<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1996
--- TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20179
RECYCLING INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-1103445
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
384 INVERNESS DRIVE SOUTH, SUITE 211
ENGLEWOOD, COLORADO 80112
(Mailing Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (303) 790-7372
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, $.001
PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the close of the period covered by this Report.
Number of Shares Outstanding As Of
Class June 30, 1996
----------------------------- ----------------------------------
Common Stock, $.001 Par Value 10,185,073
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS*
Consolidated Balance Sheets - June 30, 1996 (Unaudited)
and September 30, 1995 1-2
Consolidated Statements of Operations (Unaudited) for the three
months and nine months ended June 30, 1996 and 1995 3
Consolidated Statement of Stockholders' Equity through
June 30, 1996 (Unaudited) 4
Consolidated Statements of Cash Flows (Unaudited) for the nine
months ended June 30, 1996 and 1995 5
Notes to the Consolidated Financial Statements 6-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14-19
PART II -- OTHER INFORMATION
Signatures 20
______________________
*The accompanying interim financial statements have not been audited by an
independent certified public accountant, and are so noted as "Unaudited" where
applicable. Only those statements corresponding to a fiscal year-end
(September 30) are audited.
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
ASSETS
(Substantially Pledged)
<TABLE>
June 30, 1996 September 30, 1995
------------- ------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 263,000 $ 184,000
Trade accounts receivable, less allowance for
doubtful accounts of $10,000 and $15,000
respectively 2,053,000 1,026,000
Accounts receivable, related party 221,000 223,000
Inventories 2,472,000 497,000
Prepaid expenses 390,000 137,000
Deferred Income Taxes 500,000 -
Deferred Offering Costs 678,000 -
----------- -----------
Total Current Assets 6,577,000 2,067,000
PROPERTY, PLANT AND EQUIPMENT, net 11,059,000 6,686,000
DEFERRED INCOME TAXES 811,000 800,000
OTHER ASSETS 4,470,000 744,000
----------- -----------
TOTAL ASSETS $22,917,000 $10,297,000
----------- -----------
----------- -----------
</TABLE>
1
<PAGE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
LIABILITIES AND STOCKHOLDERS EQUITY
June 30, 1996 September 30, 1995
------------- ------------------
(Unaudited)
CURRENT LIABILITIES:
Notes payable $ 1,532,000 $ 61,000
Notes payable - related parties 1,426,000 -
Trade accounts payable 2,013,000 655,000
Trade accounts payable - related parties - 73,000
Accrued liabilities:
Interest 45,000 22,000
Interest - related party - 8,000
Payroll and other 327,000 107,000
Income taxes payable 86,000 86,000
Due to factor, related party 547,000 197,000
Current portion of long-term debt 276,000 227,000
Current portion of long-term debt,
related parties 2,286,000 218,000
Current portion of obligation,
under capital lease 524,000 37,000
----------- -----------
Total Current Liabilities 9,062,000 1,691,000
----------- -----------
LONG-TERM DEBT:
Long-term debt, net of current portion 1,409,000 132,000
Long-term debt - related parties, net
of current portion 864,000 1,979,000
Obligation under capital lease, net
of current portion 1,173,000 41,000
----------- -----------
Total Long-term Debt 3,446,000 2,152,000
----------- -----------
Total Liabilities 12,508,000 3,843,000
----------- -----------
COMMITMENTS & CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000
shares authorized
Series A 13,000 (unaudited) shares
issued and outstanding 1,312,000 1,312,000
Series B -0- shares and 300,000
shares issued and outstanding - 450,000
Common stock ($.001 par value),
50,000,000 shares authorized
10,185,073 (unaudited) and 8,395,785
shares issued and outstanding, respectively 10,000 8,000
Additional paid-in capital 17,923,000 13,120,000
Accumulated deficit (8,836,000) (8,436,000)
----------- -----------
3
<PAGE>
Total Stockholders' Equity 10,409,000 6,454,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $22,917,000 $10,297,000
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended: Nine Months Ended:
June 30, June 30,
------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales $ 6,619,000 $ 3,641,000 $ 17,354,000 $ 10,731,000
Other Income - 9,000 28,000 36,000
----------- ----------- ------------ ------------
Total revenues 6,619,000 3,650,000 17,382,000 10,767,000
----------- ----------- ------------ ------------
Cost and Expenses:
Cost of sales 5,814,000 2,421,000 14,526,000 6,979,000
Cost of sales - related party 271,000 427,000 911,000 1,187,000
Personnel 528,000 178,000 1,390,000 441,000
Professional services 59,000 71,000 323,000 361,000
Travel 34,000 23,000 94,000 42,000
Occupancy 14,000 16,000 42,000 41,000
Depreciation and amortization 158,000 64,000 259,000 193,000
Interest 196,000 91,000 441,000 289,000
Other general and administrative 135,000 106,000 373,000 296,000
----------- ----------- ------------ ------------
Total Costs and Expenses 7,209,000 3,397,000 18,359,000 9,829,000
----------- ----------- ------------ ------------
Income (loss) before
extraordinary gain (590,000) 253,000 (977,000) 938,000
Extraordinary gain from
settlement of debts 22,000 240,000 70,000 462,000
Income (Loss) before income
taxes (Benefit) (568,000) 493,000 (907,000) 1,400,000
Income taxes (Benefit) (70,000) - (507,000) -
----------- ----------- ------------ ------------
Net Income (Loss) $ (498,000) $ 493,000 $ (400,000) $ 1,400,000
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE:
Before extraordinary gain $ (.05) $ .05 $ (.05) $ .22
Extraordinary gain - .04 .01 .11
----------- ----------- ------------ ------------
Net income (loss) per share $ (.05) $ .09 $ (.04) $ .33
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average shares
outstanding 10,913,317 5,697,527 10,163,261 4,229,380
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR NINE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
Preferred Stock Common Stock Additional
--------------------- ------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital (Deficit) Total
-------- ----------- ---------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1995 313,000 $1,762,000 8,395,785 $8,000 $13,120,000 $(8,436,000) $6,454,000
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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 1,980,000 - 1,981,000
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
Common stock issued for
cash (Unaudited) - - 39,880 - 36,000 - 36,000
Common stock issued in
private offering, net of
offering costs of $22,000
(Unaudited) - - 90,000 - 225,000 - 225,000
Net (loss) (Unaudited) - - - - - (400,000) (400,000)
-------- ----------- ---------- ------- ----------- ------------ -----------
Balances, June 30, 1996
(Unaudited) 13,000 $ 1,312,000 10,185,073 $10,000 $17,923,000 $ (8,836,000) $10,409,000
-------- ----------- ---------- ------- ----------- ------------ -----------
-------- ----------- ---------- ------- ----------- ------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the Three Months Ended: For the Nine Months Ended:
------------------------------- ------------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING
ACTIVITIES:
Net Income (Loss) $ (498,000) $ 493,000 $ (400,000) $ 1,400,000
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 225,000 235,000 704,000 689,000
Extraordinary gain from settlement of
debts (22,000) (240,000) (70,000) (462,000)
Deferred income taxes (70,000) 244,000 (507,000) 244,000
Changes in Assets and Liabilities:
Trade accounts receivable 96,000 (81,000) (1,027,000) -
Accounts receivable - other (29,000) - (33,000) (333,000)
Inventories (341,000) (14,000) (554,000) -
Prepaid expenses (37,000) (97,000) (128,000) 38,000
Other current assets 216,000 (6,000) - (92,000)
Accounts payable 778,000 (439,000) 1,425,000 26,000
Accounts payable - related party (140,000) - (140,000) (445,000)
Accrued liabilities 75,000 (190,000) 235,000 (252,000)
----------- ----------- ----------- -----------
Operating Activities 253,000 (95,000) (495,000) 813,000
----------- ----------- ----------- -----------
Net Cash Provided (Used)
Operating Activities 253,000 (95,000) (495,000) 813,000
----------- ----------- ----------- -----------
CASH FLOWS FROM (TO) INVESTING
ACTIVITIES:
Additions to equipment (600,000) (488,000) (902,000) (894,000)
Receivables - related party (97,000) (42,000) 31,000 (123,000)
Additions to acquisition costs and
goodwill (245,000) 247,000 (849,000) (191,000)
Non competition agreement - - (200,000) -
Acquisition of Mid-America (660,000) - (660,000) -
----------- ----------- ----------- -----------
Net Cash Provided (Used) in
Investing Activities (1,602,000) (283,000) (2,580,000) (826,000)
----------- ----------- ----------- ----------
9
<PAGE>
CASH FLOWS FROM (TO) FINANCING
ACTIVITIES:
Proceeds from borrowings - related
parties - - 1,593,000 -
Proceeds from other borrowings 1,294,000 - 1,314,000 -
Principal payments on borrowings (98,000) 327,000 (499,000) (1,971,000)
Principal payments on borrowings -
related parties (501,000) (5,000) (912,000) (286,000)
Principal payments on capital lease (69,000) - (181,000) -
Proceeds from factor - related party 2,225,000 2,174,000 6,159,000 5,538,000
Payments to factor - related party (1,815,000) (2,048,000) (5,809,000) (5,542,000)
Proceeds from issuance of common
stock 14,000 881,000 2,292,000 3,663,000
Deferred offering costs (678,000) 314,000 (803,000) -
----------- ----------- ----------- -----------
Net Cash Provided (Used) in
Financing Activities 372,000 1,643,000 3,154,000 1,402,000
----------- ----------- ----------- -----------
Increase (decrease) in Cash (977,000) 1,265,000 79,000 389,000
CASH, Beginning 1,240,000 239,000 184,000 115,000
----------- ----------- ----------- -----------
CASH, Ending $ 263,000 $ 1,504,000 $ 263,000 $ 1,504,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION:
I. The Financial Statements included herein have been prepared by the Company
without audit except the September 30, 1995 balance sheet which was
audited. The Statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments, consisting of only normal recurring accruals which are, in the
opinion of management, necessary for a fair statement of the results of
operations for the periods shown. These statements do not include all
information required by Generally Accepted Accounting Principles to be
included in a full set of Financial Statements. These Financial Statements
should be read in conjunction with the Financial Statements and notes
thereto included in the Company's latest report on Form 10-K, dated
September 30, 1995.
II. On December 11, 1995, the Company acquired substantially all of the assets
and the business of Anglo Metal, Inc., d/b/a Anglo Iron & Metal (Anglo).
The assets acquired from Anglo consisted of a heavy duty automotive
shredder, inventories, metal shearing equipment and baler related to
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.
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. The remaining $279,000 paid at
closing was obtained from the operating cash reserves and working capital
of the Company.
11
<PAGE>
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.
The Company 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 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 paid from operating capital $ 279,000
-----------
-----------
12
<PAGE>
Prior to acquiring Anglo, the Company commissioned extensive environmental
studies on the Anglo sites. These environmental investigations resulted in
a determination that certain isolated areas of the facilities may contain
environmental contaminates. As a result, the Company established an
Environmental Escrow to cover the cost of potential clean up of these
areas. Additionally, during the Escrow Period, the Company shall engage an
environmental engineer to determine the level of contamination on the real
property. The location of any contamination will be identified by a survey
and the legal description of the real property shall be revised to provide
that the Company will not purchase any contaminated portion of the real
property.
If prior to the termination of the Escrow Period, the location of the
contamination cannot be determined or if the Company determines that there
is extensive contamination of the real property, all documents held in
escrow shall be destroyed and the Company shall enter into a lease
agreement for the real property, which
13
<PAGE>
lease shall be retroactive to the Closing Date. The lease payments
under such lease agreement shall be equal to those that would otherwise
have been due under the Secured Promissory Note. Due to the Escrow
Agreement, the real property has been recorded as an intangible asset,
Contract to Acquire Land. 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 $55,000 note, payable over eight months. The purchase price
is allocated as follows:
Inventories $ 55,000
Land 310,000
Building and improvements 560,000
Machinery and equipment 1,000,000
----------
$1,925,000
----------
----------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
Recycling Anglo Pro Forma
Industries Iron & Pro Forma June 30,
Inc. Metal Mid-America Adjustments 1996
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $17,382,000 $10,700,000 $1,780,000 $(8,502,000) $21,360,000
Costs and expenses 18,359,000 10,032,000 1,979,000 (8,290,000) 22,081,000
----------- ----------- ---------- ------------ -----------
Income (loss) before
income taxes (977,000) 668,000 (199,000) (210,000) (721,000)
Provision (benefit)
from income taxes (507,000) 229,000 - (150,000) (428,000)
----------- ----------- ---------- ------------ -----------
Income (loss) from
continuing operations,
net of income taxes $ (470,000) $ 439,000 $ (200,000) $ (62,000) $ (293,000)
----------- ----------- ---------- ------------ -----------
----------- ----------- ---------- ------------ -----------
Net income (loss) after
extraordinary gain
and income taxes $ (400,000) $ 439,000 $ (200,000) $ (62,000) $ (223,000)
----------- ----------- ---------- ------------ -----------
----------- ----------- ---------- ------------ -----------
Income per common share:
Before extraordinary gain $ .02
Extraordinary gain .01
-----------
Net income per common share $ .03
-----------
-----------
</TABLE>
14
<PAGE>
III. 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 last 30 days after the default. First Equity Capital Securities,
Inc. received a finders fee of $79,000 in connection with the bridge loans.
IV. On January 31, 1996 and April 8, 1996, the Company completed a Private
Placement of an aggregate of 1,454,156 shares of Common Stock at $2.75 per
share and issued warrants to purchase up to 727,078 shares of Common Stock
at $7.50 per share. Of the $3,998,934 raised, $1,137,000 was raised
through the conversion of the bridge financing indebtedness discussed
above. The remaining $438,000 of principal of the bridge indebtedness plus
accrued interest will be repaid from the proceeds of the proposed public
offering, discussed in Note VII below. The proceeds from these private
placements were used to complete the acquisition of Mid-America Shredding,
Inc., discussed in Note VI below for general working capital purposes.
V. On July 17, 1996, the Company completed the Public Offering of 4.4
million shares of Common Stock at an offering price of $4.125 per share.
Net proceeds raised by the Company from the Public Offering were
$15,323,485. In connection with the Public Offering, the Company
repurchased 1,380,585 shares of Common Stock for $4.00 per share. In
connection with this repurchase, the holders of the Company's Series G
Warrants agreed to certain contractual "look-up" restrictions. See
"Shares Eligible for Future Sale--Registration Rights." In addition,
upon consummation of the Public Offering, the Company exchanged 213,388
Placement Agent's Warrants for 376,512 shares of Common Stock and
213,388 Series H Warrants, representing an effective exercise price of
$.60 per share of Common Stock.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
Recycling Anglo Pro Forma
Industries Iron & Pro Forma June 30,
Inc. Metal Mid-America Adjustments 1996
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $17,382,000 $10,700,000 $1,780,000 $(10,470,000) $14,741,000
Costs and expenses 18,359,000 10,032,000 1,979,000 (7,681,000) 14,871,000
----------- ----------- ---------- ------------ -----------
Income (loss) before
income taxes (977,000) 668,000 (199,000) (210,000) (130,000)
Provision (benefit)
from income taxes (507,000) 229,000 - (150,000) (358,000)
----------- ----------- ---------- ------------ -----------
Income (loss) from
continuing operations,
net of income taxes $ (470,000) $ 439,000 $ (199,000) $ (60,000) $ 229,000
----------- ----------- ---------- ------------ -----------
----------- ----------- ---------- ------------ -----------
Net income (loss) after
extraordinary gain
and income taxes $ (400,000) $ 439,000 $ (199,000) $ (60,000) $ 276,000
----------- ----------- ---------- ------------ -----------
----------- ----------- ---------- ------------ -----------
Income per common share:
Before extraordinary gain $ .02
Extraordinary gain .01
-----------
Net income per common share $ .03
-----------
-----------
</TABLE>
VI. On August 5, 1996, Recycling Industries Of Iowa, Inc., a wholly-owned
subsidiary of the Registrant, acquired from Wesley J. Weissman all of
the issued and outstanding capital stock of Weissman Industries, Inc.,
("Weissman"), a privately held metals recycler with operations in
Waterloo, Iowa. Weissman's primary markets are midwestern steel mills.
The assets owned by Weissman consist of heavy equipment, tools and rolling
stock used in the business of recycling ferrous and non-ferrous metal.
The total purchase price for Weissman was $12.4 million including $1.5
million paid in the form of 343,636 shares of the Registrant's common
stock. The $10.9 million cash portion of the purchase price was funded
as follows: approximately $5.2 million from the proceeds of the
Registrant's public offering which closed on July 23, 1996; $3.5
million from long term debt obtained from Coast Business Credit, a
division of Southern Pacific Thrift and Loan ("Coast") secured by the
equipment of Weissman; approximately $1.7 million of revolving credit
borrowings obtained from Coast; $500,000 from the Company's cash
reserves.
Assuming the Company's acquisitions of Anglo, Mid-America and Weissman had
been completed on October 1, 1995 pro forma results of operations for
the nine months ended June 30, 1996 would have been:
Revenues $29,314,000
Income from continuing operations, net of Income taxes $ 1,392,000
Net income after extraordinary gain and income taxes $ 1,439,000
Net income per common share $ .14
The pro forma information is not necessarily indicative
of the combined results of operations that would have
occurred had the acquisitions been completed as of
October 1, 1995.
15
<PAGE>
VI. On August 5, 1996 the Company acquired Warrants for a price of $12.4
million, including $1.5 million payable in the form of 363,636 shares
of Common Stock. Approximately $5.2 million of the $10.9 million cash
portion of the purchase price was funded through the proceeds of the
Public Offering. The balance of the cash portion of the purchase price
was funded as follows: $3.5 million from long term debt obtained from
Coast Business Credit, a division of Southern Pacific Thrift and Loan
("Coast") secured by the equipment of Weissman; approximately $1.7
million of revolving credit borrowings obtained from Coast; and
$500,000 from the Company's cash reserves. The acquisition of Weissman,
which had 1995 revenues of $19.2 million, increased the Company's
monthly shredding capacity by 5,000 tons. The Company has agreed to
register the Common Stock issued in connection with the Acquisition by
September 30, 1996 and to guarantee that the recipient will be able to
sell such shares at a price not less than $4.125 per share within three
years, which guarantee is to be accrued by a second lien on certain
assets of Weissman.
VII. Concurrently with the Commencement of the public offering documents in
Item VIII. The Company's Common Stock was approved for listing on the
NASDAQ National Market.
VIII. In June, 1996, the Company entered into an inventory and receivables
financing agreement with Coast Business Credit in Los Angeles, California.
Advances are at the Bank of America Reference Rate plus 2% except for the
over advance facility which is plus 3%. The agreement has been
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,
documentation and certain financial requirements.
IX. For presentation purposes, the Statement of Operations for the nine months
ended June 30, 1995, has been revised to reflect line item consistency
with the Statement of Operations provided in the September 30, 1995, 10-K.
X. Inventories as of June 30, 1996 and September 10, 1995 consists of the
following:
June 30, 1996 September 30, 1995
------------- ------------------
(Unaudited)
Raw materials $2,101,000 $350,000
Finished goods 371,000 147,000
---------- --------
$2,472,000 $497,000
---------- --------
---------- --------
XI. Property, plant and equipment as of June 30, 1996 and September 30, 1995
consists of the following:
June 30, 1996 September 30, 1995
------------- ------------------
(Unaudited)
Land $1,956,000 $1,640,000
Building and improvements 1,011,000 365,000
Heavy machinery and equipment 3,091,000 1,472,000
Auto shredder mill 3,539,000 3,161,000
Transportation equipment 751,000 679,000
Office equipment 158,000 121,000
Assets under capital lease 1,800,000 -
------------ ----------
16
<PAGE>
June 30, 1996 September 30, 1995
------------- ------------------
(Unaudited)
Total 12,306,000 7,438,000
Less accumulated depreciation
and amortization 1,247,000 752,000
----------- ----------
Total $11,059,000 $6,686,000
----------- ----------
----------- ----------
17
<PAGE>
XII. Other assets consist of the following at:
June 30, 1996 September 30 ,1995
------------- ------------------
(Unaudited)
Acquisition costs $ 166,000 $ -
Goodwill, net of accumulated
amortization of $51,000 and $29,000 2,756,000 188,000
Non compete agreement,
net of accumulated 910,000 -
amortization of $90,000
Investment in affiliate, 277,000 277,000
at cost
Engineering plans, net of 141,000 188,000
accumulated amortization of
$946,000 and $899,000 220,000 91,000
---------- --------
Other assets $4,470,000 $744,000
---------- --------
---------- --------
XIII. During the quarter ended June 30, 1996, management determined that the net
operating losses generated from prior years, in the amount of $7,200,000
is more likely than not to be used in the near future due to taxable
income estimated to be generated by NRI, Anglo and Mid-America. Therefore
an additional net deferred tax asset of $441,000 has been recorded. Net
operating loss carry overs available for the future through the year 2009
are approximately $7.5 million.
XIV. Supplemental information to the statement of cash flow for non-cash
investing and financing activities:
Nine Months Ended:
June 30,
------------------------------
1996 1995
----------- -----------
(Unaudited) (Unaudited)
Cash paid for interest $ 194,000 $ -
---------- ----------
---------- ----------
Stock issued for conversion of bridge
financing $1,137,000 $ 150,000
---------- ----------
---------- ----------
Acquisition of subsidiaries for stock $ 925,000 $1,200,000
---------- ----------
---------- ----------
18
<PAGE>
Nine Months Ended:
June 30,
------------------------------
1996 1995
----------- -----------
(Unaudited) (Unaudited)
Purchase of equipment for notes payable $ 25,000 $ 35,000
---------- ----------
---------- ----------
Restructure of preferred stock to debt $ - $2,300,000
---------- ----------
---------- ----------
Acquisition of equipment under capital
lease $ - $ 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 $ -
---------- ----------
---------- ----------
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere
herein.
OVERVIEW
The Company is a full-service metals recycler engaged in the collection and
processing of various ferrous and non-ferrous metals for resale to domestic and
foreign steel producers and other metal producers and processors. Prior to May
1994, the Company was a development stage enterprise engaged in the development
of the technology related to the recycling of municipal solid waste (the "MSW
Technology").
The Company's current operations commenced in May 1994 with the acquisition
of its Nevada metals recycling facility. Since that time, the Company has
experienced significant growth from the acquisition of other metals recycling
facilities. On June 30, 1995, the Company acquired a 20% interest in a metals
recycling facility located in Georgia. On December 11, 1995, the Company
acquired its four southern Texas facilities. On April 15, 1996, the Company
acquired its Missouri facility. These acquisitions, except for the 20%
ownership interest in the Georgia facility, are accounted for under the purchase
method for business combinations and, accordingly, the results of operations for
such acquired businesses are included in the Company's financial statements only
from the applicable date of acquisition. As a result, the Company's historical
results of operations for the period presented are not directly comparable.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
The results of operations for the three months ended June 30, 1996 include
the effects of the acquisitions of the Company's southern Texas facilities for
the entire period and the Missouri facility since April 15 for most of the
period whereas the June 30, 1995 results reflect only the operations of the
Nevada facility. The key operating results for each of the three month periods
are summarized as follows:
REVENUES. For the three months ended June 30, 1996, revenues increased by
$2,969,000, or 81%, to $6,619,000 from $3,650,000 for the three months ended
June 30, 1995. The increase in revenues is primarily the result of the
acquisitions of the Company's southern Texas facilities on December 11, 1995 and
the Company's Missouri facility on April 15, 1996. The operations of the
southern Texas facilities generated $3,431,387 in revenues during the three
months ended June 30, 1996. The operations of the Missouri facility generated
$609,411 in revenues during the three months ended June 30, 1996. Revenues
20
<PAGE>
for the Nevada facility declined 29% to $2,578,281 for the three months ended
June 30, 1996 from $3,641,000 for the three months ended June 30, 1995. The
major factor contributing to this reduction was a 3 1/2 week shut down of the
automobile shredder for a major rebuild and significantly lower recycled
paper selling prices in 1996.
In general, sales values prices for ferrous, non-ferrous and paper have
declined for the quarter ended June 30, 1996 as compared to the quarter ended
June 30, 1995.
COST OF SALES. For the three month period ended June 30, 1996, cost of
sales increased $3,237,000 to $6,085,000 from $2,848,000 for the three months
ended June 30, 1995, and increased as a percentage of revenues to 92% from 78%.
The increased cost of sales for the period was primarily due to the increased
volume generated by the acquired facilities. The increase in cost of sales as a
percentage of revenues is primarily the result of reduced sales values at NRI
without corresponding decreases in purchase costs and remaining high inventory
costs at the Anglo Iron and Metal facility. The Company had begun to adjust
purchase prices for raw material over the course of the quarter ended June 30,
1996 and believes that future margins should reflect such changes. Overall
gross profit decreased by $259,000 to $534,000 for the three months ended
June 30, 1996 compared to $793,000 for the three months ended June 30, 1995.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expenses
increased to $770,000, or 12% of revenues for the three months ended June 30,
1996, from $394,000, or 11% of revenues, for the three months ended June 30,
1995. Of this increase, $376,000 was the result of increased personnel, selling
and overhead costs related to acquired operations and to overhead added in
anticipation of additional growth.
BENEFIT FROM INCOME TAXES. At June 30, 1996, the Company has recognized a
net deferred tax asset of $1,321,000, as management has determined that the net
operating loss carry forward was more likely than not to be used in the near
future due to the future taxable income to be generated by the Company's
acquired facilities. The net income before income taxes for the three months
ended June 30, 1996 increased the net operating loss carry forward by $370,000
providing approximately $7.5 million of net operating loss carry forward
available through 2009. No benefit from deferred income taxes was recognized
for the three months ended June 30, 1995.
INCOME FROM CONTINUING OPERATIONS, NET OF INCOME TAXES. Income from
continuing operations, net of income taxes decreased to $(520,000), or $(.05)
per share, for the three months ended June 30, 1996 from $253,000, or $.05 per
share, for the three months ended June 30, 1995.
21
<PAGE>
NET INCOME. For the three months ended June 30, 1996, the Company had a
net loss of $(498,000), or $(.05) per share, compared to a net income of
$493,000, or $.09 per share, for the three months ended June 30, 1995.
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
The results of operations for the nine months ended June 30, 1996 were
impacted by a number of factors, including delays in processed scrap shipments
and lower gross margins at the Company's Nevada facility. In addition,
profitability was negatively affected by transition expenses incurred in
conjunction with the acquisitions of the southern Texas facilities on December
11, 1995 and the Missouri facility on April 15, 1996.
REVENUES. Revenues increased $6,615,000, or 61%, to $17,382,000 for the
nine months ended June 30, 1996 from $10,767,000 for the nine months ended
June 30, 1995. The increase in revenues is primarily due to the acquisitions of
the Company's southern Texas facilities on December 11, 1995 and its Missouri
facility on April, 1996. The operations of the southern Texas facilities
provided an additional $7,864,365 of revenues, while the Missouri facility
provided $609,144 in revenues. The Nevada facilities revenues decreased by
$1,850,816 from the nine months ended June 30, 1995. The main factors
responsible for the decline in revenues at the Nevada facility were decreased
paper sales and reduced prices on all ferrous and non-ferrous metals.
In general, sales values for ferrous, non-ferrous and paper have declined
for the quarter ended June 30, 1996 as compared to the quarter ended June 30,
1995.
COST OF SALES. For the nine months ended June 30, 1996, cost of sales
increased $7,271,000 to $15,437,000 from $8,166,000 for the nine months ended
June 30, 1995, and increased as a percentage of revenues to 89% from 76%. This
increase in cost of sales was primarily due to increased volume from
acquisitions. Gross profit decreased to $1,917,000 for the nine months ended
June 30, 1996 from $2,565,000 for the nine months ended June 30, 1995. This
decrease in gross profit was primarily due to increased raw material prices in
the market.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased to $2,222,000 million, or 13% of revenues, for the nine months ended
June 30, 1996 from $1,181,000, or 11% of revenues, for the nine months ended
June 30, 1995. Of this increase, $1,041,000 resulted from additional personnel
costs associated with acquired operations and expenses incurred in connection
with the Company's increase in personnel in anticipation of additional
acquisitions. Included in this amount was $205,000 of incentive compensation
paid to the Company's Chief Executive Officer upon the consummation of the
acquisition of the Company's southern Texas facilities.
INTEREST EXPENSE. Interest expense was $441,000 for the nine months ended
June 30, 1996 compared to $289,000 for the nine months ended June 30, 1995.
Interest
22
<PAGE>
expense increased primarily due to higher average interest rates on the
Company's debt as well as additional debt incurred to finance the purchase of
the southern Texas facilities in December 1995 and the Missouri facility in
April, 1996.
BENEFIT FROM INCOME TAXES. For nine months ended June 30, 1996, the
Company recorded an increase to its net deferred tax asset of $517,000. As a
result, at June 30, 1996, the Company has recognized a net deferred tax asset of
$1,321,000, as management has determined that the net operating loss carry
forward was more likely than not to be used in the near future due to the future
taxable income to be generated by the Company's acquired facilities. The net
loss before income taxes for the nine months ended June 30, 1996 increased the
net operating loss carry forward by $507,000 providing approximately $7.5
million of net operating loss carry forward available through 2009. No benefit
from deferred income taxes was recognized for the nine months ended June 30,
1995.
INCOME FROM CONTINUING OPERATIONS, NET OF INCOME TAXES. For the nine
months ended June 30, 1996, the Company's loss from continuing operations,
net of income taxes was $(470,000), or $(.05) per share, compared to
$938,000, or $.22 per share of income, for the nine months ended June 30,
1995. The principal reasons for this decrease were the shut down of the
NRI shredder for a major rebuild, a relatively lower sales value for ferrous
scrap in the western area of the country, high inventory values at Anglo Iron
and Metal and significant finished inventory on hand at the end of the quarter.
NET INCOME. For the nine months ended June 30, 1996, the Company had a net
loss of $(400,000), or $(.04) per share, compared to net income of $1,400,000,
or $.33 per share, for the nine months ended June 30, 1995.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As the Company's business has grown, overall cash requirements for internal
growth and acquisitions have been met through a combination of private
placements of debt and equity securities, equipment and receivables financing
and cash flow from operations. Since commencement of its metals recycling
operations in May 1994 through June 1996, the Company has raised net cash
proceeds of $ 6.3 million through the sale of its equity securities. Through
June 1995, the Company was also funded in part by $887,000 of borrowings from
First Dominion Holdings, Inc., a company controlled by the Company's Chairman
and Chief Executive Officer ("First Dominion"), all of which has been repaid.
At June 30, 1996, the Company had $12,508,000 of debt outstanding, of which
$9,062,000 is due in the next 12 months.
On May 11, 1994, the Company acquired its Nevada facility by purchasing all
of the outstanding common stock of Nevada Recycling, Inc. As restructured, the
purchase price for the Nevada facility consisted of debt of $5.0 million and the
issuance of 13,000 shares of the Company's Series A Convertible Preferred Stock
valued at $1.3 million. In addition, the Company issued to the sellers a
warrant to acquire up to 20,000 shares of Common Stock at an exercise price of
$1.25 per share.
On June 30, 1995, the Company acquired a 20% interest in a Georgia metals
recycling facility through its investment in The Loef Company ("Loef"). This
investment has been valued at $277,000, the amount of costs incurred by the
Company in pursuing its acquisition of Loef. The Company's ownership interest
in Loef was to have been reduced to 15% if the Company did not invest an
additional $200,000 in Loef by June 30, 1996. The Company did not make this
payment and, pending the receipt of information regarding the current operations
and financial performance of Loef, the Company has taken the position that its
interest was not reduced to 15% on June 30, 1996.
On December 11, 1995, the Company acquired its southern Texas facilities by
acquiring substantially all of the assets of Anglo Metals, Inc., d/b/a Anglo
Iron & Metal, for $6.1 million. The purchase price was paid as follows: (i)
$2.1 million in cash; (ii) $1.9 million note which is to be paid in ten monthly
installments of $186,500 beginning in February 1996; (iii) a $446,000 secured
promissory note bearing interest at 8% and payable in 60 monthly installments of
$9,000; (iv) a $750,000 unsecured promissory note and non-compete agreement
payable in 72 consecutive installments of $10,416; and (v) 227,693 shares of
Common Stock, valued at $925,000.
On April 15, 1996, the Company acquired its Missouri facility by acquiring
substantially all of the assets of Mid-America Shredding, Inc., d/b/a Mid-
America Shredding, for $1.9 million. The purchase consideration consisted of
cash of $660,000, assumed outstanding bank debt of $1.2 million and a $55,000
note payable over eight months.
24
<PAGE>
On June 20, 1996, the Company secured $4.0 million in inventory and
receivables financing from Coast Business Credit, an asset-based lender
specializing in inventory and receivables financing.
On July 17, 1996, the Company completed the Public Offering of its
Common Stock, receiving net proceeds, after deducting underwriting discounts
and offering expenses, of $14.4 million. These proceeds were used as
follows: $5.2 million to pay a portion of the cash purchase price of
Weissman on August 5, 1996; $5.7 million to repurchase 1,380,585 shares of
Common Stock; $2.4 million to redeem all of the Company's outstanding Series
A Convertible Preferred Stock and repurchase 120,000 shares of Common Stock
on August 15, 1996. The remaining proceeds of approximately $1.1 million are
being used for general corporate purposes.
On August 5, 1996, the Company acquired Weinman for a total purchase
price of $12.4 million. The purchase price was paid as follows: (i) 363,636
shares of Common Stock values at $1.5 million; (ii) $5.2 million from the
proceeds of the Public Offering; (iii) a $3.5 million term loan bearing
interest at prime plus 2.25%, payable in 60 monthly installments of $58,333;
(iv) approximately $1.7 million of revolving credit borrwoings; and (v)
$500,000 from the Company's cash reserves.
For the nine months ended June 30, 1996, net cash used by operations was
$495,000. During this period, the Company generated a net loss of $(400,000)
and depreciation and amortization of $704,000, which were partially offset by
deferred income tax of $507,000 and an extraordinary gain of $70,000. Increases
in accounts receivable, inventory, prepaid expenses, and current assets amounted
to $1,742,000, offset by an increase in accounts payable and accrued liabilities
of $1,520,000. Inventories and accounts receivable increases were primarily
related to the acquisitions of the Company's acquired facilities on December 11,
1995 and the Missouri facility on April 15, 1996.
For the nine months ended June 30, 1996, the Company used net cash in
investing activities of $2,580,000 compared to $826,000 for the nine months
ended June 30, 1995. Such amounts primarily related to acquisition costs and
goodwill as well as additions of capital equipment.
The Company had a positive net worth of approximately $10,409,000 at
June 30, 1996, compared to $6.5 million at September 30, 1995, and $2.8 million
at September 30, 1994. This improvement in net worth is due to issuance of $2.3
million (net) of Common Stock during the nine months ended June 30, 1996, the
conversion of $1.1 million of bridge loan debt to equity, and the issuance of
$925,000 of Common Stock in connection with the acquisition of the southern
Texas facilities.
Working capital deficit at June 30, 1996 was $2,485,000 as compared to
$376,000 of working capital at September 30, 1995. As of September 30, 1994,
the Company has a working capital deficit of $4.2 million. The decrease in
working capital at June 30, 1996 is due primarily to the financing with Coast
Business Credit. The improvements in working capital from fiscal 1994 to fiscal
1995 reflects the increase in cash provided by a full year in operations of the
Nevada facility, the restructuring of long-term debt and the additional equity
raised from the issuance of Common Stock during fiscal 1995.
INFLATION AND PREVAILING ECONOMIC CONDITIONS.
To date, inflation has not had a significant impact on the Company's
operations. The Company believes it should be able to implement price increases
sufficient to offset most raw material cost increases resulting from inflation,
although there may be some delay between raw material cost increases and sales
price increases and competitive factors may require the Company to absorb at
least a portion of these cost increases. Management believes that a sustained
economic slowdown would negatively impact the operations and financial
performance of the Company.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: By: /s/ Thomas J. Wiens
--------------- ---------------------------------------------------
Thomas J. Wiens, Chairman & Chief Executive Officer
Date: By: /s/ Jerome B. Misukanis
--------------- ---------------------------------------------------
Jerome B. Misukanis, Chief Financial Officer
26
