<PAGE>
As filed with the Securities and Exchange Commission on June 19, 1996
================================================================================
Registration No. 333-4574
=========================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_______________________
RECYCLING INDUSTRIES, INC.
(Exact name of Registrant specified in charter)
COLORADO 5093
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
384 INVERNESS DRIVE SOUTH,
SUITE 211
ENGLEWOOD, COLORADO 80112
84-1103445 (303) 790-7372
(I.R.S. Employer Identification No.) (Address, including zip code, and
telephone number, including area code, of
Registrant's principal executive offices)
THOMAS J. WIENS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
384 INVERNESS DRIVE SOUTH, SUITE 211
ENGLEWOOD, COLORADO 80112
(303) 790-7372
(Name, address and telephone number,including area code,
of agent for service)
Copies of communication, including all communication sent to the agent for
service, should be sent to:
<TABLE>
<CAPTION>
<S> <C>
RAYMOND L. FRIEDLOB, ESQ. NORMAN BROWNSTEIN, ESQ.
GERALD RASKIN, ESQ. JOHN R. GARRETT, ESQ.
JOHN W. KELLOGG, ESQ. DAVID M. BROWN, ESQ.
FRIEDLOB SANDERSON RASKIN PAULSON & TOURTILLOTT, LLC BROWNSTEIN HYATT FARBER & STRICKLAND, P.C.
1400 GLENARM PLACE, SUITE 300 410 SEVENTEENTH STREET, SUITE 2200
DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 571-1400 (303) 534-6335
</TABLE>
____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
___________________
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [_]
<PAGE>
_________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
RECYCLING INDUSTRIES, INC.
Cross Reference Sheet pursuant to Item 501 of Regulation S-K showing the
location in the Prospectus of information required by Items 1 through 12, Part I
of Form S-1.
<TABLE>
<CAPTION>
Form S-1
Item Number Information Required Location in Prospectus
- ----------- -------------------- ----------------------
<S> <C> <C>
1 Forepart of the Facing Page of Registration
Registration Statement and Statement; Outside Front Page of
Outside Front Cover Page Prospectus
of Prospectus
2 Inside Front and Outside Inside Front and Outside Back Cover
Back Cover Pages of Pages of Prospectus
Prospectus
3 Summary Information, Risk Prospectus Summary; Risk Factors;
Factors and Ratio of Prospectus Summary - Summary
Earnings to Fixed Charges Financial Information
4 Use of Proceeds Prospectus Summary; Use of Proceeds
5 Determination of Offering Not Applicable
Price
6 Dilution Dilution
7 Selling Securityholders Selling Securityholders
8 Plan of Distribution Cover Page; Underwriting
9 Description of Securities Prospectus Summary; Description of
to be Registered Capital Stock
10 Interests of Named Experts Not Applicable
and Counsel
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form S-1
Item Number Information Required Location in Prospectus
- ----------- -------------------- ----------------------
<S> <C> <C>
11 Information with Respect Business - Industry Overview,
to the Registrant Strategy, Operations, Transportation,
Competition, Employees, Properties,
Legal Proceedings, Environmental
Matters, Recent Developments; Price
Range of the Common Stock; Dividend
Policy; Selected Financial
Information; Management's Discussion
and Analysis of Financial Condition
and Results of Operations; Management
- Executive Officers and Directors,
Executive Compensation, Principal
Shareholders; Certain Transactions.
12 Disclosure of Commission Not Applicable
Position on
Indemnification for
Securities Act Liabilities
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JUNE 19, 1996
PROSPECTUS
4,892,448 SHARES
LOGO
RECYCLING INDUSTRIES, INC.
COMMON STOCK
Of the 4,892,448 shares of Common Stock, par value $.001 per share ("Common
Stock"), offered hereby (the "Offering"), 4,400,000 are being sold by Recycling
Industries, Inc. (the "Company") and 492,448 are being sold by certain
securityholders of the Company (the "Selling Securityholders"). The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Securityholders.
The Company's Common Stock has been conditionally approved for trading on the
Nasdaq National Market and is currently traded on the Nasdaq SmallCap Market
under the symbol "RECY." On June 17, 1996, the closing sale price of the Common
Stock, as reported on the Nasdaq SmallCap Market, was $5.125 per share. See
"Price Range of the Common Stock."
-----------
SEE "RISK FACTORS" COMMENCING ON PAGE EIGHT FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
PROCEEDS TO
PRICE TO THE UNDERWRITING PROCEEDS TO THE SELLING
PUBLIC DISCOUNTS(1) COMPANY(2) SECURITYHOLDERS(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......... $5.125 $.359 $4.766 $4.766
- --------------------------------------------------------------------------------
Total(3)........... $25,073,796 $1,755,166 $20,971,500 $2,347,130
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Does not include a 1 1/2% non-accountable expense allowance payable to the
Underwriter and warrants to purchase 350,000 shares of Common Stock
issuable to the Underwriter (the "Underwriter's Warrants"). The Company has
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses, estimated at $1,025,000, including the non-
accountable expense allowance of $338,250 payable by the Company.
(3) The Company's Chief Executive Officer has granted to the Underwriter an
option, exercisable within 30 days of the date of this Prospectus, to
purchase up to an aggregate of 733,867 additional shares of Common Stock on
the same terms as set forth above, solely to cover over-allotments. The
Company will not receive any proceeds from the exercise of the over-
allotment option. See "Selling Securityholders" and "Underwriting."
-----------
The Shares of Common Stock are offered by the Underwriter, subject to prior
sale when, as and if accepted by it and subject to certain conditions, the
right to withdraw, cancel, modify or reject any order in whole or part, and
subject to approval of certain legal matters by counsel. It is expected that
delivery of the Common Stock will be made in New York, New York against payment
therefor on or about July , 1996.
-----------
Prime Charter Ltd.
The date of this Prospectus is July , 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549; at the Commission's New York Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and at the
Commission's Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Common Stock offered hereby
of which this Prospectus constitutes a part. This Prospectus does not contain
all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is hereby made to such Registration
Statement, exhibits and schedules. Any statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete, and reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part, each such statement being qualified in all respects by such
reference.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP OR NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER AND SELLING GROUP MEMBERS,
IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ SMALLCAP OR NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE EXCHANGE ACT. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Concurrently with the closing of the
Offering made by this Prospectus, the Company will acquire Weissman Industries,
Inc. ("Weissman"), a metals recycler based in Waterloo, Iowa, for a purchase
price of $12.4 million in a separate transaction (the "Acquisition"). Unless
otherwise indicated, all references to the "Company" in this Prospectus include
Weissman and all financial information and other data in this Prospectus have
been adjusted to give pro forma effect to the Acquisition. Except as otherwise
indicated, the information contained in this Prospectus assumes that neither
the Underwriter's over-allotment option nor the Underwriter's Warrants are
exercised. As used herein, the "Offering Price" means $5.125 per share of
Common Stock.
THE COMPANY
Recycling Industries, Inc. is a full-service metals recycler primarily
engaged in the collection and processing of various ferrous and non-ferrous
metals for resale to domestic and foreign steel producers and other metals
producers and processors. The Company operates six metals recycling facilities
in Las Vegas, Nevada ("NRI"); Brownsville, Harlingen, McAllen and San Juan,
Texas ("Anglo Iron & Metal"); and Ste. Genevieve, Missouri ("Mid-America
Shredding") and, upon consummation of the Acquisition, will operate a seventh
facility in Waterloo, Iowa. In addition, the Company owns a minority interest
in a metals recycler in Athens, Georgia. The Company commenced its metals
recycling operations in May 1994 and, upon consummation of the Acquisition,
will have increased its revenues from $1.7 million for the quarter ended June
30, 1994 to pro forma revenues of $12.8 million for the quarter ended March 31,
1996. Over the same period, the Company's metals shredding capacity increased
over 300% and its total metals processing capacity increased over 325%.
The largest portion of the Company's operations involves the collection,
processing and sale of ferrous scrap, the primary raw material for mini-mill
steel producers who utilize electric arc furnace ("EAF") technology. The
increase in domestic EAF production from 14.9 million net tons (11.0% of total
domestic steel production) in 1966 to 40.6 million net tons (39.4% of total
domestic steel production) in 1995 has resulted in strong demand and prices for
processed ferrous scrap. According to industry reports, the anticipated
continuing increase in EAF production to an estimated 50.0 million net tons by
the year 2000 may cause ferrous scrap shortages, resulting in further increases
in processed ferrous scrap prices.
The Company is also engaged in the processing of non-ferrous materials such
as copper, aluminum and brass, which are sold to secondary smelters and other
non-ferrous metals processors. The Company's non-ferrous operations complement
its ferrous operations, as most unprocessed scrap contains ferrous and non-
ferrous components which require separation in preparation for resale. The
lower cost of producing non-ferrous metals from scrap relative to the cost of
primary smelting has resulted in strong demand for processed non-ferrous scrap.
The Company's objective is to become one of the largest metals recyclers in
North America through targeted acquisitions of independent metals recyclers.
The Company seeks to capitalize on the opportunity presented by the growing
demand for processed ferrous scrap, the expanding markets created by the rapid
proliferation of new EAF operations and the availability of metals recycling
facilities. By pursuing a consolidation strategy within the metals recycling
industry, the Company believes that it can significantly enhance the
competitive position and profitability of the operations that it acquires
through improved managerial and financial resources. The Company also believes
that geographic diversity will reduce its vulnerability to the dynamics of any
particular local or regional market. Furthermore, as EAF capacity and demand
for processed ferrous scrap continue to increase, the Company believes that
multi-regional and national EAF operators such as
3
<PAGE>
Nucor Corporation, Birmingham Steel Corporation and North Star Steel Co. will
increasingly rely on suppliers who can provide a dependable quantity and
quality of processed scrap as well as a high degree of service. The Company
believes that it is the only metals recycler pursuing a consolidation strategy
on a national basis and therefore will be in an ideal position to become a
preferred supplier to major EAF operators.
The Company estimates that the total revenues generated in the metals
recycling markets in 1995 were approximately $19.1 billion, comprised of $8.9
billion attributable to ferrous metals and $10.2 billion attributable to non-
ferrous metals. The Company believes that there are over 3,000 independent
metals recyclers in North America. Based upon reports published by the
Institute for Scrap Recycling Industries ("ISRI"), approximately 200 of these
independent metals recyclers operate heavy-duty automotive shredders, which
constitute the primary equipment used in processing large volumes of ferrous
and non-ferrous scrap for sale to steel and other metals producers. Because of
the highly fragmented nature of the industry, the Company believes that no
single metals recycler has a significant share of the national processed scrap
market, although certain recyclers may have a dominant share of their local or
regional market. Similar to the ongoing consolidation within the municipal
solid waste industry, the metals recycling industry has recently begun to
experience local market consolidation due to: (i) increasing capital
requirements caused by more stringent environmental and governmental
regulations, and (ii) the exit of aging independent recyclers who desire to
sell closely-held businesses in the absence of a successor owner or operator.
In implementing its acquisition strategy, the Company seeks to identify
potential acquisition targets with:
. dominant or strategic positions in local or regional markets;
. excess or underutilized capacity;
. the ability to supply an existing or planned metals production facility,
such as an EAF;
. access to rail, water or interstate highway transportation systems; and
. either operational shredding equipment, the ability to supply the
Company's existing shredding equipment or adequate facilities to permit
the installation of such equipment.
By continuing to acquire facilities that meet these criteria, the Company
believes it can achieve rapid growth and expansion of its customer base.
An essential component of the Company's acquisition strategy is improving the
operating efficiency, output and capacity of each acquired facility by
targeting three phases of the Company's operations: (i) the purchase of raw
scrap; (ii) the processing of raw scrap into saleable product; and (iii) the
sale of processed scrap. Each acquired facility is integrated into the
Company's operations through a comprehensive program that targets these
operating phases through the installation of management and financial reporting
systems, the implementation of expanded purchasing and marketing programs, the
centralization of operating functions to achieve economies of scale, selective
reductions in personnel and improved inventory and other financial controls.
Where necessary, the Company implements a capital improvements program to
repair or replace outdated and inefficient equipment and to improve the
facility's scrap processing operations and processed scrap output. Through
these programs, the Company has realized significant improvements in operating
results.
Of the Company's pro forma revenues for the six months ended March 31, 1996,
approximately 59% was attributable to sales of ferrous scrap, 40% was
attributable to sales of non-ferrous scrap, and the balance was primarily
attributable to paper and plastic recycling and retail finished steel sales
conducted at certain of the Company's facilities.
The Company's executive offices are located at 384 Inverness Drive South,
Suite 211, Englewood, Colorado 80112, and its telephone number is 303-790-7372.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding before the
Offering.......................... 10,178,137 shares(1)
Common Stock Offered by the
Company........................... 4,400,000 shares
Common Stock Offered by the Selling
Securityholders................... 492,448 shares
Common Stock to be Outstanding
after the Offering................ 13,604,549 shares(1)(2)(3)
Use of Proceeds.................... To pay a portion of the purchase price in
connection with the Acquisition, to
repurchase 1,520,586 outstanding shares of
the Company's Common Stock, to redeem the
Company's Series A Convertible Preferred
Stock, to repay the Company's outstanding
bridge and revolving credit indebtedness,
to pursue other acquisitions in the metal
recycling industry and for general
corporate purposes.
Nasdaq National Market Symbol...... RECY
</TABLE>
- --------
(1) Does not include Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants or: (i) 4,372,743 shares issuable upon exercise of
currently outstanding warrants; (ii) 1,283,440 shares issuable upon
exercise of currently outstanding options; (iii) 260,000 shares issuable
upon the conversion of the Company's Series A Convertible Preferred Stock
which will be redeemed upon consummation of the Offering; and (iv) shares
reserved for additional options to be granted under the Company's stock
option plans. See "Use of Proceeds," "Description of Capital Stock," and
"Shares Eligible for Future Sale."
(2) Has been reduced to reflect the repurchase by the Company of 1,520,586
shares of Common Stock upon consummation of the Offering. See "Use of
Proceeds."
(3) Includes 546,998 shares issuable in exchange for certain outstanding
warrants concurrently with completion of the Offering. See "Description of
Capital Stock--Warrants."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following information presents, for the periods and dates indicated,
summary consolidated financial information of the Company. This information
should be read in conjunction with "Capitalization," "Selected Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Company's historical and pro forma financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
---------------------------------------- -----------------------------
PRO FORMA(2) PRO FORMA(2)
1993 1994 1995 1995 1995 1996 1996
------------------ ------- ------------ ------ ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues................ $ -0- $ 4,831 $13,853 $52,222 $7,117 $10,763 $25,124
Cost of sales........... -0- 4,110 10,869 43,213 5,323 9,352 20,985
-------- ------- ------- ------- ------ ------- -------
Gross profit............ -0- 721 2,984 9,009 1,794 1,411 4,139
Selling and
administrative
expenses............... 2,335 1,660 2,279 4,016 911 1,553 2,213
Loss from joint ventures
and equity investee.... 467 -0- -0- -0- -0- -0- -0-
-------- ------- ------- ------- ------ ------- -------
Income (loss) from
operations............. (2,802) (939) 705 4,993 883 (142) 1,926
Interest expense........ (156) (203) (407) (1,137) (198) (245) (545)
-------- ------- ------- ------- ------ ------- -------
Income (loss) before
income taxes........... (2,958) (1,142) 298 3,856 685 (387) 1,381
Income tax provision
(benefit).............. -0- -0- (711) (338) -0- (437) 152
-------- ------- ------- ------- ------ ------- -------
Income (loss) from
continuing operations,
net of income taxes.... $ (2,958) $(1,142) $ 1,009 $ 4,194 $ 685 $ 50 $ 1,229
======== ======= ======= ======= ====== ======= =======
Net income (loss) after
extraordinary item and
income taxes........... $(2,483) $ (924) $ 1,815 $ 5,000 $ 907 $ 98 $ 1,277
======== ======= ======= ======= ====== ======= =======
Net income (loss) per
share.................. $ (1.04) $ (0.37) $ 0.30 $ 0.79 $ 0.26 $ 0.01 $ 0.13
======== ======= ======= ======= ====== ======= =======
Weighted average shares
outstanding............ 2,377 2,505 6,100 6,327 3,495 9,774 9,943
======== ======= ======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)(3)
------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $ 105 $5,132
Property and
equipment............ 8,421 20,191
Total assets.......... 19,938 37,230
Total liabilities..... 9,045 14,532
Stockholders' equity.. 10,893 22,698
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
--------------------------------------------- ------------------------------------
PRO FORMA(2) PRO FORMA(2)
1993 1994 1995 1995 1995 1996(4) 1996
------- ---------- ---------- ------------ ---------- ---------- ------------
(IN THOUSANDS, EXCEPT SELLING PRICES)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND OTHER
DATA:
Shipments:
Ferrous (tons)......... -0- 24,600 57,100 228,500 28,900 55,500 121,500
Non-ferrous (pounds)... -0- 3,676,300 8,805,600 33,729,071 4,686,000 6,739,000 11,239,000
Average Selling Price
(5):
Ferrous (per ton)...... $ -0- $ 100 $ 120 $ 135 $ 118 $ 123 $ 123
Net cash flow from:
Operating activities... $ (118) $ (862) $ 113 NA $ 908 $ (748) NA
Investing activities... (617) (255) (926) NA (543) (978) NA
Financing activities... 735 1,232 882 NA (241) 2,782 NA
EBITDA(6).............. $(2,445) $ (547) $ 1,489 $ 6,308 $ 1,337 $ 337 $ 2,711
</TABLE>
- --------
(1) Prior to May 1994, the Company was engaged in the development of technology
related to the recycling of municipal solid waste. For comparative
purposes, financial data prior to fiscal 1994 reflects the Company's
efforts to develop such technology. The Company's current metals recycling
operations commenced in May 1994 with the acquisition of NRI. The financial
information for fiscal 1994 reflects five months of operating results of
NRI. The financial information for fiscal 1995 reflects 12 months of
operating results of NRI and reflects the efforts of the Company to acquire
other metals recycling facilities.
(2) The pro forma data gives effect to the acquisitions of Anglo Iron & Metal
(December 1995), Mid-America Shredding (April 1996) and Weissman (upon
consummation of the Offering) as if each had occurred at the beginning of
the periods presented. In addition, the pro forma information is based upon
available information and certain assumptions and adjustments. See the
notes to the pro forma financial statements.
(3) Gives effect to the consummation of the Offering at the Offering Price and
the application of the net proceeds therefrom as described in "Use of
Proceeds."
(4) The operating results for the six month period ended March 31, 1996 are not
comparable to those of the corresponding period ended March 31, 1995 due to
the acquisition of Anglo Iron & Metal that occurred in December 1995.
(5) Average selling price for non-ferrous scrap is not meaningful as there are
significant differences in the price per pound of the various component
non-ferrous metals (e.g., aluminum, copper, brass) produced by the Company.
(6) EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization")
represents operating income plus depreciation and amortization. The Company
has included EBITDA (which is not a measure of financial performance under
generally accepted accounting principles) because it understands such data
is used by certain investors to determine the Company's ability to service
its indebtedness. EBITDA is not a substitute for income from continuing
operations, net income or cash flows presentation under generally accepted
accounting principles.
7
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following Risk Factors,
as well as the other information set forth in this Prospectus, before making
an investment in the Common Stock.
LIMITED COMBINED OPERATING HISTORY
The Company commenced its metals recycling operations upon the acquisition
of its Nevada facility in May 1994. Prior to May 1994, the Company generated
operating losses and negative cash flow as a development stage enterprise
pursuing the development of technology to recycle municipal solid waste (the
"MSW Technology"). Since May 1994, the Company has acquired metals recycling
facilities in southern Texas and Missouri and a minority interest in a metals
recycling company in Georgia. See "Business." The Company has entered into an
agreement to acquire an additional metals recycling facility, Weissman,
concurrently with the closing of the Offering. The Company has only a limited
combined operating history for its current facilities and the Company's pro
forma results of operations are not necessarily indicative of actual results.
There can be no assurance that the Company's existing operations, or those of
Weissman to be acquired in the Acquisition, will generate sufficient cash flow
to fund the future operations of the Company.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company's objective is to increase its revenues and earnings and expand
the markets it serves through the acquisition of additional metals recycling
facilities. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional facilities or successfully
integrate their operations without substantial costs, delays or other
unanticipated problems. There can be no assurance that Weissman or other
acquired companies will achieve sales and profitability that justify the
Company's investment. Acquisitions involve a number of risks, which may
include: adverse short-term effects on the Company's reported operating
results and cash flows; diversion of management's attention; dependence on
retaining, hiring and training key personnel; risks associated with
environmental or legal liabilities; and the effects of amortization of
acquired intangible assets, such as goodwill. Some of these risks could have a
material adverse effect on the Company's operations and financial performance.
As the Company continues to expand, the Company will be required to supplement
its current management team in order to effectively manage the acquired
entities and successfully implement its acquisition and operating strategies.
See "Business--Strategy" and "Management."
CAPITAL REQUIREMENTS AND LIMITED WORKING CAPITAL
A substantial portion of the net proceeds of the Offering will be used to
pay a portion of the purchase price in connection with the Acquisition, to
repurchase certain outstanding shares of Common Stock, to redeem the Company's
Series A Convertible Preferred Stock and to repay the Company's revolving line
of credit and its bridge financing. The Company will have limited proceeds
remaining after such applications and will require additional debt or equity
financing in order to continue implementing its acquisition strategy. There
can be no assurance that the Company will be able to obtain such financing on
terms the Company deems acceptable. If the Company does not have sufficient
cash resources or if the Company is unable to use its capital stock as
consideration for acquisitions, the Company may be unable to continue to
pursue its acquisition strategy. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business--Strategy."
MARKET CONSIDERATIONS
Sales prices for prepared scrap metal are cyclical in nature and are subject
to local, national and international economic conditions. While recent
increases in demand have resulted in strong sales prices for prepared ferrous
scrap, the Company's operating results are dependent upon the strength of the
national economy and, in particular, the domestic steel industry. A future
downturn in the economy or in steel production could adversely affect the
performance of the Company. The demand for processed ferrous and non-ferrous
scrap is subject to
8
<PAGE>
general economic, industry and market-specific conditions beyond the Company's
control which may result in periodic fluctuations in the sales prices of the
Company's products. Although the Company seeks to maintain its operating
margins by adjusting the purchase price for raw ferrous scrap in response to
changing sales prices for prepared ferrous scrap, its ability to maintain
these margins during periods of falling prices may be limited by the adverse
impact of lower prices on the available supply of raw ferrous scrap. The
Company is unable to hedge against changes in ferrous scrap prices and
attempts to minimize this risk by maintaining low inventory levels of raw and
processed scrap and by establishing firm prices with its larger customers at
the beginning of each month.
DEPENDENCE ON KEY CUSTOMERS
Each of the Company's facilities is economically dependent on a small number
of significant customers. Three of the Company's customers accounted for
approximately 46.3% of the Company's pro forma revenues (17.1%, 15.5% and
13.7%, respectively) for the three-month period ended March 31, 1996. The loss
of any one of these customers would have a material adverse effect on the
Company's business.
COMPETITION
The metals recycling business is highly competitive and subject to
significant changes in market conditions. Certain of the Company's competitors
have substantially greater financial, marketing and other resources. There can
be no assurance that the Company will be able to obtain its desired market
share or compete effectively in its markets.
ENVIRONMENTAL MATTERS
Compliance with state and federal environmental laws is a significant factor
in the metals recycling industry. Certain raw materials handled, processed and
disposed of in the metals recycling industry, such as automobiles and
appliances, may contain substances which are subject to a variety of federal,
state and local governmental regulations concerning the discharge of hazardous
materials into the environment. The Company has adopted standards and policies
for accepting raw materials designed to ensure compliance with applicable
environmental regulations. The Company's management does not believe that the
costs associated with environmental compliance will have a material adverse
impact on the Company. See "Business--Environmental Matters."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on a limited number of key personnel,
including the Company's Chairman and Chief Executive Officer, Thomas J. Wiens,
and its President and Chief Operating Officer, Michael I. Price. The Company
has not entered into employment agreements with either of such officers but
has obtained key-man life insurance policies in the amount of $500,000 for Mr.
Wiens and $1,000,000 for Mr. Price. See "Management."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share. As of March 31,
1996, the net tangible book value per share of the Common Stock was $.56.
After giving effect to the sale of Common Stock offered by this Prospectus at
the Offering Price, the deduction of underwriting discounts and the estimated
expenses of the Offering and giving effect to: (i) the Acquisition; (ii) the
anticipated use of proceeds of the Offering; and (iii) the issuance of 546,998
shares of Common Stock in exchange for certain outstanding warrants, the
adjusted net tangible book value of the Company at March 31, 1996 would have
been $1.30 per share. This represents an immediate increase in net tangible
book value per share of $.74 to the Company's present shareholders and an
immediate dilution of $3.83 per share to purchasers in the Offering. See
"Dilution."
9
<PAGE>
CONTROL BY PRINCIPAL SHAREHOLDER AND ANTI-TAKEOVER PROVISIONS
As of the date of this Prospectus, Thomas J. Wiens, the Company's Chairman
and Chief Executive Officer, beneficially owns 2,814,003 shares of the
Company's Common Stock, representing approximately 27.7% of the issued and
outstanding shares. Following consummation of the Offering, assuming no
exercise of the Underwriter's over-allotment option, Mr. Wiens will
beneficially own approximately 20.7% of the outstanding Common Stock.
The Company's Amended and Restated Articles of Incorporation contain certain
provisions which may inhibit a change of control of the Company. These include
scaled voting provisions that, upon a determination by the Company's Board of
Directors, may limit the voting rights of holders of more than 10% of the
Company's outstanding Common Stock. These provisions may discourage a party
from making a tender offer or otherwise attempting to take control of the
Company. As of the date of this Prospectus, the Company's Board of Directors
has not implemented the scaled voting provisions. The Company's Board of
Directors has adopted an amendment to the Amended and Restated Articles of
Incorporation to be voted upon at the Company's next annual meeting of
shareholders to eliminate these provisions. See "Description of Capital
Stock--Anti-Takeover Provisions." The Company's Amended and Restated Articles
of Incorporation also authorize the issuance of 10,000,000 shares of preferred
stock, the terms of which are to be determined by the Board of Directors at
the time of issuance. The ability to issue preferred stock could be used by
the Board as a means for resisting a change of control of the Company and may
be considered an "anti-takeover" device. As of the date of this Prospectus,
the Company has 13,000 shares of Series A Convertible Preferred Stock issued
and outstanding, all of which are being redeemed upon consummation of the
Offering. The Company may authorize additional series of preferred stock to
issue as consideration for future acquisitions but has no commitment to do so
at this time. See "Use of Proceeds" and "Description of Capital Stock--
Preferred Stock."
RISK OF SUBSTANTIAL FUTURE DILUTION
The Company has outstanding options and warrants to acquire an aggregate of
5,656,183 shares of the Company's Common Stock, substantially all of which
have exercise prices ranging from $.90 to $7.50 per share and expire during
fiscal years 1998 through 2000. See "Description of Capital Stock--Warrants
and Options; "Management--Stock Option Plans." Warrants to purchase 188,050
shares of Common Stock at a current exercise price of $1.05 per share and
warrants to purchase 426,776 shares of Common Stock at $.90 per share are to
be exchanged for 546,998 shares of Common Stock upon consummation of the
Offering, representing an effective exercise price of $.60 per share. The
effective exercise price of these warrants for purposes of their exchange was
determined through arm's length negotiations between the Company and the
representative of the holders of these warrants. Of the remaining outstanding
options and warrants, options and warrants to acquire an aggregate of
1,851,706 shares of Common Stock have exercise prices below the Offering
Price. In addition, warrants to purchase an aggregate of 2,863,956 shares of
Common Stock have adjustment provisions providing for reduction of their
exercise prices in the event that the Company fails to register such shares
under the Securities Act within specified time frames. The exercise of such
options and warrants could have a substantial dilutive effect upon the
purchasers of shares of Common Stock offered by this Prospectus. See
"Description of Capital Stock--Warrants" and "Shares Eligible For Future
Sale--Registration Rights."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have approximately 3.0
million shares of Common Stock outstanding that will be eligible for sale
pursuant to Rule 144 under the Securities Act. In addition, holders of a total
of 4,940,769 shares of Common Stock and warrants to purchase an additional
3,215,156 shares of Common Stock will have the right to require the Company to
register such shares of Common Stock under the Securities Act on or before
September 30, 1996. The utilization of Rule 144 and the exercise of
registration rights by the holders of these shares will increase substantially
the number of shares available for sale in the public markets and may have an
adverse impact on the market price of the Common Stock. See "Shares Eligible
for Future Sale."
10
<PAGE>
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the shares of
Common Stock offered hereby, after deducting underwriting discounts and other
offering expenses (estimated to be approximately $2.6 million), are
approximately $19.9 million. Of this amount, $8.4 million will be used to pay
a portion of the purchase price in connection with the Acquisition (including
$2.0 million which will be used to pay down the Company's revolving credit
line, which bears interest at prime plus 2%, drawn in connection with the
Acquisition); $5.7 million will be used to repurchase 1,400,586 shares of the
Company's Common Stock for $4.10 per share, including a $.10 per share
solicitation fee payable to First Equity Capital Securities, Inc. (see
"Business--Recent Developments"); $2.4 million will be used to redeem all of
the Company's outstanding Series A Convertible Preferred Stock and 120,000
shares of Common Stock issued in connection with the acquisition of its Nevada
facility; and $438,000 will be used to repay the Company's outstanding bridge
indebtedness. See "Business--Recent Developments." The remaining proceeds of
approximately $3.0 million will be used for general corporate purposes, which
are expected to include future acquisitions. The Company is continuously
evaluating acquisition opportunities but at the present time has no commitment
with respect to any future acquisition, other than Weissman. Pending such
uses, the net proceeds will be invested in short-term, interest bearing,
investment grade securities.
The Company expects to finance the balance of the $12.4 million purchase
price for Weissman with long-term debt and working capital financing obtained
from a lending institution, for which the Company has a signed letter of
intent. See "Business--Recent Developments." If for any reason such debt
financing is not available at the closing of the Acquisition, the Company may
be required to utilize the remaining proceeds of the Offering for such
purpose. Such use of proceeds may increase the Company's need for additional
working capital and may adversely affect the Company's ability to pursue its
acquisition strategy.
11
<PAGE>
PRICE RANGE OF THE COMMON STOCK
The Common Stock is currently listed on the Nasdaq SmallCap Market System
under the symbol "RECY" and has been conditionally approved for listing on the
Nasdaq National Market System. In addition, the Common Stock has been trading
on the Boston Stock Exchange since July 6, 1995 under the trading symbol
"RCY." Prior to its approval for listing on the Nasdaq SmallCap Market and the
Boston Stock Exchange, the Common Stock was quoted on the National Association
of Securities Dealers OTC Bulletin Board (the "OTCBB") under the symbol
"RECY".
The majority of the Company's shares are held by management and affiliates
and are subject to restriction on resale. The number of unrestricted shares of
Common Stock is relatively low in relation to the total number of shares
issued and, therefore, trading in the Common Stock is limited. As a result,
the Company believes that historical market quotations for the Common Stock
are not a reliable indicator of value. The quotations provided below are the
high and low reported sales prices for the quarters indicated as reported on
the OTCBB and the Nasdaq SmallCap Market and have been adjusted to reflect the
Company's one-for-five reverse stock split effective June 27, 1995.
<TABLE>
<CAPTION>
COMMON STOCK
------------
HIGH LOW
------ -----
<S> <C> <C>
Fiscal 1994:
First Quarter................................................ $13.75 $6.25
Second Quarter............................................... 18.13 4.38
Third Quarter................................................ 18.75 7.50
Fourth Quarter............................................... 10.00 5.00
Fiscal 1995:
First Quarter................................................ $ 8.13 $2.00
Second Quarter............................................... 4.20 2.20
Third Quarter................................................ 5.63 2.50
Fourth Quarter............................................... 5.38 3.88
Fiscal 1996:
First Quarter................................................ $ 4.88 $2.88
Second Quarter............................................... 7.00 3.50
Third Quarter (through June 17, 1996)........................ 5.63 4.25
</TABLE>
The last reported sale price of the Common Stock as quoted on the Nasdaq
SmallCap Market System on June 17, 1996 was $5.125 per share. As of March 31,
1996, there were 737 record holders of Common Stock. Based upon the
information available to it, the Company believes there are approximately
1,200 beneficial owners of its Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and has no
present intention to pay any cash dividends on its Common Stock for the
foreseeable future. Instead, the Company intends to retain its earnings, if
any, to support the growth and future development of its business and for
general corporate purposes. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of
dividends and other factors that the Board of Directors deems relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted on a pro forma basis to reflect: (i) the acquisition
of Mid-America Shredding Inc. on April 15, 1996; (ii) the Acquisition; and
(iii) the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table does not reflect Common Stock
reserved for issuance upon the exercise of outstanding options and warrants or
the Underwriter's Warrants. See "Shares Eligible for Future Sale,"
"Underwriting" and "Description of Capital Stock." This table should be read
in conjunction with the historical and pro forma consolidated financial
statements of the Company, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt..................................................... $ 4,766 $ 5,261
======= =======
Long-term debt, excluding current portion(1).............. $ 1,576 $ 5,908
Note payable to related parties........................... 945 945
Stockholders' equity:
Preferred Stock, no par value, 10,000,000 shares
authorized; 13,000 Shares of Series A Convertible
Preferred Stock issued and outstanding and no shares
issued and outstanding pro forma as adjusted(2)........ 1,312 -0-
Common Stock, $0.001 par value, 50,000,000 shares
authorized; 10,055,193 shares issued and outstanding
and 13,481,605 shares pro forma as adjusted(3)......... 10 14
Additional paid-in capital................................ 17,909 31,022
Retained earnings (deficit)............................... (8,338) (8,338)
------- -------
Total stockholders' equity.............................. 10,893 22,698
------- -------
Total capitalization.................................... $13,414 $29,551
======= =======
</TABLE>
- --------
(1) For a description of the Company's long-term debt, see Note 14 to the
Company's consolidated financial statements.
(2) The Company will redeem all of its outstanding Series A Convertible
Preferred Stock upon the consummation of the Offering. See "Use of
Proceeds."
(3) Excludes outstanding options and warrants to purchase Common Stock. See
"Description of Capital Stock--Warrants and Stock Options." Also excludes
122,944 shares issued subsequent to March 31, 1996.
13
<PAGE>
DILUTION
The net tangible book value of the Company (total assets less total
liabilities and intangible assets) on March 31, 1996 was $5,585,000 or $.56
per share. After giving effect to (i) the sale of the shares of Common Stock
offered by this Prospectus, (ii) the Acquisition, (iii) the intended use of
proceeds of the Offering and (iv) the issuance of 546,998 shares of Common
Stock in exchange for certain outstanding warrants, and excluding 122,944
shares issued subsequent to March 31, 1996, the adjusted net tangible book
value of the Company at March 31, 1996 would have been $1.30 per share,
representing an immediate increase in net tangible book value per share of
$.74 to existing shareholders and an immediate dilution of $3.83 to the
purchasers of Common Stock in the Offering. The following table illustrates
the per share dilution to investors in the Offering:
<TABLE>
<S> <C>
Offering price per share(1)............................................... $5.13
Net tangible book value per share before the Offering................... .56
Increase per share attributable to the sale of Common Stock in the
Offering(2)............................................................ .74
-----
Adjusted net tangible book value per share(2)............................. 1.30
-----
Dilution to new investors................................................. $3.83
=====
</TABLE>
- --------
(1) Before deductions of underwriting discounts and estimated offering
expenses payable by the Company.
(2) After deductions of underwriting discounts and estimated offering expenses
payable by the Company.
The following table sets forth as of March 31, 1996 the number of shares of
Common Stock issued by the Company, the total consideration to the Company and
the average price per share paid by existing shareholders and by the investors
in the Offering:
<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing sharehold-
ers(1).................. 10,055,193 69.6 $ 18,588 45.2 $1.85
Investors in the Offer-
ing..................... 4,400,000 30.4 22,550 54.8 5.13
---------- ----- ---------- -------- -----
Total.................. 14,455,193(2) 100.0 $ 41,138 100.0 $2.85
========== ===== ========== ======== =====
</TABLE>
- --------
(1) Total consideration from existing shareholders represents the consolidated
shareholder's equity before the Offering.
(2) Has not been adjusted to reflect the 122,944 shares issued subsequent to
March 31, 1996, the 546,998 shares issuable in exchange for certain
warrants and the repurchase of 1,520,586 shares of Common Stock upon
consummation of the Offering. See "Description of Capital Stock--Warrants"
and "Use of Proceeds."
14
<PAGE>
SELECTED FINANCIAL INFORMATION
The statement of operations and balance sheet data included in the following
table for each of the five years ended September 30, 1995 have been derived
from the consolidated financial statements of the Company which have been
audited by independent accountants. The statement of operations and balance
sheet data included in this table for the six months ended March 31, 1995 and
1996 have been obtained from unaudited financial statements which, in the
opinion of management, include all adjustments necessary for a fair
presentation of the financial position and results of operations for these
periods. The results for the six months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the full year.
The pro forma financial data set forth below has been derived from the
Company's unaudited pro forma consolidated financial statements included
elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------------------------- ----------------------------------
PRO FORMA(2) PRO FORMA(2)
1991 1992 1993 1994 1995 1995 1995 1996(3) 1996
------- ------- ------- --------- --------- ------------ --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELLING PRICES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Revenues............... $ -0- $ -0- $ -0- $ 4,831 $ 13,853 $ 52,222 $ 7,117 $ 10,763 $ 25,124
Cost of sales.......... -0- -0- -0- 4,110 10,869 43,213 5,323 9,352 20,985
------- ------- ------- --------- --------- ---------- --------- --------- ----------
Gross profit.......... -0- -0- -0- 721 2,984 9,009 1,794 1,411 4,139
Selling and
administrative
expenses.............. 774 2,951 2,335 1,660 2,279 4,016 911 1,553 2,213
Loss from joint
ventures and equity
investee............. 839 462 467 -0- -0- -0- -0- -0- -0-
------- ------- ------- --------- --------- ---------- --------- --------- ----------
Income (loss) from
operations............ (1,613) (3,413) (2,802) (939) 705 4,993 883 (142) 1,926
Interest expense...... (78) (114) (156) (203) (407) (1,137) (198) (245) (545)
------- ------- ------- --------- --------- ---------- --------- --------- ----------
Income (loss) before
income taxes......... (1,691) (3,527) (2,958) (1,142) 298 3,856 685 (387) 1,381
Income tax provision
(benefit)............ -0- -0- -0- -0- (711) (338) -0- (437) 152
------- ------- ------- --------- --------- ---------- --------- --------- ----------
Income (loss) from
continuing operations,
net of income taxes... $(1,691) $(3,527) $(2,958) $ (1,142) $ 1,009 $ 4,194 $ 685 $ 50 $ 1,229
======= ======= ======= ========= ========= ========== ========= ========= ==========
Income (loss) per share
from continuing
operations, net of
income taxes.......... $ (0.93) $ (1.73) $ (1.24) $ (0.46) $ 0.17 $ 0.66 $ 0.20 $ 0.01 $ 0.12
======= ======= ======= ========= ========= ========== ========= ========= ==========
Net income (loss) after
extraordinary item and
income taxes.......... $(1,267) $(1,147) $(2,483) $ (924) $ 1,815 $ 5,000 $ 907 $ 98 $ 1,277
======= ======= ======= ========= ========= ========== ========= ========= ==========
Net income (loss) per
share................. $ (0.70) $ (0.56) $ (1.04) $ (0.37) $ 0.30 $ 0.79 $ 0.26 $ 0.01 $ 0.13
======= ======= ======= ========= ========= ========== ========= ========= ==========
Weighted average shares
outstanding........... 1,811 2,043 2,377 2,505 6,100 6,327 3,495 9,774 9,943
======= ======= ======= ========= ========= ========== ========= ========= ==========
BALANCE SHEET DATA(4):
Working capital
(deficit)............ $(3,310) $(2,721) $(3,853) $ (4,175) $ 376 NA $ (684) $ 105 $ 5,132
Property and
equipment............ 66 43 30 6,590 6,686 NA 6,798 8,421 20,191
Total assets.......... 2,982 1,975 1,147 9,618 10,297 NA 10,961 19,938 37,230
Total liabilities..... 7,737 2,801 3,853 6,852 3,843 NA 6,226 9,045 14,532
Stockholders' equity
(deficit)............ (4,755) (936) (2,706) 2,766 6,454 NA 4,735 10,893 22,698
OPERATING AND OTHER
DATA:
Shipments:
Ferrous (tons)........ -0- -0- -0- 24,600 57,100 228,500 28,900 55,500 121,500
Non-ferrous (pounds).. -0- -0- -0- 3,676,300 8,805,600 33,729,071 4,686,000 6,739,000 11,239,000
Average Selling
Price(5):
Ferrous (per ton)..... $ -0- $ -0- $ -0- $ 100 $ 120 $ 135 $ 118 $ 123 $ 123
Net Cash Flow From:
Operating activities.. $ (359) $(1,613) $ (118) $ (862) $ 113 NA $ 908 $ (748) NA
Investing activities.. (580) (1,526) (617) (255) (926) NA (543) (978) NA
Financing activities.. 955 3,125 735 1,232 882 NA (241) 2,782 NA
EBITDA(6).............. $(1,176) $ (599) $(2,445) $ (547) $ 1,489 $ 6,308 $ 1,337 $ 337 $ 2,711
</TABLE>
- -------
(1) Prior to May 1994, the Company was engaged in the development of the MSW
Technology. For comparative purposes, financial data prior to 1994
reflects the Company's efforts to develop such technology. The Company's
current operations commenced in May 1994 with the acquisition of NRI. The
financial information for fiscal 1994 reflects five months of operating
results of NRI. The financial information for fiscal 1995 reflects 12
months of operating results of NRI and reflects the efforts of the Company
to acquire other metals recycling facilities.
(2) The pro forma data gives effect to the acquisitions of Anglo Iron & Metal
(December 1995), Mid-America Shredding (April 1996) and Weissman (upon
consummation of the Offering) as if each had occurred at the beginning of
the periods presented. In addition, the pro forma information is based
upon available information and certain assumptions and adjustments. See
the notes to the pro forma financial statements.
(3) The operating results for the six month period ended March 31, 1996 are
not comparable to those of the corresponding period ended March 31, 1995
due to the acquisition of Anglo Iron & Metal that occurred in December
1995.
(4) As of March 31, 1996, on a pro forma basis, gives effect to the
consummation of the Offering at the Offering Price and the application of
the net proceeds therefrom as described in "Use of Proceeds."
(5) Average selling price for non-ferrous scrap is not meaningful as there are
significant differences in the price per pound of the various component
non-ferrous metals (e.g., aluminum, copper, brass) produced by the
Company.
(6) EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization")
represents operating income plus depreciation and amortization. The
Company has included EBITDA (which is not a measure of financial
performance under generally accepted accounting principles) because it
understands such data is used by certain investors to determine the
Company's ability to service its indebtedness. EBITDA is not a substitute
for income from continuing operations, net income or cash flows
presentation under generally accepted accounting principles.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Information," the Company's consolidated financial statements and
the notes thereto and the Company's pro forma financial statements and the
notes thereto, all included elsewhere herein.
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" below includes "forward looking statements" within the meaning of
Section 27A of the Securities Act, and is subject to the safe harbor created
by that section. Factors that could cause actual results to differ materially
from those contained in the forward looking statements are set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Risk Factors."
OVERVIEW
The Company is a full-service metals recycler primarily engaged in the
collection and processing of various ferrous and non-ferrous metals for resale
to domestic and foreign steel producers and other metals producers and
processors. Prior to May 1994, the Company was a development stage enterprise
engaged in the development of the MSW Technology. Although the Company has not
obtained a permit or constructed a facility utilizing the MSW Technology, the
Company is pursuing the licensing or sale of this technology to third parties.
The Company's current operations commenced in May 1994 with the acquisition
of NRI. 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, which interest may decrease to 15% on June 30, 1996. See "Business--
History of the Company." On December 11, 1995, the Company acquired Anglo Iron
& Metal and, on April 15, 1996, the Company acquired Mid-America Shredding.
These acquisitions, except for the minority 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 periods presented are not directly comparable.
The Company believes these acquisitions will have a positive impact on its
future results of operations, and accordingly believes that the Company's
historical results should be considered in conjunction with the pro forma
financial statements and the notes thereto included elsewhere herein.
Additionally, neither the historical nor the pro forma results of operations
fully reflect the operating efficiencies and improvements that are expected to
be achieved by integrating the acquired businesses into the Company's
operations. See "Business--Strategy."
RESULTS OF OPERATIONS
The Company's operating results depend in large part on its ability to
effectively manage the purchase, processing and sale of scrap metals. The
demand for processed ferrous and non-ferrous scrap is subject to general
economic, industry and market-specific conditions beyond the Company's control
which may result in periodic fluctuations in the sales prices of the Company's
products. The Company seeks to maintain its operating margins by adjusting the
purchase price for raw ferrous and non-ferrous scrap in response to such
fluctuations, subject to local market conditions. Although the Company is
unable to hedge against changes in market prices, it seeks to minimize this
risk by maintaining low inventory levels of raw and processed scrap.
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
The results of operations for the six months ended March 31, 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 acquisition of its southern Texas facilities on December
11, 1995.
16
<PAGE>
Revenues. Revenues increased $3.7 million, or 51.2%, to $10.8 million for
the six months ended March 31, 1996 from $7.1 million for the six months ended
March 31, 1995. The increase in revenues was comprised of a $4.3 million
increase attributable to higher sales volume offset by a $590,000 decrease
attributable to lower average selling prices. The increase in revenues is
primarily due to the acquisition of the Company's southern Texas facilities on
December 11, 1995. The operations of the southern Texas facilities provided an
additional $4.4 million of revenues, which were partially offset by a $694,000
decrease in revenues from the operations of the Nevada facility. The main
factors responsible for the decline in revenues at the Nevada facility were a
decrease in non-ferrous scrap revenues of $648,000 and a decrease in paper
sales of $467,000, which were partially offset by an increase in ferrous
revenues of $421,000.
For the six months ended March 31, 1996, ferrous scrap revenues increased
$3.7 million, or 109.0%, to $7.1 million as shipments increased approximately
26,600 tons to 55,500 tons and the average selling price rose approximately $5
per ton to $123 per ton. Non-ferrous scrap revenues increased approximately
$412,000, or 14.0%, to $3.4 million as shipments increased 2.1 million pounds
to 6.7 million pounds. The increased non-ferrous scrap sales volume was
partially offset by a $.13 per pound decrease in average non-ferrous selling
prices to $.50 per pound. Total ferrous and non-ferrous scrap revenues rose to
$10.5 million. Paper sales decreased approximately $467,000, or 66.5%, for the
six months ended March 31, 1996 as average sales prices and volumes declined
relative to the comparable period of 1995.
Cost of Sales. For the six months ended March 31, 1996, cost of sales
increased $4.1 million to $9.4 million from $5.3 million for the six months
ended March 31, 1995, and increased as a percentage of revenues to 86.9% from
74.8%. This increase in cost of sales was primarily due to the increase in
sales volume of the Company's newly acquired southern Texas facilities. Of the
$4.1 million increase in cost of sales, approximately $3.7 million was related
to the acquisition of the southern Texas facilities and $260,000 was related
to the increased volume at the Nevada facility. Gross profit decreased to $1.4
million for the six months ended March 31, 1996 from $1.8 million for the six
months ended March 31, 1995. This decrease in gross profit was primarily due
to the decreases in ferrous and non-ferrous sales prices at the Company's
Nevada facility, without corresponding declines in raw material and direct
production costs.
Selling and Administrative Expenses. Selling and administrative expenses
increased to $1.6 million, or 14.4% of revenues, for the six months ended
March 31, 1996 from $911,000, or 12.8% of revenues, for the six months ended
March 31, 1995. Of this increase, $599,000 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 $245,000 for the six months ended
March 31, 1996 compared to $198,000 for the six months ended March 31, 1995.
Interest 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.
Benefit from Income Taxes. For the six months ended March 31, 1996, the
Company recorded an increase to its net deferred tax asset of $441,000 which
resulted in a net deferred tax benefit of $437,000. As a result, at March 31,
1996, the Company has recognized a net deferred tax asset of $1.2 million, as
management has determined that the net operating loss carryforward 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 southern Texas facilities. The net loss
before income taxes for the six months ended March 31, 1996 increased the net
operating loss carryforward by $339,000, providing approximately $8.2 million
of net operating loss carryforward available through 2010. No benefit from
deferred income taxes was recognized for the six months ended March 31, 1995.
Income from Continuing Operations, Net of Income Taxes. For the six months
ended March 31, 1996, the Company had income from continuing operations, net
of income taxes of $50,000, or $.01 per share, compared
17
<PAGE>
to $685,000, or $.20 per share, for the six months ended March 31, 1995. The
principal reasons for this decrease were the higher cost of sales and selling
and administrative expenses in the 1996 period described above.
Net Income. For the six months ended March 31, 1996, the Company had net
income of $98,000, or $.01 per share, compared to net income of $907,000, or
$.26 per share, for the six months ended March 31, 1995.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The results of operations for the three months ended March 31, 1996 include
the effects of the acquisition of the Company's southern Texas facilities for
the entire period whereas the March 31, 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues................................................. $ 7,304 $ 3,700
Cost of sales............................................ 5,936 2,668
Gross profit............................................. 1,368 1,032
Selling and administrative expenses...................... 799 588
Income from continuing operations, net of income taxes... 418 325
Net income............................................... 466 486
Net income per share..................................... $ .05 $ .13
Weighted average shares outstanding...................... 10,267 3,879
</TABLE>
Revenues. For the three months ended March 31, 1996, revenues increased $3.6
million, or 97.4%, to $7.3 million from $3.7 million for the three months
ended March 31, 1995. The increase in revenues was comprised of a $4.2 million
increase attributable to higher sales volume offset by a $626,000 decrease
attributable to lower average selling prices. The increase in revenues is
primarily the result of the acquisition of the Company's southern Texas
facilities on December 11, 1995. The operations of the southern Texas
facilities generated $3.9 million of revenues during the three months ended
March 31, 1996. Revenues for the Nevada facility declined 8.3% to $3.4 million
for the three months ended March 31, 1996 from $3.7 million for the three
months ended March 31, 1995.
Ferrous scrap revenues increased $3.3 million, or 181.1%, to $5.1 million
for the three months ended March 31, 1996, from $1.8 million for the three
months ended March 31, 1995. Total tons shipped increased to 38,300 tons for
the three months ended March 31, 1996 from 14,800 tons for the three months
ended March 31, 1995. The average selling price rose approximately $2 per ton
to $124 per ton for the three months ended March 31, 1996. Non-ferrous scrap
revenues rose approximately $612,000, or 40.7%, to $2.1 million reflecting the
acquisition of the southern Texas facilities. Total shipments for non-ferrous
materials increased 2.0 million pounds to a total of 4.3 million pounds, which
was partially offset by a decrease in average non-ferrous selling prices from
$.65 to $.48 per pound. Paper sales decreased approximately $280,000, or
72.5%, for the three months ended March 31, 1996 as average sales prices and
volumes declined relative to the comparable period in 1995.
Cost of Sales. For the three month period ended March 31, 1996, cost of
sales increased $3.2 million to $5.9 million from $2.7 million for the three
months ended March 31, 1995, and increased as a percentage of revenues to
81.3% from 72.1%. This increase in cost of sales was primarily due to the
increased sales volume related to the acquisition of the Company's southern
Texas facilities. Of the $3.2 million increase in cost of sales, approximately
$3.0 million was related to the operations of the southern Texas facilities
and $268,000 was related to the increased volume at the Nevada facility. The
increase in cost of sales as a percentage of revenue was driven by decreased
sales prices without corresponding decreases in raw materials costs beginning
in the quarter ended December 31, 1995. The Company has adjusted purchase
prices for raw material over the course
18
<PAGE>
of the quarter ended March 31, 1996 and believes that future margins will
reflect such changes. Overall gross profit improved by $336,000 to $1.4
million for the three months ended March 31, 1996 compared to $1.0 million for
the three months ended March 31, 1995.
Selling and Administrative Expenses. Selling and administrative expenses
increased to $799,000, or 10.9% of revenues for the three months ended March
31, 1996, from $588,000, or 15.9% of revenues, for the three months ended
March 31, 1995. Of this increase, $331,000 was the result of increased
personnel, selling and overhead costs related to acquired operations and to
overhead added in anticipation of additional growth, which was offset by a
reduction of other general and administrative expenses of $120,000.
Net Income. For the three months ended March 31, 1996, the Company had net
income of $466,000, or $.05 per share, compared to net income of $486,000, or
$.13 per share, for the three months ended March 31, 1995. Income from
continuing operations net of income taxes improved to $418,000 for the three
months ended March 31, 1996 from $325,000 for the three months ended March 31,
1995.
FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
The results of operations for the years ended September 30, 1995, 1994 and
1993 have been driven primarily by the Company's acquisition activity. Prior
to the Company's acquisition of its Nevada facility in May 1994, the Company
was a development stage enterprise without revenues. Consequently, the results
of operations for fiscal 1993 do not reflect comparable revenues and cost of
sales relative to the results of operations for the fiscal years ended
September 30, 1995 and 1994. Subsequent to the acquisition of the Nevada
facility in fiscal 1994, the results of operations reflect the implementation
of the Company's current metals recycling acquisition and operation strategy.
Revenues. For the year ended September 30, 1995, the Company had revenues of
$13.9 million compared to $4.8 million for the year ended September 30, 1994,
which reflected only five months of operations of the Nevada facility. For the
year ended September 30, 1995, the increase in revenues was due primarily to
the inclusion of a full year's results of operations of the Nevada facility,
as well as generally higher demand and market prices for scrap metal. There
were no revenues generated by the Company for the year ended September 30,
1993, as the Company was unsuccessful in permitting a facility utilizing the
MSW Technology.
Revenues per month for ferrous scrap for the year ended September 30, 1995
increased to $572,000, compared to $494,000 for the year ended September 30,
1994 as a result of general increases in the market prices and demand for
processed ferrous scrap combined with increased sales volume. For the year
ended September 30, 1995, the average sales price per ton of prepared ferrous
scrap was $120, a 20.0% increase compared to $100 per ton for the year ended
September 30, 1994. Non-ferrous revenues increased to $471,000 per month for
the year ended September 30, 1995 from $373,000 per month for the year ended
September 30, 1994. This increase was primarily due to price increases for
non-ferrous scrap, such as copper and aluminum, which contributed to higher
monthly revenues. For the year ended September 30, 1995, the average sales
price for non-ferrous scrap was $.64 per pound, representing a 25.5% increase
compared to $.51 per pound for the year ended September 30, 1994. The Company
had no revenues for the year ended September 30, 1993.
Cost of Sales. For the year ended September 30, 1995, the Company incurred
cost of sales of $10.9 million compared to $4.1 million for the year ended
September 30, 1994. The increased costs of sales for the year ended September
30, 1995 was due to the full year of operations of the Nevada facility
compared to five months of operations for the year ended September 30, 1994.
Cost of sales decreased to 78.5% of revenues for the year ended September 30,
1995 from 85.1% of revenues for the year ended September 30, 1994. This
decrease in cost of sales as a percentage of revenues was caused by an
increase in the sales price of ferrous and non-ferrous scrap as well as by the
substantial increases in paper selling prices without proportional increases
in the Company's raw scrap and paper acquisition costs. The Company's
increased production volume in 1995 also contributed to improved gross
margins, as fixed production costs were spread over a larger volume of
processed scrap. As a result of these factors, gross profit increased to $3.0
million for the year ended September 30, 1995
19
<PAGE>
from $721,000 for the year ended September 30, 1994. The Company had no cost
of sales for the year ended September 30, 1993.
Selling and Administrative Expenses. Selling and administrative expenses
were $2.3 million, or 16.5% of revenues, for the year ended September 30, 1995
compared to $1.7 million, or 34.4% of revenues, for the year ended September
30, 1994, primarily due to the purchase of the Nevada facility in May 1994 and
other acquisition and financing activities. The largest component of the
increase was salary and related expenses, which rose $417,000 due to increased
staffing at the corporate level and to the additional seven months of
personnel costs at the Nevada facility. Selling and administrative expense for
the year ended September 30, 1993 was $2.3 million, primarily related to the
development of the MSW Technology.
Interest Expense. For the year ended September 30, 1995, the Company had
interest expense of $407,000 compared to $203,000 for the year ended September
30, 1994. This increase was caused by a full year of interest expense in
fiscal 1995 related to debt incurred in conjunction with the acquisition of
the Nevada facility. The increase in interest expense to $203,000 for the year
ended September 30, 1994 from $156,000 for the year ended September 30, 1993
was due to additional debt incurred by the Company in connection with the
acquisition of the Nevada facility in May 1994.
Benefit from Income Taxes. The Company has generated a net operating loss
carryforward due to operating losses incurred prior to fiscal 1995. During
fiscal 1995, management determined that the net operating loss carryforward
was more likely than not to be used in the near future due to taxable income
to be generated by the Company's Nevada facility. Therefore, a net deferred
tax asset of $800,000, net of a $221,000 valuation allowance, and a benefit
from income taxes of $711,000 was recorded which correspondingly increased
income for the period. No benefit from deferred income taxes was recognized
for the years ended September 30, 1994 or 1993.
Income (Loss) from Continuing Operations, Net of Income Taxes. For the year
ended September 30, 1995, the Company had income from continuing operations,
net of income taxes of approximately $1.0 million, or $.17 per share, compared
to losses of $1.1 million, or $.46 per share, and $3.0 million, or $1.24 per
share, for the years ended September 30, 1994 and 1993, respectively. This
significant increase in profit is the result of the Company's acquisition of
its Nevada facility in May 1994.
Net Income. For the year ended September 30, 1995, the Company generated net
income of $1.8 million, or $.30 per share, compared to a net loss of $924,000,
or $.37 per share, for the year ended September 30, 1994, and a loss of $2.5
million, or $1.04 per share, for the year ended September 30, 1993.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The Company's pro forma combined operating results reflect the acquisitions
of Anglo Iron & Metal, Mid-America Shredding and Weissman as if each had
occurred at the beginning of each period presented. The pro forma operating
results for the 12 months ended September 30, 1995 include the 12 months ended
September 30, 1995 for the Company and the 12 months ended December 31, 1995
for Anglo Iron & Metal, Mid-America Shredding and Weissman. The pro forma
operating results for the six months ended March 31, 1996 include the
operating results of the Company, Anglo Iron & Metal, Mid-America Shredding
and Weissman for such period. Adjustments to the pro forma combined operating
results include changes in depreciation and amortization to reflect the new
cost basis of assets acquired; changes to selling and administrative expenses
to remove non-recurring salaries and benefits to officers and stockholders;
changes in interest expense to reflect debt incurred in financing the
acquisitions; and changes to the provision for income taxes to reflect the
utilization of the Company's net operating loss carryforward and alternative
minimum tax requirements. In addition, weighted average shares outstanding
have been adjusted to reflect the consummation of the acquisitions, private
placements completed by the Company and the number of shares issued in the
Offering (to the extent required to fund debt repayment, described in "Use of
Proceeds") as of the beginning of the periods presented. No adjustments have
been made to reflect synergies or operating efficiencies. The pro forma
operating results are not necessarily indicative of the actual results which
would have been reported had the Company owned Anglo Iron & Metal, Mid-America
Shredding and Weissman in the periods presented.
20
<PAGE>
SIX MONTHS ENDED MARCH 31, 1996 AND FISCAL YEAR ENDED SEPTEMBER 30, 1995
Revenues. For the six months ended March 31, 1996, pro forma revenues for
the Company were $25.1 million. Of such revenues, the Company generated $10.8
million, Anglo Iron & Metal generated $2.7 million, Mid-America Shredding
generated $1.2 million and Weissman generated $10.4 million. For the 12 months
ended September 30, 1995, pro forma revenues for the Company were $52.2
million, of which the Company generated $13.9 million, Anglo Iron & Metal
generated $15.3 million, Mid-America Shredding generated $3.9 million and
Weissman generated $19.2 million.
Cost of Sales. For the six months ended March 31, 1996, pro forma cost of
sales for the Company was $21.0 million, or 83.5% of pro forma revenues. In
the six month period, the Company contributed $9.3 million, Anglo Iron & Metal
contributed $2.2 million, Mid-America Shredding contributed $1.2 million and
Weissman contributed $8.3 million to pro forma cost of sales. For the six
months ended March 31, 1996, gross profit was $4.1 million and the gross
margin was 16.5% on a pro forma basis. For the 12 months ended September 30,
1995, pro forma cost of sales for the Company was $43.2 million, or 82.7% of
pro forma revenues. In the 12 month period, the Company contributed $10.9
million, Anglo Iron & Metal contributed $13.7 million, Mid-America Shredding
contributed $3.5 million and Weissman contributed $15.1 million to pro forma
cost of sales. For the 12 months ended September 30, 1995, gross profit was
$9.0 million and the gross margin was 17.3% on a pro forma basis.
Selling and Administrative Expenses. For the six months ended March 31,
1996, pro forma selling and administrative expenses for the Company were $2.2
million, or 8.8% of pro forma revenues. In the six month period, the Company
contributed $1.5 million, Anglo Iron & Metal contributed $240,000, Mid-America
Shredding contributed $75,000 and Weissman contributed $434,000 to pro forma
selling and administrative expenses. For the 12 months ended September 30,
1995, pro forma selling and administrative expenses for the Company were $4.0
million, or 7.7% of pro forma revenues. In the 12 month period, the Company
contributed $2.3 million, Anglo Iron & Metal contributed $732,000, Mid-America
Shredding contributed $277,000 and Weissman contributed $728,000 to pro forma
selling and administrative expenses.
Interest Expense. For the six months ended March 31, 1996, pro forma
interest expense for the Company was $545,000. For the 12 months ended
September 30, 1995, pro forma interest expense for the Company was $1.1
million.
Benefit from Income Taxes. For the six months ended March 31, 1996, the
Company recognized a $152,000 provision for income taxes on a pro forma basis.
For the 12 months ended September 30, 1995, the Company recognized a $338,000
benefit from income taxes on a pro forma basis.
Income from Continuing Operations, Net of Income Taxes. Pro forma income
from continuing operations, net of income taxes was $1.2 million, or $.12 per
share, for the six months ended March 31, 1996 and $4.2 million, or $.66 per
share, for the 12 months ended September 30, 1995.
Net Income. Pro forma net income for the Company was $1.3 million, or $.13
per share, for the six months ended March 31, 1996, and $5.0 million, or $.79
per share, for the 12 months ended September 30, 1995.
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, the Company has raised net cash proceeds of $6.3
million through the sale of its equity securities. Through March 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 March
31, 1996, the Company had $7.3 million of debt outstanding, of which $4.8
million is due in the next 12 months.
21
<PAGE>
Prior to the acquisition of its Nevada facility, the Company generated
operating losses and negative operating cash flow. As a result, the Company
experienced significant shortages of working capital to fund its day to day
operations. The shortages of working capital and insufficient cash flow
prevented the Company from making payments necessary to meet its obligations.
As a result, the Company has been subject to legal claims for collection of
past due amounts, the majority of which arose from services performed for the
Company during its development stage. During the year ended September 30,
1994, the Company was successful in settling a number of these legal claims.
The Company subsequently negotiated with all of its remaining vendors and all
outstanding claims were settled as of September 30, 1995.
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 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 will be reduced to 15% if the Company does not invest an additional
$200,000 in Loef by June 30, 1996. At this time, the Company has not
determined whether to make this payment nor has it negotiated an extension of
this deadline.
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 of secured equipment financing bearing
interest at approximately 12% and payable in 60 consecutive monthly
installments of $41,000; (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 and assumed debt of $1.2 million.
For the six months ended March 31, 1996, net cash used by operations was
$748,000. During this period the Company generated net income of $98,000 and
depreciation and amortization of $479,000, which were partially offset by
deferred income tax of $441,000 and an extraordinary gain of $48,000.
Increases in accounts receivable, inventory, prepaid expenses, and current
assets amounted to $1,643,000, offset by an increase in accounts payable and
accrued liabilities of $807,000. Inventories and accounts receivable increases
were primarily related to the acquisition of the Company's southern Texas
facilities on December 11, 1995.
Cash provided by operations was $113,000 for the year ended September 30,
1995 compared to cash used by operations of $862,000 for the year ended
September 30, 1994. Net income of $1.8 million plus depreciation and
amortization of $784,000 were the primary sources of cash from operations.
Major uses of this cash included increases in accounts receivable and
inventories and reductions in accounts payable and other accrued liabilities.
For the six months ended March 31, 1996, the Company used net cash in
investing activities of $978,000 compared to $543,000 for the six months ended
March 31, 1995. Such amounts primarily related to acquisition costs and
goodwill.
For the year ended September 30, 1995, the Company used net cash in
investing activities of $926,000 compared to net cash used in investing
activities of $255,000 for the year ended September 30, 1994. The Company had
capital expenditures of $472,000 for the year ended September 30, 1995 for the
purchase of equipment and property to increase production capacity compared to
$25,000 for additions to equipment for the
22
<PAGE>
year ended September 30, 1994. The Company also expended $238,000 during the
year ended September 30, 1995 as advances against future compensation payable
to the Company's Chief Executive Officer.
The Company had a positive net worth of approximately $10.9 million at March
31, 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 the issuance of
$2.3 million (net) of Common Stock during the quarter ended March 31, 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 at March 31, 1996 was $105,000 as compared to $376,000 at
September 30, 1995. As of September 30, 1994, the Company had a working
capital deficit of $4.2 million. The improvement in working capital from
fiscal 1994 to fiscal 1995 reflects the increase in cash provided by a full
year of 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.
The planned capital expenditures over the next 12 to 24 months for the
Company's existing facilities, including the Weissman facility to be acquired
in the Acquisition, are estimated to be $2.0 million. Included in this amount
are capital improvements for the Company's shredders and materials handling
equipment designed to increase capacity and improve operating efficiencies.
The Company believes that the proceeds from the Offering, cash flow from
operations and availability under various credit facilities will be sufficient
to meet its currently anticipated working capital and capital expenditure
needs for existing operations, including the operations of Weissman, for at
least 12 to 24 months. The Company may, however, need to raise additional
capital to fund the acquisition and integration of additional metals recycling
businesses which is an integral component of the Company's strategy. The
Company may raise such funds through warrant exercises, bank financings or
public or private offerings of its securities. There can be no assurance that
the Company will be able to secure such additional financing. If the Company
is not successful in securing such financing, the Company's ability to pursue
its acquisition strategy may be impaired and the results of operations for
future periods may be adversely affected.
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.
SEASONALITY
The Company believes that its operations can be adversely affected by
protracted periods of inclement weather which could reduce the volume of
material processed at its facilities. In addition, periodic maintenance
shutdowns by the Company's larger customers may have a temporary adverse
impact on the Company's operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued SFAS No. 123,
"Accounting for Stock Based Compensation." SFAS No. 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 SFAS No. 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 SFAS No. 123
will be implemented or its impact on the financial statements. SFAS No. 123 is
effective for transactions entered into after December 15, 1995.
23
<PAGE>
BUSINESS
HISTORY OF THE COMPANY
Recycling Industries, Inc. is a full-service metals recycler primarily
engaged in the collection and processing of various ferrous and non-ferrous
metals for resale to domestic and foreign steel producers and other metals
producers and processors. The Company was formed in December 1988 as a
Colorado corporation and commenced its metals recycling operations in May
1994. Upon consummation of the Acquisition, the Company will have increased
its revenues from $1.7 million for the quarter ended June 30, 1994 to pro
forma revenues of $12.8 million for the quarter ended March 31, 1996. Over the
same period, the Company's monthly metals shredding capacity has increased
over 300% and its total monthly metals processing capacity increased over
325%.
Giving effect to the Acquisition, upon completion of the Offering, the
Company will have the following operating subsidiaries:
Nevada Recycling, Inc., acquired by the Company in May 1994, 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, formed by
the Company to acquire the assets of Anglo Metals, Inc. in December 1995,
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.
Recycling Industries of Missouri, Inc. d/b/a Mid-America Shredding,
formed by the Company to acquire the assets of Mid-America Shredding, Inc.
in April 1996, operates a metals recycling facility in Ste. Genevieve,
Missouri, serving midwestern steel mills and markets along the Mississippi
River.
Weissman Industries, Inc. d/b/a Weissman Iron & Metal, to be acquired in
the Acquisition, operates a metals recycling facility in Waterloo, Iowa,
serving midwestern steel mills.
In addition, the Company currently has a 20% interest in Loef, which
operates a metals recycling facility in Athens, Georgia, serving steel mills
and markets in the southeastern United States. The Company's interest in Loef
will be reduced to 15% if the Company does not invest an additional $200,000
in Loef by June 30, 1996. At this time, the Company has not determined whether
to make this additional investment nor has it negotiated an extension of this
deadline.
Of the Company's pro forma revenues for the six months ended March 31, 1996,
approximately 59% was attributable to sales of ferrous scrap, 40% was
attributable to sales of non-ferrous scrap, and the balance was attributable
to the Company's paper and plastic recycling and retail finished steel sales
conducted at certain of the Company's facilities.
INDUSTRY OVERVIEW
The Company estimates that the total revenues generated in the metals
recycling markets in 1995 were $19.1 billion, comprised of $8.9 billion
attributable to ferrous metals and $10.2 billion attributable to non-ferrous
metals. The Company believes that there are over 3,000 independent metals
recyclers in North America. Based upon reports published by the Institute for
Scrap Recycling Industries ("ISRI"), approximately 200 of these independent
metals recyclers operate heavy-duty automotive shredders, which constitute the
primary equipment used in processing large volumes of ferrous and non-ferrous
scrap for sale to steel and other metals producers. Because of the highly
fragmented nature of the industry, the Company believes that no single metals
recycler has a significant share of the national processed scrap market,
although certain recyclers may have a dominant share of their local or
regional market. Similar to the ongoing consolidation within the municipal
solid waste industry, the metals recycling industry has begun to experience
local market consolidation due to: (i) increasing capital requirements caused
by more stringent environmental and governmental regulations, and (ii) the
exit of
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aging independent recyclers who desire to sell closely-held businesses in the
absence of a successor owner or operator.
The Ferrous Scrap Market
The largest portion of the Company's operations involves the collection,
shredding and sale of ferrous scrap, the primary raw material for mini-mill
steel producers who utilize EAF technology. All of the Company's facilities
process ferrous scrap. The increase in EAF production from 14.8 million net
tons in 1966 to 40.6 million net tons in 1995 has resulted in strong demand
and prices for processed ferrous scrap. Demand for ferrous scrap is expected
to increase as a number of new EAFs come on line in the next several years,
such as North Star Steel Co.'s Kingman, Arizona plant (which began production
during the second quarter of 1996) located approximately 100 miles from the
Company's Nevada facility. According to industry estimates, the anticipated
continuing increase in EAF production to an estimated 50 million net tons by
the year 2000 may cause ferrous scrap shortages, resulting in further
increases in processed ferrous scrap prices.
The growth in EAF production has been fueled by the historically low prices
for prepared ferrous scrap, which give EAFs a production cost advantage over
integrated steel producers which operate blast furnaces whose primary raw
materials are coke and iron ore. Recent increases in prepared ferrous scrap
prices have eroded much of the EAFs' production cost advantage. As a result,
many EAF operators are examining alternatives to prepared steel scrap, such as
pre-reduced iron pellets, as a feedstock for EAFs. The Company believes,
however, that such alternatives to prepared ferrous scrap will be used
primarily as a supplemental feedstock to permit EAFs to utilize lower grades
of prepared scrap, and will not significantly reduce demand for prepared
ferrous scrap in the foreseeable future. Industry analysts' reports continue
to predict rising demand for prepared ferrous scrap over the next several
years. Because ferrous scrap represents the largest portion of the metals
recycling industry, the economic conditions of the industry are directly tied
to the strength of domestic steel producers utilizing EAF technology.
Accordingly, any decrease in domestic steel production may have an adverse
impact on the demand and price for prepared ferrous scrap.
Raw ferrous scrap is sourced primarily on a local basis, typically from
small independent salvage operations located near major developed urban areas.
These operations supply raw ferrous scrap to the Company in the form of
automobile bodies, appliances and structural steel. The geographic market for
prepared ferrous scrap is larger, tending to be within a 100 to 150 mile
radius of the metals recycler, but may include shipments to Asian markets via
deep water port facilities located on the west coast of the United States. The
primary limitation on the geographic size of the supply and resale markets in
the metals recycling industry are the transportation costs of raw and
processed ferrous scrap. For this reason, metal scrap processing facilities
tend to be located on or near key rail, interstate highway or water
transportation routes.
Although somewhat determined by local factors, the average domestic price
for prepared ferrous scrap has increased significantly in the past several
years from approximately $80 per ton in 1992 to over $140 per ton during 1995.
The current prices for prepared ferrous scrap range from $116 to $138 per ton
depending on the region and the quality of the prepared material.
The Non-Ferrous Scrap Market
Non-ferrous metals include copper, aluminum, brass, stainless steel, high
temperature alloys and other exotic metals. The non-ferrous scrap market is
less fragmented than the ferrous scrap market due to the higher intrinsic
values of the non-ferrous metals and the available commodity market prices for
these metals. Although supply sources are still local, the higher value of
these metals makes the shipment of prepared non-ferrous scrap economical over
longer distances, both domestically and internationally. The primary consumers
of prepared non-ferrous scrap are domestic and foreign secondary smelters. All
of the Company's facilities process non-ferrous scrap, primarily copper,
aluminum, brass and stainless steel.
Prices for non-ferrous scrap change based upon the daily publication of spot
and futures prices for the primary types of non-ferrous metals on the COMEX or
London Metal Exchange. These exchanges also permit
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<PAGE>
suppliers and consumers of non-ferrous metals to hedge against price
variations through the purchase and sale of futures contracts on such
exchanges. The Company does not participate in the non-ferrous futures markets
and, instead, sells its non-ferrous processed scrap at a negotiated spot
price. Current prices for prepared prime grade aluminum scrap range from $.46
to $.68 per pound, and current prices for No. 1 prepared copper scrap range
from $.96 to $1.00 per pound. The Company seeks to protect against price
fluctuations by managing its raw and processed non-ferrous scrap inventory
levels.
Sales prices for non-ferrous scrap are cyclical in nature and are driven by
demand for finished non-ferrous metal goods and by levels of general economic
activity. Secondary smelters, utilizing processed non-ferrous scrap as raw
material, can produce non-ferrous metals at a lower cost than primary smelters
producing such metals from ore due to significant savings in energy
consumption, environmental compliance and labor costs. These cost advantages
and the long lead time necessary to construct new non-ferrous primary smelting
capacity result in sustained demand and strong prices for processed non-
ferrous scrap during periods of high demand for finished non-ferrous metal
products.
The Paper Recycling Market
The Company's paper recycling operations, currently conducted at its Nevada
facility, acquire waste paper products primarily through local industrial
accounts where roll-off boxes are placed to collect waste materials. The
primary grades of waste paper include corrugated cardboard, newspaper, blank
newspaper, hard white, white ledger, computer paper and rolls. The Company
sorts the collected waste paper by grade for shipment to domestic paper mills.
Prices for waste paper vary by grade and the Company purchases and sells such
grades at the spot price.
STRATEGY
The Company's objective is to become one of the largest metals recyclers in
North America through targeted acquisitions of independent metals recyclers.
The Company seeks to capitalize on the opportunity presented by the growing
demand for processed ferrous scrap, the expanding markets created by the rapid
proliferation of new EAF operations and the availability of metals recycling
facilities. By pursuing a consolidation strategy within the metals recycling
industry, the Company believes that it can significantly enhance the
competitive position and profitability of the operations that it acquires
through improved managerial and financial resources. The Company also believes
that geographic diversity will reduce its vulnerability to the dynamics of any
particular local or regional market. Furthermore, as EAF capacity and demand
for processed ferrous scrap continue to expand, the Company believes that
multi-regional and national EAF operators such as Nucor Corporation,
Birmingham Steel Corporation and North Star Steel Co. will increasingly rely
on suppliers who can provide a dependable quantity and quality of processed
scrap as well as a high degree of service. The Company believes that it is the
only metals recycling company pursuing a consolidation strategy on a national
basis and therefore will be in an ideal position to become a preferred
supplier to major EAF operators.
Identification and Acquisition of Metals Recycling Facilities
The Company seeks to identify potential acquisition targets with: (i)
dominant or strategic positions in local or regional markets; (ii) excess or
underutilized capacity; (iii) the ability to supply an existing or planned
metals production facility, such as an EAF; (iv) access to rail, water or
interstate highway transportation systems; and (v) either operational
shredding equipment, the ability to supply the Company's existing shredding
equipment or adequate facilities to permit the installation of such equipment.
Generally, the target should have sufficient asset value to enable the Company
to obtain acquisition financing on reasonable terms and should not present the
risk of significant environmental or other contingent liabilities. The Company
is continuously evaluating acquisition opportunities in light of the above
criteria. At the present time, the Company has no agreements with respect to
any future acquisition, other than Weissman.
Once an acquisition candidate has been identified, the Company commences an
in-depth due diligence evaluation of the target's operations, markets,
profitability and environmental history. The Company's due
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diligence evaluation includes independent third party appraisals for both fair
market and orderly liquidation values of the machinery and equipment, and
Phase I and II environmental studies of the operations and facilities of the
target company.
The Company has successfully commenced its industry consolidation strategy
by acquiring six metals recycling facilities over the past 24 months, and will
acquire a seventh facility upon consummation of the Offering. By continuing to
acquire facilities that meet the Company's criteria, the Company believes that
it can achieve rapid growth and expand its existing customer base.
Integration of Acquired Facilities
An essential component of the Company's acquisition strategy is improving
the operating efficiency, output and capacity of each acquired facility by
targeting three phases of the Company's operations: (i) the purchase of raw
scrap; (ii) the processing of raw scrap into saleable product; and (iii) the
sale of processed scrap. Each acquired facility is integrated into the
Company's operations through a comprehensive program that targets these
operating phases through the installation of management and financial
reporting systems, the implementation of expanded purchasing and marketing
programs, the centralization of operating functions to achieve economies of
scale, selective reductions in personnel and improved inventory and other
financial controls. When necessary, the Company implements a capital
improvements program to repair or replace outdated and inefficient equipment
to improve the facility's scrap processing operations and processed scrap
output. Through these programs, the Company has realized significant
improvements in operating results.
To achieve and monitor improvements in operating efficiency, the Company is
developing a reporting and training program designed to integrate the
typically unsophisticated management information systems of an acquired
facility into the Company's operations. In order to ensure a smooth transition
and maintain customer and supplier relationships, the Company generally seeks
to retain the acquired facility's existing operating management.
The Company utilizes a decentralized operating strategy that relies on local
managers experienced in the day-to-day operations of a particular facility and
its local markets. These managers are responsible for operating decisions such
as pricing and purchasing and for the profitability and growth of that
location. The Company will centralize certain administrative, equipment
acquisition, personnel and benefits functions at its corporate headquarters to
reduce overhead, eliminate redundant activities and personnel and increase
financial controls. The Company believes that, over the long term, such
centralization will result in reductions in administrative overhead and the
ability to reduce the cost of equipment and replacement parts.
OPERATIONS
Raw Scrap Purchasing
The primary sources of raw scrap are automobile salvage and wrecking yards,
demolition firms, ordinance depots, military bases, public utilities,
industrial facilities, metal fabricators, machine shops, railroads,
refineries, shipyards and numerous independent scrap collectors. Raw or
unprepared scrap is acquired from these sources in the form of automobile
bodies, structural steel from demolition sites, industrial scrap steel,
appliances and other goods fabricated from steel and other metals. The Company
purchases scrap at each of its facilities from industrial accounts and in
negotiated bulk purchases from large suppliers such as demolition sites,
military bases and railroads as well as smaller purchases from drive-in
sellers.
Industrial and governmental sources of raw scrap supply are the result of
long-term supply relationships and competitive bidding. Retail sources of
supply are paid spot prices for their items at the Company's facilities. The
Company employs full-time buyers to manage existing supply relationships and
secure new industrial and governmental supply accounts.
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<PAGE>
Due to the low value of unprepared scrap compared to its shipping cost, the
Company's facilities are strategically located near sources of supply, such as
major urban areas, and near major railway, interstate highway or water
transportation routes.
The continued availability of raw scrap is dependent upon, among other
things, the local economy, the level of demolition activity and the ability to
maintain supply relationships with local industrial and governmental sources
and automobile wreckers. Consistent with industry practice, the Company has
long-term supply arrangements with certain suppliers, although none of these
arrangements is material to the Company's operations.
Scrap Processing
Raw scrap metal is prepared for resale by sorting, cleaning, shearing and
shredding the metal into various sized pieces according to customer
specifications and market demand. Metal scrap that is ready for shipment to
the Company's customers is referred to as "prepared scrap."
The Company's sorting operations prepare the raw scrap for further
processing by a variety of methods according to the nature of the material
(i.e., ferrous or non-ferrous), size and composition. Raw scrap is handled
within the Company's facilities using conveyor systems, front-end loaders and
crane mounted electromagnets. Through the sorting process, the Company
determines whether particular items require preliminary preparation before
being shredded.
The Company's processing operations at each of its facilities are primarily
based upon the use of heavy-duty automotive shredders which are capable of
shredding an entire automobile body into fist-sized pieces of metal within 45
seconds. Through the operation of shredders, ferrous and non-ferrous items
such as automobiles, appliances and vending machines are shredded into various
sized pieces according to customer specifications. The shredded material is
then magnetically separated into ferrous and non-ferrous metals and non-
metallic items. The non-ferrous metals are further separated utilizing eddy
current separators. The prepared ferrous scrap is then sold to the Company's
customers. The prepared non-ferrous scrap is recovered as a mixture of
aluminum, zinc die-cast, stainless steel and copper and sold to the Company's
customers who further process and separate the mixture into constituent metals
for resale. The non-metallic portion of the shredded materials, referred to as
shredder fluff, is disposed of off site. The Company currently operates four
heavy duty automotive shredders with a monthly output capacity of
approximately 21,500 tons of prepared ferrous scrap.
Items which are too large or too heavy to be introduced into the shredder
are reduced by either torching or shearing, utilizing crane-mounted alligator
or stationary guillotine shears, into smaller pieces according to customer
specifications or to a size and weight that may be further processed by
shredding. Generally, non-ferrous items prepared by these methods are sold to
the Company's customers without further processing.
Many non-ferrous metals, such as copper, brass, aluminum, stainless steel,
zinc die-cast, and insulated wire (aluminum and copper), are purchased by the
Company in a form that is not capable of being processed through a shredder.
Each of the Company's facilities processes these items through a variety of
methods, including manual and automatic sorting, shearing, torching, baling,
wire stripping or a combination of these methods. Prepared non-ferrous items
are either sold in their separated form or baled into low-density bales in
accordance with customer specifications.
The Company's paper operations involve the sorting and baling of various
grades of waste paper and removing all off-grade material and foreign matter.
The sorted product is weighed, tagged and sold to domestic paper mills and
foreign paper brokers.
Processed Scrap Sales
The Company sells processed ferrous scrap primarily to regional and local
steel mills operating EAFs, although integrated steel manufacturers utilize
some ferrous scrap in their blast furnace operations. The price for
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processed ferrous scrap is dependent upon the uniformity of the processed
material, its cleanliness and the non-ferrous content of the processed
material. The Company has established relationships with regional steel
producers for the sale of processed ferrous scrap and anticipates that its
national strategy will improve these relationships. Most steel producers
purchase processed ferrous scrap on a 30-day basis at the beginning of each
month, thereby locking in the price and quantity purchased for such period.
Sales of processed ferrous scrap accounted for 59% of the Company's pro forma
revenues for the six months ended March 31, 1996.
The Company sells processed non-ferrous scrap primarily to foundries,
aluminum sheet and ingot manufacturers, copper refineries and smelters, brass
and bronze ingot manufacturers and other consumers. Ingot manufacturers
produce a semi-finished mass of a particular metal to a chemical specification
and shaped for convenient storage and transportation. The ingots are remelted
by manufacturers to produce finished products. Non-ferrous scrap is sold on a
spot market basis. Sales of non-ferrous materials accounted for 40% of the
Company's pro forma revenues for the six months ended March 31, 1996.
Scrap paper is sold to paper mills at spot prices dependent upon the grade
of the baled product. In addition, the Company's southern Texas facilities
utilize covered warehouse space to store and sell small quantities of finished
steel products such as angle iron, channel, flat bar, rounds and concrete
reinforcing bar. Paper and plastic recycling and retail finished steel sales
accounted for approximately 1% of the Company's pro forma revenues for the six
months ended March 31, 1996.
SIGNIFICANT CUSTOMERS
Three of the Company's customers accounted for approximately 46.3% of the
Company's pro forma revenues (17.1%, 15.5% and 13.7%, respectively) during the
three month period ended March 31, 1996. The loss of any one of these
customers would have a material adverse effect on the Company's business.
Sales of processed scrap are generally not seasonal but are affected by
periodic maintenance shutdowns of certain major customers.
TRANSPORTATION
Transportation cost is a significant factor in the sale of processed scrap
and limits the geographic market in which processed ferrous scrap may be sold.
Processed ferrous and non-ferrous scrap is shipped by the Company to its
customers by truck, rail car and barges. The Company competes for available
shipping space on each of these methods of transportation. The Company has not
entered into any long-term contracts for transportation.
COMPETITION
The scrap market is regionally competitive both in the purchase of raw scrap
and the sale of processed scrap. The Company competes for purchases of raw
scrap with numerous independent recyclers as well as with smaller scrap yards.
The Company's primary competition for processed scrap sales to its customers
are other regional or local metals recyclers.
The primary competitive factors in both the purchase and sale of scrap are
price, shipping costs and availability. In addition, the sale of processed
scrap is affected by the reliability of the metals recycler as a source of
supply and the quality of its processed scrap. The Company believes that its
professional management team, quality of processed scrap and emphasis on
customer service enable it to compete favorably in its markets. In addition,
the Company believes that its national growth strategy will increase its
market exposure to large purchasers of processed scrap, thereby giving it a
competitive advantage relative to independent local and regional metals
recyclers.
The Company believes that, because of the economic, environmental and zoning
impediments to establishing a new metals recycling facility, few new
facilities will be constructed in the foreseeable future. In addition, the
Company does not believe that substitutes for processed ferrous scrap, such as
pre-reduced iron pellets, will have a significant impact on the demand for
ferrous scrap in the foreseeable future.
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EMPLOYEES
The Company has approximately 300 full-time employees, most of whom are
employed by the Company's wholly-owned subsidiaries. The 60 employees of
Weissman are represented by the International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America (the "UAW") under a
three-year collective bargaining agreement which expires on November 30, 1996.
Although negotiations have not yet commenced, the Company has no reason to
believe it will not reach a satisfactory agreement with the UAW prior to
expiration of the current contract. The Company believes its and Weissman's
relationships with their respective employees are good.
PROPERTIES
The Company's metals recycling facilities generally are comprised of
administrative offices, warehouses for the storage of repair parts and certain
types of raw and processed scrap, covered and open storage areas for raw and
processed scrap, a machine or repair shop for the maintenance and repair of
the facility's vehicles and equipment, scales for the weighing of scrap, and
loading and unloading facilities. Each facility has specialized equipment for
the processing of all grades of raw scrap which may include a heavy duty
automotive shredder to process both ferrous and non-ferrous scrap, crane
mounted alligator or stationary guillotine shears to process large pieces of
heavy scrap, wire stripping and chopping equipment, baling equipment and torch
cutting facilities. The Company believes its facilities are adequate for its
anticipated production. The following is a summary of the processing
capabilities at each of the Company's properties based on a single shift:
<TABLE>
<CAPTION>
MONTHLY
FACILITY SIZE MATERIALS SHREDDING
FACILITY LOCATION (ACRES) PROCESSED CAPACITY (TONS)
----------------- ------------- ------------------------ ---------------
<S> <C> <C> <C>
Las Vegas, Nevada(1).... 13 Ferrous and 5,000
non-ferrous scrap,
paper and plastics
Brownsville, Texas(2)... 12 Ferrous and
non-ferrous scrap
Harlingen, Texas(2)..... 7 Ferrous and 6,500
non-ferrous scrap
McAllen, Texas(2)....... 1 Ferrous and
non-ferrous scrap
San Juan, Texas(2)...... 8 Ferrous and
non-ferrous scrap
Ste. Genevieve, 32 Ferrous and 5,000
Missouri............... non-ferrous scrap
Waterloo, Iowa(3)....... 34 Ferrous and 5,000
non-ferrous scrap,
paper
--- ------
Totals................ 107 21,500
</TABLE>
- --------
(1) The former owners of the Las Vegas facility and other persons who provided
financing in connection with the acquisition of this facility, have the
right to reacquire such facility under certain circumstances, which right
will be extinguished upon the repurchase of 13,000 shares of Series A
Convertible Preferred Stock and 120,000 shares of Common Stock issued in
connection with the Company's acquisition of such facility. See "Use of
Proceeds" and Note 2 to the Company's consolidated financial statements.
(2) The Company's four Texas facilities are an integrated operation serving
the markets of southern Texas and northern Mexico. All shredding of raw
scrap purchased by these facilities occurs at the Harlingen, Texas
location.
(3) Represents the Weissman facility to be acquired in the Acquisition.
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Due to the nature of the items handled by the Company and the operation of
shredding equipment, each of the Company's facilities maintains a
comprehensive maintenance program. To reduce costs, each facility has its own
maintenance and repair personnel. The Company also has the ability to
fabricate certain parts of its operating equipment tailored to meet the needs
of a particular facility.
The Company leases approximately 3,350 square feet of office space in
Englewood, Colorado as its corporate office. The Company's lease expires on
June 30, 2000. Terms of the lease require the Company to pay a base rent plus
additional pro rata occupancy costs such as building operating costs, taxes
and utilities. Average total rents for the remaining term of the lease are
$13.50 per square foot per year.
LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation and is not
aware of any threatened litigation that could have a material adverse effect
on the Company's business, operating results or financial condition.
ENVIRONMENTAL MATTERS
In the course of processing ferrous and non-ferrous metals, the Company
inspects all inbound material several times prior to and during processing to
screen out matter that may be considered "hazardous materials" under various
environmental laws. Such materials may be contained in unprocessed items such
as automobile bodies, light fixtures, construction debris, industrial
machinery and other items manufactured or fabricated primarily out of ferrous
or non-ferrous metals that are acquired and processed by the Company through
its shredder operations (the "feed stream"). While the Company screens the
feed stream for hazardous materials and rejects high-risk items such as
transformers and batteries, certain items in the feed stream may inadvertently
contain hazardous materials that end up in shredder fluff, the by-product of
shredder operation. The Company disposes shredder-fluff at municipal or
private landfills on a truckload basis. Such disposal is not pursuant to long-
term contracts. To avoid classification as a hazardous waste, shredder fluff
must pass toxic leaching tests under certain environmental laws. Because of
the Company's screening of the feed stream and periodic independent testing of
the Company's facilities, it believes that the shredder fluff produced from
its operations does not contain hazardous materials in excess of allowable
limits and is suitable for disposal in municipal or private landfills. Changes
in the environmental laws or testing methods with respect to shredder fluff,
however, may change the classification and availability of suitable disposal
sites for shredder fluff, resulting in significant additional expense to the
Company. In addition, the premises upon which shredder operations are
conducted may become contaminated by hazardous materials through inadvertent
spillage or improper disposal, although the Company believes that such
contamination is unlikely.
The facilities and equipment of the Company are believed to be in
substantial compliance with the current requirements of all applicable
environmental laws and regulations. There are no capital expenditures planned
for new environmental control equipment, although changes in environmental
laws may require such expenditures in the future. The Company cannot predict
the amount of such expenditures, if any, to comply with future changes in
environmental laws or whether such costs can be passed on to its customers
through increases in the price of processed scrap. Accordingly, there can be
no assurance that such costs will not have a material adverse effect on the
Company.
In addition to the costs of compliance, certain environmental laws may
result in liability arising out of the past operations of the Company's
facilities, whether or not such operations were lawful at the time, and create
public rights of action against the Company for environmental contamination.
Generally, if the Company's past or present operations cause environmental
damage, the Company may be subject to fines and may be required to remediate
the damage. Such costs may have a material adverse effect on the Company.
The Company has implemented extensive procedures to ensure compliance with
applicable environmental laws. These procedures include screening all raw
scrap for hazardous materials prior to purchase and acceptance. Any hazardous
materials found in this process, such as automobile batteries, suspected PCB
contaminated
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<PAGE>
transformers and equipment containing freon, are segregated and rejected. The
Company refuses to accept any sealed or closed-end barrels of material which
may have contained a hazardous material. In addition to the screening process,
the Company retains environmental engineering firms to perform periodic
independent site reviews and sampling to ensure continued operational
compliance and detect any contamination that may have occurred on the
Company's facilities.
Prior to and as a condition to the consummation of any acquisition, the
target company's facilities will be tested and evaluated under the American
Society for Testing and Materials ("ASTM") standards for Phase I and Phase II
environmental site assessments to ascertain compliance with all environmental
laws and regulations. In addition, as many metals recyclers may be subject to
remediation liability with respect to their current or former sites as well as
off-site disposal of hazardous materials, the Company also performs an ASTM
Transaction Screen Process and regulatory action review to determine the
operating history of each target company and whether such companies have been
or are subject to any pending regulatory action for environmental
contamination.
The Phase I and Phase II environmental evaluations performed in connection
with the acquisition of the Company's Texas facilities indicated possible
contamination of portions of the real property associated with such
facilities. To allow sufficient time for further evaluation and the completion
of any necessary remediation, the Company has subleased those portions of the
real property which are free of contamination, as indicated by the
environmental studies performed prior to closing, and will acquire the balance
of the real property only upon completion of environmental studies and any
necessary remediation. In that connection, the Company has placed the shares
of Common Stock given as consideration for the Texas facilities into escrow
until the resolution of all environmental issues.
Loef, in which the Company currently has a 20% investment, is a potentially
responsible party with respect to two superfund sites. The Company has been
indemnified by the former owners of Loef to the extent Loef's liability for
such matters as well as other non-environmental matters exceeds $375,000 up to
a maximum of $1 million. In addition, the real property upon which the Loef
facilities are located may have been contaminated with certain hazardous
materials. The former owners of Loef have agreed to pay for the remediation of
the contamination to the extent remediation costs exceed $125,000 up to
$400,000.
Weissman is a potentially responsible party with respect to one superfund
site. Based upon information Weissman has been able to obtain from the
Environmental Protection Agency and other potentially responsible parties at
the site, Weissman believes that its estimated cleanup liability is
approximately $30,000.
The environmental assessments performed with respect of the Company's Nevada
and Missouri facilities and Weissman's Iowa facility indicated no reportable
levels of contamination at such facilities.
RECENT DEVELOPMENTS
The Company anticipates signing a definitive agreement on or about June 19,
1996 regarding the purchase of Weissman for a cash purchase price of $12.4
million. Weissman operates a metals recycling business through its Weissman
Iron & Metal division. Approximately $8.4 million of the $12.4 million
purchase price will be funded through the proceeds of the Offering (including
$2.0 million which will be used to pay down a revolving credit line drawn in
conjunction with the Acquisition). The balance of the purchase price for the
Acquisition will be financed with long-term debt and a revolving credit
facility obtained from a lending institution secured by the equipment and real
property acquired. The Company has signed a letter of intent for this
financing. The acquisition of Weissman, which had 1995 revenues of $19.3
million, will increase the Company's monthly shredding capacity by 5,000 tons.
On April 15, 1996, the Company acquired substantially all of the assets of
Mid-America Shredding, Inc., a metals recycler with operations in Ste.
Genevieve, Missouri, for total consideration of $1.9 million. The
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<PAGE>
acquisition of Mid-America Shredding, which had 1995 revenues of $3.9 million,
increased the Company's monthly shredding capacity by 5,000 tons.
On January 31, 1996 and April 8, 1996, the Company completed two private
placements of an aggregate of 1,454,156 shares of Common Stock and warrants to
purchase an additional 727,078 shares of Common Stock at $7.50 per share for
total consideration of approximately $4.0 million, including conversion of
$1,137,000 of the bridge financing indebtedness discussed above. The remaining
$438,000 principal amount of the bridge indebtedness plus accrued interest
will be repaid from the proceeds of the Offering. The proceeds from these
private placements were used to complete the acquisition of Mid-America and
for general working capital purposes.
On January 17, 1996, the Company borrowed $1.6 million in short-term bridge
financing, which indebtedness bears interest at 10% per annum, with principal
and accrued interest due December 13, 1996 or upon the Company receiving gross
proceeds of $3.0 million or more through the sale of its securities prior to
that date. In connection with the bridge financing, the Company issued its
Series I warrants to purchase 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 shares issuable upon
their exercise. The proceeds from this bridge financing were used to complete
the acquisition of Anglo and for general working capital purposes. Because the
Company failed to register the Common Stock underlying the Series I warrants
by March 31, 1996, the exercise price was reduced by $.15 per share and will
be reduced by an additional $.15 per share on the last day of each month until
such registration is effected. Upon the earlier of the consummation of the
Offering or June 30, 1996, the holders of 52.3% of the Series I warrants have
agreed to exchange their warrants for 170,186 shares of Common Stock,
representing an effective exercise price of $.60 per share (the anticipated
exercise price as of September 30, 1996 in the absence of registration). The
Company has agreed to register the shares of Common Stock received upon such
exchange no later than September 30, 1996. The holders of the Series I
Warrants have agreed to certain contractual "lock-up" restrictions with
respect to the shares received upon the exchange. See "Shares Eligible for
Future Sale--Registration Rights.".
On December 11, 1995, the Company acquired substantially all of the assets
of Anglo Metal, Inc., a metals recycler with operations in Brownsville,
Harlingen, McAllen and San Juan, Texas, for total consideration of $6.1
million. The acquisition of Anglo Iron & Metal, which had 1995 revenues of
$15.3 million, increased the Company's monthly shredding capacity by 6,500
tons.
In December 1995 (as subsequently amended), the Company agreed to purchase
1,400,586 shares of Common Stock from certain of its securityholders for $4.00
per share in cash on or before July 31, 1996. In connection with this
repurchase, the Company will pay a solicitation fee of $.10 per repurchased
share to First Equity Capital Securities, Inc., an NASD member firm who acted
as placement agent for certain private placements of the Company's securities.
See "Use of Proceeds." The repurchase price was determined through arm's
length negotiation with the representative of the holders of the Series G
Warrants. The repurchase enabled the Company to delay the required
registration of certain shares of Common Stock and the shares of Common Stock
underlying the Series G Warrants held by these securityholders from December
1995 to September 1996. In addition, in connection with this repurchase, the
holders of the securities agreed to certain contractual "lock-up"
restrictions. See "Shares Eligible for Future Sale--Registration Rights." In
connection with the repurchase transaction, upon consummation of the Offering,
the Company will exchange 213,388 Placement Agent's Warrants for 376,812
shares of Common Stock and 213,388 Series H Warrants, representing an
effective exercise price of $.60 per share of Common Stock.
If the Company fails to repurchase these shares by July 31, 1996, certain
securityholders will be released from contractual "lock-up" restrictions with
respect to a total 5,727,912 shares of Common Stock, the exercise prices of
the Series G and J warrants will be reduced from $7.50 to $4.00 per share, the
Company will be obligated to register the shares of Common Stock held by such
persons (including shares underlying the Series G and Series J warrants) by
August 31, 1996 and the holders of a total of 4,273,756 shares of Common Stock
will have the right to require the Company to purchase up to one-third of
their shares for $4.00 per share upon the completion of any public or private
offering of the Company's Common Stock occurring any time after July 31, 1996.
See "Shares Eligible for Future Sale--Registration Rights."
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Upon consummation of the Offering, the Company's Board of Director's will be
expanded from five to six members, three of whom will not be officers or
employees of the Company or any of its subsidiaries ("Independent Directors").
The directors and executive officers of the Company and their positions are
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---------------- --- ----------------------------------------------
<S> <C> <C>
Thomas J. Wiens 44 Chairman of the Board, Chief Executive Officer
Michael I. Price 54 Director, President, Chief Operating Officer
Jerome B. Misukanis 53 Director, Treasurer, Chief Financial Officer(1)
Rebekah L. Coe 34 Director of Corporate Development, Secretary
Graydon H. Neher 46 Director(1)
Barry L. Plost 50 Director(1)
Sylvan Schefler 58 Director(2)
</TABLE>
--------
(1)Member of the Audit Committee.
(2)Mr. Schefler will be elected as a director upon
consummation of the Offering.
Each director is elected to hold office until the next annual meeting of
stockholders, or until his successor is elected and qualified. Officers serve
at the discretion of the Board of Directors.
Certain information concerning the directors, executive officers and certain
key employees of the Company are set forth below:
THOMAS J. WIENS. Mr. Wiens has served as Chairman of the Board and Chief
Executive Officer of the Company since its inception. Mr. Wiens has served as
President of First Dominion Holdings, Inc. since 1987. Prior to founding the
Company, Mr. Wiens was involved in various entrepreneurial pursuits including
banking, communications, insurance and retail. Mr. Wiens has over ten years of
experience in the recycling industry. Mr. Wiens received a BA in Political
Science from American University and a MDIV from Yale University. Mr. Wiens
serves on the Board of Advisors of the Yale Divinity School and on the boards
of directors of various charitable organizations.
MICHAEL I. PRICE. Mr. Price has served as President of the Company since
March 1996 and as Chief Operating Officer since March 1994. Mr. Price was
elected to the Board of Directors of the Company in March 1994. Prior to
joining the Company, Mr. Price was President of Recovermat Technologies, Inc.,
a solid waste technology company, from 1992 to 1994. Previously, Mr. Price
served in various capacities in his 29 years in the metals recycling industry
with Joseph Smith & Sons, Inc. and The David J. Joseph Company. Mr. Price
received a BSIE from the General Motors Institute and completed an Executive
MBA program at Indiana University. Mr. Price is a director of ERS Industries,
Inc., a railroad supply company.
JEROME B. MISUKANIS. Mr. Misukanis has served as a member of the Company's
Board of Directors since March 1994 and as Treasurer and Chief Financial
Officer since February 1996. Prior to joining the Company, Mr. Misukanis was a
principal of Misukanis and Dodge, P.A., CPA, a public accounting firm, since
1991. Mr. Misukanis has worked in the recycling industry for 12 years. Mr.
Misukanis received a BA in accounting from the University of St. Thomas and
graduated from the Harvard Business School's Executive Management Program. Mr.
Misukanis also attended the William Mitchell College of Law. Mr. Misukanis is
a Certified Public Accountant.
REBEKAH L. COE. Ms. Coe has served as Director of Corporate Development for
the Company since August 1995 and Secretary since December 1995. Prior to
joining the Company, Ms. Coe was Executive Director of Alpine Mutual Fund
Trust Receivership, a mutual fund company, from 1992 to 1995. Prior to 1992,
34
<PAGE>
Ms. Coe served as Controller and General Business Manager for Production
Geophysical Services, a public oil and gas company. Ms. Coe has over 10 years
of experience in finance and accounting. Ms. Coe received her BBA degree in
accounting from Abilene Christian University.
GRAYDON H. NEHER. Mr. Neher was elected to the Board of Directors in June
1995. Mr. Neher has been President and a director of Chemco, Inc., a
privately-held oil and gas company since 1980. Mr. Neher is a director of
Compa Food Ministry, a non-profit food bank. Mr. Neher received a BA degree
from the University of Puget Sound.
BARRY L. PLOST. Mr. Plost was elected to the Board of Directors of the
Company in December 1995. Mr. Plost has served as Chairman, President and
Chief Executive Officer of SeraCare, Inc., a group of plasma collection
centers, since February 1996. Previously, Mr. Plost was with David Barrett,
Inc., a management consulting firm, from 1994 to 1996. Mr. Plost was President
and Chief Executive Officer of Country Wide Transportation Services, Inc., a
transportation and distribution company from 1991 to 1994. Mr. Plost is a
director of Care Concepts, Inc. Mr. Plost received a BA in Political Science
from the University of Illinois and an MBA from Loyola University.
SYLVAN SCHEFLER. Mr. Schefler is Vice Chairman of Prime Charter Ltd., an
investment banking firm and the underwriter of the Offering. Mr. Schefler has
served as Chairman of the Investment Banking Division and as a member of the
Executive Committee of Prime Charter Ltd. since September 1994. Mr. Schefler
has been a partner of Crystal Asset Management Group, Ltd., a merchant banking
firm since 1990. Previously, Mr. Schefler was Chief Executive Officer of
Hampshire Securities Corporation, an investment banking firm, from 1992 to
1994 and Co-Chairman of Dabney/Resnick and Wagner, Inc., an investment banking
firm, from 1990 to 1992. Mr. Schefler previously served in various capacities
with Drexel Burnham Lambert Incorporated for over thirty years, including as a
member of its Executive Committee and Board of Directors. Mr. Schefler has
served as a Director of GSE Systems, Inc., a supplier of software systems for
manufacturing industries, since August 1995. Mr. Schefler received a BA in
Political Science from Cornell University.
The Company's operating management is comprised of the following
individuals:
LAWRENCE E. EMCH. Mr. Emch, age 53, has served as General Manager of the
Company's Nevada facility since December 1995. Prior to joining the Company,
Mr. Emch was an independent consultant in the metals recycling industry from
July 1994 through November 1995. Mr. Emch was Plant Manager for The David J.
Joseph Company, a leading metals broker and recycler, where he served as
manager of four different facilities from prior to 1991 to 1994. Mr. Emch has
served in various industrial engineering capacities for the past 30 years. Mr.
Emch attended Youngstown State University.
RONALD W. KRALOVETZ. Mr. Kralovetz, age 56, has served as the General
Manager of the Company's four southern Texas facilities since February 1996.
Prior to joining the Company, Mr. Kralovetz was a General Superintendent for
Midwest Steel Co., Inc., a dismantling company, from prior to 1991 to 1996.
Mr. Kralovetz began his career in the metals recycling business over 25 years
ago as a Plant Manager with Luria Brothers Co., Inc.
PETER F. PRINZ. Mr. Prinz, age 49, has served as Vice President and General
Manager of the Company's Missouri facility since May 1996. Prior to joining
the Company, Mr. Prinz was President of Hawco Manufacturing Company of Baton
Rougue, LA, a manufacturer of equipment for the metals recycling, dredging and
mining industries. Mr. Prinz was also employed by The David Joseph Company,
Inc. from 1982 to 1989 manager of their Newport, Kentucky metals recycling
plant. Mr. Prinz received a BS in Mechanical Engineering from the University
of Wisconsin.
35
<PAGE>
CHARLES N. RUTH. Mr. Ruth, age 66, has served as Plant Engineer for the
Company's Nevada facility since January 1996. Prior to joining the Company,
Mr. Ruth was Plant Engineer at Joseph Smith & Sons, Inc., from prior to 1991
to 1996. Mr. Ruth has over 20 years of experience in the metals recycling
business, including engineering management at Luria Brothers Co., Inc. and
Vulcan Materials Company. Mr. Ruth received a BS in Mechanical Engineering
from Texas Tech University and is a registered professional mechanical
engineer.
CLIFFORD D. VELLINGA. Mr. Vellinga, age 54, has served as Assistant Manager
for the Company's Nevada facility since October 1995. Previously, Mr. Vellinga
served as Chief Financial Officer from 1987 to 1995. Mr. Vellinga has over 20
years experience in the construction and recycling industries. Mr. Vellinga
received a BA in Accounting from Weber State University.
As the Company expands, it will hire additional qualified individuals with
industry experience to manage the different segments of its operations. In
connection with the Acquisition and any future acquisitions, the Company
anticipates retaining the principals of the acquired company to facilitate
integration of the acquired operations into its consolidated group.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Board of Directors has established an Audit Committee comprised of
Messrs. Neher and Plost, both of whom are Independent Directors, and Mr.
Misukanis. The Audit Committee makes recommendations concerning the engagement
of independent public accountants, reviews with the independent public
accountants the plans of the audit engagement, approves professional services
provided by the independent accountants, reviews the independence of the
independent public accountants and reviews the adequacy of the Company's
internal accounting controls.
Compensation Committee
Promptly following the consummation of the Offering, the Board of Directors
will establish a Compensation Committee which will be comprised solely of
Independent Directors.
The Compensation Committee will determine compensation for the Company's
executive officers in addition to administering the Company's Stock Option
Plans, described below.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid to the Company's chief executive officer and all other executive officers
of the Company whose salary and bonus compensation for the year ended
September 30, 1995 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
ANNUAL COMPENSATION TERM COMPENSATION
------------------------ ------------------
NAME AND FISCAL OTHER ANNUAL SECURITIES
PRINCIPAL POSITION YEAR SALARY COMPENSATION UNDERLYING OPTIONS
------------------ ------ -------- ------------ ------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens........... 1995 $222,000 $1,257,197(1) -0-
Chief Executive Officer
and Chairman of the 1994 47,000(1) -0- -0-
Board of Directors 1993 -0-(1) -0- -0-
Michael I. Price.......... 1995 $223,000(2) -0- 150,000(3)
Chief Operating Officer
and President 1994 112,000(4) -0- 150,000
1993 -0- -0- -0-
</TABLE>
36
<PAGE>
- --------
(1) Although accrued, the Company did not pay any cash compensation to Mr.
Wiens during fiscal 1994 and fiscal 1993. During fiscal 1995, the Company
paid to Mr. Wiens $47,000 of the unpaid 1994 salary. The remaining unpaid
salary for 1994 and 1993 of $260,000 was forgiven by Mr. Wiens along with
the transfer of certain technology to the Company in exchange for the
right to acquire shares of the Company's Common Stock. The right was
exercised on August 8, 1995 at which time the Company issued 1,319,445
shares of Common Stock to Mr. Wiens. The amount reported as "Other Annual
Compensation" represents the difference between the purchase price of the
Common Stock under such right and the market value of the Common Stock on
August 8, 1995 related to the forgiven salary. See "Certain Transactions."
(2) $210,000 was paid during fiscal 1995, with the balance paid during fiscal
1996.
(3) Represents the repricing of the option granted to Mr. Price in fiscal
1994. See "Certain Transactions."
(4) Paid during fiscal 1995.
OPTION GRANTS DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
The following table provides information regarding stock options granted to
the named executive officers during the fiscal year ended September 30, 1995.
In addition, in accordance with the rules and regulation promulgated by the
Commission, the table shows hypothetical gains or "option spreads" that would
exist for the respective options based upon assumed annual rates of
appreciation for the price of the Common Stock of 5% and 10% from the date the
options were granted over the full option term.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS MARKET RATES OF STOCK PRICE
SECURITIES GRANTED TO PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE ON DATE EXPIRATION --------------------------
NAME OPTIONS GRANTED FISCAL YEAR PRICE OF GRANT DATE 0% 5% 10%
---- --------------- ------------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Wiens......... -- -- -- -- -- -- -- --
Michael I. Price........ 150,000(1) 79% $.90 $3.15(2) 12/31/98 $337,500 $439,327 $556,787
</TABLE>
- --------
(1) Represents repricing of option originally granted on January 1, 1994. See
"Certain Transactions."
(2) At the time of the repricing of the option, the Company was selling shares
of Common Stock in a private placement at approximately $.90 per share.
Accordingly, the Company believes the fair market value of the Common
Stock on that date was $.90 per share.
STOCK OPTION EXERCISES DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1995,
OUTSTANDING GRANTS AND GAINS AS OF SEPTEMBER 30, 1995
The following table shows stock options exercised by named executive
officers during the fiscal year ended September 30, 1995. In addition, this
table includes the number of shares covered by both exercisable and non-
exercisable stock options as of September 30, 1995 and the values for "in-the-
money" options which represent the positive spread between the exercise price
of any such existing stock options and the price of the Common Stock at
September 30, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME UPON EXERCISE REALIZED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
---- --------------- -------- -------------------------- --------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens......... -- -- -- --
Michael I. Price........ -- -- 0/150,000 0/$795,000
</TABLE>
DIRECTOR COMPENSATION
Independent Directors will receive an annual fee of $7,500 for their
services in that capacity and $1,500 for each Board of Directors or committee
meeting attended. In addition, the Independent Directors will be granted
options under the Company's 1995 Non-Employee Director Stock Option Plan,
described below. All directors are reimbursed for travel expenses incurred in
attending meetings.
37
<PAGE>
STOCK OPTION PLANS
The Company has established two stock option plans, the Incentive Stock
Option Plan (the "Incentive Plan") and the Non-Qualified Stock Option Plan
(the "Non-Qualified Plan"). In addition, on December 27, 1995, the Board of
Directors adopted, subject to shareholder approval, the 1995 Non-Statutory
Stock Option Plan (the "1995 Plan") and the 1995 Non-Employee Director Stock
Option Plan (the "Director Plan"). The terms of each of these stock option
plans are discussed further below. All of the Company's stock option plans are
currently administered by the Board of Directors and will be administered by
the Compensation Committee upon its establishment as discussed above.
Incentive Plan
The Incentive Plan provides for the grant of stock options to officers,
regional managers, department heads, corporate counsel and other key employees
of the Company. An aggregate of 200,000 shares of Common Stock are authorized
for issuance under the Incentive Plan. As of the date of this Prospectus,
options to purchase 20,000 shares of Common Stock at an exercise price of
$2.50 per share and 12,000 shares of Common Stock at an exercise price of
$6.25 per share have been granted under the Incentive Plan.
Options granted under the Incentive Plan are "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code. As a result,
options granted under the Incentive Plan must have an exercise price of not
less than the fair market value of the Common Stock on the date of grant or,
if the optionee is the owner of more than 10% of the outstanding Common Stock,
the exercise price of the options must not be less than 110% of the fair
market value of the Common Stock on the date of grant. Incentive stock options
permit the optionee to defer taxable income related to the exercise of the
option until subsequent disposition of the shares acquired in connection with
such exercise. Payment of the exercise price for options granted under the
Incentive Plan must be made in cash.
Options granted under the Incentive Plan are not exercisable for a period of
one year from the date of grant and, thereafter, vest at a rate of not less
than 25% per year for the remaining four years of the option term. The term of
any option granted under the Incentive Plan may not exceed five years. The
Incentive Plan provides that the aggregate fair market value of the shares of
Common Stock that may be granted to any single optionee under the Incentive
Plan may not exceed $200,000 during any calendar year. Options granted under
the Incentive Plan are exercisable only by the optionee during the optionee's
lifetime and are not transferable, except under limited circumstances. Options
that are exercisable as of the date the optionee's employment by the Company
terminates, other than by death, expire three months after such termination or
immediately if such termination was for cause. If the optionee dies, the
options shall be exercisable by the optionee's heirs for a six-month period
following the optionee's death. The Incentive Plan terminates on March 19,
2002.
Non-Qualified Plan
The Non-Qualified Plan provides for the grant of stock options to persons
who are not eligible for grants under the Incentive Plan, including the
Company's Independent Directors or persons who are closely related to the
Company, such as consultants and independent contractors, and who are
recommended to receive grants by the Company's Chief Executive Officer and
Treasurer. An aggregate of 50,000 shares of Common Stock are authorized for
issuance under the Non-Qualified Plan. As of the date of this Prospectus, no
options have been granted under the Non-Qualified Plan.
Options granted under the Non-Qualified Plan must have an exercise price of
not less than the fair market value of the Common Stock on the date of grant
or, if the optionee is the owner of more than 10% of the outstanding Common
Stock, the exercise price of the options must not be less than 110% of the
market price of the Common Stock on the date of grant. Payment of the exercise
price may be made in cash or other non-cash consideration as may be approved
and valued by the Compensation Committee.
Options granted under the Non-Qualified Plan are not exercisable for a
period of one year from the date of grant and, thereafter vest at a rate of
not less than 25% per year for the remaining four years of the option term.
38
<PAGE>
The term of any option granted under the Non-Qualified Plan may not exceed
five years. The Non-Qualified Plan provides that the total number of shares of
Common Stock as to which options granted under the plan may not exceed an
aggregate value of $200,000. Options granted under the Non-Qualified Plan are
exercisable only by the optionee during the optionee's lifetime and are not
transferable, except under limited circumstances. Options that are exercisable
as of the date the optionee's relationship with the Company terminates, other
than by death, expire three months after such termination. If the optionee
dies, the options shall be exercisable by the optionee's heirs for a six-month
period following the optionee's death. The Non-Qualified Plan terminates on
March 19, 2002.
1995 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 300,000 shares of Common Stock at an exercise price
of $2.87 per share were granted to Mr. Wiens, the Company's Chairman and Chief
Executive Officer, and options to acquire 450,000 shares of Common Stock at an
exercise price of $2.87 per share were granted to Mr. Price, the Company's
Chief Operating Officer and President. 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.
Payment of the exercise price may be made in cash, in shares of the Company's
Common Stock having a fair market value equal to the aggregate exercise price,
a combination of cash and shares of Common Stock or, subject to the approval
of the Compensation Committee, in whole or in part with monies received from
the Company as a compensatory cash payment.
The term of any option granted under the 1995 Plan may not exceed ten years.
Options granted under the 1995 Plan are not transferable, except under limited
circumstances. If the optionee ceases to be an employee, officer or employee
director of the Company or a subsidiary or parent corporation of the Company,
other than by reason of death, disability or cause, all unexercised options
granted under the 1995 Plan shall terminate 90 days thereafter. If the
optionee is terminated for cause, all unexercised options shall immediately
terminate. If the optionee's employment is terminated by reason of death,
disability or retirement, all unexercised options shall terminate one year
thereafter.
Director Plan
The Director Plan provides for the grant of stock options to existing and
future Independent Directors of the Company. Each Independent Director will
receive an initial grant of options under the Director Plan to acquire up to
5,000 shares of the Company's Common Stock having an exercise price equal to
the fair market value of the Common Stock on the date such person first
becomes an Independent Director. Thereafter, each independent director who is
serving as a director on December 31 of each calendar year, commencing with
December 31, 1996, will automatically be granted an option to acquire up to
5,000 shares of Common Stock at an exercise price per share equal to the fair
market value per share of Common Stock on such date. Each Independent Director
joining the Board of Directors within 30 days of the consummation of the
Offering will receive options having an exercise price equal to the Offering
Price. Messrs. Misukanis, Neher and Plost, who were serving as Independent
Directors on December 27, 1995, each received an initial grant of 5,000
options 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.
Payment of the exercise price for options granted under the Director Plan
may be made in cash, in shares of the Company's Common Stock having a fair
market value equal to the aggregate exercise price, a combination of cash and
shares of Common Stock or, subject to the approval of the Compensation
Committee, in whole or in part with monies received from the Company as a
compensatory cash payment.
39
<PAGE>
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. Options granted under the Director Plan are not transferable, except
under limited circumstances. If the optionee ceases to be an Independent
Director other than by reason of death, disability or cause, all unexercised
options shall terminate 90 days thereafter. If the optionee is removed from
the board for cause, all unexercised options shall immediately terminate. If
the optionee's service as a director is terminated by reason of death,
disability or retirement, all unexercised options shall terminate one year
thereafter.
40
<PAGE>
PRINCIPAL SHAREHOLDERS
As of March 31, 1996, the Company's only class of outstanding voting
securities was its Common Stock, $.001 par value. The following table sets
forth information as of March 31, 1996 with respect to the ownership of the
Common Stock by all executive officers, directors and persons known by the
Company to beneficially own more than five percent of the Common Stock. The
following shareholders have sole voting and investment power with respect to
the shares, unless indicated otherwise:
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK PERCENTAGE OF
BENEFICIALLY OWNERSHIP BENEFICIALLY COMMON STOCK
OWNED PRIOR TO PRIOR TO THE OWNED PRIOR TO OWNERSHIP AFTER
NAME OF BENEFICIAL OWNER THE OFFERING OFFERING THE OFFERING THE OFFERING
- ------------------------ -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Stanley Becker.......... 913,475(1) 8.7% 694,536(1) 5.0%
55 East End Avenue, #7A
New York, New York
10028
Caside Associates....... 841,990(2) 7.9% 841,990(2) 6.0%
373 North Main St.
Fall River, MA 02720
J.E. McConnaughy, Jr.... 739,800(3) 7.1% 575,400(3) 4.2%
c/o JEMC Corporation
1011 High Ridge Road
Stamford, Connecticut
06905
Samuel Benjamin......... 673,200(4) 6.5% 523,600(4) 3.8%
2763 Roscomare Road
Los Angeles, California
90077
Certain Directors and
Executive Officers(5)
Thomas J. Wiens....... 2,814,003(6) 27.7% 2,814,003(11) 20.7%
Michael I. Price...... 154,000(7) 1.5% 154,000 1.1%
Jerome B. Misukanis... 18,000(8) .2% 18,000 .1%
Graydon H. Neher...... 36,000(9) .4% 28,000(9) .2%
Barry D. Plost........ 18,000(10) .2% 14,000(10) .1%
Directors and Executive
Officers as a group.... 3,040,003 29.4% 3,028,003 22.0%
</TABLE>
- --------
(1) Includes 297,659 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 198,439 shares of
Common Stock from Mr. Becker for $4.00 per share as part of the Company's
repurchase of 1,400,586 shares of Common Stock upon consummation of the
Offering. See "Use of Proceeds." Mr. Becker is also selling 20,500 shares
in the Offering. See "Selling Securityholders."
(2) Includes 304,440 shares underlying a stock option and 210,000 shares
underlying common stock purchase warrants. The shares held by Caside
Associates may be deemed to be beneficially owned by the partners of
Caside Associates, which are John Silvia Jr., Louis G. Carreiro, Joseph L.
Vinagro, Ronald Rapoza, Dwight D. Silvia, Louis Goncalo, Patricia Mello,
Ilene Hayes and Recycling Associates Trust.
(3) Includes 246,600 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 164,400 shares of
Common Stock from Mr. McConnaughy for $4.00 per share as part of the
Company's repurchase of 1,400,586 shares of Common Stock upon consummation
of the Offering. See "Use of Proceeds."
(4) Includes 224,400 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 149,600 shares of
Common Stock from Mr. Benjamin for $4.00 per share as part of the
Company's repurchase of 1,400,586 shares of Common Stock upon consummation
of the Offering. See "Use of Proceeds."
41
<PAGE>
(5) The business address of all directors and executive officers is 384
Inverness Drive South, Suite 211, Englewood, Colorado 80112.
(6) Includes 1,664 shares owned by Real Heroes, Inc., a non-profit corporation
controlled by Thomas J. Wiens, and 227,414 shares owned by First Dominion,
a corporation controlled by Thomas J. Wiens. In the event that the
Underwriter's over-allotment option is exercised in full, following the
Offering Mr. Wiens will beneficially own 2,089,136 shares of Common Stock,
representing approximately 15.4% of the outstanding Common Stock.
(7) Includes 150,000 shares underlying options.
(8) Includes 12,000 shares underlying options.
(9) Includes 12,000 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 8,000 shares of
Common Stock from Mr. Neher for $4.00 per share as part of the Company's
repurchase of 1,400,586 shares of Common Stock upon consummation of the
Offering. See "Use of Proceeds."
(10) Includes 6,000 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 4,000 shares of
Common Stock from Mr. Plost for $4.00 per share as part of the Company's
repurchase of 1,400,586 shares of Common Stock upon consummation of the
Offering. See "Use of Proceeds."
(11) Assumes that the Underwriter's over-allotment option is not exercised.
See "Underwriting."
CERTAIN TRANSACTIONS
On December 1, 1991 the Company entered into exclusive perpetual license
agreements related to the MSW Technology with First Dominion, a company owned
and controlled by Thomas J. Wiens. Under the original terms of the license
agreements, the Company was to pay certain license fees and royalties,
provided that the Company had raised additional equity and had constructed
operational facilities utilizing the MSW Technology. On January 25, 1995, the
Company paid $750,000 to First Dominion in exchange for (i) ownership of the
MSW Technology and certain other technology related to the recycling of
shredder fluff, (ii) 291,333 shares of Series B preferred stock owned by First
Dominion and (iii) the forgiveness of $750,000 of accrued salary, royalties
and other amounts due from the Company to Thomas J. Wiens and First Dominion.
In connection with this purchase, the Company granted to Mr. Wiens the right
to acquire $1,187,500 of Common Stock at a price equal to the lesser of 50% of
the fair market value of the Common Stock or $.90 per share, exercisable on
the day the Company reported gross revenues in excess of designated amounts.
On January 25, 1995, the last reported sales price of the Common Stock was
$3.15 per share. The Company met the gross revenue requirement on August 8,
1995 upon filing of its Form 10-Q for the quarter ended June 30, 1995. At that
time, Mr. Wiens exercised his right and acquired 1,319,445 shares of Common
Stock at an acquisition price of $.90 per share.
During the fiscal years ended September 30, 1994 and September 30, 1995, the
Company received bridge loans from First Dominion in an aggregate amount of
$887,000. During fiscal 1994, this loan was converted to 591,333 shares of
Series B preferred stock at the request of First Dominion. The rights,
designations and preferences of the Series B preferred stock provided that the
Series B preferred stock was convertible into Common Stock on a five-for-one
share basis. The Company reacquired 291,333 shares of Series B preferred stock
from First Dominion in the transaction described above, and the remaining
shares of Series B preferred stock were transferred by First Dominion to a
third party and were subsequently converted into Common Stock.
On July 15, 1994, the Company issued to Caside Associates an option to
acquire 360,000 shares of Common Stock at an exercise price of $2.50 per
share. On January 25, 1995, to reflect the then-current offering price of the
Company's Common Stock in a private placement of its securities, the exercise
price of this option was reduced to $.90 per share and the Company issued to
Caside Associates warrants to acquire up to 180,000 additional shares of
Common Stock at an exercise price of $7.50 per share.
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On January 25, 1995, the Company repriced an option previously granted to
Michael I. Price and granted an option to Jerome B. Misukanis, executive
officers of the Company, to purchase up to 150,000 and 12,000 shares of Common
Stock, respectively, exercisable for nominal consideration. On August 3, 1995,
these options were amended to revise the exercise price to $.90 per share. At
the time of the repricing of these options, the Company was selling shares of
Common Stock in a private placement at approximately $.90 per share, which the
Company believes represented the fair market value of the Common Stock on that
date. The options expire on December 31, 1998.
SELLING SECURITYHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information with respect to the total number of shares of Common Stock
beneficially owned by each of the Selling Securityholders before and after
consummation of the Offering. All post-Offering totals reflect the Company's
agreement to repurchase shares from certain of the Selling Securityholders
following consummation of the Offering as described above in "Recent
Developments." Except for Stanley Becker, none of the Selling Securityholders
is an officer or director of the Company or the beneficial owner of five
percent or more of the outstanding Common Stock. The Underwriter will receive
a discount of seven percent of the Offering Price and a non-accountable
expense allowance of 1 1/2 percent of the Offering Price of the Shares of
Common Stock sold for the account of the Selling Securityholders, which
discounts and expenses will be withheld from the proceeds of the shares sold
by the Selling Securityholders. See "Underwriting." The Company will not
receive any of the proceeds of the sales of Common Stock by the Selling
Securityholders.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NUMBER OF SHARES OF COMMON STOCK COMMON STOCK
OF COMMON STOCK NUMBER OF BENEFICIALLY BENEFICIALLY
BENEFICIALLY OWNED SHARES OWNED AFTER OWNED AFTER
SELLING SECURITYHOLDER PRIOR TO OFFERING OFFERED OFFERING OFFERING
---------------------- ------------------ --------- ---------------- ------------
<S> <C> <C> <C> <C>
Becker, Marshall........ 305,082(1) 30,000 275,082(1) 2.0
Becker, Stanley......... 913,475(2) 20,500 694,536(2) 5.1
Bender, Merrill......... 19,600 19,600 0 0
Eddie Mahe Company...... 7,600 7,600 0 0
Fru-Con Construction,
Inc.................... 145,001 145,001 0 0
Gelin, Peter............ 19,500 19,500 0 0
Heller, Matthew......... 13,000 13,000 0 0
Levine, Kenneth......... 305,082(1) 30,000 275,082(1) 2.0
Morse, Clayton.......... 4,600 4,600 0 0
Nathanson, Barry F. .... 358,823(3) 5,250 275,001(3) 2.1
NCO Investors III, LP... 60,000 60,000 0 0
Rome, Robert C.(4)...... 227,693 100,000 127,693 1.0
Schafran, Hank.......... 5,391 5,391 0 0
Smart & Thevenet, P.C... 13,600 13,600 0 0
The Stockbrokers
Society, Inc. ......... 2,276 2,276 0 0
Strong, Albert.......... 2,000 2,000 0 0
Wittenstein, Frederick
M. .................... 312,852(5) 13,500 232,829(5) 1.8
Worden, Andrew B. ...... 16,160(6) 630 12,079(6) 0
</TABLE>
- --------
(1) Represents shares underlying warrants. Upon consummation of the Offering,
103,112 of these warrants will be exchanged into 186,633 shares of Common
Stock and 103,112 Series H Warrants.
(2) Includes shares underlying warrants to acquire 297,659 shares of Common
Stock. Upon consummation of the Offering, the Company will purchase
198,439 shares from Mr. Becker at $4.00 per share as part of the Company's
repurchase of 1,400,586 shares of Common Stock. See "Use of Proceeds."
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<PAGE>
(3) Includes shares underlying warrants to acquire 117,858 shares of Common
Stock. Upon consummation of the Offering, the Company will purchase 78,572
shares from Mr. Nathanson at $4.00 per share as part of the Company's
repurchase of 1,400,586 shares of Common Stock. See "Use of Proceeds."
(4) Shares issued in connection with the Company's acquisition of its southern
Texas facilities.
(5) Includes shares underlying warrants to acquire up to 99,784 shares of
Common Stock. Upon consummation of the Offering, the Company will purchase
66,523 shares from Mr. Wittenstein at $4.00 per share as part of the
Company's repurchase of 1,400,586 shares of Common Stock. See "Use of
Proceeds."
(6) Includes shares underlying warrants to acquire up to 5,177 shares of
Common Stock. Upon consummation of the Offering, the Company will purchase
3,451 shares from Mr. Worden at $4.00 per share as part of the Company's
repurchase of 1,400,586 shares of Common Stock. See "Use of Proceeds."
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
$.001 par value. At May 15, 1996, 10,178,137 shares of Common Stock were
outstanding. The shares of Common Stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully paid and non-
assessable shares. On liquidation of the Company, each holder of Common Stock
is entitled to receive a pro rata share of the Company's assets available for
distribution to common shareholders after payments with respect to the
preferential rights of the Company's then outstanding preferred stock, if any.
Unless the holder is a "Substantial Stockholder" (as discussed below under
"Anti-Takeover Provisions"), all shares of Common Stock have equal voting
rights and have one vote per share in all matters to be voted upon by
shareholders. Cumulative voting in the election of directors is not allowed,
which means that the holders of a majority of the outstanding shares
represented at any meeting at which a quorum is present will be able to elect
all of the directors if they choose to do so and, in such event, the holders
of the remaining shares will not be able to elect any directors.
A vote by the holders of a majority of the shares of Common Stock present at
a meeting at which a quorum is present is necessary to take action, except for
certain extraordinary matters which require the approval of a majority of the
outstanding shares of voting stock.
PREFERRED STOCK
The Company is authorized to issue up to a total of 10,000,000 shares of
preferred stock, no par value, issuable in one or more series designated by
the Board of Directors. Material provisions concerning the terms of any series
of preferred stock which may be issued, such as dividend rate, conversion
features and voting rights, are to be determined by the Board of Directors of
the Company at the time of such issuance. The ability of the Board to issue
preferred stock could also be used by it as a means for resisting a change of
control of the Company and, therefore, can be considered an "anti-takeover"
device.
The Company has issued and outstanding 13,000 shares of Series A Convertible
Preferred Stock (the "Series A Shares"), which were issued in connection with
the Company's acquisition of its Nevada operations. The Series A Shares have
no dividend rights, liquidation preference or voting rights, except in certain
limited circumstances. The Series A Shares will be redeemed along with 120,000
shares of Common Stock issued in connection with the acquisition of the
Company's Nevada facility for $2.4 million upon consummation of the Offering.
See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation authorize the
Company's Board of Directors to limit the voting rights of any person or
entity that becomes a "Substantial Stockholder," defined as
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any stockholder designated by the Board of Directors who is the direct or
indirect beneficial owner of 10% or more of the Company's Common Stock,
including shares of Common Stock which may be issuable pursuant to any
agreement or upon the exercise of conversion rights, options or warrants. All
shares of Common Stock beneficially owned by a Substantial Stockholder in
excess of 10% will not be entitled to any voting rights and will be deemed not
outstanding for purposes of determining a quorum. As of the date of this
Prospectus, the Company's Board of Directors had not determined any person or
entity to be a Substantial Stockholder.
In addition to restricting the voting rights of a Substantial Stockholder,
the Company has the right to redeem all or a portion of the Common Stock
beneficially owned by a Substantial Stockholder at a redemption price equal to
the lesser of the average market price of the shares for each of the preceding
30 days prior to the date of the written redemption notice or the average
market price of the shares for each of the 30 trading days during which shares
of the Common Stock have been traded immediately preceding the date upon which
the Substantial Stockholder beneficially owned more than 5% of the issued and
outstanding Common Stock. A Substantial Stockholder has no rights, voting or
otherwise, regarding shares subject to a redemption notice.
The Company's Board of Directors has adopted an amendment to its Articles of
Incorporation to eliminate these provisions. This amendment will be submitted
to the Company's shareholders for approval at the 1996 annual meeting of
shareholders. The amendment will require the affirmative vote of holders of
two-thirds of the outstanding Common Stock and, if any preferred stock is
outstanding, two-thirds of the outstanding preferred stock.
WARRANTS
The Company has the following outstanding warrants to acquire an aggregate
of 4,372,743 shares of Common Stock:
<TABLE>
<CAPTION>
COMMON STOCK
EXPIRATION EXERCISE SECURITIES ISSUABLE ISSUABLE
TITLE OR SERIES DATE PRICE OUTSTANDING UPON EXERCISE UPON EXERCISE
- --------------------- ---------- -------- ----------- ------------------------ -------------
<S> <C> <C> <C> <C> <C>
Series A (1) $37.50 22,969 1 share of Common Stock 22,969
and 1 Series B Warrant
Series B (2) $75.00 22,969 Common Stock 22,969
Series G (3) $ 7.50 2,136,878 Common Stock 2,136,878
Series H (4) $ 7.50 283,333 Common Stock 283,333
Series I (5) $ 1.05 359,250 Common Stock 359,250
Series J (6) $ 7.50 727,078 Common Stock 727,078
Ally Capital 11/3/99 $ 5.00 53,600 Common Stock 53,600
Caside Associates 1/5/98 $ 7.50 180,000 Common Stock 180,000
Nevada Recycling 1/4/04 $ 1.25 20,000 Common Stock 20,000
Placement Agent's (7) 4/17/98 $ 1.80 139,828 2 Shares of Common Stock 279,656
and 1 Series H Warrant
Placement Agent's (7) 7/31/98 $ 1.80 73,560 2 Shares of Common Stock 147,120
and 1 Series H Warrant
Placement Agent's 1/31/99 $ 2.75 65,445 2 Shares of Common Stock 130,890
and 1 Series H Warrant
Placement Agent's 4/8/99 $ 2.75 4,500 2 Shares of Common Stock 9,000
and 1 Series H Warrant
--------- ---------
Total Outstanding 4,089,410 4,372,743
========= =========
</TABLE>
45
<PAGE>
- --------
(1) Exercisable for a three-year period commencing on the effective date of a
registration statement covering the Series A Warrants or the shares
issuable upon their exercise.
(2) Exercisable for a three-year period commencing on the effective date of a
registration statement covering the Series B Warrants or the shares
issuable upon their exercise.
(3) Currently exercisable and continuing for a three-year period commencing on
the effective date of a registration statement covering the shares
issuable upon their exercise and the shares of Common Stock purchased by
the holders of the Series G Warrants in the Company's February and May
1995 private placements. The exercise price of the Series G warrants will
be reduced to $4.00 per share in the event that the Company fails to
repurchase certain shares of Common Stock by July 31, 1996 and will reduce
by $.50 per share for each month subsequent to September 1996 (August 1996
in the event such stock purchase is not effected by July 31) in which a
registration statement covering the shares issuable upon exercise of the
Series G warrants is not effective. See "Business--Recent Developments"
and "Use of Proceeds."
(4) Exercisable for a three-year period commencing on the exercise of the
Placement Agent's Warrants. Additional Series H Warrants will be issued
upon exercise of the Placement Agent's Warrants.
(5) Upon the earlier to occur of June 30, 1996 and the consummation of the
Offering, 188,050 Series I Warrants will be exchanged by the Company for
170,186 shares of Common Stock. The exercise price of the Series I
Warrants was originally $1.50 per share, but has been reducing by $.15 per
share for each month subsequent to March 31, 1996 in which a registration
statement covering the Common Stock issuable upon exercise of the warrants
is not effective.
(6) 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 $4.00 per
share in the event that the Company fails to repurchase certain shares of
Common Stock by July 31, 1996 and will reduce by $.50 per share for each
month subsequent to September 1996 (August 1996 in the event such stock
purchase is not effected by July 31) in which a registration statement
covering the shares issuable upon exercise of the Series J Warrants is not
effective. See "Business--Recent Developments" and "Use of Proceeds."
(7) Upon consummation of the Offering, the Company will exchange 213,388
Placement Agent's Warrants for 375,563 shares of Common Stock and 213,388
Series H Warrants. See "Business--Recent Developments."
STOCK OPTIONS
The Company has granted options to purchase an aggregate of 1,283,440 shares
of Common Stock at exercise prices ranging from $.90 to $6.25 per share,
including options to Messrs. Wiens, Price, Misukanis, Neher and Plost to
purchase 300,000, 450,000, 5,000, 5,000 and 5,000 shares of Common Stock,
respectively, at an exercise price of $2.87 per share. See "Management--Stock
Option Plans."
TRANSFER AGENT
The transfer agent for the Company's Common Stock and warrant agent for the
Company's warrants is American Securities Transfer, Inc., 938 Quail Street,
Suite 101, Lakewood, Colorado 80215.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 13,604,549
outstanding shares of Common Stock, based on the number of shares outstanding
on May 15, 1996. Of these shares, the 4,892,448 shares of Common Stock sold in
the Offering will be freely tradeable under the Securities Act, except for any
shares held by "affiliates" of the Company, as that term is defined under the
Securities Act and the regulations promulgated thereunder (an "Affiliate").
The remaining 8,712,101 shares (the "Restricted Shares") held by existing
stockholders were sold by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted
securities" within the meaning of Rule 144 promulgated under the Securities
Act.
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<PAGE>
As of the closing of the Offering, a total of 3,028,003 shares of Common
Stock (including shares underlying outstanding options) held by the existing
stockholders will be subject to lock-up agreements in favor of the Underwriter
which provide that none of such shares may, without the prior written consent
of the Underwriter, be sold or otherwise disposed of for a period of 12 months
from the date of this Prospectus. Upon the expiration of the lock-up
agreements, all of such shares will be eligible for resale in the public
market subject to the provisions of Rule 144. The Underwriter may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to the lock-up agreements.
In general, under Rule 144, as currently in effect, any holder of Restricted
Shares, including an Affiliate of the Company, as to which at least two years
have elapsed since the later of the date of the acquisition of such Restricted
Shares from the Company or an Affiliate, is entitled within any three-month
period to sell a number of shares that does not exceed the greater of 1% of
the then-outstanding shares of Common Stock or the average weekly trading
volume of the Common Stock in the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. Affiliates of the Company must comply with the
requirements of Rule 144 (except for the two-year holding period requirement)
in order to sell shares of Common Stock which are not "restricted securities"
(such as shares acquired by Affiliates in the Offering).
Further, under Rule 144(k) a person who holds Restricted Shares as to which
at least three years have elapsed since the date of their acquisition from the
Company or an Affiliate, and who is not deemed to have been an Affiliate of
the Company at any time during the three months preceding a sale, is entitled
to sell such shares under Rule 144 without regard to volume limitations,
manner of sale provisions, notice requirements or availability of current
public information concerning the Company.
REGISTRATION RIGHTS
As described below, the holders of certain shares of the Company's Common
Stock and certain outstanding warrants and options are entitled to certain
rights with respect to the registration under the Securities Act of their
shares of Common Stock (the "Registerable Common Stock") or the shares of
Common Stock issuable upon exercise of their warrants or options (the
"Registerable Warrant Stock"). These rights are granted under the terms of
agreements between the Company and the holders of the Registerable Common
Stock or the Registerable Warrant Stock. In connection with such rights, the
Company has agreed to pay all registration expenses, other than fees of the
holder's own counsel, transfer taxes, and underwriting discounts and
commissions payable in connection with the registration of any shares of
Registerable Common Stock or Registerable Warrant Stock. In addition, the
Company has agreed to indemnify the holders of such securities against certain
liabilities arising under the Securities Act.
Required Registration
The Company has agreed with the holders of 4,940,769 shares of Registerable
Common Stock and 3,215,156 shares of Registerable Warrant Stock to include
such shares of Common Stock in a registration statement to be filed no later
than September 30, 1996. Of these shares, 4,497,513 shares of Registerable
Common Stock and 3,043,956 shares of Registerable Warrant Stock are subject to
lock-up agreements in favor of the Company which provide that commencing on
the earlier of June 30, 1996 and the closing of the Offering (the
"Commencement Date"): (i) none of such shares, warrants or options may,
without the prior written consent of the Company, be sold, exercised or
otherwise disposed of for a period of four months following the Commencement
Date; (ii) during the fifth month following the Commencement Date, each such
shareholder will sell no more than five percent of the shares of Registerable
Common Stock and, commencing with the fifth month following the Commencement
Date, each such shareholder may exercise the warrants held by such holder and
the shares of Registerable Warrant Stock received upon such exercise will not
be subject to these lock-up provisions; (iii) during the sixth month following
the Commencement Date each such shareholder will sell no more than 7.5 percent
of the shares Registerable Common Stock held by such holder; (iv) during each
month
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<PAGE>
commencing with the seventh month and ending upon completion of the twelfth
month following the Commencement Date, each such shareholder will be permitted
to sell no more than 15 percent of the shares of Registerable Common Stock
owned by such holder; and (v) after expiration of the twelfth month following
the Commencement Date, the shares of Registerable Common Stock will no longer
be subject to these lock-up provisions. The Company is required to keep the
registration statement filed pursuant to this registration obligation
effective for a period of up to three years.
Piggyback Registration
Whenever the Company proposes to register any shares of Common Stock, the
Company is required to give notice to the holders of 836,823 shares of
Registerable Warrant Stock who have the right to include such shares in the
registration statement ("Piggyback Registration Rights"). In addition, upon
expiration of the registration statement filed under the Company's
registration obligation described in the preceding section, the holders of the
Registerable Common Stock and Registerable Warrant Stock included therein have
limited Piggyback Registration Rights.
The Piggyback Registration Rights are subject to certain conditions,
including the ability of an underwriter to limit the number of shares of
Registerable Common Stock and Registerable Warrant Stock included in the
registration statement or to exclude certain shares of Registrable Common
Stock or Registerable Warrant Stock from the Registration Statement.
Demand Registration
Holders of 479,586 shares of Registerable Warrant Stock are entitled to
require the Company to use its reasonable best efforts to register such shares
at the Company's expense within 150 to 180 days of their demand ("Demand
Registration Rights"). The Demand Registration Rights may only be exercised
once.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the form of which has been filed as an exhibit to the Registration Statement
of which this Prospectus forms a part, Prime Charter Ltd. (the "Underwriter")
has agreed to purchase from the Company and the Selling Securityholders, and
the Company and the Selling Securityholders have agreed to sell to the
Underwriter, an aggregate of 4,892,448 shares of Common Stock.
The Underwriting Agreement provides that the Underwriter's obligations to
pay for and accept delivery of the shares of Common Stock are subject to
certain conditions precedent, and that the Underwriter is committed to
purchase all of the shares of Common Stock if any shares are purchased.
The Underwriter proposes initially to offer the shares of Common Stock
offered hereby to the public at the Offering Price set forth on the front
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriter may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain dealers. After the Offering, the Offering Price, concession and
reallowance may be changed by the Underwriter.
The Company and the Selling Securityholders have agreed to pay to the
Underwriter a non-accountable expense allowance equal to 1 1/2% of the gross
proceeds of the Offering, $85,000 of which already has been paid by the
Company to cover some of the underwriting costs and due diligence expenses
related to the Offering.
Thomas J. Wiens, the Company's Chief Executive Officer, has granted to the
Underwriter an option, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to an aggregate of 733,867 additional shares
of Common Stock at the Offering Price less underwriting discounts and the
Underwriter's
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<PAGE>
expense allowance. The Underwriter may exercise this option solely to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby.
The Company will receive no proceeds from the exercise of the over-allotment
option.
The Company, the Underwriter and the Selling Securityholders have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company has agreed to sell to the Underwriter or its designees, for
nominal consideration, the Underwriter's Warrants to purchase an aggregate of
350,000 shares of Common Stock. The shares of Common Stock subject to the
Underwriter's Warrants will be in all respects identical to the shares of
Common Stock offered to the public hereby. The Underwriter's Warrants will be
exercisable for a four-year period commencing one year after the effective
date of the Registration Statement of which this Prospectus forms a part at a
per share exercise price equal to 135% of the Offering Price. During the
period beginning one year from the effective date of the Registration
Statement and ending five years after such effective date, the Company has
agreed at its expense to register under the Securities Act the shares of
Common Stock issued or issuable upon exercise of the Underwriter's Warrants,
and to include such shares of Common Stock in any appropriate registration
statement which is filed by the Company. The Underwriter's Warrants will
contain anti-dilution provisions providing for appropriate adjustment of the
exercise price and number of shares that may be purchased upon the occurrence
of certain events. The Underwriter's Warrants may be exercised by paying the
exercise price in cash, through the surrender of shares of Common Stock, or by
using a combination of such methods.
The Company and all of its executive officers and directors and certain of
its current stockholders have agreed not to offer, sell, contract to sell or
otherwise dispose of Common Stock or rights to acquire Common Stock without
the prior written consent of the Underwriter for a period of 12 months after
the date of this Prospectus. See "Shares Eligible For Future Sale."
LEGAL MATTERS
The legality of the shares of Common Stock being offered will be passed on
for the Company by Friedlob Sanderson Raskin Paulson & Tourtillott, LLC,
Denver, Colorado. The firm of Brownstein Hyatt Farber & Strickland, P.C.,
Denver, Colorado, has acted as counsel to the Underwriter in connection with
the Offering.
EXPERTS
The financial statements of the Company for the years ended September 30,
1993 and 1994, appearing in this Prospectus have been audited by AJ. Robbins,
P.C., independent certified public accountants, as stated in their report
appearing herein, and have been so included herein in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing. The financial statements of the Company for the year ended September
30, 1995, have been audited by BDO Seidman, LLP, independent certified public
accountants, as stated in their report appearing herein, and have been so
included herein in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing.
The financial statements of Anglo Metal, Inc., d/b/a Anglo Iron & Metal for
the years ended December 31, 1993, 1994 and 1995, appearing in this Prospectus
have been audited by AJ. Robbins, P.C., independent certified public
accountants, as stated in their report appearing herein, and have been so
included herein in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing.
The financial statements of Mid-America Shredding, for the year ended
December 31, 1995, appearing in this Prospectus have been audited by AJ.
Robbins, P.C., independent certified public accountants, as stated in their
report appearing herein, and have been so included herein in reliance upon
such report given upon the authority of that firm as experts in accounting and
auditing.
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<PAGE>
The financial statements of Weissman Iron & Metal, a division of Weissman
Industries, Inc. for the years ended December 31, 1993, 1994 and 1995,
appearing in this Prospectus have been audited by AJ. Robbins, P.C.,
independent certified public accountants, as stated in their report appearing
herein, and have been so included herein in reliance upon such report given
upon the authority of that firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
The Company engaged BDO Seidman, LLP on March 25, 1996, to serve as its
independent auditors, replacing AJ. Robbins, P.C., who was dismissed as the
Company's independent auditors on March 25, 1996. This change in independent
auditors was recommended by the audit committee of the Company's Board of
Directors and approved by the Company's Board of Directors. During the past
two fiscal years through March 25, 1996, AJ. Robbins, P.C.'s report on the
financial statements of the Company neither contained any adverse opinion or
disclaimer of opinion nor was qualified or modified as to uncertainty, audit
scope or accounting principles. There were no disagreements between the
Company and AJ. Robbins, P.C. on any matters of accounting principles or
practice, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of AJ. Robbins, P.C., would have caused
them to make reference to the subject matter of the disagreement in their
report.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<S> <C>
Financial Statements:
Pro Forma Explanatory Headnote.......................................... F-3
For the Year Ended September 30, 1995 (Unaudited)
Unaudited Pro Forma Consolidated Statement of Operations.............. F-6
For the Six Months Ended March 31, 1996 (Unaudited)
Unaudited Pro Forma Consolidated Balance Sheet........................ F-8
Unaudited Pro Forma Consolidated Statement of Operations.............. F-10
Notes to Pro Forma Consolidated Financial Statements.................... F-12
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants...................... F-14
Report of Independent Certified Public Accountants...................... F-15
Financial Statements:
Consolidated Balance Sheets........................................... F-16
Consolidated Statements of Operations................................. F-18
Consolidated Statement of Stockholders' Equity (Deficit).............. F-19
Consolidated Statements of Cash Flows................................. F-20
Notes to Consolidated Financial Statements.............................. F-21
Report of Independent Certified Public Accountants on Supplemental
Schedules.............................................................. F-44
Report of Independent Certified Public Accountants on Supplemental
Schedules.............................................................. F-45
Schedule I--Condensed Financial Information of Registrant:
Balance Sheets........................................................ F-46
Statements of Operations.............................................. F-47
Statements of Cash Flows.............................................. F-48
Notes to Condensed Financial Information of Registrant.................. F-49
ANGLO METAL, INC., DBA ANGLO IRON & METAL
Report of Independent Certified Public Accountants...................... F-50
Financial Statements:
Balance Sheets........................................................ F-51
Statements of Operations.............................................. F-52
Statement of Changes in Stockholders' Equity.......................... F-53
Statements of Cash Flows.............................................. F-54
Notes to Financial Statements........................................... F-55
MID-AMERICA SHREDDING, INC.
Report of Independent Certified Public Accountants...................... F-62
Financial Statements:
Balance Sheet......................................................... F-63
Statement of Operations............................................... F-64
Statement of Changes in Stockholders' Equity.......................... F-65
Statement of Cash Flows............................................... F-66
Notes to Financial Statements........................................... F-67
WEISSMAN IRON & METAL, A DIVISION OF WEISSMAN INDUSTRIES, INC.
Report of Independent Certified Public Accountants...................... F-72
Financial Statements:
Balance Sheets........................................................ F-73
Statements of Operations.............................................. F-74
Statement of Changes in Division Equity............................... F-75
Statements of Cash Flows.............................................. F-76
Notes to Financial Statements........................................... F-77
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 entities 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 acquisitions were
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,
Mid-America and Weissman 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, Mid-America and
Weissman for such period. The operating results of Anglo, Mid-America and
Weissman 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--(CONTINUED)
EXPLANATORY HEADNOTE
The purchase price for Anglo has been allocated as follows:
<TABLE>
<S> <C>
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
===========
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
Weissman Iron and Metal, a Division of Weissman Industries, Inc.
The Company has reached an agreement with the stockholders of Weissman
Industries, Inc. to acquire the business of Weissman Iron and Metal, a
division of Weissman Industries, Inc. (Weissman), through the purchase of all
of the outstanding common stock of Weissman.
The assets of Weissman consist of a heavy duty automotive shredder, metal
shearing equipment, a Coreco aluminum furnace, heavy equipment, tools and
rolling stock, real property and buildings, inventories and accounts
receivable used in the business of recycling ferrous and non-ferrous metals.
F-4
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION--(CONCLUDED)
EXPLANATORY HEADNOTE
The purchase price for Weissman is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Accounts receivable........................................... $ 1,600,000
Inventories................................................... 900,000
Buildings and improvements.................................... 3,000,000
Automotive shredder........................................... 1,500,000
Heavy equipment............................................... 3,400,000
Equipment and rolling stock................................... 1,200,000
Land.......................................................... 800,000
-----------
Total purchase price.......................................... 12,400,000
Note payable, bank............................................ (4,000,000)
-----------
Cash to be paid at closing.................................... $ 8,400,000
===========
</TABLE>
The $4,000,000 note payable will be secured by the assets of Weissman and
will be payable in 60 monthly installments of $84,000, including interest. The
Company has received a non-binding commitment from a commercial lender with
respect to such term loan and a revolving credit facility totalling
$10,000,000 to $11,000,000 ($4,000,000 term loan and approximately $2,000,000
of the revolving credit facility are dedicated for the operations of
Weissman).
F-5
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
RECYCLING ANGLO ANGLO
INDUSTRIES, INC. IRON & METAL IRON & METAL
SEPTEMBER 30, DECEMBER 31, PRO FORMA
1995 1995 ADJUSTMENTS
---------------- ------------ ------------
<S> <C> <C> <C>
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
===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-6
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
MID-AMERICA MID-AMERICA WEISSMAN WEISSMAN CONSOLIDATED
SHREDDING SHREDDING IRON & METAL IRON & METAL PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER 31, PRO FORMA SEPTEMBER 30,
1995 ADJUSTMENTS 1995 ADJUSTMENTS 1995
------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................. $3,866,000 $ -- $16,207,000 $ -- $49,001,000
Brokerage............. -- -- 2,956,000 -- 3,172,000
Other income.......... -- -- 1,000 -- 49,000
---------- -------- ----------- --------- -----------
3,866,000 -- 19,164,000 -- 52,222,000
---------- -------- ----------- --------- -----------
COST AND EXPENSES:
Cost of sales......... 3,587,000 (86,000)(3) 12,235,000 160,000 (3) 40,138,000
-- -- -- (180,000)(5) --
Cost of brokerage..... -- -- 2,894,000 -- 3,075,000
Management fees....... -- -- 180,000 (180,000)(5) --
Personnel............. 247,000 -- 654,000 -- 2,059,000
Professional
services............. 6,000 -- 17,000 -- 616,000
Travel................ 1,000 -- -- -- 40,000
Occupancy............. -- -- -- -- 83,000
Depreciation and
amortization......... -- -- 7,000 -- 509,000
-- -- -- -- --
Interest.............. 125,000 -- -- 381,000 (9) 1,137,000
Environmental
remediation costs.... -- -- 30,000 (30,000)(7) --
Bad debt expense...... -- -- -- -- 151,000
Other general and
administrative....... 23,000 -- 124,000 (74,000)(5) 558,000
---------- -------- ----------- --------- -----------
3,989,000 (86,000) 16,141,000 77,000 48,366,000
---------- -------- ----------- --------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES........... (123,000) 86,000 3,023,000 (77,000) 3,856,000
INCOME TAXES (BENEFIT).. -- (10,000) -- 307,000 (338,000)
---------- -------- ----------- --------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS,
NET OF INCOME TAXES.... $ (123,000) $ 96,000 $ 3,023,000 $(384,000) $ 4,194,000
========== ======== =========== ========= ===========
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM AND
INCOME TAXES........... $ (123,000) $ 96,000 $ 3,023,000 $(384,000) $ 5,000,000
========== ======== =========== ========= ===========
INCOME PER SHARE:
Income from continuing
operations, net of
income taxes......... $ .66
===========
Net income after
extraordinary item
and income taxes..... $ .79
===========
Weighted average
number of common
shares outstanding... 6,327,387
===========
</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
MARCH 31, 1996
<TABLE>
<CAPTION>
RECYCLING MID-AMERICA MID-AMERICA WEISSMAN WEISSMAN USE OF CONSOLIDATED
INDUSTRIES, INC. SHREDDING SHREDDING IRON & METAL IRON & METAL PROCEEDS PRO FORMA
MARCH 31, MARCH 31, PRO FORMA MARCH 31, PRO FORMA FROM MARCH 31,
1996 1996 ADJUSTMENTS 1996 ADJUSTMENTS OFFERING(12) 1996
---------------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................. $ 1,240,000 $ 18,000 $ (18,000)(4) $ 9,000 $ (9,000)(4) $2,967,000 $ 4,207,000
Trade accounts
receivable, net...... 2,149,000 109,000 (109,000)(4) 2,170,000 (570,000)(2) -- 3,749,000
Accounts receivable,
related parties...... 95,000 -- -- -- -- -- 95,000
Inventories........... 2,076,000 34,000 21,000 (2) 765,000 135,000 (2) -- 3,031,000
Prepaid expenses...... 353,000 -- -- 10,000 (10,000)(4) -- 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) 2,954,000 (454,000) 2,967,000 12,151,000
PROPERTY, PLANT AND
EQUIPMENT, net........ 8,421,000 2,823,000 (953,000)(2) 5,400,000 4,500,000 (2) -- 20,191,000
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) $8,354,000 $4,046,000 $2,967,000 $37,230,000
=========== ========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-8
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET--(CONTINUED)
MARCH 31, 1996
<TABLE>
<CAPTION>
RECYCLING MID-AMERICA MID-AMERICA WEISSMAN WEISSMAN USE OF CONSOLIDATED
INDUSTRIES, INC. SHREDDING SHREDDING IRON & METAL IRON & METAL PROCEEDS PRO FORMA
MARCH 31, MARCH 31, PRO FORMA MARCH 31, PRO FORMA FROM MARCH 31,
1996 1996 ADJUSTMENTS 1996 ADJUSTMENTS OFFERING(12) 1996
---------------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Bank overdraft....... $ -- $ -- $ -- $ 115,000 $ (115,000)(4) $ -- $ --
Notes payable........ -- 1,210,000 (1,155,000)(2) -- -- -- 55,000
Notes payable--
related party....... 1,927,000 -- -- -- -- (438,000) 1,489,000
Trade accounts
payable............. 1,235,000 129,000 (129,000)(4) 1,200,000 (1,200,000)(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) 172,000 (172,000)(4) -- 267,000
Income taxes pay-
able................ 86,000 -- -- -- -- -- 86,000
Due to factor,
related party....... 137,000 -- -- -- -- -- 137,000
Environmental
remediation
liabilities......... -- -- -- 30,000 (30,000)(4) -- --
Current portion of
long-term debt...... 94,000 21,000 (21,000)(4) -- 632,000 (2) -- 972,000
-- -- 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) 1,517,000 (885,000) (438,000) 7,019,000
----------- ----------- ----------- ---------- ----------- ----------- -----------
LONG-TERM DEBT:
Long-term debt, net
of current portion.. 124,000 2,000 (2,000)(4) -- 3,368,000 (2) -- 4,456,000
-- -- 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) -- 8,400,000 (2) (8,400,000) 660,000
----------- ----------- ----------- ---------- ----------- ----------- -----------
Total Long-Term
Debt............... 2,521,000 2,000 1,622,000 -- 11,768,000 (8,400,000) 7,513,000
----------- ----------- ----------- ---------- ----------- ----------- -----------
Total Liabilities... 9,045,000 1,521,000 404,000 1,517,000 10,883,000 (8,838,000) 14,532,000
----------- ----------- ----------- ---------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock,
Series A............ 1,312,000 -- -- -- -- (1,312,000) --
Common stock......... 10,000 -- -- -- -- 4,000 14,000
Additional paid-in
capital............. 17,909,000 3,055,000 (3,055,000)(2) -- -- 13,113,000 31,022,000
Retained earnings
(deficit)........... (8,338,000) (1,592,000) 1,592,000 6,837,000 (6,837,000) -- (8,338,000)
----------- ----------- ----------- ---------- ----------- ----------- -----------
Total Stockholders'
Equity............. 10,893,000 1,463,000 (1,463,000) 6,837,000 (6,837,000) 11,805,000 22,698,000
----------- ----------- ----------- ---------- ----------- ----------- -----------
$19,938,000 $ 2,984,000 $(1,059,000) $8,354,000 $ 4,046,000 $ 2,967,000 $37,230,000
=========== =========== =========== ========== =========== =========== ===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-9
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
RECYCLING ANGLO ANGLO MID-AMERICA MID-AMERICA
INDUSTRIES, INC. IRON & METAL IRON & METAL SHREDDING SHREDDING
MARCH 31, MARCH 31, PRO FORMA MARCH 31, PRO FORMA
1996 1996 ADJUSTMENTS 1996 ADJUSTMENTS
---------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................. $10,735,000 $7,240,000 $(4,433,000)(6) $1,170,000 $ --
Brokerage............. -- -- -- -- --
Other income.......... 28,000 28,000 (27,000)(6) -- --
----------- ---------- ----------- ---------- --------
10,763,000 7,268,000 (4,460,000) 1,170,000 --
----------- ---------- ----------- ---------- --------
COST AND EXPENSES:
Cost of sales......... 9,352,000 5,923,000 8,000 (3) 1,228,000 (39,000)(3)
-- -- (3,646,000)(6) -- --
-- -- (100,000)(7) -- --
Cost of brokerage..... -- -- -- -- --
Personnel............. 862,000 317,000 (225,000)(6) 60,000 --
Professional
services............. 264,000 30,000 -- 6,000 --
Travel................ 60,000 3,000 (3,000)(6) -- --
Occupancy............. 28,000 -- -- -- --
Depreciation and
amortization......... 101,000 20,000 32,000 (3) -- --
-- -- 42,000 (11) -- --
-- -- (20,000)(6) -- --
Interest.............. 245,000 109,000 (54,000)(6) 67,000 --
Management fee........ -- -- -- -- --
Other general and
administrative....... 238,000 193,000 (164,000)(5) 9,000 --
-- -- (75,000)(6) -- --
----------- ---------- ----------- ---------- --------
11,150,000 6,595,000 (4,205,000) 1,370,000 (39,000)
----------- ---------- ----------- ---------- --------
INCOME (LOSS) BEFORE
INCOME TAXES........... (387,000) 673,000 (255,000) (200,000) 39,000
INCOME TAXES (BENEFIT).. (437,000) 229,000 (87,000)(8) -- (63,000)(8)
----------- ---------- ----------- ---------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS,
NET OF INCOME TAXES.... $ 50,000 $ 444,000 $ (168,000) $ (200,000) $102,000
=========== ========== =========== ========== ========
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM AND
INCOME TAXES........... $ 98,000 $ 444,000 $ (168,000) $ (200,000) $102,000
=========== ========== =========== ========== ========
INCOME PER SHARE:
Income from continuing
operations, net of
income taxes......... $ .01
===========
Net income after
extraordinary item
and income taxes..... $ .01
===========
Weighted average
number of common
shares outstanding... 9,773,913
===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-10
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
WEISSMAN WEISSMAN USE OF CONSOLIDATED
IRON & METAL IRON & METAL PROCEEDS PRO FORMA
MARCH 31, PRO FORMA FROM MARCH 31,
1996 ADJUSTMENTS OFFERING 1996
------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Sales................. $ 7,881,000 $ -- $ -- $22,593,000
Brokerage............. 2,476,000 -- -- 2,476,000
Other income.......... 26,000 -- -- 55,000
----------- --------- -------- -----------
10,383,000 -- -- 25,124,000
----------- --------- -------- -----------
COST AND EXPENSES:
Cost of sales......... 5,858,000 80,000 (3) -- 18,574,000
-- (90,000)(5) --
Cost of brokerage..... 2,411,000 -- -- 2,411,000
Personnel............. 301,000 -- -- 1,315,000
Professional
services............. 15,000 -- -- 315,000
Travel................ -- -- -- 60,000
Occupancy............. -- -- -- 28,000
Depreciation and
amortization......... 4,000 -- -- 179,000
Interest.............. -- 190,000 (9) (12,000)(12) 545,000
Management fee........ 45,000 (45,000)(5) -- --
Other general and
administrative....... 151,000 (36,000)(5) -- 316,000
----------- --------- -------- -----------
8,785,000 99,000 (12,000) 23,743,000
----------- --------- -------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES........... 1,598,000 (99,000) 12,000 1,381,000
INCOME TAXES (BENEFIT).. -- 510,000 -- 152,000
----------- --------- -------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS,
NET OF INCOME TAXES.... $ 1,598,000 $(609,000) $ 12,000 $ 1,229,000
=========== ========= ======== ===========
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM AND
INCOME TAXES........... $ 1,598,000 $(609,000) $ 12,000 $ 1,277,000
=========== ========= ======== ===========
INCOME PER SHARE:
Income from continuing
operations, net of
income taxes......... $ .12
===========
Net income after
extraordinary item
and income taxes..... $ .13
===========
Weighted average
number of common
shares outstanding... 9,943,134
===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-11
<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, Mid-America and
Weissman were consummated at the beginning of the applicable periods
presented. The adjustments relating to the pro forma consolidated balance
sheet are computed assuming the acquisitions of Mid-America and Weissman were
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.
Weissman
Reflects the acquisition of accounts receivable, inventory, buildings,
equipment and land for note payable and cash. The acquisition of Weissman is
recorded using the purchase method.
NOTE 3--ADDITIONAL DEPRECIATION AND AMORTIZATION
Anglo and Weissman
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 for Anglo.
Mid-America
Adjusts depreciation of property and equipment due to the allocated cost of
the assets acquired.
NOTE 4--UNACQUIRED ASSETS AND LIABILITIES
Mid-America
Removes assets and liabilities that were not acquired or assumed by the
Company.
Weissman
Removes prepaid pension costs, accrued pension liabilities and other
liabilities not acquired or assumed in the acquisition.
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.
F-12
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Weissman
Removes estimated remediation costs in compliance with the terms of the sale
agreement that will not be incurred in the future.
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
affects of alternative minimum income taxes.
NOTE 9--INTEREST EXPENSE
Reflects interest expense for notes payable used to finance the acquisition
of Weissman (interests at prime plus 1.5%; 10.5% at March 31, 1996) and Anglo
(interest 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 and 79,639
shares of Common Stock to be sold in the public offering which will be used to
repay $438,000 of bridge loan indebtedness. Such adjustments 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.
NOTE 12--USE OF PROCEEDS FROM PUBLIC OFFERING
Reflects estimated use of approximately $19,947,000 of net proceeds from the
public offering for: cash purchase price of Weissman $8,400,000; repurchase of
1,400,586 shares of the Company's common stock for $5,742,000; redeem all of
the Company's outstanding Series A convertible preferred stock and 120,000
shares of the Company's common stock issued in connection with the acquisition
of its Nevada facility for $2,400,000; and repayment of $438,000 of the
Company's bridge loan indebtedness. The remaining $2,967,000 will be used for
working capital and has been presented as cash in the pro forma balance sheet.
Also removes interest expense incurred during the pro forma period for bridge
loan indebtedness.
F-13
<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-14
<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-15
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------- MARCH 31,
1995 1994 1996
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
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-16
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- MARCH 31,
1995 1994 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
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-17
<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>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, 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 2,376,823 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-18
<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-19
<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
=========== =========== =========== =========== ===========
</TABLE>
See Note 21
See accompanying Notes to Consolidated Financial Statements
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--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.
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
F-21
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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,
F-22
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$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.
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.
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.
F-23
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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.
All of the above obligations are collateralized by the assets of NRI.
F-24
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-25
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
RECYCLING ACI PRO FORMA SEPTEMBER 30,
INDUSTRIES, INC. OPTION ADJUSTMENT 1995
---------------- ----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
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)
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>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
RECYCLING ACI PRO FORMA SEPTEMBER 30,
INDUSTRIES, 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.
F-26
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 (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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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
YEAR ENDED SEPTEMBER 30, ENDED
------------------------------------ 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>
F-27
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-28
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INVENTORIES
Inventories which are pledged, consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- MARCH 31,
1995 1994 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................. $350,000 $167,000 $1,779,000
Finished goods................................. 147,000 76,000 297,000
-------- -------- ----------
$497,000 $243,000 $2,076,000
======== ======== ==========
</TABLE>
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (substantially all of which is pledged)
consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------- MARCH 31,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ========== ===========
</TABLE>
NOTE 8--OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- MARCH 31,
1995 1994 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
======== ======== ==========
</TABLE>
F-29
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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-30
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- MARCH 31,
1995 1994 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
========== =========== ==========
</TABLE>
The tax effects of temporary differences and net operating loss
carryforwards that give rise to deferred tax assets and (liabilities) are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ MARCH 31,
1995 1994 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
----------------- ------------------------
1995 1994 1996 1995
---------- ----- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current............................ $ 89,000 $ -- $ 4,000 $--
Deferred........................... (800,000) -- (441,000) --
---------- ----- ---------- ----
$(711,000) $ -- $(437,000) $--
========== ===== ========== ====
</TABLE>
F-31
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- MARCH 31,
1995 1994 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
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%
</TABLE>
F-32
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--NOTES PAYABLE
Notes payable outstanding at September 30, 1995 and 1994 consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1995 1994
------- --------
<S> <C> <C>
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
======= ========
</TABLE>
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-33
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
Maturities of long-term debt are as follows for the periods ending:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
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
======== ========
</TABLE>
F-34
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
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:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
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
========== ==========
</TABLE>
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.
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.
F-35
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-36
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
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.
F-37
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-38
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
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.
F-39
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments are as follows for the periods ending:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
Capitalized cost............................... $118,000 $1,918,000
Accumulated depreciation....................... (6,000) (72,000)
-------- ----------
$112,000 $1,846,000
======== ==========
Depreciation expense........................... $ 6,000 $ 66,000
======== ==========
</TABLE>
F-40
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
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
======== ==========
</TABLE>
F-41
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 21--SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NONCASH
INVESTING AND FINANCING ACTIVITIES
<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>
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
F-42
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
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:
<TABLE>
<S> <C>
Inventories................................................... $ 55,000
Land.......................................................... 310,000
Buildings and improvements.................................... 560,000
Machinery and equipment....................................... 1,000,000
----------
Total....................................................... $1,925,000
==========
</TABLE>
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 $10,000,000
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 security holders.
F-43
<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-44
<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-45
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
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
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
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 par-
ty............................................. 182,000 --
------------ ------------
Total Current Liabilities..................... 778,000 1,707,000
------------ ------------
DEFFERED 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
------------ ------------
STOCKHOLDERS' EQUITY:
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
============ ============
</TABLE>
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-46
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
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)
=========== ===========
</TABLE>
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-47
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
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
=========== =========
</TABLE>
The "Notes to Consolidated Financial Statements of Recycling Industries, Inc.
and Subsidiaries" are an integral part of theses statements
See accompanying Notes to Condensed Financial Information of Registrant
F-48
<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:
<TABLE>
<S> <C>
5% note due December 1, 1995..................................... $125,000
========
</TABLE>
F-49
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Anglo Metal, Inc.
Harlingen, Texas
We have audited the accompanying balance sheets of Anglo Metal, Inc. dba
Anglo Iron & Metal, as of December 31, 1995 and 1994 and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Anglo Metal, Inc. dba
Anglo Iron & Metal, as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
AJ. Robbins, PC.
Certified Public Accountants and
Consultants
Denver, Colorado
March 22, 1996
F-50
<PAGE>
ANGLO METAL, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................... $ -- $ 146,000
Trade accounts receivable, pledged..................... 641,000 660,000
Other receivables, related parties..................... 70,000 75,000
Inventories............................................ 1,437,000 1,041,000
Prepaid expenses....................................... 56,000 52,000
---------- ----------
Total Current Assets................................. 2,204,000 1,974,000
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depre-
ciation and amortization of $703,000 and $614,000....... 1,300,000 1,332,000
---------- ----------
OTHER ASSETS:
Cash surrender value life insurance.................... 116,000 111,000
Other.................................................. 16,000 --
---------- ----------
Total Other Assets................................... 132,000 111,000
---------- ----------
$3,636,000 $3,417,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft......................................... $ 218,000 $ --
Trade accounts payable................................. 373,000 638,000
Line of credit, bank................................... -- 839,000
Accrued liabilities.................................... 34,000 53,000
Income taxes payable................................... 140,000 --
Environmental cleanup liabilities...................... 1,194,000 1,194,000
Due to Recycling Industries, Inc....................... 1,588,000 --
Current portion of long-term debt...................... -- 8,000
Current portion of capital lease....................... -- 64,000
---------- ----------
Total Current Liabilities............................ 3,547,000 2,796,000
---------- ----------
LONG-TERM DEBT:
Long-term debt, less current portion................... -- 226,000
Capital lease, less current portion.................... -- 46,000
---------- ----------
Total Long-Term Debt................................. -- 272,000
---------- ----------
Total Liabilities.................................... 3,547,000 3,068,000
---------- ----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 1,000,000 shares
authorized; 50,000 shares issued and outstanding...... 50,000 50,000
Retained earnings...................................... 39,000 299,000
---------- ----------
89,000 349,000
---------- ----------
Total Stockholders' Equity........................... $3,636,000 $3,417,000
========== ==========
</TABLE>
See accompanying Notes to Financial Statements
F-51
<PAGE>
ANGLO METAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Sales.................................... $15,116,000 $12,128,000 $10,189,000
Brokerage................................ 216,000 700,000 352,000
Other.................................... 7,000 38,000 20,000
----------- ----------- -----------
Total Revenues......................... 15,339,000 12,866,000 10,561,000
----------- ----------- -----------
COST OF SALES AND EXPENSES:
Cost of sales............................ 13,739,000 11,398,000 9,698,000
Cost of brokerage........................ 181,000 600,000 324,000
Environmental cleanup costs.............. -- -- 729,000
Personnel................................ 414,000 346,000 422,000
Professional services.................... 66,000 32,000 31,000
Depreciation and amortization............ 11,000 11,000 10,000
Interest................................. 133,000 102,000 56,000
Other general and administrative......... 336,000 205,000 156,000
----------- ----------- -----------
Total Cost of Sales and Expenses....... 14,880,000 12,694,000 11,426,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.......... 459,000 172,000 (865,000)
PROVISION FOR INCOME TAXES................. 140,000 -- --
----------- ----------- -----------
NET INCOME (LOSS).......................... $ 319,000 $ 172,000 $ (865,000)
=========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-52
<PAGE>
ANGLO METAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
--------------
RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1992............... 50,000 $50,000 $1,290,000 $1,340,000
Net (loss)............................... (865,000) (865,000)
Dividends paid........................... (97,000) (97,000)
------ ------- ---------- ----------
Balance, December 31, 1993............... 50,000 50,000 328,000 378,000
Net income............................... 172,000 172,000
Dividends paid........................... (201,000) (201,000)
------ ------- ---------- ----------
Balance, December 31, 1994............... 50,000 50,000 299,000 349,000
Net income............................... 319,000 319,000
Dividends paid........................... (579,000) (579,000)
------ ------- ---------- ----------
Balance, December 31, 1995............... 50,000 $50,000 $ 39,000 $ 89,000
====== ======= ========== ==========
</TABLE>
See accompanying Notes to Financial Statements
F-53
<PAGE>
ANGLO METAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss).......................... $ 319,000 $ 172,000 $(865,000)
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Depreciation and amortization............ 105,000 113,000 100,000
Changes in:
Trade accounts receivable.............. 19,000 (335,000) 224,000
Other receivables, related parties..... 5,000 5,000 (24,000)
Inventories............................ (396,000) (135,000) 92,000
Prepaid expenses....................... (4,000) (24,000) 38,000
Bank overdraft......................... 218,000 -- (6,000)
Trade accounts payable................. (265,000) 73,000 (67,000)
Accrued liabilities.................... 7,000 (32,000) (111,000)
Income taxes payable................... 140,000 -- --
Environmental cleanup liabilities...... -- -- 729,000
--------- ---------- ---------
Net Cash Provided (Used) by Operating
Activities.......................... 148,000 (163,000) 110,000
--------- ---------- ---------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of property and equipment......... (56,000) (162,000) (168,000)
Proceeds from sale of equipment............ -- 2,000 --
Increase in deposits....................... (16,000) -- --
Increase in cash surrender value life
insurance................................. (5,000) (8,000) (41,000)
--------- ---------- ---------
Net Cash (Used) by Investing
Activities.......................... (77,000) (168,000) (209,000)
--------- ---------- ---------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Issuance of long-term debt................. 247,000 -- --
Payments on long-term debt................. (36,000) (8,000) (3,000)
Advances on line of credit................. 250,000 1,452,000 637,000
Repayment on line of credit................ (49,000) (867,000) (712,000)
Payments on capital lease obligation....... (50,000) (58,000) (40,000)
Dividends paid............................. (579,000) (201,000) 330,000
--------- ---------- ---------
Net Cash Provided (Used) by Financing
Activities.......................... (217,000) 318,000 212,000
--------- ---------- ---------
NET INCREASE (DECREASE) IN CASH.............. (146,000) (13,000) 113,000
CASH, beginning of year...................... 146,000 159,000 46,000
--------- ---------- ---------
CASH, end of year............................ $ -- $ 146,000 $ 159,000
========= ========== =========
CASH PAID FOR INTEREST....................... $ 48,000 $ 102,000 $ 56,000
========= ========== =========
</TABLE>
See Note 13
See accompanying Notes to Financial Statements
F-54
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Activity
Anglo Metal, Inc. dba Anglo Iron & Metal (Anglo) was incorporated in the
State of Texas in December 1985. Anglo operates in the metals recycling
industry (purchasing, processing, selling and brokering ferrous and non-
ferrous metals) with its operations located in southern Texas. Anglo operates
one of 12 heavy duty automotive shredders located in Texas. Processed scrap is
sold to steel mill customers and other metals processors throughout the
southern region of the United States and northern Mexico.
Sale of Anglo
On December 11, 1995, Anglo sold to Recycling Industries, Inc. (RII)
substantially all of the assets and the business of Anglo.
The assets sold 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. Certain real
property, buildings and leasehold improvements used in the metals recycling
business were also sold.
The sales 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 equal monthly installments of
$186,500 over ten months 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 $10,000, including interest; and 227,693 shares of RII
common stock valued at $925,000.
Of the cash received at the closing of the sale, $1,800,000 was obtained
through a sale-leaseback transaction with Ally Capital Corporation,
collateralized by all of the machinery and equipment sold, accounts receivable
and inventory, 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 RII.
RII signed a consulting and non-competition agreement with the president of
Anglo. The term of the noncompete portion is for a term of 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 real property sold and the common stock given by RII 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:
<TABLE>
<S> <C>
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)
RII common stock............................................. (925,000)
-----------
Cash paid at closing......................................... 2,079,000
Capital lease obligation..................................... (1,800,000)
-----------
Cash from operating capital................................ $ 279,000
===========
</TABLE>
F-55
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Concentration of Credit Risk
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At December 31, 1995 and 1994, accounts
receivable balances for three major customers were $336,476 and $320,335, or
54% and 49%, respectively, of the total accounts receivable balance. Ongoing
credit evaluations of customers' financial condition are performed and,
generally, no collateral is required. Anglo does not maintain reserves for
potential credit losses since such past losses, in the aggregate, have not
been significant; therefore, the allowance for doubtful accounts receivable is
zero at December 31, 1995 and 1994. Customers are located throughout the
Southern region of the United States and Mexico.
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 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 5 to 20 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property, plant and
equipment was $105,000, $113,000 and $100,000 for the years ended December 31,
1995, 1994 and 1993, 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 costs improve Anglo'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 Anglo'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 expenses approximate fair value because of the short maturity of these
items. The fair value of notes payable 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-56
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Income Taxes
Anglo and its stockholders have elected under the Internal Revenue Code to
be 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 its
taxable income. Accordingly, no provision or liability for federal income
taxes has been included in these financial statements for Anglo for 1994 and
1993. On January 1, 1995, Anglo terminated its S-corporation election.
Effective January 1, 1995, Anglo 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 the 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
is 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 and termination of the S-corporation election resulted in
recognition of a net deferred tax asset of $250,000. Anglo has not recorded a
deferred tax asset at January 1, 1995 or December 31, 1995 since it was more
likely than not that the tax assets would not be realized. Therefore, the
adoption of FAS 109 and the termination of the S-corporation election did not
have a material effect on Anglo's financial statements and there was no
cumulative effect of this change in accounting for income taxes at January 1,
1995. There is also no effect on net income for the year ended December 31,
1995.
Cash
For purposes of reporting cash flows, Anglo considers all funds with
original maturities of three months or less to be cash equivalents.
NOTE 2--INVENTORIES
Inventories, pledged, consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
<S> <C> <C>
Raw materials....................................... $ 766,000 $ 866,000
Finished goods...................................... 671,000 175,000
---------- ----------
$1,437,000 $1,041,000
========== ==========
</TABLE>
Included in inventory are $50,000 and $10,000 of indirect costs at December
31, 1995 and 1994, respectively.
F-57
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Land............................................. $ 10,000 $ 10,000
Building and improvements........................ 109,000 109,000
Heavy machinery and equipment.................... 1,762,000 1,482,000
Transportation equipment......................... 99,000 115,000
Asset under capital lease obligation............. -- 208,000
Office equipment................................. 23,000 22,000
---------- ----------
Total.......................................... 2,003,000 1,946,000
Less accumulated depreciation and amortization... (703,000) (614,000)
---------- ----------
Net............................................ $1,300,000 $1,332,000
========== ==========
</TABLE>
NOTE 4--CASH SURRENDER VALUE LIFE INSURANCE
Anglo is the beneficiary of a life insurance policy on the President of
Anglo. The face amount of the policy is $1,800,000. Anglo's cash surrender
value was $116,000 and $111,000 at December 31, 1995 and 1994, respectively.
The policy is collateral for bank debt.
NOTE 5--ACCRUED EXPENSES
Accrued expenses consists primarily of accrued salaries and related expenses
at December 31, 1995 and 1994.
NOTE 6--LINE OF CREDIT
Anglo has a revolving line of credit with a bank for a maximum of $250,000
with interest at prime plus 1% (10% at December 31, 1995) collateralized by
equipment, inventory, accounts receivable, officer life insurance policy and
stockholder and officer personal guarantees. The balance was zero at December
1995 (see Note 8).
NOTE 7--LONG-TERM DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
----- --------
<S> <C> <C>
Note payable to individual with original principal of
$245,000 and interest at 10% per annum; monthly principal
and interest payments of $2,600; collateralized by a
$1,800,000 key man life insurance policy; paid December 1995
(see Note 8)................................................ $ -- $222,000
Note payable to bank with original principal amount of
$17,200 and interest at 11% per annum; monthly principal and
interest payments of $800; collateralized by equipment; paid
December 1995 (see Note 8).................................. -- 12,000
----- --------
-- 234,000
Less current portion......................................... -- 8,000
----- --------
$ -- $226,000
===== ========
</TABLE>
F-58
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 8--DEBT RESTRUCTURE
In connection with the sale of Anglo to RII, certain debt of Anglo was paid
by RII prior to December 31, 1995 and has been recorded in the financial
statements as advances from RII, a current liability. The following is a
summary of the debt restructure.
In December 1995, RII entered into an agreement with an unrelated entity
(BAF) whereby BAF advances 80% of the purchased trade accounts receivable and
collects payments on purchased receivables from Anglo's customers. BAF charges
RII an administrative fee equal to 1% of the face amount of the purchased
receivables and a monthly finance charge in the amount of 10% of the average
daily outstanding balance of all purchased receivables. RII is required to
repurchase any receivables not collected from customers within 90 days. The
balance at December 31, 1995 was $11,000.
On December 13, 1995, RII entered into a capital lease with Ally Capital
Corporation for $1,800,000 of equipment acquired from Anglo (see Note 1). The
proceeds were used to pay off debt in the amount of $1,256,000 and capital
lease obligations of $60,000. The remaining balance of $484,000 was used to
reduce a $750,000 note payable that was guaranteed by Anglo.
NOTE 9--INCOME TAXES
The tax effects of temporary differences and net operating loss
carryforwards that give rise to deferred tax assets and (liabilities) at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
Temporary differences:
Property and equipment....................................... $(220,000)
Accrued environmental liabilities............................ 362,000
Inventories.................................................. 68,000
Valuation allowance.......................................... (210,000)
---------
$ --
=========
The provision for income taxes consists of the following at December 31,
1995:
Current...................................................... $ 140,000
Deferred..................................................... --
---------
$ 140,000
=========
The components of deferred income tax (benefit) expenses are as follows as
of December 31, 1995:
Depreciation and amortization.................................. $ 40,000
Valuation allowance............................................ (40,000)
---------
$ --
=========
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 the reported amount of income tax expense for the year ended
December 31, 1995:
Tax expense (benefit) at federal statutory rates............... $ 170,000
Increase (decrease) resulting from:
Nondeductible items.......................................... 8,000
Depreciation and amortization................................ (40,000)
Other........................................................ 2,000
---------
$ 140,000
=========
</TABLE>
F-59
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 10--ECONOMIC DEPENDENCY
The Company is economically dependent on major customers for annual sales as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 26% 25% 34%
Customer B.................................................. 18% 10% --%
Customer C.................................................. 10% --% --%
Customer D.................................................. 12% --% 12%
Customer E.................................................. --% --% 11%
Customer F.................................................. --% 12% --%
</TABLE>
NOTE 11--COMMITMENTS AND CONTINGENCIES
Loan Guarantee
Anglo is guarantor of a note payable for its stockholders to a bank with an
original principal of $750,000; interest at 10.5% per annum; monthly principal
and interest payments of $8,000. The note is collateralized by equipment,
personal guarantees of Anglo stockholders and president, and assignment of key
man life insurance policy; due December 1988. The note balance is $207,000 and
$717,000 at December 31, 1995 and 1994. Of the cash received at closing,
$484,000 was paid directly to the note holder by RII (see Note 8). RII is not
a guarantor for the remaining outstanding principal.
Litigation
Anglo Metal, Inc. and Anglo Iron & Metal are defendants in a lawsuit by the
State of Texas and Houston Lighting & Power, and Central Power & Light for
$924,000. Anglo is vigorously defending the case. A liability of $465,000 has
been recorded in the financial statements of Anglo. Under the terms of the
purchase agreement, RII shall not assume any liabilities of Anglo arising on
or before the closing date with respect to any action, event or occurrence.
Anglo is also a party to a number of lawsuits arising in the normal course
of business. In the opinion of management, the resolution of these matters
will not have a material adverse effect on Anglo's financial position.
Environmental Liabilities
Anglo is a party to proceedings before state and federal regulatory agencies
relating to environmental remediation issues. The assessment of the required
response and remedial costs associated with the cleanup is extremely complex.
Among the variables that management must assess are imprecise engineering
estimates, continually evolving governmental standards, potential recoveries
from insurance coverage and laws which impose joint and several liability.
During January 1993, Environmental Protection Agency (EPA) conducted an on
site investigation and discovered a violation of the Toxic Substance Control
Act, concerning illegal disposal of Poly Chlorinated Biphenyl (PCB) containing
capacitors. Anglo was assessed a $129,000 penalty and was ordered to remediate
the site and dispose of contaminated soil in accordance with EPA standards.
The initial engineering estimates for remediation and soil disposal are within
the range of $200,000 to $600,000. A liability for $729,000 has been recorded
in the Anglo financial statements. Under the terms of the acquisition of Anglo
by RII, the stock component of the purchase price has been escrowed for
remediation costs.
Leases
Anglo leases facilities under non-cancelable operating lease through 2005.
The monthly lease payments are $4,000 per month for the term of the lease.
Total rental expense for each of the three years 1995, 1994 and 1993 was
$47,000. Anglo also leased equipment under a capital lease for $208,000 which
was paid in December 1995.
F-60
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1995, 1994 AND 1993
Future minimum lease payments are as follows at December 31:
<TABLE>
<S> <C>
1996............................................................. $ 30,000
1997............................................................. 30,000
1998............................................................. 30,000
1999............................................................. 30,000
2000............................................................. 30,000
Thereafter....................................................... 150,000
--------
$300,000
========
</TABLE>
NOTE 12--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.
Accounts receivable from related parties consist of advances made to one of
the officers of Anglo and to one of the stockholders. These advances are non-
interest bearing. The officer's balance was $59,000 and $64,000 for 1995 and
1994, respectively, and the stockholder's balance was $11,000 at the end of
1995 and 1994.
NOTE 13--SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOW FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1995, the long term debt of $1,256,000
and the capital lease of $60,000 were paid by RII.
During the year ended December 31, 1995, a capital lease in the amount of
$208,000 was entered into for the acquisition of equipment.
During the year ended December 31, 1995, $17,000 of equipment was acquired
with a note.
During the year ended December 31, 1995, $807,000 of the line of credit
balance was refinanced to a long-term installment note payable.
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 SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
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
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-63
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------
1995 1996 1995
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
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
========== ========= ==========
</TABLE>
See accompanying Notes to Financial Statements
F-64
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENT 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 (Un-
audited)................... 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 THREE
FOR THE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 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
========= ========= =========
</TABLE>
See Note 10
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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.
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
F-67
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Raw materials..................................... $74,000 $34,000
Finished goods.................................... 12,000 --
------- -------
$86,000 $34,000
======= =======
</TABLE>
Included in inventories are $2,000 of indirect costs at December 31, 1995.
F-68
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
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
========== ==========
</TABLE>
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
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
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
========== ==========
</TABLE>
F-69
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
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
======= =======
</TABLE>
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).
F-70
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
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.
F-71
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors Weissman Industries, Inc. Waterloo, Iowa
We have audited the accompanying balance sheets of Weissman Iron and Metal,
a Division of Weissman Industries, Inc. (the Division), as of December 31,
1995 and 1994 and the related statements of operations, changes in division
equity and cash flows for each of the years in the three year period ended
December 31, 1995. These financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Weissman Iron and Metal, a
Division of Weissman Industries Inc. as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
AJ. Robbins, PC. Certified Public
Accountants and Consultants
Denver, Colorado
April 21, 1996
F-72
<PAGE>
WEISSMAN IRON AND METAL
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................ $ 9,000 $ 8,000 $ 9,000
Trade accounts receivable................... 1,527,000 1,579,000 2,170,000
Other receivables........................... 1,000 46,000 --
Inventories................................. 1,327,000 1,031,000 765,000
Prepaid expenses............................ 10,000 53,000 10,000
---------- ---------- ----------
Total Current Assets.................... 2,874,000 2,717,000 2,954,000
PROPERTY, PLANT AND EQUIPMENT, net............ 5,452,000 5,140,000 5,400,000
---------- ---------- ----------
$8,326,000 $7,857,000 $8,354,000
========== ========== ==========
LIABILITIES AND DIVISION EQUITY
CURRENT LIABILITIES:
Bank overdraft.............................. $ 39,000 $ 5,000 $ 115,000
Trade accounts payable...................... 983,000 612,000 1,200,000
Trade accounts payable, related party....... -- 21,000 --
Accrued liabilities:
Payroll and related taxes................. 246,000 245,000 145,000
Pension termination costs................. 27,000 -- 27,000
Environmental cleanup costs............... 30,000 -- 30,000
Sales and property taxes.................. 40,000 33,000 --
Other..................................... 31,000 20,000 --
---------- ---------- ----------
Total Current Liabilities............... 1,396,000 936,000 1,517,000
COMMITMENTS AND CONTINGENCIES:
DIVISION EQUITY............................... 6,930,000 6,921,000 6,837,000
---------- ---------- ----------
$8,326,000 $7,857,000 $8,354,000
========== ========== ==========
</TABLE>
See accompanying Notes to Financial Statements
F-73
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................. $16,207,000 $12,959,000 $9,378,000 $3,896,000 $3,941,000
Brokerage............. 2,956,000 1,352,000 241,000 1,192,000 446,000
Other................. 1,000 11,000 11,000 25,000 1,000
----------- ----------- ---------- ---------- ----------
Total Revenues...... 19,164,000 14,322,000 9,630,000 5,113,000 4,388,000
----------- ----------- ---------- ---------- ----------
COST OF SALES AND
EXPENSES:
Cost of sales......... 12,235,000 9,075,000 7,456,000 3,047,000 2,753,000
Cost of brokerage..... 2,894,000 1,348,000 237,000 1,158,000 436,000
Personnel............. 654,000 564,000 396,000 108,000 114,000
Professional
services............. 17,000 26,000 22,000 7,000 3,000
Other, general and
administrative....... 305,000 270,000 282,000 62,000 90,000
Depreciation and
amortization
expense.............. 7,000 7,000 7,000 2,000 2,000
Environmental cleanup
costs................ 30,000 -- -- -- --
Loss on disposal of
equipment............ -- -- -- 7,000 --
----------- ----------- ---------- ---------- ----------
Total Cost of Sales
and Expenses....... 16,142,000 11,290,000 8,400,000 4,391,000 3,398,000
----------- ----------- ---------- ---------- ----------
NET INCOME.............. $ 3,022,000 $ 3,032,000 $1,230,000 $ 722,000 $ 990,000
=========== =========== ========== ========== ==========
</TABLE>
See accompanying Notes to Financial Statements
F-74
<PAGE>
WEISSMAN IRON AND METAL
STATEMENT OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE THREE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Balance, December 31, 1992......................................... $ 5,818,000
Net income......................................................... 1,230,000
Unrecognized pension costs......................................... (64,000)
Distributions to related parties, net.............................. (635,000)
-----------
Balance, December 31, 1993......................................... 6,349,000
Net income......................................................... 3,032,000
Recognized pension costs........................................... 64,000
Distributions to related parties, net.............................. (2,524,000)
-----------
Balance, December 31, 1994......................................... 6,921,000
Net income......................................................... 3,022,000
Unrecognized pension costs......................................... (47,000)
Distributions to related parties, net.............................. (2,966,000)
-----------
Balance, December 31, 1995......................................... 6,930,000
Net income (unaudited)............................................. 722,000
Distributions to related parties, net (unaudited).................. (815,000)
-----------
Balance, March 31, 1996 (unaudited)................................ $ 6,837,000
===========
</TABLE>
See accompanying Notes to Financial Statements
F-75
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (TO) FROM
OPERATING ACTIVITIES:
Net income............ $ 3,022,000 $ 3,032,000 $1,230,000 $ 722,000 $ 990,000
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization....... 312,000 261,000 220,000 148,000 78,000
Loss on disposal of
equipment.......... 20,000 6,000 2,000 7,000 --
Changes in:
Trade accounts
receivable........ 52,000 (464,000) (618,000) (643,000) (405,000)
Other receivables.. (21,000) 30,000 (2,000) 1,000 (22,000)
Prepaid expenses... 67,000 (5,000) (2,000) -- (21,000)
Inventories........ (296,000) (66,000) (16,000) 562,000 (236,000)
Trade accounts
payable........... 371,000 156,000 243,000 217,000 206,000
Accrued
liabilities....... 66,000 47,000 106,000 (172,000) (119,000)
Bank overdraft..... 34,000 5,000 -- 76,000 (5,000)
Environmental
cleanup costs..... 30,000 -- -- -- --
----------- ----------- ---------- --------- ---------
Net Cash Provided
by Operating
Activities....... 3,657,000 3,002,000 1,163,000 918,000 466,000
----------- ----------- ---------- --------- ---------
CASH FLOWS (TO) FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (644,000) (648,000) (424,000) (103,000) --
Proceeds from sale of
property and
equipment............ -- -- -- -- 9,000
----------- ----------- ---------- --------- ---------
Net Cash Provided
(Used) by
Investing
Activities....... (644,000) (648,000) (424,000) (103,000) 9,000
----------- ----------- ---------- --------- ---------
CASH FLOWS (TO) FROM
FINANCING ACTIVITIES:
Unrecognized pension
costs................ (47,000) 64,000 (64,000) -- --
Distributions to
related parties...... (2,965,000) (2,525,000) (635,000) (815,000) (455,000)
----------- ----------- ---------- --------- ---------
Net Cash (Used) by
Financing
Activities....... (3,012,000) (2,461,000) (699,000) (815,000) (455,000)
----------- ----------- ---------- --------- ---------
NET INCREASE (DECREASE)
IN CASH............... 1,000 (107,000) 40,000 -- 20,000
CASH, beginning of
period................ 8,000 115,000 75,000 9,000 8,000
----------- ----------- ---------- --------- ---------
CASH, end of period.... $ 9,000 $ 8,000 $ 115,000 $ 9,000 $ 28,000
=========== =========== ========== ========= =========
CASH PAID FOR
INTEREST.............. $ -- $ -- $ 1,000 $ -- $ --
=========== =========== ========== ========= =========
</TABLE>
See accompanying Notes to Financial Statements
F-76
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Activity
Weissman Industries, Inc. was incorporated in January 1975 in the State of
Iowa. Weissman Iron and Metal, a division of Weissman Industries, Inc.
(Weissman) operates in the metals recycling industry (purchasing, processing,
selling and brokering ferrous and non-ferrous metals) with its operations
located in Waterloo, Iowa. Weissman operates one of three heavy duty
automotive shredders in Iowa. Processed scrap is sold to steel mill customers
located in or around Waterloo, Iowa.
Agreement to Sell Weissman
The stockholders of Weissman Industries, Inc. have signed an agreement with
Recycling Industries, Inc. (RII) to sell the business of Weissman to RII,
through the sale of all the outstanding stock of Weissman Industries, Inc.
Prior to the sale of stock to RII, Weissman Industries, Inc. sold its other
operating divisions to unrelated entities. Since the other operations were
previously sold to unrelated entities, are not being acquired by RII and do
not effect Weissman, they are not included in the financial statements of
Weissman.
Both RII and Weissman Industries, Inc. have agreed to jointly elect section
338(h)(10) treatment under the Internal Revenue Code so that the sale of
Weissman will be treated as an asset sale for federal and state income tax
purposes.
The assets to be sold consist of a heavy duty automotive shredder, metal
shearing equipment, Coreco aluminum furnace, heavy equipment, tools and
rolling stock, real property, buildings, inventories and accounts receivable
used in the business of recycling ferrous and non-ferrous metals.
The sale price for Weissman is $12,400,000 and is allocated as follows:
<TABLE>
<S> <C>
Trade accounts receivable..................................... $ 1,600,000
Inventories................................................... 900,000
Buildings and improvements.................................... 3,000,000
Automotive shredder........................................... 3,000,000
Heavy equipment............................................... 1,900,000
Equipment and rolling stock................................... 1,200,000
Land.......................................................... 800,000
-----------
Total purchase price........................................ $12,400,000
===========
</TABLE>
Basis of Presentation
The accompanying financial statements include only the assets, liabilities,
equity and operations of the metals recycling division of Weissman Industries,
Inc. that is expected to be acquired by RII through a stock purchase agreement
upon the closing of a public offering of RII common stock.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited interim financial statements for
the three 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 ended March 31, 1996 are not necessarily indicative of the
results to be expected for the year ended December 31, 1996.
F-77
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At December 31, 1995 and 1994, and March
31, 1996 (unaudited) accounts receivable balances for three major customers
were $1,216,000, $967,000 and $1,477,000, or 80%, 61% and 69%, respectively,
of the total accounts receivable balance. Ongoing credit evaluations of
customers' financial condition are performed and, generally, no collateral is
required. Weissman does not maintain reserves for potential losses since such
past losses, in the aggregate, have not been significant; therefore, the
allowance for doubtful accounts receivable is zero at December 31, 1995 and
1994, and at March 31, 1996 (unaudited). Customers are located in the upper
Midwest region of the United States (in or around Waterloo, Iowa).
Inventories
Inventories consist primarily of ferrous and non-ferrous scrap metal.
Inventory costs for finished goods include material, labor and plant overhead.
Inventory is 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 5 to 20 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property, plant and
equipment was $312,000, $261,000, $220,000, $148,000 and $78,000 for the years
ended December 31, 1995, 1994 and 1993, and for the three months ended March
31, 1996 and 1995 (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 the Weissman 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 costs 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 Weissman'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 expenses approximate fair value because of the short maturity of these
items.
Income Taxes
Effective December 30, 1988, Weissman Industries, Inc. and its stockholders
elected under the Internal Revenue Code to be an S-corporation for tax
purposes. In lieu of corporate income taxes, the stockholders of an
F-78
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
S-corporation are taxed on their proportionate share of taxable income.
Accordingly, no provision or liability for federal income taxes has been
included in these financial statements.
Upon completion of the sale of Weissman Industries, Inc. to RII, the tax
status of the Weissman Industries, Inc. will change from an S-corporation to a
taxable entity. Due to the tax effect of the sale there will be no significant
differences between financial statement and tax basis of assets and
liabilities and therefore the sale will not generate a deferred tax asset or
liability.
Cash
For purposes of reporting cash flows, Weissman considers all funds with
maturities of three months or less to be cash equivalents.
NOTE 2--INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................ $ 544,000 $ 526,000 $352,000
Finished goods........................... 783,000 505,000 413,000
---------- ---------- --------
$1,327,000 $1,031,000 $765,000
========== ========== ========
</TABLE>
Included in inventory is $165,000, $108,000 and $84,000 of indirect costs at
December 31, 1995 and 1994, and March 31, 1996 (unaudited), respectively.
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1994 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land............................... $ 153,000 $ 153,000 $ 153,000
Building and improvements.......... 2,983,000 2,970,000 2,983,000
Heavy machinery and equipment...... 4,602,000 4,289,000 4,648,000
Roads and railroad tracks.......... 184,000 178,000 184,000
Transportation equipment........... 863,000 757,000 863,000
Office equipment................... 58,000 58,000 58,000
----------- ----------- -----------
Total............................ 8,843,000 8,405,000 8,889,000
Less accumulated depreciation.... (3,391,000) (3,265,000) (3,489,000)
----------- ----------- -----------
$ 5,452,000 $ 5,140,000 $ 5,400,000
=========== =========== ===========
</TABLE>
F-79
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ECONOMIC DEPENDENCY
Weissman is economically dependent on three major customers for sales as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1995 1994 1993 1996 1995
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A................... 38% 32% 28% 45% 32%
Customer B................... 19% 22% 12% 5% 18%
Customer C................... 14% 16% 29% 15% 13%
</TABLE>
Weissman also purchased inventory from two of these customers as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1995 1994 1993 1996 1995
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A................... 5% 6% 9% 4% 7%
Customer B................... 20% 19% 15% 34% 18%
</TABLE>
NOTE 5--COMMITMENTS AND CONTINGENCIES
Environmental Liabilities
In November 1993, Weissman Industries, Inc. received a notice from the US
Environmental Protection Agency (EPA) that it may be a potentially responsible
party (PRP), along with hundreds of others, with regard to a recycling site in
Alabama which received a shipment of material from Weissman. Under the law, a
PRP may be ordered to perform response actions, may be liable for costs
incurred and may be required to pay damages for injury.
In October, 1995 the EPA notified Weissman Industries, Inc. that since
Weissman had a lower volumetric ranking, EPA intends to offer a de minimus
settlement to Weissman Industries, Inc. after completing negotiations with
larger ranking PRPs. Weissman has recorded an accrual in the amount of $30,000
for a de minimus settlement allowance.
The assessment of the required response and remedial costs associated with
the clean up is extremely complex. Among the variables that management must
assess are imprecise engineering estimates, continually evolving governmental
standards, potential recoveries from insurance coverage and laws which impose
joint and several liability.
Self Funded Employee Health Care Plan
Weissman maintains and self funds a health care plan for all full time
employees after 90 days of employment. A third party administrator is employed
to control costs. The maximum specific costs are covered by a reinsurance
provider.
Loan Guarantee
Weissman's trade receivables and inventories are collateral for a line of
credit with a maximum of $1,000,000 maintained by Weissman Industries, Inc.
There was $-0-, $775,000 and $-0- outstanding under this line of credit as of
December 31, 1995 and 1994, and March 31, 1996 (unaudited), respectively.
F-80
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Union Contract
Substantially all of the labor force that works in the recycling operations
in the yard are members of the International Union of United Automobile,
Aerospace and Agricultural Implement Workers of America and work under a
collective bargaining agreement which expires November 30, 1996. Management
has not yet commenced negotiations, however, in the past have successfully
negotiated contract renewals.
Turnings and Borings Contract
On September 1, 1991, Weissman entered into a service agreement with a
significant customer to process the customer's turnings and borings for a term
of seven years for a range of $13 to $22 per ton based on the product plus
approximately $4,000 per month for reimbursement of equipment costs.
NOTE 6--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.
Weissman purchases raw material inventory, sells miscellaneous services and
pays certain expenses to a related division of Weissman Industries, Inc. This
related division was sold to third parties in February 1995. The related party
transactions were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -----------------------
1995 1994 1993 1996 1995
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Purchase of inventory... $ 31,000 $168,000 $ 99,000 $ -- $31,000
Management fee charge... $180,000 $180,000 $180,000 $45,000 $45,000
Sales of services, net.. $ 19,000 $205,000 $168,000 $ -- $14,000
</TABLE>
The purchase of the raw material approximates the cost paid to other large
bulk suppliers of Weissman. Costs charged are based upon actual amounts paid
by Weissman.
The balances due from the other divisions are shown as distributions from
Division Equity.
NOTE 7--RETIREMENT PLAN
Weissman Industries, Inc. has a defined benefit plan (the Plan) covering
substantially all of its employees. The Plan provides for payment of
retirement benefits commencing between the ages of 55 and 65. After meeting
certain qualifications, an employee acquires a vested right to future
benefits. The benefits payable under the Plan are generally determined on the
basis of an employee's length of service and earnings. Annual contributions to
the Plan are sufficient to satisfy legal funding requirements.
Benefits under the Plan were frozen on October 31, 1995 and effective
December 30, 1995 the Plan was terminated. Upon receipt of a favorable
Internal Revenue Service determination letter and approval from Pension
Guaranty Trust the assets will be distributed to the participants. The
termination was approved by the union. The accrued loss due to curtailment at
the termination date was $47,000.
Upon adoption of Financial Accounting Standard Number 87 (FAS 87) Employers'
Accounting for Pensions in 1989, the fair value of Plan assets exceeded
projected benefit liability by $83,000. This initial net asset is being
amortized over 9.4 years.
Plan assets consist of a Group Annuity Contract with Principal Financial
Group.
F-81
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Weissman pension activity consists of approximately 43% of the total Plan.
The following disclosures are for Weissman:
In accordance with FAS 87, Weissman was required to record an additional
minimum pension liability at December 31, 1995 and 1993, and March 31, 1996
(unaudited). This amount represents the excess of the accumulated benefit
obligations over the fair value of Plan assets and accrued pension
liabilities. The liabilities have been offset by intangible assets to the
extent possible. Because the asset recognized may not exceed the amount of
unrecognized prior service cost, the balance of the liability at the end of
each period is reported as a separate reduction to Division Equity.
Amounts are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1994 1993 1996
------- ----- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Intangible assets.......................... $ -- $ -- $ 4,000 $ --
Reduction to Division Equity............... 47,000 -- 64,000 47,000
------- ----- ------- -------
Additional minimum liability............... $47,000 $ -- $68,000 $47,000
======= ===== ======= =======
</TABLE>
The net periodic pension cost is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------------
1995 1994 1993 1996 1995
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service costs--benefits
earned during the
period................. $ 21,000 $ 25,000 $ 18,000 $ -- $ 5,000
Interest cost on
projected benefit
obligation............. 19,000 18,000 15,000 -- 5,000
Actual return on
assets................. (84,000) 15,000 (23,000) -- (21,000)
Net amortization and
deferral............... 60,000 (33,000) 3,000 -- 15,000
-------- -------- -------- ----- --------
Net periodic pension
cost............... $ 16,000 $ 25,000 $ 13,000 $ -- $ 4,000
======== ======== ======== ===== ========
</TABLE>
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1995 1994 1993 1996 1995
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Discount rate.............. 6.25% 7.25% 5.75% -- 6.25%
Rate of increase in
compensation levels....... 5.26% 5.36% 6.00% -- 5.26%
Expected long-term rate of
return on assets.......... 7.75% 7.75% 7.75% -- 7.75%
</TABLE>
F-82
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
The following table sets forth the plan's funded status and amounts
recognized in Weissman's balance sheet for its pension plan at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrual present value of benefit
obligation:
Vested benefit obligation............. $ 358,000 $ 237,000 $ 358,000
========== ========== =========
Accumulated benefit obligation....... $ 358,000 $ 244,000 $ 358,000
========== ========== =========
Projected benefit obligation......... $(358,000) $(268,000) $(358,000)
Plan assets at fair value............ 330,000 263,000 330,000
---------- ---------- ---------
Projected benefit obligation in
excess of plan assets............... (28,000) (5,000) (28,000)
Items not yet recognized in earnings:
Unrecognized net loss............... 63,000 52,000 63,000
Unrecognized (net asset) at January
1, 1989............................ (15,000) (22,000) (15,000)
Unrecognized prior service cost..... -- 3,000 --
Contributions made prior to year
end................................ -- 6,000 --
Loss on curtailment................. (47,000) -- (47,000)
---------- ---------- ---------
Pension (liability) asset recognized
in the balance sheet............... $ (27,000) $ 34,000 $ (27,000)
========== ========== =========
</TABLE>
F-83
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS. ANY INFORMATION OR REPRESENTATIONS NOT HEREIN CONTAINED, IF GIVEN OR
MADE, MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
RESPECT TO THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICI-
TATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. HOWEVER, IN THE EVENT OF A
MATERIAL CHANGE, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 11
Price Range of the Common Stock.......................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Financial Information........................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 24
Management............................................................... 34
Principal Shareholders................................................... 41
Certain Transactions..................................................... 42
Selling Securityholders.................................................. 43
Description of Capital Stock............................................. 44
Shares Eligible for Future Sale.......................................... 46
Underwriting............................................................. 48
Legal Matters............................................................ 49
Experts.................................................................. 49
Change in Independent Accountants........................................ 50
Index to Financial Statements............................................ F-1
Financial Statements..................................................... F-3
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,892,448 SHARES
LOGO
RECYCLING INDUSTRIES, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
Prime Charter Ltd.
JULY , 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses are
estimated except the registration fee and the NASD fee.
<TABLE>
<S> <C>
Registration and filing fee $11,695
NASD filing fee 3,892
Nasdaq National Market listing fee 50,000
Printing and engraving 100,000
Accounting fees and expenses 200,000
Underwriter's Expense Allowance 338,250
Legal fees and expenses 225,000
Blue sky fees and expenses 50,000
Transfer Agent 15,000
Miscellaneous 31,163
----------
Total $1,025,000
==========
</TABLE>
ITEM 14 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification provided under the Company's Articles of Incorporation
The Colorado Business Corporation Act (the "CBCA") authorizes the
indemnification of and advancement of expenses to directors, officers,
employees, fiduciaries and agents of a Colorado corporation against liabilities
which they may incur in such capacities. Article V.B of the Company's Amended
and Restated Articles of Incorporation provides that the Company shall indemnify
and may advance expenses to its directors to the maximum extent permitted by the
CBCA and shall indemnify its officers, employees or agents who are not directors
to the maximum extent permitted by the CBCA or to a greater extent as may be
consistent with law and provided for by resolution of the Company's shareholders
or directors, or in a contract. A summary of the circumstances in which such
indemnification is allowable under the CBCA is provided below, but that
description is qualified in its entirety by reference to the relevant section of
the CBCA.
In general, the CBCA provides that any director may be indemnified against
liabilities (including the obligation to pay a judgment, settlement, penalty,
fine or reasonable expense)
II-1
<PAGE>
incurred in a proceeding and have expenses advanced for such a proceeding
(including any civil, criminal or investigative proceeding whether threatened,
pending or completed) to which the director was made a party because he is or
was a director, except that, if the proceeding is brought by or in the right of
the Company, indemnification is permitted only with respect to reasonable
expenses incurred in connection with the proceeding. The CBCA prohibits
indemnification of a director in connection with a proceeding brought by or in
the right of the Company in which a director is adjudged liable to the Company,
or in connection with any proceeding charging improper personal benefit to the
director in which the director is adjudged liable for receipt of an improper
personal benefit.
Indemnity may be provided only if the director's actions resulting in the
liability: (i) were taken in good faith; (ii) were reasonably believed to have
been in the Company's best interest with respect to actions taken in the
director's official capacity; (iii) were reasonably believed not to be opposed
to the Company's best interest with respect to actions other than those taken in
the director's official capacity; and (iv) with respect to any criminal action,
the director had no reasonable cause to believe his or her conduct was unlawful.
Indemnification may be awarded only after the applicable standard of conduct has
been met by the director to be indemnified as determined by (i) a majority vote
of directors not party to the proceeding comprising a quorum of the Board of
Directors or, if a quorum cannot be obtained, by committee thereof consisting of
two or more directors not party to the proceeding; (ii) by independent legal
counsel selected by the Board of Directors; or (iii) by the shareholders.
The CBCA further provides that unless limited by the Company's articles of
incorporation, a director or officer who is wholly successful, on the merits or
otherwise, in defense of any proceeding to which he was a party, is entitled to
receive indemnification against reasonable expenses, including attorneys' fees,
incurred in connection with the proceeding. The Company's Amended and Restated
Articles of Incorporation do not limit the foregoing provisions.
The Company may indemnify or advance expenses to an officer, employee,
fiduciary or agent who is not a director to a greater extent than permitted for
indemnification of directors, if consistent with law and if provided for by its
articles of incorporation, bylaws, resolution of its shareholders or directors
or in a contract. The provision of indemnification to persons other than
directors is subject to such limitations as may be imposed on general public
policy grounds.
Upon petition by a director or officer, a court may order the Company to
indemnify such director or officer against liabilities arising in connection
with any proceeding. A court may order the Company to provide such
indemnification, whether or not he was entitled to indemnification by the
Company. To order indemnification, the court must determine that the director or
officer is fairly and reasonably entitled to indemnification in light of the
circumstances. With respect to liability incurred by a director or officer, or
in any proceeding
II-2
<PAGE>
where liability results on the basis that a personal benefit was received
improperly, a court may only require that the director or officer be indemnified
as to reasonable expenses incurred.
The CBCA specifies that any provisions for indemnification of or advances
for expenses to directors which may be contained in the Company's articles of
incorporation, bylaws, resolutions of its shareholders or directors, or in a
contract (except for insurance policies) shall be valid only to the extent such
provisions are consistent with the CBCA and any limitations upon indemnification
set forth in the articles of incorporation.
The CBCA also grants the power to the Company to purchase and maintain
insurance policies which protect any director, officer, employee, fiduciary or
agent against any liability asserted against or incurred by them in such
capacity arising out of their status as such. Such policies may provide for
indemnification whether or not the corporation would otherwise have the power to
provide for it. No such policies have been obtained by the Company.
Article V.A of the Company's Amended and Restated Articles of Incorporation
provides for the elimination of personal liability for monetary damages for the
breach of fiduciary duty as a director except for liability (i) resulting from a
breach of the director's duty of loyalty to the Company or its shareholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law; (iii) for approving payment of a
dividend, a stock repurchase, a distribution of assets to shareholders during
liquidation or the making or guaranteeing of a loan to a director, to the extent
that any such actions are illegal under the CBCA; or (iv) for any transaction
from which a director derives an improper personal benefit. This Article further
provides that the personal liability of the Company's directors shall be
eliminated or limited to the fullest extent permitted by the CBCA.
Indemnification Provided in Connection with the Offering
The Company and the Underwriter have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act, and, if
such indemnifications are unavailable or insufficient, the Company and the
Underwriter have agreed to damage contribution agreements between them based
upon relative benefits received from this offering and relative fault resulting
in such damages.
The Selling Securityholders and the Company have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.
Indemnification Provided in Connection with Private Placements of the Company's
Securities
The placement agent for and investors in the private placements of the
Company's securities occurring in February and May, 1995 and January and March,
1996, have agreed to
II-3
<PAGE>
indemnify, to the extent permitted by law, the Company, its directors, its
officers and each person who controls the Company (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact or any
omission or alleged omission of a material fact required to be stated in a
registration statement, prospectus, private placement memorandum or any
amendment thereof or supplement thereto or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, in each case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information or affidavits relating to such investors or the
placement agent furnished to the Company for use therein.
ITEM 15 - RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has sold its securities in the
following transactions pursuant to the exemption from the registration
requirements of the Securities Act provided by Section 4(2) of the Securities
Act for transactions not involving a public offering and Rule 506 of Regulation
D promulgated thereunder. The Company believes that each purchaser in such
transactions was an accredited investor within the meaning of Regulation D. The
share amounts and prices set forth below have been adjusted to reflect the
Company's one-for-five reverse split of the Common Stock effective June 27,
1995:
1. Between September 30, 1992 and September 30, 1994, the Company issued
567,291 shares of Common Stock to various creditors in exchange for the
cancellation of $1,040,249 of indebtedness owed to such creditors by the
Company.
2. On January 1, 1994, the Company granted to Michael I. Price, an
executive officer of the Company, an option to acquire 150,000 shares of Common
Stock at exercise prices ranging from $6.25 to $30.00 per share. As described in
paragraph 7, below, this option was repriced on January 25, 1995.
3. In connection with the Company's acquisition of its Las Vegas, Nevada
facility on May 12, 1994, the Company issued 38,000 shares of Series A
Convertible Preferred Stock valued at $2,500,000 to Nevada Recycling
Corporation, in partial payment of the purchase price for such acquisition. On
December 27, 1994, 25,000 of those shares were cancelled pursuant to a
restructuring of the terms of the Nevada facility acquisition. In connection
with such restructuring, the Company issued to Nevada Recycling (i) a $2,300,000
secured promissory note payable by the Company, (ii) 120,000 shares of the
Company's Common Stock valued at $1,200,000 and (iii) warrants to purchase
20,000 shares of Common Stock at an exercise price of $1.25 per share.
4. On May 13, 1994, the Company issued 591,333 shares of Series B
Convertible Preferred Stock to First Dominion Holdings, Inc. ("First Dominion"),
a corporation owned and controlled by Thomas J. Wiens, the Company's chief
executive officer, in satisfaction of
II-4
<PAGE>
outstanding indebtedness payable to First Dominion in the amount of
approximately $880,000 incurred prior to March 31, 1994.
5. On July 15, 1994, the Company issued an option to acquire 360,000
shares of Common Stock to Caside Associates (the "Caside Option"). The exercise
price of the Caside Option was originally $2.50 per share. On January 25, 1995,
to reflect the then-current offering price of the Company's Common Stock in a
private placement of its securities, the exercise price was reduced to $.90 per
share and the Company issued to Caside Associates warrants to purchase 180,000
shares of the Company's Common Stock at $7.50 per share. The Caside Option was
subsequently exercised with respect to 55,556 shares of Common Stock.
6. From September through December 1994, in connection with approximately
$459,000 of bridge loan financing provided to the Company by unaffiliated
lenders, the Company issued to the lenders warrants to acquire 39,880 shares of
Common Stock at an exercise price of $.90 per share. In April 1995, $450,000 of
bridge loans plus accrued interest were converted into 510,000 shares of Common
Stock and warrants to purchase 255,000 shares of Common Stock at an exercise
price of $7.50 per share.
7. On January 25, 1995, the Company repriced the option granted to
Michael I. Price on January 1, 1994 (see paragraph 2, above) and granted an
option to Jerome B. Misukanis, executive officers of the Company, to purchase up
to 150,000 and 12,000 shares of Common Stock, respectively, exercisable for
nominal consideration. On August 3, 1995, these options were amended to revise
the exercise price to $.90 per share. At the time of the repricing of these
options, the Company was selling shares of Common Stock in a private placement
at approximately $.90 per share, which the Company believes represented the fair
market value of the Common Stock on that date. The options expire on December
31, 1998.
8. On January 25, 1995, the Company granted NCO Investors III, L.P.
warrants to purchase a total of 100,000 shares of Common Stock in consideration
for lending the Company $125,000 and in consideration for financial consulting
services rendered. These warrants were cancelled on June 30, 1995 in connection
with the Company's acquisition of a 20% interest in The Loef Company. NCO
Investors III, L.P. and its affiliates own the remaining 80% interest in The
Loef Company.
9. On January 25, 1995, the Company granted Nagelvoort & Co. warrants to
purchase a total of 300,000 shares of Common Stock in exchange for services
rendered to the Company in connection with the financing of a proposed
acquisition. These warrants were cancelled on June 20, 1995 in connection with
the termination of the relationship between the Company and Nagelvoort & Co.
10. On January 25, 1995, the Company repurchased 291,333 shares of the
Company's Series B Convertible Preferred Stock, acquired the rights to certain
technology and received forgiveness of certain accrued obligations in exchange
for consideration of $750,000. In connection with this transaction, the Company
granted to Thomas J. Wiens the right to acquire Common Stock valued at
$1,187,000 at a purchase price equal to the lesser of 50% of the market value of
the Common Stock or $.90 per share. Upon exercise of this right on August 8,
1995, Mr. Wiens purchased 1,319,445 shares of Common Stock at $.90 per share.
11. From February 1, 1995 through April 17, 1995, the Company conducted a
private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 1,200 shares of Common Stock and Series C warrants
to purchase 600 shares of Common
II-5
<PAGE>
Stock at an exercise price of $7.50 per share, at an offering price of $1,080
per unit. Pursuant to this private placement, the Company sold 2,473,711 shares
of Common Stock and 1,295,876 warrants, including units issued in connection
with the cancellation of bridge debt described in paragraph 5 above, to 34
accredited investors. In connection with the private placement, the Company
issued to First Equity Capital Securities, Inc. 139,828 Placement Agent's
Warrants, each to acquire two shares of Common Stock and one Series H Warrant at
an exercise price of $1.80. Each Series H Warrant entitles the holder to acquire
one share of Common Stock at an exercise price of $7.50 per share.
12. From May 24, 1995 through July 31, 1995, the Company conducted a
private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 1,200 shares of Common Stock and Series E warrants
to purchase 600 shares of Common Stock at an exercise price of $7.50 per share,
at an offering price of $1,080 per unit. Pursuant to this private placement, the
Company sold 1,800,000 shares of Common Stock and 900,000 warrants to 42
accredited investors. In connection with the private placement, the Company
issued to First Equity Capital Securities, Inc. and certain selected dealers,
73,560 Placement Agent's Warrants, each to acquire two shares of Common Stock
and one Series H Warrant at an exercise price of $1.80. Each Series H Warrant
entitles the holder to acquire one share of Common Stock at an exercise price of
$7.50 per share.
13. In connection with the Company's acquisition of its southern Texas
facilities, on December 11, 1995, the Company issued 227,693 shares of Common
Stock valued at $925,000 to Anglo Metal, Inc., in partial payment of the
purchase price for that acquisition. In addition, in connection with the
equipment financing for the acquisition, the Company issued to Ally Capital
Corporation a warrant to acquire up to 53,600 shares of Common Stock at an
exercise price of $5.00 per share.
14. During December 1995 and January 1996, the Company borrowed $1,500,000
of bridge financing and issued to the bridge lenders Series I warrants to
acquire 359,250 shares of Common Stock at a purchase price of $1.50 per share,
exercisable through the end of a three-year period commencing on the effective
date of a registration statement covering the shares issuable upon their
exercise.
15. In December 1995, the holders of the Company's then outstanding Series
C and Series E warrants agreed to amend the terms of these warrants and related
registration rights, and to sell a specified percentage of the shares of Common
Stock acquired by them in the February 1995 and May 1995 private placements,
discussed above, to the Company for $3.40 per share. To evidence the amended
terms of the Series C and Series E warrants, the Company issued to each of the
holders of such warrants Series G warrants to replace all outstanding Series C
and Series E warrants.
II-6
<PAGE>
16. From January 17, 1996 through January 31, 1996, the Company conducted
a private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 2,000 shares of Common Stock and Series J warrants
to purchase 1,000 shares of Common Stock at an exercise price of $7.50 per
share, at an offering price of $5,500 per unit. Pursuant to this private
placement, the Company sold 1,364,156 shares of Common Stock and 682,079
warrants, including units issued upon the conversion of certain bridge
financing, to 60 accredited investors. In connection with the private placement,
the Company issued to First Equity Capital Securities, Inc. and certain selected
dealers, 65,445 Placement Agent's Warrants, each to acquire two shares of
Common Stock and one Series H Warrant at an exercise price of $2.75. Each Series
H Warrant entitles the holder to acquire one share of Common Stock at an
exercise price of $7.50 per share.
17. From February 15, 1996 through April 8, 1996, the Company conducted a
private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 2,000 shares of Common Stock and Series J warrants
to purchase 1,000 shares of Common Stock at an exercise price of $7.50 per
share, at an offering price or $5,500 per unit. Pursuant to this private
placement, the Company sold 90,000 shares and 45,000 warrants to nine accredited
investors. In connection with the private placement, the Company issued to First
Equity Capital Securities, Inc. and certain selected dealers, 4,500 Placement
Agent's Warrants, each to acquire two shares of Common Stock and one Series H
Warrant at an exercise price of $2.75. Each Series H Warrant entitles the holder
to acquire one share of Common Stock at an exercise price of $7.50 per share.
With respect to the sales of unregistered securities described in
paragraphs 2 through 17 above, based on representations made to the Company and
further investigation by the Company, the Company believes that (i) each
purchaser was an accredited investor as that term is defined under Rule 501(a)
of Regulation D promulgated under the Securities Exchange Act of 1934, as
amended ("Regulation D"), or (ii) alone, or with their purchaser representative
(as that term is defined in Rule 501(h) of Regulation D), had sufficient
knowledge and experience in financial and business matters that he was capable
of evaluating the merits and risks of an investment in the Company.
ITEM 16(A) - EXHIBITS
(a) The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.*
1.2 Form of Dealer Agreement.*
3.1 Amended and Restated Articles of Incorporation.*
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.2 Amended and Restated Bylaws.*
4.1 Form of Common Stock Certificate.*
4.2 Certificate of Designations, Rights and Preferences for the
Series A Convertible Preferred Stock of Recycling Industries,
Inc. with Amendment.*
4.3 Form of Series G Warrant Agreement.*
4.4 Form of Series G Registration Rights Agreement.*
4.5 Form of Series I Warrant Agreement.*
4.6 Form of Series J Warrant Agreement.*
4.7 Form of Series J Registration Rights Agreement.*
4.8 Form of 1995 Placement Agents Warrant Agreement.*
4.9 Form of Underwriter Warrant Agreement.*
4.10 Form of 1995 Placement Agents Registration Rights Agreement.*
4.11 Form of 1996 Placement Agents Warrant Agreement.*
4.12 Form of 1996 Placement Agents Registration Rights Agreement.**
5.1 Opinion of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC.***
10.1 Agreements Related to the Acquisition of Nevada Recycling, Inc.:
10.1.1 Bill of Sale and Assumption Agreement dated April 30, 1995
between Nevada Recycling Corporation and Nevada Recycling,
Inc., incorporated by reference to Exhibit (d)(1) to the
Company's Current Report on Form 8-K filed May 12, 1994,
reporting an event of May 10, 1994, Commission file No.
0-20179;
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1.2 Real Estate Installment Sale Agreement dated May 10, 1994 by
and between Recycling Industries, Inc. and Nevada Recycling
Corporation, incorporated by reference to Exhibit (d)(2) to
the Company's Current Report on Form 8-K filed May 12, 1994,
reporting an event of May 10, 1994, Commission file No.
0-20179;
10.1.3 Stock Exchange Agreement dated May 10, 1994 between
Recycling Industries, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (d)(3) to the Company's
Current Report on Form 8-K filed May 12, 1994, reporting an
event of May 10, 1994, Commission file No. 0-20179; and
10.1.4 Sale and Security Agreement dated May 10, 1994 by and among
Recycling Industries, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (d)(4) to the Company's
Current Report on Form 8-K filed May 12, 1994, reporting an
event of May 10, 1994, Commission file No. 0-20179.
10.2 Agreements related to the Restructuring of the Acquisition of
Nevada Recycling, Inc.:
10.2.1 Termination, Restructuring and Purchase Agreement, effective
December 30, 1994, between Recycling Industries, Inc., NR
Holdings, Inc., Nevada Recycling, Inc. and Nevada Recycling
Corporation, incorporated by reference to Exhibit (c)(2) to
the Company's Current Report on Form 8-K reporting an event
of December 30, 1994, as amended April 3, 1995 on Form
8-K/A, as further amended May 1, 1995 on Form 8-K/A-2 and as
further amended June 5, 1995 on Form 8-K/A-3, Commission
File No. 0-20179;
10.2.2 Purchase Agreement, dated December 30, 1994, between NR
Holdings, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (c)(3) to the Company's
Current Report on Form 8-K reporting an event of December
30, 1994, as amended April 3, 1995 on Form 8-K/A, as further
amended May 1, 1995 on Form 8-K/A-2 and as further amended
June 5, 1995 on Form 8-K/A-3, Commission File No. 0-20179;
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.2.3 Real Estate Installment Sale Agreement, dated December 30,
1994, between NR Holdings, Inc. and Nevada Recycling
corporation, incorporated by reference to Exhibit (c)(4) to
the Company's Current Report on Form 8-K reporting an event
of December 30, 1994, as amended April 3, 1995 on Form
8-K/A, as further amended May 1, 1995 on Form 8-K/A-2 and as
further amended June 5, 1995 on Form 8-K/A-3, Commission
File No. 0-20179;
10.2.4 Security and Option Agreement, effective December 30, 1994,
between Recycling Industries, Inc., NR Holdings, Inc.,
Nevada Recycling, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (c)(5) to the Company's
Current Report on Form 8-K reporting an event of December
30, 1994, as amended April 3, 1995 on Form 8-K/A, as further
amended May 1, 1995 on Form 8-K/A-2 and as further amended
June 5, 1995 on Form 8-K/A-3, Commission File No. 0-20179;
10.2.5 $2,000,000 Promissory Note; December 30, 1994, from NR
Holdings, Inc. to Nevada Recycling Corporation, incorporated
by reference to Exhibit (c)(6) to the Company's Current
Report on Form 8-K reporting an event of December 30, 1994,
as amended April 3, 1995 on Form 8-K/A, as further amended
May 1, 1995 on Form 8-K/A-2 and as further amended June 5,
1995 on Form 8-K/A-3, Commission File No. 0-20179;
10.2.6 $300,000 Promissory Note; December 30, 1994, from NR
Holdings, Inc. to Nevada Recycling Corporation, incorporated
by reference to Exhibit (c)(7) to the Company's Current
Report on Form 8-K reporting an event of December 30, 1994,
as amended April 3, 1995 on Form 8-K/A, as further amended
May 1, 1995 on Form 8-K/A-2 and as further amended June 5,
1995 on Form 8-K/A-3, Commission File No. 0-20179;
10.2.7 ERS Corporate Guaranty, dated December 30, 1994, by
Recycling Industries, Inc., incorporated by reference to
Exhibit (c)(8) to the Company's Current Report on Form 8-K
reporting an event of December 30, 1994, as amended April 3,
1995 on Form 8-K/A, as further amended May 1, 1995 on Form
8-K/A-2 and as further amended June 5, 1995 on Form 8-K/A-3,
Commission File No. 0-20179;
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.2.8 NRI Corporate Guaranty, dated December 30, 1994, by Nevada
Recycling, Inc., incorporated by reference to Exhibit (c)(9)
to the Company's Current Report on Form 8-K reporting an
event of December 30, 1994, as amended April 3, 1995 on Form
8-K/A, as further amended May 1, 1995 on Form 8-K/A-2 and as
further amended June 5, 1995 on Form 8-K/A-3, Commission
File No. 0-20179; and
10.2.9 Subscription to Shares of NR Holdings, Inc., dated December
30, 1994, for 100 Shares of Common Stock, incorporated by
reference to Exhibit (c)(10) to the Company's Current Report
on Form 8-K reporting an event of December 30, 1994, as
amended April 3, 1995 on Form 8-K/A, as further amended May
1, 1995 on Form 8-K/A-2 and as further amended June 5, 1995
on Form 8-K/A-3, Commission File No. 0-20179.
10.3 Agreements Related to the Acquisition of Metal Recovery, Inc.:
10.3.1 Memorandum of Understanding dated January 18, 1995 between
Recycling Industries, Inc., the ACI Principals, Sierra
Holdings Limited Partnership, Military Scrap, L.P. and
Thomas J. Wiens, incorporated by reference to Exhibit
(c)(1) to the Company's Current Report on Form 8-K reporting
an event of December 30, 1994, as amended April 3, 1995 on
Form 8-K/A, as further amended May 1, 1995 on Form 8-K/A-2
and as further amended June 5, 1995 on Form 8-K/A-3,
Commission File No. 0-20179;
10.3.2 ACI Option Agreement dated February 28, 1995 by and between
Recycling Industries, Inc., Ralph Paglieri, Peter Lukesch
and Scott Fischer;*
10.3.3 Option Agreement by and between Thomas J. Wiens, Ralph
Paglieri, Peter Lukesch and Scott Fischer;*
10.3.4 Pledge and Hypothecation Agreement by and among Recycling
Industries, Inc., Nevada Recycling Corporation, Ralph
Paglieri, Peter Lukesch and Scott Fischer. *
10.4 Warrant Solicitation Agreement between First Equity Capital
Securities, Inc. and Recycling Industries, Inc.*
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.5 Placement Agency Agreement dated February 1, 1995 between First
Equity Capital Securities, Inc. and Recycling Industries, Inc.*
10.6 Placement Agency Agreement dated June 6, 1995 between First
Equity Capital Securities, Inc. and Recycling Industries, Inc.*
10.7 Placement Agency Agreement dated January 17, 1996 between First
Equity Capital Securities, Inc. and Recycling Industries, Inc.*
10.8 Amended and Restated Stock Acquisition Agreement dated July 10,
1995 by and among Recycling Industries, Inc., Thomas J. Wiens and
First Dominion Holdings, Inc.*
10.9 Agreements related to the Acquisition of Anglo Iron & Metal
10.10.1 Asset Purchase Agreement dated December 1, 1995 by and among
Recycling Industries of Texas, Inc., Recycling Industries,
Inc., Anglo Metal, Inc. d/b/a Anglo Iron & Metal and Robert
C. Rome, incorporated by reference to the Company's current
report on Form 8-K reporting an event of December 11, 1995,
as Amended April 15, 1996 on Form 8-K/A, Commission File No.
0-20179.
10.10.2 First Addendum dated December 11, 1995 to the Asset Purchase
Agreement dated December 1, 1995 by and among Recycling
Industries of Texas, Inc., Recycling Industries, Inc., Anglo
Metal, Inc. d/b/a Anglo Iron & Metal and Robert C. Rome,
incorporated by reference to the Company's current report on
Form 8-K reporting an event of December 11, 1995, as Amended
April 15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.3 Inventory Purchase Agreement dated December 11, 1995 by and
between Recycling Industries of Texas, Inc. and Anglo Metal,
Inc. d/b/a Anglo Iron & Metal, incorporated by reference to
the Company's current report on Form 8-K reporting an event
of December 11, 1995, as Amended April 15, 1996 on Form
8-K/A, Commission File No. 0-20179.
10.10.4 Consulting and Non-Compete Agreement dated December 11, 1995
by and between Recycling Industries of Texas, Inc. and
Robert C. Rome,
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
incorporated by reference to the Company's current report on
Form 8-K reporting an event of December 11, 1995, as Amended
April 15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.5 Real Estate Purchase Contract dated December 11, 1995 by and
between Recycling Industries of Texas, Inc. and Anglo Metal,
Inc. d/b/a Anglo Iron & Metal, incorporated by reference to
the Company's current report on Form 8-K reporting an event
of December 11, 1995, as Amended April 15, 1996 on Form
8-K/A, Commission File No. 0-20179.
10.10.6 Form of Proposed Remediation Escrow Agreement by and between
Recycling Industries of Texas, Inc., Recycling Industries,
Inc., Anglo Metal, Inc. d/b/a Anglo Iron & Metal,
incorporated by reference to the Company's current report on
Form 8-K reporting an event of December 11, 1995, as Amended
April 15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.7 Escrow Agreement dated December 11, 1995 by and between
Recycling Industries of Texas, Inc., Recycling Industries,
Inc., Anglo Metal, Inc. d/b/a Anglo Iron & Metal, Robert C.
Rome and Stewart Title of Hidalgo County, Inc., incorporated
by reference to the Company's current report on Form 8-K
reporting an event of December 11, 1995, as Amended April
15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.8 Master Lease Agreement dated December 12, 1995 by and among
Ally Capital Corporation as lessor and Recycling Industries
of Texas, Inc. and Recycling Industries, Inc. as co-lessees,
incorporated by reference to the Company's current report on
Form 8-K reporting an event of December 11, 1995, as Amended
April 15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.9 Equipment Schedule to the Master Lease Agreement dated
December 12, 1995 by and among Ally Capital Corporation as
lessor and Recycling Industries of Texas, Inc. and Recycling
Industries, Inc. as co-lessees, incorporated by reference to
the Company's current report on Form 8-K reporting an event
of December 11, 1995, as Amended April 15, 1996 on Form
8-K/A, Commission File No. 0-20179.
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.11 Agreements Related to the Acquisition of Mid-America Shredding,
Inc.:
10.11.1 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 incorporated by reference to Exhibit 10.1 to the
Company's current report on Form 8-K reporting an event of
April 15, 1996, Commission File No. 0-20179.
10.11.2 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
incorporated by reference to Exhibit 10.2 to the Company's
current report on Form 8-K reporting an event of April 15,
1996, Commission File No. 0-20179.
10.11.3 Security Agreement, dated April 15, 1996, between Recycling
Industries of Missouri, Inc. and Southwest Bank of St. Louis
incorporated by reference to Exhibit 10.3 to the Company's
current report on Form 8-K reporting an event of April 15,
1996, Commission File No. 0-20179.
10.11.4 Continuing Unlimited Guaranty Agreement dated April 15,
1996, between Recycling Industries, Inc. and Southwest Bank
of St. Louis incorporated by reference to Exhibit 10.4 to
the Company's current report on Form 8-K reporting an event
of April 15, 1996, Commission File No. 0-20179.
10.11.5 Loan Agreement dated April 8, 1992, between Mid-America
Shredding, Inc. and Southwest Bank of St. Louis incorporated
by reference to Exhibit 10.5 to the Company's current report
on Form 8-K reporting an event of April 15, 1996, Commission
File No. 0-20179.
10.11.6 Promissory Note dated February 8, 1996, between Mid-America
Shredding, Inc. and Southwest Bank, Inc. incorporated by
reference to Exhibit 10.6 to the Company's current report on
Form 8-K reporting an event of April 15, 1996, Commission
File No. 0-20179.
10.12 Agreements Related to the Acquisition of Weissman Industries,
Inc.:
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.12.1 Stock Purchase Agreement by and among Wesley J. Weissman,
Walt Weissman, Wayne Weissman, Nancy Sarles, Recycling
Industries of Iowa, Inc., and Recycling Industries, Inc.***
10.12.2 Letter of Intent With Coast Business Credit**
10.13 Form of Share Repurchase Offer and Agreement.*
10.14 Form of Series I Warrant Exchange Offer and Agreement.**
10.15 Amended Form of Share Repurchase Offer and Agreement**
10.16 Form of Series J Extension Offer and Modification Agreement**
11 Statement Regarding Computation of Per Share Earnings**
18.1 Letter from AJ. Robbins, P.C. dated April 11, 1996, addressed to
the Securities and Exchange Commission, incorporated by reference
to the Company's current report on Form 8-K/A reporting an event
of March 25, 1996, Commission File No. 0-20179.
21.1 List of the subsidiaries of Recycling Industries, Inc.**
23.1 Consent of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC -
see Exhibit 5.1
23.2 Consent of AJ. Robbins, P.C.**
23.3 Consent of BDO Seidman, LLP**
24 Power of Attorney - See Signature Page of Registration Statement
27 Financial Data Schedule*
</TABLE>
____________
* Previously filed.
** Filed herewith
*** To be filed by amendment.
ITEM 16(B) - FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements for the years ended September 30, 1995
and 1994 and for the six months ended March 31, 1996.
ITEM 17 - UNDERTAKINGS
The undersigned Registrant hereby undertakes:
II-15
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions discussed under Item 14 -
Indemnification of Directors and Officers, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Englewood, State of
Colorado, on June 18, 1996.
RECYCLING INDUSTRIES, INC.
By/s/ Thomas J. Wiens
--------------------------------
Thomas J. Wiens, Chairman and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of Recycling Industries, Inc., by virtue of their signatures appearing
below, hereby constitute and appoint Thomas J. Wiens, with full power of
substitution, as attorney-in-fact in their names, places and steads to execute
any and all amendments to this Registration Statement on Form S-1 in the
capacities set forth opposite their names below and hereby ratify all that said
attorney-in-fact may do by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Thomas J. Wiens Principal Executive June 18, 1996
- -----------------------------
Thomas J. Wiens Officer and Director
/s/ Michael I. Price Director June 18, 1996
- -----------------------------
Michael I. Price
/s/ Jerome B. Misukanis Principal Financial June 18, 1996
- -----------------------------
Jerome B. Misukanis and Accounting
Officer and Director
/s/ Graydon H. Neher Director June 18, 1996
- -----------------------------
Graydon H. Neher
/s/ Barry Plost Director June 18, 1996
- -----------------------------
Barry Plost
</TABLE>
<PAGE>
Ex.4.12
DEALER REGISTRATION RIGHTS AGREEMENT
------------------------------------
This Dealer Registration Rights Agreement (this "Agreement") is made and
entered into on January 31, 1996, by and between RECYCLING INDUSTRIES, INC., a
Colorado Corporation (the "Company"), and FIRST EQUITY CAPITAL SECURITIES, INC.
(the "Agent") relating to an offering by the Company of units (the "Units"),
each consisting of 2,000 shares of the Company's Common Stock (the "Common
Stock") and, 1,000 warrants to purchase one share of Common Stock exercisable at
$7.50. The Company is also issuing to the Agent, in connection with the offering
of the Units, certain warrants to purchase Units (the "Dealer Warrants"). The
warrants included in the Dealer Warrants that, upon exercise, allow for the
acquisition of one share of Common Stock at an initial price of $7.50 are
hereinafter referred to as the "H Warrants".
In order to induce the Agent to enter into the Placement Agency Agreement
relating to the offering of the Units (the "Placement Agency Agreement"), the
Company has agreed to provide the registration rights set forth in this
Agreement. All of such rights shall, as more fully set forth in Section 11(j)
hereof, inure to the benefit of dealers or registered representatives thereof
that are chosen by the Agent with the approval of the Company and that are
members of the National Association of Securities Dealers, Inc. (collectively,
the "Selected Dealers"). Capitalized terms used herein without definition shall
have the meaning set forth in the Placement Agency Agreement.
The parties hereby agree as follows:
1. DEFINITION OF REGISTRABLE SECURITIES.
"Registrable Securities" means each of the following: (i) the shares of
Common Stock issuable upon exercise of the Dealer Warrants (the "Dealer Warrant
Shares") and (ii) the shares of Common Stock issuable upon exercise of the H
Warrants (the "H Warrant Shares"), none of which shares can be publicly resold
by the holders thereof without registration under the Securities Act of 1933, as
amended (the "Act") or the availability of an exemption thereunder.
2. DEMAND REGISTRATION RIGHTS.
(a) Dealer Warrant Shares.
(i) If the holders of a majority of the Dealer Warrants shall so
request in writing, at any time after 12 months following the closing of
the offering of the Units, but no more than five (5) years after the closing of
the offering of the
<PAGE>
Units, the Company shall effect the registration of the Dealer Warrant Shares
under the Act (the "Dealer Registration Statement"). This right may only be
exercised once at any time during the aforesaid period. In the event of such a
demand, the Company shall, as expeditiously as possible, use its best efforts to
effect the registration under the Act of the Dealer Warrant Shares, but in no
event later than 150 days after such demand (the "Dealer Effective Date").
Further, the Company shall use its best efforts to keep the Dealer Registration
Statement effective throughout the 180 day period commencing on the Dealer
Warrant Effective Date; provided, however, that if the Dealer Registration
Statement is declared effective prior to the date upon which the Dealer Warrants
are first exercisable, the Dealer Registration Statement shall remain effective
until the first 180 days after the first date upon which the Dealer Warrants
become exercisable. (The period during which the Dealer Registration Statement
is in effect shall hereinafter be referred to as the "Dealer Registration
Period".) Only the days during which such registration statement is effective
shall be counted for the purpose of the 180 day periods referred to above in
this Section 2(a).
(ii) The Company agrees to register all of the Dealer Warrant
Shares in the event of a demand as set forth above and to immediately notify all
holders of Dealer Warrants upon the effectiveness thereof.
(b) H Warrant Shares.
(i) If the holders of a majority of the H Warrants shall so
request in writing, at any time after 12 months following the closing of the
offering of the Units, but no more than five (5) years after the closing of the
offering of the Units, the Company shall effect the registration of the H
Warrant Shares under the Act (the "H Warrant Registration Statement"; the Dealer
Registration Statement and the H Warrant Registration Statement are hereinafter
referred to individually as a "Registration Statement" and collectively as the
"Registration Statements"). This right may be exercised once at any time during
the aforesaid period. In the event of such a demand, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration under
the Act of the H Warrant Shares, but in no event later than 150 days after such
demand (the "H Warrant Effective Date"). Further, the Company shall use its best
efforts to keep the H Warrant Registration Statement effective throughout the
180 day period commencing on the H Warrant Effective Date; provided, however,
that if the H Warrant Registration Statement is declared effective prior to the
date upon which the H Warrants are first exercisable, the H Warrant Registration
Statement shall remain effective until the first 180 days after the first date
upon which the H Warrants become exercisable. (The period during which the H
Warrant
-2-
<PAGE>
Registration Statement is in effect shall hereinafter be referred to as the "H
Warrant Registration Period".) Only the days during which such registration
statement is effective shall be counted for the purpose of the 180 day periods
referred to above in this Section 2(b).
(ii) The Company agrees to register all of the Common Stock
underlying the H Warrants in the event of a demand as set forth above and to
immediately notify all holders of H Warrants upon the effectiveness thereof.
(c) Amendments to Registration Statements. The Company further agrees,
if necessary, to supplement or make amendments to the Registration Statements
and any prospectus contained therein, if required by the Registration Statement
form utilized by the Company or by the instructions applicable to such
registration form or by the Act or the rules and regulations thereunder, and the
Company agrees to furnish copies of each Registration Statement, prospectus,
supplement or amendment prior to its being used and/or filed with the Securities
and Exchange Commission (the "Commission") to the holders of the securities
making the demand specified under subsections (a) and/or (b) of this Section 2.
(d) Earnings Statement. The Company will make available to the holders
of the Dealer Warrants and the holders of the H Warrants, as soon as reasonably
practicable, an earnings statement covering a period of twelve months,
commencing on the first day of the fiscal quarter next succeeding the closing of
the offering of the Units, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(e) The Company will pay all Registration Expenses (as hereinafter
defined) incurred in connection with the Company's registration obligations
pursuant to this Section 2.
3. PIGGYBACK REGISTRATION.
(a) Each time that the Company shall propose the registration under
the Act of any shares of Common Stock of the Company (including those shares
included in the Units, those shares underlying the J Warrants, the Dealer
Warrant Shares and those the H Warrant Shares), notice of such proposed
registration stating the total number of shares proposed to be the subject of
such registration shall be given to the record owners of the Dealer Warrants,
Dealer Warrant Shares, and the H Warrants. The Company will automatically
include in any registration statement filed with the Commission with regard to
such proposed registration the number of Dealer Warrant Shares and H Warrant
Shares requested to be included therein by the record owners of the Dealer
Warrants, the Dealer Shares, and the H Warrants. Any record owner who
-3-
<PAGE>
participates in the public offering pursuant to such registration statement
shall be entitled to all the benefits of this Agreement in connection with any
registration hereunder, except as otherwise provided in this Section 3. The
right to registration provided in this Section is in addition to and not in lieu
of the registration rights provided in Section 2 hereof.
(b) All Registration Expenses, as hereinafter defined, in connection
with the offering of securities of the Company pursuant to any registration
statement filed pursuant to this Section 3, whether or not such registration
statement becomes effective under the Act, and all underwriting discounts and
commissions, shall be borne by the Company and the record owners, provided that
the record owners of the Dealer Warrant Shares and H Warrant Shares then being
registered shall pay (pro rata between or among the record holders thereof) to
the Company only that portion of such Registration Expenses attributable to the
inclusion in such registration statement of their Dealer Warrant Shares and H
Warrant Shares (i.e., the marginal amount). Such record owners shall pay all
transfer taxes and out-of-pocket expenses incurred by them with respect to the
registration statement. Notwithstanding the foregoing, in the event the Company
fails to file and cause to become effective, and/or thereafter maintain the
effectiveness of, a registration statement for the Dealer and H Warrant
Registration Periods as provided for in Sections 2(a) and 2(b) above, all
Registration Expenses shall be borne by the Company.
(c) Notwithstanding anything to the contrary in this Section 3, the
record owners of the Dealer Warrants, Dealer Warrant Shares, and the H Warrants
shall be entitled to include in any registration statement filed pursuant to
this Section 3 such number of Dealer Warrant Shares and H Warrant Shares as
would not, in the written opinion of the underwriters for such registration, if
any, or in the good faith opinion of the Board of Directors of the Company if
such registration is not underwritten, materially and adversely affect the
proposed distribution of the Common Stock in respect of which registration was
originally to be effected. The provisions of this subsection (c) shall not apply
to any registration effected by the Company for the purposes of distributing the
shares of Common Stock included in the Units or underlying the J Warrants, the
Dealer Warrant Shares or the H Warrant Shares.
(d) The piggyback registration rights provided in this Section 3 may
be exercised by the record owners from time to time in accordance with the
provisions of this Section 3 with respect to any or all registrations under the
Act of Common Stock of the Company proposed under this Section 3, except for
registrations of common stock on Forms S-4, S-8 or any similar or successor
forms thereto.
-4-
<PAGE>
4. REGISTRATION PROCEDURES. In connection with each registration provided
for in Sections 2 or 3 hereof, the Company shall as expeditiously as possible:
(a) furnish to each holder of Dealer Warrants, Dealer Warrant Shares
and/or H Warrants, prior to filing a registration statement or amendments
thereto with the Commission copies of such registration statement and amendments
as proposed to be filed and all exhibits thereto, and thereafter furnish such
number of copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus included
in such registration statement and amendments thereto (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the issuance of the Dealer Warrant Shares and H
Warrant Shares by the Company;
(b) use its best efforts to register or qualify the Dealer Warrant
Shares and H Warrant Shares included in any registration statement filed in
accordance with Sections 2 or 3 hereof under such securities or blue sky laws of
such jurisdictions as any such holder of Dealer Warrants, Dealer Warrant Shares
and/or H Warrants reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such jurisdictions of the Dealer Warrant Shares
and H Warrant Shares owned by such holder; provided, however that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (b),
(ii) subject itself to taxation in any such jurisdiction by reason of such
registration or qualification of any Dealer Warrant Shares and H Warrant Shares,
or (iii) consent to general service of process in any such jurisdiction;
(c) use its best efforts to cause the Dealer Warrant Shares and H
Warrant Shares covered by any such registration statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
holder or holders thereof to consummate the disposition of such Dealer Warrant
Shares and H Warrant Shares;
(d) notify each holder of Dealer Warrants, Dealer Warrant Shares
and/or H Warrants, at any time when a prospectus relating to the Dealer Warrant
Shares and H Warrant Shares is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in any such
registration statement contains an untrue statement of a material fact or omits
to state any material fact required to be stated
-5-
<PAGE>
therein or necessary to make the statements therein not misleading, and prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Dealer Warrant Shares and H Warrant Shares, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(e) cause all such Dealer Warrant Shares and H Warrant Shares to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, provided that the applicable listing requirements are
satisfied;
(f) enter into customary agreements and take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
such Dealer Warrant Shares and H Warrant Shares;
(g) make available for inspection by any holder of Dealer Warrants,
Dealer Warrant Shares and/or H Warrants, any underwriter participating in any
disposition pursuant to any such registration statement, and any attorney,
accountant or other agent retained by any such holder or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, the "Records")
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
registration statement, (ii) the release of such Records is ordered pursuant to
regulatory reporting requirements or a subpoena or other order from a court of
competent jurisdiction or (iii) the filing of such Records as exhibits to such
registration statement is required by the Commission's rules and regulations.
Each holder of Dealer Warrants, Dealer Warrant Shares and/or H Warrants agrees
that it will, upon learning that disclosure of such Records is sought in a court
of competent jurisdiction, give notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential;
(h) in the event the sale of such Dealer Warrant Shares and H Warrant
Shares is pursuant to an underwritten offering, use its best efforts to obtain a
"comfort" letter from the Company's independent public accountants in customary
form and covering such
-6-
<PAGE>
matters of the type customarily covered by "comfort" letters as the underwriters
or the holders of a majority in number of such Dealer Warrant Shares and H
Warrant Shares reasonably request; and
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
(j) The Company may require, as a condition to its obligations under
this Agreement, that each holder of Dealer Warrants, Dealer Warrant Shares
and/or H Warrants for which Dealer Warrant Shares and H Warrant Shares are being
registered pursuant to Sections 2 or 3 hereof furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
(k) Each seller of Dealer Warrant Shares and H Warrant Shares
registered pursuant to Sections 2 or 3 hereof agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4(d) hereof, such seller will forthwith discontinue disposition of such
Dealer Warrant Shares and H Warrant Shares pursuant to the registration
statement covering such securities until such seller's receipt of the copies of
the supplemented or amended prospectus contemplated by Section 4(d) hereof, and,
if so directed by the Company, such seller will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
seller's possession, of the prospectus covering such Dealer Warrant Shares and H
Warrant Shares that is current at the time of receipt of such notice.
5. REGISTRATION EXPENSES.
Registration Expenses shall be borne as set forth in Sections 2 and 3
hereof. Registration Expenses shall consist of all expenses incurred by the
Company incidental to the Company's performance of or compliance with this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Dealer Warrant Shares and H Warrant Shares), printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of the Company's officers and employees
performing legal or accounting duties), the fees and expenses incurred in
connection with the listing of such securities on each securities exchange on
which similar securities issued by the Company are then listed, all fees payable
to the National Association of Securities Dealers, Inc. (the "NASD") and fees
and disbursements of counsel for the Company and of its independent certified
public accountants (including the expenses of any special audit or "comfort"
letters required by or incident to such performance), securities acts
-7-
<PAGE>
liability insurance (if the Company elects to obtain such insurance), the
reasonable fees and expenses of any special experts retained by the Company in
connection with any registration of Dealer Warrant Shares and H Warrant Shares,
and the reasonable fees and disbursements of one counsel per registration
retained by all record owners of Dealer Warrant Shares and H Warrant Shares then
being registered.
6. INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to indemnify,
to the full extent permitted by law, each seller of Dealer Warrants, Dealer
Warrant Shares and/or H Warrants for which Dealer Warrant Shares and H Warrant
Shares are being registered pursuant to Section 2 or 3 hereof, its officers and
directors and each person who controls such seller (within the meaning of the
Act) against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or amendment or
supplement thereto or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, and the Company will reimburse all legal
or other expenses reasonably incurred by such seller in investigating or
defending any claims relating to or arising from such untrue statements or
omissions, in all cases except insofar as such are caused by (i) statements or
omissions made in reliance upon or contained in any information with respect to
such seller furnished in writing to the Company by such seller expressly for use
therein or (ii) such seller's failure to deliver a copy of the final prospectus
as then amended or supplemented after the Company has furnished such seller with
a sufficient number of copies of the same, but only if delivery of same is
required by law and if same would have cured the defect giving rise to any such
loss, claim, damage, liability or expense. Such indemnification shall be
effective irrespective of any investigation by any seller. In connection with
any underwritten offering, the Company will indemnify the underwriters thereof,
their officers and directors and each person who controls such underwriters
(within the meaning of the Act) to the same extent as provided above with
respect to the indemnification of the sellers of Dealer Warrant Shares and H
Warrant Shares.
(b) Indemnification by Sellers of Dealer Warrants, Dealer Warrant
Shares and/or H Warrants for which Dealer Warrant Shares and H Warrant Shares
are being Registered. In connection with any registration statement relating to
the registration of Dealer Warrant Shares and H Warrant Shares, each seller of
Dealer Warrants, Dealer Warrant Shares and/or H Warrants will furnish to
-8-
<PAGE>
the Company in writing such information and affidavits with respect to such
seller as the Company reasonably requests for use in connection with any such
registration statement (or prospectus contained therein) and will indemnify, to
the extent permitted by law, the Company, its directors, its officers who sign
the registration statement and each person who controls the Company (within the
meaning of the Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material fact
or any omission or alleged omission of a material fact required to be stated in
such registration statement or prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, in each case to the extent, but only to the extent, that any such
loss, liability, claim, damage or expense arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with such written
information or affidavits relating to such seller furnished to the Company by
such seller expressly for use therein.
(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such person will claim indemnification or contribution
pursuant to this Agreement and, unless in the reasonable judgment of such
indemnified party a conflict of interest may exist between such indemnified
party and the indemnifying party, shall permit the indemnifying party to assume
the defense of such claim with counsel reasonably satisfactory to such
indemnified party. If the indemnifying party is not entitled to, or elects not
to, assume the defense of a claim, it will not be obligated to pay the fees and
expenses of more than one counsel for the indemnified party with respect to such
claim. The indemnifying party will not be subject to any liability for any
settlement made without its consent. Failure of notice by a seller of Dealer
Warrants, Dealer Warrant Shares and/or H Warrants entitled to indemnification
hereunder will not relieve the Company of its obligations under this Section 6
unless the Company is actually prejudiced thereby.
(d) Contribution.
------------
(i) If the indemnification provided for in this Section 6 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute (on the basis of relative fault) to the amount
-9-
<PAGE>
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses. The relative fault of such indemnifying and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 6(c), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. Notwithstanding the provisions of this Section 6(d)(i), in no case
shall any holder of Dealer Warrant Shares and H Warrant Shares be liable or
responsible for any amount in excess of the net proceeds received by such seller
from the sale of the Dealer Warrant Shares and H Warrant Shares of such seller
which are included in any registration statement contemplated by this Agreement.
(ii) No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(iii) If indemnification is available under this Section 6, then
the indemnifying parties shall indemnify each indemnified party to the full
extent provided in Sections 6(a) and 6(b) without regard to the relative fault
of said indemnifying party or indemnified party.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
(a) No record owner of Dealer Warrant Shares and H Warrant Shares may
participate, pursuant to Section 2 hereof, in any underwritten offering of
Common Stock of the Company pursuant to a Registration Statement filed in
accordance with Section 2 hereof, unless such owner completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
such other documents reasonably required under the terms of customary
underwriting arrangements.
(b) No record owner of Dealer Warrant Shares and H Warrant Shares may
participate, pursuant to Section 3 hereof, in any underwritten offering of
Common Stock of the Company, notice of which is given pursuant to Section 3
hereof, unless such owner (a) agrees to sell its Dealer Warrant Shares and H
Warrant Shares pursuant to customary underwriting arrangements approved by the
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<PAGE>
Company and its counsel and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements. In the
case of an underwritten public offering in excess of $5.0 million, each record
owner of Dealer Warrant Shares and H Warrant Shares may sell no more than 10% of
his or her Dealer Warrant Shares and H Warrant Shares (including for the
purposes of this calculation those shares of Common Stock that could be obtained
through the exercise of the Dealer Warrants and H Warrants) each thirty days for
the first ninety days that the Registration Statement is effective.
8. RULE 144.
The Company covenants that it will timely file the reports required to
be filed by it under the Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder, and it will take such further action as
any record owner of Dealer Warrant Shares and H Warrant Shares may reasonably
request, all to the extent required from time to time to enable such owner to
sell Dealer Warrant Shares and H Warrant Shares without registration under the
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Act, as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any record
owner of Dealer Warrant Shares and H Warrant Shares, the Company will deliver to
such owner a written statement as to whether it has complied with such
requirements.
9. TERMINATION.
This Agreement shall terminate on the tenth anniversary of the final
closing of the offering of the Units. The provisions of Section 6 hereof shall
survive such termination.
10. MISCELLANEOUS.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with the
rights granted to the record owners of Dealer Warrant Shares and H Warrant
Shares in this Agreement.
(b) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of record owners of at least
a majority in number of shares of Dealer Warrant Shares and H Warrant Shares
then outstanding affected by such amendment, modification, supplement, waiver or
departure.
-11-
<PAGE>
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and be by hand-delivery or
certified mail, return receipt requested:
(i) if to the Agent, at its address set forth in Section 11 of
the Placement Agency Agreement;
(ii) if to a subsequent holder of Dealer Warrant Shares and H
Warrant Shares or H Warrants issued pursuant to the exercise of the Dealer
Warrants, at the most current address given by such holder to the Company in
writing; or
(iii) if to the Company, at its address set forth in Section 11
of the Placement Agency Agreement.
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; four business days
after being deposited in the mail, postage prepaid, if mailed.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Company
and the Agent shall be enforceable to the fullest-extent permitted by law.
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<PAGE>
(i) Entire Agreement. This Agreement, together with the Confidential
Private Placement Memorandum dated January 17, 1996 relating to the offering of
the Units (the "Memorandum") and the Placement Agency Agreement, is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no representations, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Memorandum and the Placement Agency Agreement (including the exhibits thereto)
supersede all prior agreements and understandings between the parties with
respect to such subject matter.
(j) Rights of Selected Dealers. Each Selected Dealer, as defined in
the Placement Agency Agreement, shall be a direct third party beneficiary of
this Agreement, and may enforce the provisions hereof directly against the
Company in any manner permitted by applicable law, as if such Selected Dealer
was a signatory hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
RECYCLING INDUSTRIES, INC.
By:__________________________________
Thomas J. Wiens, Chairman and CEO
FIRST EQUITY CAPITAL SECURITIES, INC.
By:__________________________________
__________________________________
-13-
<PAGE>
Exhibit 10.12.2
April 23, 1996
Mr. Thomas Wiens, Chairman
Recycling Industries, Inc.
384 Inverness Drive South, Ste. 211
Englewood, Colorado 80112
Dear Tom:
This proposal is a revised amendment to the $4,000,000 credit line proposed for
Recycling Industries, Inc. and its subsidiaries. The following outlines the
additional acquisition financing for Recycling Industries, Inc. to acquire
Weissman Iron & Metal and supersedes the proposal dated April 17, 1996:
1. ADDITIONAL CREDIT LINE: $6,000,000 - $7,000,000 (Total of $10,000,000 -
$11,000,000 assuming $4,000,000 credit line is in place at the time of the
acquisition.)
(A) Advances up to 80% of eligible accounts receivable (85% if dilution is
less than 5%, subject to concentration analysis, and account debtor
creditworthiness). Eligibility up to 90 days past invoice date.
(A) Advances up to 50% of eligible raw materials and finished goods
inventory. Sublimit on inventory not to exceed $500,000 (subject to
appraisal and periodic inventory certificates).
(C) Term loan up to the lesser of $3,000,000 or 80% of the orderly
liquidation value of machinery and equipment (48 - 60 month
amortization).
(A) Term loan on real estate up to the lesser of $1,000,000 or 60% of the
Fair Market Value (subject to MAI appraisal by approved CBC
appraiser).
(B) Equipment acquisition facility up to $250,000 with advances at 80% of
new equipment less taxes and installation charges and 80% of the
appraised liquidation value of used equipment less taxes and
installation charges (36 month amortization; subject to appraisal on
used equipment).
(F) Overadvance facility of $1,000,000 to be structured in a manner
acceptable to CBC (to be repaid within twelve months). Interest will
be at the Bank of America Reference Rate plus 3.00%. The borrower will
also issue to CBC the number of warrants equal to $100,000 divided by
the market price of the stock at the date of signing the documents
with an exercise price equal to the market price of the stock at the
date the documents are signed.
2. INTEREST RATE: Advances will be at the Bank of America Reference Rate plus
2.00%. The Overadvance facility will be priced as described above.
<PAGE>
Mr. Thomas Wiens, Chairman
April 23, 1996
Page 2
3. FACILITY FEE: An additional $2,500 per quarter.
4. TERM: Term of our agreement will be three (3) years. (A one or two year
option is available).
5. LOAN ORIGINATION FEE: A closing fee of .75% of the total committed line
will be due and payable at funding.
6. FLOAT DAYS: Three (3) business days.
7. EARLY TERMINATION FEE: 3% of the total Credit Line for year 1, 2% for year
2, and 1% for year 3.
8. CONDITIONS PRECEDENT:
(A) No accounts payable over 90 days past due at date of funding.
(B) Minimum loan availability of $200,000 at funding.
(A) All applicable taxes to be current at date of funding
(B) Receipt of audited or reviewed financial statements on all borrowers
and ongoing audited financial statements including periodic inventory
reviews as specified by CBC.
(C) Inventory, equipment, and real estate appraisals by approved CBC
appraisers as needed including updated and re-issued appraisal of
machinery and equipment.
(F) First security interest on all company assets including accounts
receivable, inventory, real estate, machinery and equipment.
(G) Additional equity investment of $5 - 7 million.
(H) CBC providing $4 million working capital financing to Recycling
Industries, Inc. and its subsidiaries.
(I) Cross collateralization and cross guarantees as needed.
9. DEPOSIT: In connection with your request for financing, it will be
necessary for us to make certain financial, legal and collateral
investigations and determinations. If this proposal is acceptable to you,
we request a deposit of $22,000 with $17,000 due now to defray audit, real
estate appraisal, and due diligence expenses, and $5,000 upon approval for
a legal expense deposit. If the deposit exceeds the expenses incurred, the
difference will be promptly refunded at the conclusion of our negotiations
or credited to your loan origination fee. If the expenses exceed the
deposit amount given, the difference is the responsibility of the borrower
up to an overall audit, due diligence, appraisal cap of $27,000 (legal
expenses cannot be capped). All equipment appraisal expenses are the
responsibility of the borrower. (No desktop appraisals accepted.)
The purpose of this letter is to express our interest and it should not be
viewed as a commitment to fund. Any funding would require final approval by our
Credit Committee and other items customary to asset based lending, including
minimum interest, as well as documentation acceptable to ourselves and our
attorneys.
<PAGE>
Mr. Thomas Wiens, Chairman
April 23, 1996
Page 3
If the foregoing correctly sets forth your understanding of the financing
arrangements stated herein, please submit your deposit along with a signed copy
of this letter so that we may proceed.
Unless accepted by you and as so accepted, received by us by the close of
business on May 1, 1996 with the deposit referred to above, this proposal shall
expire at such time.
We look forward to continuing to work with you and your associates on this
transaction.
Sincerely,
COAST BUSINESS CREDIT
Bruce Ellman Stanton C. Marcus
Assistant Vice President Senior Vice President
Marketing Officer Director of Marketing
cc: Roy Schwartz, Ally Capital Market Group
Kim Wilson, Coast Business Credit
Agreed & Acknowledged:
Recycling Industries, Inc.
By: _________________________
Title: ______________________
<PAGE>
Ex. 10.14
RECYCLING INDUSTRIES, INC.
384 Inverness Drive South, Suite 211
Englewood, Colorado 80112
(303) 790-4252
(303) 790-4252 fax
May 22, 1996
via FEDERAL EXPRESS
- -------------------
Shareholder Name
Address
Re: Offer to Exchange Warrants
Dear Shareholder:
Recycling Industries, Inc. (the "Company") continues to grow through its
aggressive acquisition program, completing the acquisition of Mid-America
Shredding located in Ste. Genevieve, Missouri in April 1996. By completing this
acquisition, the Company has acquired six metals recycling facilities in less
than two years.
As you may know, the Company is in the process of conducting an
underwritten offering of its common stock, the proceeds of which will, in part,
be used to pursue the Company's acquisition strategy (the "Security Offering").
In that connection, the Company filed a registration statement with the
Securities and Exchange Commission (the "Commission") on May 3, 1996
(Registration No. 333-4574) (the "Registration Statement"). The Registration
Statement is being reviewed by the staff of the Commission and has not yet been
declared effective. The Company believes the Registration Statement will be
declared effective and the Security Offering completed within the next 60 days.
In connection with the Security Offering, the Company hereby offers to
exchange its Series I Warrants held by you for shares of the Company's common
stock (the "Exchange") based upon the offering price of the common stock in the
Security Offering. As a result of the Exchange, the holders of Series I
Warrants will receive shares of the Company's common stock without having to pay
the cash exercise price of the Warrants. The Company believes that the Exchange
will enable the it to quickly complete the Security Offering and continue to
pursue its acquisition strategy.
<PAGE>
Shareholder Name
May 22, 1996
Page 2
Please review the attached Exchange Agreement and, if you agree to the
Exchange, date and sign where indicated. To facilitate timely completion of the
Security Offering, please fax your executed Exchange Agreement to the Company at
(303) 790-4252. Return the originally executed Exchange Agreement and your
original Series I Warrant Certificate to the Company at your earliest
convenience in the enclosed, pre-paid Federal Express envelope. IT IS IMPORTANT
THAT THE COMPANY RECEIVE YOUR EXECUTED EXCHANGE AGREEMENT BY FAX AS SOON AS
POSSIBLE. If you have any questions, you may direct them to me at (303) 790-
7372 or Ken Levine or Marshall Becker at First Equity Capital Securities, Inc.
at (212) 922-0004.
Sincerely,
Thomas J. Wiens
Chairman and CEO
Enclosure
<PAGE>
EXCHANGE AGREEMENT
------------------
The undersigned agrees to exchange all Series I Warrants (the "Warrants")
held by the undersigned for shares of the common stock of Recycling Industries,
Inc. (the "Company"). All capitalized terms used in this Exchange Agreement
have the meaning ascribed to them in the Warrants:
1. In connection with a proposed primary and secondary offering of common
stock by the Company (the "Security Offering"), the undersigned agrees to
exchange all the Warrants owned by the undersigned for shares (the "Shares") of
the Company's of common stock (the "Exchange"). The number of Shares issued
upon the Exchange shall be determined in accordance with the following formula:
(Offering price of common stock in Security Offering -
Exercise Price of Warrants) x Number of Warrants
------------------------------------------------------
Offering price of common stock in Security Offering
For example, assuming an offering price in the Security Offering of $5.00
per share, if the undersigned held 5,000 Warrants the undersigned will receive
Shares determined as follows:
($5.00 - $.60) x 5,000 = 4,400
----------------------
$5.00
If the Security Offering does not close, for purposes of the Exchange the
offering price of the common stock shall be $5.00. The Exchange shall be made
on the earlier of the closing of the Security Offering (the "Closing") or June
30, 1996.
Pursuant to the Exchange, fractional shares will be rounded to the next
whole share.
2. In connection with the Exchange the undersigned agrees not to sell the
Shares received upon the Exchange as follows:
(a) Commencing upon the execution of this agreement and continuing
from the earlier of the Closing and June 30, 1996 (the "Commencement
Date"), and continuing for a period of four months following the
Commencement Date, the undersigned will not sell any of the Shares received
upon the Exchange.
(b) During the fifth month following the Commencement Date, the
undersigned will sell no more than five percent of the Shares received upon
the Exchange.
(c) During the sixth month following the Commencement Date, the
undersigned will sell no more than 7.5 percent of the Shares received upon
the Exchange.
(d) During each month commencing with the seventh month and ending
upon completion of the 12th month following the Commencement Date, the
undersigned will be permitted to sell no more than 15 percent of the Shares
received upon the Exchange.
<PAGE>
After expiration of the 12th month, the Shares received upon the Exchange
will no longer be subject to a lock-up.
These lock-up provisions will be released if: (i) the Registration
Statement, discussed in Section 3, below, has not been declared effective by the
Securities and Exchange Commission on or before September 30, 1996 or if such
registration statement shall lapse for a period exceeding 90 consecutive days;
(ii) if the Shares shall not be delivered by the earlier of (x) the Closing and
(y) June 30, 1996; and (iii) if the Security Offering does not close on or
before July 31, 1996.
3. In connection with the Exchange, the Company will register the Shares
issued upon the Exchange no later than September 30, 1996, subject to the lock-
up provisions discussed above. If no Closing occurs by July 31, 1996, the
Company will register the Shares no later than August 31, 1996. In addition to
the foregoing registration rights, the undersigned will have piggyback
registration rights with respect to the Shares for any underwritten public
offering, except for the Security Offering, conducted by the Company, subject to
any restrictions imposed by the underwriter of such offering.
4. To receive the Shares to be issued in the Exchange, the undersigned
will deliver to the Company its original Series I Warrant certificate on or
before June 30, 1996.
5. This Exchange Agreement shall be effective upon acceptance by the
undersigned and the Warrants. Except as modified herein, all other terms of the
Series I Warrant agreements remain in effect.
The undersigned Series I Warrant Holder hereby agrees to the Exchange.
- ---------------------------------------
Signature
- ---------------------------------------
Social Security or Tax Id. Number
- ---------------------------------------
Print or Type Name
Mailing Address:
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
Date:
----------------------------------
-2-
<PAGE>
EX. 10.15
RECYCLING INDUSTRIES, INC.
384 Inverness Drive South, Suite 211
Englewood, Colorado 80112
(303) 790-7372
(303) 790-4252 fax
May 20, 1996
VIA FEDERAL EXPRESS
- -------------------
Shareholder Name
Address
Re: Extension of Offer to Purchase Shares and Lock-Up
Dear Shareholder:
Recycling Industries, Inc. (the "Company") continues to grow through its
aggressive acquisition program, completing the acquisition of Mid-America
Shredding located in Ste. Genevieve, Missouri in April 1996. By completing this
acquisition, the Company has acquired six metals recycling facilities in less
than two years.
As you may know, the Company is in the process of conducting an
underwritten offering of its common stock, the proceeds of which will, in part,
be used to pursue the Company's acquisition strategy (the "Security Offering").
In that connection, the Company filed a registration statement with the
Securities and Exchange Commission (the "Commission") on May 3, 1996
(Registration No. 33-3574) (the "Registration Statement"). The Registration
Statement is being reviewed by the staff of the Commission and has not yet been
declared effective. The Company believes the Registration Statement will be
declared effective and the Security Offering completed within the next 60 days.
Pursuant to the December 1995 agreements between the Company and the
holders of its outstanding Series G Warrants (the "Agreements"), upon the
closing of the Security Offering, the Company will repurchase the Requisite
Percentage (as defined in the Agreements) of certain shares of the Company's
common stock held by such persons, including you (the "Shares"). Although the
staff of the Commission is working closely with the Company in its review of the
Registration Statement, the Registration Statement may not be effective and the
Security Offering may not close on or before May 31, 1996. Accordingly, the
Company may not be able to repurchase the Requisite Percentage of the Shares by
May 31, 1996.
<PAGE>
To enable the Company to meet its repurchase obligation and complete the
Security Offering, the Company is requesting that the holders of its Series G
Warrants modify the terms of the Agreements, the Series G Warrants and the
Series G Registration Rights as set forth in the enclosed Modification
Agreement. The Company believes that these modifications will enable it to
quickly complete the Security Offering, purchase your Shares and continue to
pursue its acquisition strategy.
Please review the attached Modification Agreement and, if you agree to the
modified terms, date and sign where indicated. To facilitate timely completion
of the Security Offering, please fax your executed Modification Agreement to the
Company at (303) 790-4252. Return the originally executed Modification
Agreement to the Company at your earliest convenience in the enclosed, pre-paid
Federal Express envelope. IT IS IMPORTANT THAT THE COMPANY RECEIVE YOUR
EXECUTED MODIFICATION AGREEMENT BY FAX AS SOON AS POSSIBLE. If you have any
questions, you may direct them to me at (303) 790-7372 or to Ken Levine or
Marshall Becker at First Equity Capital Securities, Inc. (212) 922-0004.
Sincerely,
Thomas J. Wiens
Chairman and CEO
Enclosure
<PAGE>
MODIFICATION AGREEMENT
----------------------
The undersigned agrees to the following modifications of the December 1995
Letter Agreement between the undersigned and Recycling Industries, Inc. (the
"Company"), the Series G Warrants held by undersigned and the Series G
Registration Rights granted to the undersigned by Company (collectively the
"Agreements"). All capitalized terms used in this Modification Agreement have
the meaning ascribed to them in the Agreements:
1. The repurchase period for the Requisite Percentage of the Shares is
extended from May 31, 1996 to July 31, 1996.
2. The repurchase price for the Shares remains at $3.40 per share if the
repurchase occurs on or before May 31, 1996. If the repurchase of the shares
occurs after May 31, 1996 but prior to July 1, 1996, the repurchase price shall
be increased to $3.70 per Share. If the Repurchase occurs after June 30, 1996
but prior to August 1, 1996, the repurchase price shall be increased to $4.00
per Share.
3. The Company shall register the Shares and the shares of Common Stock
underlying the Series G Warrants on or before September 30, 1996. If the
Company fails to meet this registration deadline, the exercise price of the
Series G Warrants shall be decreased by $.50 on October 1, 1996 and by $.50
monthly thereafter until effective. If, at any time after the registration
statement is effective it ceases to be effective for a period of 60 days, the
exercise price of the Series G Warrants shall drop by an additional $.50 and by
$.50 monthly thereafter until the registration statement is again declared
effective by the Securities and Exchange Commission. As a result of these
adjustments, the exercise price cannot be reduced to less than $1.00 per share.
4. The lock-up provisions contained in the Agreements shall commence upon
execution of this agreement and continue for the twelve-month period commencing
on the earlier of (i) the closing of the Security Offering and (ii) June 30,
1996. In addition, the percentage of Shares that may be sold in the sixth month
following the closing of the Security Offering or June 30, 1996, as applicable,
is increased from 5% to 7.5%. If the registration statement discussed in the
preceding paragraph ceases to be effective for a period of 90 consecutive days,
all the lock-up provisions contained in the Agreements that are then in effect
shall be released on the 90th day.
5. If the Repurchase is not completed by July 31, 1996: (i) the exercise
price of the Series G Warrants shall be reduced to $4.00; (ii) each holder of
Series G Warrants shall have the right to require the Company to repurchase up
to one-third of its Shares at a price of $4.00 per share upon completion of a
public or private offering by the Company of its common stock at any time after
July 31, 1996; and (iii) the Company will be required to register the Shares and
shares of common stock underlying the Series G Warrants on or before August 31,
1996. If the Company fails to meet this registration deadline, the exercise
price of the Series G Warrants
<PAGE>
shall be decreased by $.50 on September 1, 1996 and by $.50 monthly thereafter
until the registration statement is declared effective by the Securities and
Exchange Commission. All other adjustment provisions contained in the
Agreements shall remain the same, except that the adjustment amount shall
increase from $.35 to $.50. As a result of these adjustments, the exercise
price cannot be reduced to less than $1.00 per share.
6. This Modification Agreement shall be effective upon acceptance by May
31, 1996 by the holders of all the Series G Warrants. The Company may, but is
not required to, elect to lower the required percentage of acceptance and may
extend the acceptance period for up to 15 days.
Except as modified above, all other terms of the Agreements remain the
same.
The undersigned Series G Warrant Holder hereby agrees to the foregoing
modifications.
- ---------------------------------------
Signature
- ---------------------------------------
Social Security or Tax Id. Number
- ---------------------------------------
Print or Type Name
Mailing Address:
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
Date:
----------------------------------
<PAGE>
Ex. 10.16
RECYCLING INDUSTRIES, INC.
384 Inverness Drive South, Suite 211
Englewood, Colorado 80112
(303) 790-4252
(303) 790-4252 fax
May 20, 1996
via FEDERAL EXPRESS
- -------------------
Shareholder Name
Address
Re: Extension of Offer to Purchase Shares and Lock-Up
Dear Shareholder:
Recycling Industries, Inc. (the "Company") continues to grow through its
aggressive acquisition program, completing the acquisition of Mid-America
Shredding located in Ste. Genevieve, Missouri in April 1996. By completing this
acquisition, the Company has acquired six metals recycling facilities in less
than two years.
As you may know, the Company is in the process of conducting an
underwritten offering of its common stock, the proceeds of which will, in part,
be used to pursue the Company's acquisition strategy (the "Security Offering").
In that connection, the Company filed a registration statement with the
Securities and Exchange Commission (the "Commission") on May 3, 1996
(Registration No. 33-3574) (the "Registration Statement"). The Registration
Statement is being reviewed by the staff of the Commission and has not yet been
declared effective. The Company believes the Registration Statement will be
declared effective and the Security Offering completed within the next 60 days.
Although the staff of the Commission is working closely with the Company in
its review of the Registration Statement, the Registration Statement may not be
effective and the Security Offering may not close on or before May 31, 1996. As
a result, pursuant to the terms of the Series J Warrants and the Series J
Registration Rights Agreements between you and the Company, the Company would be
required to register the shares of common stock purchased by you in its January
and February 1996 private placements and the shares of common stock underlying
the Series J Warrants on or before June 30, 1996.
<PAGE>
Shareholder Name
May 20, 1996
Page 2
To enable the Company to complete the Security Offering, the Company is
requesting that the holders of its Series J Warrants modify the terms of their
warrants, registration rights and lock-up provisions contained in their
subscription agreement with the Company as set forth in the enclosed
Modification Agreement. The Company believes that these modifications will
enable the it to quickly complete the Security Offering and continue to pursue
its acquisition strategy.
Please review the attached Modification Agreement and, if you agree to the
modified terms, date and sign where indicated. To facilitate timely completion
of the Security Offering, please fax your executed Modification Agreement to the
Company at (303) 790-4252. Return the originally executed Modification
Agreement to the Company at your earliest convenience in the enclosed, pre-paid
Federal Express envelope. IT IS IMPORTANT THAT THE COMPANY RECEIVE YOUR
EXECUTED MODIFICATION AGREEMENT BY FAX AS SOON AS POSSIBLE. If you have any
questions, you may direct them to me at (303) 790-7372 or Ken Levine or Marshall
Becker at First Equity Capital Securities, Inc. at (212) 922-0004.
Sincerely,
Thomas J. Wiens
Chairman and CEO
Enclosure
<PAGE>
MODIFICATION AGREEMENT
----------------------
The undersigned agrees to the following modifications of the Series J
Warrants, Series J Registration Rights and Series J lock-up provisions contained
in the undersigned's subscription agreement with Recycling Industries, Inc. (the
"Company") (collectively the "Agreements"). All capitalized terms used in this
Modification Agreement have the meaning ascribed to them in the Agreements:
1. The Company shall register the Shares and the shares of Common Stock
underlying the Series J Warrants on or before September 30, 1996. If the
Company fails to meet this registration deadline, the exercise price of the
Series J Warrants shall be decreased by $.50 on October 1, 1996 and by $.50
monthly thereafter until effective. If, at any time after the registration
statement is effective it ceases to be effective for a period of 60 days, the
exercise price of the Series J Warrants shall drop by an additional $.50 and by
$.50 monthly thereafter until effective. As a result of these adjustments, the
exercise price cannot be reduced to less than $1.00 per share.
2. The lock-up provisions contained in the Agreements shall commence upon
execution of this agreement and continue for the twelve-month period commencing
on the earlier of (i) the closing of the Security Offering and (ii) June 30,
1996. In addition, the percentage of Shares that may be sold in the sixth month
following the closing of the Security Offering or June 30, 1996, as applicable,
is increased from 5% to 7.5%. If the registration statement discussed in the
preceding paragraph ceases to be effective for a period of 90 consecutive days,
all the lock-up provisions contained in the Agreements that are then in effect
shall be released on the 90th day.
3. If the Security Offering is not completed by July 31, 1996: (i) the
exercise price of the Series J Warrants shall be reduced to $4.00; and (ii) the
Company will be required to register the Shares and shares of common stock
underlying the Series J Warrants on or before August 31, 1996. If the Company
fails to meet this registration deadline, the exercise price of the Series J
Warrants shall be decreased by $.50 on September 1, 1996 and by $.50 monthly
thereafter until the Registration Statement is declared effective by the
Securities and Exchange Commission. All other adjustment provisions contained
in the Agreements shall remain the same, except that the adjustment amount shall
increase from $.35 to $.50. As a result of these adjustments, the exercise
price cannot be reduced to less than $1.00 per share.
4. This Modification Agreement shall be effective upon acceptance by May
31, 1996 by the holders of all the Series J Warrants. The Company may, but is
not required to, elect to lower the required percentage of acceptance and may
extend the acceptance period for up to 15 days.
Except as modified above, all other terms of the Agreements remain the
same.
<PAGE>
The undersigned Series J Warrant Holder hereby agrees to the foregoing
modifications.
Shareholder Name
- ---------------------------------------
Signature
- ---------------------------------------
Social Security or Tax Id. Number
- ---------------------------------------
Print or Type Name
Mailing Address:
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
Date:
----------------------------------
<PAGE>
EXHIBIT 11
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Six Months Ended Proforma Proforma
Years Ended September 30, March 31, Year Ended Six Months Ended
------------------------------ -------------------- -------------- ----------------
1995 1994 1993 1996 1995 Sept. 30, 1995 March 31, 1996
---- ---- ---- ---- ---- -------------- ----------------
See Note Below
<S> <C> <C> <C> <C> <C> <C> <C>
Primary Earnings
Net income (loss) 1,015,000 (924,000) (2,463,000) 96,000 907,000 5,000,000 1,277,000
Shares
Weighted average number of 5,142,498 2,504,762 2,376,823 9,026,578 3,495,306 5,142,498 9,026,578
common shares outstanding
Assumed exercise of options
and warrants (as determined
by the application of the treasury
stock method) 957,196 -- -- 747,325 -- 957,196 747,335
Common shares issued for
acquisition of ????? Iron & Metal -- -- -- -- -- 227,693 89,542
Common shares assumed sold
in public offering to repay
acquisition indebtedness -- -- -- -- -- -- 79,639
--------- --------- ---------- --------- --------- --------- ----------
Weighted average number
of shares outstanding
as adjusted 6,099,694 2,504,762 2,376,823 9,773,913 3,495,306 6,327,387 9,943,134
========= ========= ========== ========= ========= ========= ==========
Primary earnings per common share:
Net income (loss) 0.30 (0.37) (1.04) 0.01 0.26 0.78 0.13
---- ----- ----- ---- ---- ---- ----
Fully Diluted Earnings
Net income (loss) 1,815,000 (924,000) (2,483,000) 98,000 907,000 5,000,000 1,277,000
Shares
Weighted average number of
common shares outstanding 6,099,694 2,504,762 2,376,823 9,799,913 3,495,306 5,327,387 9,943,134
Assuming conversion of convertible
preferred stock and convertible debt 208,000 116,307 -- 208,000 208,000 208,000 208,000
--------- --------- ---------- --------- --------- --------- ----------
Weighted average number of common
shares outstanding as adjusted 6,307,694 2,623,989 2,376,823 9,951,913 3,703,306 6,535,387 10,151,134
========= ========= ========= ========= ========= ========= ==========
Fully diluted earnings per common share:
Net income (loss) 0.29 (0.35) (1.04) 0.01 0.25 0.77 0.13
---- ----- ----- ---- ---- ---- ----
</TABLE>
<PAGE>
Ex. 21.1
RECYCLING INDUSTRIES, INC.
--------------------------
SUBSIDIARIES AS OF JUNE 18, 1996
NR Holdings, Inc., a Nevada corporation, wholly-owned
Nevada Recycling, Inc., a Nevada corporation, wholly-owned by NR Holdings,
Inc.
Metal Recovery, Inc., a Delaware corporation, wholly owned
Recycling Industries of Texas, Inc. d/b/a Anglo Iron & Metal, Inc., a Colorado
corporation, wholly-owned
Recycling Industries of Missouri, Inc. d/b/a Mid-America Shredding, Inc., a
Colorado corporation, wholly-owned
Recycling Industries of Iowa, Inc., a Colorado corporation, wholly-owned
Environmental Recovery Systems of Wrenthem, a Massachusetts corporation, 90%
owned*
Environmental Recovery Systems of New Milford, a Connecticut corporation,
wholly-owned*
Environmental Recovery Systems of Leominster, a Massachusetts corporation,
wholly owned*
Environmental Recovery Systems of Metals, a Colorado corporation, wholly-owned*
Environmental Recovery Systems of Georgia, a Georgia corporation, wholly-owned*
________
* Corporation is inactive with no operations.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports dated:
<TABLE>
<CAPTION>
REPORT DATE: FINANCIAL STATEMENTS OF:
------------ ------------------------
<S> <C>
March 22, 1996 Anglo Metal, Inc.
dba Anglo Iron & Metal
April 5, 1996 Mid-America Shredding, Inc.
April 21, 1996 Weissman Iron & Metal,
a Division of Weissman Industries, Inc.
November 3, 1995 Recycling Industries, Inc.
</TABLE>
and to the reference made to our firm under the caption "Experts" included in
or made part of this S-1 Registration Statement.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
JUNE 18, 1996
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Recycling Industries, Inc.
Denver, Colorado
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated May 17, 1996, relating to the
consolidated financial statements of Recycling Industries, Inc. which is
contained in that Prospectus and of our report dated May 17, 1996 relating to
the supplemental schedules which are contained in the Registration Statement.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO SEIDMAN, LLP
Denver, Colorado
June 18, 1996
