,400,000 shares of the Company's Common Stock in a
public offering. Upon a registration statement being declared effective, the
4,400,000 shares would be sold along with 492,448 shares which would also be
sold by certain securityholders.
F-54
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON THE SUPPLEMENTAL SCHEDULES
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
RECYCLING INDUSTRIES, INC.
DENVER, COLORADO
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements, taken as whole. The schedule to the
consolidated financial statements referred to in the accompanying index are
presented for the purpose of additional analysis and are not a required part
of the basic financial statements. Such information for the year ended
September 30, 1995 has been subjected to the auditing procedures applied in
the audit of the basic consolidated financial statements. In our opinion,
such information for the year ended September 30, 1995 is fairly stated in
all material respects in relation to the basic consolidated financial
statements taken as a whole.
BDO SEIDMAN, LLP
DENVER, COLORADO
MAY 17, 1996
F-55
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON THE SUPPLEMENTAL SCHEDULES
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
RECYCLING INDUSTRIES, INC.
DENVER, COLORADO
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements, taken as whole. The schedule to the
consolidated financial statements referred to in the accompanying index are
presented for the purpose of additional analysis and are not a required part
of the basic financial statements. Such information for the year ended
September 30, 1994 has been subjected to the auditing procedures applied in
the audit of the basic consolidated financial statements. In our opinion,
such information for the year ended September 30, 1994 is fairly stated in
all material respects in relation to the basic consolidated financial
statements taken as a whole.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
NOVEMBER 3, 1995
F-56
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
-------------------------
ASSETS
1995 1994
----------- -----------
CURRENT ASSETS:
Cash $ 126,000 $ 77,000
Prepaid expenses 8,000 28,000
Accounts receivable-related party 219,000 -
----------- -----------
Total Current Assets 353,000 105,000
Investment in subsidiaries 5,012,000 3,612,000
Advances to NRI 1,532,000 -
Property, plant and equipment,
net of accumulated depreciation
of $11,000 and $72,000 11,000 18,000
Note receivable, related party - 859,000
Engineering plans, net of accumulated
amortization of $1,107,000 and
$890,000 188,000 405,000
Deferred tax asset 800,000
Investment, at cost 277,000 -
Acquisition costs 61,000 164,000
Goodwill, net of accumulated amortization
of $29,000 and $7,000 188,000 168,000
Other assets 30,000 25,000
----------- -----------
Total Assets $ 8,452,000 $ 5,356,000
----------- -----------
----------- -----------
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES" ARE AN INTEGRAL PART OF THESE STATEMENTS
SEE ACCOMPANYING NOTES TO CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
F-57
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
----------- ------------
CURRENT LIABILITIES:
Notes payable $ 61,000 $ 380,000
Note payable, related party - 8,000
Trade accounts payable 260,000 551,000
Professional services payable - 255,000
Accrued expenses 64,000 513,000
Income taxes payable 86,000 -
Current portion of long term debt 125,000 -
Current portion of long term debt,
related party 182,000 -
----------- ------------
Total Current Liabilities 778,000 1,707,000
DEFERRED GAIN - 751,000
LONG-TERM DEBT:
Long-term debt, net of current portion - 125,000
Long-term debt, related party, net of
current portion 2,920,000 -
----------- ------------
Total Liabilities 3,698,000 2,583,000
----------- ------------
Preferred stock 1,762,000 4,499,000
Common stock 8,000 3,000
Additional paid-in capital 13,120,000 8,269,000
Accrued salary payable in equity
security - 246,000
Accumulated (deficit) (10,136,000) (10,044,000)
----------- ------------
Total Stockholders' Equity 4,754,000 2,973,000
----------- ------------
$ 8,452,000 $ 5,556,000
----------- ------------
----------- ------------
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES" ARE AN INTEGRAL PART OF THESE STATEMENTS
SEE ACCOMPANYING NOTES TO CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
F-58
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
-------------------------------
1995 1994
------------ -----------
REVENUES:
Sales $ 37,000 $ -
Interest income 35,000 19,000
----------- -----------
72,000 19,000
----------- -----------
COSTS AND EXPENSES:
Cost of sales 29,000 -
Personnel 312,000 204,000
Professional services 485,000 604,000
Travel 27,000 60,000
Occupancy 51,000 47,000
Other general and administrative 140,000 40,000
Depreciation and amortization 251,000 229,000
Bad debt expense 123,000 -
Interest 196,000 34,000
----------- -----------
1,614,000 1,218,000
----------- -----------
(LOSS) BEFORE EXTRAORDINARY GAIN (1,542,000) (1,199,000)
EXTRAORDINARY GAIN FROM SETTLEMENT
OF DEBTS 739,000 218,000
----------- -----------
(LOSS) BEFORE INCOME TAXES (803,000) (981,000)
(BENEFIT) FROM INCOME TAXES (711,000) -
----------- -----------
NET (LOSS) $ (92,000) $ (981,000)
----------- -----------
----------- -----------
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES" ARE AN INTEGRAL PART OF THESE STATEMENTS
SEE ACCOMPANYING NOTES TO CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
F-59
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
----------- ----------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net (loss) $ (92,000) $(981,000)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 246,000 230,000
Extraordinary gain from extinguishment
of debt (806,000) (218,000)
Deferred income taxes (800,000) -
Write-off acquisition costs - 15,000
Bad debt expense 123,000 -
Issuance of stock for services 25,000 244,000
Changes in assets and liabilities:
Accounts receivable-related parties - (40,000)
Prepaid expenses 20,000 -
Advances to subsidiaries (632,000) -
Other assets (5,000) -
Accounts payable (316,000) 479,000
Accrued liabilities (103,000) (27,000)
Income taxes payable 86,000 -
------------ -----------
Net Cash (Used) in Operating
Activities (2,254,000) (298,000)
------------ -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Collections on note receivable - 41,000
Additions to acquisition costs and goodwill (103,000) (263,000)
Acquisition of Loef (113,000) -
Advances to related parties (234,000) -
Net Cash (Used) in Investing
Activities (450,000) (222,000)
------------ ----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Proceeds from borrowings 150,000 323,000
Proceeds from borrowings-related parties - 356,000
Principal payments on borrowings-related parties (106,000) (137,000)
Proceeds from issuance of common stock 2,798,000 55,000
Principal payments on borrowings (89,000) -
------------ ----------
Net Cash Provided by Financing
Activities 2,753,000 597,000
------------ ----------
Increase in Cash 49,000 77,000
CASH, beginning of period 77,000 -
------------ ----------
CASH, end of period $ 126,000 $ 77,000
------------ ----------
------------ ----------
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES" ARE AN INTEGRAL PART OF THESE STATEMENTS
SEE ACCOMPANYING NOTES TO CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
F-60
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
-------------------------
NOTE 1 - BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of the Registrant do not
include all of the information and notes normally included with financial
statements prepared in accordance with generally accepted accounting
principles. It is, therefore, suggested that these Condensed Financial
Statements be read in conjunction with the Consolidated Financial Statements
and Notes thereto included in the Registrant's Annual Report as referenced in
Form 10-K. Part II, Item 8.
NOTE 2 - LONG-TERM DEBT
The components of long-term debt are as follows at September 30, 1995 and
1994:
5% note due December 1, 1995 $ 125,000
------------
------------
F-61
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
MID-AMERICA SHREDDING, INC.
STE. GENEVIEVE, MISSOURI
We have audited the accompanying balance sheet of Mid-America Shredding,
Inc., as of December 31, 1995 and the related statements of operations,
changes in stockholders' equity and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. 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 audit provides 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 Mid-America Shredding, Inc.,
as of December 31, 1995 and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted
accounting principles.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
APRIL 5, 1996
F-62
<PAGE>
===========================================
MID-AMERICA SHREDDING, INC.
BALANCE SHEETS
===========================
ASSETS
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 30,000 $ 18,000
Trade accounts receivable 87,000 109,000
Inventories 86,000 34,000
Prepaid expenses 16,000 -
---------- ----------
Total Current Assets 219,000 161,000
PROPERTY, PLANT AND EQUIPMENT, net 2,886,000 2,823,000
---------- ----------
$3,105,000 $2,984,000
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $1,210,000 $1,210,000
Trade accounts payable 82,000 129,000
Trade accounts payable, related party 133,000 143,000
Accrued liabilities 35,000 16,000
Current portion of long-term debt 20,000 21,000
---------- ----------
Total Current Liabilities 1,480,000 1,519,000
LONG-TERM DEBT, less current portion 7,000 2,000
---------- ----------
Total Liabilities 1,487,000 1,521,000
---------- ----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000 shares authorized;
245 shares issued and outstanding - -
Additional paid-in capital 3,055,000 3,055,000
Accumulated (deficit) (1,437,000) (1,592,000)
---------- ----------
Total Stockholders' Equity 1,618,000 1,463,000
---------- ----------
$ 3,105,000 $ 2,984,000
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-63
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENTS OF OPERATIONS
===========================================
FOR THE YEAR FOR THE THREE MONTHS ENDED
ENDED MARCH 31,
DECEMBER 31, ------------------------
1995 1996 1995
------------ --------- -----------
(UNAUDITED) (UNAUDITED)
SALES $3,866,000 $ 452,000 $1,027,000
------------ --------- -----------
COST OF SALES AND EXPENSES:
Cost of sales 3,587,000 439,000 814,000
Personnel 247,000 124,000 157,000
Professional services 6,000 5,000 2,000
Travel 1,000 - -
Interest 125,000 35,000 30,000
Other general and administrative 23,000 4,000 15,000
------------ --------- -----------
Total Cost of Sales
and Expenses 3,989,000 607,000 1,018,000
------------ --------- -----------
NET INCOME (LOSS) $ (123,000) $(155,000) $ 9,000
------------ --------- -----------
------------ --------- -----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-64
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 245 $ - $3,009,000 $(1,314,000) $1,695,000
Contributed capital - - 46,000 - 46,000
Net (loss) - - - (123,000) (123,000)
--- ------ ---------- ----------- ----------
Balance, December 31, 1995 245 - 3,055,000 (1,437,000) 1,618,000
Net (loss) - - - (155,000) (155,000)
--- ------ ---------- ----------- ----------
Balance, March 31, 1996
(Unaudited) 245 $ - $3,055,000 $(1,592,000) $1,463,000
--- ------ ---------- ----------- ----------
--- ------ ---------- ----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-65
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996 1995
---- --------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS (TO) FROM OPERATING ACTIVITIES:
Net income (loss) $(123,000) $(155,000) $ 9,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 173,000 43,000 43,000
Changes in:
Accounts receivable 62,000 (22,000) 48,000
Inventories 192,000 52,000 49,000
Prepaid expenses 12,000 16,000 (9,000)
Trade accounts payable (72,000) 47,000 13,000
Trade accounts payable, related
party 106,000 10,000 -
Accrued liabilities 22,000 (19,000) 4,000
--------- --------- --------
Net Cash Provided (Used) by
Operating Activities 372,000 (28,000) 157,000
--------- --------- --------
CASH FLOWS (TO) FROM INVESTING ACTIVITIES:
Purchase of property and equipment (484,000) (3,000) -
Proceeds from sale of property and equipment - 23,000 22,000
Construction in progress - - (204,000)
--------- --------- --------
Net Cash Provided (Used) by
Investing Activities (484,000) 20,000 (182,000)
--------- --------- --------
CASH FLOWS (TO) FROM FINANCING ACTIVITIES:
Proceeds from note payable, bank 144,000 - 43,000
Payments on note payable, bank (20,000) - -
Payments on long-term debt (18,000) (4,000) -
Payment on amount due to former shareholder (5,000) - -
Capital contributions 26,000 - 5,000
--------- --------- --------
Net Cash Provided (Used) by
Financing Activities 127,000 (4,000) 48,000
--------- --------- --------
NET INCREASE (DECREASE) IN CASH 15,000 (12,000) 23,000
CASH, beginning of period 15,000 30,000 15,000
--------- --------- --------
CASH, end of period $ 30,000 $ 18,000 $ 38,000
--------- --------- --------
--------- --------- --------
CASH PAID FOR INTEREST $ 127,000 $ 34,000 $ 30,000
See Note 10 --------- --------- --------
--------- --------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-66
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
=============================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
Mid-America Shredding, Inc. (Mid-America) was incorporated in the state of
Missouri in July 1989. Mid-America operates in the metals recycling industry
(purchasing, processing and selling ferrous and non-ferrous metals).
Mid-America operates a heavy duty automotive shredder to separate metals into
ferrous and non-ferrous metals. Insulated copper or aluminum wire is
processed through a wire chopping machine to produce clean copper or aluminum
chops. Mid-America operates in Ste. Genevieve, Missouri.
ACQUISITION OF MID-AMERICA SHREDDING, INC.
On April 15, 1996, the assets and business of Mid-America were sold to
Recycling Industries, Inc. (RII).
The assets sold by Mid-America consisted of real property, buildings,
inventories, a heavy duty automotive shredder, a wire chopping plant, heavy
equipment and tools used in the business of recycling ferrous and non-ferrous
metals.
The sales price for Mid-America was $1,925,000, comprised of $660,000 in
cash, a $55,000 note payable in eight equal monthly installments of $6,900,
and the assumption of Mid-America outstanding bank debt of $1,210,000.
The sale will be accounted for using the purchase method and the price will
be allocated as follows:
Inventories $ 55,000
Land 310,000
Buildings and improvements 560,000
Machinery and equipment 1,000,000
------------
Total purchase price 1,925,000
Notes payable (1,265,000)
------------
Cash paid at closing $ 660,000
------------
------------
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the three month period ended March 31, 1996 and 1995 are presented on a basis
consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for
the interim period ending March 31, 1996 are not necessarily indicative of
the results to be expected for the year ended December 31, 1996.
F-67
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
=============================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories consist primarily of ferrous and non-ferrous scrap metal.
Inventory costs for finished goods include material, labor and plant
overhead. Inventories are stated at lower of cost (first-in, first-out) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated
useful lives of 10 to 20 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property, plant and
equipment was $173,000 and $43,000 for the year ended December 31, 1995 and
for the three months ended March 31, 1996 (unaudited), respectively.
Maintenance and repairs are charged to expense as incurred and expenditures
for major improvements are capitalized. When assets are retired or otherwise
disposed of, the property accounts are relieved of costs and accumulated
depreciation and any resulting gain or loss is credited or charged to
operations.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are capitalized
if the costs improve Mid-America's property as compared to the condition of
the property when originally constructed or acquired or if the costs prevent
environmental contamination from future operations. Expenditures that relate
to an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments are made or remedial
efforts are probable and the cost can be reasonably estimated. These amounts
are generally accrued upon the completion of feasibility studies or the
settlement of claims, but in no event later than Mid-America's commitment to
a plan of action.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued liabilities approximate fair value because of the short maturity of
these items. The fair value of the note payable, bank was estimated based on
market values for debt with similar terms. Management believes that the fair
value of that debt approximates its carrying value.
F-68
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
=============================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Effective July, 1989, Mid-America and its stockholders elected under the
Internal Revenue Code to an S corporation for tax purposes. In lieu of
corporate income taxes, the stockholders of an S corporation are taxed on
their proportionate share of Mid-America's taxable income. Accordingly, no
provision or liability for federal income taxes has been included in these
financial statements for Mid-America for the year ended December 31, 1995 or
for the three months ended March 31, 1996.
CASH
For purposes of reporting cash flows, Mid-America considers all funds with
maturities of three months or less to be cash equivalents.
NOTE 2 - INVENTORIES
Inventories, pledged, consist of the following:
DECEMBER 31, MARCH 31,
1995 1996
------------ ----------
(UNAUDITED)
Raw materials $ 74,000 $ 34,000
Finished goods 12,000 -
------------ ----------
$ 86,000 $ 34,000
------------ ----------
------------ ----------
Included in inventories are $2,000 of indirect costs at December 31, 1995.
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MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
=============================
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following:
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
Land and improvements $ 359,000 359,000
Building and improvements 163,000 163,000
Heavy machinery and equipment 1,703,000 1,676,000
Auto shredder mill 1,304,000 1,304,000
Transportation equipment 50,000 46,000
Office equipment 10,000 10,000
------------ ----------
Total 3,589,000 3,558,000
Less accumulated depreciation
and amortization (703,000) (735,000)
------------ ----------
$ 2,886,000 $ 2,823,000
------------ ----------
------------ ----------
NOTE 4 - ACCRUED LIABILITIES
Accrued liabilities consist primarily of accrued interest, accrued salaries
and related expenses at December 31, 1995 and March 31, 1996 (Unaudited).
NOTE 5 - NOTE PAYABLE, BANK
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(UNAUDITED)
Note payable to bank with
interest payable monthly at
prime plus one and one-half
percent per annum (10% at
December 31, 1995 and 10.5% at
March 31, 1996 (Unaudited);
collateralized by property and
equipment, accounts receivable
and inventories; due on demand;
guaranteed by stockholder. $1,210,000 $1,210,000
------------ ---------
------------ ---------
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MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
=============================
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
Retail purchase contract for
equipment payable to the vendor
with original principal amount
of $21,000 and interest at 12%
per annum; monthly principal and
interest payments of $1,000; due
February 1997. $ 13,000 $ 11,000
Retail purchase contract for
equipment payable to the vendor
with original principal of
$18,000 and interest at 12% per
annum; monthly principal and
interest payments of $846; due
June 1997. 14,000 12,000
---------- ----------
27,000 23,000
Less current portion 20,000 21,000
---------- ----------
$ 7,000 $ 2,000
---------- ----------
---------- ----------
The principal maturities for the long-term debts are as follows:
1996 $ 20,000 $ 21,000
1997 7,000 2,000
---------- ----------
$ 27,000 $ 23,000
---------- ----------
---------- ----------
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MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
=============================
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEASES
Mid-America has two operating leases with a railroad company for a spur rail
track and industrial property located in Zell, Missouri with annual lease
payments of $2,000. In addition, an office trailer was leased for the year
for $4,000. Total rent expense was $6,000 and $1,500 for the year ended
December 31, 1995 and the three months ended March 31, 1996 (unaudited),
respectively.
LETTER OF CREDIT
Mid-America has issued a letter of credit for $50,000 which expires on
December 31, 1997. The local electric utility company constructed a power
substation and the letter of credit guarantees the utility company that the
substation will be used for its intended purpose by Mid-America. The letter
of credit has not been drawn upon as of March 31, 1996.
NOTE 8 - RELATED PARTY TRANSACTIONS
During 1995, Mid-America purchased $116,000 of equipment, parts and repairs
from an electric supply company (a related party) which is owned by the
majority shareholder of Mid-America. At December 31, 1995, Mid-America owed
the related party $133,000. For the three months ended March 31, 1996
(unaudited), Mid-America purchased an additional $10,000 of equipment, parts
and repairs and owed the related party a total of $143,000 at March 31, 1996
(unaudited).
NOTE 9 - ECONOMIC DEPENDENCY
Mid-America is economically dependent on three major customers for annual
sales. During 1995, the three customers accounted for 48%, 16% and 10% of
sales volume, respectively.
NOTE 10 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR
NONCASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1995, $39,000 of equipment was acquired
through the issuance of long-term debt.
The majority shareholder contributed equipment in the amount of $20,000 in
1995.
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