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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER. 0-20179
RECYCLING INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
COLORADO
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(State or Other Jurisdiction of Incorporation or Organization)
84-1103445
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(I.R.S. Employer Identification Number)
384 INVERNESS DRIVE SOUTH, SUITE 211
ENGLEWOOD, CO 80112
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(Mailing Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (303) 790-7372
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK,
$.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and, (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K [ ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $16,840,130. This
calculation is based upon the average bid and asked prices of the stock on
December 31, 1996 of $1.47, and the number of shares held by non-affiliates,
which was 11,455,871 shares on December 31, 1996.
The number of shares of the Registrant's $.001 par value common stock that
was outstanding as of December 31, 1996 was 13,911,974.
Documents Incorporated by Reference : None
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TABLE OF CONTENTS
PART I PAGE
Item 1. Business 3
Item 2. Description of Property 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a
Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8. Financial Statements and
Supplementary Data -- Independent
Auditor's Report F1 thru F46
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 20
PART III
Item 10. Directors and Executive Officers of the
Registrant 21
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial
Owners and Management 25
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and 28
Reports on Form 8-K
Signature 35
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PART I
Item 1 - Business
Recycling Industries, Inc. (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. 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 September 30, 1996 the Company had the following wholly-owned
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
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Brownsville, Harlingen, McAllen and San Juan, Texas, serving steel mills and
markets in the Rio Grande Valley in southern Texas and northern Mexico.
RECYCLING INDUSTRIES OF MISSOURI, INC. D/B/A MID-AMERICA SHREDDING, formed by
the Company to acquire the assets of Mid-America Shredding, Inc. in April 1996,
operates a metals recycling facility in Ste. Genevieve, Missouri, serving
midwestern steel mills and markets along the Mississippi River.
WEISSMAN INDUSTRIES, INC. D/B/A WEISSMAN IRON & METAL, acquired by the
Company in August 1996, operates a metals recycling facility in Waterloo, Iowa,
serving midwestern steel mills.
In addition, the Company currently has a minority interest in The Loef
Company, which operates a metals recycling facility in Athens, Georgia,
serving steel mills and markets in the southeastern United States. On
December 3, 1996, Loef filed for chapter 11 bankruptcy, and the Company wrote
off the $277,000 investment in Loef as of September 30, 1996
METALS AND PAPER RECYCLING
The Company, through its wholly-owned subsidiaries, is a fully
integrated metals and, to a lesser extent, paper recycler. In addition, the
Company is actively pursuing additional acquisitions in the metals recycling
industry. Metals recyclers purchase ferrous and non-ferrous scrap metal from a
variety of sources, sort the purchased scrap according to the grade and quality
of the metal, process the scrap by shredding or other methods to reduce and sell
the processed scrap metal ("prepared scrap") to its customers. The metals
recycling industry utilizes established non-patented technology for processing
scrap materials and is not subject to significant seasonal fluctuations.
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
owners of 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 electric arc furnace (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.
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The growth in EAF production has been fueled by the historically low prices
for prepared ferrous scrap, which give EAFs a production cost advantage over
integrated steel producers which operate blast furnaces whose primary raw
materials are coke and iron ore. Recent increases in prepared ferrous scrap
prices have eroded much of the EAFs' production cost advantage. As a result,
many EAF operators are examining alternatives to prepared steel scrap, such as
pre-reduced iron pellets, as a feedstock for EAFs. The Company believes,
however, that such alternatives to prepared ferrous scrap will be used primarily
as a supplemental feedstock to permit EAFs to utilize lower grades of prepared
scrap, and will not significantly reduce demand for prepared ferrous scrap in
the foreseeable future. Industry analysts' reports continue to predict rising
demand for prepared ferrous scrap over the next several years. Because ferrous
scrap represents the largest portion of the metals recycling industry, the
economic conditions of the industry are directly tied to the strength of
domestic steel producers utilizing EAF technology. Accordingly, any decrease in
domestic steel production may have an adverse impact on the demand and price for
prepared ferrous scrap.
Raw ferrous scrap is sourced primarily on a local basis, typically from small
independent salvage operations located near major developed urban areas. These
operations supply raw ferrous scrap to the Company in the form of automobile
bodies, appliances and structural steel. The geographic market for prepared
ferrous scrap is larger, tending to be within a 100 to 150 mile radius of the
metals recycler, but may include shipments to Asian markets via deep water port
facilities located on the west coast of the United States. The primary
limitation on the geographic size of the supply and resale markets in the metals
recycling industry are the transportation costs of raw and processed ferrous
scrap. For this reason, metal scrap processing facilities tend to be located on
or near key rail, interstate highway or water transportation routes.
Although somewhat determined by local factors, the average domestic price for
prepared ferrous scrap has increased significantly in the past several years
from approximately $80 per ton in 1992 to over $140 per ton during 1995. The
current prices for prepared ferrous scrap range from $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
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metal products.
The Paper Recycling Market
The Company's paper recycling operations, currently conducted at its Nevada
and Iowa facilities, 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.
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
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further separated utilizing "eddy current separators." The prepared ferrous
scrap is then sold to the Company's customers. The prepared non-ferrous
scrap is recovered as a mixture of aluminum, zinc die-cast, stainless steel
and copper and sold to the Company's customers who further process and
separate the mixture into constituent metals for resale. The non-metallic
portion of the shredded materials, referred to as shredder fluff, is disposed
of off site. The Company currently operates four heavy duty automotive
shredders with a monthly output capacity of approximately 21,500 tons of
prepared ferrous scrap.
Items which are too large or too heavy to be introduced into the shredder are
reduced by either torching or shearing, utilizing crane-mounted alligator or
stationary guillotine shears, into smaller pieces according to customer
specifications or to a size and weight that may be further processed by
shredding. Generally, non-ferrous items prepared by these methods are sold to
the Company's customers without further processing.
Many non-ferrous metals, such as copper, brass, aluminum, stainless steel,
zinc die-cast, and insulated wire (aluminum and copper), are purchased by the
Company in a form that is not capable of being processed through a shredder.
Each of the Company's facilities processes these items through a variety of
methods, including manual and automatic sorting, shearing, torching, baling,
wire stripping or a combination of these methods. Prepared non-ferrous items
are either sold in their separated form or baled into low-density bales in
accordance with customer specifications.
The Company's paper operations involve the sorting and baling of various
grades of waste paper and removing all off-grade material and foreign matter.
The sorted product is weighed, tagged and sold to domestic paper mills and
foreign paper brokers.
Processed Scrap Sales
The Company sells processed ferrous scrap primarily to regional and local
steel mills operating EAFs, although integrated steel manufacturers utilize some
ferrous scrap in their blast furnace operations. The price for 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
The scrap market is regionally competitive both in the purchase of raw
scrap and the sale of processed scrap. The Company competes for purchases of
raw scrap with numerous independent recyclers as well as with smaller scrap
yards. The Company's primary competition for processed scrap sales to its
customers are other regional or local metals recyclers.
The primary competitive factors in both the purchase and sale of scrap
are price, shipping costs and availability. In addition, the sale of
processed scrap is affected by the reliability of the metals recycler as a
source of supply and the quality of its processed scrap. The Company
believes that its professional management team, quality of processed scrap
and emphasis on customer service enable it to compete favorably in its
markets. In addition, the Company believes that its national growth strategy
will increase its market exposure to large purchasers of processed scrap,
thereby giving it a competitive advantage relative to independent local and
regional metals recyclers.
The Company believes that, because of the economic, environmental and
zoning impediments to establishing a new metals recycling facility, few new
facilities will be constructed in the foreseeable future. In addition, the
Company does not believe that substitutes for processed ferrous scrap, such
as pre-reduced iron pellets, will have a significant impact on the demand for
ferrous scrap in the foreseeable future.
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ACQUISITIONS
The Company's growth is dependent upon future acquisitions in the metals
recycling industry. The first of these acquisitions, the purchase of NRI, was
completed in May 1994 and restructured in December 1994. In June 1995, the
Company acquired a 20% interest in The Loef Company ("Loef") a metals recycler
located in Athens, Georgia. 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.
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 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, 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.
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SOURCE AND AVAILABILITY OF RAW MATERIALS
Raw scrap metal is purchased by the ton from local sources, including
industrial plants, auto wreckers, demolition sites, military bases and
individual collectors. Typically the Company's raw materials are acquired in
the form of industrial waste steel, automobiles, structural steel from
demolition sites, appliances and other goods fabricated from steel and other
metals. The radius of the Company's supply area is approximately 100-150
miles from each facility. The Company operates its own fleet of heavy trucks
which collect most of the purchased scrap materials from industrial sources
and auto wreckers.
Industrial and governmental sources of supply are pursuant to long
term contracts obtained through competitive bidding. Retail sources of supply
are paid spot prices for their obsolete items at the Company's facilities. The
Company employs a full time buyer at each facility to manage existing and secure
new industrial and governmental supply accounts.
The availability of raw materials is dependent upon the local economy,
the level of demolition activity and the ability to secure long-term supply
contracts with local industrial and governmental sources and automobile
wreckers. The Company has established relationships with each of these sources
of supply.
In purchasing raw materials, the Company inspects and rejects items
that are or contain hazardous materials, such as PCB's and automobile batteries,
although there can be no assurance that all hazardous materials contained in the
Company's raw materials will be discovered and rejected upon inspection.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
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
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screening of the feed stream and periodic independent testing of the
Company's facilities, it believes that the shredder fluff produced from its
operations does not contain hazardous materials in excess of allowable limits
and is suitable for disposal in municipal or private landfills. Changes in
the environmental laws or testing methods with respect to shredder fluff,
however, may change the classification and availability of suitable disposal
sites for shredder fluff, resulting in significant additional expense to the
Company. In addition, the premises upon which shredder operations are
conducted may become contaminated by hazardous materials through inadvertent
spillage or improper disposal, although the Company believes that such
contamination is unlikely.
The facilities and equipment of the Company are believed to be in substantial
compliance with the current requirements of all applicable environmental laws
and regulations. There are no capital expenditures planned for new
environmental control equipment, although changes in environmental laws may
require such expenditures in the future. The Company cannot predict the amount
of such expenditures, if any, to comply with future changes in environmental
laws or whether such costs can be passed on to its customers through increases
in the price of processed scrap. Accordingly, there can be no assurance that
such costs will not have a material adverse effect on the Company.
In addition to the costs of compliance, certain environmental laws may result
in liability arising out of the past operations of the Company's facilities,
whether or not such operations were lawful at the time, and create public rights
of action against the Company for environmental contamination. Generally, if
the Company's past or present operations cause environmental damage, the Company
may be subject to fines and may be required to remediate the damage. Such costs
may have a material adverse effect on the Company.
The Company has implemented extensive procedures to ensure compliance with
applicable environmental laws. These procedures include screening all raw scrap
for hazardous materials prior to purchase and acceptance. Any hazardous
materials found in this process, such as automobile batteries, suspected PCB
contaminated 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
-10-
<PAGE>
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.
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.
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.
RECENT DEVELOPMENTS
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.
On September 25, 1996, the Company executed a non-binding letter of intent
for the acquisition of Sunshine Metal Processing, Inc., a metal's recycler
with operations in OpaLocka and Port Everglades, Florida ("Sunshine"). Under
the terms of the letter of intent, the purchase price for the Sunshine assets
is $2,500,000, payable as follows: $750,000 in cash; the assumption of
$1,250,000 of debt; and the issuance of the Company's convertible preferred
stock having a value of $500,000. The acquisition 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, the Company's acquisition of Sunshine is subject to satisfactory
resolution of a lawsuit against Sunshine in which a third party claims to
have a contract to acquire Sunshine's assets.
ITEM 2 - DESCRIPTION OF PROPERTY
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>
Facility Location Facility Materials Processed Monthly
- ------------------------- Size ------------------- Shredding
(acres) 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>
__________
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<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 shut down 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 call for 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 will be
$13.50 per square foot per year.
ITEM 3 - 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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No such matters were required to be submitted to a vote during the fourth
fiscal quarter ended September 30, 1996.
-12-
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 December 31, 1996 was $1.43 per share. As of
September 30, 1996, there were approximately 600 record holders of Common Stock
and, based upon the information available to it, the Company believes there are
approximately 2,000 beneficial owners of its Common Stock.
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.
SALES OF UNREGISTERED SECURITIES DURING THE YEAR ENDED SEPTEMBER 30, 1996.
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.
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. On June 30, 1996, the series holders of
188,050 Series I warrants exchanged their warrants for 148,560 shares of
Common Stock, representing an effective exercise price of $.60 per share.
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.
From January 17, 1996 through January 31, 1996, the Company conducted a
private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 2,000 shares of Common Stock and Series J
warrants to purchase 1,000 shares of Common Stock at an exercise price of
$7.50 per share, at an offering price of $5,500 per unit. Pursuant to this
private placement, the Company sold 1,364,156 shares of Common Stock and
682,079 warrants, including units issued upon the conversion of certain
bridge financing, to 60 accredited investors. In connection with the private
placement, the Company issued to First Equity Capital Securities, Inc. and
certain selected dealers, 65,445 Placement Agent's Warrants, each to acquire
two shares of Common Stock and one Series H Warrant at an exercise price of
$2.75. Each Series H Warrant entitles the holder to acquire one share of
Common Stock at an exercise price of $7.50 per share.
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.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth the Selected Consolidated Financial Data for
the Company for each of the five years ended September 30, 1996, and is based on
the audited Consolidated Financial Statements of the Company and its
subsidiaries. Such data should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto incorporated into, this
report in Item 8 and Management's Discussion and Analysis of Financial Condition
and Results of Operations. Due to a change in the Company's equity percentage
ownership in ERS Somerset from
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<PAGE>
75% to 25% during fiscal year-end 1993 and the resulting change in status in
reporting entity from consolidated basis to cost method, all financial
statements, prior to 1993 have been restated. The earnings per share numbers
set forth below have been adjusted to reflect the Company's one-for-five reverse
stock split effective June 27, 1995.
<TABLE>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
PRO FORMA(2) PRO FORMA(2)
------------ ------------
1992(1) 1993(1) 1994(1) 1995(3) 1995 1996(3) 1996
------- ------- --------- --------- ---------- -------- -------
(Amounts in 000's except per share, shipments and average stock price amounts)
<S> <C> <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>
- ------------
(1) Prior to May 1994, the Company was engaged in the development of the MSW
Technology. For comparative purposes, financial data prior to 1994
reflects the Company's efforts to develop such technology. The Company's
current operations commenced in May 1994 with the acquisition of NRI. The
financial information for fiscal 1994 reflects five months of operating
results of NRI. The financial information for fiscal 1995 reflects 12
months of operating results of NRI and reflects the efforts of the Company
to acquire other metals recycling facilities.
(2) The pro-forma data gives effect to the acquisitions of Anglo Iron & Metal
(December 1995), Mid-America Shredding (April 1996) and Weissman (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.
(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.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included elsewhere
herein.
OVERVIEW
The Company is a full-service metals recycler primarily engaged in the
collection and processing of various ferrous and non-ferrous metals for
resale to domestic and foreign steel producers and other metal producers and
processors. Prior to May 1994, the Company was a development stage
enterprise engaged in the development of the 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. 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
results. 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.
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.
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.
-15-
<PAGE>
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 cost of sales for the year ended September 30, 1995
was due to the full year of operations of the Nevada facility compared to the
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
caused 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 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 totaling 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.
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 of
additional facilities. The significant increase in profit in 1995 is the
result of the Company's acquisition of its Nevada facility in May 1994.
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<PAGE>
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.
-17-
<PAGE>
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 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 be 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 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 ten
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.
-18-
<PAGE>
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 and assumed 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 a public offering of its Common
Stock, receiving net proceeds, after deducting underwriting discounts and
offering expenses of $14.0 million (the "Public Offering"). 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 were 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) $5.8 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 $1.2 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
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 ecomonic slowdown would negatively impact the
operations and financial performance of the Company.
-19-
<PAGE>
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.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the information set forth on pages F-1 through F-46.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
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
-20-
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the officers and directors of the Company, their
age and their respective positions and titles.
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.
-21-
<PAGE>
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.
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 from July 1993 to
October 1996. 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.
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.
CHARLES N. RUTH. Mr. Ruth, age 66, has served as Plant Engineer for the
Company's Nevada facility since January 1996. Prior to joining the Company,
Mr. Ruth was Plant Engineer at Joseph Smith & Sons, Inc., from prior to 1991
to 1996. Mr. Ruth has over 20 years of experience in the metals recycling
business, including engineering management at Luria Brothers Co., Inc. and
Vulcan Materials Company. Mr. Ruth received a BS in Mechanical Engineering
from Texas Tech University and is a registered professional mechanical
engineer.
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.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires the officers and
directors of RII and persons who own more than ten percent of a registered class
of the Company's securities (collectively, Reporting Persons), to file reports
of ownership and changes in ownership on Forms 3, 4, and with the Securities and
Exchange Commission (SEC). Reporting Persons are required by SEC regulation to
furnish RII with copies of all Forms 3, 4, and 5 filed.
Based solely upon a review of the copies of such forms it has received
and representations from the Reporting Persons; RII believes all Reporting
Persons have compiled with the applicable filing requirements, except that
the Form 3 for an event occurring on August 26, 1996 concerning the
appointment of Brian L. Klemsz as chief financial officer and a director
which was inadvertently filed late on September 11, 1996.
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<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid to the
current executive officers listed in Item 10 above for each of the last three
fiscal years.
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.
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<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>
Stock Performance Graph
The following graph compares the cumulative total return of the Company's
Common Stock during the four year period for which the Company's Common Stock
has been publicly traded beginning September 30, 1992 and ending September 30,
1996, with the NASDAQ CRSP Index for US Companies (the "NASDAQ CRSP") and
a peer group of other public companies that are in similar businesses as the
Company (the "Recycling Industry Peer Group"). Each index assumes the
investment of $100 at the close of trading on September 30, 1992 and the
investment of dividends.
Measurement RECY NASDAQ CRSP Recycling Industry
Period (Fiscal Year Peer Group
Covered)
1992 100.00 100.00 100.00
1993 25.00 130.98 111.64
1994 28.57 132.05 98.44
1995 22.17 182.39 123.20
1996 15.71 216.44 116.23
The Company's 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."
Historically the majority of the Company's shares have been held by
management. The number of unrestricted shares of Common Stock has historically
been relatively low in relation to the total number of shares issued and,
therefore, trading in the Common Stock has been limited. As a result, the
Company believes the historical market quotations for the Common Stock are
not a reliable indicator of value.
-24-
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996, the Company had only one class of outstanding
voting securities, its Common Stock, $.001 par value. The following table sets
forth information as of December 31, 1996, with respect to the beneficial
ownership of the Common Stock for all persons who own more than five percent of
the Common Stock. The following shareholders have sole voting and investment
power with respect to the shares, unless it has been indicated otherwise:
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------ -------------- ------------------
Stanley Becker 694,536(1) 4.9%
55 East End Avenue, #7A
New York, New York 10028
Caside Associates 841,990(2) 6.0%
373 North Main St.
Fall River, MA 02720
CERTAIN DIRECTORS AND
EXECUTIVE OFFICERS (3)
Thomas J. Wiens 2,284,103(4) 16.6%
Michael I. Price 154,000(5) 1.1%
Jerome B. Misukanis 18,000(6) .1%
Graydon H. Neher 28,000(7) .2%
Barry D. Plost 14,000(8) .1%
Directors and Executive
Officers as a group 2,498,103 17.9%
- ------------
(1) Includes 297,659 shares underlying common stock purchase warrants.
(2) 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.
(3) The business address of all directors and executive officers is 384
Inverness Drive South, Suite 211, Englewood, Colorado 80112.
(4) 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.
(5) Includes 150,000 shares underlying options.
(6) Includes 12,000 shares underlying options.
(7) Includes 12,000 shares underlying common stock purchase warrants.
(8) Includes 6,000 shares underlying common stock purchase warrants.
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<PAGE>
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
At September 30, 1994 Thomas J. Wiens, Chairman and CEO of the Company
agreed to convert $246,000 of accrued salary to an equity security. On
January 25, 1995, the equity security took the form of the Wiens' Right,
discussed below.
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<PAGE>
At September 30, 1994, Michael I. Price, Chief Operating Officer of the
Company had accrued salary of approximately $112,000 and a stock option
exercisable upon the satisfaction of certain performance conditions.
THE WIENS' RIGHT
On January 25, 1995, in connection with the purchase of technology
related to the Company for $750,000 and in exchange for the return to the
Company of 291,333 Series B Shares owned by FDH and the forgiveness of $750,000
of accrued salary, royalties and other amounts due from the Company to Thomas
J. Wiens ("Wiens") and FDH, the Company conditionally granted to Wiens the
right to acquire a number of shares of Common Stock valued at $1,187,500
computed at a price equal to 50% of the fair market value of the Common Stock
on the day the Company filed a report on Form 10-Q or Form 10-K with the
Securities and Exchange Commission reporting year-to-date gross revenues in
excess of certain amounts (the "Determination Date"), but not more than $.90
per share. The Wiens' Right grant was conditioned upon the occurrence of the
final closing of the February Private Placement which occurred on April 17,
1995.
The Wiens' Right was granted as a means by which the Company could
acquire certain patented technology, satisfy certain amounts due to Mr. Wiens
and to provide an incentive to Mr. Wiens to improve the financial performance
of the Company. On January 25, 1995, the date on which the Wiens' Right was
granted, the market price based on the closing bid of the Company's common
stock was $2.65 and the Company was conducting a private placement of its
securities in which the Common Stock was being sold to unaffiliated persons at
an effective price of $.90 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 acquired 1,319,445 shares of Common Stock at an
acquisition price of $.90 per share.
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<PAGE>
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements:
Reports' of Independent Accountants
Consolidated Balance Sheets as of September 30, 1996 and 1995.
Consolidated Statements of Operations for the years ended September 30,
1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended September 30,
1996, 1995 and 1994.
Summary of Accounting Policies
Notes to Consolidated Financial Statements
Exhibits:
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.
3.2 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.
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.
10.1 Agreements Related to the Acquisition of Nevada Recycling, Inc.:
10.1.1 Bill of Sale and Assumption Agreement dated April 30, 1994
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;
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<PAGE>
10.1.3 Stock Exchange Agreement dated May 10, 1994 between Recycling
Industries, Inc. and Nevada Recycling Corporation, incorporated
by reference to Exhibit (d)(3) to the Company's Current Report on
Form 8-K filed May 12, 1994, reporting an event of May 10, 1994,
Commission file No. 0-20179; and
10.1.4 Sale and Security Agreement dated May 10, 1994 by and among
Recycling Industries, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (d)(4) to the Company's
Current Report on Form 8-K filed May 12, 1994, reporting an event
of May 10, 1994, Commission file No. 0-20179.
10.2 Agreements related to the Restructuring of the Acquisition of Nevada
Recycling, Inc.:
10.2.1 Termination, Restructuring and Purchase Agreement, effective
December 30, 1994, between Recycling Industries, Inc., NR
Holdings, Inc., Nevada Recycling, Inc. and Nevada Recycling
Corporation, incorporated by reference to Exhibit (c)(2) to the
Company's Current Report on Form 8-K reporting an event of
December 30, 1994, as amended April 3, 1995 on Form 8-K/A, as
further amended May 1, 1995 on Form 8-K/A-2 and as further
amended June 5, 1995 on Form 8-K/A-3, Commission File No.
0-20179;
10.2.2 Purchase Agreement, dated December 30, 1994, between NR Holdings,
Inc. and Nevada Recycling Corporation, incorporated by reference
to Exhibit (c)(3) to the Company's Current Report on Form 8-K
reporting an event of December 30, 1994, as amended April 3, 1995
on Form 8-K/A, as further amended May 1, 1995 on Form 8-K/A-2 and
as further amended June 5, 1995 on Form 8-K/A-3, Commission File
No. 0-20179;
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;
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<PAGE>
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;
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.
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
10.11 Agreements Related to the Acquisition of Mid-America Shredding, Inc.:
10.11.1 Asset Purchase Agreement dated February 16, 1996 by and among
Recycling Industries of Missouri, Inc., Recycling Industries,
Inc., Mid-America Shredding, Inc. and Linda Lawton incorporated
by reference to Exhibit 10.1 to the Company's current report on
Form 8-K reporting an event of April 15, 1996, Commission File
No. 0-20179.
10.11.2 Assumption Without Release and Modification Agreement, dated
April 15, 1996, by and among Mid-America Shredding, Inc.,
Recycling Industries of Missouri, Inc., Recycling Industries,
Inc., Linda F. Lawton, Personal Representative of the Estate of
Robert L. Lawton, Deceased and Linda Lawton incorporated by
reference to Exhibit 10.2 to the Company's current report on Form
8-K reporting an event of April 15, 1996, Commission File No.
0-20179.
10.11.3 Security Agreement, dated April 15, 1996, between Recycling
Industries of Missouri, Inc. and Southwest Bank of St. Louis
incorporated by reference to Exhibit 10.3 to the Company's
current report on Form 8-K reporting an event of April 15, 1996,
Commission File No. 0-20179.
10.11.4 Continuing Unlimited Guaranty Agreement dated April 15, 1996,
between Recycling Industries, Inc. and Southwest Bank of St.
Louis incorporated by reference to Exhibit 10.4 to the Company's
current report on Form 8-K reporting an event of April 15, 1996,
Commission File No. 0-20179.
10.11.5 Loan Agreement dated April 8, 1992, between Mid-America
Shredding, Inc. and Southwest Bank of St. Louis incorporated by
reference to Exhibit 10.5 to the Company's current report on Form
8-K reporting an event of April 15, 1996, Commission File No.
0-20179.
10.11.6 Promissory Note dated February 8, 1996, between Mid-America
Shredding, Inc. and Southwest Bank, Inc. incorporated by
reference to Exhibit 10.6 to the Company's current report 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.
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<PAGE>
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.
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.
27 Financial Data Schedule.*
- --------------
* Filed herewith
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<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RECYCLING INDUSTRIES, INC.
Date: January 14, 1997 By: /s/ Thomas J. Wiens
-----------------------------------------
Thomas J. Wiens, Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the following persons on behalf of the registrant and on the capacities and
on the dates indicated.
Date: January 14, 1997 By: /s/ Thomas J. Wiens
-----------------------------------------
Thomas J. Wiens, Principal Executive
Officer, Director
Date: January 14, 1997 By: /s/ Brian L. Klemsz
-----------------------------------------
Brian L. Klemsz, Principal Financial
Officer, Director
Date: January 14, 1997 By: /s/ Michael I. Price
-----------------------------------------
Michael I. Price, Director
Date: January 14, 1997 By: /s/ Jerome B. Misukanis
-----------------------------------------
Jerome B. Misukanis, Director
Date: January 14, 1997 By: /s/ Graydon H. Neher
-----------------------------------------
Graydon H. Neher, Director
Date: January __, 1997 By:
-----------------------------------------
Barry L. Plost, Director
-35-
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONTENTS
Report of Independent Certified Public Accountants F- 2
Report of Independent Certified Public Accountants F- 3
Report of Independent Certified Public Accountants F- 4
Financial Statements:
Consolidated Balance Sheets F- 5 - F- 7
Consolidated Statements of Operations F- 8 - F- 9
Consolidated Statement of Stockholders' Equity F-10 - F-11
Consolidated Statements of Cash Flows F-12 - F-13
Summary of Accounting Policies F-14 - F-18
Notes to Consolidated Financial Statements F-19 - F-46
F-1
<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-2
<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.
/s/ AJ. Robbins, PC.
DENVER, COLORADO
OCTOBER 18, 1996
F-3
<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-4
<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-5
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<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-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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 $13,968,000.
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-42
<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-43
<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-44
<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-45
<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-46
<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
1,500,000
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> 3,323,000
<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>
