<PAGE>
As filed with the Securities and Exchange Commission on January 23, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
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:
RAYMOND L. FRIEDLOB, ESQ.
GERALD RASKIN, ESQ.
JOHN W. KELLOGG, ESQ.
FRIEDLOB SANDERSON RASKIN PAULSON & TOURTILLOTT, LLC
1400 GLENARM PLACE, SUITE 300
DENVER, COLORADO 80202
(303) 571-1400
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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: /X/
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Amount to be offering price aggregate offering Amount of
Title of each class of securities to be registered registered per share (1) price (1) registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 5,734,479 $2.75 $15,769,817 $ 4,779
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Convertible Preferred Stock (2) 632,411 1.75 $ 1,106,719 335
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Series G Warrants (2) 2,136,878 (3) $13,814,707 $ 4,186
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Series H Warrants (2) 283,333 $6.50 $ 1,841,665 $ 558
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Series I Warrants (2) 171,200 $ .30 $ 51,360 $ 16
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Series J Warrants (2) 727,083 (4) $ 4,624,377 $ 1,401
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Placement Agent's Warrants (2) 139,890 $2.75 $ 384,698 $ 117
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Common Stock Underlying Other Options and Warrants (2) 364,267 (5) $ 1,978,801 $ 600
- ------------------------------------------------------------------------------------------------------------------------------------
Total $39,572,144 $11,992(6)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Plus such indeterminable number of shares of Common Stock as may be
issuable by reason of the anti-dilution provisions of such warrants
and/or options.
(3) Represents shares underlying 2,106,878 warrants each to acquire one
share of Common Stock for $6.50 and 30,000 warrants each to acquire
one share of Common Stock for $4.00 per share.
(4) Represents shares underlying 686,418 warrants each to acquire one
share of common stock for $6.50 and 40,665 warrants each to acquire
one share of common stock for $4.00.
(5) Represents shares underlying: (i) 180,000 warrants each to purchase
one share of Common Stock for $7.50; (ii) 53,600 warrants each to
purchase one share of Common Stock for $5.00; (iii) 26,667 warrants
each to purchase one share of Common Stock for $3.75; (iv) 20,000
warrants each to purchase one share of Common Stock for $1.25; (v)
60,000 options, each to purchase one share of common stock for $2.50;
(vi) 12,000 options, each to purchase one share of common stock for
$6.25; and (vii) 12,000 options, each to purchase one share of common
stock for $.90.
(6) Pursuant to Rule 429(b), 9,537,130 shares of Common Stock, including
shares underlying warrants and options, and the applicable filing
fee of $11,641 are being carried forward from the Registrant's
Registration Statement on Form S-1, Commission File No. 333-16019.
--------------------
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.
--------------------
THIS REGISTRATION STATEMENT CONSTITUTES POST-EFFECTIVE AMENDMENT NO.1 TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1, COMMISSION FILE NO. 333-16019.
ii
<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.
Form S-1
Item Number Information Required Location in Prospectus
- ----------- -------------------- ----------------------
1 Forepart of the Registration Facing Page of Registration
Statement and Outside Front Statement; Outside Front Page of
Cover Page of Prospectus Prospectus
2 Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3 Summary Information, Risk Prospectus Summary; Risk Factors;
Factors and Ratio of Earnings Prospectus Summary - Summary
to Fixed Charges Financial Information
4 Use of Proceeds Prospectus Summary; Use of
Proceeds
5 Determination of Offering Price Not Applicable
6 Dilution Dilution
7 Selling Securityholders Selling Securityholders
8 Plan of Distribution Cover Page; Plan of Distribution
9 Description of Securities to Prospectus Summary; Description
be Registered of Capital Stock
10 Interests of Named Experts Not Applicable
and Counsel
11 Information with Respect to Business - Industry Overview,
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 Disclosure of Commission Position
Position on Indemnification on Indemnification for Securities
for Securities Act Liabilities Act Liabilities
iii
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
iv
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JANUARY 23, 1997
PROSPECTUS
RECYCLING INDUSTRIES, INC.
10,189,541 SHARES OF COMMON STOCK, INCLUDING
632,411 SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND
3,697,651 SHARES UNDERLYING COMMON STOCK PURCHASE WARRANTS AND OPTIONS
This Prospectus relates to the offer and sale of 10,189,541 shares (the
"Shares") of common stock, $.001 par value (the "Common Stock"), of Recycling
Industries, Inc., a Colorado corporation (the "Company"), being offered by
certain selling securityholders (the "Selling Securityholders"). The Shares
include 632,411 shares issuable upon conversion of the Company's Series C
Convertible Preferred Stock (the "Series C Preferred") and 3,697,651 shares
of Common Stock issuable upon exercise of certain outstanding common stock
purchase warrants and options (the "Warrants"). The Shares are being
registered pursuant to registration rights previously granted to the Selling
Securityholders. None of the Series C Preferred or Warrants are being
registered.
The 5,859,479 Shares that are not underlying the Series C Preferred or
Warrants were issued pursuant to the exercise of outstanding options,
warrants or stock acquisition rights, or were issued to various persons in
private placements of the Company's securities.
The Company has 10,000 Series C Preferred outstanding. Each Series C
Preferred is convertible, without further payment, into the number of shares
of Common Stock determined by dividing (i) the sum of (a) $100 plus (b) the
amount of all accrued dividends on the Series C Preferred by (ii) the lesser
of $1.58125 (the current conversion price) or 73% of the average reported
closing bid price of a share of Common Stock for the five consecutive trading
days immediately preceding the date of conversion.
The Warrants are comprised of: (i) 2,106,878 Series G Warrants, each
entitling the holder to purchase one share of Common Stock for $6.00,
exercisable until December 27, 1999, (ii) 30,000 Series G Warrants, each
entitling the holder to purchase one share of Common Stock for $4.00,
exercisable until December 27, 1999; (iii) 213,388 Series H Warrants, each
entitling the holder to purchase one share of Common Stock for $6.00,
exercisable until July 17, 1999; (iv) 69,945 Series H Warrants, each
entitling the holder to purchase one share of Common Stock for $6.00,
exercisable for three years after the exercise of the Placement Agent's
Warrants; (v) 56,200 Series I Warrants, each entitling the holder to purchase
one share of Common Stock for $.15, exercisable until December 27, 1999 ;
(vi) 686,418 Series J Warrants, each entitling the holder to purchase one
share of Common Stock for $6.00, exercisable until December 27, 1999; (vii)
40,665 Series J Warrants, each entitling the holder to purchase one Share of
Common Stock for $4.00, exercisable until December 27, 1999; (viii) 65,445
Placement Agent's Warrants, each entitling the holder to purchase two shares
of Common Stock and one Series H Warrant for $2.75, exercisable until January
31, 1999; (ix) 4,500 Placement Agent's Warrants, each entitling the holder to
purchase two shares of Common Stock and one Series H Warrant for $2.75,
exercisable until April 8, 1999; (x) 180,000 Caside Warrants, each entitling
the holder to purchase one share of Common Stock for $7.50, exercisable until
January 5, 1998; (xi) 53,600 Ally Capital warrants, each entitling the holder
to acquire one share of Common Stock for $5.00, exercisable until November 3,
1999; (xii) 26,667 Coast Warrants, each entitling the holder to purchaser one
share of Common Stock for $3.75, exercisable until August 4, 2001; (xiii)
20,000 Nevada Recycling Warrants, each entitling the holder to purchase one
share of Common Stock for $1.25, exercisable until January 4, 2004; (xiv)
20,000 Settondown Warrants, each entitling the holder to purchase one share
of common stock for $2.50, exercisable until December 31, 1998; (xv) 40,000
options, each entitling the holder to purchase one share of common stock at
$2.50 per share; (xvi) 12,000 options, each entitling the holder to purchase
one share of common stock at an exercise price of $6.25; and (xvii) 12,000
options, each entitling the holder to purchase one share of common stock at
an exercise price of $.90 per share.
This Prospectus may be used by the Selling Securityholders to sell the
Shares and for the resale of the Shares received upon exercise of the
Warrants. The Company will not receive any of the proceeds from the sale of
the Shares by the Selling Securityholders. The Company will, however,
receive the net proceeds from any exercise of the Warrants, as described
under "Use of Proceeds." See "Selling Securityholders."
THE DISTRIBUTION
----------------
The distribution of the Shares by the Selling Securityholders may be
effected from time to time in one or more transactions (which may involve
block transactions) on the Nasdaq National Market or on any other exchange on
which the Common Stock may be traded, may be effected from time to time in
one or more transactions in the over-the-counter market, in
privately-negotiated transactions, or a combination of such methods of sale.
Such sales will be made at the market prices prevailing at the time of sale,
at prices relating to such prevailing market prices or at negotiated prices.
The Selling Securityholders may effect such transactions by selling the
Shares to or through broker/dealers who may receive compensation in the form
of underwriting discounts, concessions or commissions
1
<PAGE>
from the Selling Securityholders or the purchasers of the Shares for whom the
broker/dealer acts as agent. Such compensation may be less than or in excess
of customary commissions. The Selling Securityholders and any broker/dealers
who participate in the distribution of the Shares may be deemed to be
underwriters, and any compensation received by them, including any profit on
their resale of such Shares, may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended (the "Securities
Act"). Certain of the Selling Securityholders are market makers in the Common
Stock.
Substantially all of the Selling Securityholders are subject to lock-up
agreements with the Company that limit the number of Shares that may be sold
by them during a given period of time. See "Plan of Distribution."
The Common Stock is listed on the Nasdaq National Market. On January 20,
1997, the closing price of the Common Stock on the Nasdaq National Market was
$1.75 per share.
Pursuant to agreements between the Company and the Selling
Securityholders, the Company has agreed to pay the expenses incurred in
connection with the registration of the Shares and the Company and certain of
the Selling Securityholders have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
--------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 8 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.
--------------------
The date of this Prospectus is January __, 1997
2
<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. In addition, the Company
files its reports, proxy statements and certain other information with the
Commission electronically through the EDGAR System. Information filed via
EDGAR may be obtained at the Web site maintained by the Commission at
http://www.sec.gov.
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.
3
<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.
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 seven metals recycling
facilities in Las Vegas, Nevada ("NRI"); Brownsville, Harlingen, McAllen and San
Juan, Texas ("Anglo Iron & Metal"); Ste. Genevieve, Missouri ("Mid-America
Shredding") and Waterloo, Iowa ("Weissman Iron & Metal"). 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 has increased
its revenues from approximately $4.8 million for the year ended September 30,
1994 to $27.6 million for the year ended September 30, 1996. Over the same
period, the Company's metals shredding capacity increased over 330% and its
total metals processing capacity increased over 365%.
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 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
4
<PAGE>
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.
Of the Company's revenues for the year ended September 30, 1996,
approximately 60% was attributable to sales of ferrous scrap, 31% was
attributable to sales of non-ferrous scrap, and the balance was primarily
attributable to paper and plastic recycling, retail finished steel sales
and brokerage 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.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding before the Offering ...... 13,919,429 shares (1)(2)
Common Stock Offered by the Selling
Securityholders ................................. 10,189,541 shares (3)
Common Stock Outstanding if all Series C Preferred
are converted and all Warrants are exercised .... 18,519,491 shares (4)
Use of Proceeds ................................... The net proceeds from the exercise of the Warrants, if
any, will be used to complete future acquisitions and
for working capital purposes. See "Use of Proceeds."
Nasdaq National Market Symbol ..................... RECY
</TABLE>
- ----------
(1) Does not include Common Stock reserved for issuance as follows: (i)
632,411 shares issuable upon conversion of the Series C Preferred; (ii)
4,119,584 shares issuable upon exercise of currently outstanding warrants;
(iii) 978,996 shares issuable upon exercise of currently outstanding
options; and (iv) shares reserved for additional options to be granted
under the Company's stock option plans. See "Description of Capital Stock"
and "Shares Eligible for Future Sale."
(2) Includes 363,636 shares of Common Stock issued in connection with the
acquisition of Weissman.
(3) Includes 632,411 shares issuable upon conversion of the Series C Preferred
and 3,697,651 shares issuable upon exercise of Common Stock Purchase
Warrants and Options.
(4) The Company is not aware of any arrangements for the conversion of the
Series C Preferred or the exercise of the Warrants and there is no
assurance that all or any of the outstanding Series C Preferred will
be converted or Warrants will be exercised.
6
<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 "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>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
PRO PRO
FORMA(2) FORMA(2)
1993(1) 1994(1) 1995(1) 1995 1996(3) 1996
--------- ----------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SELLING PRICES)
<S> <C> <C> <C> <C> <C> <C>
OPERATING AND OTHER DATA:
Shipments:
Ferrous (tons) ........... -0- 24,600 57,100 228,500 141,731 234,810
Non-ferrous (pounds) ..... -0- 3,676,300 8,805,600 33,729,071 18,564,412 30,271,946
Average Selling Price (4):
Ferrous (per ton) ........ $ NA $ 100 $ 120 $ 135 $ 122 $ 124
Net cash flow from:
Operating activities ..... $ (118) $ (862) $ 113 N/A $ (1,549) N/A
Investing activities ..... (617) (255) (926) N/A (12,964) N/A
Financing activities ..... 735 1,232 882 N/A 15,779 N/A
EBITDA(5) .................. $ (2,445) $ (547) $ 1,489 $ 6,308 $ (1,023) $ 1,702
</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 (August
1996) 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 year ended September 30, 1996 are not
comparable to those of the corresponding period ended September 30, 1995
due to the acquisitions of Anglo Iron & Metal that occurred in December
1995 of Mid-America Shredding that occurred in April 1996 and Weissman
that occurred on Augsut 1996.
(4) 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.
(5) 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.
ACCUMULATED DEFICIT AND NET LOSSES
At September 30, 1996, the Company's total accumulated deficit was
approximately $11.4 million, compared to a deficit of approximately $8.4 million
for fiscal 1995. The Company had a net loss of approximately $3.0 million for
fiscal 1996, compared to net income of approximately $1.8 million for fiscal
1995 and a net loss of $924,000 for fiscal 1994. There can be no assurance
that the Company will be able to operate profitably on a consistent basis.
SIGNIFICANT INDEBTEDNESS
At September 30, 1996, the Company had outstanding approximately $10.1
million of long-term indebtedness and approximately $3.8 million of short-term
indebtedness all of which is secured by substantially all of its operating
assets, and trade payables of approximately $2.7 million. In addition, at
September 30, 1996 the Company had outstanding other long-term indebtedness of
approximately $1.95 million owed to related parties. While funds generated by
the Company's operating subsidiaries have been sufficient to meet its debt
service obligations, the Company's ability to continue meeting its debt service
obligations will depend on its ability to generate sufficient cash from its
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
LIMITED CASH FLOW AND NEED FOR ADDITIONAL CAPITAL
The Company has limited cash flow from its operations and continues to
seek additional capital from time to time. If the Warrants are exercised,
which is unlikely unless the market price of the Company's common stock
increases substantially, the net proceeds will be used by the Company for
working capital and future acquisitions. The Company will have to obtain
additional capital either through debt or equity financing in order to
continue its acquisition strategy. There can be no assurance that the
Company will be able to obtain such financing on terms acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition
and Plan of Operation--Liquidity and Capital Resources" and
"Business--Strategy."
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, Missouri and Iowa and a
minority interest in a metals recycling company in Georgia. See "Business."
The Company has only a limited combined operating history for its current
facilities and has been unable to consistently generate net income and cash
flow from these facilities. There can be no assurance that the Company's
existing operations, or those acquired in any future acquisition, will
generate sufficient cash flow to fund the future operations of the Company.
See "Use of Proceeds."
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 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."
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 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
8
<PAGE>
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. Four of the Company's customers; Pacific
States Cast Iron & Pipe Company, The David J. Joseph Company, Alpert & Alpert
Company and Aceros D.M., S.A. de C.V. accounted for approximately 53.1% of the
Company's revenues (9.6%, 22.5%, 5.6% and 15.4%, respectively) for the year
ended September 30, 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."
CONTROL BY PRINCIPAL SHAREHOLDER AND ANTI-TAKEOVER PROVISION
As of the date of this Prospectus, Thomas J. Wiens, the Company's Chairman
and Chief Executive Officer, beneficially owns 2,284,103 shares of the Company's
Common Stock, representing approximately 16.4% of the issued and outstanding
shares.
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
9
<PAGE>
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. See
"Description of Capital Stock--Preferred Stock."
RISK OF SUBSTANTIAL FUTURE DILUTION
The Company has outstanding convertible preferred stock, options and
warrants to acquire an aggregate of 5,470,495 shares of the Company's Common
Stock, substantially all of which have exercise prices ranging from $.15 to
$6.00 per share and expire during fiscal years 1998 through 2001. See
"Description of Capital Stock--Warrants and Options; "Management--Stock
Option Plans." In addition, Warrants to purchase an aggregate of 3,318,489
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 conversion
of the preferred stock or 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--Preferred Stock and 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. 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."
USE OF PROCEEDS
It is not likely that any outstanding Warrants will be exercised unless
the market price of the Common Stock increases significantly. Alternatively,
the Company may lower the exercise price of the Warrants to below the
current market price, thereby encouraging their exercise. If the Warrants
are exercised at their current exercise prices, which is unlikely at this
time, the Company will receive net proceeds from such exercise of
approximately $20,736,214. See "Plan of Distribution." The proceeds will be
used to finance the Proposed Acquisitions, discussed below (if the Warrants
are exercised prior to such acquisitions) and for working capital purposes.
POTENTIAL ACQUISITIONS
The Company has identified several independent metals recyclers as
possible acquisition targets and has held preliminary acquisition discussions
with certain of these companies. The consummation of any of these
acquisitions is subject to a number of material contingencies, including
negotiation of definitive acquisition terms, obtaining sufficient financing
to complete the acquisition and completion of the Company's due diligence
related to the acquisition.
In addition to the proceeds from the exercise of the Warrants, the Company
proposes to fund these acquisitions through one or a combination of the
following: (i) issuing Common Stock or convertible securities of the Company;
(ii) issuing subordinated debt instruments; (iii) through asset based secured
lending arrangements; or (vi) through
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<PAGE>
seller financing arrangements. As of the date of this registration
statement, the Company has not received commitments to provide financing for
any proposed acquisition.
PRICE RANGE OF THE COMMON STOCK
The Common Stock has been listed on the Nasdaq National Market System since
July 18, 1996 under the symbol "RECY." Prior to its approval for listing on the
Nasdaq National Market, the Common Stock was quoted on the Nasdaq SmallCap
Market 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.
COMMON STOCK
------------
HIGH LOW
---- ---
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......................... 5.63 4.25
Fourth Quarter........................ 5.00 3.00
The last reported sale price of the Common Stock as quoted on the Nasdaq
National Market System on January 20, 1997 was $1.75 per share. As of
September 30, 1996, there were approximately 600 record holders of Common
Stock. Based upon the information available to it, the Company believes
there are approximately 2,000 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.
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<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, 1996 have been
derived from the consolidated financial statements of the Company which have
been audited by independent accountants.
<TABLE>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
PRO FORMA(2) PRO FORMA(2)
------------ ------------
1992(1) 1993(1) 1994(1) 1995(3) 1995 1996(3) 1996
------- ------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
------- ------- --------- --------- ----------
Revenues.......................... $ -0- $ -0- $ 4,831 $ 13,853 $ 52,222 $ 27,623 $ 47,258
Cost of sales..................... -0- -0- 4,110 10,869 40,138 25,654 37,886
Cost of brokerage................. -0- -0- -0- -0- 3,075 936 4,310
------- ------- --------- --------- ---------- -------- ---------
Gross profit.................... -0- -0- 721 2,984 9,009 1,033 5,062
Selling and administrative
expenses........................ 2,951 2,335 1,660 2,279 4,016 3,323 4,728
Loss from joint ventures and
equity investee.............. 462 467 -0- -0- -0- -0- -0-
------- ------- --------- --------- ---------- -------- ---------
Income (loss) from operations..... (3,413) (2,802) (939) 705 4,993 (2,290) 334
Interest expense................ (114) (156) (203) (407) (1,354) (732) (1,346)
------- ------- --------- --------- ---------- -------- ---------
Income (loss) before income
taxes......................... (3,527) (2,958) (1,142) 298 3,639 (3,022) (1,012)
Income tax provision (benefit).. -0- -0- -0- (711) (338) 9 237
------- ------- --------- --------- ---------- -------- ---------
Income (loss) from continuing
operations, net of income
taxes........................... $(3,527) $(2,958) $ (1,142) $ 1,009 $ 3,977 $ (3,031) $ (1,249)
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Income (loss) per share from
continuing operations, net
of income taxes................. $ (1.73) $ (1.24) $ (0.46) $ 0.17 $ 0.59 $ (.30) $ (.12)
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Net income (loss) after
extraordinary item and income
taxes........................... $(1,147) $(2,483) $ (924) $ 1,815 $ 4,783 $ (2,961) $ (1,179)
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Net income (loss) per share....... $ (0.56) $ (1.04) $ (0.37) $ 0.30 $ 0.71 $ (.29) $ (.11)
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Weighted average shares
outstanding.................... 2,043 2,377 2,505 6,100 6,691 10,212 10,212
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
BALANCE SHEET DATA:
Working capital (deficit)....... $(2,721) $(3,853) $ (4,175) $ 376 NA 1,597 NA
Property and equipment.......... 43 30 6,590 6,686 NA 20,492 NA
Total assets.................... 1,865 1,147 9,618 10,297 NA 34,855 NA
Total liabilities............... 2,801 3,853 6,852 3,843 NA 19,192 NA
Stockholders' equity (deficit).. (936) (2,706) 2,766 6,454 NA 14,163 NA
OPERATING AND OTHER DATA:
Shipments:
Ferrous (tons).................. -0- -0- 24,600 57,100 228,500 141,731 234,810
Non-ferrous (pounds)............ -0- -0- 3,676,300 8,805,600 33,729,071 18,564,412 30,271,946
Average Selling Price(4):
Ferrous (per ton)............... NA NA $ 100 $ 120 $ 135 $ 122 $ 124
Net Cash Flow From:
Operating activities............ $(1,613) $ (118) $ (862) $ 113 NA $ (1,549) NA
Investing activities............ (1,526) (617) (255) (926) NA (12,964) NA
Financing activities............ 3,125 735 1,232 882 NA 15,779 NA
EBITDA(6)......................... $(2,979) $(2,445) $ (547) $ 1,489 $ 6,308 $ (1,023) $ 1,702
</TABLE>
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<PAGE>
- ------------
(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 date gives effect to the acquisitions of Anglo Iron & Metal
(December 1995), Mid-America Shredding (April 1996) and Weissman (August
1996) 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 notes to the pro forma
financial statements.
(3) The historical operating results for the year ended September 30, 1996 are
not comparable to those of the corresponding period ended September 30,
1995 due to the acquisitions of Anglo Iron & Metal that occurred in
December 1995 and Mid-America Shredding that occurred in April 1996 and
Weissman that occurred on August 1996.
(4) 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.
(5) 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.
13
<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. See "Business--History of the Company." On December 11,
1995, the Company acquired Anglo Iron & Metal, on April 15, 1996, the Company
acquired Mid-America Shredding and, on August 5, 1996, the Company acquired
Weissman Iron & Metal. 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.
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<PAGE>
FISCAL YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
The results of operations for the years ended September 30, 1996, 1995
and 1994 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. 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, 1996, the Company had
revenues of $27.6 million compared to $13.9 million for the year ended
September 30, 1995 and $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, 1996, the increase in revenues was a result of
the acquisitions of Anglo Iron & Metal, Mid-America Shredding and Weissman.
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.
For the year ended September 30, 1996, the average sales price per ton
of prepared ferrous scrap was $122, a 1.7% increase compared to $120 per ton
for the year ended September 30, 1995. For the year ended September 30,
1996, the average sales price for non-ferrous scrap was $.47 per pound,
representing a 27% decrease compared to $.64 per pound for the year ended
September 30, 1995.
COST OF SALES. For the year ended September 30, 1996, the Company
incurred cost of sales of $25.7 million compared to $10.9 million for the
year ended September 30, 1995 and $4.1 million for the year ended September
30, 1994. The increased cost of sales for the year ended September 30, 1996
was a result of the acquisition of Anglo Iron & Metal, Mid-America Shredding
and Weissman. 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 increased to 92.9% of total revenues for the year ended September 30,
1996 from 78.5% of total revenues for the year ended September 30, 1995.
This increase in cost of sales as a percentage of total revenues was caused
by lower selling prices and increased cost of raw materials. These factors
cause gross profit to decrease to $1.0 million for the year ended September
30, 1996 from $3.0 million for the year ended September 30, 1995. Cost of
sales decreased to 78.5% of total revenues for the year ended September 30,
1995 from 85.1% of total 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 from $721,000 for the year
ended September 30, 1994.
For the year ended September 30, 1996, the Company incurred cost of
brokerage of $936,000 or 3.4% of total revenues.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses were $3.3 million, or 12.0% of revenues, for the year ended
September 30, 1996 compared to $2.3 million, or 16.5% of revenues, for the
year ended September 30, 1995 and $1.7 million, or 34.4% of revenues for the
year ended September 30, 1994. The largest components of the increase for
the year ended September 30, 1996 compared to 1995 were salary and related
expenses, which rose $710,000 and selling and administration expenses from
the operations of Anglo Iron & Metal, Mid-America Shredding and Weissman.
For the year ended September 30, 1995 compared to 1994, 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.
INTEREST EXPENSE. For the year ended September 30, 1996, the Company
had interest expense of $732,000 compared to $407,000 and $203,000 for the
years ended September 30, 1995 and 1994 respectively. The increase in 1996
was due primarily to additional debt incurred to finance the purchase of the
Anglo Iron & Metal in December 1995, Mid-America Shredding in April 1996 and
Weissman in August 1996. The increase in 1995 was caused by a full year of
interest expense related to debt incurred in conjunction with the acquisition
of the Nevada facility.
INCOME TAX PROVISION (BENEFIT). The Company has generated a net loss
carryforward totalling approximately $8,300,000, which expires at various
amounts and dates through the year 2011, due to operating losses incurred
prior to but not including fiscal 1995 and in fiscal 1996. During fiscal
1995, management determined that $800,000 of the net operating loss
carryforward was more likely than not to be used in the near future due to
taxable income anticipated to be generated through the May 10, 1994
acquisition of the Company's Nevada facility. Therefore, a net deferred tax
asset of $800,000, net of a $242,000 valuation allowance and a benefit from
income taxes of $711,000 was recorded in fiscal 1995.
In fiscal 1996, the Company's Nevada facility, Anglo Iron & Metal
acquired in December 1995 and its Mid-America Shredding acquired in April
1996 had operating losses aggregating approximately $1,262,000. In October
1996 management began to implement certain cost cutting strategies, the most
significant of which is the planned reduction of its labor force and related
payroll costs which is expected to provide an approximate $1.2 to $1.6
million reduction in labor costs and, as a result, improve the profitability
of these operations. In August 1996, the Company acquired Weissman which is
anticipated to generate taxable income in future periods. As a result of
these factors, which are anticipated to result in the generation of net
income, management has determined that the $800,000 deferred tax asset
recognized in 1995 and in 1996 is more likely than not to be used in the near
future. The aggregate future taxable income required to utilize the deferred
tax asset recognized is approximately $2,400,000. As a result of a full year
of income from the Weissman acquisition and the reduction of labor costs,
management is projecting achieving this taxable income level in fiscal 1997.
As a result, a net deferred tax asset of $800,000, net of a $1,170,000
valuation allowance and a provision for state income taxes of $9,000 was
recorded in fiscal 1996. No benefit for income taxes was recognized for the
year ended September 30, 1994.
15
<PAGE>
INCOME (LOSS) FROM CONTINUING OPERATIONS, NET OF INCOME TAXES. For the
year ended September 30, 1996, the Company had a loss from continuing
operations, net of income taxes of approximately $3,031,000, or $.30 per
share, compared to income of $1.0 million, or $.17 per share, and a loss of
$1.1 million, or $.46 per share, for the years ended September 30, 1995 and
1994, respectively. The principal reasons for the decrease were increased
cost of sales, lower selling prices resulting in reduced revenues and
increased interest expense due to additional borrowings related to the
acquisition additional facilities. The significant increase in profit in
1995 is the result of the Company's acquisition of its Nevada facility in May
1994.
NET INCOME (LOSS). For the year ended September 30, 1996, the Company
generated a net loss of $2,961,000, or $.29 per share, compared to net income
of $1.8 million, or $.30 per share, for the year ended September 30, 1995,
and a net loss of $924,000, or $.37 per share, for the year ended September
30, 1994.
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
combined operating results for the year ended September 30, 1996 include the
operating results of the Company, Anglo Iron & Metal, Mid-America Shredding
and Weissman for such period. The pro forma operating results for the year
ended September 30, 1995 include the year ended September 30, 1995 for the
Company and the year ended December 31, 1995 for Anglo Iron & Metal,
Mid-America Shredding and Weissman. 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
a provision for state income taxes. 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.
FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
REVENUES. For the year ended September 30, 1996, pro forma revenues
were $47.3 million. Of such revenues, the Company generated $27.6 million,
Anglo Iron & Metal generated $2.8 million, Mid-America Shredding generated
$1.2 million and Weissman generated $15.7 million. For the year ended
September 30, 1995, pro forma revenues for the Company were $52.2 million, of
which the Company generated $13.8 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 year ended September 30, 1996, pro forma cost of
sales were $37.9 million, or 80.2% of pro forma total revenues, of which the
Company contributed $25.7 million, Anglo Iron & Metal contributed $2.1
million, Mid-America Shredding contributed $1.2 million and Weissman
contributed $8.9 million. For the year ended September 30, 1996, pro forma
cost of brokerage was $4.3 million, or 9.1% of pro forma total revenues, of
which the Company contributed $936,000 and Weissman contributed $3.4
million. For the year ended September 30, 1996, gross profit was $5.1
million and the gross margin was 10.7% on a pro forma basis.
For the year ended September 30, 1995, pro forma cost of sales was $40.1
million, or 76.9% of pro forma total revenues, of which the Company
contributed $10.9 million, Anglo Iron & Metal contributed $13.5 million,
Mid-America Shredding contributed $3.5 million and Weissman contributed $12.2
million. For the year ended September 30, 1995, pro forma cost of brokerage
for the Company was $3.1 million, or 5.9% of pro forma total revenues, of
which Anglo Iron & Metal contributed $181,000 and Weissman contributed $2.9
million. For the year ended September 30, 1995, gross profit was $9.0
million and the gross margin was 17.2% on a pro forma basis.
SELLING AND ADMINISTRATIVE EXPENSES. For the year ended September 30,
1996, pro forma selling and administrative expenses were $4.7 million, or
10.0% of pro forma revenues. During the year ended September 30, 1996, the
Company contributed $3.3 million, Anglo Iron & Metal contributed $275,000,
Mid-America Shredding contributed $75,000 and Weissman contributed $999,000
to pro forma selling and administrative expenses.
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For the year ended September 30, 1995, pro forma selling and administrative
expenses were $4.0 million, or 7.7% of pro forma revenues. During the year
ended September 30, 1995, 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 year ended September 30, 1996, pro forma
interest expense for the Company was $1.3 million. For the year ended
September 30, 1995, pro forma interest expense for the Company was $1.4
million.
INCOME TAX PROVISION (BENEFIT). For the year ended September 30, 1996,
the Company recognized a $237,000 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 loss
from continuing operations, net of income taxes was $1,249,000, or $.12 per
share, for the year ended September 30, 1996. Pro forma income from
continuing operations, net of income taxes was $4.0 million, or $.59 per
share, for the year ended September 30, 1995.
NET INCOME. Pro forma net loss for the Company was $1,179,000, or $.11
per share, for the year ended September 30, 1996. Pro forma net income for
the Company was $4.8 million, or $.71 per share, for the year 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 a
public offering of the Company's Common Stock in July 1996, private
placements of debt and equity securities, equipment and receivables financing
and cash flow from operations. Since commencement of its metals recycling
operations in May 1994 through September 1996, the Company has raised net
cash proceeds of $19.2 million through the sale of its equity securities.
Through June 1995, the Company was also funded in part by $887,000 of
borrowings from First Dominion Holdings, Inc., a company controlled by the
Company's Chairman and Chief Executive Officer ("First Dominion"), all of
which has been repaid. At September 30, 1996, the Company had $19.2 million
of liabilities and $15.8 million of debt outstanding, of which $3.8 million
is due in the next 12 months.
On May 11, 1994, the Company acquired its Nevada facility by purchasing
all of the outstanding common stock of Nevada Recycling, Inc. As
restructured, the purchase price for the Nevada facility consisted of debt of
$5.0 million and the issuance of 13,000 shares of the Company's Series A
Convertible Preferred Stock valued at $1.3 million. In addition, the Company
issued to the sellers a warrant to acquire up to 20,000 shares of Common
Stock at an exercise price of $1.25 per share.
On June 30, 1995, the Company acquired a 20% interest in a Georgia
metals recycling facility through its investment in The Loef Company
("Loef"). This investment has been valued at $277,000, the amount of costs
incurred by the Company in pursuing its acquisition of Loef. The Company's
ownership interest in Loef was to have been reduced to 15% if the Company did
not invest an additional $200,000 in Loef by June 30, 1996. The Company did
not make this payment and, pending the receipt of information regarding the
current operations and financial performance of Loef, the Company has taken
the position that its interest was not reduced to 15% on June 30, 1996. On
December 3, 1996 Loef declared Chapter 11 bankruptcy to reorganize the
business. The Company subsequently decided to write off the $277,000
investment in Loef as of September 30, 1996.
On December 11, 1995, the Company acquired its southern Texas facilities
by acquiring substantially all of the assets of Anglo Metals, Inc., d/b/a
Anglo Iron & Metal, for $6.1 million. The purchase price was paid as
follows: (i) $2.1 million in cash; (ii) $1.9 million note which is to be
paid in monthly installments of $181,000 beginning in February 1996;
(iii) a $446,000 secured promissory note bearing interest at 8% and payable
in 60 monthly installments of $9,000; (iv) a $750,000 unsecured promissory
note and non-compete agreement payable in 72 consecutive installments of
$10,400; and (v) 227,693 shares of Common Stock, valued at $925,000.
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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 $708,000, assumed outstanding bank debt of $1.2 million.
On June 20, 1996, the Company secured $4.0 million in inventory and
receivables financing from Coast Business Credit, an asset-based lender
specializing in inventory and receivables financing. In connection with the
Weissman acquisition, the credit facility was increased to $10.0 million on
August 15, 1996, and on September 30, 1996 was increased to $12.5 million.
On July 17, 1996, the Company completed the Public Offering of its
Common Stock, receiving net proceeds, after deducting underwriting discounts
and offering expenses of $14.0 million. These proceeds were used as follows:
$5.2 million to pay a portion of the cash purchase price for Weissman on
August 5, 1996; $5.5 million to repurchase 1,380,585 shares of Common Stock;
$2.4 million to redeem all of the Company's outstanding Series A Convertible
Preferred Stock and repurchase 120,000 shares of Common Stock on August 15,
1996. The remaining proceeds of approximately $900,000 are being used for
general corporate purposes.
On August 5, 1996, the Company acquired Weissman for a total purchase
price of $12.0 million. The purchase price was paid as follows: (i) 363,636
shares of Common Stock valued at $1.5 million; (ii) $5.2 million from the
proceeds of the Public Offering and the Company's operating cash; (iii) a
$3.5 million term loan bearing interest at prime plus 2.25%, payable in 60
monthly installments of $58,333 and; (iv) approximately $1.8 million of
revolving credit borrowings. Under the terms of a Share Price Guaranty
Agreement ("the Agreement") the Company has agreed to guaranty the $1.5
million value of 363,636 shares ("the Guaranteed Shares"). The Agreement
grants the seller and its assign, Weissman Financial, (Collectively "Weissman
Financial") registration rights effective for three years. If at any time
during the three year period commencing on the effective date of the
registration statement, Weissman Financial sells the 363,636 shares of common
stock at less than the guaranteed amount, the Company is required to pay to
the seller any shortfall in cash. In addition, Weissman Financial has the
right in his sole discretion to require the Company, at any time during the
two year period commencing November 30, 1997, to repurchase the Guaranteed
Shares for $1.5 million. As a result of this Agreement to purchase the
Guaranteed Shares upon the Weissman Financial's request, the $1.5 million
value of the Guaranteed Shares has been recorded as temporary equity.
On August 15, 1996, the Company redeemed all of its outstanding Series A
Convertible Preferred Stock and repurchased 120,000 shares of Common Stock
for $2.4 million. This transaction was funded through the proceeds of the
Public Offering.
On September 30, 1996, the Company paid the balance of the principal
plus accrued interest on its bridge indebtedness of $485,000.
For the year ended September 30, 1996, net cash used by operations was
$1,549,000. During this period, the Company generated a net loss of $2,961,000,
which included a write-off of its investment in Loef of $277,000, depreciation
and amortization of $1,197,000 and an extraordinary gain of $70,000. Increases
in accounts receivable, prepaid expenses and other current assets amounted to
$2,443,000, offset by a decrease in inventory of $657,000 and an increase in
accounts payable and accrued expenses of $1,771,000. Accounts receivable and
accounts payable increases were primarily related to the acquisitions of the
Texas facilities acquired on December 11, 1995 and the Missouri facility
acquired on April 15, 1996. The Company did not acquire the accounts receivable
or accounts payable of the Texas and Missouri facilities and as a result
the sales and purchases of these facilities subsequent to acquisition were
the primary reason for the increase in accounts receivable and accounts payable.
For the year ended September 30, 1996, the Company used net cash in
investing activities of $12,964,000 compared to $926,000 for the year ended
September 30, 1995. Such amounts primarily related to acquisition costs and
goodwill as well as additions of capital equipment.
The Company had a positive net worth of approximately $14.1 million at
September 30, 1996, compared to $6.5 million at September 30, 1995, and $2.8
million at September 30, 1994. This improvement in net worth is due to
issuance of $8.6 million (net of redemptions of $8.1 million) of Common Stock
during the year ended September 30, 1996, the conversion of $1.1 million of
bridge loan debt to equity, and the issuance of $925,000 of Common Stock in
connection with the acquisition of the southern Texas facilities.
Working capital at September 30, 1996 was $1.6 million as compared to
$376,000 of working capital at September 30, 1995. As of September 30, 1994,
the Company had a working capital deficit of $4.2 million. The increase in
working capital at September 30, 1996 is due primarily to the increase in
accounts receivable and inventory of the Texas, Missouri and Iowa facilities
and the increase in cash from the public offering. The improvements in
working capital from fiscal 1994 to fiscal 1995 reflects the increase in cash
provided by a full year in operations of the Nevada facility, the
restructuring of long-term debt and the additional equity raised from the
issuance of Common Stock during fiscal 1995.
The planned capital expenditures over the next 12 months for the
Company's existing facilities are estimated to be $800,000. 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 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 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
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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.
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. The Company commenced its metals recycling operations
in May 1994 and has increased its revenues from approximately $4.8 million
for the year ended September 30, 1994 to $27.6 million for the year ended
September 30, 1996. Over the same period, the Company's monthly metals
shredding capacity has increased over 330% and its total monthly metals
processing capacity increased over 365%.
As of the date of this prospectus, the Company has 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.
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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, acquired by the
Company on August 5, 1996, operates a metals recycling facility in Waterloo,
Iowa, serving midwestern steel mills.
In addition, the Company currently has a minority interest in Loef,
which operates a metals recycling facility in Athens, Georgia, serving steel
mills and markets in the southeastern United States.
Of the Company's revenues for the year ended September 30, 1996,
approximately 60% was attributable to sales of ferrous scrap, 31% 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
and brokerage 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 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.
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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 $106
to $130 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 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 $45 to $51 per pound, and
current prices for No. 1 prepared copper scrap range from $84 to $88 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
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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.
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 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 seven metals recycling facilities over the past 24
months. 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.
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,
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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.
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 subsidiaries 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
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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
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 60% of the Company's revenues
for the year ended September 30, 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 31% of the Company's revenues for the year ended
September 30, 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 2% of the Company's revenues for the
year ended September 30, 1996.
SIGNIFICANT CUSTOMERS
Four of the Company's customers; Pacific States Cast Iron & Pipe
Company, The David J. Joseph Company, Alpert & Alpert Company and Aceros
D.M., S.A. de C.V., accounted for approximately 53.1% of the Company's
revenues (9.6%, 22.5%, 5.6% and 15.4%, respectively) for the year ended
September 30, 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 and
the unavailability of transportation may have a material adverse effect on
the Company's business.
COMPETITION
24
<PAGE>
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.
EMPLOYEES
The Company has approximately 240 full-time employees, most of whom are
employed by the Company's wholly-owned subsidiaries. Weissman has 40
employees of which 20 are represented by the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America (the
"UAW") under a four-year collective bargaining agreement which expires on
November 30, 2000. The Company believes its relationship with its employees
is 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>
Monthly
Facility Size Shredding
Facility Location (acres) Materials Processed Capacity (tons)
- ------------------------ ------------- ------------------------------------ ----------------
<S> <C> <C> <C>
Las Vegas, Nevada 13 Ferrous and non-ferrous scrap, paper 5,000
Brownsville, Texas 7 Ferrous and non-ferrous scrap (1)
Harlingen, Texas 7 Ferrous and non-ferrous scrap 6,500
McAllen, Texas 1 Ferrous and non-ferrous scrap (1)
San Juan, Texas 8 Ferrous and non-ferrous scrap (1)
Ste. Genevieve, Missouri 32 Ferrous and non-ferrous scrap 5,000
Waterloo, Iowa(2) 34 Ferrous and non-ferrous scrap, paper 5,000
--- ------
Totals 102 21,500
</TABLE>
- --------------
25
<PAGE>
(1) 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.
(2) Subject to a deed of trust granted to the former owner of Weissman to
secure the Company's guarantee the $1.5 million value of the 363,636 shares
of Common Stock issued in connection with the acquisition of Weissman.
See Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Liquidity and Capital Resources.
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.
Periodically, the Company may be required to shutdown its shredding
operations for maintenance. If these shutdowns occur for an extended
period of time, they may have an adverse impact on the Company's operations.
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
26
<PAGE>
hazardous materials found in this process, such as automobile batteries,
suspected PCB contaminated 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 minority interest, 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 the Company has been able to obtain
from the Environmental Protection Agency and other potentially responsible
parties at the site, the Company 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 these facilities.
RECENT DEVELOPMENTS
On December 31, 1996, the Company completed a private placement of
10,000 Series C Preferred for total consideration of $1,000,000. Each Series C
Preferred is convertible, without further payment, into the number of shares of
Common Stock determined by dividing (i) the sum of (a) $100 plus (b) the
amount of all accrued dividends on the Series C Preferred by (ii) the lesser of
$1.58125 (the current conversion price) or 73% of the average reported
closing bid price of a share of Common Stock for the five consecutive trading
days immediately preceding the date of conversion. The proceeds from this
private placement were used for general working capital purposes. The Company
issued to the placement agent for the Series C Preferred, Settondown Capital
International, Ltd., 20,000 Settondown Warrants, each entitling the holder to
acquire one shares of common stock for $2.50.
On December 3, 1996, The Loef Company filed for Chapter 11 Bankruptcy.
The Company subsequently wrote off the value of the Company's investment of
$277,000 in The Loef Company as of September 30, 1996.
On September 30, 1996, the Company increased its secured credit facility
from $10.0 million to $12.5 million.
On September 30, 1996, the Company paid the balance of the principal
plus accrued interest on its bridge indebtedness of $485,000.
27
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company and their positions
are set forth below:
Name Age Position(s)
- ------------------- --- -----------------------------------------------
Thomas J. Wiens 44 Chairman of the Board, Chief Executive Officer
Michael I. Price 55 Director, Chief Operating Officer, President
Brian L. Klemsz 37 Director, Chief Financial Officer, Treasurer
Rebekah L. Coe 34 Director of Corporate Development, Secretary
John E. McKibben 56 Vice President - Administration
Jerome B. Misukanis 53 Director (1)
Graydon H. Neher 47 Director (1)
Barry D. Plost 50 Director (1)
- ------------
(1) Member of the Audit Committee.
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.
28
<PAGE>
BRIAN L. KLEMSZ. Mr. Klemsz has served as a Director, Chief Financial
Officer and Treasurer since August 1996. Prior to joining the Company, Mr.
Klemsz served in various management positions for eight years with Advanced
Energy Industries, Inc., a provider of power conversion and control equipment
for the semiconductor and optical coating industries. Mr. Klemsz has over 15
years of experience in operations management, management information systems
and finance. Mr. Klemsz received a BS in Business Administration from the
University of Colorado, a MS in Finance from Colorado State University and a
MS in Accounting from Colorado State University. Mr. Klemsz is a Certified
Public Accountant and is Certified in Production and Inventory Management by
the American Production and Inventory Control Society.
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,
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.
JOHN E. MCKIBBEN. Mr. McKibben has served as Vice
President-Administration of the Company since October 1996. Prior to joining
the Company, Mr. McKibben was Vice President-Administration of National
Material Trading, a division of National Material L.P. and a major broker of
scrap iron and steel and importer of iron substitutes for scrap. Previously,
Mr. McKibben served in various executive capacities in his over 30 years in
the metals recycling industry with Antrim Metals Recycling, Inc., and the
David J. Joseph Company. Mr. McKibben received his BS degree in Industrial
Management from the University of Cincinnati.
JEROME B. MISUKANIS. Mr. Misukanis has served as a member of the
Company's Board of Directors since March 1994 and served as Treasurer and
Chief Financial Officer from February 1996 to August 1996. Since 1991 Mr.
Misukanis has been a principal of Misukanis and Dodge, P.A., CPA, a public
accounting firm. 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.
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 D. 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.
29
<PAGE>
The Company's operating management is comprised of the following
individuals:
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 Rouge, 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.
STEVEN F. PLEIS. Mr. Pleis, age 47, has served as General Manager for
the Company's Iowa facility since August 1996. Prior to joining the Company,
Mr. Pleis was Executive Vice President of Weissman Iron and Metal, Inc. of
Waterloo, Iowa from 1987 to 1996. Mr. Pleis served in various positions for
Weissman from 1977 to 1986 including accountant and buyer positions. Prior to
joining Weissman, Mr. Pleis practiced accounting for 6 years. Mr. Pleis is
currently on the Board of Directors of the Northwest Chapter of the Institute
of Scrap Recycling Industries. Mr. Pleis received a BS in accounting from
Mankato State University.
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 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.
As the Company expands, it will hire additional qualified individuals
with industry experience to manage the different segments of its operations.
In connection with 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. Misukanis, Neher and Plost, all of whom are Independent Directors.
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.
The Board of Directors acts as the Compensation Committee for purposes
of administering the Company's Stock Option Plans, described below. The
Board of Directors intends to establish a Compensation Committee which will
be comprised solely of Independent Directors.
30
<PAGE>
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 total compensation for the
year ended September 30, 1996 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- ----------------------
NAME AND FISCAL OTHER ANNUAL SECURITIES
PRINCIPAL POSITION YEAR SALARY COMPENSATION UNDERLYING OPTIONS
- ------------------ ------ ----------- ------------- ------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens 1996 $222,000 -0- -0-
Chief Executive 1995 $205,000 $1,257,197(1) -0-
Officer and 1994 147,000(1) -0- -0-
Chairman of the
Board of Directors
Michael I. Price 1996 $210,000 -0- -0-
Chief Operating Officer 1995 $142,500 -0- 150,000(2)
and President 1994 112,000(3) -0- 150,000
</TABLE>
- ------------
(1) Although accrued, the Company did not pay any cash compensation to
Mr. Wiens during fiscal 1994. During fiscal 1995, the unpaid 1994 salary
of $147,000 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, which right was exercised on August 8, 1995.
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) Represents the repricing of the option granted to Mr. Price in fiscal 1994.
See "Certain Transactions."
(3) Paid during fiscal 1995.
31
<PAGE>
STOCK OPTION EXERCISES DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1996,
OUTSTANDING GRANTS AND GAINS AS OF SEPTEMBER 30, 1996
The following table shows stock options exercised by named executive
officers during the fiscal year ended September 30, 1996. In addition, this
table includes the number of shares covered by both exercisable and
non-exercisable stock options as of September 30, 1996 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, 1996.
<TABLE>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
NAME UPON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens -- -- -- --
Michael I. Price -- -- 150,000/0 277,500/0
</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.
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
32
<PAGE>
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, 24,000 shares of Common Stock at an exercise price of $2.78 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,
options to purchase 18,000 and 12,500 shares of Common Stock at an exercise
price of $2.78 per share have been granted to Messrs. Misukanis and Plost,
respectively.
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. 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.
33
<PAGE>
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 1 of each calendar year, commencing
with December 1, 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 7, 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 7, 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.
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.
PRINCIPAL SHAREHOLDERS
As of September 30, 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 September 30, 1996 with respect to the ownership of the
34
<PAGE>
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>
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 AFTER OWNERSHIP AFTER
NAME OF BENEFICIAL OWNER THE OFFERING OFFERING THE OFFERING THE OFFERING(1)/(2)
- ------------------------ -------------- ------------- ------------ -------------------
<S> <C> <C> <C> <C>
Caside Associates 841,990(3) 6.0% 0(2) 1.4%/1.1%
373 North Main St.
Fall River, MA 02720
CERTAIN DIRECTORS AND
EXECUTIVE OFFICERS (4)
Thomas J. Wiens 2,284,103(5) 16.4% 2,284,103 16.4%/12.3%
Michael I. Price 154,000(6) 1.1% 154,000 1.1%/.9%
Jerome B. Misukanis 18,000(7) .1% 0 0%/0%
Graydon H. Neher 28,000(8) .2% 0 0%/0%
Barry D. Plost 14,000(9) .1% 0 0%/0%
Directors and Executive Officers
as a group 2,498,103 17.7% 2,438,103 17.3%/13.2%
</TABLE>
- ------------
(1) Assuming none of the Warrants are exercised.
(2) Assuming all of the Warrants are exercised.
(3) Includes 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, who 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.
Caside Associates is a Selling Securityholder in the Offering. See
"Selling Securityholders."
(4) The business address of all directors and executive officers is 384
Inverness Drive South, Suite 211, Englewood, Colorado 80112.
(5) 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.
(6) Includes 150,000 shares underlying options.
(7) Includes 12,000 shares underlying options. Mr. Misukanis is a Selling
Secuityholder in the Offering. See "Selling Securityholders."
(8) Includes 12,000 shares underlying common stock purchase warrants.
Mr. Neher is a Selling Securityholder in the Offering. See "Selling
Securityholders."
(9) Includes 6,000 shares underlying common stock purchase warrants. Mr. Plost
is a Selling Securityholder in the Offering. See "Selling Securityholders."
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
35
<PAGE>
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 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 tables set forth the total number of Series C Preferred,
Warrants, the number of Shares and the total number of Shares assuming the
conversion or exercise of all Series C Preferred and Warrants owned by each
of the Selling Securityholders and registered hereunder. Except as
indicated, the Selling Securityholders are offering all of the shares of
Common Stock owned by them or received by them upon conversion of the Series
C Preferred or exercise of the Warrants and none of the Selling
Securityholders is the beneficial owner of one percent or more of the
outstanding shares of Common Stock (including the Shares offered hereby).
Because the Selling Securityholders may offer all or part of the Shares
or the shares of Common Stock received upon conversion or exercise of the
Series C Preferred and/or Warrants, which they hold pursuant to the offering
contemplated by this Prospectus, and because their offering is not being
underwritten on a firm commitment basis, no estimate can be given as to the
amount of Series C Preferred and/or Warrants that will be held upon
termination of this offering. Furthermore, substantially all of the Selling
Securityholders are subject to lock-up agreement with the Company that limit
the number of Shares that may be sold by them during a given period of time.
See "Plan of Distribution." The Shares and the shares of Common Stock
received upon conversion or exercise of the Series C Preferred and Warrants
offered by this Prospectus may be offered from time to time by the Selling
Securityholders named below.
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Administrative Nominees, Inc. 30,000 15,000 45,000
- --------------------------------------------------------------------------------------------------------------------
Ahrens, Felice J. IRA 4,000 2,000 6,000
- --------------------------------------------------------------------------------------------------------------------
Ahrens, Robert K. IRA 20,000 10,000 30,000
- --------------------------------------------------------------------------------------------------------------------
Ally Capital Corporation 0
- --------------------------------------------------------------------------------------------------------------------
Alpert, Larry 2,000 1,000 3,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMCO Capital Reserves & Investments SA 10,000 5,000 15,000
- --------------------------------------------------------------------------------------------------------------------
Anderson, Roger 4,000 2,000 6,000
- --------------------------------------------------------------------------------------------------------------------
Anglo Metal, Inc. 127,693 127,693
- --------------------------------------------------------------------------------------------------------------------
Arel Company, The 12,000 9,000 21,000
- --------------------------------------------------------------------------------------------------------------------
Beach Capital Reserves, Inc. 4,000 2,000 6,000
- --------------------------------------------------------------------------------------------------------------------
Balle, Michael 11,200 8,400 19,600
- --------------------------------------------------------------------------------------------------------------------
Barnett, Beatrice 6,000 3,000 9,000
- --------------------------------------------------------------------------------------------------------------------
Becker, Beverly (Joint Tenant with
Melvin Weinstock) 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Becker, Marshall M. 154,500 123,113 277,613
- --------------------------------------------------------------------------------------------------------------------
Becker, Stanley 198,018 148,514 346,532
- --------------------------------------------------------------------------------------------------------------------
Becker, Stanley IRA 198,859 149,145 348,004
- --------------------------------------------------------------------------------------------------------------------
Benenson Capital Company, The 37,600 28,200 65,800
- --------------------------------------------------------------------------------------------------------------------
Benjamin, Dr. Samuel E. 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Benjamin, Dr. Samuel E. IRA 283,200 212,400 495,600
- --------------------------------------------------------------------------------------------------------------------
Besen, Michael 4,000 3,000 7,000
- --------------------------------------------------------------------------------------------------------------------
Blitstein, Murray IRA 24,000 18,000 42,000
- --------------------------------------------------------------------------------------------------------------------
Boulter, David 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Bree, Robert L. 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Brook, Carol and Gordon 93,757 27,600 18,479 139,836
- --------------------------------------------------------------------------------------------------------------------
Byrne, E. Blake 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Coast Business Credit 0
- --------------------------------------------------------------------------------------------------------------------
Caside Associates (1) 432,000 36,000 468,000
- --------------------------------------------------------------------------------------------------------------------
Chemco, Inc. (2) 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Clapp, Clarence P. and Doris E. 113,494 36,747 150,241
- --------------------------------------------------------------------------------------------------------------------
Claps, Vito & Maria 4,000 2,000 6,000
- --------------------------------------------------------------------------------------------------------------------
Cohen, Saul 8,800 6,600 15,400
- --------------------------------------------------------------------------------------------------------------------
Combermere Corp. BSSC Master Defined
Contribution Profit Sharing Plan 72,000 36,000 108,000
- --------------------------------------------------------------------------------------------------------------------
Doherty, George O. 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Dushey, Saul 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Dyke, Kermit 85,264 27,632 112,896
- --------------------------------------------------------------------------------------------------------------------
Epinal Corporation 14,400 10,800 25,200
- --------------------------------------------------------------------------------------------------------------------
First Equity Capital Securities, Inc. 3,218 3,218
- --------------------------------------------------------------------------------------------------------------------
Friedland, Clifford A. 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gale, James C. 17,600 17,600
- --------------------------------------------------------------------------------------------------------------------
Gay, Robert J. IRA 36,000 18,000 54,000
- --------------------------------------------------------------------------------------------------------------------
Geertz, Woodrow M. 21,600 16,200 37,800
- --------------------------------------------------------------------------------------------------------------------
Gironta, Michael 10,000 10,000
- --------------------------------------------------------------------------------------------------------------------
Glass, Eva D. 8,000 4,000 12,000
- --------------------------------------------------------------------------------------------------------------------
Glassman, Beth IRA 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Glassman, Leonard 22,000 11,000 33,000
- --------------------------------------------------------------------------------------------------------------------
Glassman, Steven 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Glassman, Steven IRA 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Global Asset Allocation Consultants 138,525 51,663 190,188
- --------------------------------------------------------------------------------------------------------------------
Goldberg, Steven L. 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Goldberg, Ted M. 24,000 18,000 42,000
- --------------------------------------------------------------------------------------------------------------------
Goldsmith, Mark D. 250 250
- --------------------------------------------------------------------------------------------------------------------
Greenberg, Charles L. and Donna 17,600 17,600
- --------------------------------------------------------------------------------------------------------------------
Grills, Ralph J. Jr. 96,000 72,000 168,000
- --------------------------------------------------------------------------------------------------------------------
Gruntal & Co. 9,680 9,680
- --------------------------------------------------------------------------------------------------------------------
Harborside Associates 183,200 137,400 320,600
- --------------------------------------------------------------------------------------------------------------------
Heptagon Investments Ltd. 32,000 16,000 48,000
- --------------------------------------------------------------------------------------------------------------------
Hest, Lional G. and Amy 10,000 10,000
- --------------------------------------------------------------------------------------------------------------------
Holstein, Barrie and Scott 12,000 9,000 21,000
- --------------------------------------------------------------------------------------------------------------------
Homiak, Michael J. 13,598 4,599 18,197
- --------------------------------------------------------------------------------------------------------------------
Hughes, James C. III TTEE
Profit Sharing Trust 18,000 9,000 27,000
- --------------------------------------------------------------------------------------------------------------------
Iovine, Vincent J. 8,138 1,187 2,749 12,074
- --------------------------------------------------------------------------------------------------------------------
The Jaguar Investment Group 22,000 11,000 33,000
- --------------------------------------------------------------------------------------------------------------------
Johnson, Howard 6,000 3,000 9,000
- --------------------------------------------------------------------------------------------------------------------
Johnson, Kim 8,117 2,739 10,856
- --------------------------------------------------------------------------------------------------------------------
Jurman, Edward 2,000 1,000 3,000
- --------------------------------------------------------------------------------------------------------------------
Kantor, Robert 36,800 27,600 64,400
- --------------------------------------------------------------------------------------------------------------------
Kaplowitz, Gary 18,000 9,000 27,000
- --------------------------------------------------------------------------------------------------------------------
Kilmartin, John D. 24,000 18,000 42,000
- --------------------------------------------------------------------------------------------------------------------
Kim, Charles IRA 20,000 15,000 35,000
- --------------------------------------------------------------------------------------------------------------------
Kim, Y.J. Trust 96,000 72,000 168,000
- --------------------------------------------------------------------------------------------------------------------
Kinston Pathology PA Profit
Sharing Plan 18,000 9,000 27,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kleinberg, Douglas 880 880
- --------------------------------------------------------------------------------------------------------------------
Korman, Lance Stuart 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Kreissman, James G. 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Kreissman, Robert H. 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Krieger, Robert S. 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
KTB Enterprises 6,000 3,000 9,000
- --------------------------------------------------------------------------------------------------------------------
Latshaw, John 17,600 17,600
- --------------------------------------------------------------------------------------------------------------------
Lattanzio, Steve 14,128 4,564 18,692
- --------------------------------------------------------------------------------------------------------------------
Latter, David 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Lauratex Fabrics, Inc. Pension Plan 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Lee, Dr. Tzium Shou IRA 154,400 115,800 270,200
- --------------------------------------------------------------------------------------------------------------------
Leotta, Jospeh B. 28,436 9,218 37,654
- --------------------------------------------------------------------------------------------------------------------
Levine, Kenneth R. 154,500 123,112 277,612
- --------------------------------------------------------------------------------------------------------------------
Levitin, Eli 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Libsohn, David & Mitzi 2,000 1,000 3,000
- --------------------------------------------------------------------------------------------------------------------
Lubliner, Jerry 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Lyons, James V. IRA 22,000 11,000 33,000
- --------------------------------------------------------------------------------------------------------------------
Malinow, Gerald 10,000 5,000 15,000
- --------------------------------------------------------------------------------------------------------------------
Marigold Corp. 6,000 3,000 9,000
- --------------------------------------------------------------------------------------------------------------------
McConnaughy, J.E., Jr. 328,800 246,600 575,400
- --------------------------------------------------------------------------------------------------------------------
Merhab, Marlan M. 4,000 2,000 6,000
- --------------------------------------------------------------------------------------------------------------------
Metwalli, Ahmed 20,000 10,000 30,000
- --------------------------------------------------------------------------------------------------------------------
Mincey, John 18,260 18,260
- --------------------------------------------------------------------------------------------------------------------
Mind Works Capital Corp. 105,600 79,200 184,800
- --------------------------------------------------------------------------------------------------------------------
Misukanis, Jerome B. (3) 6,000 6,000
- --------------------------------------------------------------------------------------------------------------------
Morales, Ibra 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Moysak, Thomas J. 293 293
- --------------------------------------------------------------------------------------------------------------------
Nathanson, Barry F. 157,143 117,858 275,001
- --------------------------------------------------------------------------------------------------------------------
NCO Investors III, L.P. 60,000 60,000
- --------------------------------------------------------------------------------------------------------------------
Nevada Recycling Corporation 0
- --------------------------------------------------------------------------------------------------------------------
Nevo, Aviv 11,329 5,665 16,994
- --------------------------------------------------------------------------------------------------------------------
Northeast Securities, Inc. 39,917 5,231 14,129 59,277
- --------------------------------------------------------------------------------------------------------------------
O'Shea, John P. 60,000 30,000 90,000
- --------------------------------------------------------------------------------------------------------------------
Ong, Beale H. Pension Plan & Trust 36,000 18,000 54,000
- --------------------------------------------------------------------------------------------------------------------
Palomares, Bernabe P. IRA 46,000 23,000 69,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Palomares, Elba B. IRA 36,000 18,000 54,000
- --------------------------------------------------------------------------------------------------------------------
Parsons, Frederick C. III, PA
Profit Sharing Plan 36,000 18,000 54,000
- --------------------------------------------------------------------------------------------------------------------
Pellett Investments 12,244 7,164 19,408
- --------------------------------------------------------------------------------------------------------------------
Pellillo, Domenic IRA 6,000 3,000 9,000
- --------------------------------------------------------------------------------------------------------------------
Perrone, Stephen J. 13,563 292 4,582 18,437
- --------------------------------------------------------------------------------------------------------------------
Pius, Alan and Ann 4,000 2,000 6,000
- --------------------------------------------------------------------------------------------------------------------
Plost, Barry (4) 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Popolow, Joseph 18,851 1,213 7,666 27,730
- --------------------------------------------------------------------------------------------------------------------
Proctor, Edward 10,000 5,000 15,000
- --------------------------------------------------------------------------------------------------------------------
Prosperity Investments, Inc. 14,400 10,800 25,200
- --------------------------------------------------------------------------------------------------------------------
Pumphrey, Robert E. Jr. MD
Profit Sharing Plan 36,000 18,000 54,000
- --------------------------------------------------------------------------------------------------------------------
Raskin, Laura and Julian A. 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Regal Finance & Holdings, SA 14,000 7,000 21,000
- --------------------------------------------------------------------------------------------------------------------
River Investments & Holdings, Inc. 14,000 7,000 21,000
- --------------------------------------------------------------------------------------------------------------------
Romain, Gerald TTEE Profit Sharing Plan 10,000 5,000 15,000
- --------------------------------------------------------------------------------------------------------------------
Rothstein, Allan P. 28,000 14,000 42,000
- --------------------------------------------------------------------------------------------------------------------
Rothstein, Stephen 10,000 5,000 15,000
- --------------------------------------------------------------------------------------------------------------------
Sablowsky, Robert 5,000 5,000
- --------------------------------------------------------------------------------------------------------------------
Settondown Capital International
- --------------------------------------------------------------------------------------------------------------------
Shaar Fund, Ltd.
- --------------------------------------------------------------------------------------------------------------------
Shiman, Stewart A. 54,082 18,421 72,503
- --------------------------------------------------------------------------------------------------------------------
Silva, Rosalie and Jerry 60,000 30,000 10,000 100,000
- --------------------------------------------------------------------------------------------------------------------
Southern Medical Associates PA Money
Purchase Pension Plan 66,000 33,000 99,000
- --------------------------------------------------------------------------------------------------------------------
Spann, Samuel Jr. 6,000 3,000 9,000
- --------------------------------------------------------------------------------------------------------------------
Sundlun, Stuart 1,200 1,200
- --------------------------------------------------------------------------------------------------------------------
Sundlun, Tracy Walter 14,400 10,800 25,200
- --------------------------------------------------------------------------------------------------------------------
Swaim, J. Roddy 10,000 5,000 15,000
- --------------------------------------------------------------------------------------------------------------------
Tellinger, Billye 0
- --------------------------------------------------------------------------------------------------------------------
Thomas, James Sr. IRA 90,000 45,000 135,000
- --------------------------------------------------------------------------------------------------------------------
Walsh, John M. 2,000 1,000 3,000
- --------------------------------------------------------------------------------------------------------------------
John M. Walsh Securities C.
Profit Sharing Plan 40,000 20,000 60,000
- --------------------------------------------------------------------------------------------------------------------
Walsh, Michael J. 4,000 3,000 7,000
- --------------------------------------------------------------------------------------------------------------------
Walsh, Michael J. IRA 4,000 3,000 7,000
- --------------------------------------------------------------------------------------------------------------------
Wanas Investment Ltd. 80,000 60,000 140,000
- --------------------------------------------------------------------------------------------------------------------
Weinstein, Robert 3,520 3,520
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY THE
SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weinstock, Jerry 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Weinstock, Shelley and Steven 8,000 6,000 14,000
- --------------------------------------------------------------------------------------------------------------------
Weissman Financial 363,636 363,636
- --------------------------------------------------------------------------------------------------------------------
Williams, Gibbs A. 28,460 9,230 37,690
- --------------------------------------------------------------------------------------------------------------------
Wittenstein, Frederick M. IRA 133,045 99,784 232,829
- --------------------------------------------------------------------------------------------------------------------
Wittenstein, Frederick M. Pension Plan 0
- --------------------------------------------------------------------------------------------------------------------
Wolfenson, Dr. Gilbert B. IRA 16,000 12,000 28,000
- --------------------------------------------------------------------------------------------------------------------
Wolfson Equities 72,000 54,000 126,000
- --------------------------------------------------------------------------------------------------------------------
Wood, Eugene W. IRA 16,000 8,000 24,000
- --------------------------------------------------------------------------------------------------------------------
Worden, Andrew B. Retirement Plan 6,902 5,177 12,079
- --------------------------------------------------------------------------------------------------------------------
Wright, Dickerson 4,000 2,000 6,000
- --------------------------------------------------------------------------------------------------------------------
Wrigley Holdings, SA 70,000 30,000 35,000 135,000
- --------------------------------------------------------------------------------------------------------------------
TOTALS 5,859,479 2,136,878 283,333 56,200 727,083 9,052,973
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Prior to the commencement of this offering, Caside Associates
beneficially owned 6.0% of the Company's outstanding Common Stock.
2. Chemco, Inc. is controlled by Graydon H. Neher, a director of the
Company.
3. Mr. Misukanis is a director of the Company.
4. Mr. Plost is a director of the Company.
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK WARRANTS TO BE REGISTERED AND OFFERED BY THE
SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Administrative Nominees, Inc. 45,000 45,000 0
- ---------------------------------------------------------------------------------------------------------------
Ahrens, Felice J. IRA 6,000 6,000 0
- ---------------------------------------------------------------------------------------------------------------
Ahrens, Robert K. IRA 30,000 30,000 0
- ---------------------------------------------------------------------------------------------------------------
Ally Capital Corporation 0 53,600 53,600 0
- ---------------------------------------------------------------------------------------------------------------
Alpert, Larry 3,000 3,000 0
- ---------------------------------------------------------------------------------------------------------------
AMCO Reserves & Investments SA 15,000 15,000 0
- ---------------------------------------------------------------------------------------------------------------
Anderson, Roger 6,000 6,000 0
- ---------------------------------------------------------------------------------------------------------------
Anglo Metal, Inc. 127,693 127,693 0
- ---------------------------------------------------------------------------------------------------------------
Arel Company, The 21,000 21,000 0
- ---------------------------------------------------------------------------------------------------------------
Beach Capital Reserves, Inc. 6,000 6,000 0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balle, Michael 19,600 19,600 0
- ---------------------------------------------------------------------------------------------------------------
Barnett, Beatrice 9,000 9,000 0
- ---------------------------------------------------------------------------------------------------------------
Becker, Beverly (Joint
Tenant with Melvin Weinstock) 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Becker, Marshall M. 277,613 40,002 317,615 0
- ---------------------------------------------------------------------------------------------------------------
Becker, Stanley 346,532 346,532 0
- ---------------------------------------------------------------------------------------------------------------
Becker, Stanley IRA 348,004 348,004 0
- ---------------------------------------------------------------------------------------------------------------
Benenson Capital Company, The 65,800 65,800 0
- ---------------------------------------------------------------------------------------------------------------
Benjamin, Dr. Samuel E. 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Benjamin, Dr. Samuel E. IRA 495,600 495,600 0
- ---------------------------------------------------------------------------------------------------------------
Besen, Michael 7,000 7,000 0
- ---------------------------------------------------------------------------------------------------------------
Blitstein, Murray IRA 42,000 42,000 0
- ---------------------------------------------------------------------------------------------------------------
Boulter, David 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Bree, Robert L. 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Brook, Carol and Gordon 139,836 139,836 0
- ---------------------------------------------------------------------------------------------------------------
Byrne, E. Blake 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Coast Business Credit 0 26,667 26,667 0
- ---------------------------------------------------------------------------------------------------------------
Caside Associates (1) 468,000 180,000 648,000 193,990
- ---------------------------------------------------------------------------------------------------------------
Chemco, Inc. (2) 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Clapp, Clarence P. and Doris E. 150,241 150,241 0
- ---------------------------------------------------------------------------------------------------------------
Claps, Vito & Maria 6,000 6,000 0
- ---------------------------------------------------------------------------------------------------------------
Cohen, Saul 15,400 15,400 0
- ---------------------------------------------------------------------------------------------------------------
Combermere Corp. BSSC Master Defined
Contribution Profit Sharing Plan 108,000 108,000 0
- ---------------------------------------------------------------------------------------------------------------
Doherty, George O. 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Dushey, Saul 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Dyke, Kermit 112,896 112,896 0
- ---------------------------------------------------------------------------------------------------------------
Epinal Corporation 25,200 25,200 0
- ---------------------------------------------------------------------------------------------------------------
First Equity Capital Securities, Inc. 3,218 6,436 9,654 0
- ---------------------------------------------------------------------------------------------------------------
Friedland, Clifford A. 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Gale, James C. 17,600 17,600 0
- ---------------------------------------------------------------------------------------------------------------
Gay, Robert J. IRA 54,000 54,000 0
- ---------------------------------------------------------------------------------------------------------------
Gironta, Michael 37,800 37,800 0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Geertz, Woodrow M. 10,000 10,000 0
- ---------------------------------------------------------------------------------------------------------------
Gelin, Peter J. 26,000 26,000 0
- ---------------------------------------------------------------------------------------------------------------
Glass, Eva D. 12,000 12,000 0
- ---------------------------------------------------------------------------------------------------------------
Glassman, Beth IRA 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Glassman, Leonard 33,000 33,000 0
- ---------------------------------------------------------------------------------------------------------------
Glassman, Steven 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Glassman, Steven IRA 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Global Asset Allocation Consultants 190,188 190,188 0
- ---------------------------------------------------------------------------------------------------------------
Goldberg, Steven L. 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Goldberg, Ted M. 42,000 42,000 0
- ---------------------------------------------------------------------------------------------------------------
Goldsmith, Mark D. 250 500 750 0
- ---------------------------------------------------------------------------------------------------------------
Greenberg, Charles L. and Donna 17,600 17,600 0
- ---------------------------------------------------------------------------------------------------------------
Grills, Ralph J. Jr. 168,000 168,000 0
- ---------------------------------------------------------------------------------------------------------------
Gruntal & Co. 9,680 9,680 0
- ---------------------------------------------------------------------------------------------------------------
Harborside Associates 320,600 320,600 0
- ---------------------------------------------------------------------------------------------------------------
Heptagon Investments Ltd. 48,000 48,000 0
- ---------------------------------------------------------------------------------------------------------------
Hest, Lionel G. and Amy 10,000 10,000 0
- ---------------------------------------------------------------------------------------------------------------
Holstein, Barrie and Scott 21,000 21,000 0
- ---------------------------------------------------------------------------------------------------------------
Homiak, Michael J. 18,197 18,197 0
- ---------------------------------------------------------------------------------------------------------------
Hughes, James C. III TTEE Profit
Sharing Trust 27,000 27,000 0
- ---------------------------------------------------------------------------------------------------------------
Iovine, Vincent J. 12,074 2,374 14,448 0
- ---------------------------------------------------------------------------------------------------------------
The Jaguar Investment Group 33,000 33,000 0
- ---------------------------------------------------------------------------------------------------------------
Johnson, Howard 9,000 9,000 0
- ---------------------------------------------------------------------------------------------------------------
Johnson, Kim 10,856 10,856 0
- ---------------------------------------------------------------------------------------------------------------
Jurman, Edward 3,000 3,000 0
- ---------------------------------------------------------------------------------------------------------------
Kantor, Robert 64,400 64,400 0
- ---------------------------------------------------------------------------------------------------------------
Kaplowitz, Gary 27,000 27,000 0
- ---------------------------------------------------------------------------------------------------------------
Kilmartin, John D. 42,000 42,000 0
- ---------------------------------------------------------------------------------------------------------------
Kim, Charles IRA 35,000 35,000 0
- ---------------------------------------------------------------------------------------------------------------
Kim, Y.J. Trust 168,000 168,000 0
- ---------------------------------------------------------------------------------------------------------------
Kinston Pathology PA Profit
Sharing Plan 27,000 27,000 0
- ---------------------------------------------------------------------------------------------------------------
Kleinberg, Douglas 880 880 0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Korman, Lance Stuart 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Kreissman, James G. 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Kreissman, Robert H. 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Krieger, Robert S. 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
KTB Enterprises 9,000 9,000 0
- ---------------------------------------------------------------------------------------------------------------
Latshaw, John 17,600 17,600 0
- ---------------------------------------------------------------------------------------------------------------
Lattanzio, Steve 18,692 18,692 0
- ---------------------------------------------------------------------------------------------------------------
Latter, David 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Lauratex Fabrics, Inc. Pension Plan 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Lee, Dr. Tzium Shou IRA 270,200 270,200 0
- ---------------------------------------------------------------------------------------------------------------
Leotta, Jospeh B. 37,654 37,654 0
- ---------------------------------------------------------------------------------------------------------------
Levine, Kenneth R. 277,612 40,000 317,612 0
- ---------------------------------------------------------------------------------------------------------------
Levitin, Eli 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Libsohn, David & Mitzi 3,000 3,000 0
- ---------------------------------------------------------------------------------------------------------------
Lubliner, Jerry 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Lyons, James V. IRA 33,000 33,000 0
- ---------------------------------------------------------------------------------------------------------------
Malinow, Gerald 15,000 15,000 0
- ---------------------------------------------------------------------------------------------------------------
Marigold Corp. 9,000 9,000 0
- ---------------------------------------------------------------------------------------------------------------
McConnaughy, J.E., Jr. 575,400 575,400 0
- ---------------------------------------------------------------------------------------------------------------
Merhab, Marlan M. 6,000 6,000 0
- ---------------------------------------------------------------------------------------------------------------
Metwalli, Ahmed 30,000 30,000 0
- ---------------------------------------------------------------------------------------------------------------
Mincey, John 18,260 36,520 54,780 0
- ---------------------------------------------------------------------------------------------------------------
Mind Works Capital Corp. 184,800 184,800 0
- ---------------------------------------------------------------------------------------------------------------
Misukanis, Jerome B. (3) 6,000 12,000 18,000 0
- ---------------------------------------------------------------------------------------------------------------
Morales, Ibra 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Moysak, Thomas J. 293 586 879 0
- ---------------------------------------------------------------------------------------------------------------
Nathanson, Barry F. 275,001 275,001 0
- ---------------------------------------------------------------------------------------------------------------
NCO Investors III, L.P. 60,000 60,000
- ---------------------------------------------------------------------------------------------------------------
Nevada Recycling Corporation 0 20,000 20,000 0
- ---------------------------------------------------------------------------------------------------------------
Nevo, Aviv 16,994 16,994 0
- ---------------------------------------------------------------------------------------------------------------
Northeast Securities, Inc. 59,277 10,462 69,739 0
- ---------------------------------------------------------------------------------------------------------------
O'Shea, John P. 90,000 90,000 0
- ---------------------------------------------------------------------------------------------------------------
Ong, Beale H. Pension Plan & Trust 54,000 54,000 0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Palomares, Bernabe P. IRA 69,000 69,000 0
- ---------------------------------------------------------------------------------------------------------------
Palomares, Elba B. IRA 54,000 54,000 0
- ---------------------------------------------------------------------------------------------------------------
Parsons, Frederick C. III, PA
Profit Sharing Plan 54,000 54,000 0
- ---------------------------------------------------------------------------------------------------------------
Pellett Investments 19,408 19,408 0
- ---------------------------------------------------------------------------------------------------------------
Pellillo, Domenic IRA 9,000 9,000 0
- ---------------------------------------------------------------------------------------------------------------
Perrone, Stephen J. 18,437 584 19,021 0
- ---------------------------------------------------------------------------------------------------------------
Pius, Alan and Ann 6,000 6,000 0
- ---------------------------------------------------------------------------------------------------------------
Plost, Barry (4) 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Popolow, Joseph 27,730 2,426 30,156 0
- ---------------------------------------------------------------------------------------------------------------
Proctor, Edward 15,000 15,000 0
- ---------------------------------------------------------------------------------------------------------------
Prosperity Investments, Inc. 25,200 25,200 0
- ---------------------------------------------------------------------------------------------------------------
Pumphrey, Robert E. Jr. MD
Profit Sharing Plan 54,000 54,000 0
- ---------------------------------------------------------------------------------------------------------------
Raskin, Laura and Julian A. 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Regal Finance & Holdings, SA 21,000 21,000 0
- ---------------------------------------------------------------------------------------------------------------
River Investments & Holdings, Inc. 21,000 21,000 0
- ---------------------------------------------------------------------------------------------------------------
Romain, Gerald TTEE Profit Sharing Plan 15,000 15,000 0
- ---------------------------------------------------------------------------------------------------------------
Rothstein, Allan P. 42,000 42,000 0
- ---------------------------------------------------------------------------------------------------------------
Rothstein, Stephen 15,000 15,000 0
- ---------------------------------------------------------------------------------------------------------------
Sablowsky, Robert 5,000 5,000 0
- ---------------------------------------------------------------------------------------------------------------
Settondown Capital International, Ltd. 20,000
- ---------------------------------------------------------------------------------------------------------------
Shaar Fund, Ltd. 632,411
- ---------------------------------------------------------------------------------------------------------------
Shiman, Stewart A. 72,503 72,503 0
- ---------------------------------------------------------------------------------------------------------------
Silva, Rosalie and Jerry 100,000 100,000 0
- ---------------------------------------------------------------------------------------------------------------
Southern Medical Associates PA
Money Purchase Pension Plan 99,000 99,000 0
- ---------------------------------------------------------------------------------------------------------------
Spann, Samuel Jr. 9,000 9,000 0
- ---------------------------------------------------------------------------------------------------------------
Sundlun, Stuart 1,200 1,200 0
- ---------------------------------------------------------------------------------------------------------------
Sundlun, Tracy Walter 25,200 25,200 0
- ---------------------------------------------------------------------------------------------------------------
Swaim, J. Roddy 15,000 15,000 0
- ---------------------------------------------------------------------------------------------------------------
Tellinger, Billye 26,000 26,000 0
- ---------------------------------------------------------------------------------------------------------------
Thomas, James Sr. IRA 135,000 135,000 0
- ---------------------------------------------------------------------------------------------------------------
Walsh, John M. 3,000 3,000 0
- ---------------------------------------------------------------------------------------------------------------
John M. Walsh Securities C.
Profit Sharing Plan 60,000 60,000 0
- ---------------------------------------------------------------------------------------------------------------
Walsh, Michael J. 7,000 7,000 0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Walsh, Michael J. IRA 7,000 7,000 0
- ---------------------------------------------------------------------------------------------------------------
Wanas Investment Ltd. 140,000 140,000 0
- ---------------------------------------------------------------------------------------------------------------
Weinstein, Robert 3,520 3,520 0
- ---------------------------------------------------------------------------------------------------------------
Weinstock, Jerry 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Weinstock, Shelley and Steven 14,000 14,000 0
- ---------------------------------------------------------------------------------------------------------------
Weissman Financial 363,636 363,636 0
- ---------------------------------------------------------------------------------------------------------------
Williams, Gibbs A. 37,690 37,690 0
- ---------------------------------------------------------------------------------------------------------------
Wittenstein, Frederick M. IRA 232,829 232,829 0
- ---------------------------------------------------------------------------------------------------------------
Wittenstein, Frederick M. Pension Plan 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Wolfenson, Dr. Gilbert B. IRA 28,000 28,000 0
- ---------------------------------------------------------------------------------------------------------------
Wolfson Equities 126,000 126,000 0
- ---------------------------------------------------------------------------------------------------------------
Wood, Eugene W. IRA 24,000 24,000 0
- ---------------------------------------------------------------------------------------------------------------
Worden, Andrew B. Retirement Plan 12,079 12,079 0
- ---------------------------------------------------------------------------------------------------------------
Wright, Dickerson 6,000 6,000 0
- ---------------------------------------------------------------------------------------------------------------
Wrigley Holdings, SA 135,000 135,000 0
- ---------------------------------------------------------------------------------------------------------------
TOTALS 9,052,973 139,890 996,678 10,189,541 193,990
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
1. Prior to the commencement of this offering, Caside Associates
beneficially owned 6.0% of the Company's outstanding Common Stock.
2. Chemco, Inc. is controlled by Graydon H. Neher, a director of the
Company.
3. Mr. Misukanis is a director of the Company.
4. Mr. Plost is a director of the Company.
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 January 20, 1997, 13,919,429 shares of Common
Stock were outstanding including 363,636 shares issued in connection with the
acquisition of Weissman. 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
46
<PAGE>
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. No shares of
Preferred Stock are currently issued or outstanding.
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 10,000 shares of Series C
Convertible Preferred Stock (the "Series C Preferred"). The Series C
Preferred accrue dividends payable in shares of Common Stock at the rate of
8% per annum and have a liquidation preference equal to $100 per share plus
all declared but unpaid dividends. The Series C Preferred have no voting
rights, except in certain limited circumstances. Each Series C Preferred is
convertible, without further payment, into the number of shares of Common
Stock determined by dividing (i) the sum of (a) $100 plus (b) the amount of
all accrued dividends on the Series C Preferred by (ii) the lesser of
$1.58125 (the current conversion price) or 73% of the average reported
closing bid price of a share of Common Stock for the five consecutive trading
days immediately preceding the date of conversion.
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 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.
47
<PAGE>
WARRANTS
The Company has the following outstanding warrants to acquire an
aggregate of 4,004,584 shares of Common Stock:
<TABLE>
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) December $ 6.00 2,136,878 Common Stock 2,136,878
27, 1999
(8)
Series H (4) $ 6.00 283,333 Common Stock 283,333
Series I December $ .15 56,200 Common Stock 56,200
27, 1999
(8)
Series J (5)(7) December $ 6.00 727,078 Common Stock 727,078
27, 1999
(8)
Series K (6) July 17, $ 5.57 315,000 Common Stock 315,000
2001
Ally Capital 11/3/99 $ 5.00 53,600 Common Stock 53,600
Coast Business Credit 8/4/2001 $ 3.75 26,667 Common Stock 26,667
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
Settondown 12/31/98 $ 2.50 20,000 Common Stock 20,000
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 3,934,639 4,004,584
--------- ---------
--------- ---------
</TABLE>
- --------------
(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) 30,000 outstanding Series G Warrants currently have an exercise price of
$4.00 per share.
(4) 213,388 Series H Warrants expire on July 17, 1999. The remaining Series H
Warrants will be exercisable for a three-year period commencing on the
exercise of the Placement Agent's Warrants.
(5) 40,665 outstanding Series J Warrants currently have an exercise price of
$4.00 per share.
(6) Exercisable commencing July 17, 1997.
(7) The Series G and Series J Warrants are subject to redemption by the Company
at $.25 per warrant at any time after July 17, 1997 provided the market
price of the Common Stock exceeds 133% of the then-effective exercise price
of the warrants for ten consecutive trading days.
(8) Three years after the date of this Prospectus.
STOCK OPTIONS
The Company has granted options to purchase an aggregate of 983,996
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 & Trust, Inc., 938 Quail
Street, Suite 101, Lakewood, Colorado 80215.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 20, 1997, the Company has 13,919,429 outstanding shares
of Common Stock including 363,636 shares issued on completion with the
acquisition of Wiessman. Of these shares, the 9,777,574 shares of Common
Stock being offered by the Selling Securityholders 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
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.
48
<PAGE>
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.
LOCK-UP AGREEMENTS
As described below, substantially all of the Shares being offered by the
Selling Securityholders are subject to lock-up agreements with the Company
that limit the number of Shares that may be sold by them during a given
period of time.
SERIES G AND SERIES J WARRANTHOLDERS
Of the Shares being offered by the Selling Securityholders, 4,127,262
shares of Common Stock and 2,813,924 shares of common stock underlying the
Series G and Series J Warrants are subject to lock-up agreements in favor of
the Company which provide that, commencing on June 30, 1996 (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 November 1996, each such Selling Securityholder will sell
no more than 5% of their shares of Common Stock and, commencing on November
1, 1996, each such Selling Securityholder may exercise the Warrants held by
such holder and the shares of Common Stock received upon such exercise will
not be subject to any lock-up provisions; (iii) during December 1996, each
such Selling Securityholder will sell no more than 7.5% of the shares of
Common Stock held by such holder; (iv) during each month commencing with
January 1, 1996 and ending June 30, 1997, each such Selling Securityholder
will be permitted to sell no more than 15% of the shares of Common Stock
owned by such holder; and (v) after June 30, 1997, the shares of Common Stock
will no longer be subject to any lock-up provisions.
ANGLO IRON & METAL
Of the 227,693 shares of Common Stock issued by the Company in
connection with the purchase of Anglo Iron & Metals in December 1995, 127,693
are being offered by Anglo Metal, Inc. as a Selling Securityholder. Pursuant
to the terms of the its subscription agreement with the Company, Anglo Metal,
Inc. may sell shares valued
49
<PAGE>
up to $35,000 per month, based upon the market price of such shares on the
date of sale, until such time as all 127,693 held by it are sold.
OFFICER'S AND DIRECTORS
In addition to the lock-up agreements with the Selling Securityholders
relating to the Shares offered hereby, the 2,478,003 shares of Common Stock
(including shares underlying outstanding options) held by the Company's
officers and directors are subject to lock-up agreements in favor of the
Underwriter for the Public Offering which provide that none of such shares
may, without the prior written consent of the Underwriter, be sold or
otherwise disposed of until July 17, 1997. 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.
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 conversion or exercise of their Series C
Preferred, 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 Selling Securityholders are offering for sale 5,047,223 shares of
Registerable Common Stock and 4,643,049 shares of Registerable Warrant Stock
pursuant to registration rights previously granted by the Company. These
registration rights generally require the Company file and to cause to become
effective a registration statement covering these shares of Registration
Common Stock and Registerable Warrant Stock on or before September 30, 1996
and to keep registration statement effective for a period of up to three
years, otherwise the exercise price of the related warrants will be reduced.
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"). The Selling
Securityholders are offering 376,812 shares of registerable common stock and
920,046 shares of Registerable Warrant Stock pursuant to the exercise of
their Piggyback Registration Rights.
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.
50
<PAGE>
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.
PLAN OF DISTRIBUTION
The Shares from time to time may be offered for sale either directly by
the Selling Securityholders or by their pledgees, donees, transferees or
other successors in interest. Such sales may be made in the over-the-counter
market or in negotiated transactions. Sales of Shares in the
over-the-counter market may be by means of one or more of the following: (a)
a block trade in which a broker or dealer will attempt to sell the Shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchase by a dealer as principal and resale
by such dealer for its account pursuant to this Prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. In
addition, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus.
Substantially all of the Selling Securityholders are subject to lock-up
agreements with the Company that limit the number of Shares that may be sold
by them during a given period of time. See "Shares Eligible for Future Sale -
Lock-Up Agreements."
The Selling Securityholders have agreed not to sell their Shares offered
hereby if an underwriter of the Company's securities requests that no sales
of securities be made during the course of an offering by the Company. In
addition, the Selling Securityholders have agreed not to sell the Shares
offered hereby during the time of any distribution of the Company's
securities or while the Company is repurchasing its securities if sales by
the Selling Securityholders during such times would violate federal
securities laws.
Except as set forth above, the Selling Securityholders have advised the
Company that they have made no arrangement or agreements with any
underwriters, brokers or dealers regarding the resale of the Shares prior to
the effective date of this Prospectus. The Selling Securityholders may pay
commissions or allow discounts to any brokers or dealers participating in the
resale of the Shares, which commissions or discounts may be less than or in
excess of the customary rates of such brokers or dealers for similar
transactions. The Shares will be sold at market prices prevailing at the
time of sale or at negotiated prices which, in the case of Weissman
Financial, will be not less than prevailing market prices.
The Selling Securityholders that participate in sales of the Shares and
any underwriters, brokers or dealers engaged by them may be deemed
underwriters, and any profits on sales of the Shares by them and any
discounts, commissions or concessions received by any Selling Securityholder
or underwriter, broker or dealer may be deemed to be underwriting discounts
or commissions under the Securities Act.
Upon the Company being notified by a Selling Securityholder that any
material arrangement has been entered into with an underwriter, broker or
dealer for the sale of the Shares through a secondary distribution or a
purchase by an underwriter, broker or dealer, a supplemented prospectus will
be filed, if required, disclosing such of the following information as the
Company believes appropriate: (i) the name of each such Selling
Securityholder and of the participating underwriter, broker or dealer; (ii)
the number of Shares involved; (iii) the price at which such Shares were
sold; (iv) the commissions paid or discounts or concessions allowed to such
underwriter, broker or dealer and (v) other facts material to the transaction.
The Company has agreed to indemnify the Selling Securityholders, and the
Selling Securityholders have agreed to indemnify the Company, against certain
civil liabilities, including liabilities under the Securities Act.
51
<PAGE>
The Company is offering the Shares to the holders of the Warrants and
will amend or supplement this Prospectus, from time to time, to reflect the
exercise of Warrants by the holders thereof and to permit the public sale of
the Shares.
The Company is unable to predict the effect which sales of the Shares
offered hereby might have upon the Company's ability to raise further capital.
The Company will pay all of the expenses incident to the offering and
sale of the Shares to the public other than commissions and discounts of
underwriters, dealers or agents.
In order to comply with certain states' securities laws, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states, the Shares may
not be sold unless they have been registered or qualified for sale in such
states or an exemption from registration or qualification is available and
complied with.
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.
EXPERTS
The financial statements of the Company for the year ended September 30,
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 years ended September 30, 1995 and
1996 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.
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
52
<PAGE>
AJ. Robbins, P.C., would have caused them to make reference to the subject
matter of the disagreement in their report.
53
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONTENTS
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONTENTS
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Pro Forma Explanatory Headnote F-3 - F-6
Year Ended September 30, 1996 (Unaudited)
Unaudited Pro Forma Consolidated Balance Sheet F-7 - F-8
Unaudited Pro Forma Consolidated Statement of Operations F-9
Notes to Pro Forma Consolidated Financial Statements F-10 - F-11
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants F-12
Independent Auditors' Report - NR Holdings, Inc. F-13
Report of Independent Certified Public Accountants F-14
Financial Statements:
Consolidated Balance Sheets F-15 - F-17
Consolidated Statements of Operations F-18 - F-19
Consolidated Statement of Stockholders' Equity F-20 - F-21
Consolidated Statements of Cash Flows F-22 - F-23
Summary of Accounting Policies F-24 - F-28
Notes to Consolidated Financial Statements F-29 - F-57
ANGLO METAL, INC. dba ANGLO IRON & METAL
Report of Independent Certified Public Accountants F-58
Financial Statements
Balance Sheets F-59 - F-60
Statements of Operations F-61
Statements of Changes in Stockholders' Equity F-62
Statements of Cash Flows F-63
Notes to Financial Statements F-64 - F-72
F-1
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONTENTS
MID-AMERICA SHREDDING, INC.
Report of Independent Certified Public Accountants F-73
Financial Statements
Balance Sheet F-74
Statement of Operations F-75
Statement of Changes in Stockholders' Equity F-76
Statement of Cash Flows F-77
Notes to Financial Statements F-78 - F-82
WEISSMAN IRON & METAL, A DIVISION OF
WEISSMAN INDUSTRIES, INC.
Report of Independent Certified Public Accountants F-83
Financial Statements
Balance Sheets F-84
Statements of Operations F-85
Statement of Changes in Division Equity F-86
Statements of Cash Flows F-87 - F-88
Notes to Financial Statements F-89 - F-96
F-2
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
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 the subsequent issuance of 10,000 shares
of Series C Convertible Preferred Stock (the "Preferred Stock") 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 Preferred Stock was
issued as of September 30, 1996. The pro forma consolidated statement of
operations for the year ended September 30, 1996 includes the operating
results of the Company, Anglo, Mid-America and Weissman for such period.
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 $6,054,000 purchase price for Anglo was comprised of: $2,100,000 in
cash; a $1,833,000 note payable in monthly installments of approximately
$181,000 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 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 $300,000 paid at closing was obtained from
the operating cash reserves and working capital of the Company.
F-3
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
EXPLANATORY HEADNOTE
The purchase price for Anglo has been allocated as follows:
Equipment under capital lease $1,800,000
Contract to purchase land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,354,000
Purchase price in excess of net assets acquired 1,830,000
----------
Total purchase price 6,054,000
Notes payable (3,029,000)
Common stock (925,000)
----------
Cash paid at closing 2,100,000
Capital lease obligation (1,800,000)
----------
Cash from operating capital $ 300,000
----------
----------
MID-AMERICA SHREDDING, INC.
On April 15, 1996, the Company acquired the assets and the business of
Mid-America Shredding, Inc. (Mid-America). The assets acquired from
Mid-America consisted of real property, buildings, inventories, a heavy duty
automotive shredder, a wire chopping plant, heavy equipment and tools used in
the business of recycling ferrous and non-ferrous metals.
The purchase price for Mid-America was $1,918,000, comprised of $708,000 in
cash, and the assumption of Mid-America's outstanding bank debt of $1,210,000.
The purchase price for Mid-America has been allocated as follows:
Inventory $ 55,000
Land 51,000
Buildings and improvements 317,000
Machinery and equipment 1,495,000
----------
Total purchase price 1,918,000
Notes payable (1,210,000)
----------
Cash paid at closing $ 708,000
----------
----------
F-4
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
EXPLANATORY HEADNOTE
WEISSMAN IRON AND METAL, A DIVISION OF WEISSMAN INDUSTRIES, INC.
On August 5, 1996, the Company acquired 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.
The purchase price for Weissman has been allocated as follows:
Cash $ 11,000
Prepaid expenses 10,000
Accounts receivable 1,155,000
Inventories 1,224,000
Buildings and improvements 2,000,000
Automotive shredder 2,700,000
Heavy equipment 2,762,000
Equipment and rolling stock 1,448,000
Land 1,000,000
Covenant not to compete 250,000
Purchase price in excess of net assets acquired 250,000
Accounts payable (546,000)
Accrued payroll and other (192,000)
---------
Total purchase price 12,072,000
Notes payable (4,733,000)
Common stock (1,500,000)
---------
Cash paid at closing $5,839,000
---------
---------
The $4,733,000 notes payable are secured by the assets of Weissman.
$3,500,000 of such notes are payable in 60 monthly installments of $58,333.
Of the balance, $1,233,000 is pursuant to a revolving credit facility bearing
interest at prime plus 2.25%. The Company also issued 363,637 shares of
common
F-5
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
EXPLANATORY HEADNOTE
stock in settlement of $1,500,000 of the purchase price.
F-6
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
Pro Forma Consolidated
SEPTEMBER 30, 1996 Actual Adjustments Pro Forma
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,450,000 $925,000 (8) $ 2,375,000
Trade accounts receivable, net 4,379,000 - 4,379,000
Accounts receivable, related party 77,000 - 77,000
Inventories 2,473,000 - 2,473,000
Prepaid expenses 272,000 - 272,000
Other 120,000 - 120,000
----------- -------- -----------
Total current assets 8,771,000 925,000 9,696,000
----------- -------- -----------
PROPERTY AND EQUIPMENT, NET 20,492,000 - 20,492,000
----------- -------- -----------
OTHER ASSETS:
Deferred income taxes, net 800,000 - 800,000
Other assets, net 4,792,000 - 4,792,000
----------- -------- -----------
Total other assets 5,592,000 - 5,592,000
----------- -------- -----------
$34,855,000 $925,000 $35,780,000
----------- -------- -----------
----------- -------- -----------
</TABLE>
See accompanying Headnote and Notes to Pro Forma
Consolidated Financial Statements.
F-7
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
Pro Forma Consolidated
SEPTEMBER 30, 1996 Actual Adjustments Pro Forma
----------- ----------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 2,673,000 $ - $ 2,673,000
Trade accounts payable-related parties 61,000 - 61,000
Accrued liabilities:
Payroll and other 500,000 - 500,000
Income taxes payable 107,000 - 107,000
Interest 36,000 - 36,000
Interest- related party 15,000 - 15,000
Current maturities of long-term debt 1,707,000 - 1,707,000
Current maturities of long-term debt,
related parties 2,075,000 - 2,075,000
----------- -------- -----------
Total current liabilities 7,174,000 - 7,174,000
----------- -------- -----------
LONG-TERM DEBT, less current maturities 10,067,000 - 10,067,000
LONG-TERM DEBT-RELATED PARTIES, less
current maturities 1,951,000 - 1,951,000
----------- -------- -----------
Total liabilities 19,192,000 - 19,192,000
----------- -------- -----------
REDEEMABLE COMMON STOCK 1,500,000 - 1,500,000
----------- -------- -----------
STOCKHOLDERS' EQUITY
Preferred stock (Series C) - 925,000 (8) 925,000
Common stock 13,000 - 13,000
Additional paid-in capital 25,547,000 - 25,547,000
Accumulated deficit (11,397,000) - (11,397,000)
----------- -------- -----------
Total stockholders' equity 14,163,000 925,000 15,088,000
----------- -------- -----------
$34,855,000 $925,000 $35,780,000
----------- -------- -----------
----------- -------- -----------
</TABLE>
See accompanying Headnote and Notes to Pro Forma
Consolidated Financial Statements.
F-8
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Anglo Mid-America Weissman
Iron & Metal Shredding Iron & Metal
Year Ended Recycling Anglo Pro Forma Mid-America Pro Forma Weissman Pro Forma Consolidated
September 30, 1996 Industries Iron & Metal Adjustments Shredding Adjustments Iron & Metal Adjustments Pro Forma
- ------------------ ---------- ------------ ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales $26,667,000 $13,892,000 $(11,085,000)(4) $2,857,000 $(1,687,000)(4) $14,982,000 $(2,654,000)(4) $42,972,000
Brokerage 952,000 462,000 (462,000)(4) - - 3,791,000 (490,000)(4) 4,253,000
Other income 4,000 5,000 (2,000)(4) - - 26,000 - 33,000
----------- ----------- ------------ ---------- ---------- ----------- ----------- -----------
Total revenues 27,623,000 14,359,000 (11,549,000) 2,857,000 (1,687,000) 18,799,000 (3,144,000) 47,258,000
----------- ----------- ------------ ---------- ---------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 25,654,000 13,110,000 (10,936,000)(4) 2,754,000 (1,525,000)(4) 10,830,000 (2,017,000)(4) 37,886,000
- - 26,000 (1) - (20,000)(1) - (135,000)(3) -
- - (100,000)(5) - - - 245,000 (1) -
Cost of brokerage 936,000 462,000 (462,000)(4) - - 3,848,000 (474,000)(4) 4,310,000
Personnel 1,454,000 594,000 (368,000)(4) 92,000 (32,000)(4) 740,000 (116,000)(4) 2,254,000
- - (110,000)(3) - - - - -
Professional
services 644,000 31,000 (1,000)(4) 15,000 (10,000)(4) 47,000 - 727,000
Travel 106,000 13,000 (13,000)(4) 18,000 (18,000)(4) 1,000 - 106,000
Occupancy 65,000 - - 6,000 (6,000)(4) 12,000 (12,000)(4) 65,000
Depreciation
and amortization 283,000 110,000 (110,000)(4) 4,000 (4,000)(4) 66,000 (24,000)(4) 428,000
- - 22,000 (1) - - - 11,000 (1) -
- - 28,000 (2) - - - 42,000 (2) -
Interest 732,000 323,000 (256,000)(4) 133,000 (66,000)(4) 84,000 (84,000) 1,346,000
- - 19,000 (7) - - - 461,000 (7) -
Management fee - - - - - 105,000 (105,000)(3) -
Other general
and administrative 771,000 190,000 (111,000)(4) 40,000 (30,000)(4) 292,000 (4,000)(4) 1,148,000
- - - - - - (56,000)(3) -
----------- ----------- ----------- ---------- ---------- ----------- ----------- -----------
Total costs and
expenses 30,645,000 14,833,000 (12,372,000) 3,062,000 (1,711,000) 16,025,000 (2,268,000) 48,270,000
----------- ----------- ----------- ---------- ---------- ----------- ----------- -----------
Income (loss)
before taxes
on income (loss) (3,022,000) (474,000) 823,000 (205,000) 24,000 2,774,000 (876,000) (1,012,000)
Taxes on
income (loss) 9,000 - -(6) - -(6) - 228,000(6) 237,000
----------- ----------- ----------- ---------- ---------- ----------- ----------- -----------
Income (loss)
from operations,
net of taxes on
income (loss) $(3,031,000) $ (474,000) $ 823,000 $ (205,000) $24,000 $ 2,774,000 $(1,104,000) $(1,249,000)
----------- ----------- ----------- ---------- ---------- ----------- ----------- -----------
Net income (loss)
after extraordinary
item and taxes
on income (loss) $(2,961,000) $ (474,000) $ 823,000 $ (205,000) $24,000 $ 2,774,000 $(1,104,000) $(1,179,000)
----------- ----------- ----------- ---------- ---------- ----------- ----------- -----------
Loss per share
Loss from
operations, net
of income taxes $ (.30) $ (.12)
----------- -----------
Net loss after
extraordinary
item and income
taxes $ (.29) $ (.11)
----------- -----------
Weighted average
number of
common shares
outstanding 10,212,236 10,212,236
----------- -----------
See accompanying Headnote and Notes to Pro Forma Consolidated
Financial Statements.
</TABLE>
F-9
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA The adjustments relating to the pro forma consolidated
ADJUSTMENTS statement of operations are computed assuming the
acquisitions of Anglo, Mid-America and Weissman were
consummated at the beginning of the period presented.
1. ADDITIONAL ANGLO AND WEISSMAN
DEPRECIATION
AND Reflects additional depreciation of property and equipment
AMORTIZATION due to the increased cost of the assets acquired. Reflects
amortization of goodwill using the straight line method
over 20 years for Anglo and Weissman.
MID-AMERICA
Adjusts depreciation of property and equipment due to the
allocated cost of the assets acquired.
2. NON-COMPETE Reflects amortization of the non-compete and consulting
AND agreements with the president of Anglo and the president
CONSULTING of Weissman over six and five year terms using the
AGREEMENTS straight line method.
3. NON-RECURRING Removes non-recurring expenses paid to former officers
EXPENSES 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.
4. DUPLICATE Removes operations for Anglo, Mid-America and Weissman
TRANSACTIONS subsequent to their acquisition, which are included in
the historical operations of the Company for the year
ended September 30, 1996. The assets and liabilities of
Anglo, Mid-America, and Weissman are included in the
Company's consolidated balance sheet at September 30, 1996.
F-10
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
5. NON-RECURRING Removes non-recurring outside labor costs, direct labor
REMEDIATION costs and landfill costs incurred for remediation costs in
EXPENSES compliance with the terms of the Anglo sale agreement.
6. PROVISION No provision for federal income taxes on the acquired
FOR INCOME operations has been recorded due to the recognition of
TAXES the tax benefit from utilization of Recycling Industries,
Inc.'s net operating loss carryforwards.
WEISSMAN
Records provision for state income taxes on Weissman's
taxable income.
7. INTEREST Reflects interest expense for notes payable used to
EXPENSE finance the acquisition of Weissman (interest at prime
plus 2.25%; 10.5% at September 30, 1996) and Anglo
(interest at 14%).
8. PREFERRED Reflects the issuance of 10,000 shares of Series C
STOCK Convertible Preferred Stock for $1,000,000 net of offering
costs of $75,000. The net proceeds will be used for working
capital and has been presented as cash in the pro forma
balance sheet.
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Recycling Industries, Inc.
Englewood, Colorado
We have audited the accompanying consolidated balance sheets of Recycling
Industries, Inc. and subsidiaries as of September 30, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years 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
audits. We did not audit the financial statements of a subsidiary, which
statements reflect total assets of $8,290,000 as of September 30, 1996, and
total revenues of $11,310,000 for the year then ended. Those statements were
audited by another auditor whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for such subsidiary,
is based solely on the report of the other auditor.
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, based on our audits and the report of the other auditor, 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, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Denver, Colorado
December 13, 1996
F-12
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
NR HOLDINGS, INC.
LAS VEGAS, NEVADA
We have audited the accompanying consolidated balance sheet of NR Holdings,
Inc. and Subsidiary as of September 30, 1996 and the related statements of
operations and accumulated deficit 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 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
NR Holdings, Inc. and Subsidiary as of September 30, 1996 and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
AJ. Robbins, PC.
Certified Public Accountants and Consultants
DENVER, COLORADO
OCTOBER 18, 1996
F-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Recycling Industries, Inc.
Denver, Colorado
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Recycling Industries, Inc. (formerly
Environmental Recovery Systems, Inc.) and subsidiaries for the year 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 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 results of operations and cash
flows of Recycling Industries, Inc. and subsidiaries for the year ended
September 30, 1994, in conformity with generally accepted accounting
principles.
AJ. Robbins, PC.
Certified Public Accountants and Consultants
Denver, Colorado
November 3, 1995
F-14
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 1995
------------- ------------
ASSETS (Notes 7 and 8)
CURRENT ASSETS:
Cash $ 1,450,000 $ 184,000
Trade accounts receivable,
less allowance for doubtful accounts
of $10,000 4,379,000 1,026,000
Accounts receivable, related party 77,000 223,000
Inventories (Note 2) 2,473,000 497,000
Prepaid expenses 272,000 137,000
Other 120,000 -
------------- ------------
Total current assets 8,771,000 2,067,000
------------- ------------
PROPERTY AND EQUIPMENT, NET (Note 3) 20,492,000 6,686,000
------------- ------------
OTHER ASSETS:
Deferred income taxes, net (Note 5) 800,000 800,000
Other assets, net (Note 4) 4,792,000 744,000
------------- ------------
Total other assets 5,592,000 1,544,000
------------- ------------
$ 34,855,000 $ 10,297,000
------------- ------------
------------- ------------
F-15
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-16
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 1995
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 2,673,000 $ 655,000
Trade accounts payable-related parties 61,000 73,000
Accrued liabilities:
Payroll and other 500,000 107,000
Income taxes payable (Note 5) 107,000 86,000
Interest 36,000 22,000
Interest-related party 15,000 8,000
Due to factor, related party (Note 8) - 197,000
Current maturities of long-term debt (Note 7) 1,707,000 325,000
Current maturities of long-term debt,
related parties (Note 8) 2,075,000 218,000
------------- ------------
Total current liabilities 7,174,000 1,691,000
------------- ------------
LONG-TERM DEBT, less current maturities (Note 7) 10,067,000 173,000
LONG-TERM DEBT-RELATED PARTIES, less current
maturities (Note 8) 1,951,000 1,979,000
------------- ------------
Total liabilities 19,192,000 3,843,000
------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
REDEEMABLE COMMON STOCK, $.001 par value, 363,636
shares issued and outstanding (Note 1) 1,500,000 -
------------- ------------
STOCKHOLDERS' EQUITY (Note 10)
Preferred stock, no par value, 10,000,000
shares authorized:
Series A, none and 13,000 shares issued
and outstanding - 1,312,000
Series B, none and 300,000 shares issued
and outstanding - 450,000
Common stock, $.001 par value, 50,000,000
shares authorized, 13,430,793 and 8,395,785
shares issued and outstanding 13,000 8,000
Additional paid-in capital 25,547,000 13,120,000
Accumulated deficit (11,397,000) (8,436,000)
------------- ------------
Total stockholders' equity 14,163,000 6,454,000
------------- ------------
$ 34,855,000 $ 10,297,000
------------- ------------
------------- ------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-17
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30, 1996 1995 1994
------------ ------------ -----------
REVENUES:
Sales (Note 6) $ 26,667,000 $ 13,812,000 $ 4,812,000
Brokerage 952,000 - -
Other Income 4,000 41,000 19,000
------------ ------------ -----------
Total revenues 27,623,000 13,853,000 4,831,000
------------ ------------ -----------
COSTS AND EXPENSES:
Cost of sales 24,465,000 9,156,000 3,516,000
Cost of brokerage 936,000 - -
Cost of sales, related parties 1,189,000 1,713,000 594,000
Personnel 1,454,000 744,000 327,000
Professional services 644,000 527,000 553,000
Travel 106,000 39,000 60,000
Occupancy 65,000 83,000 50,000
Depreciation and amortization 283,000 258,000 258,000
Interest 732,000 407,000 203,000
Other general and administrative 771,000 628,000 204,000
Abandonment of projects - - 208,000
------------ ------------ -----------
Total costs and expenses 30,645,000 13,555,000 5,973,000
------------ ------------ -----------
Income (loss) before extraordinary
gain (3,022,000) 298,000 (1,142,000)
Extraordinary gain from settlement
of debts (Note 11) 70,000 806,000 218,000
------------ ------------ -----------
Income (loss) before taxes (benefit)
on income (loss) (2,952,000) 1,104,000 (924,000)
Taxes (benefit) on income (loss)
(Note 5) 9,000 (711,000) -
------------ ------------ -----------
NET INCOME (LOSS) $ (2,961,000) $ 1,815,000 $ (924,000)
------------ ------------ -----------
------------ ------------ -----------
F-18
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30, 1996 1995 1994
------------ ------------ -----------
PRIMARY INCOME (LOSS) PER
COMMON SHARE
Before extraordinary item $ (.30) $ .17 $ (.46)
Extraordinary item .01 .13 .09
------------ ------------ -----------
Primary net income (loss) per
common share $ (.29) $ .30 $ (.37)
------------ ------------ -----------
------------ ------------ -----------
Weighted average number of common
shares outstanding 10,212,236 6,099,694 2,504,762
------------ ------------ -----------
------------ ------------ -----------
FULLY DILUTED INCOME (LOSS)
PER COMMON SHARE
Before extraordinary item $ (.30) $ .16 $ (.43)
Extraordinary item .01 .13 .08
------------ ------------ -----------
Fully diluted net income (loss)
per common share $ (.29) $ .29 $ (.35)
------------ ------------ -----------
------------ ------------ -----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,212,236 6,351,815 2,623,069
------------ ------------ -----------
------------ ------------ -----------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-19
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL OTHER
Years Ended September 30, 1994, PREFERRED STOCK COMMON STOCK PAID-IN OPTION EQUITY ACCUMULATED
1995 AND 1996 SHARES AMOUNT SHARES AMOUNT CAPITAL TO CEO SECURITY (DEFICIT) TOTAL
-------- ---------- ---------- -------- ----------- -------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1993 - $ - 2,387,728 $ 3,000 $6,618,000 $ - $ - $(9,327,000) $(2,706,000)
Preferred stock issued for
debt (Note 10) 591,333 887,000 - - - - - - 887,000
Preferred stock issued for
acquisition of NRI (Note 1) 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
(Note 10) - - 548,376 - 1,351,000 - - - 1,351,000
Contribution to capital (Note 10) - - - - 2,000 - - - 2,000
Conversion of accrued salary
(Note 10) - - - - - - 246,000 - 246,000
Net loss - - - - - - - (924,000) (924,000)
-------- ---------- ---------- -------- ----------- -------- -------- ------------- -----------
Balance, 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 (Note 10) (25,000)(2,300,000) - - - - - - (2,300,000)
Redemption of preferred stock
Series B and other equity for
Option to CEO (Note 10) (291,333) (437,000) - - - 683,000 (246,000) - -
Common stock issued for
acquisition of MRI (Note 1) - - 120,000 - 1,200,000 - - - 1,200,000
Common stock issued during
private offering, net of
offering costs of $590,000
(Note 10) - - 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 (Note 10) - - 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
-------- ---------- ---------- -------- ----------- -------- -------- ------------- -----------
</TABLE>
F-20
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL OTHER
Years Ended September 30, 1994, PREFERRED STOCK COMMON STOCK PAID-IN OPTION EQUITY ACCUMULATED
1995 AND 1996 SHARES AMOUNT SHARES AMOUNT CAPITAL TO CEO SECURITY (DEFICIT) TOTAL
-------- ---------- ---------- -------- ----------- -------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, 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 (Note 1) - - 227,693 - 925,000 - - - 925,000
Conversion of preferred stock
series B (Note 10) (300,000) (450,000) 12,000 - 450,000 - - - -
Common stock issued in private
offering, net of offering costs
of $548,000 (Note 10) - - 1,070,636 1,000 2,395,000 - - - 2,396,000
Conversion of bridge loans
(Note 10) - - 413,523 - 1,138,000 - - - 1,138,000
Exercise of options and warrants - - 816,822 1,000 314,000 - - - 315,000
Common stock issued in public
offering, net of offering costs
of $2,510,000 (Note 10) - - 3,994,652 4,000 13,964,000 - - - 13,968,000
Redemption of common stock - - (6,933) - (150,000) - - - (150,000)
Redemption of common stock and
preferred stock Series A
(Note 10) (13,000)(1,312,000) (120,000) - (1,088,000) - - - (2,400,000)
Redemption of common stock
(Note 10) - - (1,373,385) (1,000) (5,521,000) - - - (5,522,000)
Net loss - - - - - - - (2,961,000) (2,961,000)
-------- ---------- ---------- -------- ----------- -------- -------- ------------- -----------
Balance, September 30, 1996 - $ - 13,430,793 $ 13,000 $25,547,000 $ - $ - $(11,397,000) $14,163,000
-------- ---------- ---------- -------- ----------- -------- -------- ------------- -----------
-------- ---------- ---------- -------- ----------- -------- -------- ------------- -----------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
</TABLE>
F-21
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Years Ended September 30, 1996 1995 1994
- ------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $(2,961,000) $1,815,000 $(924,000)
Adjustments to reconcile net income (loss)
to net cash provided (used) in operating
activities:
Depreciation and amortization 1,197,000 784,000 392,000
Write-off of Loef 277,000 - -
Extraordinary gain from settlement of debts (70,000) (806,000) (218,000)
Write-off acquisition costs 23,000 - 72,000
Issuance of stock for services - 25,000 244,000
Deferred income taxes - (800,000) -
Abandonment of projects - - 208,000
Changes in assets and liabilities net of effects
from purchases of subsidiaries:
Trade accounts receivable (2,199,000) (3,000) (898,000)
Inventories 657,000 (254,000) (243,000)
Prepaid expenses (124,000) (26,000) (111,000)
Other current assets (120,000) 33,000 (40,000)
Accounts payable 1,531,000 (290,000) 506,000
Accrued liabilities 219,000 (451,000) 150,000
Income taxes payable 21,000 86,000 -
------------ --------- --------
Net cash provided (used) by operating activities (1,549,000) 113,000 (862,000)
------------ --------- --------
INVESTING ACTIVITIES:
Payments for purchases of subsidiaries,
net of cash acquired (11,568,000) - -
Additions to equipment (700,000) (472,000) (25,000)
Additions to acquisition costs and goodwill (861,000) (103,000) (319,000)
Other assets 19,000 - -
Receivables-related party 146,000 - -
Advances to related party - (238,000) -
Acquisition of Loef - (113,000) -
Sale of equipment - - 48,000
Collections on note receivable - - 41,000
------------ --------- --------
Net cash used in investing activities (12,964,000) (926,000) (255,000)
------------ --------- --------
</TABLE>
F-22
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Years Ended September 30, 1996 1995 1994
- ------------------------- ---- ---- ----
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from borrowings-related parties 1,630,000 321,000 632,000
Principal payments on borrowings-related parties (1,692,000) (383,000) (152,000)
Proceeds from borrowings 3,573,000 - 434,000
Principal payments on borrowings (459,000) (2,756,000) (199,000)
Principal payments on capital leases (266,000) (34,000) -
Proceeds from line-of-credit, net 5,012,000 - -
Loan fees paid (429,000) - -
Proceeds from (payments to) factor, net (197,000) (264,000) 461,000
Proceeds from issuance of common stock 19,737,000 4,588,000 56,000
Costs of common stock offerings (3,058,000) (590,000) -
Redemption of stock (8,072,000) - -
------------ --------- ---------
Net cash provided by financing activities 15,779,000 882,000 1,232,000
------------ --------- ---------
Increase in cash 1,266,000 69,000 115,000
Cash, beginning of year 184,000 115,000 -
------------ --------- ---------
Cash, end of year $1,450,000 $184,000 $ 115,000
------------ --------- ---------
------------ --------- ---------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-23
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
BUSINESS 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. In 1994 the Company
began acquiring subsidiaries with metals recycling
operations (see Note 1). All revenues during 1996,
1995 and 1994 were generated by the recycling
operations. On June 27, 1995 the Company changed its
name to Recycling Industries, Inc.
In order to increase profitability from operations and
maintain adequate working capital, management's plans
for Fiscal 1997 encompass the following elements:
- Reduction of approximately 80 field employees at
selected locations to save operating costs of
$1.2 million to $1.6 million annually.
- Implementation of (i) a new management information
system to provide material purchases and margin
information on a daily basis to reduce cost of
material; and (ii) a daily shipment reporting system
to reduce processed material shipping delays and
improve cash flow.
- Continue the development and analysis of capital
financing options to raise additional funds to
supplement working capital and operating cash
requirements as necessary.
- Selectively acquire operations which increase the
Company's market share and profitability without
utilizing working capital from existing operations.
REVERSE STOCK SPLIT
Effective June 27, 1995, the Company completed a
one-for-five reverse stock split of its $.001 par
value common stock. All share and per share amounts
have been retroactively restated to reflect this
reverse split.
CONSOLIDATION Subsidiaries and joint ventures in which the Company
exercises control through majority ownership are
consolidated, and all intercompany accounts and
transactions are eliminated. Non-controlled joint
ventures and investments 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), was acquired by the
Company in May 1994 (see Note 1[A]) and operates a
metals recycling facility in Las Vegas, Nevada,
serving the Las Vegas market and steel mills located
throughout the western United States.
F-24
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Recycling Industries of Texas, Inc. d/b/a Anglo Iron
Metal (Anglo) was formed by the Company to acquire
the assets of Anglo Metals, Inc. in December 1995
(see Note 1[C]) and 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) was formed by the
Company to acquire the assets of Mid-America
Shredding, Inc. in April 1996 (see Note 1[D]) and
operates a metals recycling facility in Ste.
Genevieve, Missouri, serving midwestern steel mills
and markets along the Mississippi River.
Recycling Industries of Iowa, Inc. was formed by the
Company to acquire the business of Weissman Iron and
Metal, a division of Weissman Industries, Inc.
("Weissman"), through the purchase of all the
outstanding common stock of Weissman in August 1996
(see Note 1[E]). Weissman operates a metals
recycling facility in Waterloo, Iowa serving
midwestern steel mills and markets.
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.
RECENT ACCOUNTING The Financial Accounting Standards Board has recently
PRONOUNCEMENTS 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.
F-25
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
ACQUISITIONS COSTS The Company had capitalized acquisition costs of $38,000
and $61,000 at September 30, 1996 and 1995,
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
$23,000 and $72,000 were written off to operations
during 1996 and 1994 for negotiations that were no
longer active.
CONCENTRATION OF Concentrations of credit risk with respect to trade
CREDIT RISK receivables exist due to large balances with a few
customers. At September 30, 1996 and 1995, accounts
receivable balances from significant customers were
$1,825,000 and $699,000 or 41% and 65%, 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
midwest and western regions of the United States and
Mexico. Sales to one customer in Mexico comprised
15.4% of sales for the year ended September 30, 1996.
There were no significant sales in Mexico prior to
the acquisition of Anglo.
The Company maintains its cash in bank deposit
accounts, which at times may exceed federally insured
limits.
FAIR VALUE OF The carrying amounts of cash, accounts receivable,
FINANCIAL time deposits, accounts payable, and accrued expenses
INSTRUMENTS 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.
F-26
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
PROPERTY AND Property and equipment are recorded at cost. Depreciation
EQUIPMENT 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 and equipment was $873,000, $545,000 and
$147,000 for the years ended September 30, 1996, 1995
and 1994, 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.
RESEARCH AND Costs incurred in connection with research and
DEVELOPMENT COSTS 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 Sales are recorded in the period products are shipped.
RECOGNITION Brokerage income is recorded at the time materials are
received by the customer.
NET INCOME (LOSS) Primary net income (loss) per common share is computed
PER COMMON SHARE 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.
F-27
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
TAXES ON INCOME The Company accounts for taxes on income under 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 are
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.
At September 30, 1996 and 1995 the Company has
recorded a net deferred tax asset of $800,000
primarily reflecting the benefit of net operating
loss carryforwards, which expire in varying amounts
between 2002 and 2011. 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 periods are
reduced.
At September 30, 1996 the Company has federal income
tax loss carryforwards of approximately $8,300,000
which if not utilized to offset future taxable
income, expire through 2011.
USE OF ESTIMATES 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 1995 and 1994 financial
statements have been reclassified to conform to the
1996 presentation. The reclassifications had no
effect on financial condition or results of
operations.
F-28
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITIONS [A] On May 10, 1994, the Company acquired 100% of the
outstanding common stock of NRI from Nevada Recycling
Corporation (NRC) for 38,000 shares of the Company's
Series A convertible preferred stock, valued at
$3,612,000. On that date NRI became a wholly-owned
subsidiary of the Company.
A summary of the assets purchased and liabilities assumed
is as follows:
Land $ 1,340,000
Building 360,000
Machinery and equipment 5,025,000
Notes payable (3,113,000)
-------------
Net Book Value of Assets Purchased $ 3,612,000
-------------
-------------
On December 30, 1994, the Company and NRC agreed to
restructure the terms of the acquisition of NRI as
follows:
(1) NRC returned to the Company 25,000 of the 38,000
shares of Series A convertible preferred stock (see
Note 10).
(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,
F-29
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 held 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). The ACI Equity Securities
were purchased by the Company in August 1996 following
the recent public offering of the Company's Common
Stock.
In connection with the restructuring of the
acquisition of NRI, discussed
F-30
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
above, the Company 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.
[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 $6,054,000 comprised
of: $2,100,000 in cash; $1,833,000 note which is to
be paid in monthly installments of approximately
$181,000 beginning in February 1996; a $446,000
secured promissory note payable in 60 consecutive
monthly installments of $9,000, including interest; a
$750,000 unsecured note payable in 72 equal
consecutive monthly installments of $10,400; and
227,693 shares of Common Stock valued at $925,000.
Of the cash paid at the closing of the acquisition,
$1,800,000 was obtained through a sale-leaseback
transaction with Ally Capital Corporation,
collateralized by all of Anglo's machinery and
equipment, accounts receivable and inventories, which
has been recorded as a capital lease.
The terms of the sale-leaseback provide for 60
consecutive monthly lease payments of $41,000 with a
bargain purchase option at the end of the lease term.
The lease contained numerous covenants for
maintaining certain financial ratios and earnings
levels. The remaining $300,000 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
F-31
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
president of Anglo. The term of the non-compete
portion is for six years and is valued at $1,000,000
which will be amortized over the term of the
agreement using the straight-line method. The
consulting portion is for a term of six months and is
payable $5,000 per month.
RII also entered into a sublease agreement with Anglo
for three yard facilities for $2,500 a month through
December 10, 2005.
The real property acquired from Anglo and the Common
Stock issued by the Company have been placed in
escrow to provide for the remediation of
environmental contamination related to the operations
of Anglo prior to the acquisition.
The purchase price of Anglo has been allocated as
follows:
Equipment under capital lease $ 1,800,000
Contract to acquire land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,354,000
Purchase price in excess of net assets
acquired 1,830,000
------------
Total purchase price 6,054,000
Notes payable (3,029,000)
Common Stock (925,000)
------------
Cash paid at closing 2,100,000
Capital lease obligation (1,800,000)
------------
Cash paid from operating capital $ 300,000
------------
------------
F-32
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[D] 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, a wire
chopping plant and heavy equipment and tools used in
the business of recycling ferrous and non-ferrous
metals. The purchase price totaled $1,918,000, settled
through the assumption of outstanding bank debt of
$1,210,000 and $708,000 cash paid at closing.
The purchase price of Mid-America has been allocated
as follows:
Inventories $ 55,000
Land 51,000
Buildings and improvements 317,000
Machinery and equipment 1,495,000
----------
Total $1,918,000
----------
----------
[E] On August 5, 1996, the Company acquired 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.
The purchase price totaled $12,072,000, settled
through $1,500,000 payable in the form of 363,636
shares of the Company's common stock and $10,572,000
cash paid at closing. Under the terms of a Share
Price Guaranty Agreement ("the Agreement") the
Company has agreed to guaranty at $1,500,000 the value
of 363,636 shares ("the Guaranteed Shares"). The
Agreement grants the seller registration rights
effective for three years. The Company presently has
on file a Registration Statement with the SEC to
register the shares of stock. If at any time during
the three year period commencing on the effective
date of the registration statement, the seller sells
the 363,636 shares of common stock at less than the
guaranteed amount, the Company is required to pay to
the seller any shortfall in cash.
F-33
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the seller has the right at his sole
discretion to require the Company, at any time during
the two year period commencing November 30, 1997, to
repurchase the Guaranteed Shares for $1,500,000. As a
result of the Company's Agreement to purchase, if
requested, such shares, the amount has been recorded as
temporary equity on the accompanying consolidated
balance sheet. Approximately $5,839,000 of the cash
portion of the purchase price was funded through the
proceeds of the Public Offering and the Company's
operating cash. The balance of the cash portion was
financed with $1,233,000 of revolving credit
borrowings and $3,500,000 of long-term debt secured
by the equipment and real property acquired.
The purchase price of Weissman has been allocated as
follows:
Cash $ 11,000
Prepaid expenses 10,000
Accounts receivable 1,155,000
Inventories 1,224,000
Buildings and improvements 2,000,000
Automotive shredder 2,700,000
Heavy equipment 2,762,000
Equipment and rolling stock 1,448,000
Land 1,000,000
Covenant not to compete 250,000
Purchase price in excess of
net assets acquired 250,000
Accounts payable (546,000)
Accrued payroll and other (192,000)
-----------
Total $12,072,000
-----------
-----------
The unaudited pro forma results of operations which
follow assume that the acquisition of NRI had
occurred at the beginning of 1994. For the years
ended September 30, 1995 and 1996, the operations of
NRI are included in the actual consolidated
operations of the Company. The unaudited pro forma
results of operations which follow also assume that
the acquisitions of Anglo, Mid-America and Weissman
had occurred at the beginning of each period
presented for 1996 and 1995.
F-34
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994
------------------------- ---- ---- ----
<S> <C> <C> <C>
Revenues $47,258,000 $52,222,000 $11,348,000
Income (loss) from continuing
operations, net of taxes (1,249,000) 3,977,000 (857,000)
Net income (loss) after
extraordinary items and income taxes (1,179,000) 4,783,000 (639,000)
Income (loss) from continuing
operations, net of taxes
per common share (.12) .59 (.34)
Net income (loss) after
extraordinary items and
income taxes per common share $ (.11) $ .71 $ (.25)
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
2. INVENTORIES Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996 1995
------------- ---- ----
<S> <C> <C>
Raw materials $1,302,000 $350,000
Finished goods 1,171,000 147,000
----------- --------
$2,473,000 $497,000
----------- --------
----------- --------
</TABLE>
F-35
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND Property and equipment consisted of the following:
EQUIPMENT
September 30, 1996 1995
------------- ---- ----
Land $ 2,692,000 $1,640,000
Building and improvements 2,768,000 365,000
Heavy machinery and equipment 7,945,000 1,472,000
Automotive shredders 4,945,000 3,161,000
Assets under capital leases 1,918,000 118,000
Transportation equipment 1,728,000 561,000
Office equipment 121,000 121,000
----------- ----------
Total 22,117,000 7,438,000
Less accumulated depreciation
and amortization 1,625,000 752,000
----------- ----------
$20,492,000 $6,686,000
----------- ----------
----------- ----------
The capitalized cost, accumulated depreciation, and
depreciation expense relating to equipment under
capital lease obligations follows:
September 30, 1996 1995
------------- ---- ----
Capitalized cost $1,918,000 $118,000
Accumulated depreciation (120,000) (6,000)
----------- --------
$1,798,000 $112,000
---------- --------
---------- --------
Depreciation expense $ 109,000 $ 6,000
---------- --------
---------- --------
F-36
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. OTHER ASSETS Other assets consisted of the following:
September 30, 1996 1995
------------- ---- ----
Acquisition costs $ 38,000 $ 61,000
Goodwill, net of accumulated
amortization of $141,000
and $29,000 (see Note 1) 3,016,000 188,000
Patent rights 27,000 25,000
Engineering plans, net of
accumulated amortization of
$962,000 and $899,000 125,000 188,000
Other 32,000 5,000
Non-compete agreements, net of
accumulated amortization of
$147,000 1,103,000 -
Land contract 70,000 -
Loan fees, net of accumulated
amortization of $48,000 381,000 -
Investment in affiliate, at cost - 277,000
--------- --------
$4,792,000 $744,000
--------- --------
--------- --------
INVESTMENT IN AFFILIATE
Effective June 30, 1995 the Company acquired a 20%
interest in The Loef Company, Inc. (Loef), a ferrous
and non-ferrous metals recycler. In December 1996
the Company received notice that Loef has filed for
bankruptcy and as of September 30, 1996 wrote off its
$277,000 investment in Loef.
F-37
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. TAXES ON INCOME 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.
Under the terms of the Weissman acquisition agreement
the Company has agreed to indemnify the selling
shareholders of Weissman for certain tax liabilities
which could result from an audit by the IRS of the
final Weissman tax return.
During fiscal year 1996 and 1995 management
determined that net operating losses generated from
prior years were more likely than not to be used in
the near future due to taxable income generated by
acquired operations. Therefore, a net deferred tax
asset of $800,000 has been recorded as of September
30, 1996 and 1995. Net operating loss carryforwards
available for future use through the year 2011 were
approximately $8,300,000 at September 30, 1996.
The components of deferred tax assets and
(liabilities) are as follows:
F-38
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 1995
------------- ---- ----
Total deferred tax assets $ 5,978,000 $2,847,000
Less valuation allowance (1,170,000) (242,000)
----------- ----------
4,808,000 2,605,000
Total deferred tax
(liabilities) (4,008,000) (1,805,000)
----------- ----------
Net deferred tax asset $ 800,000 $ 800,000
----------- ----------
----------- ----------
The tax effects of temporary differences and net
operating loss carryforwards that give rise to
deferred tax assets and (liabilities) are as follows:
September 30, 1996 1995
------------- ---- ----
Temporary differences:
Property and equipment $(4,008,000) $(1,805,000)
Net operating loss
carryforwards 3,474,000 2,368,000
Goodwill and non-compete
agreements 1,918,000 5,000
Valuation allowance (1,170,000) (242,000)
Engineering plans 359,000 306,000
Alternative minimum tax
credits 87,000 87,000
Research and development
costs 85,000 78,000
Accrued expenses 29,000 -
Inventory 23,000 -
Allowance for doubtful
accounts 3,000 3,000
------------- -----------
$ 800,000 $ 800,000
------------- -----------
------------- -----------
Income tax expense (benefit) consisted of the
following:
F-39
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 1996 1995 1994
------------------------- ---- ---- ----
Current $ 9,000 $ 89,000 $ -
Deferred - (800,000) -
------- -------- -----
$ 9,000 $(711,000) $ -
------- -------- -----
------- -------- -----
A reconciliation of the effective tax rates to the
federal statutory rate is shown below:
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994
------------------------- ---- ---- ----
<S> <C> <C> <C>
Federal income tax
(benefit) computed
at federal statutory
rates $(1,004,000) $ 374,000 $(314,000)
Capital gains- MRI - 1,190,000 -
Change in valuation
allowance 928,000 (2,072,000) 480,000
Other 85,000 (203,000) (166,000)
---------- ---------- -------
Taxes (benefit) on
income (loss) $ 9,000 $ (711,000) $ -
---------- ---------- -------
---------- ---------- -------
</TABLE>
6. MAJOR CUSTOMERS The Company is economically dependent on major
customers for annual sales. Such customers comprised
the following percentages of revenues:
Years ended September 30, 1996 1995 1994
------------------------- ---- ---- ----
Customer A 9.6% 37.9% 29.9%
Customer B 22.5% 16.2% 19.7%
Customer C 5.6% 10.8% 18.7%
Customer D 15.4% - -
F-40
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
7. LONG-TERM DEBT September 30, 1996 1995
------------- ---- ----
<S> <C> <C>
Line of credit payable to financial
institution; principal balance not
to exceed the lesser of a total of
$6,500,000 or the sum of advance
rates applied to eligible accounts
receivable, inventories and new
equipment purchases as defined in
the agreement; interest at prime plus
2.0% (10.25% at September 30, 1996)
payable in minimum monthly interest
payments of $15,000 per month; due
June 1999; collateralized by the
assets of the Company $5,011,000 $ -
Note payable to financial institution;
monthly payments of interest at prime
plus 2.25% (10.50% at September 30,
1996) plus principal of $58,333 except
during the months of December 1996
through February 1997 principal
payments of $116,667; due July 2001;
collateralized by certain assets of
the Company 3,383,000 -
14.0% capital lease obligation payable
$40,500 per month through February
2001 (a) 1,568,000 -
Note payable to financial institution;
monthly payments of interest at prime
plus 1.5% (9.75% at September 30, 1996)
plus principal of $10,000 through
October 15, 1996; thereafter monthly
principal payments increase to $20,500
plus interest; due May 2001;
collateralized by property and equipment;
guaranteed by the Company and unrelated
individual and estate 1,179,000 -
</TABLE>
F-41
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Other notes payable, principal payable
monthly in various amounts including
interest at 9.% to 18%, through 2001,
collateralized by various equipment 589,000 420,000
10.5% capital lease obligation payable
$4,000 per month through November 1997 44,000 78,000
----------- ---------
11,774,000 498,000
Less current maturities 1,707,000 325,000
----------- ---------
Long-term debt $10,067,000 $173,000
----------- ---------
----------- ---------
</TABLE>
(a) The Company leases the equipment acquired from
Anglo under a capital lease obligation (See Note 1[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 September 30, 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 October 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 Company has a $50,000 secured line of credit
which proceeds are only available to reimburse a
financial institution for any draws against an
irrevocable letter of credit established for the
benefit of a vendor that expires December 1997.
F-42
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future maturities of long-term debt and minimum lease
payments under capital lease obligations are as
follows:
<TABLE>
<CAPTION>
Long-term Capital lease
Years Ending September 30, debt obligations Total
-------------------------- --------- -------------- -----
<S> <C> <C> <C>
1997 $1,376,000 $ 528,000 $ 1,904,000
1998 1,088,000 493,000 1,581,000
1999 6,070,000 486,000 6,556,000
2000 1,014,000 486,000 1,500,000
2001 614,000 122,000 736,000
---------- ---------- -----------
Total future payments 10,162,000 2,115,000 12,277,000
Less amounts
representing interest - 503,000 503,000
---------- ---------- -----------
Present value of
future payments 10,162,000 1,612,000 11,774,000
Less current portion 1,376,000 331,000 1,707,000
---------- ---------- -----------
$8,786,000 $1,281,000 $10,067,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
F-43
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
8. NOTES PAYABLE September 30, 1996 1995
AND LONG-TERM ------------- ---- -----
DEBT - RELATED <S> <C> <C>
PARTY $2,000,000 note payable to NRC (a) $1,735,000 $1,902,000
$1,833,000 note payable to officer
of Anglo Metal, Inc. (b) 930,000 -
$750,000 note payable to officer
of Anglo Metal, Inc.; monthly
payments of principal of $10,500
with interest at 9% through
December 2001 656,000 -
$446,000 note payable to Anglo
Metal, Inc.; monthly payments
of principal of $9,000 with
interest at 8% through December
2000; collateralized by real
property and buildings 390,000 -
Other notes due to related parties
with interest at 8.5% to 12% 315,000 295,000
---------- ----------
4,026,000 2,197,000
Less current maturities 2,075,000 218,000
---------- ----------
Long-term debt, related party $1,951,000 $1,979,000
---------- ----------
---------- ----------
</TABLE>
F-44
<PAGE>
RECYLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future maturities of long-term debt-related parties are as follows:
Years Ending September 30,
1997 $ 2,075,000
1998 712,000
1999 719,000
2000 337,000
2001 152,000
Thereafter 31,000
----------
4,026,000
(a) In October 1996 the Company refinanced the note payable
to NRC with a $2,500,000 note payable to a financial
institution; the excess proceeds amounting to $765,000
were retained by the Company for working capital. The
new note is payable monthly with interest at prime plus
2.25% plus principal of $41,667 except during the
months December 1996 through February 1997 in which
principal is payable $83,333 per month. The note is
collateralized by certain assets of the Company and
matures April 2001. The terms of the new note
agreement have been reflected in the accompanying
balance sheet at September 30, 1996.
(b) Under the terms of a letter agreement with the
president of Anglo Metals, Inc. dated October 17, 1996
the Company will make interest only payments at 10%
until additional financing is secured, which would
allow the Company to repay the $930,000 remaining
note balance.
Through August 1996, the Company was a party to a factoring
agreement with a partnership comprised of the stockholders
of NRC who were also preferred stockholders of the Company.
Purchased receivables balances outstanding at September 30,
1996 and 1995 were $0 and $197,000. Total finance charges
for the years ended September 30, 1996, 1995 and 1994, were
$82,000, $82,000 and $11,000.
F-45
<PAGE>
RECYLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 10). At September 30, 1994
the balance on the note was $8,000. During 1995 the note
was paid.
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 413,523 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. The remaining principal of $450,000 and
interest related to the bridge loans, which were not
converted into Common Stock were repaid in September 1996.
9. RELATED PARTY In addition to transactions with related parties discussed
TRANSACTIONS throughout the notes to the financial statements, the
following related party transactions have taken place.
During 1996, 1995, and 1994, the Company purchased raw
materials from related entities in the amounts of
$1,189,000, $1,713,000 and $594,000, respectively.
The purchase price of the raw materials approximates
the cost paid to other large bulk suppliers to the
Company.
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
F-46
<PAGE>
RECYLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
required 6% monthly interest only payments for two years
and principal repayments 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
was recorded. 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.
10. STOCKHOLDERS' NON-QUALIFIED STOCK OPTIONS AND WARRANTS
EQUITY
The Company has outstanding options and warrants to
acquire an aggregate of 5,078,580 shares of the Company's
Common Stock, substantially all of which have exercise
prices ranging from $.15 to $6.00 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.
F-47
<PAGE>
RECYLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995 STOCK OPTION PLAN (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 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 (DIRECTOR 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
F-48
<PAGE>
RECYLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
39,600 shares of registered Common Stock were issued
under the plan for $242,000 for professional services.
On January 1, 1994, the Company's Board of Directors
adopted a Consulting Agreement (Agreement). The
Agreement provides for 150,000 shares of Common Stock to
be issued for cash and/or services which were contained
in a registration statement filed during June of 1994.
During 1994, 30,000 shares of registered Common Stock
were issued for $56,250 in professional services
provided under the Agreement.
During 1994, $1,351,000 of liabilities were converted into
548,376 shares of Common Stock.
JOINT VENTURE SETTLEMENT
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.
PREFERRED STOCK CONVERSION
On November 9, 1995, 300,000 shares of Series B
preferred stock were converted into 12,000 shares of
Common Stock.
During 1993, the chief executive officer/majority
stockholder of the Company converted accrued salary in
the amount of $120,000 to additional paid-in capital.
During 1994, the chief executive officer/majority
stockholder of the Company converted accrued salary in
the amount of $246,000 to an equity security payable in
the future at a price per share to be determined at the
time of issuance. During 1995, the equity security was
converted as partial compensation for the "W" Right.
F-49
<PAGE>
RECYLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and expire on December 27, 1999. The
exercise price of 1,916,400 Series G Warrants is $6.00
per share and the exercise of 30,000 Series G Warrants
is $4.00 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 $6.00 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-50
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 27, 1999. The
exercise price of the Series G Warrants is $6.00 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 $6.00 per share.
The Series H Warrants are exercisable for a three-year
period commencing one year from the date of issuance and
are not redeemable by the Company.
The Company has issued 2,136,878 Series G Warrants to
date. No warrants have been exercised to date.
PRIVATE PLACEMENT OFFERING DATED JANUARY 31, 1996
(JANUARY 1996 PRIVATE PLACEMENT).
As of April 8, 1996, the closing date of the January
Private Placement, the Company received $2,396,000 (net
of offering costs of approximately $548,000) from the
sales of 1,070,636 shares of Common Stock and warrants
(Series J Warrants) to acquire up to 727,078 shares of
Common Stock at $6.00 per share, in addition $1,138,000
in bridge loans (including accrued interest) were
converted into units offered under the January 31, 1996
Private Placement.
F-51
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Series J Warrants are exercisable until December 27,
1999. The exercise price of 686,418 Series J warrants is
$6.00 per share and the exercise price of 40,665 Series J
warrants is $4.00 per share.
In connection with the offering, the Company issued to
the placement agent 69,945 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
69,945 Series H Warrants each to purchase one share of
Common Stock at an exercised price of $6.00 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.
PUBLIC OFFERING
On July 17, 1996, the Company completed the Public
Offering of 3,994,652 shares of Common Stock at an
offering price of $4.125 per share. Net proceeds raised
by the Company from the Public Offering were $13,964,000.
Out of the proceeds of the Public Offering, the Company
repurchased 1,373,385 shares of Common Stock for
$5,522,000.
PREFERRED STOCK
Series A--The Company issued 13,000 shares, as
restructured, of Series A preferred stock in connection
with the acquisition of NRI (see Note 1[A]). On August
15, 1996, the Company redeemed all of its outstanding
Series A Convertible Preferred Stock and repurchased
120,000 shares of Common
F-52
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock for $2.4 million. This transaction was funded
through the proceeds of the Public Offering.
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. 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.
11. EXTRAORDINARY During 1996, the Company extinguished $70,000 of debt
ITEMS recognizing an extraordinary gain of the same amount.
During 1995, the Company extinguished $896,000 of debt
for $90,000 cash thereby recognizing an extraordinary
gain of $806,000.
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.
12. COMMITMENTS ENVIRONMENTAL LIABILITIES
F-53
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND In connection with the recycling and processing of
CONTINGENCIES 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.
INSURANCE
The Company partially self insures for casualty losses on
property and equipment at its NRI subsidiary and self
funds a health care plan for all full time employees at
its Weissman subsidiary.
UNION CONTRACT
F-54
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Substantially all of the labor force that work in the
recycling operations yard at the Weissman subsidiary work
under a collective bargaining agreement which expires in
2000.
TURNINGS AND BORINGS CONTRACT
During 1991 Weissman entered into a service agreement
with a significant customer to process the customers'
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.
OPERATING LEASES
During June 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.
The Company leases various office equipment and vehicles
under operating leases which expire at various dates
through 2001 with monthly payments ranging from $300 to
$600.
Future minimum lease payments are as follows for the
years ending:
September 30, Total
----------
1997 $ 118,000
1998 123,000
1999 119,000
2000 103,000
2001 60,000
Thereafter 112,000
----------
$ 635,000
----------
----------
Rent expense for the years ended September 30, 1996, 1995
and 1994
F-55
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
was approximately $90,000, $47,000, $48,000, respectively.
13. SUPPLEMENTAL Years Ended September 30, 1996 1995 1994
INFORMATION ---------- ---------- ----------
TO STATEMENT Cash paid for interest $ 711,000 $ 407,000 $ -
OF CASH FLOWS Purchase of equipment
AND NONCASH for notes payable $ 406,000 $ 56,000 $ 5,000
INVESTING AND Stock issued for
FINANCING conversion of bridge
ACTIVITIES financing $1,138,000 $ 150,000 $ -
Acquisition of
subsidiaries for stock $2,425,000 $ - $6,725,000
Acquisition of Anglo
land and building for
note payable $ 446,000 $ - $ -
Acquisition of Anglo
inventory for notes
payable $1,354,000 $ - $ -
Acquisition of Anglo
goodwill for note
payable $ 479,000 $ - $ -
Capital lease obligation
incurred to finance
Anglo acquisition $1,800,000 $ - $ -
Note payable issued for
Anglo non-compete
agreement $ 750,000 $ - $ -
Assumption of liabilities
for Mid-America
acquisition $1,210,000 $ - $ -
Assumption of liabilities
for Weissman
acquisition $ 738,000 $ - $ -
Restructure of preferred
stock to debt $ - $2,300,000 $ -
Issuance of common stock
to chief executive
officer $ - $ 437,000 $ -
Acquisition of equipment
under capital lease $ - $ 113,000 $ -
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
Sale of 25% interest in
subsidiary for note
receivable $ - $ - $ 900,000
F-56
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUBSEQUENT On December 31, 1996 the Company issued 10,000 shares
EVENT of Series C Convertible Preferred Stock (the "Series C
Preferred") for $1,000,000 net of offering costs of
$75,000. The Preferred Stock is convertible, without
further payment, into the number of shares of Common
Stock determined by dividing (i) the sum of (a) $100 plus
(b) the amount of an accrued dividends on the Series C
Preferred by (ii) the lesser of $1.58125 or 73% of the
average reported closing bid price of a share of Common
Stock for the five consecutive trading days immediately
preceding the date of conversion.
F-57
<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-58
<PAGE>
ANGLO METAL, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
---------- -----------
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 depreciation 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
---------- ----------
F-59
<PAGE>
ANGLO METAL, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
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
---------- ----------
---------- ----------
See accompanying Notes to Financial Statements
F-60
<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-61
<PAGE>
ANGLO METAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
COMMON STOCK
-------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ --------- -----
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
------ ------- ---------- ----------
------ ------- ---------- ----------
See accompanying Notes to Financial Statements
F-62
<PAGE>
ANGLO METAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
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
--------- --------- ---------
--------- --------- ---------
See Note 13
</TABLE>
See accompanying Notes to Financial Statements
F-63
<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.
F-64
<PAGE>
The purchase price has been allocated as follows:
Equipment under capital lease ....................... $ 1,800,000
Contract to acquire land and buildings .............. 70,000
Covenant not to compete ............................. 1,000,000
Inventories ......................................... 1,365,000
Purchase price in excess of net assets acquired ..... 1,830,000
-----------
Total purchase price ........................... 6,065,000
Notes payable ....................................... (3,061,000)
RII common stock .................................... (925,000)
-----------
Cash paid at closing ................................ 2,079,000
Capital lease obligation ............................ (1,800,000)
-----------
Cash from operating capital .................... $ 279,000
-----------
-----------
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.
F-65
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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.
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
F-66
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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:
DECEMBER 31,
-----------------------
1995 1994
---------- ----------
Raw materials ....... $ 766,000 $ 866,000
Finished goods ...... 671,000 175,000
---------- ----------
$1,437,000 $1,041,000
---------- ----------
---------- ----------
Included in inventory are $50,000 and $10,000 of indirect costs at December
31, 1995 and 1994, respectively.
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following at:
DECEMBER 31,
---------------------
1995 1994
---------- ----------
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
---------- ----------
---------- ----------
F-67
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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>
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-68
<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:
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
---------
---------
F-69
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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
--------
--------
NOTE 10--ECONOMIC DEPENDENCY
The Company is economically dependent on major customers for annual sales
as follows:
1995 1994 1993
---- ---- ----
Customer A........... 26% 25% 34%
Customer B........... 18% 10% --%
Customer C........... 10% --% --%
Customer D........... 12% --% 12%
Customer E........... --% --% 11%
Customer F........... --% 12% --%
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
F-70
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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.
Future minimum lease payments are as follows at December 31:
1996................. $ 30,000
1997................. 30,000
1998................. 30,000
1999................. 30,000
2000................. 30,000
Thereafter........... 150,000
--------
$300,000
--------
--------
F-71
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
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 FLOWS 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-72
<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-73
<PAGE>
MID-AMERICA SHREDDING, INC.
BALANCE SHEET
<TABLE>
DECEMBER 31, MARCH 31,
------------ ----------
1995 1996
---- ----
(UNAUDITED)
ASSETS
<S> <C> <C>
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-74
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENT OF OPERATIONS
<TABLE>
FOR THE THREE MONTHS ENDED
FOR THE --------------------------
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-75
<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>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................. 245 $ -- $3,009,000 $(1,314,000) $1,695,000
Contributed capital....................... -- -- 46,000 -- 46,000
Net (loss)................................ -- -- -- (123,000) (123,000)
--- ------ ---------- ----------- ----------
Balance, December 31, 1995................ 245 -- 3,055,000 (1,437,000) 1,618,000
Net (loss)................................ -- -- -- (155,000) (155,000)
--- ------ ---------- ----------- ----------
Balance, March 31, 1996 (Unaudited)....... 245 $ -- $3,055,000 $(1,592,000) $1,463,000
--- ------ ---------- ----------- ----------
--- ------ ---------- ----------- ----------
</TABLE>
See accompanying Notes to Financial Statements
F-76
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE FOR THE THREE 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
--------- --------- ---------
--------- --------- ---------
See Note 10
</TABLE>
See accompanying Notes to Financial Statements
F-77
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
Mid-America Shredding, Inc. (Mid-America) was incorporated in the state of
Missouri in July 1989. Mid-America operates in the metals recycling industry
(purchasing, processing and selling ferrous and non-ferrous metals). Mid-America
operates a heavy duty automotive shredder to separate metals into ferrous and
non-ferrous metals. Insulated copper or aluminum wire is processed through a
wire chopping machine to produce clean copper or aluminum chops. Mid-America
operates in Ste. Genevieve, Missouri.
ACQUISITION OF MID-AMERICA SHREDDING, INC.
On April 15, 1996, the assets and business of Mid-America were sold to
Recycling Industries, Inc. (RII).
The assets sold by Mid-America consisted of real property, buildings,
inventories, a heavy duty automotive shredder, a wire chopping plant, heavy
equipment and tools used in the business of recycling ferrous and non-ferrous
metals.
The sales price for Mid-America was $1,925,000, comprised of $660,000 in
cash, a $55,000 note payable in eight equal monthly installments of $6,900, and
the assumption of Mid-America outstanding bank debt of $1,210,000.
The sale will be accounted for using the purchase method and the price will
be allocated as follows:
Inventories........................... $ 55,000
Land.................................. 310,000
Buildings and improvements............ 560,000
Machinery and equipment............... 1,000,000
-----------
Total purchase price.................. 1,925,000
Notes payable......................... (1,265,000)
-----------
Cash paid at closing................ $ 660,000
-----------
-----------
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements
for the three month period ended March 31, 1996 and 1995 are presented on a
basis consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ending March 31, 1996 are not necessarily indicative of the
results to be expected for the year ended December 31, 1996.
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.
F-78
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated useful
lives of 10 to 20 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property, plant and
equipment was $173,000 and $43,000 for the year ended December 31, 1995 and for
the three months ended March 31, 1996 (unaudited), respectively. Maintenance and
repairs are charged to expense as incurred and expenditures for major
improvements are capitalized. When assets are retired or otherwise disposed of,
the property accounts are relieved of costs and accumulated depreciation and any
resulting gain or loss is credited or charged to operations.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are
capitalized if the costs improve Mid-America's property as compared to the
condition of the property when originally constructed or acquired or if the
costs prevent environmental contamination from future operations. Expenditures
that relate to an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments are made or remedial efforts are
probable and the cost can be reasonably estimated. These amounts are generally
accrued upon the completion of feasibility studies or the settlement of claims,
but in no event later than Mid-America's commitment to a plan of action.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued liabilities approximate fair value because of the short maturity of
these items. The fair value of the note payable, bank was estimated based on
market values for debt with similar terms. Management believes that the fair
value of that debt approximates its carrying value.
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.
F-79
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CASH
For purposes of reporting cash flows, Mid-America considers all funds with
maturities of three months or less to be cash equivalents.
NOTE 2--INVENTORIES
Inventories, pledged, consist of the following:
DECEMBER 31, MARCH 31,
1995 1996
----------- --------
(Unaudited)
Raw materials................. $74,000 $34,000
Finished goods................ 12,000 --
------- -------
$86,000 $34,000
------- -------
------- -------
Included in inventories are $2,000 of indirect costs at December 31, 1995.
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following:
DECEMBER 31, MARCH 31,
1995 1996
----------- -----------
(UNAUDITED)
Land and improvements........................... $ 359,000 $ 359,000
Building and improvements....................... 163,000 163,000
Heavy machinery and equipment................... 1,703,000 1,676,000
Auto shredder mill.............................. 1,304,000 1,304,000
Transportation equipment........................ 50,000 46,000
Office equipment................................ 10,000 10,000
---------- ----------
Total......................................... 3,589,000 3,558,000
Less accumulated depreciation and amortization.. (703,000) (735,000)
---------- ----------
$2,886,000 $2,823,000
---------- ----------
---------- ----------
NOTE 4--ACCRUED LIABILITIES
Accrued liabilities consist primarily of accrued interest, accrued salaries
and related expenses at December 31, 1995 and March 31, 1996 (Unaudited).
F-80
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTE PAYABLE, BANK
<TABLE>
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>
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
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
------- -------
------- -------
</TABLE>
The principal maturities for the long-term debts are as follows:
<TABLE>
<S> <C> <C>
1996........................................................ $20,000 $21,000
1997........................................................ 7,000 2,000
------- -------
$27,000 $23,000
------- -------
------- -------
</TABLE>
F-81
<PAGE>
MID-AMERICA SHREDDING, INC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES
LEASES
Mid-America has two operating leases with a railroad company for a spur
rail track and industrial property located in Zell, Missouri with annual lease
payments of $2,000. In addition, an office trailer was leased for the year for
$4,000. Total rent expense was $6,000 and $1,500 for the year ended December 31,
1995 and the three months ended March 31, 1996 (unaudited), respectively.
LETTER OF CREDIT
Mid-America has issued a letter of credit for $50,000 which expires on
December 31, 1997. The local electric utility company constructed a power
substation and the letter of credit guarantees the utility company that the
substation will be used for its intended purpose by Mid-America. The letter of
credit has not been drawn upon as of March 31, 1996.
NOTE 8--RELATED PARTY TRANSACTIONS
During 1995, Mid-America purchased $116,000 of equipment, parts and repairs
from an electric supply company (a related party) which is owned by the majority
shareholder of Mid-America. At December 31, 1995, Mid-America owed the related
party $133,000. For the three months ended March 31, 1996 (unaudited), Mid-
America purchased an additional $10,000 of equipment, parts and repairs and owed
the related party a total of $143,000 at March 31, 1996 (unaudited).
NOTE 9--ECONOMIC DEPENDENCY
Mid-America is economically dependent on three major customers for annual
sales. During 1995, the three customers accounted for 48%, 16% and 10% of sales
volume, respectively.
NOTE 10--SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NONCASH
INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1995, $39,000 of equipment was acquired
through the issuance of long-term debt.
The majority shareholder contributed equipment in the amount of $20,000 in
1995.
F-82
<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-83
<PAGE>
WEISSMAN IRON AND METAL
BALANCE SHEETS
DECEMBER 31,
----------------------- JUNE 30,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash.................................. $ 9,000 $ 8,000 $ 15,000
Trade accounts receivable............. 1,527,000 1,579,000 1,773,000
Other receivables..................... 1,000 46,000 1,000
Inventories........................... 1,327,000 1,031,000 1,205,000
Prepaid expenses...................... 10,000 53,000 10,000
---------- ---------- ----------
Total Current Assets.............. 2,874,000 2,717,000 3,004,000
PROPERTY, PLANT AND EQUIPMENT, net...... 5,452,000 5,140,000 5,383,000
---------- ---------- ----------
$8,326,000 $7,857,000 $8,387,000
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND DIVISION EQUITY
CURRENT LIABILITIES:
Bank overdraft........................ $ 39,000 $ 5,000 $ --
Trade accounts payable................ 983,000 612,000 700,000
Trade accounts payable, related
party................................ -- 21,000 --
Accrued liabilities:
Payroll and related taxes........... 246,000 245,000 459,000
Pension termination costs........... 27,000 -- 27,000
Environmental cleanup costs......... 30,000 -- 30,000
Sales and property taxes............ 40,000 33,000 34,000
Other............................... 31,000 20,000 60,000
---------- ---------- ----------
Total Current Liabilities..... 1,396,000 936,000 1,310,000
COMMITMENTS AND CONTINGENCIES:
DIVISION EQUITY......................... 6,930,000 6,921,000 7,077,000
---------- ---------- ----------
$8,326,000 $7,857,000 $8,387,000
---------- ---------- ----------
---------- ---------- ----------
See accompanying Notes to Financial Statements
F-84
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales......................... $16,207,000 $12,959,000 $9,378,000 $7,355,000 $7,791,000
Brokerage..................... 2,956,000 1,352,000 241,000 1,875,000 908,000
Other......................... 1,000 11,000 11,000 27,000 1,000
----------- ----------- ---------- ---------- ----------
Total Revenues.............. 19,164,000 14,322,000 9,630,000 9,257,000 8,700,000
----------- ----------- ---------- ---------- ----------
COST OF SALES AND EXPENSES:
Cost of sales................. 12,235,000 9,075,000 7,456,000 5,762,000 5,802,000
Cost of brokerage............. 2,894,000 1,348,000 237,000 1,828,000 891,000
Personnel..................... 654,000 564,000 396,000 303,000 301,000
Professional services......... 17,000 26,000 22,000 8,000 4,000
Other, general and
administrative............... 305,000 270,000 282,000 146,000 198,000
Depreciation and amortization
expense...................... 7,000 7,000 7,000 3,000 3,000
Environmental cleanup costs... 30,000 -- -- -- --
Loss on disposal of equipment. -- -- -- -- --
----------- ----------- ---------- ---------- ----------
Total Cost of Sales and
Expenses................... 16,142,000 11,290,000 8,400,000 8,050,000 7,199,000
----------- ----------- ---------- ---------- ----------
NET INCOME...................... $ 3,022,000 $ 3,032,000 $1,230,000 $1,207,000 $1,501,000
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
</TABLE>
See accompanying Notes to Financial Statements
F-85
<PAGE>
WEISSMAN IRON AND METAL
STATEMENT OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
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).......................................... 1,207,000
Distributions to related parties, net (unaudited) .............. (1,060,000)
-----------
Balance, June 30, 1996 (unaudited).............................. $ 7,077,000
-----------
-----------
See accompanying Notes to Financial Statements
F-86
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
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 $ 1,207,000 $ 1,501,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization....... 312,000 261,000 220,000 170,000 143,000
Loss on disposal of equipment....... 20,000 6,000 2,000 -- --
Changes in:
Trade accounts receivable......... 52,000 (464,000) (618,000) (246,000) (179,000)
Other receivables................. (21,000) 30,000 (2,000) -- (24,000)
Prepaid expenses.................. 67,000 (5,000) (2,000) -- (73,000)
Inventories....................... (296,000) (66,000) (16,000) 122,000 (204,000)
Trade accounts payable............ 371,000 156,000 243,000 (283,000) 296,000
Accrued liabilities............... 66,000 47,000 106,000 236,000 (10,000)
Bank overdraft.................... 34,000 5,000 -- (39,000) 93,000
Environmental cleanup costs....... 30,000 -- -- -- --
----------- ----------- --------- ----------- -----------
Net Cash Provided by
Operating Activities........... 3,657,000 3,002,000 1,163,000 1,167,000 1,543,000
----------- ----------- --------- ----------- -----------
CASH FLOWS (TO) FROM
INVESTING ACTIVITIES:
Purchase of property and equipment.... (644,000) (648,000) (424,000) (101,000) (95,000)
Proceeds from sale of property
and equipment........................ -- -- -- -- --
----------- ----------- --------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities........... (644,000) (648,000) (424,000) (101,000) (95,000)
----------- ----------- --------- ----------- -----------
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) (1,060,000) (1,440,000)
----------- ----------- --------- ----------- -----------
</TABLE>
F-87
<PAGE>
<TABLE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Cash (Used) by Financing
Activities..................... (3,012,000) (2,461,000) (699,000) (1,060,000) (1,440,000)
----------- ----------- --------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......... 1,000 (107,000) 40,000 6,000 8,000
CASH, beginning of period............... 8,000 115,000 75,000 9,000 8,000
----------- ----------- --------- ----------- -----------
CASH, end of period..................... $ 9,000 $ 8,000 $ 115,000 $ 15,000 $ 16,000
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
CASH PAID FOR INTEREST.................. $ -- $ -- $ 1,000 $ -- $ --
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</TABLE>
See accompanying Notes to Financial Statements
F-88
<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:
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
-----------
-----------
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.
F-89
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements
for the six month periods ended June 30, 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 June 30, 1996 are not necessarily indicative of the
results to be expected for the year ended December 31, 1996.
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
June 30, 1996 (unaudited) accounts receivable balances for three major
customers were $1,216,000, $967,000 and $1,287,000, or 80%, 61% and 73%,
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 June 30, 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, $170,000 and $143,000 for the years ended
December 31, 1995, 1994 and 1993, and for the six months ended June 30, 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.
F-90
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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
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:
DECEMBER 31,
---------------------- JUNE 30,
1995 1994 1996
---------- ---------- ----------
(UNAUDITED)
Raw materials ............ $ 544,000 $ 526,000 $ 541,000
Finished goods ........... 783,000 505,000 664,000
---------- ---------- ----------
$1,327,000 $1,031,000 $1,205,000
---------- ---------- ----------
---------- ---------- ----------
Included in inventory is $165,000, $108,000 and $182,000 of indirect
costs at December 31, 1995 and 1994, and June 30, 1996 (unaudited),
respectively.
F-91
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at:
DECEMBER 31,
------------------------ JUNE 30,
1995 1994 1996
----------- ----------- -----------
(UNAUDITED)
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 4,654,000
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 8,895,000
Less accumulated depreciation... (3,391,000) (3,265,000) (3,512,000)
----------- ----------- -----------
$ 5,452,000 $ 5,140,000 $ 5,383,000
----------- ----------- -----------
----------- ----------- -----------
NOTE 4--ECONOMIC DEPENDENCY
Weissman is economically dependent on three major customers for sales as
follows:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------------------
1995 1994 1993 1996 1995
---- ---- ---- ---------- -----------
(UNAUDITED) (UNAUDITED)
Customer A......... 38% 32% 28% 17% 15%
Customer B......... 19% 22% 12% 11% 17%
Customer C......... 14% 16% 29% 44% 32%
Weissman also purchased inventory from two of these customers as follows:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------------------
1995 1994 1993 1996 1995
---- ---- ---- ---------- -----------
(UNAUDITED) (UNAUDITED)
Customer A......... 5% 6% 9% 3% 7%
Customer B......... 20% 19% 15% 34% 18%
F-92
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 minimis
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 minimis 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 June 30, 1996 (unaudited), respectively.
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.
F-93
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
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 $90,000 $90,000
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.
Weissman pension activity consists of approximately 43% of the total
Plan. The following disclosures are for Weissman:
F-94
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In accordance with FAS 87, Weissman was required to record an additional
minimum pension liability at December 31, 1995 and 1993, and June 30, 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:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1994 1993 1996
------- ------ ------- -----------
(UNAUDITED)
Intangible assets.............. $ -- $ -- $ 4,000 $ --
Reduction to Division Equity... 47,000 -- 64,000 47,000
------- ------ ------- -------
Additional minimum liability... $47,000 $ -- $68,000 $47,000
------- ------ ------- -------
------- ------ ------- -------
The net periodic pension cost is as follows:
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
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 $ -- $ 10,000
Interest cost on projected
benefit obligation........ 19,000 18,000 15,000 -- 10,000
Actual return on assets.... (84,000) 15,000 (23,000) -- (42,000)
Net amortization and
deferral.................. 60,000 (33,000) 3,000 -- 30,000
------- -------- -------- ------- --------
Net periodic pension
cost.................... $16,000 $ 25,000 $ 13,000 $ -- $ 8,000
------- -------- -------- ------- --------
------- -------- -------- ------- --------
</TABLE>
Assumptions used in the accounting were:
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
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-95
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in Weissman's balance sheet for its pension plan at:
DECEMBER 31,
-------------------- JUNE 30,
1995 1994 1996
--------- --------- -----------
(UNAUDITED)
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)
--------- --------- ---------
--------- --------- ---------
F-96
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. ANY INFORMATION OR REPRESENTATIONS NOT HEREIN CONTAINED, IF
GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
RESPECT TO THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS 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.
<PAGE>
--------------------
TABLE OF CONTENTS Page
----
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PRICE RANGE OF THE COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . 11
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 14
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
RECENT DEVELOPMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SELLING SECURITYHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . 46
SHARES ELIGIBLE FOR FUTURE SALE. . . . . . . . . . . . . . . . . . . . . . 48
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
CHANGE IN INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . 52
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . F-1
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
--------------------
<PAGE>
RECYCLING INDUSTRIES, INC.
10,189,541 SHARES OF COMMON
STOCK, $.001 PAR VALUE, INCLUDING
623,411 SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND
3,957,651 SHARES UNDERLYING STOCK PURCHASE WARRANTS AND OPTIONS
JANUARY __, 1997
------------
PROSPECTUS
------------
<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.
Registration and filing fee $11,992
NASD filing fee 4,458
Printing and engraving 7,500
Accounting fees and expenses 5,000
Legal fees and expenses 80,000
Blue sky fees and expenses 2,500
Transfer and Warrant Agent 500
Other 550
--------
Total $112,500
--------
--------
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) 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.
II-1
<PAGE>
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 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
II-2
<PAGE>
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 PUBLIC OFFERING
The Company and the underwriter for its Public Offering 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 agreed to damage contribution
agreements between them based upon relative benefits received from the Public
Offering and relative fault resulting in such damages.
INDEMNIFICATION PROVIDED IN CONNECTION WITH THE OFFERING BY THE SELLING
SECURITYHOLDERS
The placement agent for and investors in the private placements of the
Company's securities occurring in February and May, 1995 and January and
April, 1996, agreed to 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:
(a) 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.
(b) 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.
(c) 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
II-3
<PAGE>
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.
(d) 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 outstanding indebtedness payable to First
Dominion in the amount of approximately $880,000 incurred prior to March 31,
1994.
(e) 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 has
been fully exercised.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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
II-4
<PAGE>
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.
(k) 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 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.
(l) 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.
(m) In connection with the Company's acquisition of its southern Texas
facilities, on December 1, 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.
(n) 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.
(o) 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.
(p) 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
II-5
<PAGE>
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.
(q) 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.
(r) On December 31, 1996, the Company completed a private placement of
10,000 shares of Series C Convertible Preferred Stock (the "Series C
Preferred") for total consideration of $1,000,000. Each Series C Preferred
is convertible, without further payment, into the number of shares of Common
Stock determined by dividing (i) the sum of (a) $100 plus (b) the amount of
all accrued dividends on the Series C Preferred by (ii) the lesser of
$1.58125 or 73% of the average reported closing bid price of a share of
Common Stock for the five consecutive trading days immediately preceding the
date of conversion. The proceeds from this private placement were used for
general working capital purposes. The Company issued to the placement agent
of the Series C Preferred, Settondown Capital International, Ltd., 20,000
Settondown Warrants, each entitling the holder to acquire one shares of
common stock for $2.50.
With respect to the sales of unregistered securities described in
paragraphs (a) through (r) 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
The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
3.1(a) Articles of Amendment to the Amended and Restated Articles of
Incorporation.*
3.2 Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1, filed May 3,
1996, as amended, Commission File No. 333-4574.
4.1 Form of Common Stock Certificate, incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-1, filed May 3,
1996, as amended, Commission File No. 333-4574.
4.3 Form of Series G Warrant Agreement, incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-1, filed
May 3, 1996, as amended, Commission File No. 333-4574.
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4.4 Form of Series G Registration Rights Agreement, incorporated by
reference to Exhibit 4.4 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
4.5 Form of Series I Warrant Agreement, incorporated by reference to
Exhibit 4.5 to the Company's Registration Statement on Form S-1, filed
May 3, 1996, as amended, Commission File No. 333-4574.
4.6 Form of Series J Warrant Agreement, incorporated by reference to
Exhibit 4.6 to the Company's Registration Statement on Form S-1, filed
May 3, 1996, as amended, Commission File No. 333-4574.
4.7 Form of Series J Registration Rights Agreement, incorporated by
reference to Exhibit 4.7 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
4.8 Form of 1996 Placement Agents Warrant Agreement, incorporated by
reference to Exhibit 4.11 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
4.12 Form of 1996 Placement Agents Registration Rights Agreement,
incorporated by reference to Exhibit 4.12 to the Company's
Registration Statement on Form S-1, filed May 3, 1996, as amended,
Commission File No. 333-4574.
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;
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.
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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;
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;
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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, incorporated by reference to Exhibit 10.3.2 to the
Company's Registration Statement on Form S-1, filed May 3, 1996,
as amended, Commission File No. 333-4574.
10.3.3 Option Agreement by and between Thomas J. Wiens, Ralph Paglieri,
Peter Lukesch and Scott Fischer, incorporated by reference to
Exhibit 10.3.3 to the Company's Registration Statement on Form
S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
10.3.4 Pledge and Hypothecation Agreement by and among Recycling
Industries, Inc., Nevada Recycling Corporation, Ralph Paglieri,
Peter Lukesch and Scott Fischer, incorporated by reference to
Exhibit 10.3.4 to the Company's Registration Statement on Form
S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
10.4 Warrant Solicitation Agreement between First Equity Capital
Securities, Inc. and Recycling Industries, Inc., incorporated by
reference to Exhibit 10.4 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
10.5 Placement Agency Agreement dated February 1, 1995 between First Equity
Capital Securities, Inc. and Recycling Industries, Inc., incorporated
by reference to Exhibit 10.5 to the Company's Registration Statement
on Form S-1, filed May 3, 1996, as amended, Commission File No.
333-4574.
10.6 Placement Agency Agreement dated June 6, 1995 between First Equity
Capital Securities, Inc. and Recycling Industries, Inc., incorporated
by reference to Exhibit 10.6
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<PAGE>
to the Company's Registration Statement on Form S-1, filed May 3,
1996, as amended, Commission File No. 333-4574.
10.7 Placement Agency Agreement dated January 17, 1996 between First Equity
Capital Securities, Inc. and Recycling Industries, Inc., incorporated
by reference to Exhibit 10.7 to the Company's Registration Statement
on Form S-1, filed May 3, 1996, as amended, Commission File No.
333-4574.
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., incorporated by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1, filed May 3, 1996,
as amended, Commission File No. 333-4574.
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, 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
II-10
<PAGE>
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.
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
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<PAGE>
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 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.:
10.12.1 Stock Purchase Agreement Dated July 1, 1996 by and among
Wesley J. Weissman, Walt Weissman, Wayne Weissman, Nancy Sarles,
Recycling Industries of Iowa, Inc., and Recycling Industries,
Inc, incorporated by reference to Exhibit 10.12.1 to the
Company's Registration Statement on Form S-1, filed May 3, 1996,
as amended, Commission File No. 333-4574.
10.12.2 Letter of Intent with Coast Business Credit, incorporated by
reference to Exhibit 10.12.2 to the Company's Registration
Statement on Form S-1, filed May 3, 1996, as amended, Commission
File No. 333-4574.
10.12.3 Letter Agreement dated July 17, 1996, amending Exhibit 10.12.1,
incorporated by reference to Exhibit 10.12.3 to the Company's
Registration Statement on Form S-1, filed May 3, 1996, as
amended, Commission File No. 333-4574.
10.13 Form of Share Repurchase Offer and Agreement, incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
10.14 Form of Series I Warrant Exchange Offer and Agreement, incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
10.15 Amended Form of Share Repurchase Offer and Agreement, incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
10.16 Form of Series J Extension Offer and Modification Agreement,
incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1, filed May 3, 1996, as amended,
Commission File No. 333-4574.
10.17 Loan and Security Agreement dated June 14, 1996 by and among Recycling
Industries, Inc., Nevada Recycling, Inc., Recycling Industries of
Texas, Inc., Recycling Industries of Missouri, Inc. and Coast Business
Credit, incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, filed May 3, 1996, as amended,
Commission File No. 333-4574.
11 Statement Regarding Computation of Per Share Earnings.*
II-12
<PAGE>
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. incorporated by
reference to Exhibit 21.1 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
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.*
- --------------
* Filed herewith
** To be Filed by Amendment
ITEM 16(B) - FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements for the years ended September 30, 1996
and 1995.
ITEM 17 - UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (a) to include any
prospectus required by section 10(a)(3) of the Securities Act; (b) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; (c) to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
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<PAGE>
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
4. 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.
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<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 January 22, 1997.
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.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ THOMAS J. WIENS
- -------------------------- Principal Executive January 22, 1997
Thomas J. Wiens Officer and Director
/s/ MICHAEL I. PRICE
- -------------------------- Director January 22, 1997
Michael I. Price
/s/ BRIAN L. KLEMSZ
- -------------------------- Principal Financial January 22, 1997
Brian L. Klemsz and Accounting
Officer and Director
/s/ JEROME B. MISUKANIS
- -------------------------- Director January 22, 1997
Jerome B. Misukanis
/s/ GRAYDON H. NEHER
- -------------------------- Director January 22, 1997
Graydon H. Neher
- -------------------------- Director January __, 1997
Barry Plost
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION WITH AMENDMENTS
OF
RECYCLING INDUSTRIES, INC.
Pursuant to Section 7-106-102 of the Colorado Business Corporations
Act, the undersigned Corporation adopts the following Articles of Amendment
to its Articles of Incorporation:
FIRST: The name of the Corporation is Recycling Industries, Inc.
SECOND: The text of the amendment determining the designations, preferences,
limitations and relative rights of the Corporation's Series C
Convertible Preferred Stock are contained in the attached Exhibit A.
THIRD: This amendment to the Articles of Incorporation was adopted on
December 30, 1996.
FOURTH: The amendment was duly adopted by the board of directors, and,
pursuant to C.R.S. Section 7-106-102(4), is effective without
shareholder action.
IN WITNESS WHEREOF, the undersigned hereby acknowledges under
penalty of perjury that the execution of this instrument is undersigned's act
and deed, that the undersigned has read these Articles of Amendment and all
attachments thereto and knows the contents thereof and the facts stated
therein are true.
RECYCLING INDUSTRIES, INC.
By: /s/ THOMAS J. WIENS
------------------------------------
Thomas J. Wiens, Chairman and
Chief Executive Officer
<PAGE>
EXHIBIT A
DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES C CONVERTIBLE PREFERRED STOCK
OF
RECYCLING INDUSTRIES, INC.
1. DESIGNATION AND AMOUNT. The distinctive designation of such series is
"Convertible Preferred Stock, Series C" without par value (hereinafter in this
Certificate called the "Series C Preferred Stock") of Recycling Industries,
Inc., a Colorado corporation (the "Company"), and the number of shares
constituting this series shall be 10,000.
2. CONVERSION RIGHTS.
(a) RIGHT TO CONVERT. Each share of Series C Preferred Stock
acquired by any holder may be converted, at the option of the holder thereof, at
any time following April 30, 1997, without the payment of any additional
consideration therefor, into that number of fully paid and nonassessable shares
of Common Stock $.001 par value per share, of the Company (the "Common Stock")
as is determined by dividing (i) the sum of (a) $100 plus (b) the amount of all
accrued dividends per share of Series C Preferred Stock being so converted by
(ii) the Conversion Price (determined as hereinafter provided) in effect at the
time of conversion. The "Conversion Price" shall be equal to the lesser of (i)
110% of the last sale price of the Common Stock on the day preceding the date of
initial issuance of the Series C Preferred Stock or (ii) 73% of the average
closing bid price of a share of Common Stock as reported on the Nasdaq National
Market, or other national or regional securities exchange or automated quotation
system upon which the Common Stock is listed and principally traded or, if the
Common Stock is not listed on any exchange or quoted on the Nasdaq National
Market, the average of the closing bid prices on the Nasdaq SmallCap Market or
any other trading market in which quotes can be obtained) for the five
consecutive trading days immediately preceding the date of the Conversion Notice
(as defined in Section 2(b) hereof).
(b) MECHANICS OF CONVERSION. No fractional shares of Common Stock
shall be issued upon conversion of Series C Preferred Stock. If upon conversion
of shares of Series C Preferred Stock held by a registered holder which are
being converted, such registered holder would, but for the provisions of this
Section 2(b), receive a fraction of a share of Common Stock, then in lieu of the
fractional share, the Company shall pay to the holder cash equal to such
fraction multiplied by the then effective Conversion Price. Before any holder
of Series C Preferred Stock shall be entitled to convert the same into Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Company or of any transfer agent for the
Series C Preferred Stock, and shall give written notice (the "Conversion
Notice") to the Company at such office that the holder elects to convert the
same
-1-
<PAGE>
and shall state therein the holder's name or the name or names of its
nominees in which the holder wishes the certificate or certificates for shares
of Common Stock to be issued. The Company shall, as soon as practicable
thereafter, but in any event within three business days of the date of its
receipt of the Conversion Notice and the original certificate or certificates
representing the shares of Series C Preferred Stock to be converted, issue and
deliver or cause to be issued and delivered to such holder of Series C Preferred
Stock, or to its nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share. Such conversion shall be
deemed to have been made on the date that the Company first receives the
Conversion Notice, by telecopier or otherwise or, in the case of a mandatory
conversion pursuant to Section 2(e) hereof, the second anniversary of original
issuance of the Series C Preferred Stock, and the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date; provided, however, that if the person or persons entitled to receive
the shares of Common Stock issuable upon conversion does not deliver the
original certificate or certificates representing the shares of Series C
Preferred Stock to be converted within three business days after the Company
first receives the Conversion Notice, the person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall not be treated as the
record holder or holders of such shares of Common Stock until three business
days after such person or persons delivers to the Company the original
certificates representing the shares of Series C Preferred Stock. Upon the
conversion of any shares of Series C Preferred Stock, such shares shall be
restored to the status of authorized but unissued shares of Preferred Stock and
may be reissued by the Company at any time.
(c) NOTICES OF RECORD DATE. In the event of (i) any declaration by
the Company of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company, any merger or consolidation of the Company, any transfer of all or
substantially all of the assets of the Company to any other company or any other
entity or person, or any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall mail to each holder of Series C
Preferred Stock at least 20 days prior to the record date specified therein, a
notice specifying (A) the date on which any such record is to be declared for
the purpose of such dividend or distribution and a description of such dividend
or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and (C) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution or winding up.
(d) STOCK DIVIDENDS; STOCK SPLITS; ETC. If the Company shall
(i) take a record of holders of shares of the Common Stock for the purpose of
determining the holders entitled
-2-
<PAGE>
to receive a dividend payable in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, (iii) combine the outstanding shares of
Common Stock into a smaller number of shares or (iv) issue, by
reclassification of the Common Stock, any other securities of the Company,
then, in each such case, the Conversion Price then in effect shall be
adjusted so that upon the conversion of each share of Series C Preferred
Stock then outstanding the number of shares of Common Stock into which such
shares of Series C Preferred Stock are convertible after the happening of any
of the events described in clauses (i) through (iv) above shall be the number
of such shares of Common Stock into which such shares of Series C Preferred
Stock would have been converted if so converted immediately prior to the
happening of such event or any record date with respect thereto.
(e) AUTOMATIC MANDATORY CONVERSION. If not sooner converted, all
outstanding shares of Series C Preferred Stock shall be subject to automatic
mandatory conversion on the second anniversary of the date of original issuance
thereof.
(f) COMMON STOCK RESERVED. The Company shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
all of the then outstanding shares of Series C Preferred Stock.
3. DIVIDEND RIGHTS OF SERIES C PREFERRED STOCK. Subject to the dividend
provisions fixed by the Board for any series of Preferred Stock designated by
the Board in the future, the holders of Series C Preferred Stock shall be
entitled to receive dividends at the rate of eight percent per annum payable in
shares of Common Stock except as otherwise provided in Section 6 below, out of
any assets at the time legally available therefor.
4. VOTING RIGHTS OF SERIES C PREFERRED STOCK. The holders of outstanding
shares of Series C Preferred Stock shall not be entitled to vote on any matters
submitted to the shareholders of the Company except as otherwise required by
law, in which case every holder of Series C Preferred Stock shall be entitled to
one vote for each such share of Series C Preferred Stock held of record on the
applicable record date.
5. PREFERENCE ON LIQUIDATION.
(a) The holders of Series C Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Company to the holders of the Common Stock or to the holders of any other class
of Preferred Stock of the Company by reason of their ownership of such stock,
the amount of (i) $100 per share for each share of Series C Preferred Stock then
held by them, adjusted for any stock split, stock combination, stock
distribution or stock dividend with respect to such shares and (ii) an amount
equal to all declared but unpaid dividends on the Series C Preferred Stock as
provided in Section 3 above.
-3-
<PAGE>
(b) After payment in full to (i) the holders of Series C Preferred
Stock of all amounts exclusively payable on or with respect to said shares
pursuant to Section 5(a) above, and (ii) the holders of any class or series of
Preferred Stock created or issued by the Company after the original issuance of
the Series C Preferred Stock of all amounts exclusively payable on or with
respect to any liquidation preference with respect to such shares of Preferred
Stock, the holders of Common Stock shall be entitled to receive the remaining
assets of the Company available for distribution upon the dissolution,
liquidation or winding up of the Company. If the assets and funds available for
distribution among the holders of the Common Stock and among the holders of the
Series C Preferred Stock or of any other series of Preferred Stock ranking on a
parity with the Common Stock with respect to this Section 5(b) as to the
distribution of assets upon such dissolution, liquidation or winding up shall be
insufficient to permit the payment to such holders of their full liquidation
payments, then the entire remaining assets and funds of the Company legally
available for such distribution shall be distributed ratably among such holders
in proportion to their aggregate preferential amounts.
(c) A consolidation or merger of the Company with or into another
company or entity in a transaction involving the disposition of more than 50% of
the voting power of the Company, or a sale of all or substantially all of the
assets of the Company (a "Sale of the Company") shall be regarded as a
dissolution, liquidation or winding up of the Company within the meaning of this
Section 5. The Company shall not consummate a Sale of the Company before the
expiration of ten days after mailing written notice of the proposed Sale of the
Company to the holders of record of the Series C Preferred Stock.
6. REDEMPTION RIGHTS.
(a) In the event that the Company has issued 2,745,091 or more shares
of Common Stock upon the conversion of shares of Series C Preferred Stock, the
Company shall have the right to redeem the remaining outstanding shares of
Series C Preferred Stock, in whole or in part, at a cash redemption price equal
to the sum of (i) $136.90 per share, and (ii) the amount of all accrued but
unpaid dividends with respect to the shares being redeemed (collectively, the
"Cash Redemption Price"); provided, however, that the Company shall not be
entitled to redeem any shares of Series C Preferred Stock unless it has given
the holder of such shares written notice of such redemption (the "Redemption
Notice") prior to the date that the holder submits a Conversion Notice with
respect to such shares. If the Company delivers a timely Redemption Notice, the
Cash Redemption Price will be paid to the holder of the shares to be redeemed,
by certified or official bank check, within five business days after the date of
the Redemption Notice, upon the surrender of the certificates representing the
Series C Preferred Stock being redeemed; provided that the Company shall not be
required to pay the Cash Redemption Price to a holder until the Company has
received the certificate(s) of the Series C Preferred Stock being redeemed from
the holder.
-4-
<PAGE>
Exhibit 11
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Proforma
Years Ended September 30, Year Ended
------------------------------------------- --------------
1996 1995 1994 Sept. 30, 1996
------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Primary earnings
Net income (loss) ($2,961,000) $1,815,000 ($924,000) ($1,179,000)
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Shares
Weighted average number of
common shares outstanding 10,212,236 5,142,498 2,504,762 10,212,236
Assumed exercise of options
and warrants (as determined by
the application of the treasury
stock method) - 957,196 - -
------------ ---------- ---------- ------------
Weighted average number of common
shares outstanding as adjusted 10,212,236 6,099,694 2,504,762 10,212,236
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Primary earnings per common share
Net income (loss) ($0.29) $0.30 ($0.37) ($0.11)
------------ ---------- ---------- ------------
Fully diluted earnings
Net income (loss) ($2,961,000) $1,815,000 ($924,000) ($1,179,000)
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Shares
Weighted average number of common
shares outstanding as adjusted 10,212,236 6,099,694 2,504,762 10,212,236
Assuming conversion of convertible
preferred stock and convertible debt - 252,121 118,307 -
------------ ---------- ---------- ------------
Weighted average number of common
shares outstanding as adjusted 10,212,236 6,351,815 2,623,069 10,212,236
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Fully diluted earnings per common share
Net income (loss) ($0.29) $0.29 ($0.35) ($0.11)
------------ ---------- ---------- ------------
</TABLE>
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our reports dated:
REPORT DATE: FINANCIAL STATEMENTS OF:
------------ ------------------------
March 22, 1996 Anglo Metal, Inc.
dba Anglo Iron & Metal
April 5, 1996 Mid-America Shredding, Inc.
April 21, 1996 Weissman Iron and Metal,
a Division of Weissman Industries, Inc.
October 18, 1996 NR Holdings, Inc. and Subsidiary
November 3, 1995 Recycling Industries, Inc.
and to the reference made to our firm under the caption "Experts" included in
or made part of this S-1 Registration Statement.
/s/ AJ. ROBBINS, P.C.
----------------------------------
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
January 22, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Recycling Industries, Inc.
Englewood, Colorado
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated December 13, 1996, relating
to the consolidated financial statements of Recycling Industries, Inc. which
is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO Seidman, LLP
Denver, Colorado
January 22, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,450,000
<SECURITIES> 0
<RECEIVABLES> 4,466,000
<ALLOWANCES> 10,000
<INVENTORY> 2,473,000
<CURRENT-ASSETS> 8,771,000
<PP&E> 22,117,000
<DEPRECIATION> 1,625,000
<TOTAL-ASSETS> 34,855,000
<CURRENT-LIABILITIES> 7,174,000
<BONDS> 0
0
0
<COMMON> 13,000
<OTHER-SE> 14,150,000
<TOTAL-LIABILITY-AND-EQUITY> 34,855,000
<SALES> 27,619,000
<TOTAL-REVENUES> 27,623,000
<CGS> 26,590,000
<TOTAL-COSTS> 30,645,000
<OTHER-EXPENSES> 4,055,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 732,000
<INCOME-PRETAX> (3,022,000)
<INCOME-TAX> 9,000
<INCOME-CONTINUING> (3,031,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 70,000
<CHANGES> 0
<NET-INCOME> (2,961,000)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
