<PAGE>
As filed with the Securities and Exchange Commission on June 20, 1997
Registration No. 333-20289
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
RECYCLING INDUSTRIES, INC.
(Exact name of Registrant specified in charter)
COLORADO 5093
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
384 INVERNESS DRIVE SOUTH
SUITE 211
ENGLEWOOD, COLORADO 80112
84-1103445 (303) 790-7372
(I.R.S. Employer Identification No.) (Address, including zip code, and
telephone number, including area code, of
Registrant's principal executive offices)
THOMAS J. WIENS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
384 INVERNESS DRIVE SOUTH, SUITE 211
ENGLEWOOD, COLORADO 80112
(303) 790-7372
(Name, address and telephone number, including area code,
of agent for service)
Copies of communication, including all communication sent to the agent for
service, should be sent to:
RAYMOND L. FRIEDLOB, ESQ.
GERALD RASKIN, ESQ.
JOHN W. KELLOGG, ESQ.
FRIEDLOB SANDERSON RASKIN PAULSON & TOURTILLOTT, LLC
1400 GLENARM PLACE, SUITE 300
DENVER, COLORADO 80202
(303) 571-1400
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
February 27, 1997
--------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: /X/
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Amount to be offering price aggregate offering Amount of
Title of each class of securities to be registered registered per share (1) price (1) registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 5,734,479 $2.75 $15,769,817 $ 4,779
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Convertible Preferred Stock (2) 632,411 1.75 $ 1,106,719 335
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Series G Warrants (2) 2,136,878 (3) $13,814,707 $ 4,186
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Series H Warrants (2) 283,333 $6.50 $ 1,841,665 $ 558
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Series I Warrants (2) 171,200 $ .30 $ 51,360 $ 16
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Series J Warrants (2) 727,083 (4) $ 4,624,377 $ 1,401
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Placement Agent's Warrants (2) 139,890 $2.75 $ 384,698 $ 117
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Other Options and Warrants (2) 364,267 (5) $ 1,978,801 $ 600
- ------------------------------------------------------------------------------------------------------------------------------------
Total $39,572,144 $11,992(6)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Plus such indeterminable number of shares of Common Stock as may be
issuable by reason of the anti-dilution provisions of such warrants,
options, or convertible preferred stock.
(3) Represents shares underlying 2,106,878 warrants each to acquire one
share of Common Stock for $6.50 and 30,000 warrants each to acquire
one share of Common Stock for $4.00 per share.
(4) Represents shares underlying 686,418 warrants each to acquire one
share of common stock for $6.50 and 40,665 warrants each to acquire
one share of common stock for $4.00.
(5) Represents shares underlying: (i) 180,000 warrants each to purchase
one share of Common Stock for $7.50; (ii) 53,600 warrants each to
purchase one share of Common Stock for $5.00; (iii) 26,667 warrants
each to purchase one share of Common Stock for $3.75; (iv) 20,000
warrants each to purchase one share of Common Stock for $1.25; (v)
60,000 options, each to purchase one share of common stock for $2.50;
(vi) 12,000 options, each to purchase one share of common stock for
$6.25; and (vii) 12,000 options, each to purchase one share of common
stock for $.90.
(6) Pursuant to Rule 429(b), 9,537,130 shares of Common Stock, including
shares underlying warrants and options, and the applicable filing
fee of $11,641 are being carried forward from the Registrant's
Registration Statement on Form S-1, Commission File No. 333-16019.
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
--------------------
THIS REGISTRATION STATEMENT CONSTITUTES POST-EFFECTIVE AMENDMENT NO.2 TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1, COMMISSION FILE NO. 333-16019.
ii
<PAGE>
RECYCLING INDUSTRIES, INC.
Cross Reference Sheet pursuant to Item 501 of Regulation S-K showing the
location in the Prospectus of information required by Items 1 through 12, Part I
of Form S-1.
Form S-1
Item Number Information Required Location in Prospectus
- - ----------- -------------------- ----------------------
1 Forepart of the Registration Facing Page of Registration
Statement and Outside Front Statement; Outside Front Page of
Cover Page of Prospectus Prospectus
2 Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3 Summary Information, Risk Prospectus Summary; Risk Factors;
Factors and Ratio of Earnings Prospectus Summary - Summary
to Fixed Charges Financial Information
4 Use of Proceeds Prospectus Summary; Use of
Proceeds
5 Determination of Offering Price Not Applicable
6 Dilution Not Applicable
7 Selling Securityholders Selling Securityholders
8 Plan of Distribution Cover Page; Plan of Distribution
9 Description of Securities to Prospectus Summary; Description
be Registered of Capital Stock
10 Interests of Named Experts Not Applicable
and Counsel
11 Information with Respect to Business - Industry Overview,
the Registrant Strategy, Operations,
Transportation, Competition,
Employees, Properties, Legal
Proceedings, Environmental
Matters, Recent Developments;
Price Range of the Common Stock;
Dividend Policy; Selected
Financial Information;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Management - Executive Officers
and Directors, Executive
Compensation, Principal
Shareholders; Certain
Transactions.
12 Disclosure of Commission Disclosure of Commission Position
Position on Indemnification on Indemnification for Securities
for Securities Act Liabilities Act Liabilities
iii
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
iv
<PAGE>
PROSPECTUS
RECYCLING INDUSTRIES, INC.
10,189,541 SHARES OF COMMON STOCK, INCLUDING
632,411 SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND
3,662,651 SHARES UNDERLYING COMMON STOCK PURCHASE WARRANTS AND OPTIONS
This Prospectus relates to the offer and sale of 10,189,541 shares (the
"Shares") of common stock, $.001 par value (the "Common Stock"), of Recycling
Industries, Inc., a Colorado corporation (the "Company"), being offered by
certain selling securityholders (the "Selling Securityholders"). The Shares
include 632,411 shares issuable upon conversion of the Company's Series C
Convertible Preferred Stock (the "Series C Preferred") and 3,662,651 shares
of Common Stock issuable upon exercise of certain outstanding common stock
purchase warrants and options (the "Warrants"). The Shares are being
registered pursuant to registration rights previously granted to the Selling
Securityholders. None of the Series C Preferred or Warrants are being
registered.
The 5,889,479 Shares that are not underlying the Series C Preferred or
Warrants were issued pursuant to the exercise of outstanding options,
warrants or stock acquisition rights, or were issued to various persons in
private placements of the Company's securities.
The Company has 10,000 Series C Preferred outstanding. Each Series C
Preferred is convertible, without further payment, into the number of shares
of Common Stock determined by dividing (i) the sum of (a) $100 plus (b) the
amount of all accrued dividends on the Series C Preferred by (ii) the lesser
of $1.58125 (the current conversion price) or 73% of the average reported
closing bid price of a share of Common Stock for the five consecutive trading
days immediately preceding the date of conversion.
The Warrants are comprised of: (i) 2,106,878 Series G Warrants, each
entitling the holder to purchase one share of Common Stock for $6.00,
exercisable until December 27, 1999, (ii) 30,000 Series G Warrants, each
entitling the holder to purchase one share of Common Stock for $4.00,
exercisable until December 27, 1999; (iii) 213,388 Series H Warrants, each
entitling the holder to purchase one share of Common Stock for $6.00,
exercisable until July 17, 1999; (iv) 69,945 Series H Warrants, each
entitling the holder to purchase one share of Common Stock for $6.00,
exercisable for three years after the exercise of the Placement Agent's
Warrants; (v) 51,200 Series I Warrants, each entitling the holder to purchase
one share of Common Stock for $.15, exercisable until December 27, 1999 ;
(vi) 686,418 Series J Warrants, each entitling the holder to purchase one
share of Common Stock for $6.00, exercisable until December 27, 1999; (vii)
40,665 Series J Warrants, each entitling the holder to purchase one Share of
Common Stock for $4.00, exercisable until December 27, 1999; (viii) 65,445
Placement Agent's Warrants, each entitling the holder to purchase two shares
of Common Stock and one Series H Warrant for $2.75, exercisable until January
31, 1999; (ix) 4,500 Placement Agent's Warrants, each entitling the holder to
purchase two shares of Common Stock and one Series H Warrant for $2.75,
exercisable until April 8, 1999; (x) 180,000 Caside Warrants, each entitling
the holder to purchase one share of Common Stock for $7.50, exercisable until
January 5, 1998; (xi) 53,600 Ally Capital warrants, each entitling the holder
to acquire one share of Common Stock for $5.00, exercisable until November 3,
1999; (xii) 26,667 Coast Warrants, each entitling the holder to purchase one
share of Common Stock for $3.75, exercisable until August 4, 2001;
(xiii) 20,000 Nevada Recycling Warrants, each entitling the holder to purchase
one share of Common Stock for $1.25, exercisable until January 4, 2004; (xiv)
20,000 Settondown Warrants, each entitling the holder to purchase one share
of common stock for $2.50, exercisable until December 31, 1998; (xv) 40,000
options, each entitling the holder to purchase one share of common stock at
$2.50 per share; (xvi) 12,000 options, each entitling the holder to purchase
one share of common stock at an exercise price of $6.25; and (xvii) 12,000
options, each entitling the holder to purchase one share of common stock at
an exercise price of $.90 per share.
This Prospectus may be used by the Selling Securityholders to sell the
Shares and for the resale of the Shares received upon exercise of the
Warrants. The Company will not receive any of the proceeds from the sale of
the Shares by the Selling Securityholders. The Company will, however,
receive the net proceeds from any exercise of the Warrants, as described
under "Use of Proceeds." See "Selling Securityholders."
THE DISTRIBUTION
----------------
The distribution of the Shares by the Selling Securityholders may be
effected from time to time in one or more transactions (which may involve
block transactions) on the NASDAQ National Market or on any other exchange on
which the Common Stock may be traded, may be effected from time to time in
one or more transactions in the over-the-counter market, in
privately-negotiated transactions, or a combination of such methods of sale.
Such sales will be made at the market prices prevailing at the time of sale,
at prices relating to such prevailing market prices or at negotiated prices.
The Selling Securityholders may effect such transactions by selling the
Shares to or through broker/dealers who may receive compensation in the form
of underwriting discounts, concessions or commissions
1
<PAGE>
from the Selling Securityholders or the purchasers of the Shares for whom the
broker/dealer acts as agent. Such compensation may be less than or in excess
of customary commissions. The Selling Securityholders and any broker/dealers
who participate in the distribution of the Shares may be deemed to be
underwriters, and any compensation received by them, including any profit on
their resale of such Shares, may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended (the "Securities
Act"). Certain of the Selling Securityholders are market makers in the Common
Stock.
Substantially all of the Selling Securityholders are subject to lock-up
agreements with the Company that limit the number of Shares that may be sold
by them during a given period of time. See "Plan of Distribution."
The Common Stock is listed on the NASDAQ National Market. On June 16,
1997, the closing price of the Common Stock on the NASDAQ National Market was
$1.75 per share.
Pursuant to agreements between the Company and the Selling
Securityholders, the Company has agreed to pay the expenses incurred in
connection with the registration of the Shares and the Company and certain of
the Selling Securityholders have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
--------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is June 20, 1997
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, NW, Room 1024, Washington, D.C. 20549; at the Commission's New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048;
and at the Commission's Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street,
NW, Washington, D.C. 20549, at prescribed rates. In addition, the Company
files its reports, proxy statements and certain other information with the
Commission electronically through the EDGAR System. Information filed via
EDGAR may be obtained at the Web site maintained by the Commission at
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Common Stock offered
hereby of which this Prospectus constitutes a part. This Prospectus does not
contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock, reference is hereby made to such
Registration Statement, exhibits and schedules. Any statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, each such statement being qualified in all
respects by such reference.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Recycling Industries, Inc. is a full-service metals recycler primarily
engaged in the collection and processing of various ferrous and non-ferrous
metals for resale to domestic and foreign steel producers and other metals
producers and processors. The Company operates eight metals recycling
facilities in Las Vegas, Nevada ("NRI"); Brownsville, Harlingen, McAllen and San
Juan, Texas ("Anglo Iron & Metal"); Ste. Genevieve, Missouri ("Mid-America
Shredding"); Waterloo, Iowa ("Weissman Iron & Metal"); and Metter, Georgia
("Addlestone Recycling 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. The revenues for the six
months ended March 31, 1997 have increased to $ 23.5 million from
$ 10.8 million for the six months ended March 31, 1996. Over the same
period, the Company's metals shredding capacity increased over 34% and its
total metals processing capacity increased over 46%.
The largest portion of the Company's operations involves the collection,
processing and sale of ferrous scrap, the primary raw material for mini-mill
steel producers who utilize electric arc furnace ("EAF") technology. The
increase in domestic EAF production from 14.9 million net tons (11.0% of total
domestic steel production) in 1966 to 40.6 million net tons (39.4% of total
domestic steel production) in 1995 has resulted in strong demand and prices for
processed ferrous scrap. According to industry reports, the anticipated
continuing increase in EAF production to an estimated 50.0 million net tons by
the year 2000 may cause ferrous scrap shortages, resulting in further increases
in processed ferrous scrap prices.
The Company is also engaged in the processing of non-ferrous materials such
as copper, aluminum and brass, which are sold to secondary smelters and other
non-ferrous metals processors. The Company's non-ferrous operations complement
its ferrous operations, as most unprocessed scrap contains ferrous and non-
ferrous components which require separation in preparation for resale. The
lower cost of producing non-ferrous metals from scrap relative to the cost of
primary smelting has resulted in strong demand for processed non-ferrous scrap.
The Company's objective is to become one of the largest metals recyclers in
North America through targeted acquisitions of independent metals recyclers.
The Company seeks to capitalize on the opportunity presented by the growing
demand for processed ferrous scrap, the expanding markets created by the rapid
proliferation of new EAF operations and the availability of metals recycling
facilities. By pursuing a consolidation strategy within the metals recycling
industry, the Company believes that it can significantly enhance the competitive
position and profitability of the operations that it acquires through improved
managerial and financial resources. The Company also believes that geographic
diversity will reduce its vulnerability to the dynamics of any particular local
or regional market. Furthermore, as EAF capacity and demand for processed
ferrous scrap continue to increase, the Company believes that multi-regional and
national EAF operators such as Nucor Corporation, Birmingham Steel Corporation
and North Star Steel Co. will increasingly rely on suppliers who can provide a
dependable quantity and quality of processed scrap as well as a high degree of
service. The Company believes that it is the only metals recycler pursuing a
consolidation strategy on a national basis and therefore will be in an ideal
position to become a preferred supplier to major EAF operators.
The Company estimates that the total revenues generated in the metals
recycling markets in 1995 were approximately $19.1 billion, comprised of $8.9
billion attributable to ferrous metals and $10.2 billion attributable to non-
ferrous metals. The Company believes that there are over 3,000 independent
metals recyclers in North
4
<PAGE>
America. Based upon reports published by the Institute for Scrap Recycling
Industries ("ISRI"), approximately 200 of these independent metals recyclers
operate heavy-duty automotive shredders, which constitute the primary
equipment used in processing large volumes of ferrous and non-ferrous scrap
for sale to steel and other metals producers. Because of the highly
fragmented nature of the industry, the Company believes that no single metals
recycler has a significant share of the national processed scrap market,
although certain recyclers may have a dominant share of their local or
regional market. Similar to the ongoing consolidation within the municipal
solid waste industry, the metals recycling industry has recently begun to
experience local market consolidation due to: (i) increasing capital
requirements caused by more stringent environmental and governmental
regulations, and (ii) the exit of aging independent recyclers who desire to
sell closely-held businesses in the absence of a successor owner or operator.
In implementing its acquisition strategy, the Company seeks to identify
potential acquisition targets with:
- dominant or strategic positions in local or regional markets;
- excess or underutilized capacity;
- the ability to supply an existing or planned metals production
facility, such as an EAF;
- access to rail, water or interstate highway transportation systems;
and
- either operational shredding equipment, the ability to supply the
Company's existing shredding equipment or adequate facilities to
permit the installation of such equipment.
By continuing to acquire facilities that meet these criteria, the Company
believes it can achieve rapid growth and expansion of its customer base.
An essential component of the Company's acquisition strategy is improving
the operating efficiency, output and capacity of each acquired facility by
targeting three phases of the Company's operations: (i) the purchase of raw
scrap; (ii) the processing of raw scrap into saleable product; and (iii) the
sale of processed scrap. Each acquired facility is integrated into the
Company's operations through a comprehensive program that targets these
operating phases through the installation of management and financial reporting
systems, the implementation of expanded purchasing and marketing programs, the
centralization of operating functions to achieve economies of scale, selective
reductions in personnel and improved inventory and other financial controls.
Where necessary, the Company implements a capital improvements program to repair
or replace outdated and inefficient equipment and to improve the facility's
scrap processing operations and processed scrap output.
Of the Company's revenues for the six months ended March 31, 1997,
approximately 62% was attributable to sales of ferrous scrap, 24% was
attributable to sales of non-ferrous scrap, and the balance was primarily
attributable to paper and plastic recycling, retail finished steel sales
and brokerage sales conducted at certain of the Company's facilities.
The Company's executive offices are located at 384 Inverness Drive South,
Suite 211, Englewood, Colorado 80112, and its telephone number is 303-790-7372.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding before the Offering ...... 13,944,429 shares (1)(2)
Common Stock Offered by the Selling
Securityholders ................................. 10,189,541 shares (3)
Common Stock Outstanding if all Series C Preferred
are converted and all Warrants are exercised .... 18,379,491 shares (4)
Use of Proceeds ................................... The net proceeds from the exercise of the Warrants, if
any, will be used to complete future acquisitions and
for working capital purposes. See "Use of Proceeds."
NASDAQ National Market Symbol ..................... RECY
</TABLE>
- - ----------
(1) Does not include Common Stock reserved for issuance as follows: (i)
632,411 shares issuable upon conversion of the Series C Preferred; (ii)
4,119,584 shares issuable upon exercise of currently outstanding warrants;
(iii) 978,996 shares issuable upon exercise of currently outstanding
options; and (iv) shares reserved for additional options to be granted
under the Company's stock option plans. See "Description of Capital Stock"
and "Shares Eligible for Future Sale."
(2) Includes 363,636 shares of Common Stock issued in connection with the
acquisition of Weissman and 30,000 shares issued from March 31, 1997
to June 20, 1997 for the exercise of the Company's Series I Warrants.
(3) Includes 632,411 shares issuable upon conversion of the Series C Preferred
and 3,697,651 shares issuable upon exercise of Common Stock Purchase
Warrants and Options.
(4) The Company is not aware of any arrangements for the conversion of the
Series C Preferred or the exercise of the Warrants and there is no
assurance that all or any of the outstanding Series C Preferred will
be converted or Warrants will be exercised.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following information presents, for the periods and dates indicated,
summary consolidated financial information of the Company. This information
should be read in conjunction with "Selected Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's historical and pro forma financial statements and
notes thereto included elsewhere herein.
<TABLE>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
PRO FORMA(2) PRO FORMA(2)
------------ ------------
1992(1) 1993(1) 1994(1) 1995(3) 1995 1996(3) 1996
------- ------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues.......................... $ -0- $ -0- $ 4,831 $ 13,853 $ 69,781 $ 27,623 $ 75,061
Cost of Sales..................... -0- -0- 4,110 10,869 54,381 25,654 61,096
Cost of Brokerage................. -0- -0- -0- -0- 3,075 936 4,310
------- ------- --------- --------- ---------- -------- ---------
Gross Profit.................... -0- -0- 721 2,984 12,325 1,033 9,655
Selling and administrative
expenses........................ 2,951 2,335 1,660 2,279 5,638 3,323 6,401
Loss from joint ventures and
equity investee.............. 462 467 -0- -0- -0- -0- -0-
------- ------- --------- --------- ---------- -------- ---------
Income (loss) from operations..... (3,413) (2,802) (939) 705 6,687 (2,290) 3,254
Interest expense................ (114) (156) (203) (407) (1,528) (732) (2,685)
------- ------- --------- --------- ---------- -------- ---------
Income (loss) before income
taxes......................... (3,527) (2,958) (1,142) 298 5,159 (3,022) 569
Income tax provision (benefit).. -0- -0- -0- (711) (338) 9 9
------- ------- --------- --------- ---------- -------- ---------
Income (loss) from continuing
operations, net of income
taxes........................... $(3,527) $(2,958) $ (1,142) $ 1,009 $ 5,497 $ (3,031) $ 560
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Income (loss) per share from
continuing operations, net
of income taxes................. $ (1.73) $ (1.24) $ (0.46) $ 0.17 $ 0.76 $ (.30) $ .05
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Net income (loss) after
extraordinary item and income
taxes........................... $(1,147) $(2,483) $ (924) $ 1,815 $ 6,303 $ (2,961) $ 630
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Net income (loss) per share....... $ (0.56) $ (1.04) $ (0.37) $ 0.30 $ .87 $ (.29) $ .06
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Weighted average shares
outstanding.................... 2,043 2,377 2,505 6,100 7,234 10,212 10,755
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
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
Long-term debt.................. -0- -0- 519 2,152 NA 12,018 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 57,100 321,293 141,731 364,398
Non-ferrous (pounds)............ -0- -0- 3,676,300 8,805,600 41,141,343 18,564,412 45,146,218
Average Selling Price(4):
Ferrous (per ton)............... NA NA $ 100 $ 120 $ 142 $ 122 $ 129
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(5)......................... $(2,979) $(2,445) $ (547) $ 1,489 $ 10,007 $ (1,023) $ 5,584
<CAPTION>
SIX MONTHS ENDED MARCH 31,
------------------------------
-------------------------
1996 1997
---------- ----------
STATEMENT OF OPERATIONS DATA(1):
Revenues.......................... $ 10,763 $ 23,537
Cost of Sales..................... 9,352 18,324
Cost of Brokerage................. -0- 1,489
---------- ----------
Gross Profit.................... 1,411 3,724
Selling and administrative
expenses........................ 1,553 2,663
Loss from joint ventures and
equity investee.............. -0- -0-
---------- ----------
Income (loss) from operations..... (142) 1,061
Interest expense................ (245) (890)
Income (loss) before income
taxes......................... $ (387) $ 171
Income tax provision (benefit).. (437) (295)
---------- ----------
Income from continuing
operations, net of income
taxes........................... 50 466
---------- ----------
---------- ----------
Income available to common
shareholders before extraordinary
item and net of an imputed
deemed dividend $ 50 $ 186
---------- ----------
---------- ----------
Income per share from
continuing operations, net
of income taxes and an
imputed deemed dividend......... $ 0.01 $ 0.01
---------- ----------
---------- ----------
Net income after
extraordinary item and income
taxes.......................... $ 98 $ 466
---------- ----------
---------- ----------
Net income available to common
shareholders after extraordinary
item and net of an imputed
deemed dividend $ 98 $ 186
---------- ----------
---------- ----------
Net income per share net of
an imputed deemed dividend $ 0.01 $ 0.01
---------- ----------
---------- ----------
Weighted average shares
outstanding.................... 9,982 14,356
---------- ----------
---------- ----------
BALANCE SHEET DATA:
Working capital ....... $ 105 $ 2,017
Property and equipment.......... 8,421 20,455
Long-term debt.................. 2,521 11,042
Total assets.................... 19,938 35,582
Total liabilities............... 9,045 18,527
Stockholders' equity .. 10,893 15,555
OPERATING AND OTHER DATA:
Shipments:
Ferrous (tons).................. 55,500 116,435
Non-ferrous (pounds)............ 6,739,000 16,904,000
Average Selling Price(4):
Ferrous (per ton)............... $ 123 $ 126
Net Cash Flow From:
Operating activities............ $ (748) $ (114)
Investing activities............ (978) (1,362)
Financing activities............ 2782 553
EBITDA(5)......................... $ (337) $ 2,137
</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 date gives effect to the acquisitions of Anglo Iron & Metal
(December 1995), Mid-America Shredding (April 1996), Weissman (August ,
(1996), Addlestone Recycling Corporation (April 1997) and Addlestone
International Corporation (definitive agreement to purchase assets)
as if each had occurred at the beginning of the periods presented.
In addition, the pro forma information is based upon available information
and certain assumptions and adjustments. See notes to the pro forma
financial statements.
(3) The historical operating results for the year ended September 30, 1996 are
not comparable to those of the corresponding period ended September 30,
1995 due to the acquisitions of Anglo Iron & Metal that occurred in
December 1995 and Mid-America Shredding that occurred in April 1996 and
Weissman that occurred on August 1996.
(4) Average selling price for non-ferrous scrap is not meaningful as there are
significant differences in the price per pound of the various component
non-ferrous metals (e.g., aluminum, copper, brass) produced by the Company.
(5) EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization")
represents operating income plus depreciation and amortization. The
Company has included EBITDA (which is not a measure of financial
performance under generally accepted accounting principles) because it
understands such data is used by certain investors to determine the
Company's ability to service its indebtedness. EBITDA is not a substitute
for income from continuing operations, net income or cash flows
presentation under generally accepted accounting principles.
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS,
AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE MAKING AN
INVESTMENT IN THE COMMON STOCK.
ACCUMULATED DEFICIT AND NET LOSSES
At March 31, 1997, the Company's total accumulated deficit was
approximately $10.9 million, compared to a deficit of approximately $8.3
million at March 31, 1996. The Company had net income of $0.5 million for
the six months ended March 31, 1997, compared to net income of $0.1 million
for the six months ended March 31, 1996. There can be no assurance
that the Company will be able to operate profitably on a consistent basis.
SIGNIFICANT INDEBTEDNESS
At March 31, 1997, the Company had outstanding approximately $10.3
million of long-term indebtedness and approximately $4.4 million of short-term
indebtedness all of which is secured by substantially all of its operating
assets, and trade payables of approximately $2.7 million. In addition, at
March 31, 1997 the Company had outstanding other long-term indebtedness of
approximately $0.7 million owed to related parties. While funds generated by
the Company's operating subsidiaries have been sufficient to meet its debt
service obligations, the Company's ability to continue meeting its debt service
obligations will depend on its ability to generate sufficient cash from its
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
LIMITED CASH FLOW AND NEED FOR ADDITIONAL CAPITAL
The Company has limited cash flow from its operations and continues to
seek additional capital from time to time. If the Warrants are exercised,
which is unlikely unless the market price of the Company's common stock
increases substantially, the net proceeds will be used by the Company for
working capital and future acquisitions. The Company will have to obtain
additional capital either through debt or equity financing in order to
continue its acquisition strategy. There can be no assurance that the
Company will be able to obtain such financing on terms acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition
and Plan of Operation--Liquidity and Capital Resources" and
"Business--Strategy."
LIMITED COMBINED OPERATING HISTORY
The Company commenced its metals recycling operations upon the
acquisition of its Nevada facility in May 1994. Prior to May 1994, the
Company generated operating losses and negative cash flow as a development
stage enterprise pursuing the development of technology to recycle municipal
solid waste (the "MSW Technology"). Since May 1994, the Company has acquired
metals recycling facilities in southern Texas, Missouri, Iowa, and Georgia, and
a minority interest in a metals recycling company in Georgia. See "Business."
The Company has only a limited combined operating history for its current
facilities and has been unable to consistently generate net income and cash
flow from these facilities. There can be no assurance that the Company's
existing operations, or those acquired in any future acquisition, will
generate sufficient cash flow to fund the future operations of the Company.
See "Use of Proceeds."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company's objective is to increase its revenues and earnings and expand
the markets it serves through the acquisition of additional metals recycling
facilities. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional facilities or successfully
integrate their operations without substantial costs, delays or other
unanticipated problems. There can be no assurance that acquired companies will
achieve sales and profitability that justify the Company's investment.
Acquisitions involve a number of risks, which may include: adverse short-term
effects on the Company's reported operating results and cash flows; diversion of
management's attention; dependence on retaining, hiring and training key
personnel; risks associated with environmental or legal liabilities; and the
effects of amortization of acquired intangible assets, such as goodwill. Some
of these risks could have a material adverse effect on the Company's operations
and financial performance. As the Company continues to expand, the Company will
be required to supplement its current management team in order to effectively
manage the acquired entities and successfully implement its acquisition and
operating strategies. See "Business--Strategy" and "Management."
MARKET CONSIDERATIONS
Sales prices for prepared scrap metal are cyclical in nature and are
subject to local, national and international economic conditions. While recent
increases in demand have resulted in strong sales prices for prepared ferrous
scrap, the Company's operating results are dependent upon the strength of the
national economy and, in particular, the domestic steel industry. A future
downturn in the economy or in steel production could adversely affect the
performance of the Company. The demand for processed ferrous and non-ferrous
scrap is subject to general economic, industry and market-specific conditions
beyond the Company's control which may result in periodic fluctuations in the
sales prices of the Company's products. Although the Company seeks to maintain
its operating margins by adjusting the purchase price for raw ferrous scrap in
response to changing sales prices for prepared
8
<PAGE>
ferrous scrap, its ability to maintain these margins during periods of falling
prices may be limited by the adverse impact of lower prices on the available
supply of raw ferrous scrap. The Company is unable to hedge against changes
in ferrous scrap prices and attempts to minimize this risk by maintaining low
inventory levels of raw and processed scrap and by establishing firm prices
with its larger customers at the beginning of each month.
DEPENDENCE ON KEY CUSTOMERS
Each of the Company's facilities is economically dependent on a small
number of significant customers. Five of the Company's customers; Aceros D.M.,
S.A. de C.V., Deer Company, The David J. Joseph Company, Protrade, and Pacific
States Cast Iron Pipe Company, accounted for approximately 55% of the Company's
revenues (14%, 14%, 13%, 7%, & 7% respectively) during the six months ended
March 31, 1997. 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% of the Company's revenues
(9.6%, 22.5%, 5.6% and 15.4%, respectively) for the year ended September 30,
1996. The loss of any one of these customers would have a material adverse
effect on the Company's business.
COMPETITION
The metals recycling business is highly competitive and subject to
significant changes in market conditions. Certain of the Company's competitors
have substantially greater financial, marketing and other resources. There can
be no assurance that the Company will be able to obtain its desired market share
or compete effectively in its markets.
ENVIRONMENTAL MATTERS
Compliance with state and federal environmental laws is a significant
factor in the metals recycling industry. Certain raw materials handled,
processed and disposed of in the metals recycling industry, such as automobiles
and appliances, may contain substances which are subject to a variety of
federal, state and local governmental regulations concerning the discharge of
hazardous materials into the environment. The Company has adopted standards and
policies for accepting raw materials designed to ensure compliance with
applicable environmental regulations. The Company's management does not believe
that the costs associated with environmental compliance will have a material
adverse impact on the Company. See "Business--Environmental Matters."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on a limited number of key
personnel, including the Company's Chairman and Chief Executive Officer,
Thomas J. Wiens, and its President and Chief Operating Officer, Michael I.
Price. The Company has not entered into employment agreements with either of
such officers but has obtained key-man life insurance policies in the amount of
$500,000 for Mr. Wiens and $1,000,000 for Mr. Price. See "Management."
CONTROL BY PRINCIPAL SHAREHOLDER AND ANTI-TAKEOVER PROVISION
As of the date of this Prospectus, Thomas J. Wiens, the Company's Chairman
and Chief Executive Officer, beneficially owns 2,284,103 shares of the Company's
Common Stock, representing approximately 16% of the issued and outstanding
shares.
The Company's Amended and Restated Articles of Incorporation contain
certain provisions which may inhibit a change of control of the Company. These
include scaled voting provisions that, upon a determination by the Company's
Board of Directors, may limit the voting rights of holders of more than 10% of
the Company's outstanding Common Stock. These provisions may discourage a party
from making a tender offer or otherwise attempting to take control of the
Company. As of the date of this Prospectus, the Company's Board of Directors
has not implemented the scaled voting provisions. The Company's Board of
Directors has adopted an amendment to the Amended and Restated Articles of
Incorporation to be voted upon at the Company's next annual meeting of
shareholders to eliminate these provisions. See "Description of Capital Stock--
Anti-Takeover Provisions." The Company's Amended and Restated Articles of
Incorporation also authorize the issuance of 10,000,000 shares of
9
<PAGE>
preferred stock, the terms of which are to be determined by the Board of
Directors at the time of issuance. The ability to issue preferred stock
could be used by the Board as a means for resisting a change of control of
the Company and may be considered an "anti-takeover" device. See
"Description of Capital Stock--Preferred Stock."
RISK OF SUBSTANTIAL FUTURE DILUTION
The Company has outstanding convertible preferred stock, options and
warrants to acquire an aggregate of 6,989,209 shares of the Company's Common
Stock, substantially all of which have exercise prices ranging from $.15 to
$6.00 per share and expire during fiscal years 1998 through 2002 See
"Description of Capital Stock--Warrants and Options; "Management--Stock
Option Plans." In addition, Warrants to purchase an aggregate of 4,423,489
shares of Common Stock have adjustment provisions providing for reduction of
their exercise prices in the event that the Company fails to register such
shares under the Securities Act within specified time frames. The conversion
of the preferred stock or the exercise of such options and warrants could
have a substantial dilutive effect upon the purchasers of shares of Common
Stock offered by this Prospectus. See "Description of Capital
Stock--Preferred Stock and Warrants" and "Shares Eligible For Future
Sale--Registration Rights."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have approximately 3.0
million shares of Common Stock outstanding that will be eligible for sale
pursuant to Rule 144 under the Securities Act. The utilization of Rule 144 and
the exercise of registration rights by the holders of these shares will increase
substantially the number of shares available for sale in the public markets and
may have an adverse impact on the market price of the Common Stock. See "Shares
Eligible for Future Sale."
USE OF PROCEEDS
It is not likely that any outstanding Warrants will be exercised unless
the market price of the Common Stock increases significantly. Alternatively,
the Company may lower the exercise price of the Warrants to below the
current market price, thereby encouraging their exercise. If the Warrants
are exercised at their current exercise prices, which is unlikely at this
time, the Company will receive net proceeds from such exercise of
approximately $20,930,964. See "Plan of Distribution." The proceeds will be
used to finance the Proposed Acquisitions, discussed below (if the Warrants
are exercised prior to such acquisitions) and for working capital purposes.
POTENTIAL ACQUISITIONS
The Company has identified several independent metals recyclers as
possible acquisition targets and has held preliminary acquisition discussions
with certain of these companies. The consummation of any of these
acquisitions is subject to a number of material contingencies, including
negotiation of definitive acquisition terms, obtaining sufficient financing
to complete the acquisition and completion of the Company's due diligence
related to the acquisition.
In addition to the proceeds from the exercise of the Warrants, the Company
proposes to fund these acquisitions through one or a combination of the
following: (i) issuing Common Stock or convertible securities of the Company;
(ii) issuing subordinated debt instruments; (iii) through asset based secured
lending arrangements; or (vi) through
10
<PAGE>
seller financing arrangements. As of the date of this registration
statement, the Company has not received commitments to provide financing for
any proposed acquisition.
PRICE RANGE OF THE COMMON STOCK
The Common Stock has been listed on the NASDAQ National Market System since
July 18, 1996 under the symbol "RECY." Prior to its approval for listing on the
NASDAQ National Market, the Common Stock was quoted on the NASDAQ SmallCap
Market under the symbol "RECY."
The majority of the Company's shares are held by management and affiliates
and are subject to restriction on resale. The number of unrestricted shares of
Common Stock is relatively low in relation to the total number of shares issued
and, therefore, trading in the Common Stock is limited. As a result, the
Company believes that historical market quotations for the Common Stock are not
a reliable indicator of value. The quotations provided below are the high and
low reported sales prices for the quarters indicated as reported on the OTCBB
and the NASDAQ SmallCap Market and have been adjusted to reflect the Company's
one-for-five reverse stock split effective June 27, 1995.
COMMON STOCK
------------
HIGH LOW
---- ---
Fiscal 1995:
First Quarter......................... $ 8.13 $2.00
Second Quarter........................ 4.20 2.20
Third Quarter......................... 5.63 2.50
Fourth Quarter........................ 5.38 3.88
Fiscal 1996:
First Quarter......................... $ 4.88 $2.88
Second Quarter........................ 7.00 3.50
Third Quarter......................... 5.63 4.25
Fourth Quarter........................ 5.00 3.00
Fiscal 1997:
First Quarter......................... $ 3.00 $1.16
Second Quarter........................ 1.75 1.00
The last reported sale price of the Common Stock as quoted on the NASDAQ
National Market System on June 16, 1997 was $1.75 per share. As of
March 31, 1997, there were approximately 600 record holders of Common
Stock. Based upon the information available to it, the Company believes
there are approximately 2,000 beneficial owners of its Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and has no
present intention to pay any cash dividends on its Common Stock for the
foreseeable future. Instead, the Company intends to retain its earnings, if
any, to support the growth and future development of its business and for
general corporate purposes. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other factors that the Board of Directors deems relevant.
11
<PAGE>
SELECTED FINANCIAL INFORMATION
The statement of operations and balance sheet data included in the
following table for each of the five years ended September 30, 1996 have been
derived from the consolidated financial statements of the Company which have
been audited by independent accountants. The statement of operations and
balance sheet data included in this table for the six months ended March
31, 1996 and 1997 have been obtained from unaudited financial statements
which, in the opinion of management, include all adjustments necessary for a
fair presentation of the financial position and results of operations for
the six periods. The results for the six months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the full
year. The pro forma financial data set forth below has been derived from the
Company's unaudited pro forma consolidated financial statements included
elsewhere herein.
<TABLE>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
PRO FORMA(2) PRO FORMA(2)
------------ ------------
1992(1) 1993(1) 1994(1) 1995(3) 1995 1996(3) 1996
------- ------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues.......................... $ -0- $ -0- $ 4,831 $ 13,853 $ 69,781 $ 27,623 $ 75,061
Cost of Sales..................... -0- -0- 4,110 10,869 54,381 25,654 61,096
Cost of Brokerage................. -0- -0- -0- -0- 3,075 936 4,310
------- ------- --------- --------- ---------- -------- ---------
Gross Profit.................... -0- -0- 721 2,984 12,325 1,033 9,655
Selling and administrative
expenses........................ 2,951 2,335 1,660 2,279 5,638 3,323 6,401
Loss from joint ventures and
equity investee.............. 462 467 -0- -0- -0- -0- -0-
------- ------- --------- --------- ---------- -------- ---------
Income (loss) from operations..... (3,413) (2,802) (939) 705 6,687 (2,290) 3,254
Interest expense................ (114) (156) (203) (407) (1,528) (732) (2,685)
------- ------- --------- --------- ---------- -------- ---------
Income (loss) before income
taxes......................... (3,527) (2,958) (1,142) 298 5,159 (3,022) 569
Income tax provision (benefit).. -0- -0- -0- (711) (338) 9 9
------- ------- --------- --------- ---------- -------- ---------
Income (loss) from continuing
operations, net of income
taxes........................... $(3,527) $(2,958) $ (1,142) $ 1,009 $ 5,497 $ (3,031) $ 560
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Income (loss) per share from
continuing operations, net
of income taxes................. $ (1.73) $ (1.24) $ (0.46) $ 0.17 $ 0.76 $ (.30) $ .05
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Net income (loss) after
extraordinary item and income
taxes........................... $(1,147) $(2,483) $ (924) $ 1,815 $ 6,303 $ (2,961) $ 630
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Net income (loss) per share....... $ (0.56) $ (1.04) $ (0.37) $ 0.30 $ .87 $ (.29) $ .06
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
Weighted average shares
outstanding.................... 2,043 2,377 2,505 6,100 7,234 10,212 10,755
------- ------- --------- --------- ---------- -------- ---------
------- ------- --------- --------- ---------- -------- ---------
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
Long-term debt.................. -0- -0- 519 2,152 NA 12,018 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 57,100 321,293 141,731 364,398
Non-ferrous (pounds)............ -0- -0- 3,676,300 8,805,600 41,141,343 18,564,412 45,146,218
Average Selling Price(4):
Ferrous (per ton)............... NA NA $ 100 $ 120 $ 142 $ 122 $ 129
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(5)......................... $(2,979) $(2,445) $ (547) $ 1,489 $ 10,007 $ (1,023) $ 5,584
<CAPTION>
SIX MONTHS ENDED MARCH 31,
------------------------------
-------------------------
1996 1997
---------- ----------
STATEMENT OF OPERATIONS DATA(1):
Revenues.......................... $ 10,763 $ 23,537
Cost of Sales..................... 9,352 18,324
Cost of Brokerage................. -0- 1,489
---------- ----------
Gross Profit.................... 1,411 3,724
Selling and administrative
expenses........................ 1,553 2,663
Loss from joint ventures and
equity investee.............. -0- -0-
---------- ----------
Income (loss) from operations..... (142) 1,061
Interest expense................ (245) (890)
Income (loss) before income
taxes......................... $ (387) $ 171
Income tax provision (benefit).. (437) (295)
---------- ----------
Income (loss) from continuing
operations, net of income
taxes........................... 50 466
---------- ----------
---------- ----------
Income available to common
shareholders before extraordinary
item and net of an imputed
deemed dividend $ 50 $ 186
---------- ----------
---------- ----------
Income per share from
continuing operations, net
of income taxes and an
imputed deemed dividend......... $ 0.01 $ 0.01
---------- ----------
---------- ----------
Net income after
extraordinary item and income
taxes.......................... $ 98 $ 466
---------- ----------
---------- ----------
Net income available to common
shareholders after extraordinary
item and net of an imputed
deemed dividend $ 98 $ 186
---------- ----------
---------- ----------
Net income per share net of
an imputed deemed dividend $ 0.01 $ 0.01
---------- ----------
---------- ----------
Weighted average shares
outstanding.................... $ 9,982 $ 14,356
---------- ----------
---------- ----------
BALANCE SHEET DATA:
Working capital ...... $ 105 $ 2,017
Property and equipment.......... 8,421 20,455
Long-term debt.................. 2,521 11,042
Total assets.................... 19,938 35,582
Total liabilities............... 9,045 18,527
Stockholders' equity .. 10,893 15,555
OPERATING AND OTHER DATA:
Shipments:
Ferrous (tons).................. 55,500 115,435
Non-ferrous (pounds)............ 6,739,000 16,904,000
Average Selling Price(4):
Ferrous (per ton)............... $ 123 $ 126
Net Cash Flow From:
Operating activities............ $ (748) $ (114)
Investing activities............ (978) (1,362)
Financing activities............ 2,782 553
EBITDA(5)......................... $ (337) $ 2,137
</TABLE>
12
<PAGE>
- - ------------
(1) Prior to May 1994, the Company was engaged in the development of the MSW
Technology. For comparative purposes, financial data prior to 1994
reflects the Company's efforts to develop such technology. The Company's
current operations commenced in May 1994 with the acquisition of NRI. The
financial information for fiscal 1994 reflects five months of operating
results of NRI. The financial information for fiscal 1995 reflects 12
months of operating results of NRI and reflects the efforts of the Company
to acquire other metals recycling facilities.
(2) The pro-forma date gives effect to the acquisitions of Anglo Iron & Metal
(December 1995), Mid-America Shredding (April 1996), Weissman (August
1996), Addlestone Recycling Corporation (April 1997) and Addlestone
International Corporation (definitive agreement to purchase assets) as
if each had occurred at the beginning of the periods presented.
In addition, the pro forma information is based upon available information
and certain assumptions and adjustments. See notes to the pro forma
financial statements.
(3) The historical operating results for the year ended September 30, 1996 are
not comparable to those of the corresponding period ended September 30,
1995 due to the acquisitions of Anglo Iron & Metal that occurred in
December 1995 and Mid-America Shredding that occurred in April 1996 and
Weissman that occurred on August 1996.
(4) Average selling price for non-ferrous scrap is not meaningful as there are
significant differences in the price per pound of the various component
non-ferrous metals (e.g., aluminum, copper, brass) produced by the Company.
(5) EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization")
represents operating income plus depreciation and amortization. The
Company has included EBITDA (which is not a measure of financial
performance under generally accepted accounting principles) because it
understands such data is used by certain investors to determine the
Company's ability to service its indebtedness. EBITDA is not a substitute
for income from continuing operations, net income or cash flows
presentation under generally accepted accounting principles.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere
herein. Statements included on the following discussion concerning
predictions of economic performance and management's plans and objectives are
forward looking statements. These statements involve risks and uncertainties
that could cause actual results to differ materially from the forward looking
statements. Factors which would cause or contribute to such differences
include, but are not limited to, factors detailed in the Company's
Registration Statement on Form S-1 on file with the Commission, Commission
File No. 333-20289; particularly the "Risk Factors" section; downturns in the
Company's primary markets; disruptions to the Company's operations from acts
of God or extended maintenance; disruptions in the availability or pricing of
raw materials; transportation difficulties; and the unavailability of
financing to complete management's plans and objectives.
LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------------------------------------------
March 31, September 30,
(Dollars in millions) 1997 1996
- ------------------------------------------------------------------------------
Current ratio 1.27:1 1.22:1
Working capital $ 2.0 $ 1.6
- ------------------------------------------------------------------------------
Cash used by operating activities for the six months ending March 31, 1997
was $0.1 million compared to $0.7 million for the same period one year
earlier. The improvement in cash from operating activities was primarily
related to net earnings. During the six months ending March 31, 1997,
accounts receivable increased as a result of increased sales volume resulting
from increased demand for ferrous materials.
The Company invested $0.8 million in property, plant and equipment through
March 31, 1997 for general modernization and efficiency upgrades. Planned
capital expenditures during the next year for the Company's existing
facilities are estimated to be $1.5 million. Included in this amount are
capital expenditures for the Company's shredders and materials handling
equipment designed to increase capacity and improve operating efficiencies.
Management anticipates the capital expenditures will be paid with cash from
operations and long-term debt financing.
Subsequent to the end of the second quarter, the Company acquired for $5.7
million substantially all the assets of Addlestone Recycling Corporation (ARC)
located in Metter, Georgia. The purchase price consisted of $5.2 million
payable at closing from long-term debt and $.5 million or 10,000 shares of the
Company's Series D Convertible Preferred Stock (the "Series D Shares") also
delivered at closing. The Series D Shares will automatically convert on April
1, 1999 into the number of shares of the Company's common stock whose average
market price for the ten trading days preceding the date of conversion is
equivalent to $0.5 million plus the amount of all accrued and unpaid dividends
on the Series D Shares to the date of conversion. If a consolidation or
merger of the Company with or into another company or entity occurs and the
Company is not the surviving entity, the Series D Shares will convert
immediately into the number of shares the Company's common stock whose average
market price for the ten trading days preceding the date of consolidation or
merger is equivalent to $0.5 million plus the amount of all accrued and unpaid
dividends on the Series D Shares to the date of conversion. Holders of the
Series D Shares are entitled to dividends on a cumulative basis at an annual
rate of eight percent, payable quarterly in cash. At anytime prior to
April 1, 1999, the Company shall have the right to redeem the outstanding
shares of Series D Preferred Stock, in whole or in part, at a cash redemption
price equal to the sum of $50 per share, and the amount of all accrued but
unpaid dividends on the Series D Preferred Stock. The Company has not assumed
or guaranteed any of the liabilities of ARC.
Subject to completion of definitive documentation, the Company intends to
purchase substantially all the assets of Addlestone International Corporation
(AIC) a metals recycling facility located in Georgetown, South Carolina.
At March 31, 1997 and September 30, 1996, the Company has $10.2 million and
$8.4 million, respectively, outstanding under a three year credit facility
with a lending institution totaling $12.5 million.
Subsequent to the end of the second quarter, the Company entered into a $20
million credit facility with a lending institution replacing the previously
maintained credit facility. The facility has maturity terms ranging from six
months to three years. Utilization of the credit facility is limited by
existing debt covenants.
On December 31, 1996, the Company completed a private placement of $1.0
million of Series C Convertible Preferred Stock (Series C Preferred). Net
proceeds to the Company were $907,000. Each Series C Preferred is
convertible at a discount, without further payment, into the number of shares
of Common Stock determined by dividing ( I ) the sum of a (a) $100 plus (b)
the amount of all accrued dividends on the Series C Preferred by (ii) the
lesser of $1.58125 or 73% of the average reported closing bid price of a
share of Common Stock for the five consecutive trading days immediately
preceding the date of conversion. The discount provision is recognized as an
imputed deemed dividend in the amount of $0.4 million reducing income
available to common shareholders on a pro rata basis from the date of issuance
to the first conversion date that conversion can occur. The funds from
issuing the Series C Preferred were used for general working capital
requirements.
Subsequent to the end of the quarter, Recycling Industries, Inc. gave notice
of it's intention to repurchase by May 30, 1997, all of its' outstanding
Series C Preferred for $1.3 million. The Company will use a combination of
existing cash and financing to fund the repurchase of the Series C Preferred.
On June 20, 1997, the Company redeemed 10,000 shares of its Series C Convertible
Preferred Stock plus accrued dividends for $1,344,000. The redemption was
funded with a combination of existing cash and financing.
Subsequent to March 31, 1997, the Board of Directors of Recycling Industries,
Inc. authorized the repurchase of up to 700,000 shares of common stock in open
market transactions. The Company expects to fund the repurchase of common
stock with cash from operations.
Management intends to continue seeking opportunities for expansion in the
metals recycling business and believes that the Company's liquidity, capital
resources and borrowing capabilities are adequate for its current operations.
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 financing 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.
RESULTS OF OPERATIONS
The Company's operating results depend in large part on its ability to
effectively manage the purchase, processing and sale of scrap metals. The
demand for processed ferrous and non-ferrous scrap is subject to general
economic, industry and market-specific conditions beyond the Company's
control which may result in periodic fluctuations in the sales prices of the
Company's products. The Company seeks to maintain its operating margins by
adjusting the purchase price for raw ferrous and non-ferrous scrap in
response to such fluctuations, subject to local market conditions. Although
the Company is unable to hedge against changes in market prices, it seeks to
minimize this risk by maintaining low inventory levels of raw and processed
scrap.
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SIX MONTHS ENDED MARCH 31, 1997 AND 1996
The results of operations for the six months ended March 31, 1997 and
1996 have been driven primarily by the Company's acquisition activity. The
results of operations for the six months ended March 31, 1996 do not
reflect the company's acquisition of Mid-America Shredding and Weissman Iron &
Metal, and include only 90 days of operations for Anglo Iron & Metal.
REVENUES. For the six months ended March 31, 1997, the Company had
total revenues of $23,537,000 compared to $10,763,000 for the six months ended
March 31, 1996, a 118% increase. The increase in revenues for the six
months ended March 31, 1997 reflect primarily the acquisitions of Mid-America
Shredding and Weissman, and a full three months of business activity for Anglo
Iron & Metal.
For the six months ended March 31, 1997, the average sales price per
ton of prepared ferrous scrap was $126, a 2% increase compared to $123 per
ton for the six months ended March 31, 1996. The average sales price for non-
ferrous scrap was $.34 per pound for the six months ended March 31, 1997,
representing a 37% decline compared to $.54 per pound for the six months ended
March 31, 1996.
Of the total revenues for the six months ended March 31, 1997,
$ 1,567,000 or 7%, was attributable to brokerage sales, and $34,000
was attributable to other income. There were no brokerage sales and
other income was $28,000 for the six months ended March 31, 1996.
COST OF SALES. For the six months ended March 31, 1997, the Company
incurred total cost of sales of $19,813,000 compared to $9,352,000 for the six
months ended March 31, 1996. The increased cost of sales for the six
months ended March 31, 1997 was primarily the result of the acquisition
of Anglo Iron & Metal, Mid-America Shredding and Weissman. Total cost of sales
decreased to 84% of total revenues for the six months ended March 31, 1997
from 87% of total revenues for the six months ended March 31, 1996. This
decrease in cost of sales as a percentage of total revenues was largely due to
improved margins at the Company's acquired subsidiaries and the initial
implementation of improved operating expense controls. These factors caused
gross profit to increase to $3,724,000 for the six months ended March 31,
1997 from $1,411,000 for the six months ended March 31, 1996.
Of the total cost of sales for the six months ended March 31, 1997,
brokerage accounted for $1,489,000 or 95% of brokerage sales.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
were $2,663,000, or 11% of revenues, for the six months ended March 31,
1997 compared to $1,553,000, or 14% of revenues, for the six months ended
March 31, 1996. The largest components of the dollar increase for the six
months ended March 31, 1997 as compared to 1996 were salary and related
expenses, which increased $568,000, and depreciation and amortization expenses
which increased $312,000. These increases were largely the result of the
Company's acquisitions of Anglo Iron & Metal, Mid-America Shredding and
Weissman. However, the decrease as a percentage-of-sales was due to increased
efficiencies at the Company's newly acquired subsidiaries and the ability of the
Company to spread its corporate overhead over a larger revenue base.
INTEREST EXPENSE. For the six months ended March 31, 1997, the
Company incurred interest expense of $890,000 compared to $245,000 for the six
months ended March 31, 1996. The increase 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.
INCOME TAX PROVISION (BENEFIT). The Company recorded a $0.3 million
income tax benefit for the six months ending March 31, 1997, as a result of
utilizing a net operating loss carryforward to offset anticipated taxable
income. Remaining net operating loss carry-overs available through the year
2011 are approximately $9,300,000.
INCOME (LOSS) FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES. Net
earnings available to common shareholders for the three and six months ending
March 31, 1997, was reduced in computing earnings per common share by an imputed
deemed dividend in the amount of $0.3 million or $0.02 per common share. The
imputed deemed dividend resulted from a discount provision included in the
Series C Preferred issued on December 31, 1996.
The Company does not believe its businesses have been adversely affected by
general inflation.
FISCAL YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
The results of operations for the years ended September 30, 1996, 1995
and 1994 have been driven primarily by the Company's acquisition activity.
Prior to the Company's acquisition of its Nevada facility in May 1994, the
Company was a development stage enterprise without revenues. Subsequent to
the acquisition of the Nevada facility in fiscal 1994, the results
of operations reflect the implementation of the Company's current metals
recycling acquisition and operation strategy.
REVENUES. For the year ended September 30, 1996, the Company had
revenues of $27.6 million compared to $13.9 million for the year ended
September 30, 1995 and $4.8 million for the year ended September 30, 1994,
which reflected only five months of operations of the Nevada facility. For
the year ended September 30, 1996, the increase in revenues was a result of
the acquisitions of Anglo Iron & Metal, Mid-America Shredding and Weissman.
For the year ended September 30, 1995, the increase in revenues was due
primarily to the inclusion of a full year's results of operations of the
Nevada facility, as well as generally higher demand and market prices for
scrap metal.
For the year ended September 30, 1996, the average sales price per ton
of prepared ferrous scrap was $122, a 1.7% increase compared to $120 per ton
for the year ended September 30, 1995. For the year ended September 30,
1996, the average sales price for non-ferrous scrap was $.47 per pound,
representing a 27% decrease compared to $.64 per pound for the year ended
September 30, 1995.
COST OF SALES. For the year ended September 30, 1996, the Company
incurred cost of sales of $25.7 million compared to $10.9 million for the
year ended September 30, 1995 and $4.1 million for the year ended September
30, 1994. The increased cost of sales for the year ended September 30, 1996
was a result of the acquisition of Anglo Iron & Metal, Mid-America Shredding
and Weissman. The increased costs of sales for the year ended September 30,
1995 was due to the full year of operations of the Nevada facility compared
to five months of operations for the year ended September 30, 1994. Cost of
sales increased to 92.9% of total revenues for the year ended September 30,
1996 from 78.5% of total revenues for the year ended September 30, 1995.
This increase in cost of sales as a percentage of total revenues was caused
by lower selling prices and increased cost of raw materials. These factors
cause gross profit to decrease to $1.0 million for the year ended September
30, 1996 from $3.0 million for the year ended September 30, 1995. Cost of
sales decreased to 78.5% of total revenues for the year ended September 30,
1995 from 85.1% of total revenues for the year ended September 30, 1994.
This decrease in cost of sales as a percentage of revenues was caused by an
increase in the sales price of ferrous and non-ferrous scrap as well as by
the substantial increases in paper selling prices without proportional
increases in the Company's raw scrap and paper acquisition costs. The
Company's increased production volume in 1995 also contributed to improved
gross margins, as fixed production costs were spread over a larger volume of
processed scrap. As a result of these factors, gross profit increased to
$3.0 million for the year ended September 30, 1995 from $721,000 for the year
ended September 30, 1994.
For the year ended September 30, 1996, the Company incurred cost of
brokerage of $936,000 or 3.4% of total revenues.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses were $3.3 million, or 12.0% of revenues, for the year ended
September 30, 1996 compared to $2.3 million, or 16.5% of revenues, for the
year ended September 30, 1995 and $1.7 million, or 34.4% of revenues for the
year ended September 30, 1994. The largest components of the increase for
the year ended September 30, 1996 compared to 1995 were salary and related
expenses, which rose $710,000 and selling and administration expenses from
the operations of Anglo Iron & Metal, Mid-America Shredding and Weissman.
For the year ended September 30, 1995 compared to 1994, the largest component
of the increase was salary and related expenses, which rose $417,000 due to
increased staffing at the corporate level and to the additional seven months
of personnel costs at the Nevada facility.
INTEREST EXPENSE. For the year ended September 30, 1996, the Company
had interest expense of $732,000 compared to $407,000 and $203,000 for the
years ended September 30, 1995 and 1994 respectively. The increase in 1996
was due primarily to additional debt incurred to finance the purchase of the
Anglo Iron & Metal in December 1995, Mid-America Shredding in April 1996 and
Weissman in August 1996. The increase in 1995 was caused by a full year of
interest expense related to debt incurred in conjunction with the acquisition
of the Nevada facility.
INCOME TAX PROVISION (BENEFIT). The Company has generated a net loss
carryforward totalling approximately $9,400,000, 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 $1,143,000
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.
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INCOME (LOSS) FROM CONTINUING OPERATIONS, NET OF INCOME TAXES. For the
year ended September 30, 1996, the Company had a loss from continuing
operations, net of income taxes of approximately $3,031,000, or $.30 per
share, compared to income of $1.0 million, or $.17 per share, and a loss of
$1.1 million, or $.46 per share, for the years ended September 30, 1995 and
1994, respectively. The principal reasons for the decrease were increased
cost of sales, lower selling prices resulting in reduced revenues and
increased interest expense due to additional borrowings related to the
acquisition additional facilities. The significant increase in profit in
1995 is the result of the Company's acquisition of its Nevada facility in May
1994.
NET INCOME (LOSS). For the year ended September 30, 1996, the Company
generated a net loss of $2,961,000, or $.29 per share, compared to net income
of $1.8 million, or $.30 per share, for the year ended September 30, 1995,
and a net loss of $924,000, or $.37 per share, for the year ended September
30, 1994.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The Company's pro forma combined operating results reflect the
acquisitions of Anglo Iron & Metal, Mid-America Shredding, Weissman, ARC and
AIC 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 and the operating results of ARC and
AIC for the 12 months ended December 31, 1996. 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, Weissman, ARC and AIC.
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, Weissman, ARC and AIC in the
periods presented.
FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
REVENUES. For the year ended September 30, 1996, pro forma revenues
were $75.1 million. Of such revenues, the Company generated $27.6 million,
Anglo Iron & Metal generated $2.8 million, Mid-America Shredding generated
$1.2 million, Weissman generated $15.7 million and ARC and AIC generated $27.8
million. For the year ended
September 30, 1995, pro forma revenues for the Company were $69.8 million, of
which the Company generated $13.8 million, Anglo Iron & Metal generated $17.6
million, Mid-America Shredding generated $3.9 million, Weissman generated
$19.2 million and ARC and AIC generated $17.6 million..
COST OF SALES. For the year ended September 30, 1996, pro forma cost of
sales were $61.1 million, or 81.3% 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, Weissman
contributed $8.9 million and ARC and AIC contributed $23.2 million. For the
year ended September 30, 1996, pro forma
cost of brokerage was $4.3 million, or 5.7% of pro forma total revenues, of
which the Company contributed $0.9 million and Weissman contributed $3.4
million. For the year ended September 30, 1996, gross profit was $9.7
million and the gross margin was 12.8% on a pro forma basis.
For the year ended September 30, 1995, pro forma cost of sales was $54.4
million, or 79% 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, Weissman contributed $12.2
million, ARC and AIC contributed $14.3 million. For the year ended September
30, 1995, pro forma cost of brokerage
for the Company was $3.1 million, or 3.8% 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 $12.3
million and the gross margin was 18% on a pro forma basis.
SELLING AND ADMINISTRATIVE EXPENSES. For the year ended September 30,
1996, pro forma selling and administrative expenses were $6.4 million, or
8.5% of pro forma revenues. During the year ended September 30, 1996, the
Company contributed $3.3 million, Anglo Iron & Metal contributed $0.3 million,
Mid-America Shredding contributed $0.1 million, Weissman contributed $1.0
million and ARC and AIC contributed $1.7 million to pro forma selling and
administrative expenses.
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For the year ended September 30, 1995, pro forma selling and administrative
expenses were $5.6 million, or 8.0% 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 and ARC and AIC contributed $1.6 million to pro
forma selling and administrative expenses.
INTEREST EXPENSE. For the year ended September 30, 1996, pro forma
interest expense for the Company was $2.7 million. For the year ended
September 30, 1995, pro forma interest expense for the Company was $1.5
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 income
from continuing operations, net of income taxes was $560,000, or $.06 per
share, for the year ended September 30, 1996. Pro forma income from
continuing operations, net of income taxes was $5.5 million, or $.76 per
share, for the year ended September 30, 1995.
NET INCOME. Pro forma net income for the Company was $630,000, or $.06
per share, for the year ended September 30, 1996. Pro forma net income for
the Company was $6.3 million, or $.87 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, receivables and inventory financing, and cash flow
from operations. Since commencement of its metals recycling operations in May
1994 through March 1997, the Company has raised net cash proceeds of $20.1
million through the sale of its equity securities. At March 31, 1997, the
Company had $18.5 million of liabilities and $15.4 million of current and long-
term debt outstanding, of which $4.4 million is due in the next 12 months.
On May 11, 1994, the Company acquired its Nevada facility by purchasing
all of the outstanding common stock of Nevada Recycling, Inc. As
restructured, the purchase price for the Nevada facility consisted of debt of
$5.0 million and the issuance of 13,000 shares of the Company's Series A
Convertible Preferred Stock valued at $1.3 million. In addition, the Company
issued to the sellers a warrant to acquire up to 20,000 shares of Common
Stock at an exercise price of $1.25 per share.
On June 30, 1995, the Company acquired a 20% interest in a Georgia
metals recycling facility through its investment in The Loef Company
("Loef"). This investment has been valued at $277,000, the amount of costs
incurred by the Company in pursuing its acquisition of Loef. The Company's
ownership interest in Loef was to have been reduced to 15% if the Company did
not invest an additional $200,000 in Loef by June 30, 1996. The Company did
not make this payment and, pending the receipt of information regarding the
current operations and financial performance of Loef, the Company has taken
the position that its interest was not reduced to 15% on June 30, 1996. On
December 3, 1996 Loef declared Chapter 11 bankruptcy to reorganize the
business. The Company subsequently decided to write off the $277,000
investment in Loef as of September 30, 1996.
On December 11, 1995, the Company acquired its southern Texas facilities
by acquiring substantially all of the assets of Anglo Metals, Inc., d/b/a
Anglo Iron & Metal, for $6.1 million. The purchase price was paid as
follows: (i) $2.1 million in cash; (ii) $1.9 million note which is to be
paid in monthly installments of $181,000 beginning in February 1996;
(iii) a $446,000 secured promissory note bearing interest at 8% and payable
in 60 monthly installments of $9,000; (iv) a $750,000 unsecured promissory
note and non-compete agreement payable in 72 consecutive installments of
$10,400; and (v) 227,693 shares of Common Stock, valued at $925,000.
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On April 15, 1996, the Company acquired its Missouri facility by
acquiring substantially all of the assets of Mid-America Shredding, Inc.,
d/b/a Mid-America Shredding, for $1.9 million. The purchase consideration
consisted of cash of $708,000, assumed outstanding bank debt of $1.2 million.
On June 20, 1996, the Company secured $4.0 million in inventory and
receivables financing from Coast Business Credit, an asset-based lender
specializing in inventory and receivables financing. In connection with the
Weissman acquisition, the credit facility was increased to $10.0 million on
August 15, 1996, and on September 30, 1996 was increased to $12.5 million.
On July 17, 1996, the Company completed the Public Offering of its
Common Stock, receiving net proceeds, after deducting underwriting discounts
and offering expenses of $14.0 million. These proceeds were used as follows:
$5.2 million to pay a portion of the cash purchase price for Weissman on
August 5, 1996; $5.5 million to repurchase 1,380,585 shares of Common Stock;
$2.4 million to redeem all of the Company's outstanding Series A Convertible
Preferred Stock and repurchase 120,000 shares of Common Stock on August 15,
1996. The remaining proceeds of approximately $900,000 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) $5.2 million from the
proceeds of the Public Offering and the Company's operating cash; (iii) a
$3.5 million term loan bearing interest at prime plus 2.25%, payable in 60
monthly installments of $58,333 and; (iv) approximately $1.8 million of
revolving credit borrowings. Under the terms of a Share Price Guaranty
Agreement ("the Agreement") the Company has agreed to guaranty the $1.5
million value of 363,636 shares ("the Guaranteed Shares"). The Agreement
grants the seller and its assign, Weissman Financial, (Collectively "Weissman
Financial") registration rights effective for three years. If at any time
during the three year period commencing on the effective date of the
registration statement, Weissman Financial sells the 363,636 shares of common
stock at less than the guaranteed amount, the Company is required to pay to
the seller any shortfall in cash. In addition, Weissman Financial has the
right in his sole discretion to require the Company, at any time during the
two year period commencing November 30, 1997, to repurchase the Guaranteed
Shares for $1.5 million. As a result of this Agreement to purchase the
Guaranteed Shares upon the Weissman Financial's request, the $1.5 million
value of the Guaranteed Shares has been recorded as temporary equity.
On August 15, 1996, the Company redeemed all of its outstanding Series A
Convertible Preferred Stock and repurchased 120,000 shares of Common Stock
for $2.4 million. This transaction was funded through the proceeds of the
Public Offering.
On September 30, 1996, the Company paid the balance of the principal
plus accrued interest on its bridge indebtedness of $485,000.
Working capital at March 31, 1997, was $2 million compared to $.1 million
for the same period one year earlier. The increase in working capital is due
primarily to increases in accounts receivable resulting from acquiring the
Missouri and Iowa facilities.
Cash used by operating activities for the six months ending March 31, 1997
was $0.1 million compared to $0.7 million for the same period one year earlier.
The increase in cash from operating activities compared to the same period one
year ago was primarily related to net income of $0.5 million.
The Company invested $0.8 million in property, plant and equipment from
October 1, 1996 through March 31, 1997 for general modernization and efficiency
upgrades. Planned capital expenditures through September 30, 1997, for the
Company's existing facilities are estimated to be $1.5 million. Included in
this amount are capital expenditures for the Company's shredders and materials
handling equipment designed to increase capacity and improve operating
efficiencies. Management anticipates the capital expenditures will be paid from
cash and long-term debt financing.
Subsequent to the end of March 31, 1997, the Company acquired for $5.7
million substantially all the assets of Addlestone Recycling Corporation (ARC)
located in Metter, Georgia. The purchase price consisted of $5.2 million
payable at closing and $.5 million or 10,000 shares of Series D Convertible
Preferred Stock (Series D Preferred Stock) also delivered at closing. The
holders of the Series D Preferred Stock are entitled to dividends on a
cumulative basis at a per annum rate of eight percent, payable quarterly in
cash. The Series D Preferred Stock shall convert on April 1, 1999 into the
number of shares of common stock whose average market price for the ten trading
days preceding the date of conversion is equivalent to $0.5 million plus the
amount of all accrued and unpaid dividends on the Series D Preferred Stock to
the date of conversion. At anytime prior to April 1, 1999, the Company shall
have the right to redeem the outstanding shares of Series D Preferred Stock, in
whole or in part, at a cash redemption price equal to the sum of $50 per share,
and the amount of all accrued but unpaid dividends on the Series D Preferred
Stock. The Company has not assumed or guaranteed any of the liabilities of
ARC.
Subject to completion of definitive documentation, the Company intends to
purchase substantially all the assets of Addlestone International Corporation
(AIC) located in Georgetown, South Carolina for $6 million plus an amount equal
to the value of unprocessed inventory. The purchase price will consist of the
sum of $5.5 million plus unprocessed inventory payable at closing and $0.5
million or 10,000 shares of Series E Convertible Preferred Stock also delivered
at closing. The holders of the Series E Preferred Stock are entitled to
dividends on a cumulative basis at a per annum rate of eight percent, payable
quarterly in cash. The Series E Preferred Stock shall convert on April 7, 1999
into the number of shares of common stock whose average market price for the ten
trading days preceding the date of conversion is equivalent to $0.5 million plus
the amount of all accrued and unpaid dividends on the Series E Preferred Stock
to the date of conversion. At anytime prior to April 7, 1999, the Company
shall have the right to redeem the outstanding shares of Series E Preferred
Stock, in whole or in part, at a cash redemption price equal to the sum of $50
per share, and the amount of all accrued but unpaid dividends on the Series E
Preferred Stock. The Company has not assumed or guaranteed any of the
liabilities of AIC.
On December 31, 1996, the Company completed a private placement of $1.0
million of Series C Convertible Preferred Stock (Series C Preferred). Net
proceeds to the Company were $907,000. Each Series C Preferred is convertible
at a discount, without further payment, into the number of shares of Common
Stock determined by dividing ( I ) the sum of a (a) $100 plus (b) the amount of
all accrued dividends on the Series C Preferred by (ii) the lessor of $1.58125
or 73% of the average reported closing bid price of a share of Common Stock for
the five consecutive trading days immediately preceding the date of conversion.
The discount provision is recognized as an imputed deemed dividend in the amount
of $0.4 million reducing income available to common shareholders on a pro rata
basis from the date of issuance to the first conversion date that conversion can
occur. The funds from issuing the Series C Preferred were used for general
working capital requirements.
Subsequent to March 31, 1997, Recycling Industries, Inc. gave
notice of it's intention to repurchase by May 30, 1997, all of its' outstanding
Series C Preferred for $1.3 million. As of June 20, 1997, the Company had
completed the repurchase.
At March 31, 1997 and September 30, 1996, the Company had $10.2 million and
$8.4 million, respectively, outstanding under a three year credit facility with
a lending institution totaling $12.5 million.
Subsequent to March 31, 1997, the Company entered into a $20 million credit
facility with a lending institution replacing the previously maintained credit
facility. The facility has maturity terms ranging from six months to three
years. Utilization of the credit facility is limited by existing debt
covenants.
Subsequent to March 31, 1997, the Board of Directors of Recycling
Industries, Inc. authorized the repurchase of up to 700,000 shares of common
stock in open market transactions. The Company expects to fund the repurchase
of common stock through long-term debt financing.
Subsequent to March 31, 1997, the Company borrowed $7 Million in short-term
bridge financing from Siena Capital Partners, L.P.
Management intends to continue seeking opportunities for expansion in the
metals recycling business and believes that the Company's liquidity, capital
resources and borrowing capabilities are adequate for its current operations.
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 financing 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.
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<PAGE>
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. The Company believes it should be able to implement price
increases sufficient to offset most raw material cost increases resulting
from inflation, although there may be some delay between raw material cost
increases and sales price increases and competitive factors may require the
Company to absorb at least a portion of these cost increases. Management
believes that a sustained economic slowdown would negatively impact the
operations and financial performance of the Company.
SEASONALITY
The Company believes that its operations can be adversely affected by
protracted periods of inclement weather which could reduce the volume of
material processed at its facilities. In addition, periodic maintenance
shutdowns by the Company's larger customers may have a temporary adverse
impact on the Company's operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued SFAS No.
123, "Accounting for Stock Based Compensation." SFAS No. 123 encourages the
accounting for stock-based employee compensation programs to be reported
within the financial statements on a fair value-based method. If the fair
value-based method is not adopted, then SFAS No. 123 requires pro forma
disclosure of net income and earnings per share as if the fair value-based
method had been adopted. The Company has not yet determined how SFAS No. 123
will be implemented or its impact on the financial statements. SFAS No. 123
is effective for transactions entered into after December 15, 1995. The Company
is required to implement Financial Accounting Standards Board Statement No. 128,
"Earnings per share," in fiscal year 1998. Management has determined the
application of the new rules will not have a significant impact upon the
financial statements of the Company.
BUSINESS
HISTORY OF THE COMPANY
Recycling Industries, Inc. is a full-service metals recycler primarily
engaged in the collection and processing of various ferrous and non-ferrous
metals for resale to domestic and foreign steel producers and other metals
producers and processors. The Company was formed in December 1988 as a
Colorado corporation. The Company commenced its metals recycling operations
in May 1994 and has increased its revenues from approximately $4.8 million
for the year ended September 30, 1994 to $27.6 million for the year ended
September 30, 1996. The revenues for the six months ended March 31,
1997 have increased to $23.5 million from $10.8 million for the six months
ended March 31, 1996. Over the same period, the Company's monthly metals
shredding capacity has increased over 34% and its total monthly metals
processing capacity increased over 46%.
As of the date of this prospectus, the Company has the following
operating subsidiaries:
NEVADA RECYCLING, INC., acquired by the Company in May 1994, operates a
metals recycling facility in Las Vegas, Nevada, serving the Las Vegas market
and steel mills located throughout the western United States.
RECYCLING INDUSTRIES OF TEXAS, INC. D/B/A ANGLO IRON & METAL, formed by
the Company to acquire the assets of Anglo Metals, Inc. in December 1995,
operates four metals recycling facilities in Brownsville, Harlingen, McAllen
and San Juan, Texas, serving steel mills and markets in the Rio Grande Valley
in southern Texas and northern Mexico.
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RECYCLING INDUSTRIES OF MISSOURI, INC. D/B/A MID-AMERICA SHREDDING,
formed by the Company to acquire the assets of Mid-America Shredding, Inc. in
April 1996, operates a metals recycling facility in Ste. Genevieve, Missouri,
serving Midwestern steel mills and markets along the Mississippi River.
WEISSMAN INDUSTRIES, INC. D/B/A WEISSMAN IRON & METAL, acquired by the
Company on August 5, 1996, operates a metals recycling facility in Waterloo,
Iowa, serving Midwestern steel mills.
RECYCLING INDUSTRIES OF GEORGIA, INC., D/B/A ADDLESTONE RECYCLING
CORPORATION, acquired by the Company on April 7, 1997, operates a metals
recycling facility in Metter, Georgia, serving southeastern steel mills.
In addition, the Company currently has a minority interest in Loef,
which operates a metals recycling facility in Athens, Georgia, serving steel
mills and markets in the southeastern United States.
Of the Company's revenues for the year ended September 30, 1996,
approximately 60% was attributable to sales of ferrous scrap, 31% was
attributable to sales of non-ferrous scrap, and the balance was attributable
to the Company's paper and plastic recycling and retail finished steel sales
and brokerage sales conducted at certain of the Company's facilities.
INDUSTRY OVERVIEW
The Company estimates that the total revenues generated in the metals
recycling markets in 1995 were $19.1 billion, comprised of $8.9 billion
attributable to ferrous metals and $10.2 billion attributable to non-ferrous
metals. The Company believes that there are over 3,000 independent metals
recyclers in North America. Based upon reports published by the Institute
for Scrap Recycling Industries ("ISRI"), approximately 200 of these
independent metals recyclers operate heavy-duty automotive shredders, which
constitute the primary equipment used in processing large volumes of ferrous
and non-ferrous scrap for sale to steel and other metals producers. Because
of the highly fragmented nature of the industry, the Company believes that no
single metals recycler has a significant share of the national processed
scrap market, although certain recyclers may have a dominant share of their
local or regional market. Similar to the ongoing consolidation within the
municipal solid waste industry, the metals recycling industry has begun to
experience local market consolidation due to: (i) increasing capital
requirements caused by more stringent environmental and governmental
regulations, and (ii) the exit of aging independent recyclers who desire to
sell closely-held businesses in the absence of a successor owner or operator.
THE FERROUS SCRAP MARKET
The largest portion of the Company's operations involves the collection,
shredding and sale of ferrous scrap, the primary raw material for mini-mill
steel producers who utilize EAF technology. All of the Company's facilities
process ferrous scrap. The increase in EAF production from 14.8 million net
tons in 1966 to 40.6 million net tons in 1995 has resulted in strong demand
and prices for processed ferrous scrap. Demand for ferrous scrap is expected
to increase as a number of new EAFs come on line in the next several years,
such as North Star Steel Co.'s Kingman, Arizona plant (which began production
during the second quarter of 1996) located approximately 100 miles from the
Company's Nevada facility. According to industry estimates, the anticipated
continuing increase in EAF production to an estimated 50 million net tons by
the year 2000 may cause ferrous scrap shortages, resulting in further
increases in processed ferrous scrap prices.
The growth in EAF production has been fueled by the historically low
prices for prepared ferrous scrap, which give EAFs a production cost
advantage over integrated steel producers which operate blast furnaces whose
primary raw materials are coke and iron ore. Recent increases in prepared
ferrous scrap prices have eroded much of the EAFs' production cost advantage.
As a result, many EAF operators are examining alternatives to prepared steel
scrap, such as pre-reduced iron pellets, as a feedstock for EAFs. The
Company believes, however, that such alternatives to prepared ferrous scrap
will be used primarily as a supplemental feedstock to permit EAFs to utilize
lower grades of prepared scrap, and will not significantly reduce demand for
prepared ferrous scrap in the foreseeable future. Industry analysts' reports
continue to predict rising demand for prepared ferrous scrap over the next
several years. Because ferrous scrap represents the largest portion of the
metals recycling industry, the economic conditions of the industry are
directly tied to the strength of domestic steel producers utilizing EAF
technology. Accordingly, any decrease in domestic steel production may have
an adverse impact on the demand and price for prepared ferrous scrap.
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Raw ferrous scrap is sourced primarily on a local basis, typically from
small independent salvage operations located near major developed urban
areas. These operations supply raw ferrous scrap to the Company in the form
of automobile bodies, appliances and structural steel. The geographic market
for prepared ferrous scrap is larger, tending to be within a 100 to 150 mile
radius of the metals recycler, but may include shipments to Asian markets via
deep water port facilities located on the west coast of the United States.
The primary limitation on the geographic size of the supply and resale
markets in the metals recycling industry are the transportation costs of raw
and processed ferrous scrap. For this reason, metal scrap processing
facilities tend to be located on or near key rail, interstate highway or
water transportation routes.
Although somewhat determined by local factors, the average domestic
price for prepared ferrous scrap has increased significantly in the past
several years from approximately $80 per ton in 1992 to over $140 per ton
during 1995. The current prices for prepared ferrous scrap range from $106
to $130 per ton depending on the region and the quality of the prepared
material.
THE NON-FERROUS SCRAP MARKET
Non-ferrous metals include copper, aluminum, brass, stainless steel,
high temperature alloys and other exotic metals. The non-ferrous scrap
market is less fragmented than the ferrous scrap market due to the higher
intrinsic values of the non-ferrous metals and the available commodity market
prices for these metals. Although supply sources are still local, the higher
value of these metals makes the shipment of prepared non-ferrous scrap
economical over longer distances, both domestically and internationally. The
primary consumers of prepared non-ferrous scrap are domestic and foreign
secondary smelters. All of the Company's facilities process non-ferrous
scrap, primarily copper, aluminum, brass and stainless steel.
Prices for non-ferrous scrap change based upon the daily publication of
spot and futures prices for the primary types of non-ferrous metals on the
COMEX or London Metal Exchange. These exchanges also permit suppliers and
consumers of non-ferrous metals to hedge against price variations through the
purchase and sale of futures contracts on such exchanges. The Company does
not participate in the non-ferrous futures markets and, instead, sells its
non-ferrous processed scrap at a negotiated spot price. Current prices for
prepared prime grade aluminum scrap range from $45 to $51 per pound, and
current prices for No. 1 prepared copper scrap range from $84 to $88 per
pound. The Company seeks to protect against price fluctuations by managing
its raw and processed non-ferrous scrap inventory levels.
Sales prices for non-ferrous scrap are cyclical in nature and are driven
by demand for finished non-ferrous metal goods and by levels of general
economic activity. Secondary smelters, utilizing processed non-ferrous scrap
as raw material, can produce non-ferrous metals at a lower cost than primary
smelters producing such metals from ore due to significant savings in energy
consumption, environmental compliance and labor costs. These cost advantages
and the long lead time necessary to construct new non-ferrous primary
smelting capacity result in sustained demand and strong prices for processed
non-ferrous scrap during periods of high demand for finished non-ferrous
metal products.
THE PAPER RECYCLING MARKET
The Company's paper recycling operations, currently conducted at its
Nevada facility, acquire waste paper products primarily through local
industrial accounts where roll-off boxes are placed to collect waste
materials. The primary grades of waste paper include corrugated cardboard,
newspaper, blank newspaper, hard white, white ledger, computer paper and
rolls. The Company sorts the collected waste paper by grade for shipment to
domestic paper mills. Prices for waste paper vary by grade and the Company
purchases and sells such grades at the spot price.
STRATEGY
The Company's objective is to become one of the largest metals recyclers
in North America through targeted acquisitions of independent metals
recyclers. The Company seeks to capitalize on the opportunity presented by
the growing demand for processed ferrous scrap, the expanding markets created
by the rapid proliferation of new EAF operations and the availability of
metals recycling facilities. By pursuing a consolidation strategy within the
metals
21
<PAGE>
recycling industry, the Company believes that it can significantly enhance
the competitive position and profitability of the operations that it acquires
through improved managerial and financial resources. The Company also
believes that geographic diversity will reduce its vulnerability to the
dynamics of any particular local or regional market. Furthermore, as EAF
capacity and demand for processed ferrous scrap continue to expand, the
Company believes that multi-regional and national EAF operators such as Nucor
Corporation, Birmingham Steel Corporation and North Star Steel Co. will
increasingly rely on suppliers who can provide a dependable quantity and
quality of processed scrap as well as a high degree of service. The Company
believes that it is the only metals recycling company pursuing a
consolidation strategy on a national basis and therefore will be in an ideal
position to become a preferred supplier to major EAF operators.
IDENTIFICATION AND ACQUISITION OF METALS RECYCLING FACILITIES
The Company seeks to identify potential acquisition targets with: (i)
dominant or strategic positions in local or regional markets; (ii) excess or
underutilized capacity; (iii) the ability to supply an existing or planned
metals production facility, such as an EAF; (iv) access to rail, water or
interstate highway transportation systems; and (v) either operational
shredding equipment, the ability to supply the Company's existing shredding
equipment or adequate facilities to permit the installation of such
equipment. Generally, the target should have sufficient asset value to
enable the Company to obtain acquisition financing on reasonable terms and
should not present the risk of significant environmental or other contingent
liabilities. The Company is continuously evaluating acquisition
opportunities in light of the above criteria.
Once an acquisition candidate has been identified, the Company commences
an in-depth due diligence evaluation of the target's operations, markets,
profitability and environmental history. The Company's due diligence
evaluation includes independent third party appraisals for both fair market
and orderly liquidation values of the machinery and equipment, and Phase I
and II environmental studies of the operations and facilities of the target
company.
The Company has successfully commenced its industry consolidation
strategy by acquiring eight metals recycling facilities over the past 24
months. By continuing to acquire facilities that meet the Company's
criteria, the Company believes that it can achieve rapid growth and expand
its existing customer base.
INTEGRATION OF ACQUIRED FACILITIES
An essential component of the Company's acquisition strategy is
improving the operating efficiency, output and capacity of each acquired
facility by targeting three phases of the Company's operations: (i) the
purchase of raw scrap; (ii) the processing of raw scrap into saleable
product; and (iii) the sale of processed scrap. Each acquired facility is
integrated into the Company's operations through a comprehensive program that
targets these operating phases through the installation of management and
financial reporting systems, the implementation of expanded purchasing and
marketing programs, the centralization of operating functions to achieve
economies of scale, selective reductions in personnel and improved inventory
and other financial controls. When necessary, the Company implements a
capital improvements program to repair or replace outdated and inefficient
equipment to improve the facility's scrap processing operations and processed
scrap output.
To achieve and monitor improvements in operating efficiency, the Company
is developing a reporting and training program designed to integrate the
typically unsophisticated management information systems of an acquired
facility into the Company's operations. In order to ensure a smooth
transition and maintain customer and supplier relationships, the Company
generally seeks to retain the acquired facility's existing operating
management.
The Company utilizes a decentralized operating strategy that relies on
local managers experienced in the day-to-day operations of a particular
facility and its local markets. These managers are responsible for operating
decisions such as pricing and purchasing and for the profitability and growth
of that location. The Company will centralize certain administrative,
equipment acquisition, personnel and benefits functions at its corporate
headquarters to reduce overhead, eliminate redundant activities and personnel
and increase financial controls. The Company believes that,
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<PAGE>
over the long term, such centralization will result in reductions in
administrative overhead and the ability to reduce the cost of equipment and
replacement parts.
OPERATIONS
RAW SCRAP PURCHASING
The primary sources of raw scrap are automobile salvage and wrecking
yards, demolition firms, ordinance depots, military bases, public utilities,
industrial facilities, metal fabricators, machine shops, railroads,
refineries, shipyards and numerous independent scrap collectors. Raw or
unprepared scrap is acquired from these sources in the form of automobile
bodies, structural steel from demolition sites, industrial scrap steel,
appliances and other goods fabricated from steel and other metals. The
Company purchases scrap at each of its facilities from industrial accounts
and in negotiated bulk purchases from large suppliers such as demolition
sites, military bases and railroads as well as smaller purchases from
drive-in sellers.
Industrial and governmental sources of raw scrap supply are the result
of long-term supply relationships and competitive bidding. Retail sources of
supply are paid spot prices for their items at the Company's facilities. The
Company employs full-time buyers to manage existing supply relationships and
secure new industrial and governmental supply accounts.
Due to the low value of unprepared scrap compared to its shipping cost,
the Company's facilities are strategically located near sources of supply,
such as major urban areas, and near major railway, interstate highway or
water transportation routes.
The continued availability of raw scrap is dependent upon, among other
things, the local economy, the level of demolition activity and the ability
to maintain supply relationships with local industrial and governmental
sources and automobile wreckers. Consistent with industry practice, the
Company has long-term supply arrangements with certain suppliers, although
none of these arrangements is material to the Company's operations.
SCRAP PROCESSING
Raw scrap metal is prepared for resale by sorting, cleaning, shearing
and shredding the metal into various sized pieces according to customer
specifications and market demand. Metal scrap that is ready for shipment to
the Company's customers is referred to as "prepared scrap."
The Company's sorting operations prepare the raw scrap for further
processing by a variety of methods according to the nature of the material
(i.e., ferrous or non-ferrous), size and composition. Raw scrap is handled
within the Company's facilities using conveyor systems, front-end loaders and
crane mounted electromagnets. Through the sorting process, the Company
determines whether particular items require preliminary preparation before
being shredded.
The Company's processing operations at each of its subsidiaries are
primarily based upon the use of heavy-duty automotive shredders which are
capable of shredding an entire automobile body into fist-sized pieces of
metal within 45 seconds. Through the operation of shredders, ferrous and
non-ferrous items such as automobiles, appliances and vending machines are
shredded into various sized pieces according to customer specifications. The
shredded material is then magnetically separated into ferrous and non-ferrous
metals and non-metallic items. The non-ferrous metals are further separated
utilizing "eddy current separators." The prepared ferrous scrap is then sold
to the Company's customers. The prepared non-ferrous scrap is recovered as a
mixture of aluminum, zinc die-cast, stainless steel and copper and sold to
the Company's customers who further process and separate the mixture into
constituent metals for resale. The non-metallic portion of the shredded
materials, referred to as shredder fluff, is disposed of off site. The
Company currently operates four heavy duty automotive shredders with a
monthly output capacity of approximately 21,500 tons of prepared ferrous
scrap.
Items which are too large or too heavy to be introduced into the
shredder are reduced by either torching or shearing, utilizing crane-mounted
alligator or stationary guillotine shears, into smaller pieces according to
customer
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<PAGE>
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 62% of the Company's revenues
for the six months ended March 31, 1997.
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 24% of the Company's revenues for the six months
ended March 31, 1997.
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 7% of the Company's revenues for the
six months ended March 31, 1997.
SIGNIFICANT CUSTOMERS
Five of the Company's customers; Pacific States Cast Iron & Pipe
Company, The David J. Joseph Company, Protrade, Aceros D.M., S.A. de C.V. and
Deer and Company accounted for approximately 56% of the Company's revenues (7%,
13%, 14%, 14% and 7%, respectively) during the six months ended March 31, 1997.
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
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The scrap market is regionally competitive both in the purchase of raw
scrap and the sale of processed scrap. The Company competes for purchases of
raw scrap with numerous independent recyclers as well as with smaller scrap
yards. The Company's primary competition for processed scrap sales to its
customers are other regional or local metals recyclers.
The primary competitive factors in both the purchase and sale of scrap
are price, shipping costs and availability. In addition, the sale of
processed scrap is affected by the reliability of the metals recycler as a
source of supply and the quality of its processed scrap. The Company
believes that its professional management team, quality of processed scrap
and emphasis on customer service enable it to compete favorably in its
markets. In addition, the Company believes that its national growth strategy
will increase its market exposure to large purchasers of processed scrap,
thereby giving it a competitive advantage relative to independent local and
regional metals recyclers.
The Company believes that, because of the economic, environmental and
zoning impediments to establishing a new metals recycling facility, few new
facilities will be constructed in the foreseeable future. In addition, the
Company does not believe that substitutes for processed ferrous scrap, such
as pre-reduced iron pellets, will have a significant impact on the demand for
ferrous scrap in the foreseeable future.
EMPLOYEES
The Company has approximately 280 full-time employees, most of whom are
employed by the Company's wholly-owned subsidiaries. Weissman has 40
employees of which 20 are represented by the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America (the
"UAW") under a four-year collective bargaining agreement which expires on
November 30, 2000. The Company believes its relationship with its employees
is good.
PROPERTIES
The Company's metals recycling facilities generally are comprised of
administrative offices, warehouses for the storage of repair parts and
certain types of raw and processed scrap, covered and open storage areas for
raw and processed scrap, a machine or repair shop for the maintenance and
repair of the facility's vehicles and equipment, scales for the weighing of
scrap, and loading and unloading facilities. Each facility has specialized
equipment for the processing of all grades of raw scrap which may include a
heavy duty automotive shredder to process both ferrous and non-ferrous scrap,
crane mounted alligator or stationary guillotine shears to process large
pieces of heavy scrap, wire stripping and chopping equipment, baling
equipment and torch cutting facilities. The Company believes its facilities
are adequate for its anticipated production. The following is a summary of
the processing capabilities at each of the Company's properties based on a
single shift:
<TABLE>
Monthly
Facility Size Shredding
Facility Location (acres) Materials Processed Capacity (tons)
- - ------------------------ ------------- ------------------------------------ ----------------
<S> <C> <C> <C>
Las Vegas, Nevada 13 Ferrous and non-ferrous scrap, paper 5,000
Brownsville, Texas 7 Ferrous and non-ferrous scrap (1)
Harlingen, Texas 7 Ferrous and non-ferrous scrap 6,500
McAllen, Texas 1 Ferrous and non-ferrous scrap (1)
San Juan, Texas 8 Ferrous and non-ferrous scrap (1)
Ste. Genevieve, Missouri 32 Ferrous and non-ferrous scrap 5,000
Waterloo, Iowa(2) 34 Ferrous and non-ferrous scrap, paper 5,000
Metter, Georgia 23 Ferrous and non-ferrous scrap 7,000
--- ------
Totals 125 28,500
</TABLE>
- - --------------
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(1) The Company's four Texas facilities are an integrated operation serving the
markets of southern Texas and northern Mexico. All shredding of raw scrap
purchased by these facilities occurs at the Harlingen, Texas location.
(2) Subject to a deed of trust granted to the former owner of Weissman to
secure the Company's guarantee the $1.5 million value of the 363,636 shares
of Common Stock issued in connection with the acquisition of Weissman.
See Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Liquidity and Capital Resources.
Due to the nature of the items handled by the Company and the operation
of shredding equipment, each of the Company's facilities maintains a
comprehensive maintenance program. To reduce costs, each facility has its
own maintenance and repair personnel. The Company also has the ability to
fabricate certain parts of its operating equipment tailored to meet the needs
of a particular facility.
Periodically, the Company may be required to shutdown its shredding
operations for maintenance. If these shutdowns occur for an extended
period of time, they may have an adverse impact on the Company's operations.
The Company leases approximately 3,350 square feet of office space in
Englewood, Colorado as its corporate office. The Company's lease expires on
June 30, 2000. Terms of the lease require the Company to pay a base rent
plus additional pro rata occupancy costs such as building operating costs,
taxes and utilities. Average total rents for the remaining term of the lease
are $13.50 per square foot per year.
LEGAL PROCEEDINGS
Except as discussed below, 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.
On January 22, 1997, the Company and its wholly-owned subsidiary,
Recycling Industries of Texas, Inc. ("RITI") filed an action against Robert
C. Rome, principal of Anglo Metal, Inc. ("AMI"), in the United States
District Court for the District of Colorado. The Company and RITI are seeking
actual and consequential damages in an undetermined amount for fraud by
misrepresentation, deceit by nondisclosure and concealment and breach of
contract in connection with the acquisition of Anglo Iron & Metal in December
1995. Alternatively, the Complaint seeks specific performance of Mr. Rome's
obligations under his agreements with the Company.
On February 21, 1997, the Company and RITI were served with a complaint
filed by AMI in the United States Bankruptcy Court for the Southern District
of Texas. The Complaint alleges that the Company and RITI have failed to
perform certain obligations under their agreement to acquire Anglo Iron &
Metal in December 1995. The plaintiff seeks damages in excess of $3,255,000
for breach of contract, fraud and conversion. Alternatively, the Complaint
seeks to rescind the agreements executed by the Company and RITI to acquire
Anglo Iron & Metal.
The Company believes the allegations in the Complaint filed by AMI
are without merit and will vigorously defend this litigation. Although the
litigation is in the preliminary stage and the outcome cannot be predicted
with certainty, at this time it is the opinion of management that the
litigation will not have a material adverse effect on the Company's
consolidated financial position.
On December 13, 1996, the Company was served with a Complaint filed by
Allan R.A. Beeber and Helaba (Schweiz) Landesbank Hessen-Thurigen AG
(collectively, "Plaintiffs"), in the United States District Court for the
District of Massachusetts. John Silvia, Jr. ("Silvia") and Caside Associates
("Caside") were also named as party defendants. On March 20, 1997, the
District Court granted Plaintiffs' motion for leave to amend the Complaint.
The Plaintiffs seek actual, consequential and punitive damages in an
undetermined amount for breach of contract, fraud, unfair trade practice, and
securities violations in connection with an assignment of the Company's
securities by Silvia and Caside.
The Company believes the allegations in the Complaint filed by Plaintiffs
are without merit and will vigorously defend this litigation. Although the
litigation is in the preliminary stage and the outcome cannot be predicted
with certainty, at this time it is the opinion of management that the litigation
will not have a material adverse effect on the Company's consolidated financial
position.
ENVIRONMENTAL MATTERS
In the course of processing ferrous and non-ferrous metals, the Company
inspects all inbound material several times prior to and during processing to
screen out matter that may be considered "hazardous materials" under various
environmental laws. Such materials may be contained in unprocessed items
such as automobile bodies, light fixtures, construction debris, industrial
machinery and other items manufactured or fabricated primarily out of ferrous
or non-ferrous metals that are acquired and processed by the Company through
its shredder operations (the "feed stream"). While the Company screens the
feed stream for hazardous materials and rejects high-risk items such as
transformers and batteries, certain items in the feed stream may
inadvertently contain hazardous materials that end up in shredder fluff, the
by-product of shredder operation. The Company disposes shredder-fluff at
municipal or private landfills on a truckload basis. Such disposal is not
pursuant to long-term contracts. To avoid classification as a hazardous
waste, shredder fluff must pass toxic leaching tests under certain
environmental laws. Because of the Company's screening of the feed stream
and periodic independent testing of the Company's facilities, it believes
that the shredder fluff produced from its operations does not contain
hazardous materials in excess of allowable limits and is suitable for
disposal in municipal or private landfills. Changes in the environmental
laws or testing methods with respect to shredder fluff, however, may change
the classification and availability of suitable disposal sites for shredder
fluff, resulting in significant additional expense to the Company. In
addition, the premises upon which shredder operations are conducted may
become contaminated by hazardous materials through inadvertent spillage or
improper disposal, although the Company believes that such contamination is
unlikely.
The facilities and equipment of the Company are believed to be in
substantial compliance with the current requirements of all applicable
environmental laws and regulations. There are no capital expenditures
planned for new environmental control equipment, although changes in
environmental laws may require such expenditures in the future. The Company
cannot predict the amount of such expenditures, if any, to comply with future
changes in environmental laws or whether such costs can be passed on to its
customers through increases in the price of processed scrap. Accordingly,
there can be no assurance that such costs will not have a material adverse
effect on the Company.
In addition to the costs of compliance, certain environmental laws may
result in liability arising out of the past operations of the Company's
facilities, whether or not such operations were lawful at the time, and
create public rights of action against the Company for environmental
contamination. Generally, if the Company's past or present operations cause
environmental damage, the Company may be subject to fines and may be required
to remediate the damage. Such costs may have a material adverse effect on
the Company.
The Company has implemented extensive procedures to ensure compliance
with applicable environmental laws. These procedures include screening all
raw scrap for hazardous materials prior to purchase and acceptance. Any
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<PAGE>
hazardous materials found in this process, such as automobile batteries,
suspected PCB contaminated transformers and equipment containing freon, are
segregated and rejected. The Company refuses to accept any sealed or
closed-end barrels of material which may have contained a hazardous material.
In addition to the screening process, the Company retains environmental
engineering firms to perform periodic independent site reviews and sampling
to ensure continued operational compliance and detect any contamination that
may have occurred on the Company's facilities.
Prior to and as a condition to the consummation of any acquisition, the
target company's facilities will be tested and evaluated under the American
Society for Testing and Materials ("ASTM") standards for Phase I and Phase II
environmental site assessments to ascertain compliance with all environmental
laws and regulations. In addition, as many metals recyclers may be subject
to remediation liability with respect to their current or former sites as
well as off-site disposal of hazardous materials, the Company also performs
an ASTM Transaction Screen Process and regulatory action review to determine
the operating history of each target company and whether such companies have
been or are subject to any pending regulatory action for environmental
contamination.
The Phase I and Phase II environmental evaluations performed in
connection with the acquisition of the Company's Texas facilities indicated
possible contamination of portions of the real property associated with such
facilities. To allow sufficient time for further evaluation and the
completion of any necessary remediation, the Company has subleased those
portions of the real property which are free of contamination, as indicated
by the environmental studies performed prior to closing, and will acquire the
balance of the real property only upon completion of environmental studies
and any necessary remediation. In that connection, the Company has placed
the shares of Common Stock given as consideration for the Texas facilities
into escrow until the resolution of all environmental issues.
Loef, in which the Company currently has a minority interest, is a
potentially responsible party with respect to two superfund sites. The
Company has been indemnified by the former owners of Loef to the extent
Loef's liability for such matters as well as other non-environmental matters
exceeds $375,000 up to a maximum of $1 million. In addition, the real
property upon which the Loef facilities are located may have been
contaminated with certain hazardous materials. The former owners of Loef
have agreed to pay for the remediation of the contamination to the extent
remediation costs exceed $125,000 up to $400,000. Loef is currently a
debtor-in-possession under the Bankruptcy Code.
Weissman is a potentially responsible party with respect to one
superfund site. Based upon information the Company has been able to obtain
from the Environmental Protection Agency and other potentially responsible
parties at the site, the Company believes that its estimated cleanup
liability is approximately $30,000.
The environmental assessments performed with respect of the Company's
Nevada and Missouri facilities and Weissman's Iowa facility indicated no
reportable levels of contamination at these facilities.
RECENT DEVELOPMENTS
On April 7, 1997, the Company acquired substantially all of the assets of
Addlestone Recycling Corporation, a metals recycler with operations in Metter,
Georgia, for total consideration of $5.5. The acquisition of Addlestone
Recycling Corporation, which had 1996 operating revenues of approximately $14
Million, increased the Company's monthly shredding capacity by 7,000 tons.
Audited financial statements for Addlestone Recycling Corporation and pro forma
information reflecting the acquisition by the Company are being prepared and
will be filed by amendment on or before May 31, 1997.
On April 8, 1997, the Company executed a definitive agreement to acquire
substantially all the assets of Addlestone International Corporation's
Georgetown, South Carolina, metals recycling facility (the "Georgetown
facility"). The Georgetown facility acquisition is subject to the Company's
satisfactory completion of due diligence and obtaining sufficient financing to
fund the acquisition. If completed, the Georgetown facility will be the
Company's ninth metals recycling facility.
April 10, 1997, the Company executed a letter of intent to acquire
substantially all of the assets and business of Grossman Brothers Co. and
Milwaukee Metal Briquetting Co., Inc. located in Milwaukee, Wisconsin. The
proposed purchase price for the acquisition is $4,000,000. The completion of
this acquisition is subject to a number of material conditions including
satisfactory completion of the Company's due diligence and the ability of the
Company to obtain adequate financing to complete the acquisition.
On April 16, 1997, the Company acquired certain operating equipment from
Newell Recycling of San Antonio, L.P., a Texas limited partnership doing
business in the State of Florida as Newell Recycling of San Antonio, Ltd.,
for total consideration of $865,000.
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<PAGE>
On May 1, 1997, the Company announced that its Board of Directors has
authorized the repurchase of up to 700,000 shares of common stock in open
market transactions.
On May 1, 1997, the Company gave notice of it's intention to repurchase
by May 30, 1997, all of its outstanding Series C Convertible Preferred Stock
for $1.3 million, thereby reducing the fully diluted common stock outstanding
by a minimum of 866,318 shares. As of June 20, 1997, the Company had completed
the repurchase.
On June 20, 1997, Coast Business Credit increased the Company's credit
facility from $20 Million to $25 Million.
On June 20, 1997, the Company borrowed $7 Million in short-term bridge
financing, which indebtedness bears interest at prime rate plus 4% per annum
until December 20, 1997 and thereafter will increase by 1% per annum every
month with principal and accrued interest due on June 20, 1998. In connection
with the bridge financing, the Company issued Siena Warrants to purchase 990,000
shares of Common Stock at $2.00 per share, exercisable until June 20, 2002. The
proceeds from this bridge financing will be used to complete the acquisition of
Addlestone International Corporation and for general working capital purposes.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company and their positions
are set forth below:
Name Age Position(s)
- - ------------------- --- -----------------------------------------------
Thomas J. Wiens 44 Chairman of the Board, Chief Executive Officer
Michael I. Price 55 Director, Chief Operating Officer, President
Brian L. Klemsz 38 Director, Chief Financial Officer, Treasurer
John E. McKibben 56 Vice President - Administration, Secretary
Peter F. Prinz 49 Vice President - Operations
Luke F. Botica 46 Director (2)
Jerome B. Misukanis 53 Director (1)
Graydon H. Neher 47 Director (1)(2)
Barry D. Plost 50 Director (1)
- - ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Each director is elected to hold office until the next annual meeting of
stockholders, or until his successor is elected and qualified. Officers
serve at the discretion of the Board of Directors.
Certain information concerning the directors, executive officers and
certain key employees of the Company are set forth below:
THOMAS J. WIENS. Mr. Wiens has served as Chairman of the Board and
Chief Executive Officer of the Company since its inception. Mr. Wiens has
served as President of First Dominion Holdings, Inc. since 1987. Prior to
founding the Company, Mr. Wiens was involved in various entrepreneurial
pursuits including banking, communications, insurance and retail. Mr. Wiens
has over ten years of experience in the recycling industry. Mr. Wiens
received a BA in Political Science from American University and a MDIV from
Yale University. Mr. Wiens serves on the Board of Advisors of the Yale
Divinity School and on the boards of directors of various charitable
organizations.
MICHAEL I. PRICE. Mr. Price has served as President of the Company
since March 1996 and as Chief Operating Officer since March 1994. Mr. Price
was elected to the Board of Directors of the Company in March 1994. Prior to
joining the Company, Mr. Price was President of Recovermat Technologies,
Inc., a solid waste technology company, from 1992 to 1994. Previously, Mr.
Price served in various capacities in his 29 years in the metals recycling
industry with Joseph Smith & Sons, Inc. and The David J. Joseph Company. Mr.
Price received a BSIE from the General Motors Institute and completed an
Executive MBA program at Indiana University. Mr. Price is a director of ERS
Industries, Inc., a railroad supply company.
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<PAGE>
BRIAN L. KLEMSZ. Mr. Klemsz has served as a Director, Chief Financial
Officer and Treasurer since August 1996. Prior to joining the Company, Mr.
Klemsz served in various management positions for eight years with Advanced
Energy Industries, Inc., a provider of power conversion and control equipment
for the semiconductor and optical coating industries. Mr. Klemsz has over 15
years of experience in operations management, management information systems
and finance. Mr. Klemsz received a BS in Business Administration from the
University of Colorado, a MS in Finance from Colorado State University and a
MS in Accounting from Colorado State University. Mr. Klemsz is a Certified
Public Accountant and is Certified in Production and Inventory Management by
the American Production and Inventory Control Society.
JOHN E. MCKIBBEN. Mr. McKibben has served as Vice President-Administration
of the Company since October 1996. Prior to joining the Company, Mr. McKibben
was Vice President-Administration of National Material Trading, a division of
National Material L.P. and a major broker of scrap iron and steel and importer
of iron substitutes for scrap. Previously, Mr. McKibben served in various
executive capacities in his over 30 years in the metals recycling industry with
Antrim Metals Recycling, Inc., and The David J. Joseph Company. Mr.
McKibben received his BS degree in Industrial Management from the University
of Cincinnati.
PETER F. PRINZ. Mr. Prinz has been employed by the Company since
May 1996. He initially served as General Manager of the Company's Missouri
facility and in May 1997 was designated Vice President of Operations for the
Company. 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 J. Joseph Company from 1982 to 1989 as manager of their Newport,
Kentucky metals recycling plant. Mr. Prinz received a BS in Mechanical
Engineering from the University of Wisconsin.
LUKE F. BOTICA. Mr. Botica was elected to the Board of Directors of the
Company in February 1997. Mr. Botica has served as Senior Vice
President-Finance and Chief Financial Officer of Allied Waste Industries, Inc.
from 1993 through 1995, and as Vice President-Corporate Development and
Planning for Chemical Waste Management, Inc. from 1990 through 1993.
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.
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<PAGE>
The Company's management team includes 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.
STEVEN F. PLEIS. Mr. Pleis, age 47, has served as General Manager for
the Company's Iowa facility since August 1996. Prior to joining the Company,
Mr. Pleis was Executive Vice President of Weissman Iron and Metal, Inc. of
Waterloo, Iowa from 1987 to 1996. Mr. Pleis served in various positions for
Weissman from 1977 to 1986 including accountant and buyer positions. Prior to
joining Weissman, Mr. Pleis practiced accounting for 6 years. Mr. Pleis is
currently on the Board of Directors of the Northwest Chapter of the Institute
of Scrap Recycling Industries. Mr. Pleis received a BS in accounting from
Mankato State University.
ROY LEE PATRICK WELLS. Mr. Well, age 38, has served as General Manager of
the company's Missouri facility since November 1996. Prior to joining the
Company, Mr. Wells was employed by The David J. Joseph Company for 20 years,
most recently as Operations Manager of the United Iron and Metal divisions in
Baltimore.
JAMES M. BREWER. Mr. Brewer, age 41, has served as General Manager of the
Company's Nevada facility since January 1997. Mr. Brewer was General Manager
of the facility at the time it was acquired by the Company in 1994, and
remained in that position until June 1995, at which time he resigned to start
his own business. Mr. Brewer was employed by the prior owner of the facility
for 10 years and served 6 years in the US Marine Corps.
NICO BERLIN. Mr. Berlin, age 49, has served as General Manager of the
Company's Addlestone facility in Metter, Georgia since 1993. Prior to working
at Addlestone Recycling Corporation, Mr. Berlin was the General Manager at the
Addlestone International Corporation in Georgetown, S.C. for three years.
Mr. Berlin received a degree in business administration from the Weizmann
Institute in 1976.
PATRICK C. GIEFER. Mr. Giefer, age 38, has served as Corporate
Controller at the Company's Corporate Office since March 1997. Prior to
joining the Company, Mr. Giefer worked for seven years as the assistant
corporate controller of Seaboard Corporation, a diversified international
agribusiness and transportation company headquartered in Kansas City.
Prior to that he worked in public accounting for seven years.
As the Company expands, it will hire additional qualified individuals
with industry experience to manage the different segments of its operations.
In connection with any future acquisitions, the Company anticipates retaining
the principals of the acquired company to facilitate integration of the
acquired operations into its consolidated group.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
The Board of Directors has established an Audit Committee comprised of
Messrs. Misukanis, Neher and Plost, all of whom are Independent Directors.
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public
accountants the plans of the audit engagement, approves professional services
provided by the independent accountants, reviews the independence of the
independent public accountants and reviews the adequacy of the Company's
internal accounting controls.
COMPENSATION COMMITTEE
The Board of Directors has established a Compensation Committee comprised
of Messrs. Neher and Botica. The Compensation Committee reviews and approves
annual salaries and bonuses for the Company's Executive Officers administers
the Company's Stock Option Plans, described below.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid to the Company's chief executive officer and all other
executive officers of the Company whose total compensation for the
year ended September 30, 1996 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- ----------------------
NAME AND FISCAL OTHER ANNUAL SECURITIES
PRINCIPAL POSITION YEAR SALARY COMPENSATION UNDERLYING OPTIONS
- - ------------------ ------ ----------- ------------- ------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens 1996 $222,000 -0- -0-
Chief Executive 1995 $205,000 $1,257,197(1) -0-
Officer and 1994 147,000(1) -0- -0-
Chairman of the
Board of Directors
Michael I. Price 1996 $210,000 -0- -0-
Chief Operating Officer 1995 $142,500 -0- 150,000(2)
and President 1994 112,000(3) -0- 150,000
</TABLE>
- - ------------
(1) Although accrued, the Company did not pay any cash compensation to
Mr. Wiens during fiscal 1994. During fiscal 1995, the unpaid 1994 salary
of $147,000 was forgiven by Mr. Wiens along with the transfer of certain
technology to the Company in exchange for the right to acquire shares of
the Company's Common Stock, which right was exercised on August 8, 1995.
The amount reported as "Other Annual Compensation" represents the
difference between the purchase price of the Common Stock under such right
and the market value of the Common Stock on August 8, 1995 related to the
forgiven salary. See "Certain Transactions."
(2) Represents the repricing of the option granted to Mr. Price in fiscal 1994.
See "Certain Transactions."
(3) Paid during fiscal 1995.
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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>
DIRECTOR COMPENSATION
Independent Directors will receive an annual fee of $7,500 for their
services in that capacity and $1,500 for each Board of Directors or committee
meeting attended. In addition, the Independent Directors will be granted
options under the Company's 1995 Non-Employee Director Stock Option Plan,
described below. All directors are reimbursed for travel expenses incurred in
attending meetings.
STOCK OPTION PLANS
The Company has established two stock option plans, the Incentive Stock
Option Plan (the "Incentive Plan") and the Non-Qualified Stock Option Plan (the
"Non-Qualified Plan"). In addition, on December 27, 1995, the Board of
Directors adopted, subject to shareholder approval, the 1995 Non-Statutory Stock
Option Plan (the "1995 Plan") and the 1995 Non-Employee Director Stock Option
Plan (the "Director Plan")and, on June 18, 1997, the Board of Directors adopted,
subject to shareholder approval, the 1997 Executive Stock Option Plan (the "1997
Plan"). The terms of each of these stock option plans are discussed further
below. All of the Company's stock option plans are currently
administered by the Board of Directors and will be administered by the
Compensation Committee upon its establishment as discussed above.
INCENTIVE PLAN
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<PAGE>
The Incentive Plan provides for the grant of stock options to officers,
regional managers, department heads, corporate counsel and other key employees
of the Company. An aggregate of 200,000 shares of Common Stock are authorized
for issuance under the Incentive Plan. As of the date of this Prospectus,
options to purchase 20,000 shares of Common Stock at an exercise price of $2.50
per share, 24,000 shares of Common Stock at an exercise price of $2.78 per
share, and 12,000 shares of Common Stock at an exercise price of $6.25
per share have been granted under the Incentive Plan.
Options granted under the Incentive Plan are "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code. As a result,
options granted under the Incentive Plan must have an exercise price of not less
than the fair market value of the Common Stock on the date of grant or, if the
optionee is the owner of more than 10% of the outstanding Common Stock, the
exercise price of the options must not be less than 110% of the fair market
value of the Common Stock on the date of grant. Incentive stock options permit
the optionee to defer taxable income related to the exercise of the option until
subsequent disposition of the shares acquired in connection with such exercise.
Payment of the exercise price for options granted under the Incentive Plan must
be made in cash.
Options granted under the Incentive Plan are not exercisable for a period
of one year from the date of grant and, thereafter, vest at a rate of not less
than 25% per year for the remaining four years of the option term. The term of
any option granted under the Incentive Plan may not exceed five years. The
Incentive Plan provides that the aggregate fair market value of the shares of
Common Stock that may be granted to any single optionee under the Incentive Plan
may not exceed $200,000 during any calendar year. Options granted under the
Incentive Plan are exercisable only by the optionee during the optionee's
lifetime and are not transferable, except under limited circumstances. Options
that are exercisable as of the date the optionee's employment by the Company
terminates, other than by death, expire three months after such termination or
immediately if such termination was for cause. If the optionee dies, the
options shall be exercisable by the optionee's heirs for a six-month period
following the optionee's death. The Incentive Plan terminates on March 19,
2002.
NON-QUALIFIED PLAN
The Non-Qualified Plan provides for the grant of stock options to persons
who are not eligible for grants under the Incentive Plan, including the
Company's Independent Directors or persons who are closely related to the
Company, such as consultants and independent contractors, and who are
recommended to receive grants by the Company's Chief Executive Officer and
Treasurer. An aggregate of 50,000 shares of Common Stock are authorized for
issuance under the Non-Qualified Plan. As of the date of this Prospectus,
options to purchase 18,000 and 12,500 shares of Common Stock at an exercise
price of $2.78 per share have been granted to Messrs. Misukanis and Plost,
respectively.
Options granted under the Non-Qualified Plan must have an exercise price of
not less than the fair market value of the Common Stock on the date of grant or,
if the optionee is the owner of more than 10% of the outstanding Common Stock,
the exercise price of the options must not be less than 110% of the market price
of the Common Stock on the date of grant. Payment of the exercise price may be
made in cash or other non-cash consideration as may be approved and valued by
the Compensation Committee.
Options granted under the Non-Qualified Plan are not exercisable for a
period of one year from the date of grant and, thereafter vest at a rate of not
less than 25% per year for the remaining four years of the option term. The
term of any option granted under the Non-Qualified Plan may not exceed five
years. The Non-Qualified Plan provides that the total number of shares of
Common Stock as to which options granted under the plan may not exceed an
aggregate value of $200,000. Options granted under the Non-Qualified Plan are
exercisable only by the optionee during the optionee's lifetime and are not
transferable, except under limited circumstances. Options that are exercisable
as of the date the optionee's relationship with the Company terminates, other
than by death, expire three months after such termination. If the optionee
dies, the options shall be exercisable by the optionee's heirs for a six-month
period following the optionee's death. The Non-Qualified Plan terminates on
March 19, 2002.
1995 PLAN
The 1995 Plan provides for the grant of stock options to employees,
officers and employee directors of the Company. An aggregate of 2,000,000
shares of Common Stock are authorized for issuance under the 1995 Plan.
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<PAGE>
Concurrently with the adoption of the 1995 Plan by the Board of Directors on
December 27, 1995, options to acquire 300,000 shares of Common Stock at an
exercise price of $2.87 per share were granted to Mr. Wiens, the Company's
Chairman and Chief Executive Officer, and options to acquire 450,000 shares of
Common Stock at an exercise price of $2.87 per share were granted to Mr. Price,
the Company's Chief Operating Officer and President. These options and the 1995
Plan are subject to approval by the Company's shareholders at the 1996 annual
meeting of shareholders. The 1995 Plan terminates on December 27, 2006.
Options granted under the 1995 Plan must have an exercise price of not less
than 80% of the fair market value of the Common Stock on the date of grant.
Payment of the exercise price may be made in cash, in shares of the Company's
Common Stock having a fair market value equal to the aggregate exercise price, a
combination of cash and shares of Common Stock or, subject to the approval of
the Compensation Committee, in whole or in part with monies received from the
Company as a compensatory cash payment.
The term of any option granted under the 1995 Plan may not exceed ten
years. Options granted under the 1995 Plan are not transferable, except under
limited circumstances. If the optionee ceases to be an employee, officer or
employee director of the Company or a subsidiary or parent corporation of the
Company, other than by reason of death, disability or cause, all unexercised
options granted under the 1995 Plan shall terminate 90 days thereafter. If the
optionee is terminated for cause, all unexercised options shall immediately
terminate. If the optionee's employment is terminated by reason of death,
disability or retirement, all unexercised options shall terminate one year
thereafter.
DIRECTOR PLAN
The Director Plan provides for the grant of stock options to existing
and future Independent Directors of the Company. Each Independent Director
will receive an initial grant of options under the Director Plan to acquire
up to 5,000 shares of the Company's Common Stock having an exercise price
equal to the fair market value of the Common Stock on the date such person
first becomes an Independent Director. Thereafter, each independent director
who is serving as a director on December 1 of each calendar year, commencing
with December 1, 1996, will automatically be granted an option to acquire up
to 5,000 shares of Common Stock at an exercise price per share equal to the
fair market value per share of Common Stock on such date. Each Independent
Director joining the Board of Directors within 30 days of the consummation of
the Offering will receive options having an exercise price equal to the
Offering Price. Messrs. Misukanis, Neher and Plost, who were serving as
Independent Directors on December 7, 1995, each received an initial grant of
5,000 options under the Director Plan having an exercise price of $2.87 per
share, the fair market value per share of the Common Stock on that date.
These options and the Director Plan are subject to approval by the Company's
shareholders at the 1996 annual meeting of shareholders. The Director Plan
terminates on December 7, 2006.
Payment of the exercise price for options granted under the Director Plan
may be made in cash, in shares of the Company's Common Stock having a fair
market value equal to the aggregate exercise price, a combination of cash and
shares of Common Stock or, subject to the approval of the Compensation
Committee, in whole or in part with monies received from the Company as a
compensatory cash payment.
Options granted under the Director Plan will be exercisable commencing six
months after the date of grant and continuing for five years from the date of
grant. Options granted under the Director Plan are not transferable, except
under limited circumstances. If the optionee ceases to be an Independent
Director other than by reason of death, disability or cause, all unexercised
options shall terminate 90 days thereafter. If the optionee is removed from the
board for cause, all unexercised options shall immediately terminate. If the
optionee's service as a director is terminated by reason of death, disability or
retirement, all unexercised options shall terminate one year thereafter.
1997 PLAN
The 1997 Plan provides for the grant of stock options to officers of the
Company. An aggregate of 4,000,000 shares of Common Stock are authorized for
issuance under the 1997 Plan. The 1997 Plan is subject to approval by the
Company's shareholders at the 1997 annual meeting of shareholders. The 1997
Plan terminates on June 18, 2007.
Options granted under the 1997 Plan must have an exercise price of not less
than 80% of the fair market value of the Common Stock on the date of grant.
Payment of the exercise price may be made in cash, in shares of the Company's
Common Stock having a fair market value equal to the aggregate exercise price, a
combination of cash and shares of Common Stock or, subject to the approval of
the Compensation Committee, in whole or in part with monies received from the
Company as a compensatory cash payment.
The term of any option granted under the 1997 Plan may not exceed ten
years. Options granted under the 1997 Plan are not transferable, except under
limited circumstances. If the optionee ceases to be an employee, officer or
employee director of the Company or a subsidiary or parent corporation of the
Company, other than by reason of death, disability or cause, all unexercised
options granted under the 1997 Plan shall terminate 90 days thereafter. If the
optionee is terminated for cause, all unexercised options shall immediately
terminate. If the optionee's employment is terminated by reason of death,
disability or retirement, all unexercised options shall terminate one year
thereafter.
PRINCIPAL SHAREHOLDERS
As of June 16, 1997, the Company's only class of outstanding voting
securities was its Common Stock, $.001 par value. The following table sets
forth information as of June 17, 1997 with respect to the ownership of the
34
<PAGE>
Common Stock by all executive officers, directors and persons known by the
Company to beneficially own more than five percent of the Common Stock. The
following shareholders have sole voting and investment power with respect to
the shares, unless indicated otherwise:
<TABLE>
SHARES OF PERCENTAGE OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK PERCENTAGE OF
BENEFICIALLY OWNERSHIP BENEFICIALLY COMMON STOCK
OWNED PRIOR TO PRIOR TO THE OWNED AFTER OWNERSHIP AFTER
NAME OF BENEFICIAL OWNER THE OFFERING OFFERING THE OFFERING THE OFFERING(1)/(2)
- - ------------------------ -------------- ------------- ------------ -------------------
<S> <C> <C> <C> <C>
Caside Associates 841,990(3) 6.0% 0(2) 1.4%/1.1%
373 North Main St.
Fall River, MA 02720
Janus Venture Fund (4) 902,200 6.5 902,200 6.5
Janus Capital Corporation (4)
Thomas H. Bailey (4)
100 Fillmore Street
Denver, Colorado 80206
Lindner Growth Fund 857,900 6.2 857,900 6.2
c/o Ryback Management Corporation
7711 Carondelet Avenue, Box 16900
St. Louis, Missouri 63105
CERTAIN DIRECTORS AND
EXECUTIVE OFFICERS (5)
Thomas J. Wiens 2,284,103(6) 16.4% 2,284,103 16.4%/12.3%
Michael I. Price 154,000(7) 1.1% 154,000 1.1%/.9%
Jerome B. Misukanis 18,000(8) .1% 0 0%/0%
Graydon H. Neher 28,000(9) .2% 0 0%/0%
Barry D. Plost 14,000(10) .1% 0 0%/0%
Brian Klemsz 0 0% 10,000 0%/0%
Luke F. Botica 0 0% 0 0%/0%
Directors and Executive Officers
as a group 2,498,103 17.7% 2,438,103 17.3%/13.2%
</TABLE>
- - ------------
(1) Assuming none of the Warrants are exercised.
(2) Assuming all of the Warrants are exercised.
(3) Includes 210,000 shares underlying common stock purchase warrants. The
shares held by Caside Associates may be deemed to be beneficially owned by
the partners of Caside Associates, who are John Silvia Jr., Louis G.
Carreiro, Joseph L. Vinagro, Ronald Rapoza, Dwight D. Silvia, Louis
Goncalo, Patricia Mello, Ilene Hayes and Recycling Associates Trust.
Caside Associates is a Selling Securityholder in the Offering. See
"Selling Securityholders."
(4) The 902,200 shares owned of record by Janus Venture Fund (the "Fund")
may be deemed to be beneficially owned by Janus Capital Corporation
("Capital"), investment advisor to the Fund, and Mr. Bailey who owns
12.2% of Capital and serves as Capital's chairman and president.
Capital and Mr. Bailey disclaim beneficial ownership of the shares owned
by the Fund.
(5) The business address of all directors and executive officers is 384
Inverness Drive South, Suite 211, Englewood, Colorado 80112.
(6) Includes 1,664 shares owned by Real Heroes, Inc., a non-profit corporation
controlled by Thomas J. Wiens, and 227,414 shares owned by First Dominion,
a corporation controlled by Thomas J. Wiens.
(7) Includes 150,000 shares underlying options.
(8) Includes 12,000 shares underlying options. Mr. Misukanis is a Selling
Securityholder in the Offering. See "Selling Securityholders."
(9) Includes 12,000 shares underlying common stock purchase warrants.
Mr. Neher is a Selling Securityholder in the Offering. See "Selling
Securityholders."
(10) Includes 6,000 shares underlying common stock purchase warrants. Mr. Plost
is a Selling Securityholder in the Offering. See "Selling Securityholders."
CERTAIN TRANSACTIONS
On December 1, 1991 the Company entered into exclusive perpetual license
agreements related to the MSW Technology with First Dominion, a company owned
and controlled by Thomas J. Wiens. Under the original terms of the license
agreements, the Company was to pay certain license fees and royalties,
provided that the Company
35
<PAGE>
had raised additional equity and had constructed operational facilities
utilizing the MSW Technology. On January 25, 1995, the Company paid $750,000
to First Dominion in exchange for (i) ownership of the MSW Technology and
certain other technology related to the recycling of shredder fluff, (ii)
291,333 shares of Series B preferred stock owned by First Dominion and (iii)
the forgiveness of $750,000 of accrued salary, royalties and other amounts
due from the Company to Thomas J. Wiens and First Dominion. In connection
with this purchase, the Company granted to Mr. Wiens the right to acquire
$1,187,500 of Common Stock at a price equal to the lesser of 50% of the fair
market value of the Common Stock or $.90 per share, exercisable on the day
the Company reported gross revenues in excess of designated amounts. On
January 25, 1995, the last reported sales price of the Common Stock was $3.15
per share. The Company met the gross revenue requirement on August 8, 1995
upon filing of its Form 10-Q for the quarter ended June 30, 1995. At that
time, Mr. Wiens exercised his right and acquired 1,319,445 shares of Common
Stock at an acquisition price of $.90 per share.
During the fiscal years ended September 30, 1994 and September 30, 1995,
the Company received bridge loans from First Dominion in an aggregate amount
of $887,000. During fiscal 1994, this loan was converted to 591,333 shares
of Series B preferred stock at the request of First Dominion. The rights,
designations and preferences of the Series B preferred stock provided that
the Series B preferred stock was convertible into Common Stock on a
five-for-one share basis. The Company reacquired 291,333 shares of Series B
preferred stock from First Dominion in the transaction described above, and
the remaining shares of Series B preferred stock were transferred by First
Dominion to a third party and were subsequently converted into Common Stock.
On January 25, 1995, the Company repriced an option previously granted
to Michael I. Price and granted an option to Jerome B. Misukanis, executive
officers of the Company, to purchase up to 150,000 and 12,000 shares of
Common Stock, respectively, exercisable for nominal consideration. On August
3, 1995, these options were amended to revise the exercise price to $.90 per
share. At the time of the repricing of these options, the Company was
selling shares of Common Stock in a private placement at approximately $.90
per share, which the Company believes represented the fair market value of
the Common Stock on that date. The options expire on December 31, 1998.
SELLING SECURITYHOLDERS
The following tables set forth the total number of Series C Preferred,
Warrants, the number of Shares and the total number of Shares assuming the
conversion or exercise of all Series C Preferred and Warrants owned by each
of the Selling Securityholders and registered hereunder. Except as
indicated, the Selling Securityholders are offering all of the shares of
Common Stock owned by them or received by them upon conversion of the Series
C Preferred or exercise of the Warrants and none of the Selling
Securityholders is the beneficial owner of one percent or more of the
outstanding shares of Common Stock (including the Shares offered hereby).
Because the Selling Securityholders may offer all or part of the Shares
or the shares of Common Stock received upon conversion or exercise of the
Series C Preferred and/or Warrants, which they hold pursuant to the offering
contemplated by this Prospectus, and because their offering is not being
underwritten on a firm commitment basis, no estimate can be given as to the
amount of Series C Preferred and/or Warrants that will be held upon
termination of this offering. Furthermore, substantially all of the Selling
Securityholders are subject to lock-up agreement with the Company that limit
the number of Shares that may be sold by them during a given period of time.
See "Plan of Distribution." The Shares and the shares of Common Stock
received upon conversion or exercise of the Series C Preferred and Warrants
offered by this Prospectus may be offered from time to time by the Selling
Securityholders named below.
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Administrative Nominees, Inc. 30,000 15,000 45,000
- - --------------------------------------------------------------------------------------------------------------------
Ahrens, Felice J. IRA 4,000 2,000 6,000
- - --------------------------------------------------------------------------------------------------------------------
Ahrens, Robert K. IRA 20,000 10,000 30,000
- - --------------------------------------------------------------------------------------------------------------------
Ally Capital Corporation 0
- - --------------------------------------------------------------------------------------------------------------------
Alpert, Larry 2,000 1,000 3,000
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMCO Capital Reserves & Investments SA 10,000 5,000 15,000
- - --------------------------------------------------------------------------------------------------------------------
Anderson, Roger 4,000 2,000 6,000
- - --------------------------------------------------------------------------------------------------------------------
Anglo Metal, Inc. 127,693 127,693
- - --------------------------------------------------------------------------------------------------------------------
Arel Company, The 12,000 9,000 21,000
- - --------------------------------------------------------------------------------------------------------------------
Beach Capital Reserves, Inc. 4,000 2,000 6,000
- - --------------------------------------------------------------------------------------------------------------------
Balle, Michael 11,200 8,400 19,600
- - --------------------------------------------------------------------------------------------------------------------
Barnett, Beatrice 6,000 3,000 9,000
- - --------------------------------------------------------------------------------------------------------------------
Becker, Beverly (Joint Tenant with
Melvin Weinstock) 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Becker, Marshall M. 154,500 123,113 277,613
- - --------------------------------------------------------------------------------------------------------------------
Becker, Stanley 198,018 148,514 346,532
- - --------------------------------------------------------------------------------------------------------------------
Becker, Stanley IRA 198,859 149,145 348,004
- - --------------------------------------------------------------------------------------------------------------------
Benenson Capital Company, The 37,600 28,200 65,800
- - --------------------------------------------------------------------------------------------------------------------
Benjamin, Dr. Samuel E. 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Benjamin, Dr. Samuel E. IRA 283,200 212,400 495,600
- - --------------------------------------------------------------------------------------------------------------------
Besen, Michael 4,000 3,000 7,000
- - --------------------------------------------------------------------------------------------------------------------
Blitstein, Murray IRA 24,000 18,000 42,000
- - --------------------------------------------------------------------------------------------------------------------
Boulter, David 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Bree, Robert L. 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Brook, Carol and Gordon 93,757 27,600 18,479 139,836
- - --------------------------------------------------------------------------------------------------------------------
Byrne, E. Blake 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Coast Business Credit 0
- - --------------------------------------------------------------------------------------------------------------------
Caside Associates (1) 432,000 36,000 468,000
- - --------------------------------------------------------------------------------------------------------------------
Chemco, Inc. (2) 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Clapp, Clarence P. and Doris E. 113,494 36,747 150,241
- - --------------------------------------------------------------------------------------------------------------------
Claps, Vito & Maria 4,000 2,000 6,000
- - --------------------------------------------------------------------------------------------------------------------
Cohen, Saul 8,800 6,600 15,400
- - --------------------------------------------------------------------------------------------------------------------
Combermere Corp. BSSC Master Defined
Contribution Profit Sharing Plan 72,000 36,000 108,000
- - --------------------------------------------------------------------------------------------------------------------
Doherty, George O. 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Dushey, Saul 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Dyke, Kermit 85,264 27,632 112,896
- - --------------------------------------------------------------------------------------------------------------------
Epinal Corporation 14,400 10,800 25,200
- - --------------------------------------------------------------------------------------------------------------------
First Equity Capital Securities, Inc. 3,218 3,218
- - --------------------------------------------------------------------------------------------------------------------
Friedland, Clifford A. 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gale, James C. 17,600 17,600
- - --------------------------------------------------------------------------------------------------------------------
Gay, Robert J. IRA 36,000 18,000 54,000
- - --------------------------------------------------------------------------------------------------------------------
Geertz, Woodrow M. 21,600 16,200 37,800
- - --------------------------------------------------------------------------------------------------------------------
Gironta, Michael 10,000 10,000
- - --------------------------------------------------------------------------------------------------------------------
Glass, Eva D. 8,000 4,000 12,000
- - --------------------------------------------------------------------------------------------------------------------
Glassman, Beth IRA 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Glassman, Leonard 22,000 11,000 33,000
- - --------------------------------------------------------------------------------------------------------------------
Glassman, Steven 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Glassman, Steven IRA 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Global Asset Allocation Consultants 138,525 51,663 190,188
- - --------------------------------------------------------------------------------------------------------------------
Goldberg, Steven L. 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Goldberg, Ted M. 24,000 18,000 42,000
- - --------------------------------------------------------------------------------------------------------------------
Goldsmith, Mark D. 250 250
- - --------------------------------------------------------------------------------------------------------------------
Greenberg, Charles L. and Donna 17,600 17,600
- - --------------------------------------------------------------------------------------------------------------------
Grills, Ralph J. Jr. 96,000 72,000 168,000
- - --------------------------------------------------------------------------------------------------------------------
Gruntal & Co. 9,680 9,680
- - --------------------------------------------------------------------------------------------------------------------
Harborside Associates 183,200 137,400 320,600
- - --------------------------------------------------------------------------------------------------------------------
Heptagon Investments Ltd. 32,000 16,000 48,000
- - --------------------------------------------------------------------------------------------------------------------
Hest, Lional G. and Amy 10,000 10,000
- - --------------------------------------------------------------------------------------------------------------------
Holstein, Barrie and Scott 12,000 9,000 21,000
- - --------------------------------------------------------------------------------------------------------------------
Homiak, Michael J. 13,598 4,599 18,197
- - --------------------------------------------------------------------------------------------------------------------
Hughes, James C. III TTEE
Profit Sharing Trust 18,000 9,000 27,000
- - --------------------------------------------------------------------------------------------------------------------
Iovine, Vincent J. 8,138 1,187 2,749 12,074
- - --------------------------------------------------------------------------------------------------------------------
The Jaguar Investment Group 22,000 11,000 33,000
- - --------------------------------------------------------------------------------------------------------------------
Johnson, Howard 6,000 3,000 9,000
- - --------------------------------------------------------------------------------------------------------------------
Johnson, Kim 8,117 2,739 10,856
- - --------------------------------------------------------------------------------------------------------------------
Jurman, Edward 2,000 1,000 3,000
- - --------------------------------------------------------------------------------------------------------------------
Kantor, Robert 36,800 27,600 64,400
- - --------------------------------------------------------------------------------------------------------------------
Kaplowitz, Gary 18,000 9,000 27,000
- - --------------------------------------------------------------------------------------------------------------------
Kilmartin, John D. 24,000 18,000 42,000
- - --------------------------------------------------------------------------------------------------------------------
Kim, Charles IRA 20,000 15,000 35,000
- - --------------------------------------------------------------------------------------------------------------------
Kim, Y.J. Trust 96,000 72,000 168,000
- - --------------------------------------------------------------------------------------------------------------------
Kinston Pathology PA Profit
Sharing Plan 18,000 9,000 27,000
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kleinberg, Douglas 880 880
- - --------------------------------------------------------------------------------------------------------------------
Korman, Lance Stuart 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Kreissman, James G. 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Kreissman, Robert H. 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Krieger, Robert S. 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
KTB Enterprises 6,000 3,000 9,000
- - --------------------------------------------------------------------------------------------------------------------
Latshaw, John 17,600 17,600
- - --------------------------------------------------------------------------------------------------------------------
Lattanzio, Steve 14,128 4,564 18,692
- - --------------------------------------------------------------------------------------------------------------------
Latter, David 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Lauratex Fabrics, Inc. Pension Plan 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Lee, Dr. Tzium Shou IRA 154,400 115,800 270,200
- - --------------------------------------------------------------------------------------------------------------------
Leotta, Jospeh B. 28,436 9,218 37,654
- - --------------------------------------------------------------------------------------------------------------------
Levine, Kenneth R. 154,500 123,112 277,612
- - --------------------------------------------------------------------------------------------------------------------
Levitin, Eli 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Libsohn, David & Mitzi 2,000 1,000 3,000
- - --------------------------------------------------------------------------------------------------------------------
Lubliner, Jerry 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Lyons, James V. IRA 22,000 11,000 33,000
- - --------------------------------------------------------------------------------------------------------------------
Malinow, Gerald 10,000 5,000 15,000
- - --------------------------------------------------------------------------------------------------------------------
Marigold Corp. 6,000 3,000 9,000
- - --------------------------------------------------------------------------------------------------------------------
McConnaughy, J.E., Jr. 328,800 246,600 575,400
- - --------------------------------------------------------------------------------------------------------------------
Merhab, Marlan M. 4,000 2,000 6,000
- - --------------------------------------------------------------------------------------------------------------------
Metwalli, Ahmed 20,000 10,000 30,000
- - --------------------------------------------------------------------------------------------------------------------
Mincey, John 18,260 18,260
- - --------------------------------------------------------------------------------------------------------------------
Mind Works Capital Corp. 105,600 79,200 184,800
- - --------------------------------------------------------------------------------------------------------------------
Misukanis, Jerome B. (3) 6,000 6,000
- - --------------------------------------------------------------------------------------------------------------------
Morales, Ibra 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Moysak, Thomas J. 293 293
- - --------------------------------------------------------------------------------------------------------------------
Nathanson, Barry F. 157,143 117,858 275,001
- - --------------------------------------------------------------------------------------------------------------------
NCO Investors III, L.P. 60,000 60,000
- - --------------------------------------------------------------------------------------------------------------------
Nevada Recycling Corporation 0
- - --------------------------------------------------------------------------------------------------------------------
Nevo, Aviv 11,329 5,665 16,994
- - --------------------------------------------------------------------------------------------------------------------
Northeast Securities, Inc. 39,917 5,231 14,129 59,277
- - --------------------------------------------------------------------------------------------------------------------
O'Shea, John P. 60,000 30,000 90,000
- - --------------------------------------------------------------------------------------------------------------------
Ong, Beale H. Pension Plan & Trust 36,000 18,000 54,000
- - --------------------------------------------------------------------------------------------------------------------
Palomares, Bernabe P. IRA 46,000 23,000 69,000
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE
REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Palomares, Elba B. IRA 36,000 18,000 54,000
- - --------------------------------------------------------------------------------------------------------------------
Parsons, Frederick C. III, PA
Profit Sharing Plan 36,000 18,000 54,000
- - --------------------------------------------------------------------------------------------------------------------
Pellett Investments 12,244 7,164 19,408
- - --------------------------------------------------------------------------------------------------------------------
Pellillo, Domenic IRA 6,000 3,000 9,000
- - --------------------------------------------------------------------------------------------------------------------
Perrone, Stephen J. 13,563 292 4,582 18,437
- - --------------------------------------------------------------------------------------------------------------------
Pius, Alan and Ann 4,000 2,000 6,000
- - --------------------------------------------------------------------------------------------------------------------
Plost, Barry (4) 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Popolow, Joseph 18,851 1,213 7,666 27,730
- - --------------------------------------------------------------------------------------------------------------------
Proctor, Edward 10,000 5,000 15,000
- - --------------------------------------------------------------------------------------------------------------------
Prosperity Investments, Inc. 14,400 10,800 25,200
- - --------------------------------------------------------------------------------------------------------------------
Pumphrey, Robert E. Jr. MD
Profit Sharing Plan 36,000 18,000 54,000
- - --------------------------------------------------------------------------------------------------------------------
Raskin, Laura and Julian A. 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Regal Finance & Holdings, SA 14,000 7,000 21,000
- - --------------------------------------------------------------------------------------------------------------------
River Investments & Holdings, Inc. 14,000 7,000 21,000
- - --------------------------------------------------------------------------------------------------------------------
Romain, Gerald TTEE Profit Sharing Plan 10,000 5,000 15,000
- - --------------------------------------------------------------------------------------------------------------------
Rothstein, Allan P. 28,000 14,000 42,000
- - --------------------------------------------------------------------------------------------------------------------
Rothstein, Stephen 10,000 5,000 15,000
- - --------------------------------------------------------------------------------------------------------------------
Sablowsky, Robert 5,000 5,000
- - --------------------------------------------------------------------------------------------------------------------
Settondown Capital International
- - --------------------------------------------------------------------------------------------------------------------
Shaar Fund, Ltd.
- - --------------------------------------------------------------------------------------------------------------------
Shiman, Stewart A. 54,082 18,421 72,503
- - --------------------------------------------------------------------------------------------------------------------
Silva, Rosalie and Jerry 60,000 30,000 10,000 100,000
- - --------------------------------------------------------------------------------------------------------------------
Southern Medical Associates PA Money
Purchase Pension Plan 66,000 33,000 99,000
- - --------------------------------------------------------------------------------------------------------------------
Spann, Samuel Jr. 6,000 3,000 9,000
- - --------------------------------------------------------------------------------------------------------------------
Sundlun, Stuart 1,200 1,200
- - --------------------------------------------------------------------------------------------------------------------
Sundlun, Tracy Walter 14,400 10,800 25,200
- - --------------------------------------------------------------------------------------------------------------------
Swaim, J. Roddy 10,000 5,000 15,000
- - --------------------------------------------------------------------------------------------------------------------
Tellinger, Billye 0
- - --------------------------------------------------------------------------------------------------------------------
Thomas, James Sr. IRA 90,000 45,000 135,000
- - --------------------------------------------------------------------------------------------------------------------
Walsh, John M. 2,000 1,000 3,000
- - --------------------------------------------------------------------------------------------------------------------
John M. Walsh Securities C.
Profit Sharing Plan 40,000 20,000 60,000
- - --------------------------------------------------------------------------------------------------------------------
Walsh, Michael J. 4,000 3,000 7,000
- - --------------------------------------------------------------------------------------------------------------------
Walsh, Michael J. IRA 4,000 3,000 7,000
- - --------------------------------------------------------------------------------------------------------------------
Wanas Investment Ltd. 80,000 60,000 140,000
- - --------------------------------------------------------------------------------------------------------------------
Weinstein, Robert 3,520 3,520
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY THE
SELLING SECURITYHOLDERS
SERIES G SERIES H SERIES I SERIES J TABLE I
SELLING SECURITYHOLDER SHARES WARRANTS WARRANTS WARRANTS WARRANTS TOTAL
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weinstock, Jerry 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Weinstock, Shelley and Steven 8,000 6,000 14,000
- - --------------------------------------------------------------------------------------------------------------------
Weissman Financial 363,636 363,636
- - --------------------------------------------------------------------------------------------------------------------
Williams, Gibbs A. 28,460 9,230 37,690
- - --------------------------------------------------------------------------------------------------------------------
Wittenstein, Frederick M. IRA 133,045 99,784 232,829
- - --------------------------------------------------------------------------------------------------------------------
Wittenstein, Frederick M. Pension Plan 0
- - --------------------------------------------------------------------------------------------------------------------
Wolfenson, Dr. Gilbert B. IRA 16,000 12,000 28,000
- - --------------------------------------------------------------------------------------------------------------------
Wolfson Equities 72,000 54,000 126,000
- - --------------------------------------------------------------------------------------------------------------------
Wood, Eugene W. IRA 16,000 8,000 24,000
- - --------------------------------------------------------------------------------------------------------------------
Worden, Andrew B. Retirement Plan 6,902 5,177 12,079
- - --------------------------------------------------------------------------------------------------------------------
Wright, Dickerson 4,000 2,000 6,000
- - --------------------------------------------------------------------------------------------------------------------
Wrigley Holdings, SA 100,000 35,000 135,000
- - --------------------------------------------------------------------------------------------------------------------
TOTALS 5,894,479 2,136,878 283,333 21,200 727,083 9,052,973
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Prior to the commencement of this offering, Caside Associates
beneficially owned 6.0% of the Company's outstanding Common Stock.
2. Chemco, Inc. is controlled by Graydon H. Neher, a director of the
Company.
3. Mr. Misukanis is a director of the Company.
4. Mr. Plost is a director of the Company.
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK WARRANTS TO BE REGISTERED AND OFFERED BY THE
SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Administrative Nominees, Inc. 45,000 45,000 0
- - ---------------------------------------------------------------------------------------------------------------
Ahrens, Felice J. IRA 6,000 6,000 0
- - ---------------------------------------------------------------------------------------------------------------
Ahrens, Robert K. IRA 30,000 30,000 0
- - ---------------------------------------------------------------------------------------------------------------
Ally Capital Corporation 0 53,600 53,600 0
- - ---------------------------------------------------------------------------------------------------------------
Alpert, Larry 3,000 3,000 0
- - ---------------------------------------------------------------------------------------------------------------
AMCO Reserves & Investments SA 15,000 15,000 0
- - ---------------------------------------------------------------------------------------------------------------
Anderson, Roger 6,000 6,000 0
- - ---------------------------------------------------------------------------------------------------------------
Anglo Metal, Inc. 127,693 127,693 0
- - ---------------------------------------------------------------------------------------------------------------
Arel Company, The 21,000 21,000 0
- - ---------------------------------------------------------------------------------------------------------------
Beach Capital Reserves, Inc. 6,000 6,000 0
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balle, Michael 19,600 19,600 0
- - ---------------------------------------------------------------------------------------------------------------
Barnett, Beatrice 9,000 9,000 0
- - ---------------------------------------------------------------------------------------------------------------
Becker, Beverly (Joint
Tenant with Melvin Weinstock) 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Becker, Marshall M. 277,613 40,002 317,615 0
- - ---------------------------------------------------------------------------------------------------------------
Becker, Stanley 346,532 346,532 0
- - ---------------------------------------------------------------------------------------------------------------
Becker, Stanley IRA 348,004 348,004 0
- - ---------------------------------------------------------------------------------------------------------------
Benenson Capital Company, The 65,800 65,800 0
- - ---------------------------------------------------------------------------------------------------------------
Benjamin, Dr. Samuel E. 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Benjamin, Dr. Samuel E. IRA 495,600 495,600 0
- - ---------------------------------------------------------------------------------------------------------------
Besen, Michael 7,000 7,000 0
- - ---------------------------------------------------------------------------------------------------------------
Blitstein, Murray IRA 42,000 42,000 0
- - ---------------------------------------------------------------------------------------------------------------
Boulter, David 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Bree, Robert L. 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Brook, Carol and Gordon 139,836 139,836 0
- - ---------------------------------------------------------------------------------------------------------------
Byrne, E. Blake 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Coast Business Credit 0 26,667 26,667 0
- - ---------------------------------------------------------------------------------------------------------------
Caside Associates (1) 468,000 180,000 648,000 193,990
- - ---------------------------------------------------------------------------------------------------------------
Chemco, Inc. (2) 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Clapp, Clarence P. and Doris E. 150,241 150,241 0
- - ---------------------------------------------------------------------------------------------------------------
Claps, Vito & Maria 6,000 6,000 0
- - ---------------------------------------------------------------------------------------------------------------
Cohen, Saul 15,400 15,400 0
- - ---------------------------------------------------------------------------------------------------------------
Combermere Corp. BSSC Master Defined
Contribution Profit Sharing Plan 108,000 108,000 0
- - ---------------------------------------------------------------------------------------------------------------
Doherty, George O. 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Dushey, Saul 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Dyke, Kermit 112,896 112,896 0
- - ---------------------------------------------------------------------------------------------------------------
Epinal Corporation 25,200 25,200 0
- - ---------------------------------------------------------------------------------------------------------------
First Equity Capital Securities, Inc. 3,218 6,436 9,654 0
- - ---------------------------------------------------------------------------------------------------------------
Friedland, Clifford A. 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Gale, James C. 17,600 17,600 0
- - ---------------------------------------------------------------------------------------------------------------
Gay, Robert J. IRA 54,000 54,000 0
- - ---------------------------------------------------------------------------------------------------------------
Gironta, Michael 37,800 37,800 0
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Geertz, Woodrow M. 10,000 10,000 0
- - ---------------------------------------------------------------------------------------------------------------
Gelin, Peter J. 26,000 26,000 0
- - ---------------------------------------------------------------------------------------------------------------
Glass, Eva D. 12,000 12,000 0
- - ---------------------------------------------------------------------------------------------------------------
Glassman, Beth IRA 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Glassman, Leonard 33,000 33,000 0
- - ---------------------------------------------------------------------------------------------------------------
Glassman, Steven 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Glassman, Steven IRA 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Global Asset Allocation Consultants 190,188 190,188 0
- - ---------------------------------------------------------------------------------------------------------------
Goldberg, Steven L. 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Goldberg, Ted M. 42,000 42,000 0
- - ---------------------------------------------------------------------------------------------------------------
Goldsmith, Mark D. 250 500 750 0
- - ---------------------------------------------------------------------------------------------------------------
Greenberg, Charles L. and Donna 17,600 17,600 0
- - ---------------------------------------------------------------------------------------------------------------
Grills, Ralph J. Jr. 168,000 168,000 0
- - ---------------------------------------------------------------------------------------------------------------
Gruntal & Co. 9,680 9,680 0
- - ---------------------------------------------------------------------------------------------------------------
Harborside Associates 320,600 320,600 0
- - ---------------------------------------------------------------------------------------------------------------
Heptagon Investments Ltd. 48,000 48,000 0
- - ---------------------------------------------------------------------------------------------------------------
Hest, Lionel G. and Amy 10,000 10,000 0
- - ---------------------------------------------------------------------------------------------------------------
Holstein, Barrie and Scott 21,000 21,000 0
- - ---------------------------------------------------------------------------------------------------------------
Homiak, Michael J. 18,197 18,197 0
- - ---------------------------------------------------------------------------------------------------------------
Hughes, James C. III TTEE Profit
Sharing Trust 27,000 27,000 0
- - ---------------------------------------------------------------------------------------------------------------
Iovine, Vincent J. 12,074 2,374 14,448 0
- - ---------------------------------------------------------------------------------------------------------------
The Jaguar Investment Group 33,000 33,000 0
- - ---------------------------------------------------------------------------------------------------------------
Johnson, Howard 9,000 9,000 0
- - ---------------------------------------------------------------------------------------------------------------
Johnson, Kim 10,856 10,856 0
- - ---------------------------------------------------------------------------------------------------------------
Jurman, Edward 3,000 3,000 0
- - ---------------------------------------------------------------------------------------------------------------
Kantor, Robert 64,400 64,400 0
- - ---------------------------------------------------------------------------------------------------------------
Kaplowitz, Gary 27,000 27,000 0
- - ---------------------------------------------------------------------------------------------------------------
Kilmartin, John D. 42,000 42,000 0
- - ---------------------------------------------------------------------------------------------------------------
Kim, Charles IRA 35,000 35,000 0
- - ---------------------------------------------------------------------------------------------------------------
Kim, Y.J. Trust 168,000 168,000 0
- - ---------------------------------------------------------------------------------------------------------------
Kinston Pathology PA Profit
Sharing Plan 27,000 27,000 0
- - ---------------------------------------------------------------------------------------------------------------
Kleinberg, Douglas 880 880 0
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Korman, Lance Stuart 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Kreissman, James G. 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Kreissman, Robert H. 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Krieger, Robert S. 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
KTB Enterprises 9,000 9,000 0
- - ---------------------------------------------------------------------------------------------------------------
Latshaw, John 17,600 17,600 0
- - ---------------------------------------------------------------------------------------------------------------
Lattanzio, Steve 18,692 18,692 0
- - ---------------------------------------------------------------------------------------------------------------
Latter, David 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Lauratex Fabrics, Inc. Pension Plan 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Lee, Dr. Tzium Shou IRA 270,200 270,200 0
- - ---------------------------------------------------------------------------------------------------------------
Leotta, Jospeh B. 37,654 37,654 0
- - ---------------------------------------------------------------------------------------------------------------
Levine, Kenneth R. 277,612 40,000 317,612 0
- - ---------------------------------------------------------------------------------------------------------------
Levitin, Eli 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Libsohn, David & Mitzi 3,000 3,000 0
- - ---------------------------------------------------------------------------------------------------------------
Lubliner, Jerry 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Lyons, James V. IRA 33,000 33,000 0
- - ---------------------------------------------------------------------------------------------------------------
Malinow, Gerald 15,000 15,000 0
- - ---------------------------------------------------------------------------------------------------------------
Marigold Corp. 9,000 9,000 0
- - ---------------------------------------------------------------------------------------------------------------
McConnaughy, J.E., Jr. 575,400 575,400 0
- - ---------------------------------------------------------------------------------------------------------------
Merhab, Marlan M. 6,000 6,000 0
- - ---------------------------------------------------------------------------------------------------------------
Metwalli, Ahmed 30,000 30,000 0
- - ---------------------------------------------------------------------------------------------------------------
Mincey, John 18,260 36,520 54,780 0
- - ---------------------------------------------------------------------------------------------------------------
Mind Works Capital Corp. 184,800 184,800 0
- - ---------------------------------------------------------------------------------------------------------------
Misukanis, Jerome B. (3) 6,000 12,000 18,000 0
- - ---------------------------------------------------------------------------------------------------------------
Morales, Ibra 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Moysak, Thomas J. 293 586 879 0
- - ---------------------------------------------------------------------------------------------------------------
Nathanson, Barry F. 275,001 275,001 0
- - ---------------------------------------------------------------------------------------------------------------
NCO Investors III, L.P. 60,000 60,000
- - ---------------------------------------------------------------------------------------------------------------
Nevada Recycling Corporation 0 20,000 20,000 0
- - ---------------------------------------------------------------------------------------------------------------
Nevo, Aviv 16,994 16,994 0
- - ---------------------------------------------------------------------------------------------------------------
Northeast Securities, Inc. 59,277 10,462 69,739 0
- - ---------------------------------------------------------------------------------------------------------------
O'Shea, John P. 90,000 90,000 0
- - ---------------------------------------------------------------------------------------------------------------
Ong, Beale H. Pension Plan & Trust 54,000 54,000 0
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Palomares, Bernabe P. IRA 69,000 69,000 0
- - ---------------------------------------------------------------------------------------------------------------
Palomares, Elba B. IRA 54,000 54,000 0
- - ---------------------------------------------------------------------------------------------------------------
Parsons, Frederick C. III, PA
Profit Sharing Plan 54,000 54,000 0
- - ---------------------------------------------------------------------------------------------------------------
Pellett Investments 19,408 19,408 0
- - ---------------------------------------------------------------------------------------------------------------
Pellillo, Domenic IRA 9,000 9,000 0
- - ---------------------------------------------------------------------------------------------------------------
Perrone, Stephen J. 18,437 584 19,021 0
- - ---------------------------------------------------------------------------------------------------------------
Pius, Alan and Ann 6,000 6,000 0
- - ---------------------------------------------------------------------------------------------------------------
Plost, Barry (4) 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Popolow, Joseph 27,730 2,426 30,156 0
- - ---------------------------------------------------------------------------------------------------------------
Proctor, Edward 15,000 15,000 0
- - ---------------------------------------------------------------------------------------------------------------
Prosperity Investments, Inc. 25,200 25,200 0
- - ---------------------------------------------------------------------------------------------------------------
Pumphrey, Robert E. Jr. MD
Profit Sharing Plan 54,000 54,000 0
- - ---------------------------------------------------------------------------------------------------------------
Raskin, Laura and Julian A. 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Regal Finance & Holdings, SA 21,000 21,000 0
- - ---------------------------------------------------------------------------------------------------------------
River Investments & Holdings, Inc. 21,000 21,000 0
- - ---------------------------------------------------------------------------------------------------------------
Romain, Gerald TTEE Profit Sharing Plan 15,000 15,000 0
- - ---------------------------------------------------------------------------------------------------------------
Rothstein, Allan P. 42,000 42,000 0
- - ---------------------------------------------------------------------------------------------------------------
Rothstein, Stephen 15,000 15,000 0
- - ---------------------------------------------------------------------------------------------------------------
Sablowsky, Robert 5,000 5,000 0
- - ---------------------------------------------------------------------------------------------------------------
Settondown Capital International, Ltd. 20,000 20,000
- - ---------------------------------------------------------------------------------------------------------------
Shaar Fund, Ltd. 632,411 632,411
- - ---------------------------------------------------------------------------------------------------------------
Shiman, Stewart A. 72,503 72,503 0
- - ---------------------------------------------------------------------------------------------------------------
Silva, Rosalie and Jerry 100,000 100,000 0
- - ---------------------------------------------------------------------------------------------------------------
Southern Medical Associates PA
Money Purchase Pension Plan 99,000 99,000 0
- - ---------------------------------------------------------------------------------------------------------------
Spann, Samuel Jr. 9,000 9,000 0
- - ---------------------------------------------------------------------------------------------------------------
Sundlun, Stuart 1,200 1,200 0
- - ---------------------------------------------------------------------------------------------------------------
Sundlun, Tracy Walter 25,200 25,200 0
- - ---------------------------------------------------------------------------------------------------------------
Swaim, J. Roddy 15,000 15,000 0
- - ---------------------------------------------------------------------------------------------------------------
Tellinger, Billye 26,000 26,000 0
- - ---------------------------------------------------------------------------------------------------------------
Thomas, James Sr. IRA 135,000 135,000 0
- - ---------------------------------------------------------------------------------------------------------------
Walsh, John M. 3,000 3,000 0
- - ---------------------------------------------------------------------------------------------------------------
John M. Walsh Securities C.
Profit Sharing Plan 60,000 60,000 0
- - ---------------------------------------------------------------------------------------------------------------
Walsh, Michael J. 7,000 7,000 0
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND WARRANTS TO BE REGISTERED AND OFFERED BY
THE SELLING SECURITYHOLDERS
SERIES C
PREFERRED SHARES
PLACEMENT AND OTHER OWNED AFTER
TOTAL FROM AGENT'S WARRANTS AND COMPLETION OF
SELLING SECURITYHOLDER TABLE I WARRANTS OPTIONS TOTAL SHARES THE OFFER
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Walsh, Michael J. IRA 7,000 7,000 0
- - ---------------------------------------------------------------------------------------------------------------
Wanas Investment Ltd. 140,000 140,000 0
- - ---------------------------------------------------------------------------------------------------------------
Weinstein, Robert 3,520 3,520 0
- - ---------------------------------------------------------------------------------------------------------------
Weinstock, Jerry 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Weinstock, Shelley and Steven 14,000 14,000 0
- - ---------------------------------------------------------------------------------------------------------------
Weissman Financial 363,636 363,636 0
- - ---------------------------------------------------------------------------------------------------------------
Williams, Gibbs A. 37,690 37,690 0
- - ---------------------------------------------------------------------------------------------------------------
Wittenstein, Frederick M. IRA 232,829 232,829 0
- - ---------------------------------------------------------------------------------------------------------------
Wittenstein, Frederick M. Pension Plan 0 0 0
- - ---------------------------------------------------------------------------------------------------------------
Wolfenson, Dr. Gilbert B. IRA 28,000 28,000 0
- - ---------------------------------------------------------------------------------------------------------------
Wolfson Equities 126,000 126,000 0
- - ---------------------------------------------------------------------------------------------------------------
Wood, Eugene W. IRA 24,000 24,000 0
- - ---------------------------------------------------------------------------------------------------------------
Worden, Andrew B. Retirement Plan 12,079 12,079 0
- - ---------------------------------------------------------------------------------------------------------------
Wright, Dickerson 6,000 6,000 0
- - ---------------------------------------------------------------------------------------------------------------
Wrigley Holdings, SA 135,000 135,000 0
- - ---------------------------------------------------------------------------------------------------------------
TOTALS 9,052,973 139,890 996,678 10,189,541 193,990
- - ---------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
1. Prior to the commencement of this offering, Caside Associates
beneficially owned 6.0% of the Company's outstanding Common Stock.
2. Chemco, Inc. is controlled by Graydon H. Neher, a director of the
Company.
3. Mr. Misukanis is a director of the Company.
4. Mr. Plost is a director of the Company.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, $.001 par value. At March 31, 1997, 13,919,429 shares of Common
Stock were outstanding including 363,636 shares issued in connection with the
acquisition of Weissman. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as fully
paid and non-assessable shares. On liquidation of the Company, each holder
of Common Stock is entitled to receive a pro rata share of the Company's
assets available for distribution to common shareholders after payments with
respect to the preferential rights of the Company's then outstanding
preferred stock, if any.
Unless the holder is a "Substantial Stockholder" (as discussed below
under "Anti-Takeover Provisions"), all shares of Common Stock have equal
voting rights and have one vote per share in all matters to be voted upon by
shareholders. Cumulative voting in the election of directors is not allowed,
which means that the holders of a majority of the outstanding shares
represented at any meeting at which a quorum is present will be able to elect
all
46
<PAGE>
of the directors if they choose to do so and, in such event, the holders of
the remaining shares will not be able to elect any directors.
A vote by the holders of a majority of the shares of Common Stock
present at a meeting at which a quorum is present is necessary to take
action, except for certain extraordinary matters which require the approval
of a majority of the outstanding shares of voting stock. No shares of
Preferred Stock are currently issued or outstanding.
PREFERRED STOCK
The Company is authorized to issue up to a total of 10,000,000 shares of
preferred stock, no par value, issuable in one or more series designated by
the Board of Directors. Material provisions concerning the terms of any
series of preferred stock which may be issued, such as dividend rate,
conversion features and voting rights, are to be determined by the Board of
Directors of the Company at the time of such issuance. The ability of the
Board to issue preferred stock could also be used by it as a means for
resisting a change of control of the Company and, therefore, can be
considered an "anti-takeover" device.
The Company has issued and outstanding 10,000 shares of Series C
Convertible Preferred Stock (the "Series C Preferred"). The Series C
Preferred accrue dividends payable in shares of Common Stock at the rate of
8% per annum and have a liquidation preference equal to $100 per share plus
all declared but unpaid dividends. The Series C Preferred have no voting
rights, except in certain limited circumstances. Each Series C Preferred is
convertible, without further payment, into the number of shares of Common
Stock determined by dividing (i) the sum of (a) $100 plus (b) the amount of
all accrued dividends on the Series C Preferred by (ii) the lesser of
$1.58125 (the current conversion price) or 73% of the average reported
closing bid price of a share of Common Stock for the five consecutive trading
days immediately preceding the date of conversion.
On June 20, 1997, the Company redeemed 10,000 shares of its Series C
Convertible Preferred stock plus accrued dividends for $1,344,000, thereby
reducing the fully diluted common stock outstanding by a minimum of 866,318
shares.
The Company has issued and outstanding 10,000 shares of Series D
Convertible Preferred Stock (the "Series D Preferred"). The Series D
Preferred accrue dividends payable quarterly in cash at a rate of 8% per
annum. The Series D Preferred have no voting rights, except in certain
limited circumstances. The Series D Preferred will automatically convert on
April 1, 1999, into that number of shares of the Company's common stock whose
average market price for the ten trading days preceding the date of
conversion is equivalent to $500,000 plus the amount of all accrued and
unpaid dividends on the Series D Preferred to the date of conversion.
The Company has authorized 10,000 shares of Series E Convertible Preferred
Stock (the "Series E Preferred"). The Series E Preferred accrue dividends
payable quarterly in cash at a rate of 8% per annum. The Series E Preferred
have no voting rights, except in certain limited circumstances. The Series E
Preferred will automatically convert on April 7, 1999, into that number of
shares of the Company's common stock whose average market price for the ten
trading days preceding the date of conversion is equivalent to $500,000 plus
the amount of all accrual and unpaid dividends on the Series E Preferred to the
date of conversion.
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation authorize
the Company's Board of Directors to limit the voting rights of any person or
entity that becomes a "Substantial Stockholder," defined as any stockholder
designated by the Board of Directors who is the direct or indirect beneficial
owner of 10% or more of the Company's Common Stock, including shares of
Common Stock which may be issuable pursuant to any agreement or upon the
exercise of conversion rights, options or warrants. All shares of Common
Stock beneficially owned by a Substantial Stockholder in excess of 10% will
not be entitled to any voting rights and will be deemed not outstanding for
purposes of determining a quorum. As of the date of this Prospectus, the
Company's Board of Directors has not determined any person or entity to be a
Substantial Stockholder.
In addition to restricting the voting rights of a Substantial
Stockholder, the Company has the right to redeem all or a portion of the
Common Stock beneficially owned by a Substantial Stockholder at a redemption
price equal to the lesser of the average market price of the shares for each
of the preceding 30 days prior to the date of the written redemption notice
or the average market price of the shares for each of the 30 trading days
during which shares of the Common Stock have been traded immediately
preceding the date upon which the Substantial Stockholder beneficially owned
more than 5% of the issued and outstanding Common Stock. A Substantial
Stockholder has no rights, voting or otherwise, regarding shares subject to a
redemption notice.
The Company's Board of Directors has adopted an amendment to its
Articles of Incorporation to eliminate these provisions. This amendment will
be submitted to the Company's shareholders for approval at the 1997 annual
meeting of shareholders. The amendment will require the affirmative vote of
holders of two-thirds of the outstanding Common Stock and, if any preferred
stock is outstanding, two-thirds of the outstanding preferred stock.
47
<PAGE>
WARRANTS
The Company has the following outstanding warrants to acquire an
aggregate of 4,004,584 shares of Common Stock:
<TABLE>
COMMON STOCK
EXPIRATION EXERCISE SECURITIES ISSUABLE ISSUABLE
TITLE OR SERIES DATE PRICE OUTSTANDING UPON EXERCISE UPON EXERCISE
- - ----------------------- ---------- -------- ----------- ----------------------- -------------
<S> <C> <C> <C> <C> <C>
Series A (1) $37.50 22,969 1 share of Common Stock 22,969
and 1 Series B Warrant
Series B (2) $75.00 22,969 Common Stock 22,969
Series G (3)(7) December $ 6.00 2,136,878 Common Stock 2,136,878
27, 1999
(8)
Series H (4) $ 6.00 283,333 Common Stock 283,333
Series I December $ .15 51,200 Common Stock 51,200
27, 1999
(8)
Series J (5)(7) December $ 6.00 727,078 Common Stock 727,078
27, 1999
(8)
Series K (6) July 17, $ 5.57 315,000 Common Stock 315,000
2001
Ally Capital 11/3/99 $ 5.00 53,600 Common Stock 53,600
Coast Business Credit 8/4/2001 $ 3.75 26,667 Common Stock 26,667
Coast Business Credit 4/6/2002 $ 1.5625 128,000 Common Stock 128,000
Caside Associates 1/5/98 $ 7.50 180,000 Common Stock 180,000
Nevada Recycling 1/4/04 $ 1.25 20,000 Common Stock 20,000
Settondown 12/31/98 $ 2.50 20,000 Common Stock 20,000
Placement Agent's 1/31/99 $ 2.75 65,445 2 Shares of Common Stock 130,890
and 1 Series H Warrant
Placement Agent's 4/8/99 $ 2.75 4,500 2 Shares of Common Stock 9,000
and 1 Series H Warrant
Siena Capital Partners,
L.P. 6/20/02 $ 2.00 990,000 Common Stock 990,000
--------- ---------
Total Outstanding 5,047,639 5,117,584
--------- ---------
--------- ---------
</TABLE>
- - --------------
(1) Exercisable for a three-year period commencing on the effective date of a
registration statement covering the Series A Warrants or the shares
issuable upon their exercise.
(2) Exercisable for a three-year period commencing on the effective date of a
registration statement covering the Series B Warrants or the shares
issuable upon their exercise.
(3) 30,000 outstanding Series G Warrants currently have an exercise price of
$4.00 per share.
(4) 213,388 Series H Warrants expire on July 17, 1999. The remaining Series H
Warrants will be exercisable for a three-year period commencing on the
exercise of the Placement Agent's Warrants.
(5) 40,665 outstanding Series J Warrants currently have an exercise price of
$4.00 per share.
(6) Exercisable commencing July 17, 1997.
(7) The Series G and Series J Warrants are subject to redemption by the Company
at $.25 per warrant at any time after July 17, 1997 provided the market
price of the Common Stock exceeds 133% of the then-effective exercise price
of the warrants for ten consecutive trading days.
(8) Three years after the date of this Prospectus.
STOCK OPTIONS
The Company has granted options to purchase an aggregate of 983,996
shares of Common Stock at exercise prices ranging from $.90 to $6.25 per
share, including options to Messrs. Wiens, Price, Misukanis, Neher and Plost
to purchase 300,000, 450,000, 5,000, 5,000 and 5,000 shares of Common Stock,
respectively, at an exercise price of $2.87 per share. See "Management--Stock
Option Plans."
TRANSFER AGENT
The transfer agent for the Company's Common Stock and warrant agent for
the Company's warrants is American Securities Transfer & Trust, Inc., 938 Quail
Street, Suite 101, Lakewood, Colorado 80215.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1997, the Company had 13,919,429 outstanding shares
of Common Stock including 363,636 shares issued on completion with the
acquisition of Weissman. Of these shares, the 9,777,574 shares of Common
Stock being offered by the Selling Securityholders in the Offering will be
freely tradable under the Securities Act, except for any shares held by
"affiliates" of the Company, as that term is defined under the Securities Act
and the regulations promulgated thereunder (an "Affiliate"). The remaining
shares (the "Restricted Shares") held by existing stockholders were sold by
the Company in reliance on exemptions from the registration requirements of
the Securities Act and are "restricted securities" within the meaning of Rule
144 promulgated under the Securities Act.
48
<PAGE>
In general, under Rule 144, as currently in effect, any holder of
Restricted Shares, including an Affiliate of the Company, as to which at
least two years have elapsed since the later of the date of the acquisition
of such Restricted Shares from the Company or an Affiliate, is entitled
within any three-month period to sell a number of shares that does not exceed
the greater of 1% of the then-outstanding shares of Common Stock or the
average weekly trading volume of the Common Stock in the NASDAQ National
Market during the four calendar weeks preceding the date on which notice of
the sale is filed with the Commission. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Affiliates of
the Company must comply with the requirements of Rule 144 (except for the
one-year holding period requirement) in order to sell shares of Common Stock
which are not "restricted securities" (such as shares acquired by Affiliates
in the Offering).
Further, under Rule 144(k) a person who holds Restricted Shares as to
which at least three years have elapsed since the date of their acquisition
from the Company or an Affiliate, and who is not deemed to have been an
Affiliate of the Company at any time during the three months preceding a
sale, is entitled to sell such shares under Rule 144 without regard to volume
limitations, manner of sale provisions, notice requirements or availability
of current public information concerning the Company.
The Commission has adopted amendments to Rule 144 that reduce the
holding period for sales of Restricted Shares subject to the three-month
volume limitation discussed above, from two years to one year. The amendments
also reduce the holding period under Rule 144(k) from three years to two
years. These amendments will go into effect approximately 60 days after
their adoption by the Commission on February 18, 1997.
LOCK-UP AGREEMENTS
As described below, substantially all of the Shares being offered by the
Selling Securityholders are subject to lock-up agreements with the Company
that limit the number of Shares that may be sold by them during a given
period of time.
SERIES G AND SERIES J WARRANTHOLDERS
Of the Shares being offered by the Selling Securityholders, 4,127,262
shares of Common Stock and 2,813,924 shares of common stock underlying the
Series G and Series J Warrants are subject to lock-up agreements in favor of
the Company which provide that, commencing on June 30, 1996 (the
"Commencement Date"): (i) none of such shares, warrants or options may,
without the prior written consent of the Company, be sold, exercised or
otherwise disposed of for a period of four months following the Commencement
Date; (ii) during November 1996, each such Selling Securityholder will sell
no more than 5% of their shares of Common Stock and, commencing on November
1, 1996, each such Selling Securityholder may exercise the Warrants held by
such holder and the shares of Common Stock received upon such exercise will
not be subject to any lock-up provisions; (iii) during December 1996, each
such Selling Securityholder will sell no more than 7.5% of the shares of
Common Stock held by such holder; (iv) during each month commencing with
January 1, 1996 and ending June 30, 1997, each such Selling Securityholder
will be permitted to sell no more than 15% of the shares of Common Stock
owned by such holder; and (v) after June 30, 1997, the shares of Common Stock
will no longer be subject to any lock-up provisions.
ANGLO IRON & METAL
Of the 227,693 shares of Common Stock issued by the Company in
connection with the purchase of Anglo Iron & Metals in December 1995, 127,693
are being offered by Anglo Metal, Inc. as a Selling Securityholder. Pursuant
to the terms of the its subscription agreement with the Company, Anglo Metal,
Inc. may sell shares valued
49
<PAGE>
up to $35,000 per month, based upon the market price of such shares on the
date of sale, until such time as all 127,693 held by it are sold.
OFFICER'S AND DIRECTORS
In addition to the lock-up agreements with the Selling Securityholders
relating to the Shares offered hereby, the 2,478,003 shares of Common Stock
(including shares underlying outstanding options) held by the Company's
officers and directors are subject to lock-up agreements in favor of the
Underwriter for the Public Offering which provide that none of such shares
may, without the prior written consent of the Underwriter, be sold or
otherwise disposed of until July 17, 1997. Upon the expiration of the
lock-up agreements, all of such shares will be eligible for resale in the
public market subject to the provisions of Rule 144. The Underwriter may, in
its sole discretion and at any time without notice, release all or any
portion of the securities subject to the lock-up agreements.
REGISTRATION RIGHTS
As described below, the holders of certain shares of the Company's
Common Stock and certain outstanding warrants and options are entitled to
certain rights with respect to the registration under the Securities Act of
their shares of Common Stock (the "Registerable Common Stock") or the shares
of Common Stock issuable upon conversion or exercise of their Series C
Preferred, warrants or options (the "Registerable Warrant Stock"). These
rights are granted under the terms of agreements between the Company and the
holders of the Registerable Common Stock or the Registerable Warrant Stock.
In connection with such rights, the Company has agreed to pay all registration
expenses, other than fees of the holder's own counsel, transfer taxes, and
underwriting discounts and commissions payable in connection with the
registration of any shares of Registerable Common Stock or Registerable
Warrant Stock. In addition, the Company has agreed to indemnify the holders
of such securities against certain liabilities arising under the Securities Act.
REQUIRED REGISTRATION
The Selling Securityholders are offering for sale 5,047,223 shares of
Registerable Common Stock and 4,771,049 shares of Registerable Warrant Stock
pursuant to registration rights previously granted by the Company. These
registration rights generally require the Company file and to cause to become
effective a registration statement covering these shares of Registration
Common Stock and Registerable Warrant Stock on or before September 30, 1996
and to keep registration statement effective for a period of up to three
years, otherwise the exercise price of the related warrants will be reduced.
PIGGYBACK REGISTRATION
Whenever the Company proposes to register any shares of Common Stock,
the Company is required to give notice to the holders of 836,823 shares of
Registerable Warrant Stock who have the right to include such shares in the
registration statement ("Piggyback Registration Rights"). The Selling
Securityholders are offering 376,812 shares of registerable common stock and
920,046 shares of Registerable Warrant Stock pursuant to the exercise of
their Piggyback Registration Rights.
Upon expiration of the registration statement filed under the Company's
registration obligation described in the preceding section, the holders of
the Registerable Common Stock and Registerable Warrant Stock included therein
have limited Piggyback Registration Rights.
The Piggyback Registration Rights are subject to certain conditions,
including the ability of an underwriter to limit the number of shares of
Registerable Common Stock and Registerable Warrant Stock included in the
registration statement or to exclude certain shares of registerable Common
Stock or Registerable Warrant Stock from the Registration Statement.
50
<PAGE>
DEMAND REGISTRATION
Holders of 479,586 shares of Registerable Warrant Stock are entitled to
require the Company to use its reasonable best efforts to register such
shares at the Company's expense within 150 to 180 days of their demand
("Demand Registration Rights"). The Demand Registration Rights may only be
exercised once.
PLAN OF DISTRIBUTION
The Shares from time to time may be offered for sale either directly by
the Selling Securityholders or by their pledgees, donees, transferees or
other successors in interest. Such sales may be made in the over-the-counter
market or in negotiated transactions. Sales of Shares in the
over-the-counter market may be by means of one or more of the following: (a)
a block trade in which a broker or dealer will attempt to sell the Shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchase by a dealer as principal and resale
by such dealer for its account pursuant to this Prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. In
addition, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus.
Substantially all of the Selling Securityholders are subject to lock-up
agreements with the Company that limit the number of Shares that may be sold
by them during a given period of time. See "Shares Eligible for Future Sale -
Lock-Up Agreements."
The Selling Securityholders have agreed not to sell their Shares offered
hereby if an underwriter of the Company's securities requests that no sales
of securities be made during the course of an offering by the Company. In
addition, the Selling Securityholders have agreed not to sell the Shares
offered hereby during the time of any distribution of the Company's
securities or while the Company is repurchasing its securities if sales by
the Selling Securityholders during such times would violate federal
securities laws.
Except as set forth above, the Selling Securityholders have advised the
Company that they have made no arrangement or agreements with any
underwriters, brokers or dealers regarding the resale of the Shares prior to
the effective date of this Prospectus. The Selling Securityholders may pay
commissions or allow discounts to any brokers or dealers participating in the
resale of the Shares, which commissions or discounts may be less than or in
excess of the customary rates of such brokers or dealers for similar
transactions. The Shares will be sold at market prices prevailing at the
time of sale or at negotiated prices which, in the case of Weissman
Financial, will be not less than prevailing market prices.
The Selling Securityholders that participate in sales of the Shares and
any underwriters, brokers or dealers engaged by them may be deemed
underwriters, and any profits on sales of the Shares by them and any
discounts, commissions or concessions received by any Selling Securityholder
or underwriter, broker or dealer may be deemed to be underwriting discounts
or commissions under the Securities Act.
Upon the Company being notified by a Selling Securityholder that any
material arrangement has been entered into with an underwriter, broker or
dealer for the sale of the Shares through a secondary distribution or a
purchase by an underwriter, broker or dealer, a supplemented prospectus will
be filed, if required, disclosing such of the following information as the
Company believes appropriate: (i) the name of each such Selling
Securityholder and of the participating underwriter, broker or dealer; (ii)
the number of Shares involved; (iii) the price at which such Shares were
sold; (iv) the commissions paid or discounts or concessions allowed to such
underwriter, broker or dealer and (v) other facts material to the transaction.
The Company has agreed to indemnify the Selling Securityholders, and the
Selling Securityholders have agreed to indemnify the Company, against certain
civil liabilities, including liabilities under the Securities Act.
51
<PAGE>
The Company is offering the Shares to the holders of the Warrants and
will amend or supplement this Prospectus, from time to time, to reflect the
exercise of Warrants by the holders thereof and to permit the public sale of
the Shares.
The Company is unable to predict the effect which sales of the Shares
offered hereby might have upon the Company's ability to raise further capital.
The Company will pay all of the expenses incident to the offering and
sale of the Shares to the public other than commissions and discounts of
underwriters, dealers or agents.
In order to comply with certain states' securities laws, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states, the Shares may
not be sold unless they have been registered or qualified for sale in such
states or an exemption from registration or qualification is available and
complied with.
LEGAL MATTERS
The legality of the shares of Common Stock being offered will be passed
on for the Company by Friedlob Sanderson Raskin Paulson & Tourtillott, LLC,
Denver, Colorado.
EXPERTS
The financial statements of the Company for the year ended September 30,
1994 appearing in this Prospectus have been audited by AJ. Robbins, P.C.,
independent certified public accountants, as stated in their report appearing
herein, and have been so included herein in reliance upon such report given
upon the authority of that firm as experts in accounting and auditing. The
financial statements of the Company for the years ended September 30, 1995 and
1996 have been audited by BDO Seidman, LLP, independent certified public
accountants, as stated in their report appearing herein, and have been so
included herein in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing.
The financial statements of Anglo Metal, Inc., d/b/a Anglo Iron & Metal
for the years ended December 31, 1993, 1994 and 1995 appearing in this
Prospectus have been audited by AJ. Robbins, P.C., independent certified
public accountants, as stated in their report appearing herein, and have been
so included herein in reliance upon such report given upon the authority of
that firm as experts in accounting and auditing.
The financial statements of Mid-America Shredding for the year ended
December 31, 1995 appearing in this Prospectus have been audited by AJ.
Robbins, P.C., independent certified public accountants, as stated in their
report appearing herein, and have been so included herein in reliance upon
such report given upon the authority of that firm as experts in accounting
and auditing.
The financial statements of Weissman Iron & Metal, a division of
Weissman Industries, Inc. for the years ended December 31, 1993, 1994 and
1995, appearing in this Prospectus have been audited by AJ. Robbins, P.C.,
independent certified public accountants, as stated in their report appearing
herein, and have been so included herein in reliance upon such report given
upon the authority of that firm as experts in accounting and auditing.
The combined financial statements of Addlestone Recycling Corporation and
Addlestone International Corporation for the years ended December 31, 1996,
1995 and 1994, appearing in this Prospectus have been audited by BDO Seidman,
LLP independent certified public accountants, as state in their report
appearing herein, and have been so included herein in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
The Company engaged BDO Seidman, LLP on March 25, 1996, to serve as its
independent auditors, replacing AJ. Robbins, P.C., who was dismissed as the
Company's independent auditors on March 25, 1996. This change in independent
auditors was recommended by the audit committee of the Company's Board of
Directors and approved by the Company's Board of Directors. During the past
two fiscal years through March 25, 1996, AJ. Robbins, P.C.'s report on the
financial statements of the Company neither contained any adverse opinion or
disclaimer of opinion nor was qualified or modified as to uncertainty, audit
scope or accounting principles. There were no disagreements between the
Company and AJ. Robbins, P.C. on any matters of accounting principles or
practice, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of
52
<PAGE>
AJ. Robbins, P.C., would have caused them to make reference to the subject
matter of the disagreement in their report.
53
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONTENTS
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS (Unaudited)
Pro Forma Explanatory Headnote F-3 - F-6
Six months ended March 31, 1997 (Unaudited):
Unaudited Pro Forma Consolidated Balance Sheet F-7
Unaudited Pro Forma Consolidated Statement of Operations F-7
Year Ended September 30, 1996 (Unaudited)
Unaudited Pro Forma Consolidated Statement of Operations F-7
Notes to Pro Forma Consolidated Financial Statements F-8 - F-9
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants F-10
Report of Independent Certified Public Accountants -
NR Holdings, Inc. F-11
Report of Independent Certified Public Accountants F-12
Financial Statements:
Consolidated Balance Sheets F-13 - F-14
Consolidated Statements of Operations F-15 - F-16
Consolidated Statements of Stockholders' Equity F-17 - F-18
Consolidated Statements of Cash Flows F-19 - F-20
Summary of Accounting Policies F-21 - F-26
Notes to Consolidated Financial Statements F-27 - F-56
ANGLO METAL, INC. dba ANGLO IRON & METAL
Report of Independent Certified Public Accountants F-57
Financial Statements
Balance Sheets F-58 - F-59
Statements of Operations F-60
Statements of Changes in Stockholders' Equity F-61
Statements of Cash Flows F-62
Notes to Financial Statements F-63 - F-71
F-1
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONTENTS
MID-AMERICA SHREDDING, INC.
Report of Independent Certified Public Accountants F-72
Financial Statements
Balance Sheet F-73
Statement of Operations F-74
Statement of Changes in Stockholders' Equity F-75
Statement of Cash Flows F-76
Notes to Financial Statements F-77 - F-81
WEISSMAN IRON & METAL, A DIVISION OF
WEISSMAN INDUSTRIES, INC.
Report of Independent Certified Public Accountants F-82
Financial Statements
Balance Sheets F-83
Statements of Operations F-84
Statement of Changes in Division Equity F-85
Statements of Cash Flows F-86
Notes to Financial Statements F-87 - F-95
ADDLESTONE RECYCLING CORPORATION AND ADDLESTONE INTERNATIONAL CORPORATION
Report of Independent Certified Public Accountants F-96
Combined Financial Statements
Combined Balance Sheets F-97 - F-98
Combined Statements of Income F-99
Combined Statements of Stockholder's Equity F-100
Combined Statements of Cash Flows F-101
Summary of Accounting Policies F-102 - F-103
Notes to Combined Financial Statements F-104 - f-110
F-2
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
EXPLANATORY HEADNOTE
INTRODUCTION
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisitions by Recycling Industries, Inc. (the
Company) of the entities detailed below and are based on the estimates and
assumptions set forth herein and in the notes to such statements. This pro
forma information has been prepared utilizing the historical financial
statements and notes thereto, which are incorporated by reference herein. The
pro forma financial data does not purport to be indicative of the results which
actually would have been obtained had the acquisitions been effected on the
dates indicated or the results which may be obtained in the future.
The pro forma consolidated balance sheet assumes the acquisitions were
consummated at March 31, 1997. The pro forma consolidated statement of
operations for the year ended September 30,1996 includes the operating results
of the Company, Recycling Industries of Texas, Inc., Mid-America Shredding and
Weissman Iron and Metal for such period and the operating results of ARC and
AIC for the 12 months ended December 31, 1996. The pro forma consolidated
statement of operations for the six months ended March 31, 1997 includes the
operating results of the Company, ARC and AIC for such period. The operating
results of ARC and AIC for the three months beginning October 1, 1996 and ending
December 31, 1996 have been included in the pro forma consolidated statement of
operations for both the year ended September 30, 1996 and the six months ended
March 31, 1997.
ANGLO METAL, INC. DBA ANGLO IRON & METAL
On December 11, 1995, the Company acquired substantially all of the assets and
the business of Anglo Metal, Inc. dba Anglo Iron & Metal (Anglo). The assets
acquired from Anglo consisted of a heavy duty automotive shredder, inventories,
metals shearing equipment, balers, heavy equipment, tools and rolling stock used
in the business of recycling ferrous and non-ferrous metals. The Company also
purchased from Anglo certain real property, buildings and leasehold improvements
used in the business of recycling ferrous and non-ferrous metals.
The $6,054,000 purchase price for Anglo was comprised of: $2,100,000 in cash; a
$1,833,000 note payable in monthly installments of approximately $181,000
beginning in February 1996; a $446,000 secured promissory note payable in 60
consecutive monthly installments of $9,000; a $750,000 unsecured note payable in
72 equal consecutive monthly installments of $10,400; and 227,693 shares of the
Company's common stock valued at $925,000.
Of the cash paid at the closing of the acquisition, $1,800,000 was obtained
through a sale-leaseback transaction with Ally Capital Corporation,
collateralized by all of Anglo's machinery and equipment, accounts receivable
and inventories, which has been recorded as a capital lease. The terms of the
sale-leaseback provide for 60 consecutive monthly lease payments of $41,000 with
a bargain purchase option at the end of the lease term. The lease contains
numerous covenants for maintaining certain financial ratios and earnings levels.
The remaining $300,000 paid at closing was obtained from the operating cash
reserves and working capital of the Company.
F-3
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
EXPLANATORY HEADNOTE
The purchase price for Anglo has been allocated as follows:
- - ------------------------------------------------------------------------------
Equipment under capital lease $ 1,800,000
Contract to purchase land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,354,000
Purchase price in excess of net assets acquired 1,830,000
- - ------------------------------------------------------------------------------
Total purchase price 6,054,000
Notes payable (3,029,000)
Common stock (925,000)
- - ------------------------------------------------------------------------------
Cash paid at closing 2,100,000
Capital lease obligation (1,800,000)
- - ------------------------------------------------------------------------------
Cash from operating capital $ 300,000
- - ------------------------------------------------------------------------------
MID-AMERICA SHREDDING, INC.
On April 15, 1996, the Company acquired the assets and the business of
Mid-America Shredding, Inc. (Mid-America). The assets acquired from
Mid-America consisted of real property, buildings, inventories, a heavy duty
automotive shredder, a wire chopping plant, heavy equipment and tools used in
the business of recycling ferrous and non-ferrous metals.
The purchase price for Mid-America was $1,918,000, comprised of $708,000 in
cash, and the assumption of Mid-America's outstanding bank debt of $1,210,000.
The purchase price for Mid-America has been allocated as follows:
- - ------------------------------------------------------------------------------
Inventory $ 55,000
Land 51,000
Buildings and improvements 317,000
Machinery and equipment 1,495,000
- - ------------------------------------------------------------------------------
Total purchase price 1,918,000
Notes payable (1,210,000)
- - ------------------------------------------------------------------------------
Cash paid at closing $ 708,000
- - ------------------------------------------------------------------------------
F-4
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
EXPLANATORY HEADNOTE
WEISSMAN IRON AND METAL, A DIVISION OF WEISSMAN INDUSTRIES, INC.
On August 5, 1996, the Company acquired the business of Weissman Iron and Metal,
a division of Weissman Industries, Inc. (Weissman), through the purchase of all
of the outstanding common stock of Weissman.
The assets of Weissman consist of a heavy duty automotive shredder, metal
shearing equipment, a Coreco aluminum furnace, heavy equipment, tools and
rolling stock, real property and buildings, inventories and accounts receivable
used in the business of recycling ferrous and non-ferrous metals.
The purchase price for Weissman has been allocated as follows:
- - ------------------------------------------------------------------------------
Cash $ 11,000
Prepaid expenses 10,000
Accounts receivable 1,155,000
Inventories 1,224,000
Buildings and improvements 2,000,000
Automotive shredder 2,700,000
Heavy equipment 2,762,000
Equipment and rolling stock 1,448,000
Land 1,000,000
Covenant not to compete 250,000
Purchase price in excess of net assets acquired 250,000
Accounts payable (546,000)
Accrued payroll and other (192,000)
- - ------------------------------------------------------------------------------
Total purchase price 12,072,000
Notes payable (4,733,000)
Common stock (1,500,000)
- - ------------------------------------------------------------------------------
Cash paid at closing $ 5,839,000
- - ------------------------------------------------------------------------------
The $4,733,000 notes payable are secured by the assets of Weissman. $3,500,000
of such notes are payable in 60 monthly installments of $58,333. Of the
balance, $1,233,000 is pursuant to a revolving credit facility bearing interest
at prime plus 2.25%. The Company also issued 363,637 shares of common
F-5
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
EXPLANATORY HEADNOTE
stock in settlement of $1,500,000 of the purchase price.
Addlestone Recycling Corp. and Addlestone International Corp.
On April 7, 1997, the Company acquired substantially all the assets of
Addlestone Recycling Corp. (ARC), a privately held metals recycler with
operations in Metter, Georgia. The Company has also reached a definitive
agreement to purchase the assets of Addlestone International Corp.(AIC) a
privately held metals recycler with operations in Georgetown, South Carolina.
The combined assets of ARC and AIC consist of land, buildings, heavy equipment
tools, rolling stock and inventory used in the business of recycling ferrous
and non-ferrous metals.
The purchase price for the combined assets of ARC and AIC are allocated as
follows:
Inventory $212,000
Land and improvements 994,000
Buildings and improvements 367,000
Machinery and equipment 10,139,000
-------------
Total purchase price $11,712,000
============
The purchase of the assets was funded as follows:
Notes payable $(10,712,000)
Preferred stock issued (1,000,000)
------------
$ 11,712,000
------------
The notes payable consist of $7,800,000 of term debt of which $2,300,000
matures in six months bearing interest at prime plus 2.50%. The $5,500,000
balance of the term debt is long-term with interest at prime plus four percent.
The balance of the notes payable consists of $2,912,000 payable in 60 monthly
installments of $40,000 bearing interest to 2.50%.
The preferred stock has a stated value of $1,000,000 and is convertible into
the Company's Common Stock two years from closing at the then market price.
The conversion shares shall provide for dividends on a cumulative basis at
the per annum rate of 8%, payable quarterly. The Company has the option to
redeem the preferred stock at the stated value plus all accrued unpaid
dividends at anytime prior to the two year period.
F-6
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
March 31, 1997
ASSETS
<TABLE>
ADDLESTONE
RECYCLING RECYCLING CORP &
INDUSTRIES, INC ADDLESTONE CONSOLIDATED
& SUBSIDIARIES INTERNATIONAL CORP PRO FORMA PRO FORMA
MARCH 31, 1997 MARCH 31, 1997 ADJUSTMENTS MARCH 31, 1997
- -----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 527,000 $ 287,000 $ (287,000) (3) $ 527,000
Accounts receivable, net 5,588,000 4,991,000 (4,991,000) (3) 5,588,000
Accounts receivable, related party 86,000 - - 86,000
Inventories 2,456,000 5,955,000 (5,743,000) (3) 2,668,000
Deferred income taxes 510,000 - 510,000
Prepaid expenses and deposits 335,000 84,000 (84,000) (3) 335,000
- -----------------------------------------------------------------------------------------------------------------
Total Current Assets 9,502,000 11,317,000 (11,105,000) 9,714,000
- -----------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, net 20,455,000 4,311,000 7,189,000 (2) 31,955,000
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred income taxes 585,000 - - 585,000
Other assets, net of amortization 5,040,000 452,000 (452,000) (3) 5,040,000
- -----------------------------------------------------------------------------------------------------------------
Total Other Assets 5,625,000 452,000 (452,000) 5,625,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 35,582,000 $ 16,080,000 $ (4,368,000) $ 47,294,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
See accompanying Headnote and Notes to Pro Forma Consolidated Financial Statements
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
March 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
ADDLESTONE
RECYCLING RECYCLING CORP &
INDUSTRIES, INC ADDLESTONE CONSOLIDATED
& SUBSIDIARIES INTERNATIONAL CORP PRO FORMA PRO FORMA
MARCH 31, 1997 MARCH 31, 1997 ADJUSTMENTS MARCH 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,092,000 $ - $ 2,300,000 (2) $ 5,392,000
Current maturities of long-term debt,
related parties 1,293,000 335,000 (335,000)(3) 1,293,000
Accounts payable 2,688,000 581,000 (581,000)(3) 2,688,000
Accounts payable - related parties - - - -
Other current liabilities 412,000 315,000 (315,000)(3) 412,000
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 7,485,000 1,231,000 1,069,000 9,785,000
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT
Long-term debt, less current maturities 10,306,000 - 8,412,000 (2) 18,718,000
Long-term debt - related parties,
less current maturities 736,000 - - 736,000
- ---------------------------------------------------------------------------------------------------------------------
Total Long-term Debt 11,042,000 - 8,412,000 19,454,000
- ---------------------------------------------------------------------------------------------------------------------
Total Liabilities 18,527,000 1,231,000 9,481,000 29,239,000
- ---------------------------------------------------------------------------------------------------------------------
COMMITMENTS & CONTINGENCIES
Redeemable common stock 1,500,000 - - 1,500,000
- ---------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock 907,000 - 1,000,000 (2) 1,907,000
Common Stock 13,000 1,000 (1,000)(3) 13,000
Additional paid-in capital 25,566,000 244,000 (244,000)(3) 25,566,000
Retained earnings (deficit) (10,931,000) 14,604,000 (14,604,000)(3) (10,931,000)
- --------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 15,555,000 14,849,000 (13,849,000) 16,555,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,582,000 $ 16,080,000 $ (4,368,000) $ 47,294,000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
See accompanying Headnote and Notes to Pro Forma Consolidated Financial Statements
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
ADDLESTONE
RECYCLING RECYCLING CORP. &
INDUSTRIES, INC. ADDLESTONE CONSOLIDATED
& SUBSIDIARIES INTERNATIONAL CORP PRO FORMA PRO FORMA
MARCH 31, 1997 MARCH 31, 1997 ADJUSTMENTS MARCH 31, 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $21,935,000 $18,824,000 $ - $40,759,000
Brokerage 1,567,000 - - 1,567,000
Other income 35,000 83,000 - 118,000
- - -----------------------------------------------------------------------------------------
Total revenues 23,537,000 18,907,000 - 42,444,000
- - -----------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 18,324,000 16,404,000 58,000 (4) 34,786,000
Cost of brokerage 1,489,000 - - 1,489,000
Personnel 1,430,000 339,000 (117,000)(6) 1,652,000
Professional services 212,000 68,000 - 280,000
Travel 91,000 6,000 - 97,000
Occupancy 114,000 - - 114,000
Depreciation and
amortization 473,000 21,000 - 494,000
Interest 890,000 101,000 569,000 (10) 1,560,000
Other general and
administrative 343,000 1,135,000 - 1,478,000
- - -----------------------------------------------------------------------------------------
Total costs and expenses 23,366,000 18,074,000 510,000 41,950,000
- - -----------------------------------------------------------------------------------------
Income before
taxes on income 171,000 833,000 (510,000) 494,000
Income tax benefit 295,000 - - (9) 295,000
- - -----------------------------------------------------------------------------------------
Net income $ 466,000 $ 833,000 $ (510,000) $ 789,000
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
Net income available to
common shareholders $ 186,000 $ 509,000
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
INCOME PER SHARE $ .01 $ .03
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
Weighted average
number of common
shares outstanding 14,356,000 543,000 (11) 14,899,000
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
See accompanying Headnote and Notes to Pro Forma Consolidated Financial Statements
<CAPTION>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Recycling Anglo Anglo Mid-America
Industries Iron & Metal Iron & Metal Shredding
Year Ended Year Ended Pro Forma Year Ended
September, September, Adjustments September,
30, 1996 30, 1996 30, 1996
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $26,667,000 $13,892,000 $(11,085,000)(7) $2,857,000
Brokerage 952,000 462,000 (462,000)(7) -
Other income 4,000 5,000 (2,000)(7) -
- - -----------------------------------------------------------------------------------
Total revenues 27,623,000 14,359,000 (11,549,000) 2,857,000
- - -----------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 25,654,000 13,110,000 (10,936,000)(7) 2,754,000
- - 26,000 (4) -
- - (100,000)(8) -
Cost of brokerage 936,000 462,000 (462,000)(7) -
Personnel 1,454,000 594,000 (368,000)(7) 92,000
- - (110,000)(6) -
Professional services 644,000 31,000 (1,000)(7) 15,000
Travel 106,000 13,000 (13,000)(7) 18,000
Occupancy 65,000 - - 6,000
Depreciation and
amortization 283,000 110,000 (110,000)(6) 4,000
- - 22,000 (4) -
- - 28,000 (5) -
Interest 732,000 323,000 (256,000)(7) 133,000
- - 19,000 (10) -
Management fee - - - -
Other general and
administrative 771,000 190,000 (111,000)(7) 40,000
- - - -
- - -----------------------------------------------------------------------------------
Total costs and expenses 30,645,000 14,833,000 (12,372,000) 3,062,000
- - -----------------------------------------------------------------------------------
Income (loss) before
taxes on income (loss) (3,022,000) (474,000) 823,000 (205,000)
Taxes on income (loss) 9,000 - - (9) -
- - -----------------------------------------------------------------------------------
Income (loss) from
operations, net of
taxes on income (loss) $(3,031,000) $ (474,000) $ 823,000 $ (205,000)
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Net income (loss) after
extraordinary item and
taxes on income (loss) $(2,961,000) $ (474,000) $ 823,000 $ (205,000)
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
LOSS PER SHARE
Loss from operations,
net of income taxes $ (.30)
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Net loss after
extraordinary item
and income taxes $ (.29)
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Weighted average
number of common
shares outstanding 10,212,236
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
<CAPTION>
Consolidated
Pro Forma Before
Addlestone
Mid-America Weissman Recycling Corp.&
Shredding Iron & Metal Addlestone
Pro Forma Weissman Pro Forma International Corp
Adjustments Iron & Metal Adjustments
September 30,
1996
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $(1,687,000)(7) $14,982,000 $(2,654,000)(7) $42,972,000
Brokerage - 3,791,000 (490,000)(7) 4,253,000
Other income - 26,000 - 33,000
- - ---------------------------------------------------------------------------------------
Total revenues (1,687,000) 18,799,000 (3,144,000) 47,258,000
- - ---------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales (1,525,000)(7) 10,830,000 (2,017,000)(7) 37,886,000
(20,000)(4) - (135,000)(6) -
- - 245,000 (4) -
Cost of brokerage - 3,848,000 (474,000)(7) 4,310,000
Personnel (32,000)(7) 740,000 (116,000)(7) 2,254,000
- - - -
Professional services (10,000)(7) 47,000 - 726,000
Travel (18,000)(7) 1,000 - 107,000
Occupancy (6,000)(7) 12,000 (12,000)(7) 65,000
Depreciation and
amortization (4,000)(7) 66,000 (24,000)(7) 428,000
- - 11,000 (4) -
- - 42,000 (5) -
Interest (66,000)(7) 84,000 (84,000)(7) 1,346,000
- - 461,000 (10) -
Management fee - 105,000 (105,000)(6) -
Other general and
administrative (30,000)(7) 292,000 (4,000)(7) 1,092,000
- - (56,000)(6) -
- - ---------------------------------------------------------------------------------------
Total costs and expenses (1,711,000) 16,025,000 (2,268,000) 48,214,000
- - ---------------------------------------------------------------------------------------
Income (loss) before
taxes on income (loss) 24,000 2,774,000 (876,000) (956,000)
Taxes on income (loss) - (9) - - (9) 9,000
- - ---------------------------------------------------------------------------------------
Income (loss) from
operations, net of
taxes on income (loss) $ 24,000 $ 2,774,000 $ (876,000) $ (965,000)
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
Net income (loss) after
extraordinary item and
taxes on income (loss) $ 24,000 $ 2,774,000 $ (876,000) $ (895,000)
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
LOSS PER SHARE
Loss from operations,
net of income taxes
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
Net loss after
extraordinary item
and income taxes
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
Weighted average
number of common
shares outstanding
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
Addlestone
Addlestone Recycling Corp.&
Recycling Corp.& Addlestone
Addlestone International Corp Consolidated
International Corp Pro Forma Pro Forma
December 31, 1996 Adjustments
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $27,536,000 $ - $70,508,000
Brokerage - - 4,253,000
Other income 267,000 - 300,000
- ---------------------------------------------------------------------------------------
Total revenues 27,803,000 - 75,061,000
- ---------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 23,093,000 117,000 (4) 61,096,000
Cost of brokerage - - 4,310,000
Personnel 663,000 (235,000) (6) 2,682,000
Professional services 111,000 - 837,000
Travel 18,000 - 125,000
Occupancy - - 65,000
Depreciation and
amortization 46,000 - 474,000
Interest 252,000 1,087,000 (10) 2,685,000
Management fee - - -
Other general and
administrative 1,126,000 - 2,218,000
- ---------------------------------------------------------------------------------------
Total costs and expenses 25,309,000 969,000 74,492,000
- ---------------------------------------------------------------------------------------
Income (loss) before
taxes on income (loss) 2,494,000 (969,000) 569,000
Taxes on income (loss) - - (9) 9,000
- ---------------------------------------------------------------------------------------
Income (loss) from
operations, net of
taxes on income (loss) $ 2,494,000 $(969,000) $560,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Net income (loss) after
extraordinary item and
taxes on income (loss) $ 2,494,000 $(969,000) $630,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
LOSS PER SHARE
Loss from operations,
net of income taxes $ 0.05
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Net loss after
extraordinary item
and income taxes $ 0.06
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Weighted average
number of common
shares outstanding 543,000 (11) 10,755,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
HEADNOTE AND NOTES TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRO FORMA ADJUSTMENTS
The adjustments relating to the pro forma consolidated statements of operations
are computed assuming the acquisitions of ARC and AIC were consummated
at the beginning of the applicable periods presented. The adjustments relating
to the pro forma consolidated balance sheet are computed assuming the
acquisitions of ARC and AIC were consummated at March 31, 1997 for the March
31, 1997 balance sheet. The pro forma adjustments for Recycling Industries
of Texas, Inc. (formerly known as Anglo Iron and Metal), Mid- America
Shredding and Weissman Iron and Metal are computed assuming the acquisitions
were consummated at the beginning of the applicable periods presented.
NOTE 2 - ACQUISITION OF SUBSIDIARIES
The acquisitions are recorded using the purchase method of accounting.
NOTE 3 - UNACQUIRED ASSETS AND LIABILITIES
Removes assets and liabilities that were not acquired or assumed by the Company.
NOTE 4 - ADDITIONAL DEPRECIATION AND AMORTIZATION
Recycling Industries of Texas, Inc. and Weissman
Reflects additional depreciation of property and equipment due to the increased
cost of the assets acquired. Reflects amortization and goodwill using the
straight line method over 20 years.
Mid-America Shredding, ARC and AIC
Reflects additional depreciation of property and equipment due to the allocated
costs of the assets acquired.
NOTE 5 - NON-COMPETE AND CONSULTING AGREEMENTS
Reflects amortization of the non-compete and consulting agreements with the
president of Recycling Industries of Texas, Inc. and the president of Weissman
Iron and Metal over the six and five year terms using the straight line method.
NOTE 6 - NON-RECURRING EXPENSES
Removes non-recurring expenses paid to former officers and stockholders of the
acquired business for salaries and benefits that will not be incurred in the
future under terms of the acquisition agreements.
NOTE 7 - DUPLICATE TRANSACTIONS
Removes operations for Recycling Industries of Texas, Inc., Mid-America
Shredding and Weissman Iron and Metal subsequent to their acquisition, which are
included in the historical operations of the Company for the year ended
September 30, 1996.
NOTE 8 - NON-RECURRING REMEDIATION EXPENSES
Removes non-recurring outside labor costs, direct labor costs and landfill costs
incurred for remediation costs in compliance with the terms of the Recycling
Industries of Texas, Inc. sale agreement.
NOTE 9 - PROVISION FOR INCOME TAXES
No provision for income taxes on the acquired operations has been
recorded due to the recognition of the tax benefit from utilization of Recycling
Industries, Inc.'s net operating loss carryforwards.
NOTE 10 - INTEREST EXPENSE
Reflects additional interest expense for notes payable used to finance the
acquisition of Weissman Iron and Metal (interest at 10.5% at September 30,
1996); Recycling Industries of Texas, Inc. (interest at 14%); and Addlestone
Recycling Corporation and Addlestone International Corporation (interest at
12.5% at September 30, 1996 and March 31, 1997).
NOTE 11 - WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average shares outstanding reflect the conversion of the
Addlestone Recycling Corporation and Addlestone International Corporation
Convertible Preferred Stock into common stock equivalents.
F-8
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-9
<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-10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
NR Holdings, Inc.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of NR Holdings, Inc.
and Subsidiary as of September 30, 1996 and the related statements of operations
and accumulated deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of NR Holdings, Inc. and
Subsidiary as of September 30, 1996 and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
AJ. Robbins, PC.
Certified Public Accountants and Consultants
Denver, Colorado
October 18, 1996
F-11
<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-12
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
September 30,
March 31, -------------------------
1997 1996 1995
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS (Notes 7 and 8)
CURRENT ASSETS:
Cash $ 527,000 $ 1,450,000 $ 184,000
Trade accounts receivable,
less allowance for doubtful accounts
of $20,000, $10,000 and $10,000 5,588,000 4,379,000 1,026,000
Accounts receivable, related party 86,000 77,000 223,000
Inventories (Note 2) 2,456,000 2,473,000 497,000
Prepaid expenses 335,000 272,000 137,000
Other - 120,000
Deferred income tax (NOTE 5) 510,000 - -
----------- ----------- -----------
Total current assets 9,502,000 8,771,000 2,067,000
----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET (Note 3) 20,455,000 20,492,000 6,686,000
----------- ----------- -----------
OTHER ASSETS:
Deferred income taxes (Note 5) 585,000 800,000 800,000
Other assets, net (Note 4) 5,040,000 4,792,000 744,000
----------- ----------- -----------
Total other assets 5,625,000 5,592,000 1,544,000
----------- ----------- -----------
$35,582,000 $34,855,000 $10,297,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-13
<PAGE>
<TABLE>
September 30,
March 31, ----------------------------
1997 1996 1995
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 2,688,000 $ 2,673,000 $ 655,000
Trade accounts payable-related parties - 61,000 73,000
Accrued liabilities:
Payroll and other 400,000 500,000 107,000
Income taxes payable (Note 5) - 107,000 86,000
Interest 12,000 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) 3,092,000 1,707,000 325,000
Current maturities of long-term debt,
related parties (Note 8) 1,293,000 2,075,000 218,000
------------ ------------ -----------
Total current liabilities 7,485,000 7,174,000 1,691,000
------------ ------------ -----------
LONG-TERM DEBT, less current maturities (Note 7) 10,306,000 10,067,000 173,000
LONG-TERM DEBT-RELATED PARTIES, less current
maturities (Note 8) 736,000 1,951,000 1,979,000
------------ ------------ -----------
Total liabilities 18,527,000 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 1,500,000 -
------------ ------------ -----------
STOCKHOLDERS' EQUITY (Note 10)
Preferred stock, no par value, 10,000,000 shares
authorized:
Series A, 0, 0 and 13,000 shares issued and
outstanding - - 1,312,000
Series B, 0, 0 and 300,000 shares issued and
outstanding - - 450,000
Series C, convertible, 10,000, 0 and 0 shares
issued and outstanding 907,000 - -
Common stock, $.001 par value, 50,000,000 shares
authorized, 13,555,793, 13,450,793, and 8,395,785
shares issued and outstanding 13,000 13,000 8,000
Additional paid-in capital 25,566,000 25,547,000 13,120,000
Accumulated deficit (10,931,000) (11,397,000) (8,436,000)
------------ ------------ -----------
Total stockholders' equity 15,555,000 14,163,000 6,454,000
------------ ------------ -----------
$ 35,582,000 $ 34,855,000 $10,297,000
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-14
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
SIX MONTHS ENDED
March 31, Years Ended September 30,
---------------------------- ------------------------------------------
1997 1996 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales (Note 6) $ 21,935,000 $ 10,735,000 $ 26,667,000 $ 13,812,000 $ 4,812,000
Brokerage 1,567,000 - 952,000 - -
Other Income 35,000 28,000 4,000 41,000 19,000
- - -----------------------------------------------------------------------------------------------------------------
Total revenues 23,537,000 10,763,000 27,623,000 13,853,000 4,831,000
- - -----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 18,324,000 8,712,000 24,465,000 9,156,000 3,516,000
Cost of brokerage 1,489,000 - 936,000 - -
Cost of sales, related parties - 640,000 1,189,000 1,713,000 594,000
Personnel 1,430,000 862,000 1,454,000 744,000 327,000
Professional services 212,000 264,000 644,000 527,000 553,000
Travel 91,000 60,000 106,000 39,000 60,000
Occupancy 114,000 28,000 65,000 83,000 50,000
Depreciation and amortization 473,000 101,000 283,000 258,000 258,000
Interest 890,000 245,000 732,000 407,000 203,000
Other general and administrative 343,000 238,000 771,000 628,000 204,000
Abandonment of projects - - - - 208,000
- - -----------------------------------------------------------------------------------------------------------------
Total costs and expenses 23,366,000 11,150,000 30,645,000 13,555,000 5,973,000
- - -----------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary
gain 171,000 (387,000) (3,022,000) 298,000 (1,142,000)
Extraordinary gain from settlement
of debts (Note 11) - 48,000 70,000 806,000 218,000
- - -----------------------------------------------------------------------------------------------------------------
Income (loss) before taxes (benefit)
on income (loss) 171,000 (339,000) (2,952,000) 1,104,000 (924,000)
Taxes (benefit) on income (loss)
(Note 5) (295,000) (437,000) 9,000 (711,000) -
- - -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 466,000 $ 98,000 $ (2,961,000) $ 1,815,000 $ (924,000)
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS $ 186,000 $ 98,000 $ (2,961,000) $ 1,815,000 $ (924,000)
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Six Months Ended
March 31, Years Ended September 30,
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
PRIMARY INCOME (LOSS) PER
COMMON SHARE
Before extraordinary item $ .01 $ .01 $ (.30) $ .17 $ (.46)
Extraordinary item - - .01 .13 .09
- - --------------------------------------------------------------------------------------------------------------
Primary net income (loss)
per common share $ .01 $ .01 $ (.29) $ .30 $ (.37)
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 13,824,687 9,773,913 10,212,236 6,099,694 2,504,762
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
FULLY DILUTED INCOME (LOSS)
PER COMMON SHARE
Before extraordinary item $ .01 $ .01 $ (.30) $ .16 $ (.43)
Extraordinary item - - .01 .13 .08
- - --------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss)
per common share $ .01 $ .01 $ (.29) $ .29 $ (.35)
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 14,355,580 9,981,913 10,212,236 6,307,694 2,623,069
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-16
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1994, PREFERRED STOCK COMMON STOCK Additional Other
1995 AND 1996 AND SIX MONTHS ------------------ ----------------- Paid-in Option Equity Accumulated
ENDED MARCH 31, 1997(UNAUDITED) 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
services - - 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-17
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
- - ----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1994, PREFERRED STOCK COMMON STOCK Additional Other
1995 AND 1996 AND SIX MONTHS ------------------ ----------------- Paid-in Option Equity Accumulated
ENDED MARCH 31, 1997 (UNAUDITED) Shares Amount Shares Amount Capital To CEO Security (Deficit) Total
- - ----------------------------------------------------------------------------------------------------------------------------------
<C> <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
Preferred stock Series C
issued for cash net of
offerings costs of $93,000
(Note 10) (Unaudited) 10,000 907,000 - - - - - - 907,000
Common stock issued on
exercise of Series I
warrants (Unaudited) - - 125,000 - 19,000 - - - 19,000
Net income for the period
(Unaudited) - - - - - - - 466,000 466,000
- - ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1997
(Unaudited) 10,000 $907,000 13,555,793 $13,000 $25,566,000 $ - $ - $(10,931,000) $15,555,000
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Summary of Accounting Policies and
Notes to Consolidated Financial Statements.
F-18
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
Six Months Ended
March 31, Years Ended September 30,
------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 466,000 $ 98,000 $ (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 1,082,000 479,000 1,197,000 784,000 392,000
Extraordinary gain from
settlement of debts - (48,000) (70,000) (806,000) (218,000)
Write-off of Loef - - 277,000 - -
Write-off acquisition costs - - 23,000 - 72,000
Issuance of stock for services - - - 25,000 244,000
Deferred income taxes (295,000) (441,000) - (800,000) -
Abandonment of projects - - - - 208,000
Changes in assets and
liabilities net of effects
from purchases of subsidiaries:
Trade accounts receivable (1,209,000) (1,123,000) (2,199,000) (3,000) (898,000)
Inventories 17,000 (213,000) 657,000 (254,000) (243,000)
Prepaid expenses 56,000 (91,000) (124,000) (26,000) (111,000)
Other current assets - (216,000) (120,000) 33,000 (40,000)
Accounts payable 15,000 647,000 1,531,000 (290,000) 506,000
Accrued liabilities (246,000) 160,000 219,000 (451,000) 150,000
Income taxes payable - - 21,000 86,000 -
--------- --------- ------------ ---------- ---------
Net cash provided (used) by
operating activities (114,000) (748,000) (1,549,000) 113,000 (862,000)
--------- --------- ------------ ---------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net (755,000) (302,000) (700,000) (472,000) (25,000)
Additions to acquisition costs
and goodwill (292,000) (604,000) (861,000) (103,000) (319,000)
Payments for purchases of
subsidiaries, net of
cash acquired - - (11,568,000) - -
Receivables-related party (70,000) 128,000 146,000 - -
Other assets (245,000) - 19,000 - -
Advances to related party - - - (238,000) -
Acquisition of Loef - - - (113,000) -
Sale of equipment - - - - 48,000
Collections on note receivable - - - - 41,000
Non-Compete Agreement - (200,000) - -
--------- --------- ------------ ---------- ---------
Net cash used in investing
activities (1,362,000) (978,000) (12,964,000) (926,000) (255,000)
--------- --------- ------------ ---------- ---------
--------- --------- ------------ ---------- ---------
</TABLE>
F-19
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
Six Months Ended
March 31, Years Ended September 30,
------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from borrowings-
related parties - 1,593,000 1,630,000 321,000 632,000
Principal payments on
borrowings-related parties (1,998,000) (411,000) (1,692,000) (383,000) (152,000)
Proceeds from borrowings 3,299,000 20,000 3,573,000 - 434,000
Principal payments on borrowings (1,140,000) (401,000) (459,000) (2,756,000) (199,000)
Principal payments on capital leases (164,000) (112,000) (266,000) (34,000) -
Proceeds from (payments on)
line-of-credit, net (239,000) - 5,012,000 - -
Loan fees paid (131,000) - (429,000) - -
Proceeds from (payments to) factor,
net - (60,000) (197,000) (264,000) 461,000
Deferred offerings costs - (125,000) - - -
Proceeds from issuance of stock 1,019,000 2,278,000 19,737,000 4,588,000 56,000
Costs of stock offerings (93,000) - (3,058,000) (590,000) -
Redemption of stock - - (8,072,000) - -
----------- ---------- ----------- ---------- ----------
Net cash provided by financing
activities 553,000 2,782,000 15,779,000 882,000 1,232,000
----------- ---------- ----------- ---------- ----------
Increase (decrease) in cash (923,000) 1,056,000 1,266,000 69,000 115,000
CASH, beginning of period 1,450,000 184,000 184,000 115,000 -
----------- ---------- ----------- ---------- ----------
CASH, end of period $ 527,000 $1,240,000 $ 1,450,000 $ 184,000 $ 115,000
----------- ---------- ----------- ---------- ----------
----------- ---------- ----------- ---------- ----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-20
<PAGE>
SUMMARY OF ACCOUNTING POLICIES
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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.
- Implementation of (i) a new management information system to provide
material purchases and margin information on a daily basis to reduce cost
of material, (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.
F-21
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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.
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
F-22
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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 PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Statement
of Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock
Based Compensation. FAS 123 encourages the accounting for stock based
employee compensation programs to be reported within the financial statements
on a fair value based method. If the fair value based method is not adopted,
then FAS 123 requires pro forma disclosure of net income and earnings per
share as if the fair value based method had been adopted. The Company has
not yet determined how FAS 123 will be implemented or its impact on the
financial statements. FAS 123 is effective for transactions entered into
after December 15, 1995. The Company is required to implement Financial
Accounting Standards Board Statement No. 128 "Earnings per share in fiscal
1998", management has determined the application of the new rules will not
have a significant impact upon the financial statements of the Company.
ACQUISITIONS COSTS
The Company had capitalized acquisition costs of $330,000, $38,000 and
$61,000 at March 31, 1997, September 30, 1996 and 1995, 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 CREDIT RISK
Concentrations of credit risk with respect to trade receivables exist
due to large balances with a few customers. At March 31, 1997, September
30, 1996 and 1995, accounts receivable balances from significant customers
were $3,427,000 $1,825,000 and $699,000 or 62%, 42% and 68%, 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
F-23
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
and Mexico. Sales to one customer in Mexico comprised 12.1% and 15.4% of
sales for the six months ended March 31, 1997 and 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 FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, time deposits,
accounts payable, and accrued expenses approximate fair value because of the
short maturity of these items. The fair value of notes payable and amounts
due to factor was estimated based on market values for debt with similar
terms. Management believes that the fair value of that debt approximates its
carrying value.
INVENTORIES
Inventories consist primarily of ferrous and non-ferrous scrap metal.
Inventory costs include material, labor and plant overhead. Inventory is
stated at lower of average cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated
useful lives of 5 to 20 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property and
equipment was $793,000 and $369,000 for the six months ended March 31,
1997 and 1996 and $873,000, $545,000 and $147,000 for the years ended
September 30, 1996, 1995 and 1994. Maintenance and repairs are charged to
expense as incurred and expenditures for major improvements are capitalized.
When assets are retired or otherwise disposed of, the property accounts are
relieved of costs and accumulated depreciation and any resulting gain or loss
is credited or charged to operations.
F-24
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
REVENUE RECOGNITION
Sales are recorded in the period products are shipped. Brokerage income
is recorded at the time materials are received by the customer.
NET INCOME (LOSS) PER COMMON SHARE
Primary net income (loss) per common share is computed based upon the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Fully diluted computations assume the
conversion of the Convertible Preferred Stock.
Dilutive common equivalent shares consist of stock options and warrants.
In loss periods, dilutive common equivalent shares are excluded as the
effect would be anti-dilutive.
For the six months ended March 31, 1997 income available to common shareholders
has been reduced $280,000 for an imputed deemed dividend resulting from the is
issuance of the Series C Convertible Preferred stock at a discount (See Note
10).
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 March 31, 1997 and September 30, 1996 and 1995 the Company has
recorded a net deferred tax asset of $1,095,000, $800,000 and $800,000
primarily reflecting the benefit of net operating loss carryforwards, which
expire in varying amounts between 2002 and 2011. As a result of stock
ownership changes in 1996 the net operating losses are limited in use to
approximately $260,000 annually in accordance with Internal Revenue Code
section 382. 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.
F-25
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited financial statements for the
six month periods ended March 31, 1997 and 1996 are presented on a basis
consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for
the interim period ended March 31, 1997 are not necessarily indicative of
the results to be expected for the year ending September 30, 1997.
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, results of operations or cash flows.
F-26
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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-27
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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.
F-28
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
In connection with the restructuring of the acquisition of NRI, discussed
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. d.b.a. 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.
F-29
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
The Company signed a consulting and non-competition agreement with the
president of Anglo. The term of the non-compete portion is for six years and
is valued at $1,000,000 which will be amortized over the term of the
agreement using the straight-line method. The consulting portion is for a
term of six months and is payable $5,000 per month.
RII also entered into a sublease agreement with Anglo for three yard
facilities for $2,500 a month through December 10, 2005.
The real property acquired from Anglo and the Common Stock issued by the
Company have been placed in escrow to provide for the remediation of
environmental contamination related to the operations of Anglo prior to the
acquisition.
The purchase price of Anglo has been allocated as follows:
-------------------------------------------------------------------------
Equipment under capital lease $ 1,800,000
Contract to acquire land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,354,000
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-30
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
[D] On April 15, 1996, the Company acquired substantially all of the
assets (excluding cash and accounts receivable) of Mid-America Shredding,
Inc. ("Mid-America") 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 Iron and Metal, Inc. ("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-31
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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
-----------
-----------
[F] On April 7, 1997, the Company acquired for $5,500,000 substantially
all the assets of Addlestone Recycling Corp. (ARC), a privately held metals
recycler with operations in Metter, Georgia. The purchase price consisted of
$5,212,000 payable at closing from debt and $500,000 or 10,000 shares of the
Company's Series D Convertible Preferred stock (the "Series D Shares") also
delivered at closing. The Series D Shares will automatically convert on April
1, 1999 into the number of shares of the Company's common stock whose average
market price for the ten trading days preceding the date of conversion is
equivalent to $0.5 million plus the amount of all accrued and unpaid dividends
on the Series D Shares to the date of conversion. If a consolidation or merger
of the Company with or into another company or entity occurs and the Company is
not the surviving entity, the Series D Shares will convert immediately into the
number of shares the Company's common stock whose average market price for the
ten trading days preceding the date of conversion or merger is equivalent to
$0.5 million plus the amount of all accrued and unpaid dividends on the Series
D Shares to the date of conversion. Holders of the Series D Shares are
entitled to dividends on a cumulative basis at an annual rate of eight percent,
payable quarterly in cash. At anytime prior to April 1, 1999, the Company
shall have the right to redeem the outstanding shares of Series D Preferred
Stock, in whole or in part, at a cash redemption price equal to the sum of $50
per share, and the amount of all accrued but unpaid dividends on the Series D
Preferred Stock. The Company has not assumed or guaranteed any of the
liabilities of ARC.
The Company has reached a definitive agreement to purchase substantially
all the assets of Addlestone International Corporation (AIC) located in
Georgetown, South Carolina for $6 million plus an amount equal to the value of
unprocessed inventory. The purchase price will consist of the sum of $5.5
million plus unprocessed inventory payable at closing and $.5 million or 10,000
shares of Series E Convertible Preferred Stock also delivered at closing. The
holders of the Series E Preferred are entitled to dividends on a cumulative
basis at a per annum rate of eight percent, payable quarterly in cash The
Series E Preferred Stock shall convert on April 7, 1999 into the number of
shares of common stock whose average market price for the ten days preceding
the date of conversion is equivalent to $.05 million plus the amount of all
accrued and unpaid dividends on the Series E Preferred Stock to the date of
conversion. At anytime prior to April 7, 1999, the Company shall have the
right to redeem the outstanding shares of Series E Preferred Stock, in whole or
in part, at a cash redemption price equal to the sum of $50 per share, and the
amount of all accrued but unpaid dividends on the Series E Preferred Stock.
The Company has not assumed or guaranteed any of the liabilities of AIC.
The combined assets of ARC and AIC consist of land, buildings, heavy
equipment, tools, rolling stock and inventory used in the business of recycling
ferrous and non-ferrous metals.
The purchase price for the combined assets of ARC and AIC are allocated as
follows:
Inventory 212,000
Land and improvements 994,000
Buildings and improvements 367,000
Machinery and equipment 10,139,000
Total purchase price 11,712,000
The purchase of the assets was funded as follows:
Notes payable (10,712,000)
Preferred stock issued ( 1,000,000)
11,712,000
The notes payable consist of $7,800,00 of term debt of which $2,300,000
matures in six months bearing interest at prime plus 2.50%. The $5,500,000
balance of the term debt is long-term with interest at prime plus four percent.
The balance of the notes payable consists of $2,912,000 payable in 60 monthly
installments of $40,000 bearing interest at 2.50%.
The preferred stock has a stated value of $1,000,000 and is convertible
into the Company's Common Stock two years from closing at the then market
price. The conversion shares shall provide for dividends on a cumulative basis
at the per annum rate of 8%, payable quarterly. The Company has the option to
redeem the preferred stock at the stated value plus all accrued unpaid
dividends at anytime prior to the two year period.
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-32
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
Years Ended September 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Revenues $75,061,000 $52,222,000 $11,348,000
Income (loss) from continuing
operations, net of taxes 560,000 3,977,000 (857,000)
Net income (loss) after
extraordinary items and
income taxes 630,000 4,783,000 (639,000)
Income (loss) from continuing
operations, net of taxes
per common share .05 .59 (.34)
Net income (loss) after
extraordinary items and
income taxes per common
share $ .06 $ .71 $ (.25)
----------- ----------- -----------
----------- ----------- -----------
2. INVENTORIES
Inventories consisted of the following:
September 30,
March 31, ---------------------------
1997 1996 1995
------------ ---------- -------------
Raw materials $1,132,000 $1,302,000 $350,000
Finished goods 1,246,000 1,171,000 147,000
Other 78,000 - -
---------- ---------- --------
$2,456,000 $2,473,000 $497,000
---------- ---------- --------
---------- ---------- --------
F-33
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
September 30,
March 31, ----------------------------
1997 1996 1995
------------ ----------- -------------
<S> <C> <C> <C>
Land $ 2,692,000 $ 2,692,000 $1,640,000
Building and improvements 2,789,000 2,768,000 365,000
Heavy machinery and equipment 5,557,000 5,245,000 1,472,000
Automotive shredders 7,949,000 7,645,000 3,161,000
Assets under capital lease 1,807,000 1,918,000 118,000
Transportation equipment 1,756,000 1,728,000 561,000
Office equipment 323,000 121,000 121,000
----------- ----------- ----------
Total 22,873,000 22,117,000 7,438,000
Less accumulated depreciation
and amortization 2,418,000 1,625,000 752,000
----------- ----------- ----------
$20,455,000 $20,492,000 $6,686,000
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The capitalized cost, accumulated depreciation, and depreciation expense
relating to equipment under capital lease obligations follows:
<TABLE>
September 30,
March 31, ----------------------------
1997 1996 1995
------------ ----------- -------------
<S> <C> <C> <C>
Capitalized cost $1,807,000 $1,918,000 $118,000
Accumulated depreciation (183,000) (120,000) (6,000)
---------- ---------- --------
$1,624,000 $1,798,000 $112,000
---------- ---------- --------
---------- ---------- --------
Depreciation expense $ 30,000 $ 114,000 $ 6,000
---------- ---------- --------
---------- ---------- --------
</TABLE>
F-34
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
September 30,
March 31, ----------------------------
1997 1996 1995
------------ ----------- -------------
<S> <C> <C> <C>
Acquisition costs $ 330,000 $ 38,000 $ 61,000
Goodwill, net of accumulated
amortization of $208,000,
$141,000 and $29,000
(see Note 1) 2,829,000 3,016,000 188,000
Patent rights 27,000 27,000 25,000
Engineering plans, net of
accumulated amortization
of $993,000, $962,000
and $899,000 94,000 125,000 188,000
Other 242,000 32,000 5,000
Non-compete agreements, net
of accumulated amortization
of $256,000 and $147,000 994,000 1,103,000 -
Land contract 70,000 70,000 -
Loan fees, net of accumulated
amortization of $106,000 and
$48,000 454,000 381,000 -
Investment in affiliate, at cost - - 277,000
---------- ---------- --------
$5,040,000 $4,792,000 $744,000
---------- ---------- --------
---------- ---------- --------
</TABLE>
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-35
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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 $1,095,000 has been recorded
as of March 31, 1997 and $800,000 as of September 30, 1996 and 1995. Net
operating loss carryforwards available for future use through the year 2011 were
approximately $9,300,000 and $9,400,000 at March 31, 1997 and September
30, 1996. As a result of stock ownership changes in 1996 the net operating
losses are limited in use to approximately $2,600,000 annually in accordance
with Internal Revenue Code section 382.
F-36
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
The components of deferred tax assets and (liabilities) are as follows:
<TABLE>
September 30,
March 31, ----------------------------
1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Total deferred tax
assets $ 5,847,000 $ 5,951,000 $ 2,847,000
Less valuation allowance (722,000) (1,143,000) (242,000)
-------------------------------------------------------------------------------
5,125,000 4,808,000 2,605,000
Total deferred tax (liabilities) (4,030,000) (4,008,000) (1,805,000)
-------------------------------------------------------------------------------
Net deferred tax asset $ 1,095,000 $ 800,000 $ 800,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences and net operating loss
carryforwards that give rise to deferred tax assets and (liabilities) are as
follows:
<TABLE>
September 30,
March 31, ----------------------------
1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Temporary differences:
Property and equipment $ (4,030,000) $ (4,008,000) $ (1,805,000)
Net operating loss
carryforwards 3,361,000 3,450,000 2,368,000
Goodwill and non-compete
agreements 1,875,000 1,918,000 5,000
Valuation allowance (722,000) (1,143,000) (242,000)
Engineering plans 367,000 356,000 306,000
Alternative minimum tax
credits 87,000 87,000 87,000
Research and development
costs 85,000 85,000 78,000
Accrued expenses 34,000 29,000 -
Inventory 31,000 23,000 -
Allowance for doubtful
accounts 7,000 3,000 3,000
-------------------------------------------------------------------------------
$ 1,095,000 $ 800,000 $ 800,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
F-37
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
Income tax expense (benefit) consisted of the following:
<TABLE>
Six Months Ended
March 31, Years Ended September 30,
--------------------- ---------------------------------
1997 1996 1996 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current $ - $ 4,000 $ 9,000 $ 89,000 $ -
Deferred (295,000) (441,000) - (800,000) -
--------------------------------------------------------------------------------
$ (295,000) $(437,000) $ 9,000 $(711,000) $ -
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
A reconciliation of the effective tax rates to the federal statutory
rate is shown below:
<TABLE>
Six Months Ended
March 31, Years Ended September 30,
--------------------- ----------------------------------------
1997 1996 1996 1995 1994
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal income tax
(benefit) computed
at federal statutory
rates $ 58,000 $ (115,000) $ (1,004,000) $ 374,000 $ (314,000)
Capital gains-MRI - - 1,190,000 -
Change in valuation
allowance (421,000) (221,000) 901,000 (2,072,000) 480,000
Other 68,000 (101,000) 112,000 (203,000) (166,000)
-----------------------------------------------------------------------------------------
Taxes (benefit) on
income (loss) $ (295,000) $ (437,000) $ 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:
<TABLE>
Six Months Ended
March 31, Years Ended September 30,
--------------------- ----------------------------------------
1997 1996 1995 1994
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Customer A 6.5% 9.6% 37.9% 29.9%
Customer B 13.47% 22.5% 16.2% 19.7%
Customer C 6.64% 0% 0% 0%
Customer D 14.23% 15.4% 0% 0%
Customer E 13.91% 0% 0% 0%
</TABLE>
7. LONG-TERM DEBT
<TABLE>
March 31, September 30,
--------------------- ----------------------------------------
1997 1996 1995
<S> <C> <C> <C> <C>
</TABLE>
F-38
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
<TABLE>
<S> <C> <C> <C> <C>
DEBT 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. $ 4,873,000 $ 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. 2,758,000 3,383,000 -
14.0% capital lease obligation
payable $40,500 per month
through February 2001 (a) 1,427,000 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. 1,067,000 1,179,000 -
Note payable to financial
institution; monthly payments
of interest at prime plus 2.25%
(8.5% at March 31, 1997) plus
principal of $10,000 due
June 1, 1999; collateralized
by certain assets of the
Company. 600,000 -
</TABLE>
F-39
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
<TABLE>
<S> <C> <C> <C> <C>
Other notes payable, principal
payable monthly in various
amounts including interest at
9 % to 18%, through 2001,
collateralized by various
equipment. 561,000 589,000 420,000
Other Capital leases, principal
payable monthly in various
amounts including interest at
10% to 17.5%,
through 2001. 88,000 44,000 78,000
Note payable to financial
institution monthly payments
of interest at prime plus 2.25%
plus principal of $41,667 except
during the months December 1996
through February 1997, principal
payments of $83,333 due April
2001; collateralized by certain
assets of the Company. 2,024,000 - -
------------------------------------------------------------------------------
13,398,000 11,774,000 498,000
Less current maturities 3,092,000 1,707,000 325,000
------------------------------------------------------------------------------
Long-term debt $ 10,306,000 $ 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,
F-40
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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 and March
31, 1997, 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 January 1, 1998 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; accordingly, the
present value of the future minimum lease payments have been classified as
current.
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.
Future maturities of long-term debt and minimum lease payments under
capital lease obligations are as follows:
Long-term Capital lease
Years Ending March 31, debt obligations (a) Total
-------------------------------------------------------------------------
1998 $ 1,728,000 $ 530,000 $ 2,258,000
1999 6,447,000 507,000 6,954,000
2000 2,078,000 507,000 2,585,000
2001 1,512,000 384,000 1,896,000
2002 119,000 14,000 133,000
-------------------------------------------------------------------------
Total future payments 11,884,000 1,942,000 13,826,000
Less amounts
representing interest - 428,000 428,000
-------------------------------------------------------------------------
Present value of
future payments 11,884,000 1,514,000 13,398,000
Less current portion 1,728,000 1,364,000 3,092,000
-------------------------------------------------------------------------
$ 10,156,000 $ 150,000 $ 10,306,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) The present value of the future minimum lease payments of the Anglo capital
lease have been classified as current as previously discussed.
Long-term Capital lease
Years Ending September 30, debt obligations Total
1996
-------------------------------------------------------------------------
F-41
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In April 1997 the Company entered into a $20,000,000 credit facility with a
lending institution replacing the previously maintained $12,500,000 credit
facility.
F-42
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
8. NOTES PAYABLE AND LONG-TERM DEBT - RELATED PARTY
September 30,
March 31, ---------------------------
1997 1996 1995
------------ ---------- -------------
$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) 930,000 930,000 -
$750,000 note payable
to officer of Anglo
Metal, Inc.; monthly
payments of principal
of $10,500 with interest
at 9% through December
2001. 594,000 656,000 -
$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. 350,000 390,000 -
Other notes due to related
parties with interest at
8.5% to 12%. 155,000 315,000 295,000
---------- ---------- ----------
2,029,000 4,026,000 2,197,000
Less current maturities 1,293,000 2,075,000 218,000
---------- ---------- ----------
Long-term debt, related
party $ 736,000 $1,951,000 $1,979,000
---------- ---------- ----------
---------- ---------- ----------
F-43
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
Future maturities of long-term debt-related parties are as follows:
Years Ending Years Ending
March 31, September 30,
------------ -------------
1997 $ - $2,075,000
1998 1,293,000 712,000
1999 215,000 719,000
2000 232,000 337,000
2001 195,000 152,000
Thereafter 94,000 31,000
---------- ----------
$2,029,000 $4,026,000
---------- ----------
---------- ----------
(a) In October 1996 the Company refinanced the note payable to NRC with a
$2,358,000 note payable to a financial institution; the excess proceeds
amounting to $623,000 were retained by the Company for working capital.
The terms of the new note agreement have been reflected in the
accompanying balance sheet at September 30, 1996 (see Note 7).
(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.
During the year ended September 30, 1993, First Dominion Holdings, Inc.
F-44
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
(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 TRANSACTIONS
In addition to transactions with related parties discussed throughout
the notes to the financial statements, the following related party
transactions have taken place.
During the six months ended March 31, 1997 and 1996 and in fiscal
1996, 1995, and 1994, the Company purchased raw materials from related
entities in the amounts of $0, $640,000, $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-45
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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' EQUITY
NON-QUALIFIED STOCK OPTIONS AND WARRANTS
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.
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
F-46
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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 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
F-47
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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.
PRIVATE PLACEMENT OFFERING DATED FEBRUARY 1, 1995 (FEBRUARY 1995 PRIVATE
PLACEMENT)
F-48
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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 price 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.
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,
F-49
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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.
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
F-50
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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 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.
Series C--On December 31, 1996 the Company issued 10,000 shares of
Series C Convertible Preferred Stock (the "Series C Preferred") for
$1,000,000 before offering costs of $93,000. The Preferred Stock is
convertible after April 30, 1997, without further payment, into the number of
shares of Common Stock determined by dividing (i) the sum of (a) $100 plus
(b) the amount of any accrued dividends on the Series C Preferred by (ii) the
lesser of
F-51
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
$1.58125 or 73% of the average reported closing bid price of a share of
Common Stock for the five consecutive trading days immediately preceding the
date of conversion. The resulting incremental discount on the conversion of
approximately $370,000, will reduce income available to common shareholders
on a pro rata basis through April 30, 1997 in computing earnings per-share.
Through March 31, 1997 income available to common shareholders has been
reduced $280,000 to reflect the incremental discount as an imputed deemed
dividend. In connection with the issuance of the Series C Preferred, the
Company issued to the holder warrants to acquire 20,000 shares of Common Stock,
which are exercisable for a three year period from the date of their issuance,
at an exercise price of $2.50.
Series D - On April 7, 1997 the Company issued 10,000 shares of Series D
Convertible Preferred Stock (the "Series D Preferred") in connection with the
acquisition of Addlestone Recycling Corporation. The Series D Preferred will
automatically convert on April 1, 1999, into that number of shares of the
Company's Common Stock whose average market price for the ten trading days
preceding the date of conversion is equivalent to $500,000 plus the amount
of all accrued and unpaid dividends on the Series D Preferred to the date of
conversion.
Series E - On June 19, 1997, the Company authorized 10,000 share of Series E
Convertible Preferred Stock (the "Series E Preferred") to be issued in
connection with the acquisition of Addlestone International Corporation.
The Series E Preferred will automatically convert on April 7, 1999, into that
number of shares of the Company's Common Stock whose average market price for
the ten trading days preceding the date conversion is equivalent to $500,000
plus the amount of all accrued and unpaid dividends on the Series E Preferred
to the date of a conversion.
F-52
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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 ITEMS
During 1996, the Company extinguished $70,000 of debt 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 AND CONTINGENCIES
ENVIRONMENTAL LIABILITIES
In connection with the recycling and processing of ferrous and
non-ferrous metals, the Company may come in contact with "hazardous
materials" as that term is defined under various environmental laws.
Although the Company screens for "hazardous materials" in its raw materials,
certain items processed may inadvertently contain such materials, which could
result in contamination of the waste by-products and premises. At this time
the Company believes that it is in substantial compliance with all applicable
F-53
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
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
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.
F-54
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
Future minimum lease payments are as follows for the years ending:
March 31, September 30,
------------ -------------
1997 $214,000 $118,000
1998 159,000 123,000
1999 154,000 119,000
2000 119,000 103,000
2001 60,000 60,000
Thereafter 112,000 112,000
-------- --------
$818,000 $635,000
-------- --------
-------- --------
Rent expense for the six months ended March 31, 1997 and 1996 and
for the years ended September 30, 1996, 1995 and 1994 was approximately
$46,000, $26,000 and $90,000, $47,000, and $48,000.
LITIGATION
On January 22, 1997, the Company and its wholly-owned subsidiary,
Recycling Industries of Texas, Inc. ("RITI") filed an action against Robert
C. Rome, principal of Anglo Metal, Inc. ("AMI"), in the United States
District Court for the District of Colorado. The Company and RITI are seeking
actual and consequential damages in an undetermined amount for fraud by
misrepresentation, deceit by nondisclosure and concealment and breach of
contract in connection with the acquisition of Anglo Iron & Metal in December
1995. Alternatively, the Complaint seeks specific performance of Mr. Rome's
obligations under his agreements with the Company.
On February 21, 1997, the Company and RITI were served with a complaint
filed by AMI in the United States Bankruptcy Court for the Southern District
of Texas. The Complaint alleges that the Company and RITI have failed to
perform certain obligations under their agreement to acquire Anglo Iron &
Metal in December 1995. The plaintiff seeks damages in excess of $3,255,000
for breach of contract, fraud and conversion. Alternatively, the Complaint
seeks to rescind the agreements executed by the Company and RITI to acquire
Anglo Iron & Metal.
The Company believes the allegations in the Complaint filed by AMI
are without merit and will vigorously defend this litigation. Although the
litigation is in the preliminary stage and the outcome cannot be predicted
with certainty, at this time it is the opinion of management that the
litigation will not have a material adverse effect on the Company's
consolidated financial position.
On December 13, 1996, the Company was served with a Complaint filed by
Allan R.A. Beeber and Helaba (Schweiz) Landesbank Hessen-Thurigen AG
(collectively, "Plaintiffs"), in the United States District Court for the
District of Massachusetts. John Silvia, Jr. ("Silvia") and Caside Associates
("Caside") were also named as party defendants. On March 20, 1997, the District
Court granted Plaintiffs' motion for leave to amend the Complaint. The
Plaintiffs seek actual, consequential and punitive damages in an undetermined
amount for breach of contract, fraud, unfair trade practice, and securities
violations in connection with an assignment of the Company's securities by
Sylvia and Caside.
The Company believes the allegations in the Complaint filed by Plaintiffs
are without merit and will vigorously defend this litigation. Although the
litigation is in the preliminary stage and the outcome cannot be predicted with
certainty, at this time it is the opinion of management that the litigation will
not have a material adverse effect on the Company's consolidated financial
position.
F-55
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as to the Periods Ended March 31, 1997 and 1996 is unaudited.
13. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS AND NONCASH INVESTING
AND FINANCING ACTIVITIES
<TABLE>
SIX MONTHS ENDED
MARCH 31, Years Ended September 30,
--------------------- ------------------------------------
1997 1996 1996 1995 1994
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash paid for interest $907,000 $ 194,000 $ 711,000 $ 407,000 $ -
Cash paid for income taxes $ 27,000 $ - $ - $ - $ -
Purchase of equipment for notes payable $277,000 $ 25,000 $ 406,000 $ 56,000 $ 5,000
Stock issued for conversion of bridge financing $ - $ - $1,138,000 $ 150,000 $ -
Acquisition of subsidiaries for stock $ - $1,137,000 $2,425,000 $ - $6,725,000
Acquisition of Anglo land and building for
note payable $ - $ 446,000 $ 446,000 $ - $ -
Acquisition of Anglo inventory for notes
payable $ - $1,366,000 $1,354,000 $ - $ -
Acquisition of Anglo goodwill for note
payable $ - $ 925,000 $ 479,000 $ - $ -
Capital lease obligation incurred to
finance Anglo acquisition $ - $1,800,000 $1,800,000 $ - $ -
Note payable issued for Anglo non-compete
agreement $ - $ 750,000 $ 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 $ 67,000 $ - $ - $ 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
</TABLE>
F-56
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Anglo Metal, Inc.
Harlingen, Texas
We have audited the accompanying balance sheets of Anglo Metal, Inc. d.b.a.
Anglo Iron & Metal, as of December 31, 1995 and 1994 and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Anglo Metal, Inc.
d.b.a. Anglo Iron & Metal, as of December 31, 1995 and 1994 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
Denver, Colorado
March 22, 1996
F-57
<PAGE>
ANGLO METAL, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
---------- -----------
ASSETS
CURRENT ASSETS:
Cash...................................... $ -- $ 146,000
Trade accounts receivable, pledged........ 641,000 660,000
Other receivables, related parties........ 70,000 75,000
Inventories............................... 1,437,000 1,041,000
Prepaid expenses.......................... 56,000 52,000
---------- ----------
Total Current Assets.................... 2,204,000 1,974,000
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization of
$703,000 and $614,000...................... 1,300,000 1,332,000
---------- ----------
OTHER ASSETS:
Cash surrender value life insurance........ 116,000 111,000
Other...................................... 16,000 --
---------- ----------
Total Other Assets....................... 132,000 111,000
---------- ----------
$3,636,000 $3,417,000
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................. $ 218,000 $ --
Trade accounts payable..................... 373,000 638,000
Line of credit, bank....................... -- 839,000
Accrued liabilities........................ 34,000 53,000
Income taxes payable....................... 140,000 --
Environmental cleanup liabilities.......... 1,194,000 1,194,000
Due to Recycling Industries, Inc. ......... 1,588,000 --
Current portion of long-term debt.......... -- 8,000
Current portion of capital lease........... -- 64,000
---------- ----------
Total Current Liabilities................ 3,547,000 2,796,000
---------- ----------
LONG-TERM DEBT:
Long-term debt, less current portion....... -- 226,000
Capital lease, less current portion........ -- 46,000
---------- ----------
Total Long-Term Debt..................... -- 272,000
---------- ----------
Total Liabilities........................ 3,547,000 3,068,000
---------- ----------
F-58
<PAGE>
ANGLO METAL, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 1,000,000
shares authorized; 50,000 shares issued
and outstanding.......................... 50,000 50,000
Retained earnings.......................... 39,000 299,000
---------- ----------
89,000 349,000
---------- ----------
Total Stockholders' Equity............. $3,636,000 $3,417,000
---------- ----------
---------- ----------
See accompanying Notes to Financial Statements
F-59
<PAGE>
ANGLO METAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Sales................................ $15,116,000 $12,128,000 $10,189,000
Brokerage............................ 216,000 700,000 352,000
Other................................ 7,000 38,000 20,000
----------- ----------- -----------
Total Revenues..................... 15,339,000 12,866,000 10,561,000
----------- ----------- -----------
COST OF SALES AND EXPENSES:
Cost of sales........................ 13,739,000 11,398,000 9,698,000
Cost of brokerage.................... 181,000 600,000 324,000
Environmental cleanup costs.......... -- -- 729,000
Personnel............................ 414,000 346,000 422,000
Professional services................ 66,000 32,000 31,000
Depreciation and amortization........ 11,000 11,000 10,000
Interest............................. 133,000 102,000 56,000
Other general and administrative..... 336,000 205,000 156,000
----------- ----------- -----------
Total Cost of Sales and Expenses... 14,880,000 12,694,000 11,426,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES...... 459,000 172,000 (865,000)
PROVISION FOR INCOME TAXES............. 140,000 -- --
----------- ----------- -----------
NET INCOME (LOSS)...................... $ 319,000 $ 172,000 $ (865,000)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes to Financial Statements
F-60
<PAGE>
ANGLO METAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
COMMON STOCK
-------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ --------- -----
Balance, December 31, 1992 .... 50,000 $50,000 $1,290,000 $1,340,000
Net (loss) .................... (865,000) (865,000)
Dividends paid ................ (97,000) (97,000)
---------- ----------
Balance, December 31, 1993 .... 50,000 50,000 328,000 378,000
Net income .................... 172,000 172,000
Dividends paid ................ (201,000) (201,000)
---------- ----------
Balance, December 31, 1994 .... 50,000 50,000 299,000 349,000
Net income .................... 319,000 319,000
Dividends paid ................ (579,000) (579,000)
---------- ----------
Balance, December 31, 1995 .... 50,000 $50,000 $ 39,000 $ 89,000
------ ------- ---------- ----------
------ ------- ---------- ----------
See accompanying Notes to Financial Statements
F-61
<PAGE>
ANGLO METAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss)................................................ $ 319,000 $ 172,000 $(865,000)
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization ............................... 105,000 113,000 100,000
Changes in:
Trade accounts receivable ................................. 19,000 (335,000) 224,000
Other receivables, related parties ........................ 5,000 5,000 (24,000)
Inventories ............................................... (396,000) (135,000) 92,000
Prepaid expenses .......................................... (4,000) (24,000) 38,000
Bank overdraft ............................................ 218,000 -- (6,000)
Trade accounts payable .................................... (265,000) 73,000 (67,000)
Accrued liabilities ....................................... 7,000 (32,000) (111,000)
Income taxes payable ...................................... 140,000 -- --
Environmental cleanup liabilities ......................... -- -- 729,000
--------- --------- ---------
Net Cash Provided (Used) by Operating Activities ........ 148,000 (163,000) 110,000
--------- --------- ---------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of property and equipment .............................. (56,000) (162,000) (168,000)
Proceeds from sale of equipment ................................. -- 2,000 --
Increase in deposits ............................................ (16,000) -- --
Increase in cash surrender value life insurance ................. (5,000) (8,000) (41,000)
--------- --------- ---------
Net Cash (Used) by Investing Activities ................. (77,000) (168,000) (209,000)
--------- --------- ---------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Issuance of long-term debt ..................................... 247,000 -- --
Payments on long-term debt ..................................... (36,000) (8,000) (3,000)
Advances on line of credit ..................................... 250,000 1,452,000 637,000
Repayment on line of credit .................................... (49,000) (867,000) (712,000)
Payments on capital lease obligation ........................... (50,000) (58,000) (40,000)
Dividends paid ................................................. (579,000) (201,000) 330,000
--------- --------- ---------
Net Cash Provided (Used) by Financing
Activities ............................................ (217,000) 318,000 212,000
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH ................................... (146,000) (13,000) 113,000
CASH, beginning of year ........................................... 146,000 159,000 46,000
--------- --------- ---------
CASH, end of year ................................................. $ -- $ 146,000 $ 159,000
--------- --------- ---------
--------- --------- ---------
CASH PAID FOR INTEREST ............................................ $ 48,000 $ 102,000 $ 56,000
--------- --------- ---------
--------- --------- ---------
See Note 13
</TABLE>
See accompanying Notes to Financial Statements
F-62
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
Anglo Metal, Inc. d.b.a. Anglo Iron & Metal (Anglo) was incorporated in the
State of Texas in December 1985. Anglo operates in the metals recycling industry
(purchasing, processing, selling and brokering ferrous and non-ferrous metals)
with its operations located in southern Texas. Anglo operates one of 12 heavy
duty automotive shredders located in Texas. Processed scrap is sold to steel
mill customers and other metals processors throughout the southern region of the
United States and northern Mexico.
SALE OF ANGLO
On December 11, 1995, Anglo sold to Recycling Industries, Inc. (RII)
substantially all of the assets and the business of Anglo.
The assets sold consisted of a heavy duty automotive shredder, inventories,
metal shearing equipment, balers, heavy equipment, tools and rolling stock used
in the business of recycling ferrous and non-ferrous metals. Certain real
property, buildings and leasehold improvements used in the metals recycling
business were also sold.
The sales price for Anglo was $6,065,000 comprised of: $2,079,000 in cash;
$1,865,000 note which is to be paid in ten equal monthly installments of
$186,500 over ten months beginning in February 1996; a $446,000 secured
promissory note payable in 60 consecutive monthly installments of $9,000,
including interest; a $750,000 unsecured note payable in 72 equal consecutive
monthly installments of $10,000, including interest; and 227,693 shares of RII
common stock valued at $925,000.
Of the cash received at the closing of the sale, $1,800,000 was obtained
through a sale-leaseback transaction with Ally Capital Corporation,
collateralized by all of the machinery and equipment sold, accounts receivable
and inventory, which has been recorded as a capital lease. The terms of the
sale-leaseback provide for 60 consecutive monthly lease payments of $41,000 with
a bargain purchase option at the end of the lease term. The lease contains
numerous covenants for maintaining certain financial ratios and earnings levels.
The remaining $279,000 paid at closing was obtained from the operating cash
reserves and working capital of RII.
RII signed a consulting and non-competition agreement with the president of
Anglo. The term of the Noncompete portion is for a term of six years and is
valued at $1,000,000 which will be amortized over the term of the agreement
using the straight line method. The consulting portion is for a term of six
months and is payable $5,000 per month.
The real property sold and the common stock given by RII have been placed
in escrow to provide for the remediation of environmental contamination related
to the operations of Anglo prior to the acquisition.
F-63
<PAGE>
The purchase price has been allocated as follows:
Equipment under capital lease ....................... $ 1,800,000
Contract to acquire land and buildings .............. 70,000
Covenant not to compete ............................. 1,000,000
Inventories ......................................... 1,365,000
Purchase price in excess of net assets acquired ..... 1,830,000
-----------
Total purchase price ........................... 6,065,000
Notes payable ....................................... (3,061,000)
RII common stock .................................... (925,000)
-----------
Cash paid at closing ................................ 2,079,000
Capital lease obligation ............................ (1,800,000)
-----------
Cash from operating capital .................... $ 279,000
-----------
-----------
CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables exist due
to large balances with a few customers. At December 31, 1995 and 1994, accounts
receivable balances for three major customers were $336,476 and $320,335, or 54%
and 49%, respectively, of the total accounts receivable balance. Ongoing credit
evaluations of customers' financial condition are performed and, generally, no
collateral is required. Anglo does not maintain reserves for potential credit
losses since such past losses, in the aggregate, have not been significant;
therefore, the allowance for doubtful accounts receivable is zero at December
31, 1995 and 1994. Customers are located throughout the Southern region of the
United States and Mexico.
INVENTORIES
Inventories consist primarily of ferrous and non-ferrous scrap metal.
Inventory costs include material, labor and plant overhead. Inventory is stated
at lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated useful
lives of 5 to 20 years for equipment and 40 years for building and improvements.
Depreciation and amortization expense of property, plant and equipment was
$105,000, $113,000 and $100,000 for the years ended December 31, 1995, 1994 and
1993, respectively. Maintenance and repairs are charged to expense as incurred
and expenditures for major improvements are capitalized. When assets are retired
or otherwise disposed of, the property accounts are relieved of costs and
accumulated depreciation and any resulting gain or loss is credited or charged
to operations.
F-64
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are
capitalized if costs improve Anglo's property as compared to the condition of
the property when originally constructed or acquired or if the costs prevent
environmental contamination from future operations. Expenditures that relate to
an existing condition caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments are made or remedial efforts are probable and the
cost can be reasonably estimated.
These amounts are generally accrued upon the completion of feasibility
studies or the settlement of claims, but in no event later than Anglo's
commitment to a plan of action.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximate fair value because of the short maturity of these
items. The fair value of notes payable was estimated based on market values for
debt with similar terms. Management believes that the fair value of that debt
approximates its carrying value.
INCOME TAXES
Anglo and its stockholders have elected under the Internal Revenue Code to
be an S-corporation for tax purposes. In lieu of corporate income taxes, the
stockholders of an S-corporation are taxed on their proportionate share of its
taxable income. Accordingly, no provision or liability for federal income taxes
has been included in these financial statements for Anglo for 1994 and 1993. On
January 1, 1995, Anglo terminated its S-corporation election.
Effective January 1, 1995, Anglo adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. Under this method,
deferred income taxes are recorded to reflect the tax consequences in future
years of temporary differences between the tax basis of the assets and
liabilities and their financial statement amounts at the end of each reporting
period. Valuation allowances will be established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is the tax payable for the current period and the change during the period in
deferred tax assets and liabilities. Deferred tax assets and liabilities have
been netted to reflect the tax impact of temporary differences. The adoption of
FAS 109 and termination of the S-corporation election resulted in recognition of
a net deferred tax asset of $250,000. Anglo has not recorded a deferred tax
asset at January 1, 1995 or December 31, 1995 since it was more likely than not
F-65
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
that the tax assets would not be realized. Therefore, the adoption of FAS 109
and the termination of the S-corporation election did not have a material effect
on Anglo's financial statements and there was no cumulative effect of this
change in accounting for income taxes at January 1, 1995. There is also no
effect on net income for the year ended December 31, 1995.
CASH
For purposes of reporting cash flows, Anglo considers all funds with
original maturities of three months or less to be cash equivalents.
NOTE 2--INVENTORIES
Inventories, pledged, consist of the following at:
DECEMBER 31,
-----------------------
1995 1994
---------- ----------
Raw materials ....... $ 766,000 $ 866,000
Finished goods ...... 671,000 175,000
---------- ----------
$1,437,000 $1,041,000
---------- ----------
---------- ----------
Included in inventory are $50,000 and $10,000 of indirect costs at December
31, 1995 and 1994, respectively.
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following at:
DECEMBER 31,
---------------------
1995 1994
---------- ----------
Land ............................................ $ 10,000 $ 10,000
Building and improvements ....................... 109,000 109,000
Heavy machinery and equipment ................... 1,762,000 1,482,000
Transportation equipment ........................ 99,000 115,000
Asset under capital lease obligation ............ -- 208,000
Office equipment ................................ 23,000 22,000
---------- ----------
Total ........................................ 2,003,000 1,946,000
Less accumulated depreciation and amortization .. (703,000) (614,000)
---------- ----------
Net .......................................... $1,300,000 $1,332,000
---------- ----------
---------- ----------
F-66
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 4--CASH SURRENDER VALUE LIFE INSURANCE
Anglo is the beneficiary of a life insurance policy on the President of
Anglo. The face amount of the policy is $1,800,000. Anglo's cash surrender value
was $116,000 and $111,000 at December 31, 1995 and 1994, respectively. The
policy is collateral for bank debt.
NOTE 5--ACCRUED EXPENSES
Accrued expenses consists primarily of accrued salaries and related
expenses at December 31, 1995 and 1994.
NOTE 6--LINE OF CREDIT
Anglo has a revolving line of credit with a bank for a maximum of $250,000
with interest at prime plus 1% (10% at December 31, 1995) collateralized by
equipment, inventory, accounts receivable, officer life insurance policy and
stockholder and officer personal guarantees. The balance was zero at December
1995 (see Note 8).
NOTE 7--LONG-TERM DEBT
Long-term debt consists of the following at:
<TABLE>
DECEMBER 31,
-----------------
1995 1994
---- --------
<S> <C> <C>
Note payable to individual with original principal of $245,000 and interest at
10% per annum; monthly principal and interest payments of $2,600;
collateralized by a $1,800,000 key man life insurance policy; paid
December 1995 (see Note 8)...................................................... $ -- $222,000
Note payable to bank with original principal amount of $17,200 and interest
at 11% per annum; monthly principal and interest payments of $800;
collateralized by equipment; paid December 1995 (see Note 8).................... -- 12,000
---- --------
-- 234,000
Less current portion............................................................. -- 8,000
---- --------
$ -- $226,000
---- --------
---- --------
</TABLE>
F-67
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 8--DEBT RESTRUCTURE
In connection with the sale of Anglo to RII, certain debt of Anglo was paid
by RII prior to December 31, 1995 and has been recorded in the financial
statements as advances from RII, a current liability. The following is a summary
of the debt restructure.
In December 1995, RII entered into an agreement with an unrelated entity
(BAF) whereby BAF advances 80% of the purchased trade accounts receivable and
collects payments on purchased receivables from Anglo's customers. BAF charges
RII an administrative fee equal to 1% of the face amount of the purchased
receivables and a monthly finance charge in the amount of 10% of the average
daily outstanding balance of all purchased receivables. RII is required to
repurchase any receivables not collected from customers within 90 days. The
balance at December 31, 1995 was $11,000.
On December 13, 1995, RII entered into a capital lease with Ally Capital
Corporation for $1,800,000 of equipment acquired from Anglo (see Note 1). The
proceeds were used to pay off debt in the amount of $1,256,000 and capital lease
obligations of $60,000. The remaining balance of $484,000 was used to reduce a
$750,000 note payable that was guaranteed by Anglo.
NOTE 9--INCOME TAXES
The tax effects of temporary differences and net operating loss
carryforwards that give rise to deferred tax assets and (liabilities) at
December 31, 1995 are as follows:
Temporary differences:
Property and equipment................. $(220,000)
Accrued environmental liabilities...... 362,000
Inventories............................ 68,000
Valuation allowance.................... (210,000)
---------
$ --
---------
---------
The provision for income taxes consists of the following at December 31,
1995:
Current................................ $ 140,000
Deferred............................... --
---------
$ 140,000
---------
---------
F-68
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
The components of deferred income tax (benefit) expenses are as follows as
of December 31, 1995:
Depreciation and amortization.......... $ 40,000
Valuation allowance.................... (40,000)
--------
$ --
--------
--------
Following is a reconciliation of the amount of income tax (benefit) expense
that would result from applying the statutory federal income tax rates to pre-
tax income the reported amount of income tax expense for the year ended December
31, 1995:
Tax expense (benefit) at federal statutory rates...... $170,000
Increase (decrease) resulting from:
Nondeductible items................................. 8,000
Depreciation and amortization....................... (40,000)
Other.............................................. 2,000
--------
$140,000
--------
--------
NOTE 10--ECONOMIC DEPENDENCY
The Company is economically dependent on major customers for annual sales
as follows:
1995 1994 1993
---- ---- ----
Customer A........... 26% 25% 34%
Customer B........... 18% 10% --%
Customer C........... 10% --% --%
Customer D........... 12% --% 12%
Customer E........... --% --% 11%
Customer F........... --% 12% --%
NOTE 11--COMMITMENTS AND CONTINGENCIES
LOAN GUARANTEE
Anglo is guarantor of a note payable for its stockholders to a bank with an
original principal of $750,000; interest at 10.5% per annum; monthly principal
and interest payments of $8,000. The note is collateralized by equipment,
personal guarantees of Anglo stockholders and president, and assignment of key
man life insurance policy; due December 1988. The note balance is $207,000 and
$717,000 at December 31, 1995 and 1994. Of the
F-69
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
cash received at closing, $484,000 was paid directly to the note holder by
RII (see Note 8). RII is not a guarantor for the remaining outstanding
principal.
LITIGATION
Anglo Metal, Inc. and Anglo Iron & Metal are defendants in a lawsuit by the
State of Texas and Houston Lighting & Power, and Central Power & Light for
$924,000. Anglo is vigorously defending the case. A liability of $465,000 has
been recorded in the financial statements of Anglo. Under the terms of the
purchase agreement, RII shall not assume any liabilities of Anglo arising on or
before the closing date with respect to any action, event or occurrence.
Anglo is also a party to a number of lawsuits arising in the normal course
of business. In the opinion of management, the resolution of these matters will
not have a material adverse effect on Anglo's financial position.
ENVIRONMENTAL LIABILITIES
Anglo is a party to proceedings before state and federal regulatory
agencies relating to environmental remediation issues. The assessment of the
required response and remedial costs associated with the cleanup is extremely
complex. Among the variables that management must assess are imprecise
engineering estimates, continually evolving governmental standards, potential
recoveries from insurance coverage and laws which impose joint and several
liability. During January 1993, Environmental Protection Agency (EPA) conducted
an on site investigation and discovered a violation of the Toxic Substance
Control Act, concerning illegal disposal of Poly Chlorinated Biphenyl (PCB)
containing capacitors. Anglo was assessed a $129,000 penalty and was ordered to
remediate the site and dispose of contaminated soil in accordance with EPA
standards. The initial engineering estimates for remediation and soil disposal
are within the range of $200,000 to $600,000. A liability for $729,000 has been
recorded in the Anglo financial statements. Under the terms of the acquisition
of Anglo by RII, the stock component of the purchase price has been escrowed for
remediation costs.
LEASES
Anglo leases facilities under non-cancelable operating lease through 2005.
The monthly lease payments are $4,000 per month for the term of the lease. Total
rental expense for each of the three years 1995, 1994 and 1993 was $47,000.
Anglo also leased equipment under a capital lease for $208,000 which was paid in
December 1995.
Future minimum lease payments are as follows at December 31:
1996................. $ 30,000
1997................. 30,000
1998................. 30,000
1999................. 30,000
2000................. 30,000
Thereafter........... 150,000
--------
$300,000
--------
--------
F-70
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 12--RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the
notes to the financial statements, the following related party transactions have
taken place.
Accounts receivable from related parties consist of advances made to one of
the officers of Anglo and to one of the stockholders. These advances are non-
interest bearing. The officer's balance was $59,000 and $64,000 for 1995 and
1994, respectively, and the stockholder's balance was $11,000 at the end of 1995
and 1994.
NOTE 13--SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1995, the long term debt of $1,256,000
and the capital lease of $60,000 were paid by RII.
During the year ended December 31, 1995, a capital lease in the amount of
$208,000 was entered into for the acquisition of equipment.
During the year ended December 31, 1995, $17,000 of equipment was acquired
with a note.
During the year ended December 31, 1995, $807,000 of the line of credit
balance was refinanced to a long-term installment note payable.
F-71
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Mid-America Shredding, Inc.
Ste. Genevieve, Missouri
We have audited the accompanying balance sheet of Mid-America Shredding,
Inc., as of December 31, 1995 and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mid-America Shredding, Inc.,
as of December 31, 1995 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
Denver, Colorado
April 5, 1996
F-72
<PAGE>
MID-AMERICA SHREDDING, INC.
BALANCE SHEET
<TABLE>
DECEMBER 31, MARCH 31,
------------ ----------
1995 1996
---- ----
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash ..................................................... $ 30,000 $ 18,000
Trade accounts receivable ................................ 87,000 109,000
Inventories .............................................. 86,000 34,000
Prepaid expenses ......................................... 16,000 --
---------- ----------
Total Current Assets ................................. 219,000 161,000
PROPERTY, PLANT AND EQUIPMENT, net ......................... 2,886,000 2,823,000
---------- ----------
$3,105,000 $2,984,000
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank ....................................... $1,210,000 $1,210,000
Trade accounts payable ................................... 82,000 129,000
Trade accounts payable, related party .................... 133,000 143,000
Accrued liabilities ...................................... 35,000 16,000
Current portion of long-term debt ........................ 20,000 21,000
---------- ----------
Total Current Liabilities ............................ 1,480,000 1,519,000
LONG-TERM DEBT, less current portion ....................... 7,000 2,000
---------- ----------
Total Liabilities .................................... 1,487,000 1,521,000
---------- ----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000 shares authorized;
245 shares issued and outstanding ...................... -- --
Additional paid-in capital ............................... 3,055,000 3,055,000
Accumulated (deficit) .................................... (1,437,000) (1,592,000)
---------- ----------
Total Stockholders' Equity ........................... 1,618,000 1,463,000
---------- ----------
$3,105,000 $2,984,000
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Financial Statements
F-73
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENT OF OPERATIONS
<TABLE>
FOR THE THREE MONTHS ENDED
FOR THE --------------------------
YEAR ENDED MARCH 31,
DECEMBER 31, ----------
1995 1996 1995
---------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SALES .................................... $3,866,000 $ 452,000 $1,027,000
---------- --------- ----------
COST OF SALES AND EXPENSES:
Cost of sales .......................... 3,587,000 439,000 814,000
Personnel .............................. 247,000 124,000 157,000
Professional services .................. 6,000 5,000 2,000
Travel ................................. 1,000 -- --
Interest ............................... 125,000 35,000 30,000
Other general and administrative ....... 23,000 4,000 15,000
---------- --------- ----------
Total Cost of Sales and Expenses ... 3,989,000 607,000 1,018,000
---------- --------- ----------
NET INCOME (LOSS) ........................ $ (123,000) $(155,000) $ 9,000
---------- --------- ----------
---------- --------- ----------
</TABLE>
See accompanying Notes to Financial Statements
F-74
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................. 245 $ -- $3,009,000 $(1,314,000) $1,695,000
Contributed capital....................... -- -- 46,000 -- 46,000
Net (loss)................................ -- -- -- (123,000) (123,000)
--- ------ ---------- ----------- ----------
Balance, December 31, 1995................ 245 -- 3,055,000 (1,437,000) 1,618,000
Net (loss)................................ -- -- -- (155,000) (155,000)
--- ------ ---------- ----------- ----------
Balance, March 31, 1996 (Unaudited)....... 245 $ -- $3,055,000 $(1,592,000) $1,463,000
--- ------ ---------- ----------- ----------
--- ------ ---------- ----------- ----------
</TABLE>
See accompanying Notes to Financial Statements
F-75
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE FOR THE THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------------
1995 1996 1995
---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS (TO) FROM OPERATING ACTIVITIES:
Net income (loss)............................................... $(123,000) $(155,000) $ 9,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 173,000 43,000 43,000
Changes in:
Accounts receivable......................................... 62,000 (22,000) 48,000
Inventories................................................. 192,000 52,000 49,000
Prepaid expenses............................................ 12,000 16,000 (9,000)
Trade accounts payable...................................... (72,000) 47,000 13,000
Trade accounts payable, related party....................... 106,000 10,000 --
Accrued liabilities......................................... 22,000 (19,000) 4,000
--------- --------- ---------
Net Cash Provided (Used) by Operating
Activities............................................... 372,000 (28,000) 157,000
--------- --------- ---------
CASH FLOWS (TO) FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............................. (484,000) (3,000) --
Proceeds from sale of property and equipment.................... -- 23,000 22,000
Construction in progress........................................ -- -- (204,000)
--------- --------- ---------
Net Cash Provided (Used) by Investing
Activities............................................... (484,000) 20,000 (182,000)
--------- --------- ---------
CASH FLOWS (TO) FROM FINANCING ACTIVITIES:
Proceeds from note payable, bank................................ 144,000 -- 43,000
Payments on note payable, bank.................................. (20,000) -- --
Payments on long-term debt...................................... (18,000) (4,000) --
Payment on amount due to former shareholder..................... (5,000) -- --
Capital contributions........................................... 26,000 -- 5,000
--------- --------- ---------
Net Cash Provided (Used) by Financing
Activities............................................... 127,000 (4,000) 48,000
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH................................... 15,000 (12,000) 23,000
CASH, beginning of period......................................... 15,000 30,000 15,000
--------- --------- ---------
CASH, end of period............................................... $ 30,000 $ 18,000 $ 38,000
--------- --------- ---------
--------- --------- ---------
CASH PAID FOR INTEREST............................................ $ 127,000 $ 34,000 $ 30,000
--------- --------- ---------
--------- --------- ---------
See Note 10
</TABLE>
See accompanying Notes to Financial Statements
F-76
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
Mid-America Shredding, Inc. (Mid-America) was incorporated in the state of
Missouri in July 1989. Mid-America operates in the metals recycling industry
(purchasing, processing and selling ferrous and non-ferrous metals). Mid-America
operates a heavy duty automotive shredder to separate metals into ferrous and
non-ferrous metals. Insulated copper or aluminum wire is processed through a
wire chopping machine to produce clean copper or aluminum chops. Mid-America
operates in Ste. Genevieve, Missouri.
ACQUISITION OF MID-AMERICA SHREDDING, INC.
On April 15, 1996, the assets and business of Mid-America were sold to
Recycling Industries, Inc. (RII).
The assets sold by Mid-America consisted of real property, buildings,
inventories, a heavy duty automotive shredder, a wire chopping plant, heavy
equipment and tools used in the business of recycling ferrous and non-ferrous
metals.
The sales price for Mid-America was $1,925,000, comprised of $660,000 in
cash, a $55,000 note payable in eight equal monthly installments of $6,900, and
the assumption of Mid-America outstanding bank debt of $1,210,000.
The sale will be accounted for using the purchase method and the price will
be allocated as follows:
Inventories........................... $ 55,000
Land.................................. 310,000
Buildings and improvements............ 560,000
Machinery and equipment............... 1,000,000
-----------
Total purchase price.................. 1,925,000
Notes payable......................... (1,265,000)
-----------
Cash paid at closing................ $ 660,000
-----------
-----------
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements
for the six month period ended March 31, 1996 and 1995 are presented on a
basis consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ending March 31, 1996 are not necessarily indicative of the
results to be expected for the year ended December 31, 1996.
INVENTORIES
Inventories consist primarily of ferrous and non-ferrous scrap metal.
Inventory costs for finished goods include material, labor and plant overhead.
Inventories are stated at lower of cost (first-in, first-out) or market.
F-77
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated useful
lives of 10 to 20 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property, plant and
equipment was $173,000 and $43,000 for the year ended December 31, 1995 and for
the six months ended March 31, 1996 (unaudited), respectively. Maintenance and
repairs are charged to expense as incurred and expenditures for major
improvements are capitalized. When assets are retired or otherwise disposed of,
the property accounts are relieved of costs and accumulated depreciation and any
resulting gain or loss is credited or charged to operations.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are
capitalized if the costs improve Mid-America's property as compared to the
condition of the property when originally constructed or acquired or if the
costs prevent environmental contamination from future operations. Expenditures
that relate to an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments are made or remedial efforts are
probable and the cost can be reasonably estimated. These amounts are generally
accrued upon the completion of feasibility studies or the settlement of claims,
but in no event later than Mid-America's commitment to a plan of action.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued liabilities approximate fair value because of the short maturity of
these items. The fair value of the note payable, bank was estimated based on
market values for debt with similar terms. Management believes that the fair
value of that debt approximates its carrying value.
INCOME TAXES
Effective July, 1989, Mid-America and its stockholders elected under the
Internal Revenue Code to an S-corporation for tax purposes. In lieu of
corporate income taxes, the stockholders of an S-corporation are taxed on
their proportionate share of Mid-America's taxable income. Accordingly, no
provision or liability for federal income taxes has been included in these
financial statements for Mid-America for the year ended December 31, 1995 or
for the six months ended March 31, 1996.
F-78
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CASH
For purposes of reporting cash flows, Mid-America considers all funds with
maturities of three months or less to be cash equivalents.
NOTE 2--INVENTORIES
Inventories, pledged, consist of the following:
DECEMBER 31, MARCH 31,
1995 1996
----------- --------
(Unaudited)
Raw materials................. $74,000 $34,000
Finished goods................ 12,000 --
------- -------
$86,000 $34,000
------- -------
------- -------
Included in inventories are $2,000 of indirect costs at December 31, 1995.
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following:
DECEMBER 31, MARCH 31,
1995 1996
----------- -----------
(UNAUDITED)
Land and improvements........................... $ 359,000 $ 359,000
Building and improvements....................... 163,000 163,000
Heavy machinery and equipment................... 1,703,000 1,676,000
Auto shredder mill.............................. 1,304,000 1,304,000
Transportation equipment........................ 50,000 46,000
Office equipment................................ 10,000 10,000
---------- ----------
Total......................................... 3,589,000 3,558,000
Less accumulated depreciation and amortization.. (703,000) (735,000)
---------- ----------
$2,886,000 $2,823,000
---------- ----------
---------- ----------
NOTE 4--ACCRUED LIABILITIES
Accrued liabilities consist primarily of accrued interest, accrued salaries
and related expenses at December 31, 1995 and March 31, 1996 (Unaudited).
F-79
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTE PAYABLE, BANK
<TABLE>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Note payable to bank with interest payable monthly at prime plus one
and one-half percent per annum (10% at December 31, 1995 and
10.5% at March 31, 1996 (Unaudited); collateralized by property
and equipment, accounts receivable and inventories; due on
demand; guaranteed by stockholder..................................... $1,210,000 $1,210,000
</TABLE>
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Retail purchase contract for equipment payable to the
vendor with original principal amount of $21,000 and
interest at 12% per annum; monthly principal and interest
payments of $1,000; due February 1997............................ $13,000 $11,000
Retail purchase contract for equipment payable to the
vendor with original principal of $18,000 and interest at
12% per annum; monthly principal and interest payments
of $846; due June 1997........................................... 14,000 12,000
------- -------
27,000 23,000
Less current portion.............................................. 20,000 21,000
------- -------
$ 7,000 $ 2,000
------- -------
------- -------
</TABLE>
The principal maturities for the long-term debts are as follows:
<TABLE>
<S> <C> <C>
1996........................................................ $20,000 $21,000
1997........................................................ 7,000 2,000
------- -------
$27,000 $23,000
------- -------
------- -------
</TABLE>
F-80
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES
LEASES
Mid-America has two operating leases with a railroad company for a spur
rail track and industrial property located in Zell, Missouri with annual lease
payments of $2,000. In addition, an office trailer was leased for the year for
$4,000. Total rent expense was $6,000 and $1,500 for the year ended December 31,
1995 and the six months ended March 31, 1996 (unaudited), respectively.
LETTER OF CREDIT
Mid-America has issued a letter of credit for $50,000 which expires on
December 31, 1997. The local electric utility company constructed a power
substation and the letter of credit guarantees the utility company that the
substation will be used for its intended purpose by Mid-America. The letter of
credit has not been drawn upon as of March 31, 1996.
NOTE 8--RELATED PARTY TRANSACTIONS
During 1995, Mid-America purchased $116,000 of equipment, parts and repairs
from an electric supply company (a related party) which is owned by the majority
shareholder of Mid-America. At December 31, 1995, Mid-America owed the related
party $133,000. For the six months ended March 31, 1996 (unaudited), Mid-
America purchased an additional $10,000 of equipment, parts and repairs and owed
the related party a total of $143,000 at March 31, 1996 (unaudited).
NOTE 9--ECONOMIC DEPENDENCY
Mid-America is economically dependent on three major customers for annual
sales. During 1995, the three customers accounted for 48%, 16% and 10% of sales
volume, respectively.
NOTE 10--SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NONCASH
INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1995, $39,000 of equipment was acquired
through the issuance of long-term debt.
The majority shareholder contributed equipment in the amount of $20,000 in
1995.
F-81
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Weissman Industries, Inc.
Waterloo, Iowa
We have audited the accompanying balance sheets of Weissman Iron and Metal,
a Division of Weissman Industries, Inc. (the Division), as of December 31, 1995
and 1994 and the related statements of operations, changes in division equity
and cash flows for each of the years in the three-year period ended December 31,
1995. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Weissman Iron and Metal, a
Division of Weissman Industries Inc. as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
Denver, Colorado
April 21, 1996
F-82
<PAGE>
WEISSMAN IRON AND METAL
BALANCE SHEETS
DECEMBER 31,
----------------------- JUNE 30,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash.................................. $ 9,000 $ 8,000 $ 15,000
Trade accounts receivable............. 1,527,000 1,579,000 1,773,000
Other receivables..................... 1,000 46,000 1,000
Inventories........................... 1,327,000 1,031,000 1,205,000
Prepaid expenses...................... 10,000 53,000 10,000
---------- ---------- ----------
Total Current Assets.............. 2,874,000 2,717,000 3,004,000
PROPERTY, PLANT AND EQUIPMENT, net...... 5,452,000 5,140,000 5,383,000
---------- ---------- ----------
$8,326,000 $7,857,000 $8,387,000
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND DIVISION EQUITY
CURRENT LIABILITIES:
Bank overdraft........................ $ 39,000 $ 5,000 $ --
Trade accounts payable................ 983,000 612,000 700,000
Trade accounts payable, related
party................................ -- 21,000 --
Accrued liabilities:
Payroll and related taxes........... 246,000 245,000 459,000
Pension termination costs........... 27,000 -- 27,000
Environmental cleanup costs......... 30,000 -- 30,000
Sales and property taxes............ 40,000 33,000 34,000
Other............................... 31,000 20,000 60,000
---------- ---------- ----------
Total Current Liabilities..... 1,396,000 936,000 1,310,000
COMMITMENTS AND CONTINGENCIES:
DIVISION EQUITY......................... 6,930,000 6,921,000 7,077,000
---------- ---------- ----------
$8,326,000 $7,857,000 $8,387,000
---------- ---------- ----------
---------- ---------- ----------
See accompanying Notes to Financial Statements
F-83
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales......................... $16,207,000 $12,959,000 $9,378,000 $7,355,000 $7,791,000
Brokerage..................... 2,956,000 1,352,000 241,000 1,875,000 908,000
Other......................... 1,000 11,000 11,000 27,000 1,000
----------- ----------- ---------- ---------- ----------
Total Revenues.............. 19,164,000 14,322,000 9,630,000 9,257,000 8,700,000
----------- ----------- ---------- ---------- ----------
COST OF SALES AND EXPENSES:
Cost of sales................. 12,235,000 9,075,000 7,456,000 5,762,000 5,802,000
Cost of brokerage............. 2,894,000 1,348,000 237,000 1,828,000 891,000
Personnel..................... 654,000 564,000 396,000 303,000 301,000
Professional services......... 17,000 26,000 22,000 8,000 4,000
Other, general and
administrative............... 305,000 270,000 282,000 146,000 198,000
Depreciation and amortization
expense...................... 7,000 7,000 7,000 3,000 3,000
Environmental cleanup costs... 30,000 -- -- -- --
Loss on disposal of equipment. -- -- -- -- --
----------- ----------- ---------- ---------- ----------
Total Cost of Sales and
Expenses................... 16,142,000 11,290,000 8,400,000 8,050,000 7,199,000
----------- ----------- ---------- ---------- ----------
NET INCOME...................... $ 3,022,000 $ 3,032,000 $1,230,000 $1,207,000 $1,501,000
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
</TABLE>
See accompanying Notes to Financial Statements
F-84
<PAGE>
WEISSMAN IRON AND METAL
STATEMENT OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
Balance, December 31, 1992...................................... $ 5,818,000
Net income...................................................... 1,230,000
Unrecognized pension costs...................................... (64,000)
Distributions to related parties, net........................... (635,000)
-----------
Balance, December 31, 1993...................................... 6,349,000
Net income...................................................... 3,032,000
Recognized pension costs........................................ 64,000
Distributions to related parties, net........................... (2,524,000)
-----------
Balance, December 31, 1994...................................... 6,921,000
Net income...................................................... 3,022,000
Unrecognized pension costs...................................... (47,000)
Distributions to related parties, net .......................... (2,966,000)
Balance, December 31, 1995...................................... 6,930,000
Net income (unaudited).......................................... 1,207,000
Distributions to related parties, net (unaudited) .............. (1,060,000)
-----------
Balance, June 30, 1996 (unaudited).............................. $ 7,077,000
-----------
-----------
See accompanying Notes to Financial Statements
F-85
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (TO) FROM
OPERATING ACTIVITIES:
Net income............................ $ 3,022,000 $ 3,032,000 $1,230,000 $ 1,207,000 $ 1,501,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization....... 312,000 261,000 220,000 170,000 143,000
Loss on disposal of equipment....... 20,000 6,000 2,000 -- --
Changes in:
Trade accounts receivable......... 52,000 (464,000) (618,000) (246,000) (179,000)
Other receivables................. (21,000) 30,000 (2,000) -- (24,000)
Prepaid expenses.................. 67,000 (5,000) (2,000) -- (73,000)
Inventories....................... (296,000) (66,000) (16,000) 122,000 (204,000)
Trade accounts payable............ 371,000 156,000 243,000 (283,000) 296,000
Accrued liabilities............... 66,000 47,000 106,000 236,000 (10,000)
Bank overdraft.................... 34,000 5,000 -- (39,000) 93,000
Environmental cleanup costs....... 30,000 -- -- -- --
----------- ----------- --------- ----------- -----------
Net Cash Provided by
Operating Activities........... 3,657,000 3,002,000 1,163,000 1,167,000 1,543,000
----------- ----------- --------- ----------- -----------
CASH FLOWS (TO) FROM
INVESTING ACTIVITIES:
Purchase of property and equipment.... (644,000) (648,000) (424,000) (101,000) (95,000)
Proceeds from sale of property
and equipment........................ -- -- -- -- --
----------- ----------- --------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities........... (644,000) (648,000) (424,000) (101,000) (95,000)
----------- ----------- --------- ----------- -----------
CASH FLOWS (TO) FROM
FINANCING ACTIVITIES:
Unrecognized pension costs............ (47,000) 64,000 (64,000) -- --
Distributions to related parties...... (2,965,000) (2,525,000) (635,000) (1,060,000) (1,440,000)
----------- ----------- --------- ----------- -----------
</TABLE>
F-86
<PAGE>
<TABLE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Cash (Used) by Financing
Activities..................... (3,012,000) (2,461,000) (699,000) (1,060,000) (1,440,000)
----------- ----------- --------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......... 1,000 (107,000) 40,000 6,000 8,000
CASH, beginning of period............... 8,000 115,000 75,000 9,000 8,000
----------- ----------- --------- ----------- -----------
CASH, end of period..................... $ 9,000 $ 8,000 $ 115,000 $ 15,000 $ 16,000
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
CASH PAID FOR INTEREST.................. $ -- $ -- $ 1,000 $ -- $ --
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</TABLE>
See accompanying Notes to Financial Statements
F-87
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
Weissman Industries, Inc. was incorporated in January 1975 in the State of
Iowa. Weissman Iron and Metal, a division of Weissman Industries, Inc.
(Weissman) operates in the metals recycling industry (purchasing, processing,
selling and brokering ferrous and non-ferrous metals) with its operations
located in Waterloo, Iowa. Weissman operates one of three heavy duty automotive
shredders in Iowa. Processed scrap is sold to steel mill customers located in
or around Waterloo, Iowa.
AGREEMENT TO SELL WEISSMAN
The stockholders of Weissman Industries, Inc. have signed an agreement with
Recycling Industries, Inc. (RII) to sell the business of Weissman to RII,
through the sale of all the outstanding stock of Weissman Industries, Inc.
Prior to the sale of stock to RII, Weissman Industries, Inc. sold its other
operating divisions to unrelated entities. Since the other operations were
previously sold to unrelated entities, are not being acquired by RII and do not
effect Weissman, they are not included in the financial statements of Weissman.
Both RII and Weissman Industries, Inc. have agreed to jointly elect section
338(h)(10) treatment under the Internal Revenue Code so that the sale of
Weissman will be treated as an asset sale for federal and state income tax
purposes.
The assets to be sold consist of a heavy duty automotive shredder, metal
shearing equipment, Coreco aluminum furnace, heavy equipment, tools and rolling
stock, real property, buildings, inventories and accounts receivable used in the
business of recycling ferrous and non-ferrous metals.
The sale price for Weissman is $12,400,000 and is allocated as follows:
Trade accounts receivable............................. $ 1,600,000
Inventories........................................... 900,000
Buildings and improvements............................ 3,000,000
Automotive shredder................................... 3,000,000
Heavy equipment....................................... 1,900,000
Equipment and rolling stock........................... 1,200,000
Land.................................................. 800,000
-----------
Total purchase price................................ $12,400,000
-----------
-----------
BASIS OF PRESENTATION
The accompanying financial statements include only the assets, liabilities,
equity and operations of the metals recycling division of Weissman Industries,
Inc. that is expected to be acquired by RII through a stock purchase agreement
upon the closing of a public offering of RII common stock.
F-88
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements
for the six month periods ended June 30, 1996 and 1995 are presented on a
basis consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ended June 30, 1996 are not necessarily indicative of the
results to be expected for the year ended December 31, 1996.
CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables exist due
to large balances with a few customers. At December 31, 1995 and 1994, and
June 30, 1996 (unaudited) accounts receivable balances for three major
customers were $1,216,000, $967,000 and $1,287,000, or 80%, 61% and 73%,
respectively, of the total accounts receivable balance. Ongoing credit
evaluations of customers' financial condition are performed and, generally, no
collateral is required. Weissman does not maintain reserves for potential
losses since such past losses, in the aggregate, have not been significant;
therefore, the allowance for doubtful accounts receivable is zero at
December 31, 1995 and 1994, and at June 30, 1996 (unaudited). Customers are
located in the upper Midwest region of the United States (in or around Waterloo,
Iowa).
INVENTORIES
Inventories consist primarily of ferrous and non-ferrous scrap metal.
Inventory costs for finished goods include material, labor and plant overhead.
Inventory is stated at lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated useful
lives of 5 to 20 years for equipment and 40 years for building and improvements.
Depreciation and amortization expense of property, plant and equipment was
$312,000, $261,000, $220,000, $170,000 and $143,000 for the years ended
December 31, 1995, 1994 and 1993, and for the six months ended June 30, 1996
and 1995 (unaudited), respectively. Maintenance and repairs are charged to
expense as incurred and expenditures for major improvements are capitalized.
When assets are retired or otherwise disposed of, the property accounts are
relieved of costs and accumulated depreciation and any resulting gain or loss is
credited or charged to operations.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are
capitalized if the costs improve the Weissman property as compared to the
condition of the property when originally constructed or acquired or if the
costs prevent environmental contamination from future operations. Expenditures
that relate to an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments are made or remedial efforts are
probable and the costs can be reasonably estimated. These amounts are generally
accrued upon the completion of feasibility studies or the settlement of claims,
but in no event later than Weissman's commitment to a plan of action.
F-89
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximate fair value because of the short maturity of
these items.
INCOME TAXES
Effective December 30, 1988, Weissman Industries, Inc. and its
stockholders elected under the Internal Revenue Code to be an S-corporation
for tax purposes. In lieu of corporate income taxes, the stockholders of an
S-corporation are taxed on their proportionate share of taxable income.
Accordingly, no provision or liability for federal income taxes has been
included in these financial statements.
Upon completion of the sale of Weissman Industries, Inc. to RII, the tax
status of the Weissman Industries, Inc. will change from an S-corporation to
a taxable entity. Due to the tax effect of the sale there will be no
significant differences between financial statement and tax basis of assets
and liabilities and therefore the sale will not generate a deferred tax asset
or liability.
CASH
For purposes of reporting cash flows, Weissman considers all funds with
maturities of three months or less to be cash equivalents.
NOTE 2--INVENTORIES
Inventories consist of the following at:
DECEMBER 31,
---------------------- JUNE 30,
1995 1994 1996
---------- ---------- ----------
(UNAUDITED)
Raw materials ............ $ 544,000 $ 526,000 $ 541,000
Finished goods ........... 783,000 505,000 664,000
---------- ---------- ----------
$1,327,000 $1,031,000 $1,205,000
---------- ---------- ----------
---------- ---------- ----------
Included in inventory is $165,000, $108,000 and $182,000 of indirect
costs at December 31, 1995 and 1994, and June 30, 1996 (unaudited),
respectively.
F-90
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at:
DECEMBER 31,
------------------------ JUNE 30,
1995 1994 1996
----------- ----------- -----------
(UNAUDITED)
Land.............................. $ 153,000 $ 153,000 $ 153,000
Building and improvements......... 2,983,000 2,970,000 2,983,000
Heavy machinery and equipment..... 4,602,000 4,289,000 4,654,000
Roads and railroad tracks......... 184,000 178,000 184,000
Transportation equipment.......... 863,000 757,000 863,000
Office equipment.................. 58,000 58,000 58,000
----------- ----------- -----------
Total........................... 8,843,000 8,405,000 8,895,000
Less accumulated depreciation... (3,391,000) (3,265,000) (3,512,000)
----------- ----------- -----------
$ 5,452,000 $ 5,140,000 $ 5,383,000
----------- ----------- -----------
----------- ----------- -----------
NOTE 4--ECONOMIC DEPENDENCY
Weissman is economically dependent on three major customers for sales as
follows:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------------------
1995 1994 1993 1996 1995
---- ---- ---- ---------- -----------
(UNAUDITED) (UNAUDITED)
Customer A......... 38% 32% 28% 17% 15%
Customer B......... 19% 22% 12% 11% 17%
Customer C......... 14% 16% 29% 44% 32%
Weissman also purchased inventory from two of these customers as follows:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------------------
1995 1994 1993 1996 1995
---- ---- ---- ---------- -----------
(UNAUDITED) (UNAUDITED)
Customer A......... 5% 6% 9% 3% 7%
Customer B......... 20% 19% 15% 34% 18%
F-91
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL LIABILITIES
In November 1993, Weissman Industries, Inc. received a notice from the US
Environmental Protection Agency (EPA) that it may be a potentially responsible
party (PRP), along with hundreds of others, with regard to a recycling site in
Alabama which received a shipment of material from Weissman. Under the law, a
PRP may be ordered to perform response actions, may be liable for costs incurred
and may be required to pay damages for injury.
In October, 1995 the EPA notified Weissman Industries, Inc. that since
Weissman had a lower volumetric ranking, EPA intends to offer a de minimis
settlement to Weissman Industries, Inc. after completing negotiations with
larger ranking PRPs. Weissman has recorded an accrual in the amount of $30,000
for a de minimis settlement allowance.
The assessment of the required response and remedial costs associated with
the clean up is extremely complex. Among the variables that management must
assess are imprecise engineering estimates, continually evolving governmental
standards, potential recoveries from insurance coverage and laws which impose
joint and several liability.
SELF FUNDED EMPLOYEE HEALTH CARE PLAN
Weissman maintains and self funds a health care plan for all full time
employees after 90 days of employment. A third-party administrator is employed
to control costs. The maximum specific costs are covered by a reinsurance
provider.
LOAN GUARANTEE
Weissman's trade receivables and inventories are collateral for a line of
credit with a maximum of $1,000,000 maintained by Weissman Industries, Inc.
There was $--0--, $775,000 and $--0-- outstanding under this line of credit as
of December 31, 1995 and 1994, and June 30, 1996 (unaudited), respectively.
UNION CONTRACT
Substantially all of the labor force that works in the recycling operations
in the yard are members of the International Union of United Automobile,
Aerospace and Agricultural Implement Workers of America and work under a
collective bargaining agreement which expires November 30, 1996. Management has
not yet commenced negotiations, however, in the past have successfully
negotiated contract renewals.
TURNINGS AND BORINGS CONTRACT
On September 1, 1991, Weissman entered into a service agreement with a
significant customer to process the customer's turnings and borings for a term
of seven years for a range of $13 to $22 per ton based on the product plus
approximately $4,000 per month for reimbursement of equipment costs.
F-92
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the
notes to the financial statements, the following related party transactions have
taken place.
Weissman purchases raw material inventory, sells miscellaneous services and
pays certain expenses to a related division of Weissman Industries, Inc. This
related division was sold to third parties in February 1995. The related party
transactions were as follows:
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1995 1994 1993 1996 1995
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Purchase of inventory...... $ 31,000 $168,000 $ 99,000 $ -- $31,000
Management fee charge...... $180,000 $180,000 $180,000 $90,000 $90,000
Sales of services, net..... $ 19,000 $205,000 $168,000 $ -- $14,000
</TABLE>
The purchase of the raw material approximates the cost paid to other
large bulk suppliers of Weissman. Costs charged are based upon actual
amounts paid by Weissman.
The balances due from the other divisions are shown as distributions
from Division Equity.
NOTE 7--RETIREMENT PLAN
Weissman Industries, Inc. has a defined benefit plan (the Plan) covering
substantially all of its employees. The Plan provides for payment of
retirement benefits commencing between the ages of 55 and 65. After meeting
certain qualifications, an employee acquires a vested right to future
benefits. The benefits payable under the Plan are generally determined on
the basis of an employee's length of service and earnings. Annual
contributions to the Plan are sufficient to satisfy legal funding
requirements.
Benefits under the Plan were frozen on October 31, 1995 and effective
December 30, 1995 the Plan was terminated. Upon receipt of a favorable
Internal Revenue Service determination letter and approval from Pension
Guaranty Trust the assets will be distributed to the participants. The
termination was approved by the union. The accrued loss due to curtailment
at the termination date was $47,000.
Upon adoption of Financial Accounting Standard Number 87 (FAS 87)
Employers' Accounting for Pensions in 1989, the fair value of Plan assets
exceeded projected benefit liability by $83,000. This initial net asset is
being amortized over 9.4 years.
Plan assets consist of a Group Annuity Contract with Principal Financial
Group.
Weissman pension activity consists of approximately 43% of the total
Plan. The following disclosures are for Weissman:
F-93
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In accordance with FAS 87, Weissman was required to record an additional
minimum pension liability at December 31, 1995 and 1993, and June 30, 1996
(unaudited). This amount represents the excess of the accumulated benefit
obligations over the fair value of Plan assets and accrued pension liabilities.
The liabilities have been offset by intangible assets to the extent possible.
Because the asset recognized may not exceed the amount of unrecognized prior
service cost, the balance of the liability at the end of each period is reported
as a separate reduction to Division Equity.
Amounts are summarized as follows:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1994 1993 1996
------- ------ ------- -----------
(UNAUDITED)
Intangible assets.............. $ -- $ -- $ 4,000 $ --
Reduction to Division Equity... 47,000 -- 64,000 47,000
------- ------ ------- -------
Additional minimum liability... $47,000 $ -- $68,000 $47,000
------- ------ ------- -------
------- ------ ------- -------
The net periodic pension cost is as follows:
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1995 1994 1993 1996 1995
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service costs--benefits
earned during the period.. $21,000 $ 25,000 $18,000 $ -- $ 10,000
Interest cost on projected
benefit obligation........ 19,000 18,000 15,000 -- 10,000
Actual return on assets.... (84,000) 15,000 (23,000) -- (42,000)
Net amortization and
deferral.................. 60,000 (33,000) 3,000 -- 30,000
------- -------- -------- ------- --------
Net periodic pension
cost.................... $16,000 $ 25,000 $ 13,000 $ -- $ 8,000
------- -------- -------- ------- --------
------- -------- -------- ------- --------
</TABLE>
Assumptions used in the accounting were:
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1995 1994 1993 1996 1995
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Discount rate.............. 6.25% 7.25% 5.75% -- 6.25%
Rate of increase in
compensation levels....... 5.26% 5.36% 6.00% -- 5.26%
Expected long-term rate of
return on assets.......... 7.75% 7.75% 7.75% -- 7.75%
</TABLE>
F-94
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in Weissman's balance sheet for its pension plan at:
DECEMBER 31,
-------------------- JUNE 30,
1995 1994 1996
--------- --------- -----------
(UNAUDITED)
Accrual present value of
benefit obligation:
Vested benefit obligation............ $ 358,000 $ 237,000 $ 358,000
--------- --------- ---------
--------- --------- ---------
Accumulated benefit obligation..... $ 358,000 $ 244,000 $ 358,000
--------- --------- ---------
--------- --------- ---------
Projected benefit obligation....... $(358,000) $(268,000) $(358,000)
Plan assets at fair value.......... 330,000 263,000 330,000
--------- --------- ---------
Projected benefit obligation in
excess of plan assets............. (28,000) (5,000) (28,000)
Items not yet recognized
in earnings:
Unrecognized net loss............ 63,000 52,000 63,000
Unrecognized (net asset) at
January 1, 1989................. (15,000) (22,000) (15,000)
Unrecognized prior service cost.. -- 3,000 --
Contributions made prior to
year end........................ -- 6,000 --
Loss on curtailment.............. (47,000) -- (47,000)
--------- --------- ---------
Pension (liability) asset
recognized in the balance sheet. $ (27,000) $ 34,000 $ (27,000)
--------- --------- ---------
--------- --------- ---------
F-95
<PAGE>
TABLE OF CONTENTS
PAGE
-----
Report of Independent Certified Public Accountants F-96
Combined Balance Sheets F-97 - F-98
Combined Statements of Income F-99
Combined Statements of Stockholders' Equity F-100
Combined Statements of Cash Flows F-101
Summary of Accounting Policies F-102 - F-103
Notes to Combined Financial Statements F-104 - F-110
Report of Independent Certified Public Accountants
To the Board of Directors
Addlestone Recycling Corporation
Addlestone International Corporation
Charleston, South Carolina
We have audited the accompanying combined balance sheets of Addlestone
Recycling Corporation and Addlestone International Corporation (the Companies)
as of December 31, 1996 and 1995 and the related combined statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Addlestone
Recycling Corporation and Addlestone International Corporation as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Denver, Colorado
May 9, 1997
F-96
<PAGE>
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Balance Sheets
December 31, 1996 1995
- ---------------------------------------------------------------
Assets (Note 5)
Current assets:
Cash and cash equivalents $ 108,000 $ 40,000
Accounts receivable:
Trade 2,994,000 2,111,000
Related party (Note 4) - 118,000
Interest and other 37,000 15,000
Inventories (Note 1) 9,553,000 5,389,000
Prepaid expenses 173,000 176,000
Notes receivable:
Other (Note 3) 101,000 144,000
Related party (Note 4) - 1,369,000
- ---------------------------------------------------------------
Total current assets 12,966,000 9,362,000
- ---------------------------------------------------------------
Property and equipment, net (Note 2) 4,490,000 4,945,000
- ---------------------------------------------------------------
Other assets:
Notes receivable (Note 3) 395,000 138,000
Deposits and other, net 2,000 125,000
- ---------------------------------------------------------------
Total other assets 397,000 263,000
- ---------------------------------------------------------------
$17,853,000 $14,570,000
- ---------------------------------------------------------------
- ---------------------------------------------------------------
See accompanying summary of accounting policies and
notes to combined financial statements.
F-97
<PAGE>
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Balance Sheets
December 31, 1996 1995
- ---------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 380,000 $ 294,000
Accrued payroll and other expenses 298,000 264,000
Notes payable:
Related parties (Note 4) 1,338,000 923,000
Other (Note 5) 1,621,000 1,260,000
- ---------------------------------------------------------------
Total current liabilities 3,637,000 2,741,000
Notes payable (Note 5) - 100,000
- ---------------------------------------------------------------
Total liabilities 3,637,000 2,841,000
- ---------------------------------------------------------------
Commitments and contingencies (Notes 7 and 9)
Stockholders' equity:
Preferred stock, $.10 par value
50,000 shares
authorized, none issued - -
Common stock, $.01 par value
1,000 shares authorized,
161 shares issued and outstanding - -
Common stock, $.10 par value
100,000 shares authorized,
10,000 shares issued and outstanding 1,000 1,000
Additional paid-in capital 244,000 244,000
Retained earnings 13,971,000 11,484,000
- ---------------------------------------------------------------
Total stockholders' equity 14,216,000 11,729,000
- ---------------------------------------------------------------
$ 17,853,000 $14,570,000
- ---------------------------------------------------------------
- ---------------------------------------------------------------
See accompanying summary of accounting policies and
notes to combined financial statements.
F-98
<PAGE>
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Statements of Income
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues:
Sales (Notes 4 and 6) $27,536,000 $16,972,000 $22,067,000
Other income 267,000 587,000 1,163,000
- --------------------------------------------------------------------------------
Total Revenues 27,803,000 17,559,000 23,320,000
- --------------------------------------------------------------------------------
Costs and expenses:
Cost of sales (Note 6) 23,093,000 14,243,000 18,225,000
Personnel 663,000 617,000 548,000
Professional services 111,000 78,000 89,000
Travel 18,000 14,000 35,000
Depreciation and amortization 46,000 50,000 1,000
Interest 252,000 174,000 361,000
Other general and administrative 1,126,000 863,000 1,207,000
- --------------------------------------------------------------------------------
Total costs and expenses 25,309,000 16,039,000 20,466,000
- --------------------------------------------------------------------------------
Net income $ 2,494,000 $ 1,520,000 $ 2,764,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to combined financial statements.
F-99
<PAGE>
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
-------------------------------
Years Ended Additional Total
December 31, 1994, Preferred Stock $.01 Par Value $.10 Par Value Paid-in Retained Stockholders'
1995 and 1996 Shares Amount Shares Amount Shares Amount Capital Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 - $ - 100 $ - 10,000 $1,000 $183,000 $7,647,000 $7,831,000
Issuance of common stock - - 61 - - - 61,000 - 61,000
Dividends - - - - - - - (220,000) (220,000)
Net income - - - - - - - 2,764,000 2,764,000
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 - - 161 - 10,000 1,000 244,000 10,191,000 10,436,000
Dividends - - - - - - - (227,000) (227,000)
Net income - - - - - - - 1,520,000 1,520,000
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 - - 161 - 10,000 1,000 244,000 11,484,000 11,729,000
Dividends - - - - - - - (7,000) (7,000)
Net income - - - - - - - 2,494,000 2,494,000
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 - $ - 161 $ - 10,000 $1,000 $244,000 $13,971,000 $14,216,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to combined
financial statements.
F-100
<PAGE>
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Operating activities:
Net income $2,494,000 $1,520,000 $2,764,000
Adjustment to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and amortization 836,000 995,000 942,000
Gain) loss on sale of
property and equipment (77,000) 8,000 (307,000)
Gain on sale of land and
improvements (29,000) - (82,000)
Changes in operating assets
and liabilities:
Accounts receivable (787,000) (84,000) 4,843,000
Inventories (4,164,000) (2,597,000) 998,000
Prepaid expenses 3,000 214,000 (66,000)
Accounts payable and
accrued expenses 120,000 (615,000) (2,370,000)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (1,604,000) (559,000) 6,722,000
- -------------------------------------------------------------------------------
Investing activities:
Property and equipment
purchases (458,000) (967,000) (2,742,000)
Deposits and other - (1,000) -
Proceeds from sale of property
and equipment 155,000 346,000 98,000
Proceeds from sale of land
and improvements 151,000 - 48,000
Net (advances) collections on
note receivable related party 1,369,000 1,995,000 (205,000)
Collections on notes receivable 138,000 485,000 571,000
Loans made (352,000) - -
- -------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 1,003,000 1,858,000 (2,230,000)
- -------------------------------------------------------------------------------
Financing activities:
Dividends paid (7,000) (377,000) (70,000)
Advances on lines-of-credit 10,158,000 20,797,000 30,561,000
Payments on lines-of-credit (9,057,000) (19,939,000) (37,311,000)
Payments on loans (1,425,000) (2,745,000) (1,080,000)
Proceeds from issuance of
common stock - - 61,000
Proceeds from loans 1,000,000 - 4,000,000
- -------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 669,000 (2,264,000) (3,839,000)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 68,000 (965,000) 653,000
Cash and cash equivalents,
beginning of year 40,000 1,005,000 352,000
- -------------------------------------------------------------------------------
Cash and cash equivalents,
end of year $ 108,000 $ 40,000 $1,005,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to combined financial statements.
F-101
<PAGE>
BUSINESS
Addlestone Recycling Corporation ("ARC") is a Delaware corporation
formed in 1993; Addlestone International Corporation ("AIC") is a
Delaware corporation formed in 1973 (the "Companies"). The Companies
operate metals recycling facilities in Georgia and South Carolina providing
wholesale sales primarily to southeastern steel mills and markets.
COMBINATION
The combined financial statements include the accounts of ARC and AIC
which are under common control through majority ownership. All material
intercompany accounts and transactions are eliminated.
REVERSE STOCK SPLIT
Effective August 1, 1994, ARC completed a one-for-ten reverse stock split
of its $.01 par value common stock. All share amounts have been
retroactively restated to reflect this reverse split.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
year. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Companies' financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and accounts receivable.
The Companies maintain its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Companies have not experienced
any losses in such accounts.
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At December 31, 1996, accounts
receivable balances from three customers were $1,147,000, $718,000 and
$441,000 or 38%, 24%, and 15%, of the total accounts receivable balance.
At December 31, 1995, accounts receivable balances from two customers
were $767,000 and $723,000 or 36% and 34% of total accounts receivable.
Ongoing credit evaluations of customers' financial conditions are performed
and, generally, no collateral is required. No allowance for uncollectible
accounts has been recorded at December 31, 1996 and 1995 based on prior
years experience and management's analysis of possible bad debts.
F-102
<PAGE>
INVENTORIES
Inventories consist primarily of ferrous scrap metals. Inventories costs
include material, labor and plant overhead. Inventories are stated at the
lower of average cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided
using straight-line and accelerated methods over the estimated useful lives
ranging from 5 to 15 years. Depreciation expense of property and
equipment was $835,000, $994,000 and $941,000 for the years ended
December 31, 1996, 1995 and 1994. 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.
INCOME TAXES
The Companies, with the consent of their stockholders, have elected under the
Internal Revenue Code to be S-corporations. In lieu of corporate income taxes,
the stockholders are taxed on their proportional share of the Companies;
taxable income. Therefore, no provision or liability for income taxes is
included in the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts
receivable and accounts payable, and accrued liabilities approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The fair value of the notes receivable and notes payable were
estimated based on market values of financial instruments with similar terms.
Management believes that the fair value of the notes receivable and notes
payable approximate their carrying value.
REVENUE RECOGNITION
Sales are recorded in the period materials are shipped.
CASH AND CASH EQUIVALENTS
For purpose of the statement of cash flows, the Companies consider all
highly liquid debt instruments purchased with an initial maturity of three
months or less to be cash equivalents.
F-103
<PAGE>
ADDLESTONE RECYCLING CORPORATION
AND Addlestone INTERNATIONAL CORPORATION
Notes to Combined Financial Statements
1. Inventories Inventories consisted of the following:
December 31, 1996 1995
----------------------------------------------------------
Raw materials $ 187,000 $ 462,000
Finished goods 9,366,000 4,927,000
----------------------------------------------------------
$9,553,000 $5,389,000
----------------------------------------------------------
----------------------------------------------------------
2. Property and
Equipment Property and equipment consisted of the following:
December 31, 1996 1995
----------------------------------------------------------
Land $ 197,000 $ 197,000
Building and improvements 852,000 875,000
Heavy machinery and equipment 2,177,000 2,088,000
Automotive shredders 6,491,000 6,538,000
Transportation equipment 201,000 180,000
Office equipment 182,000 183,000
----------------------------------------------------------
Total 10,100,000 10,061,000
Less accumulated depreciation 5,610,000 5,116,000
----------------------------------------------------------
$4,490,000 $4,945,000
----------------------------------------------------------
----------------------------------------------------------
3. Notes
Receivable The notes receivable primarily originated from the sale of
property and equipment and bear interest at 8% to 11%. The
notes mature at various dates and are collateralized by
land, various equipment and a partnership interest.
F-104
<PAGE>
4. Related Party
Transactions
and Balances Accounts receivable - related party
-----------------------------------
At December 31, 1995 amounts totaling $118,000 were due
from Addlestone & Company, Inc., an affiliate controlled by
the Companies' principal stockholder.
Notes receivable - related party
--------------------------------
In 1995 AIC had extended credit to Addlestone & Company,
Inc., an affiliate controlled by the Companies' principal
stockholder, pursuant to a $5,500,000 line-of-credit
agreement, which was terminated in 1996. At December 31,
1995 $1,369,000 was due under the agreement.
Notes payable - related parties consisted of the following:
-----------------------------------------------------------
December 31, 1996 1995
----------------------------------------------------------
Note payable to the principal
stockholder due on demand with
interest at a bank's prime rate
(8.25% at December 31, 1996);
unsecured. $ 750,000 $ 525,000
Note payable to 5705 Highway
Avenue Corporation; pursuant
to a $2,000,000 line-of-credit,
the note is unsecured and due
thirty days after demand with
interest at a bank's prime rate
(8.25% at December 31, 1996). 338,000 398,000
Note payable to the principal
stockholder due on demand with
interest at a bank's prime rate
(8.25% at December 31, 1996);
unsecured. 250,000 -
----------------------------------------------------------
$ 1,338,000 $ 923,000
----------------------------------------------------------
----------------------------------------------------------
AIC leases office space from its stockholder under an
agreement expiring January 31, 1999 at $3,000 per month.
The lease may be canceled by providing 90 days written
notice.
In addition to the balances and transactions discussed
above, the financial statements include the following
transactions with affiliated companies controlled by the
Companies' principal stockholder:
December 31, 1996 1995 1994
---------------------------------------------------------
Sales $ - $ 12,322,000 $16,073,000
Management fee income - 187,000 344,000
Interest income 5,000 192,000 317,000
Interest expense 109,000 42,000 62,000
F-105
<PAGE>
5. Notes Payable Notes payable consisted of the following:
December 31, 1996 1995
----------------------------------------------------------
Note payable to a bank, pursuant
to a $5,000,000 line of credit,
interest payable monthly at the
bank's prime rate (8.25% at
December 31, 1996); collateralized
by substantially all of the assets
of the Companies and guaranteed
by the principal stockholder;
due June 15, 1997. $ 1,621,000 $ 460,000
Note payable to a bank payable in
quarterly installments of $200,000
plus interest equal to the three
month London Inter-bank Offer Rate
plus 1.75%; collateralized by
substantially all of the assets of
the Companies and guaranteed by
the principal stockholder. - 900,000
----------------------------------------------------------
1,621,000 1,360,000
Less current portion 1,621,000 1,260,000
----------------------------------------------------------
Long-term portion $ - $ 100,000
6. Major
Customers
and Vendors Non-affiliated customers which comprised more than 10% of
the Companies' sales are as follows:
December 31, 1996 1995 1994
----------------------------------------------------------
A 27% - -
B 20% - -
C 19% - -
D - 12% -
During 1994 one vendor accounted for $5,411,000 or 30% of
total purchases. During 1996 and 1995 no vendors accounted
for more than 10% of total purchases.
F-106
<PAGE>
7. Commitments
and
Contingencies Environmental Liabilities
-------------------------
In connection with the recycling and processing of metals,
the Companies may come in contact with "hazardous
materials" as that term is defined under various
environmental laws. Although the Companies screen for
"hazardous materials" in their 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 Companies believe that they are
in substantial compliance with all applicable environmental
laws. Due to the nature of the Companies' operations,
changes in the environmental laws or inadvertent improper
disposal of a hazardous material may result in a violation
of such laws subjecting the Companies to fines and
responsibility for costs attributable to remediation.
AIC has been notified of potential liability pursuant to
Section 107(a) of the Comprehensive Environmental Response,
Compensation, and Liability Act. On June 15, 1993, 5705
Highway Avenue Corporation formerly Tri-State Recycling
Corporation ("Tri-State") purchased real property which
had previously been owned by a former wholly owned
subsidiary of AIC. In connection with Tri-State's
purchase of the property, AIC executed a $2,000,000
limited unconditional guaranty on behalf of the affiliate.
As part of the guaranty, AIC obtained a $760,000 standby
letter of credit. The guaranty and letter of credit
specifically relate to indemnity obligations pursuant to
its purchase of the property, and include a potentially
significant environmental liability. Management believes
that amounts disbursed by AIC on behalf of Tri-State in
connection with the guaranty will be recouped by AIC when
the Tri-State property is sold. Although the outcome of
this matter cannot be predicted with certainty, management
believes that the disposition of this matter will not have
a material adverse effect on the financial position,
results of operations or cash flows of the Companies.
In 1992 AIC was notified that it had sold material to two
customers who improperly disposed of certain waste by-
products of the related material. AIC has been named as a
potentially liable party in the clean up of the waste by-
products. The financial statements include an estimated
environmental cleanup liability of approximately $244,000
and $176,000 at December 31, 1996 and 1995 related to these
matters.
F-107
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Letter of Credit
----------------
At December 31, 1996 and 1995, AIC had a $50,000
outstanding letter of credit issued in connection with a
vendor arrangement.
Operating Lease
---------------
ARC leases equipment under a non-cancelable operating lease
expiring February, 2000.
Approximate future minimum lease payments are as follows:
Years Ending December 31,
-------------------------------------------------------
1997 $ 3,000
1998 3,000
1999 3,000
2000 1,000
-------------------------------------------------------
$ 10,000
Rent expense for non-cancelable operating leases for 1996,
1995, and 1994 was $3,000, $0 and $0.
Profit Sharing Plan
-------------------
AIC provides a defined contribution profit sharing plan
covering substantially all of its employees. The plan
provides for salary reduction contributions by
participating employees, and requires the Company to
make matching contributions up to 3% of a participant's
compensation.
AIC's contributions to the plan for the years ended
December 31, 1996, 1995 and 1994 were $17,000, $16,000 and
$16,000.
F-108
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8. Supplemental Supplemental information to the statements of cash flows
Cash Flow and noncash investing and financing activities are as
Information follows:
Years Ended December 31, 1996 1995 1994
----------------------------------------------------------
Cash paid for interest $ 243,000 $189,000 $357,000
Note receivable issued
in connection with
the sale of equipment - - 264,000
Dividends declared and
accrued - - 150,000
Note receivable issued
in connection with
the sale of land and
improvements - - 235,000
F-109
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9. Subsequent On April 7, 1997, the stockholders of ARC sold all of the
Events property and equipment and unprocessed inventory used in
its metals recycling operations to Recycling Industries,
Inc. ("RII") for $5,500,000 plus an amount equal to the
value of the unprocessed inventory at closing and is
payable as follows: $5,000,000 plus an amount equal to
the value of the unprocessed inventory in cash at closing
and $500,000 in RII Convertible Preferred Stock. The
Convertible Preferred Stock shall have a stated value of
$500,000 and shall be converted to RII Common Stock (the
"Conversion Shares") two years from closing at the then
market price. The Conversion Shares shall provide for
dividends on a cumulative basis at the per annum rate of
8%, payable quarterly.
On April 8, 1997, the stockholder of AIC signed an
agreement with Recycling Industries, Inc. ("RII") to sell
all of the property and equipment and unprocessed inventory
used in its metals recycling operations. The sales price
shall be $6,000,000 plus an amount equal to the value of
the unprocessed inventory at closing and is payable as
follows: $5,500,000 plus an amount equal to the value of
the unprocessed inventory in cash at closing and $500,000
in RII Convertible Preferred Stock. The Convertible
Preferred Stock shall have a stated value of $500,000 and
shall be converted to RII Common Stock (the "Conversion
Shares") two years from closing at the then market price.
The Conversion Shares shall provide for dividends on a
cumulative basis at the per annum rate of 8%, payable
quarterly. Closing of the sale will occur no later than
June 30, 1997, provided all terms of the sales agreement
have been met.
F-110
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
RECYCLING INDUSTRIES, INC.
____________________
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES E CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 7-106-102
OF THE
COLORADO BUSINESS CORPORATION ACT
____________________
Recycling Industries, Inc., a corporation organized and existing under the
laws of the State of Colorado (the "Company"), DOES HEREBY CERTIFY that the
following resolution was duly adopted by the Board of Directors of the Company
on June 18, 1997:
RESOLVED, that the Board of Directors, pursuant to the authority
vested in it by the provisions of the Company's Articles of
Incorporation, hereby establishes a series of preferred stock,
consisting of 10,000 shares, which shall be designated as the "Series
E Convertible Preferred Stock", and shall have the powers,
preferences, rights, qualifications, limitations and restrictions as
set forth in Attachment 1 attached hereto.
IN WITNESS WHEREOF, the undersigned hereby acknowledges under penalty of
perjury that the execution of this instrument is the undersigned's act and deed,
that the undersigned has read this Designation of Preferences, Limitations and
Relative Rights and all attachments thereto and knows the contents thereof and
the facts stated therein are true.
RECYCLING INDUSTRIES, INC.
_____________, 1997 By:_________________________
Thomas J. Wiens, Chairman
ATTEST:
_______________________________________
John E. McKibben, Secretary
<PAGE>
[SEAL]
<PAGE>
ATTACHMENT 1
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES E CONVERTIBLE PREFERRED STOCK
OF
RECYCLING INDUSTRIES, INC.
1. DESIGNATION AND AMOUNT. The distinctive designation of such series is
"Convertible Preferred Stock, Series E," without par value (the "Series E
Preferred Stock") of Recycling Industries, Inc., a Colorado corporation (the
"Company") and the number of shares constituting this series shall be 10,000.
2. DIVIDEND RIGHTS. The holders of the Series E Preferred Stock shall be
entitled to dividends on a cumulative basis at a per annum rate of eight
percent, payable quarterly in cash. No dividends may be paid on any series of
preferred stock junior to the Series E Preferred Stock unless the dividends then
owing on the Series E Preferred Stock have been paid in full.
3. LIQUIDATION PREFERENCE. The Series E Preferred Stock shall have no
liquidation preferences with respect to any other class or series of the
Company's Common Stock or preferred stock.
4. VOTING RIGHTS. The holders of outstanding shares of Series E
Preferred Stock shall not be entitled to vote on any matters submitted to the
stockholders of the Company except as otherwise required by law, in which case
every holder of Series E Preferred stock shall be entitled to one vote for each
such share.
5. CONVERSION OF THE SERIES E PREFERRED STOCK. All outstanding shares
of Series E Preferred Stock shall automatically and without any further action
on the part of the owner and holder thereof, convert on April 7, 1999 upon the
following terms:
(a) MANDATORY CONVERSION. All outstanding shares of Series E
Preferred Stock, valued at $500,000, shall be convertible at the office of the
Company or any transfer agent for the Series E Preferred Stock into that number
of shares of Common Stock whose average Market Price for the ten trading days
preceding the date of conversion is equivalent to $500,000 plus the amount of
all accrued and unpaid dividends on the Series E Preferred Stock to the date of
conversion. For purposes of this Section 5, "Market Price" means the closing
price for the Common Stock if it is listed on a national securities exchange or
the NASDAQ National Market System or the average of the last reported bid and
asked price for Common Stock as reported
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on the NASDAQ system or on the electronic bulletin board or, if none, the
National Quotation Bureau, Inc.'s "Pink Sheets."
Upon surrender of the certificates representing the Series E Preferred
Stock being converted, the Company shall, as soon as practicable thereafter, but
in any event within three business days of receipt of the original certificates
or certificates representing the shares of Series E Preferred Stock to be
converted, issue and deliver or cause to be issued and delivered to such holder
of Series E Preferred Stock, or to its nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled.
The Company shall make no cash payment of any dividends declared and unpaid
on the shares of the Series E Preferred Stock surrendered for conversion. All
declared and unpaid dividends on such shares up to the date of conversion shall
constitute a debt of the Company payable to the converting shareholder.
(b) AUTOMATIC CONVERSION. Notwithstanding any other provisions found
in this designation, if a consolidation or merger of the Company with or into
another company or entity occurs and the Company is not the surviving entity,
the Series E Preferred Shares will immediately and automatically convert into
that number of shares of Common Stock whose average Market Price for the ten
trading days preceding the date of consolidation or merger is equivalent to
$500,000 plus the amount of all accrued and unpaid dividends on the Series E
Preferred Stock to the date of conversion.
(c) FRACTIONAL SHARES. Any fractional shares resulting from a
conversion shall be rounded to the next highest whole share of Common Stock.
(d) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series E Preferred Stock, a number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
the Series E Preferred Stock.
6. REDEMPTION RIGHTS. At any time prior to the mandatory conversion set
forth in Paragraph 5(a), the Company shall have the right to redeem the
outstanding shares of Series E Preferred Stock, in whole or in part, at a cash
redemption price equal to the sum of (i) $50 per share, and (ii) the amount of
all accrued but unpaid dividends on the Series E Preferred Stock to the date of
redemption with respect to the shares being redeemed (collectively the "Cash
Redemption Price"); provided, however, that the Company shall not be entitled to
redeem any shares of Series E Preferred Stock unless it has given the holder of
such shares written notice of such redemption (the "Redemption Notice"). If the
Company delivers a timely Redemption Notice, the Cash Redemption Price shall be
paid to the holder of the shares to be redeemed within five business days of the
surrender of the certificates representing the Series E Preferred Stock being
redeemed.
2
<PAGE>
7. NOTICES. Any notice required by the provisions of this Certificate to
be given to the holder of shares of the Series E Preferred Stock shall be deemed
given when personally delivered to such holder or five business days after the
same has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to each holder of
record at such holders address appearing on the books of the Company. All
notices shall state the date of conversion or redemption, as the case may be.
8. PAYMENT OF TAXES. The holder of the Series E Preferred Stock will pay
all taxes and other governmental charges that may be imposed in respect of the
issue or delivery of shares of Common Stock upon conversion of shares of Series
E Preferred Stock.
3
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 26th day of February, 1997, by and between
RECYCLING INDUSTRIES OF GEORGIA, INC., a Colorado corporation ("RIGI"),
RECYCLING INDUSTRIES, INC., a Colorado corporation (the "Parent"), ADDLESTONE
RECYCLING CORPORATION, a Delaware corporation ("ARC"), Nathan Addlestone,
President and Stockholder of ARC ("Addlestone"), Keith Rosen, Stockholder of ARC
("Rosen") and Susan Berlijn, Stockholder of ARC ("Berlijn") (collectively
Addlestone, Rosen and Berlijn are referred to as "Stockholders" or individually
as a "Stockholder"). There are numerous other defined terms which are
capitalized in this Agreement, all of which are defined in the substantive
provisions of this Agreement or in Article 1, below.
WITNESSETH:
WHEREAS, RIGI is a wholly-owned subsidiary of the Parent; and
WHEREAS, RIGI desires to acquire substantially all of the assets, excluding
the Excluded Assets (as such term is hereafter defined), used in the ferrous and
nonferrous metal recycling business conducted by ARC at its facility located in
Metter, Georgia (the "ARC Assets"); and
WHEREAS, ARC desires to sell the ARC Assets; and
WHEREAS, the Parent has a vested interest in the transactions referred to
herein and is a Party to this Agreement, amongst other things, in order to
tender the Consideration Stock referred to herein;
WHEREAS, the Stockholders have a vested interest in the transactions
referred to herein and are Parties to this Agreement in order to make certain
representations and warranties and to accept certain obligations set forth
herein.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS
Unless otherwise defined in the substantive provisions of this Agreement,
the following terms will have the meanings ascribed to them in this Article 1.
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<PAGE>
1.1 "Acquisition" means the acquisition of the ARC Assets from ARC.
1.2 "ARC Payables" has the meaning set forth in Section 8.19, below.
1.3 "ARC Receivables" means receivables owing to ARC by any person or
entity whomsoever, including but not limited to accounts receivable and notes
receivable.
1.4 "Assumed Contracts" means those contracts, leases and agreements
related to the Business and specifically assumed by RIGI on the Closing Date,
copies of which are listed and attached hereto as Schedule 2.3.
1.5 "Business" means the business and business operations as conducted
by ARC on November 1, 1996, and subsequent thereto, as a going concern.
1.6 "Closing" has the meaning set forth in Section 3.4, below.
1.7 "Closing Date" has the meaning set forth in Section 3.4, below.
1.8 "Closing Documents" means the other agreements required to be
executed and delivered under this Agreement.
1.9 "Closing Notification" has the meaning set forth in Section 3.4,
below.
1.10 "Environmental Law or Laws" means any and all federal, state, local
or municipal laws, rules, orders, regulations, statutes, treaties, ordinances,
codes, decrees, or requirements of any governmental authority regulating,
relating to or imposing liability or standards of conduct concerning
environmental protection, health or safety matters, including all requirements
pertaining to reporting, licensing, permitting, investigation, removal or
remediation of emissions, discharges, releases, or threatened releases of
Hazardous Materials, chemical substances, pollutants or contaminants or relating
to the manufacture, generation, processing, distribution, use, treatment,
storage, disposal, transport, or handling of Hazardous Materials, chemical
substances, pollutants or contaminants, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Toxic Substance Control Act ("TSCA"), the Resource Conservation
and Recovery Act ("RCRA"), the Clean Air Act ("CAA"), and the Clean Water Act
("CWA"), all as may have been amended.
1.11 "Environmental Liabilities" means any and all liabilities for the
violation of, or remediation under, any Environmental Laws.
1.12 "GAAP" means generally accepted accounting principles consistently
applied in the United States.
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<PAGE>
1.13 "Hazardous Materials" means any substance (a) the presence of which
is at, on, over, beneath, in or upon any real or personal property, building,
structure, container of any nature or description, subsurface strata, ambient
air or ambient water (including surface and groundwater) or requires
investigation, removal or remediation under any Environmental Law or common
law, (b) which is or becomes defined as a "hazardous substance," "hazardous
material," "hazardous waste", "pollutant" or "contaminant" under any
Environmental Law, and/or (c) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is
or becomes regulated by any governmental authority under any Environmental Law,
(d) the presence of which causes or threatens to cause a nuisance or trespass
upon real property or to adjacent properties or poses or threatens to pose a
hazard to the environment, and/or to the health or safety of persons on or about
any real property, and/or (e) which contains urea-formaldehyde, polychlorinated
biphenyls, asbestos or asbestos containing materials, radon, petroleum and
petroleum products.
1.14 "Intellectual Property" has the meaning set forth in Section 2.1(c).
1.15 "Inventory Date" shall have the meaning set forth in Section 3.2(a),
below.
1.16 "IRC" means the Internal Revenue Code of 1986, as amended.
1.17 "Knowledge" means actual knowledge without independent
investigation.
1.18 "Lender" means RIGI's and the Parent's primary lender or equity
participant relating to the Transaction.
1.19 "Liability or Liabilities" means direct or indirect indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility, known
or unknown, asserted or unasserted, fixed or unfixed, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise
which affects or could affect the ARC Assets or the Business, including any
liability for Taxes.
1.20 "Ordinary Course of Business" or "Ordinary Course" means the
ordinary course of business consistent with past custom and practice of ARC
(including with respect to quantity and frequency).
1.21 "Owned Facilities" means the real property and associated fixtures
owned by ARC as specifically described on Schedule 2.1(a).
1.22 "Parent Common Stock" means the common stock, $.001 par value per
share, of Recycling Industries, Inc., a Colorado corporation.
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<PAGE>
1.23 "Parent Series D Convertible Preferred Stock" means the Convertible
Preferred Stock of Parent described in the Designation of Series "D" Convertible
Preferred Stock attached hereto as Exhibit A.
1.24 "Permits" means all licenses, permits, orders and approvals of any
federal, state or local governmental or regulatory bodies that are material to
or necessary for the conduct of the Business.
1.25 "Person" means any individual, corporation, partnership, limited
liability company, joint venture, trust, association, unincorporated
organization, agency, other entity or groups of entities, or governmental body.
1.26 "Processed Inventory" means all ferrous and non-ferrous Inventory
that has been processed by ARC as of the Closing Date and is ready for shipment
to ARC's customers.
1.27 "Review Period" means the 30 business days after execution of this
Agreement by all of the Parties. During the Review Period, RIGI and Parent
shall have the right to review such schedules, documents and/or exhibits and
request additional documentation as needed to clarify, investigate or determine
the nature of any item disclosed which, in the opinion of the RIGI, the Parent
or their counsel or accountants could have a material adverse affect on the
operations of RIGI, the Parent, or ARC ("Adverse Items").
1.28 "Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, claim, or other lien, other than: (a) mechanic's,
materialman's and similar liens; (b) liens for Taxes not yet due and payable or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings; (c) liens arising under worker's compensation, unemployment
insurance, social security, retirement and similar legislation; (d) liens
arising in connection with sales of foreign receivables; (e) liens on goods in
transit incurred pursuant to documentary letters of credit; (f) purchase money
liens and liens securing rental payments under capital lease arrangements; and
(g) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
1.29 "Shredder Residue" means the by-product generated from the operation
of a shredder which may or may not contain Hazardous Materials.
1.30 "Tangible Property" shall include the property described in Sections
2.1(a), 2.1(b), 2.1(d), and 2.1(e), below.
1.31 "Tax" means any federal, state, local or foreign income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative minimum, estimated,
net worth, self-employment, Medicaid, or other tax, including any interest,
penalty or addition thereto, whether disputed or not.
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<PAGE>
1.32 "Transaction" means the transactions contemplated by this Agreement
and the Closing Documents.
1.33 "Unprocessed Inventory" means: (i) all scrap ferrous metal comprised
of obsolete, discarded or abandoned machinery, appliances, equipment,
automobiles or other by-products to be processed by ARC for resale; and (ii)
scrap non-ferrous metal comprised of non-magnetic alloys of copper, brass,
aluminum and other related metals to be processed by ARC for resale.
Unprocessed Inventory does not include any ferrous or non-ferrous materials
contained in Shredder Residue or the other residual materials resulting from
ARC's operations or contained within dirt or other non-processable medium within
the Owned Facility.
1.34 "1934 Act" means the Securities Exchange Act of 1934, as amended.
ARTICLE 2
ACQUISITION OF ARC ASSETS
2.1 PURCHASE AND SALE OF THE ARC ASSETS. At the Closing and subject to
the terms and conditions stated herein, ARC agrees to sell, assign, convey and
transfer to RIGI, and RIGI agrees to purchase from ARC, the ARC Assets together
with all of the properties, rights and goodwill associated therewith of every
kind and description, tangible and intangible, personal or mixed, as hereinafter
more particularly described, with the exception of the Excluded Assets, as
hereinafter defined. Without limitation, the ARC Assets shall include all of
the items enumerated in subparagraphs (a) through (l) below, but excepting the
Excluded Assets:
(a) The Owned Facilities, including all buildings situated
thereon and all improvements and including all rights in easements, driveways
and signs, as legally described on Schedule 2.1(a).
(b) All vehicles, machinery and equipment, tools, furniture,
leasehold improvements, fixtures, vehicles, dies, jigs, and supplies, or any
related capitalized items and other tangible property which are both (i) owned
by ARC and (ii) either (x) located at the Owned Facilities or (y) used by the
Business as of the date of this Agreement, whether at the Owned Facilities, over
the road or at any other location, all as described on Schedule 2.1(b), provided
that digs, jigs, supplies, tools and spare parts are not listed on Schedule
2.1(b).
(c) Schedule 2.1(c) sets forth all of the intellectual property,
proprietary and business information of ARC relating to the Business, including,
all of ARC's right, title and interest in and to (collectively the "Intellectual
Property"):
(1) the non-exclusive use of the name "Addlestone Recycling
Corporation" and any variations thereof, but only for a period of six months
after the Closing;
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(2) all transferrable Permits and telephone numbers used by
ARC to the extent the same are transferrable by ARC;
(3) the non-exclusive right to all inventions, discoveries,
trade secrets, designs, prototypes, formulas and know-how relating to the
Business, it being understood that a similar business is now owned and operated
and will continue to be owned and operated by Addlestone International
Corporation;
(4) all patents (whether issued or pending), copyrights,
trademarks, tradenames (but excluding rights to the name "Addlestone Recycling
Corporation" except as provided in Section 2.1(c)(1); and
(5) copies of all business, financial and tax records
relating to the Business, including copies of all sales data, pricing and cost
information, customer and supplier lists, credit records, sales literature and
business and marketing plans relating to the Business, provided that ARC will
not be required to make copies except as provided in Section 8.14.
(d) Copies of all computer documentation, computer files,
computer disks, computer tapes and all information stored on computer media
(whether written, optical, or magnetic) used in connection with the operation of
the Business and stored at the Owned Facilities.
(e) All accounting and other computer software relating to the
Business owned by ARC, including information interfaced with those systems, as
maintained by ARC at the Owned Facilities, all of which are listed on Schedule
2.1(e), provided, however, that ARC shall not warrant title to the operating
system software;
(f) All rights to customer and supplier lists, signs,
advertising, catalogues and brochures relating to the Business.
(g) All rights of ARC under the contracts relating to the
Business to which ARC is a party, which are listed on Schedule 2.1(g), except
for contracts for the sale of Processed Inventory.
(h) All rights of ARC under open orders to purchase raw
materials or services in accordance with the Business' normal operating
procedures.
(i) All rights of ARC as lessee under leases of personal
property relating to the Business, all of which are listed on Schedule 2.1(i).
(j) All purchase orders, back orders, open orders or contracts
from customers, including the backlog and parts manufactured for or assigned to
ARC but not including any contracts for the sale of Processed Inventory.
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<PAGE>
(k) All goodwill and other general intangibles related to the
ARC Assets.
(l) All other assets of any nature useful and/or beneficial to
the Business whether owned or leased by ARC unless specifically described in
Section 2.2 or on Schedule 2.2 as an Excluded Asset.
ARC's sale, conveyance, assignment and transfer of the ARC Assets shall be
free and clear of all liens, encumbrances, liabilities or obligations, except
for any statutory liens for ad valorem taxes for the current year.
2.2 EXCLUDED ASSETS. On the Closing Date, RIGI shall not purchase the
cash, cash equivalents, Processed Inventory, ARC Receivables, prepaid items,
books and records, or the other assets of ARC on the Closing Date as set forth
on Schedule 2.2 (the "Excluded Assets").
2.3 ASSUMED CONTRACTS. RIGI shall assumes the obligations of ARC only
for those contracts set forth on Schedule 2.3.
2.4 ASSUMPTION OF LIABILITIES. RIGI shall not assume any Liabilities or
Environmental Liabilities of ARC arising on or before the Closing or with
respect to any action, event or occurrence of any party on or prior to the
Closing, provided, however, that ad-valorem taxes on the ARC Assets not yet due
and payable shall be pro-rated at Closing based on the preceding year's actual
ad-valorem taxes paid and RIGI shall assume its pro-rata share of such taxes.
2.5 COLLECTION OF ACCOUNTS RECEIVABLE.
(a) ARC will continue to collect ARC Receivables. If RIGI
receives payment on any of the ARC Receivable, RIGI shall forthwith forward the
same to ARC.
(b) ARC shall have the right, during the normal business hours
of RIGI, to review records of RIGI solely to determine compliance with the
provisions of Section 2.5(a).
(c) If ARC receives payment of any receivables relating to the
Business for materials which are the property of RIGI and which are shipped
after the Closing, then ARC shall forthwith forward the same to RIGI.
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<PAGE>
ARTICLE 3
PURCHASE PRICE AND CLOSING
3.1 PURCHASE PRICE FOR ARC ASSETS.
(a) Subject to Section 10.11 below, RIGI shall pay the total
amount of $5,500,000 plus an amount equal to the value of ARC's Unprocessed
Inventory, as determined in accordance with Section 3.2, below (the "Purchase
Price") to ARC for the purchase of the ARC Assets. The Purchase Price shall be
payable as follows:
(1) $5,000,000, plus an amount equal to the value of ARC's
Unprocessed Inventory, as determined in accordance with Section 3.2, below, in
immediately available funds at Closing (the "Cash Consideration");
(2) $500,000 of Parent Series D Convertible Preferred Stock
delivered on the Closing Date (as defined in Section 3.4 hereof) pursuant to the
terms of a customary subscription agreement (the "Subscription Agreement")
containing mandatory registration rights for the Parent Common Stock issuable
upon conversion of the Parent Series D Convertible Preferred Stock to be
registered (the "Consideration Stock"). The form of Subscription Agreement is
attached hereto as Exhibit B.
3.2 DETERMINATION OF UNPROCESSED INVENTORY VALUE.
(a) The quantities of all Unprocessed Inventory shall be
determined as of the close of business of ARC on a day not more than three
business days prior to the scheduled Closing Date (the "Inventory Date"). In
conjunction with the determination of the quantities of Unprocessed Inventory,
RIGI and its representatives shall be entitled to participate in determining the
physical inventory thereof as well as to inspect all work papers, schedules and
other supporting materials.
(b) The Purchase Price of the Unprocessed Inventory shall be
based on ARC's average cost for the ten business days preceding the Inventory
Date, exclusive of any purchases from related or affiliated persons or entities.
3.3 ALLOCATION OF THE PURCHASE PRICE.
(a) The Purchase Price, exclusive of the value of the
Unprocessed Inventory as determined in accordance with Section 3.2, above,
shall be allocated among the ARC Assets and the Non-Compete provision as set
forth on Schedule 3.3.
(b) The parties agree that they will not take any tax or other
position inconsistent with any allocation of the Purchase Price set forth on
Schedule 3.3.
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(c) RIGI and ARC each covenant with the other that it will
promptly give written notice to the other of any inquiry or challenge of such
allocation by any federal, state or local tax authority.
3.4 CLOSING OF THE PURCHASE. The closing of the Transaction (the
"Closing") shall take place at the offices of Nation's Bank, Charleston, South
Carolina, or at such other place in Charleston, South Carolina as selected by
the Lender, in its sole and absolute discretion, on the date and at the time set
forth in the Closing Notification, which shall be a Monday, given by RIGI in
accordance with this section (the "Closing Date"). The Closing Date shall be no
later than April 28, 1997, PROVIDED, HOWEVER, the Closing Date shall be
automatically extended to provide for RIGI and Parent's review pursuant to
Sections 7.1(b), 7.1(c) and 7.9. RIGI shall give written notice to ARC that
RIGI intends to consummate the Transaction on a date which is at least 15 days
following the date of such notice (the "Closing Notification"); PROVIDED,
HOWEVER, that ARC, in its sole discretion, may waive the requirement of the
Closing Notification.
ARTICLE 4
REPRESENTATIONS OF ARC AND THE STOCKHOLDERS
As an inducement to RIGI and the Parent to enter into this Agreement and to
complete the Transaction, and with the knowledge that RIGI and the Parent will
rely thereon, ARC and the Stockholders, jointly and severally, represent and
warrant to RIGI and the Parent that all of the representations and warranties in
this Article 4 are true, correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Article 4), except as set forth in the Schedules attached to
this Agreement which may be revised by ARC at any time or times prior to Closing
and which Schedules, as the same may be so revised, will be initialed by the
Parties at the Closing.
4.1 DUE ORGANIZATION AND QUALIFICATION. (a) ARC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and lawful authority to carry on its
business as now being conducted.
(b) ARC is duly qualified or otherwise authorized to transact
business in Georgia, being the only jurisdiction in which the nature of the
business conducted or the character or location of the properties owned makes
such qualification necessary.
4.2 TITLE TO PROPERTY. ARC has good, valid and marketable title to all
real and personal property included in the ARC Assets (tangible and intangible),
in each case subject to no Security Interest, option, right of first refusal, or
other restriction of any kind or character, subject, however, to (i) the title
exceptions disclosed by the title commitment and the survey
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as described in Sections 7.2 and 7.3; and (ii) a security interest in favor of
Addlestone International Corporation as described in Schedule 4.2.
4.3 AUTHORITY OF ARC; CONSENTS. (a) ARC has full power and authority to
execute and deliver this Agreement and the Closing Documents and to carry out
the Transaction; and ARC has taken all requisite corporate, partnership, or
other action to authorize the execution, delivery and performance of the Closing
Documents.
(b) This Agreement and the Closing Documents are valid and
binding agreements of ARC enforceable in accordance with their terms.
(c) Except as set forth in the Schedules to this Agreement or
any document supplied by ARC and the Stockholders to RIGI and Parent, no
consent, authorization or approval of, or declaration, filing or registration
with, any governmental or regulatory authority or any consent, authorization or
approval of any other third party is required to enable ARC to enter into and
perform its obligations under this Agreement and the Closing Documents, and
neither the execution and delivery of this Agreement and the Closing Documents
nor the consummation of the Transaction thereby will:
(1) Be in violation of the Certificate of Incorporation,
Bylaws or other organizational document of ARC, or constitute a breach of any
evidence of indebtedness or agreement to which ARC is a party;
(2) Cause a default under any mortgage or deed of trust or
other lien, charge or encumbrance to which any of the ARC Assets is subject or
under any contract to which it is a party, or permit the termination of any such
contract by another person;
(3) Result in the creation or imposition of any Security
Interest upon any of the ARC Assets under any agreement or commitment to which
ARC or the ARC Assets are bound;
(4) Conflict with or result in the breach of any writ,
injunction or decree of any court or governmental instrumentality;
(5) To the Knowledge of ARC and the Stockholders, violate
any statute, law or regulation of any jurisdiction as such statute, law or
regulation relates to the ARC Assets; or
(6) To the Knowledge of ARC and the Stockholders, violate
or cause any revocation of, or limitation on, any Permit.
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4.4 DISCLOSED ARC INFORMATION; ABSENCE OF CHANGES. (a) ARC has
furnished, or will prior to March 1, 1997 (or such later date as hereafter set
forth) furnish, RIGI and the Parent the following financial information,
Schedules, and other disclosures:
(1) A copy of the unaudited financial statements for ARC
for its fiscal years ended December 31, 1994, 1995 and 1996, and a description
of its material assets (including any real property, equipment, and other assets
owned as of the end of each fiscal year). Further, ARC will promptly furnish to
RIGI any interim financial statements for any months in 1997 after the same
become available;
(2) Copies of ARC's tax returns for its tax years ended in
1993, 1994, and 1995;
(3) Copies of all of ARC's Permits;
(4) All schedules referred to in this Agreement.
ARC will update such information to the Closing Date (such information
being collectively referred to in this Section 4.4 as the "Disclosed ARC
Information").
(b) The Disclosed ARC Information, including the footnotes
thereto, present fairly, in all material respects, the financial and operational
condition of the Business, the ARC Assets, and ARC at the dates thereof and
reflect all material claims against, and all material debts and liabilities of
ARC, fixed or contingent, as at the dates thereof, and the statements of income
and retained earnings which are a part of the Disclosed ARC Information present
fairly, in all material respects, the results of the operations of ARC and the
changes in its financial position for the periods indicated except as otherwise
disclosed in this Agreement and the Exhibits and Schedules hereto. The
financial statements which are included within the Disclosed ARC Information
have been prepared substantially in accordance with GAAP, except that as to any
interim financial statements, the customary year-end adjusting entries may not
have been made.
(c) Since December 31, 1996, there has been (1) no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations of the Business, whether
as a result of any legislative or regulatory change, revocation of any Permits,
fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation or act of God or other public force or otherwise; and (2) no change
in the assets or liabilities, or in the Business or condition, financial or
otherwise, or in the results of operations, or any loss of customers or
prospects of ARC, except in the Ordinary Course of Business which have not, in
the aggregate or individually, been materially adverse.
(d) ARC, during the pendency of this Agreement will operate the
Business only in the Ordinary Course.
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(e) ARC will provide prompt notice to RIGI of any material
change (including but not limited to the institution of legal proceedings by or
against ARC.
4.5 NO TAX LIENS; NO WAIVER. Except as set forth on Schedule 4.5,(a)
None of the ARC Assets are subject to any lien in favor of the United States
pursuant to the IRC for nonpayment of federal taxes, or any lien in favor of any
state under any comparable provision of state law, under which transferee
liability might be imposed upon RIGI as purchaser under the IRC or any
comparable provision of state or local law, except for ad-valorem taxes which
are not yet due and payable.
(b) ARC has not waived any statute of limitations with respect
to the assertion of any liability under any federal, state, or local tax law.
(c) ARC is not in default under, nor has it failed to pay, any
Tax liability to any federal, state, or local authority, and no audit or other
review by any such authority is pending, or, to the Knowledge of ARC and the
Stockholders, contemplated.
4.6 COMPLIANCE WITH LAWS. Except as set forth on Schedule 4.6,(a)
neither ARC nor any of the Stockholders is in violation or has violated any
applicable order, judgment, injunction, award or decree relating to the ARC
Assets. To the Knowledge of ARC and the Stockholders, except as otherwise
disclosed in the Environmental Studies, neither ARC nor the Stockholders have
violated or are in violation any federal, state, local or foreign law, ordinance
or regulation or any other requirement of any governmental or regulatory body,
court or arbitrator applicable to the ARC Assets.
(b) Without limiting the generality of the foregoing (1) the
buildings included in the Owned Facilities do not encroach on the property of
others, (2) except as otherwise disclosed in the Environmental Studies, to the
Knowledge of ARC and the Stockholders there is not pending or threatened any
notification of any governmental authority that ARC is not in compliance with
applicable laws and regulations respecting employment and employment practices,
occupational safety and health laws and regulations, and Environmental Laws, and
neither ARC nor any Stockholder knows of any basis therefor, and (3) neither ARC
nor any Stockholder has received any such notification of past violations of
such laws or regulations.
4.7 PERMITS. To the Knowledge of ARC and the Stockholders, Schedule 4.7
lists all Permits required by any governmental entity related to the Business or
operations of ARC. Except as described on Schedule 4.7, ARC validly holds all
Permits and all Permits are in full force and effect and no proceeding to revoke
or limit any of such Permits is pending or, to the Knowledge of ARC or the
Stockholders, threatened.
4.8 LITIGATION. Except as set forth on Schedule 4.8, there are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body
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or arbitration tribunal against or involving the ARC Assets or the Business.
Except as set forth on Schedule 4.8, there are no actions, suits or claims
against ARC or the Stockholders, or, to the Knowledge of ARC or the
Stockholders, investigations (whether or not the defense thereof or liabilities
in respect thereof are covered by insurance) pending or, to the Knowledge of ARC
or the Stockholders, threatened against or involving the ARC Assets or the
Business, nor to the Knowledge of ARC or the Stockholders, is there any basis
therefor. Responsibility for any litigation involving the ARC Assets or the
Business pending or arising from acts that occurred prior to the Closing and the
satisfaction of judgments (including related costs and fees) shall remain with
ARC and the Stockholders.
4.9 CONTRACTS AND OTHER AGREEMENTS. Except as set forth on Schedule
4.9,(a) Except for the Assumed Contracts or the contracts, leases, and other
agreements which will be repaid or cancelled at or prior to the Closing, ARC is
not a party to any (1) contract for the employment of any officer or individual
employee, (2) contract with any union, (3) bank loan or other credit agreement,
(4) bonus, deferred compensation, profit sharing, pension or retirement
arrangement, (5) lease for real or personal property, (6) partnership or joint
venture agreement, or (7) other material contract, agreement or commitment
except for contracts to sell Processed Inventory.
(b) All of the contracts, leases and other agreements which
constitute a part of the Assumed Contracts are valid and binding upon ARC in
accordance with their terms, and ARC is not in default nor has it received any
notice of default under, or with respect to, any such contracts, leases, or
other agreements.
(c) No approval or consent of any Person is needed in order that
the contracts, leases, and other agreements which constitute a part of the
Assumed Contracts will continue in full force and effect following the
completion of the Transaction. ARC is not in the process of negotiating or
entering into any contracts, leases, or other agreements described in this
Section 4.9.
4.10 TANGIBLE PROPERTY. Except as set forth on Schedule 4.10, all
Tangible Property is reflected in the Disclosed ARC Information and to the
extent such Tangible Property was being used in the Business at November 1,
1996, or thereafter, is in good operating condition and repair, subject only to
normal wear and tear. Except as set forth on Schedule 4.10, neither ARC nor the
Stockholders has received notice that any of the Tangible Property is in
violation of any existing law or any building, zoning, health, safety or other
ordinance, code or regulation.
4.11 INVENTORY. The piles of Unprocessed Inventory observed and measured
on the Inventory Date are located on level ground and are comprised solely,
throughout the pile, of the quality and grade of material visible on the outer
surface of the pile.
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4.12 INTELLECTUAL PROPERTY. Except as set forth on Schedule 4.12,(a)
All Intellectual Property is owned outright by ARC, free and clear of any
Security Interest and there exist no obligations with respect to any
Intellectual Property requiring ARC to make any payment in respect of its use or
otherwise. ARC has never agreed to indemnify any Person for or against any
interference, infringement, misappropriation or other conflict with respect to
the Intellectual Property.
(b) ARC and the Stockholders are not aware of any patent,
invention, trade secret, trademark, service mark, trade name or copyright of any
other Person that is infringed by ARC, nor do they have notice of any
infringement claim of any other Person relating to any of the Intellectual
Property or any process or confidential information of ARC, and ARC and the
Stockholders know of no basis for any such charge or claim.
4.13 REAL PROPERTY. To the best of ARC's and the Stockholder's
Knowledge, except as set forth on Schedule 4.13, the Owned Facilities include
all real property included in the ARC Assets. To the best of ARC's and the
Stockholder's Knowledge, with respect to each parcel of owned real property
included within the Owned Facilities:
(a) Except as otherwise disclosed herein or in the Environmental
Studies, the Owned Facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection with the
ownership or operation thereof and have been operated and maintained in
accordance with applicable laws, rules and regulations.
(b) There are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any party or parties the right of
use or occupancy of any portion of the Owned Facilities.
(c) There are no outstanding options or rights of first refusal
to purchase the Owned Facilities or any portion thereof or interest therein.
(d) There are no parties other than ARC in possession of the
Owned Facilities or any portion thereof.
(e) The Owned Facilities are supplied with utilities and other
services necessary for their operation, including electricity, water, telephone,
and septic tank for sewage disposal, all of which services are, to the Knowledge
of ARC, adequate in accordance with all applicable laws, ordinances, rules, and
regulations and are provided ingress and egress via public roads or via
permanent, irrevocable, appurtenant easements benefitting the Owned Facilities.
4.14 LIABILITIES. Except as otherwise set forth in this Agreement or any
Schedule hereto, to the best of the Knowledge of ARC and the Stockholders, the
Business has no Liabilities other than (a) Liabilities fully and adequately
reflected or reserved against in the
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Disclosed ARC Information and (b) Liabilities incurred since December 31, 1996,
in the Ordinary Course of Business.
4.15 SUPPLIERS AND CUSTOMERS. Schedule 4.15 sets forth a list of (1) any
supplier from whom ARC annually purchases $5,000 or more, and (2) any customer
whose annual purchases from the Business are $25,000 or more. All purchase
orders and customer contracts were issued by ARC in the Ordinary Course of
Business. Except as set forth on Schedule 4.15, there are no agreements or
understandings with any customers or the vendors to ARC as to adjustments in
pricing or cost which would reduce the profit margin of any existing or
contemplated contract or other relationship.
4.16 EMPLOYEE BENEFIT PLANS. ARC does not now maintain or contribute to,
and has never maintained or contributed to, any employee pension benefit plan
relating to or including the employees of the Business subject to the Employee
Retirement Income Security Act of 1974.
4.17 CURTAILMENT OF OPERATIONS. Except as set forth on Schedule 4.17, no
labor disputes or work stoppages involving the Business are pending or
threatened which, either singly or in the aggregate, might have an adverse
effect on the Business. Except as set forth on Schedule 4.17, to the Knowledge
of ARC and the Stockholders, no material customer of or supplier to the Business
is involved in, or affected by, any dispute, arbitration, lawsuit, or
administrative proceedings which might materially adversely affect the Business,
operations, properties, assets or condition, financial or otherwise, of the
Business.
4.18 EMPLOYEE RELATIONS. ARC is not a party to a collective bargaining
agreement and, to its and the Stockholder's Knowledge, except as set forth on
Schedule 4.18, ARC is in compliance with all federal, state or other applicable
laws, domestic or foreign, respecting employment and employment practices, terms
and conditions of employment (including issues related to independent contractor
status of personnel) and wages and hours, and ARC has not and is not engaged in
any unfair labor practice. Except as set forth on Schedule 4.18, there have
been no organization efforts by any trade unions within the last five years.
4.19 INSURANCE. Schedule 4.19 lists all insurance policies maintained by
ARC relating to the Business or the Owned Facilities, copies of which have been
provided to RIGI, which cover the ARC Assets or the Business, the nature of such
policies, the amount and types of coverage, and the name of the insurers and
expiration dates. ARC has paid all premiums and other amounts due on such
policies and will not cancel any insurance or permit any insurance to lapse or
terminate prior to the Closing, PROVIDED, HOWEVER, ARC shall not be responsible
for the termination of any insurance by the insurer unless the cancellation was
caused by the failure of ARC to pay any premiums or other amounts when due.
4.20 RELATIONSHIPS. Except as described on Schedule 4.20, no officer or
director of ARC possesses, directly or indirectly, any financial interest in, or
is a director, officer,
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stockholder or employee of, any corporation, firm, association or business
organization which is a manufacturer for, or client, supplier, customer, lessor,
lessee, or competitor or potential competitor of, the Business. Except as
described on Schedule 4.20, the Business is not indebted to any officer,
director, partner, or employee of ARC or to any entity in which any such Person
has a financial interest.
4.21 NO MATERIAL CHANGES PRIOR TO CLOSING DATE. Except for (i) the sale
of Processed Inventory and (ii) the occurrence of an event of force majeure, up
until the Closing Date, the Business will be operated without incurring any
additional material liabilities or making any material disposition of assets.
4.22 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting
on behalf of ARC or the Stockholders is, or will be, entitled to any commission
or broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with the Transaction.
4.23 EMPLOYEE TRANSITION. Schedule 4.23 lists all employee of ARC, their
term of employment, compensation history (including bonus, if any), benefits and
accrued vacation and other amounts payable to each employee. As of the
expiration of the day immediately preceding Closing Date, ARC will terminate all
employees of the Business who will not be hired by RIGI as indicated by the list
delivered to ARC by RIGI in accordance with Section 7.10 hereof (the "Terminated
Employees"), and will pay all compensation due the Terminated Employees on or
before the seventh day subsequent to the Closing. RIGI will not be responsible
for any salaried or hourly health and life insurance obligations incurred prior
to the Closing for any Terminated Employee, nor for payment of claims to
insureds, or payment of any premiums for coverage prior to the Closing Date.
All liabilities of the Business to the Terminated Employees will be retained by
ARC, including those accruing by reason of termination by ARC. RIGI shall have
the right, in its sole discretion, to determine which of ARC's employees it will
hire following the Closing.
4.24 ENVIRONMENTAL MATTERS. Except as may be provided in the
Environmental Studies to be performed as contemplated by Section 7.1 of this
Agreement, copies of which will be delivered to RIGI prior to the Closing as
provided in Section 7.1, or disclosed on Schedule 4.24, ARC and the Stockholders
have no Knowledge of any environmental problems or Environmental Liabilities,
contingent or otherwise, relating to the Business, the Owned Facilities or any
contiguous realty.
4.25 OSHA. Except as set forth on Schedule 4.25, ARC and the
Stockholders have no Knowledge that ARC is in violation of the Occupational
Safety and Health Act of 1970, as amended.
4.26 DISCLOSURE. To the Knowledge of ARC and the Stockholders, neither
this Agreement nor any Schedule, Exhibit or certificate delivered in accordance
with the terms hereof
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or any document or statement in writing which has been supplied by or on behalf
of ARC in connection with the Transaction, contains any untrue statement of a
material fact or omits any statement of a material fact necessary in order to
make the statements contained herein or therein not misleading.
4.27 BEST EFFORTS. ARC and the Stockholders will use their best efforts
to obtain all permits, consents and approvals and take such other actions in
order to complete the Transaction by the Closing Date. ARC and the Stockholders
will execute and deliver such instruments and take such other action as may be
reasonable or appropriate to carry out the Acquisition and the intentions of
this Agreement.
ARTICLE 5
REPRESENTATIONS OF RIGI AND THE PARENT
As an inducement to ARC and the Stockholders to enter into this Agreement
and to complete the Transaction and with the knowledge that ARC and the
Stockholders will rely thereon, RIGI and the Parent jointly and severally
represent and warrant to ARC and the Stockholders the following (both as of the
date hereof and as of the Closing Date):
5.1 DUE INCORPORATION AND QUALIFICATION OF RIGI. RIGI is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado, and has the corporate power and lawful authority to carry on
its business as now being conducted. On or before the Closing Date, RIGI will
be duly qualified or otherwise authorized as a foreign corporation to transact
business and will be in good standing in Georgia.
5.2 DUE INCORPORATION AND QUALIFICATION OF THE PARENT. The Parent is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Colorado, and has the corporate power and lawful authority
to carry on its business as now being conducted.
5.3 ARTICLES OF INCORPORATION AND BYLAWS. Not less than three business
days prior to the Closing Date, RIGI and the Parent will deliver to ARC true and
complete copies of their respective Articles of Incorporation (certified by the
Secretary of State of Colorado) and Bylaws (certified by its corporate
secretary) as then in effect.
5.4 AUTHORITY OF RIGI AND THE PARENT. RIGI and the Parent have full
power and authority to execute and deliver this Agreement and the Closing
Documents and to carry out the Transaction. The Closing Documents are valid
and binding agreements of RIGI and the Parent, enforceable in accordance with
their terms. No consent, authorization or approval of, or declaration, filing
or registration with, any governmental or regulatory authority or any consent,
authorization or approval of any other third party is necessary in order to
enable RIGI and the Parent to enter into and perform its obligations under the
Closing Documents, and neither the
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execution and delivery of the Closing Documents nor the completion of the
Transaction will, with respect to RIGI and the Parent individually:
(a) Be in violation of its Certificate of Incorporation or
Bylaws or constitute a breach of any evidence of indebtedness or agreement to
which it is a party;
(b) Cause a default under any mortgage or deed of trust or other
lien, charge or encumbrance to which any of its property is subject or under any
contract to which it is a party, or permit the termination of any such contract
by another Person;
(c) Result in the creation or imposition of any Security
Interest upon any of its property or assets under any agreement or commitment to
which it is bound;
(d) Accelerate, or constitute an event entitling, or which would
upon notice or lapse of time or both, entitle the holder of any indebtedness to
accelerate the maturity of any such indebtedness;
(e) Conflict with or result in the breach of any writ,
injunction or decree of any court or governmental instrumentality;
(f) Violate any statute, law or regulation of any jurisdiction
as such statute, law or regulation relates to it; or
(g) Violate or cause any revocation of or limitation on any
Permit.
5.5 CONSIDERATION STOCK. (a) The Consideration Stock upon issuance and
the Parent Common Stock issuable upon conversion of the Consideration Stock,
will be duly authorized, fully paid and non-assessable and not subject to any
preemptive rights; (b) except for the Parent's currently outstanding Series C
Convertible Preferred Stock, the Parent does not have outstanding any shares of
preferred stock that have liquidation, dividend or other preference senior to
the Consideration Stock; and (c) until the Consideration Stock is converted into
shares of Parent Common Stock or redeemed by the Parent, the Parent will not
issue as consideration for the acquisition of any business or for the
acquisition of an entity or the stock of an entity owning any business, a series
of preferred stock that has a liquidation, dividend or other preference or
restriction senior to the Consideration Stock.
5.6 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting
on behalf of RIGI or the Parent is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with the Transaction.
5.7 DISCLOSURE. Neither this Agreement nor any Schedule, Exhibit or
certificate delivered in accordance with the terms hereof or any document or
statement in writing which
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has been supplied by or on behalf of RIGI or the Parent in connection with the
Transaction, contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not misleading.
5.8 BEST EFFORTS. RIGI and the Parent will use their best efforts to
timely apply for and obtain all permits, consents and approvals and to complete
any due diligence deemed necessary by RIGI and the Parent in order to complete
the Transaction by the Closing Date. RIGI and the Parent will execute and
deliver such instruments and take such other action as may be reasonable or
appropriate to carry out the Acquisition and the intentions of this Agreement.
ARTICLE 6
REGULATORY COMPLIANCE
6.1 BULK SALES COMPLIANCE. RIGI and the Parent hereby waive compliance
by ARC with the provisions of the bulk sales law of the State of Georgia, if
applicable to the transfer of the ARC Assets, and ARC agrees to indemnify and
hold RIGI and the Parent harmless from any liability, other than Liabilities
which comprise part of the Assumed Contracts, incurred as a result of the
failure to so comply.
6.2 HART-SCOTT-RODINO ACT. The provisions of the Hart-Scott-Rodino Act,
15 U.S.C. Sections 18a, relating to antitrust review by the federal government,
and any similar state statute, are inapplicable to the Transaction based upon
information furnished by RIGI to ARC and by ARC to RIGI.
6.3 THE WARN ACT. ARC will comply with the provisions of the WARN Act,
29 U.S.C. Sections 2101, ET SEQ., and any similar state statute, relating to
notice to employees, if such provisions apply to the transaction contemplated
hereunder.
6.4 COBRA. ARC will comply with the provisions of COBRA, Pub. L. No.
99-272, 99th Cong., 2d Sess. (1987), and any similar state statute, relating to
continuation of health benefits to employees as they apply to the Transaction.
ARTICLE 7
COVENANTS TO BE PERFORMED PRIOR TO THE CLOSING
The parties hereto covenant and agree that between the date hereof and the
Closing Date:
7.1 ENVIRONMENTAL STUDIES. (a) ARC has delivered to the Parent and RIGI
updated and current ASTM Phase I Environmental Site Assessments and agrees to
provide to Parent and RIGI prior to Closing a completed ASTM Phase II
Environmental Site Assessment of the Owned Facilities and the Business (the
"Phase II Study") prepared by Law Engineering and
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Environmental Services, Inc. which are and shall be attached hereto as Schedule
7.1 (the "Environmental Studies"). The cost of the Environmental Studies has
been, is being and will be borne solely by ARC.
(b) Upon receipt, the Parent and RIGI shall have ten business
days to review the Phase II Study.
(c) If the Environmental Studies indicate that remediation is
required to ensure that the business, real property, facilities and operations
of ARC meet and comply with all environmental laws and regulations, Parent and
RIGI shall have 30 business days after the delivery of the Phase II Study to
assess the nature and extent of such contamination and to retain an
environmental engineering firm acceptable to Parent and RIGI to determine the
cost of remediation. On or before 30 business days after delivery of the Phase
II Study, Parent and RIGI may either (i) terminate this Agreement without
liability to any party; or (ii) elect to proceed with the Acquisition and assume
responsibility for and the cost of remediation without reduction in the Purchase
Price.
7.2 TITLE INSURANCE. Prior to the Closing, ARC will obtain a title
insurance commitment, which will be similar to that heretofore furnished to
attorneys for RIGI, copy of which is attached as Schedule 7.2, ARC representing
that Addco Recycling Corp. of Georgia is now known as Addlestone Recycling
Corporation. At the Closing, the costs and premium for the Title Insurance
obtained shall be paid by ARC out of assets other than the ARC Assets.
7.3 SURVEY. ARC has heretofore furnished to RIGI a survey prepared by
Nevil Land Surveying, Inc. Prior to Closing, ARC will have such survey updated
and re-certified to RIGI, at the cost and expense of ARC.
7.4 ASSUMED CONTRACTS. ARC will use its best efforts obtain the written
consent to the assumption by RIGI of each of the Assumed Contracts.
7.5 CONDUCT OF BUSINESS. ARC shall conduct the Business in the Ordinary
Course and in such a manner so that the representations and warranties contained
herein shall continue to be true and correct on and as of the Closing Date as if
made on and as of the Closing Date.
7.6 PRESERVATION OF BUSINESS. ARC shall exert reasonable efforts
consistent with its past business practices to preserve the Business, keep
available the services of its present employees, consultants and agents,
maintain its present suppliers and customers and preserve its goodwill. ARC
will provide to RIGI a mailing list of all customers and a listing of their
accounts within ten business days prior to the Closing Date, or at the earliest
possible date prior to the Closing Date, to permit RIGI to send announcements to
the customers on or after the Closing Date. Notwithstanding the foregoing, in
no event shall RIGI have the right to send any announcements to customers prior
to consummation of Closing.
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7.7 NOTICE OF EVENTS. ARC and the Stockholders shall promptly notify
RIGI and Parent with reasonable specificity of: (1) any event, condition or
circumstance occurring from the date hereof through the Closing Date that would
constitute a violation or breach of this Agreement; or (2) any event,
occurrence, transaction or other item which would have been required to have
been disclosed on any Schedule, Exhibit or statement delivered hereunder, had
such event, occurrence, transaction or item existed on the date hereof, other
than items arising in the Ordinary Course of Business which would not render any
of the representations, warranties or other agreements of ARC or the
Stockholders materially misleading.
7.8 EXAMINATIONS AND INVESTIGATIONS. (a) Prior to the Closing Date,
during normal business hours between 8:00 a.m. and 5:00 p.m., Eastern Time,
Monday through Friday, or such other hours as to which the parties mutually
agree, RIGI and the Parent shall be entitled, through their employees and
representatives, including counsel, lenders, appraisers and accountants, to make
such investigation of the assets, properties, business and operations of the
Business, and such examination and copies of the books, records and financial
condition of the Business as RIGI and the Parent wish. RIGI and the Parent
shall cause all such employees, representatives, counsel, lenders, appraisers
and accountants to execute on behalf of themselves and their respective
representatives agreements to keep all information so obtained confidential to
the same extent as RIGI so agrees herein. No review, examination or
investigation by RIGI or the Parent shall diminish or obviate any of the
representations, warranties, covenants or agreements of ARC and the Stockholders
under this Agreement.
(b) If this Agreement terminates: (1) RIGI shall keep
confidential and shall not use in any manner any information or documents
obtained from ARC concerning the Business or the ARC Assets, unless readily
ascertainable from public or published information, or trade sources, or
subsequently developed by RIGI independent of any investigation of the Business,
or received from a third party not under an obligation to ARC to keep such
information confidential, and (2) any documents obtained from ARC shall be
promptly returned to it.
7.9 REVIEW OF REVISED SCHEDULES AND INFORMATION. At any time prior to
Closing, ARC and the Stockholders shall have the right to revise any schedule
or make further disclosure, as well as to make any disclosure as herein provided
or referenced and the Parent and RIGI shall have a period of ten business days
to review any revised Schedule or further disclosure made by ARC or any
Stockholder solely with respect to the Schedule so revised or the new
information so disclosed, PROVIDED, HOWEVER, such ten day review period shall
not apply to extend the Closing Date if the new information disclosed on any
schedule or the further disclosure is not of a material nature adverse to RIGI
in its reasonable determination and further provided that in any event the
Closing Date will not be extended beyond May 19, 1997, unless the Parties agree
otherwise.
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7.10 RETAINED EMPLOYEES. No later than two business days prior to the
Closing, RIGI shall deliver a list of the ARC employees that it shall retain and
hire subsequent to Closing.
7.11 NO NEGOTIATION BY ARC. Between the date hereof and the earlier of
(1) the Closing Date; and (2) the date of termination of this Agreement,
neither the Stockholders nor ARC shall, directly or indirectly:
(a) Solicit, initiate or encourage the submission of inquiries,
proposals or offers from any Person (other than RIGI and the Parent) relating to
any acquisition or purchase of assets (other than Processed Inventory) of, or
any equity interest in, the ARC Assets or any exchange offer, merger,
consolidation, purchase of assets, liquidation, dissolution or similar
transaction involving the ARC Assets (each, an "Acquisition Proposal");
(b) Enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any Person (other than RIGI or the
Parent and their representatives) any information with respect to the ARC
Assets, other than in the Ordinary Course of Business; or
(c) Otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any Person
(other than RIGI and the Parent) to do or seek any of the foregoing.
ARC and the Stockholders will notify RIGI immediately if any such
Acquisition Proposal is received or if any such discussions, negotiations or
other events occur or are sought to be initiated, and such notice will set forth
in detail the terms or other particulars thereof.
ARTICLE 8
CONDITIONS PRECEDENT TO THE OBLIGATION
OF RIGI AND THE PARENT TO CLOSE
The obligation of RIGI and the Parent to enter into and to complete the
Transaction is subject to the fulfillment on or prior to the Closing Date of the
following conditions, any one or more of which may be waived by RIGI and the
Parent only in writing:
8.1 REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS. The
representations, warranties and other agreements of ARC and the Stockholders
contained in this Agreement shall be true on and as of the Closing Date, with
the same force and effect as though made on and as of the Closing Date. ARC and
the Stockholders shall have performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with by them
on or prior to the Closing Date. ARC and the Stockholders shall have delivered
to RIGI and the Parent certificates, dated the Closing Date, to such effect.
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8.2 GOVERNMENTAL PERMITS AND APPROVALS. All permits and approvals from
any governmental or regulatory body required for the lawful completion of the
Transaction shall have been obtained and all transferrable Permits shall be
transferred to the name of RIGI.
8.3 THIRD PARTY CONSENTS. All consents, permits and approvals from
parties to any contracts or other agreements that may be required in connection
with the performance by ARC of its obligations under this Agreement or the
continuance of such contracts or other agreements without material modification
after the Closing Date shall have been obtained.
8.4 LITIGATION. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the Transaction or to seek damages or a discovery
order in connection with such transactions, or that has or could reasonably be
expected to have, in the opinion of RIGI or the Parent a materially adverse
effect on the ARC Assets or the Business.
8.5 REAL PROPERTY. With respect to the Owned Facilities:
(a) RIGI shall receive good and marketable title (subject,
however, to Easement in favor of Georgia Power Company dated November 23, 1993
and recorded in Deed Book 114, pages 127 and 128, Candler County, Georgia
records, and to taxes which may be due but not payable) by special warranty
deeds for the Owned Facilities in proper form for recording in the State of
Georgia for the Owned Facilities;
(b) The Owned Facilities shall be free and clear of any Security
Interest, easement (except for Easement in favor of Georgia Power Company dated
November 23, 193 and recorded in Deed Book 114, pages 127 and 128, Candler
County, Georgia records), covenant, or other restriction, except for
installments of special assessments not yet delinquent and recorded easements,
covenants, and other restrictions which do not impair the current use or
occupancy, or the marketability of title, of the property subject thereto;
(c) There shall not be pending or threatened condemnation
proceedings, lawsuits, or administrative actions of any type relating to the
Owned Facilities, or other matters affecting adversely the current use, or
occupancy thereof, including unpaid tap fees, contemplated special assessments
or zoning changes;
(d) The legal description for the Owned Facilities contained in
the deed thereof shall describe the real property forming a part of the Owned
Facilities fully and adequately. The building and improvements located within
the boundary lines of the described parcel of land (1) shall not be in violation
of applicable setback requirements, zoning laws, and ordinances, (2) shall not
encroach on any easement which may burden the land, and described parcel of land
not serve any adjoining property for any purpose inconsistent with the use of
the land, and (3) shall not be located within any flood plain or be included in
any wetlands or be
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subject to any similar type restriction for which any permits or licenses
necessary to the use thereof shall have not been obtained; and
(e) The Owned Facilities shall abut and have direct vehicular
access to a public road, direct access to an operational railroad spur, or have
vehicular access to a public road via a permanent, irrevocable, appurtenant
easement benefitting the Owned Facility.
8.6 NO MATERIAL ADVERSE CHANGE. There shall be no material adverse
change in the Business or the ARC Assets taken as a whole, financial or
otherwise, or, to either ARC's or the Stockholders's Knowledge, ARC's customers,
regardless of reason, including those changes that are as a result of any
legislative or regulatory change, revocation of any Permits, licenses or rights
to do business, failure to obtain any Permit at the normal time or in the manner
applied for by ARC, fire, explosion, accident, casualty, labor trouble, flood,
riot, storm, condemnation or act of God or otherwise, and ARC shall have
delivered to RIGI and the Parent a certificate, dated the Closing Date, to such
effect.
8.7 REMOVAL OF SHREDDER RESIDUE. ARC shall have removed all Shredder
Residue and other waste materials from the Owned Facilities.
8.8 TRANSFER DOCUMENTS. RIGI shall have received assignments and such
other instruments of sale, transfer, conveyance and assignment transferring all
of the ARC Assets from ARC to RIGI, each substantially in correct and proper
legal form to transfer assets under applicable law.
8.9 ASSIGNMENT OF CONTRACTS. ARC shall have delivered to RIGI written
consents to the assignment or assumption of each of the Assumed Contracts as
provided by Section 7.4.
8.10 RELEASE OF SECURITY INTEREST. ARC shall have satisfied all amounts
due to Addlestone International Corporation such that the security interest
described on Schedule 4.2 shall be fully released.
8.11 SUBSCRIPTION AGREEMENT. The Parent shall have received from ARC the
Subscription Agreement for the Consideration Stock in the form attached hereto
as Exhibit B.
8.12 NON-COMPETITION AGREEMENT. RIGI and the Parent shall have received
from Addlestone, Rosen and Berlijn an executed Covenant Not to Compete in the
form attached hereto as Exhibit C.
8.13 BOOKS AND RECORDS. RIGI shall have received the books, books of
account, papers, records, correspondence and instruments of, or relating to, the
ARC Assets and/or Business and stored or maintained at the Owned facilities,
including, but not limited to, the information set forth in Section 4.4 above.
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8.14 COPIES OF BUSINESS RECORDS. RIGI shall have received copies of the
books of account, papers, records, correspondence and instruments of, or
relating to, the ARC Assets and/or Business not stored or maintained at the
Owned facilities and reasonably requested by RIGI or its accountants prior to
Closing. The receipt of such information shall not, in any manner, limit RIGI's
right to access set forth in Section 13.6, below.
8.15 RESOLUTIONS. There shall have been delivered to RIGI and the Parent
a copy of the resolutions duly adopted by the board of directors and
shareholders of ARC, authorizing and approving the execution and delivery by ARC
of this Agreement, and the completion by ARC of the Transaction, certified by
the secretary of ARC, dated as of the Closing Date.
8.16 CERTIFICATES, ETC. OF THE STOCKHOLDERS AND ARC. the Stockholders
and ARC shall have delivered all certified resolutions, certificates, documents
or instruments with respect to ARC's authority and such other matters as RIGI's
and the Parent's counsel may have reasonably requested prior to the Closing
Date.
8.17 FINANCING. On or before March 15, 1997, RIGI and the Parent shall
have obtained a commitment for financing from the Lender to effect the purchase
of the ARC Assets contemplated hereunder. If RIGI and the Parent shall not have
obtained a commitment by March 15, 1997, then they shall give notice thereof to
ARC no later than three business days subsequent to March 15, 1997; otherwise,
they shall be deemed to have waived the provisions of this Section. Further, if
such notice shall be given, ARC shall have the right to elect to terminate this
Agreement and, in such event, the same shall be deemed terminated and such
termination shall be in accordance with the provisions of Section 12.2.
8.18 NO SALES OR USE TAX DUE. There shall be no sales, use or personal
property tax or other similar tax payable by RIGI or the Parent as a result of
the completion of the Acquisition.
8.19 PAYMENT OF ACCOUNTS PAYABLE. Within 60 days of the Closing Date,
ARC shall have paid in full all of its outstanding accounts payable as of the
Closing Date, other than amounts which are the subject of a bona fide dispute
(the "ARC Payables").
8.20 APPROVAL OF COUNSEL TO RIGI AND THE PARENT. All actions and
proceedings hereunder and all documents or other papers required to be delivered
by ARC hereunder or in connection with the completion of the Transaction, and
all other related matters shall have been approved by Friedlob Sanderson Raskin
Paulson & Tourtillott, LLC, counsel to RIGI and the Parent, as to their form,
which approval shall not be unreasonably withheld or delayed.
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ARTICLE 9
CONDITIONS PRECEDENT TO THE OBLIGATION OF ARC
AND THE STOCKHOLDERS TO CLOSE
The obligation of ARC and the Stockholders to enter into and to complete
the Transaction is subject to the fulfillment on or prior to the Closing Date
(except for a sooner date, if so provided) of the following conditions, any one
or more of which may be waived by ARC and the Stockholders only in writing:
9.1 REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS. The
representations, warranties and other agreements of RIGI and the Parent
contained in this Agreement shall be true on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date. RIGI and
the Parent shall have performed and complied with all covenants and agreements
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date. RIGI and the Parent shall have delivered to ARC certificates,
dated the Closing Date, to such effect.
9.2 GOVERNMENTAL PERMITS AND APPROVALS. All permits and approvals from
any governmental or regulatory body required for the lawful completion of the
Transaction shall have been obtained.
9.3 LITIGATION. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the Transaction, or to seek damages or a discovery
order in connection with such Transactions, or that has or could reasonably be
expected to have, in the opinion of ARC, a materially adverse effect on the
assets, properties, businesses, operations or financial condition of RIGI or the
Parent.
9.4 FINANCING. Within three business days following March 15, 1997,
RIGI and the Parent shall have delivered to ARC a copy of a written commitment
for financing from the Lender to effect the purchase of the ARC Assets
contemplated hereunder.
9.5 RESOLUTIONS. There shall have been delivered to ARC and the
Stockholders a copy of the resolutions duly adopted by the boards of directors
of Parent and RIGI, authorizing and approving the execution and delivery by RIGI
and Parent of this Agreement, and the completion by RIGI and Parent of the
Transaction, certified by the secretaries of RIGI and Parent, dated as of the
Closing Date.
9.6 RELEASE FROM ASSUMED CONTRACTS. ARC shall be released from
liability under the Assumed Contracts pursuant to the assignments delivered
under Section 8.9.
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9.7 APPROVAL OF COUNSEL TO ARC. All actions and proceedings hereunder
and all documents or other papers required to be delivered by RIGI and the
Parent hereunder or in connection with the completion of the Transaction, and
all other related matters shall have been approved by Ansbacher and Schneider,
P.A., counsel to ARC and the Stockholders, as to their form, which approval
shall not be unreasonably withheld or delayed.
9.8 THE PURCHASE PRICE. RIGI and the Parent shall have paid to ARC the
full Purchase Price for the ARC Assets and executed and delivered all documents
related thereto.
ARTICLE 10
ACTIONS TO BE TAKEN AT THE CLOSING
The following actions shall be taken at the Closing, each of which shall be
conditioned on completion of all the others and all of which shall be deemed to
have taken place simultaneously:
10.1 TRANSFER DOCUMENTS. ARC shall deliver duly executed transfer
documents and/or instruments of assignment.
10.2 THE PURCHASE PRICE. RIGI shall deliver to ARC:
(a) the Cash Consideration; and
(b) the Consideration Stock.
10.3 SUBSCRIPTION AGREEMENT. ARC shall deliver to the Parent the
Subscription Agreement.
10.4 NON-COMPETITION AGREEMENTS. Each of the Stockholders shall deliver
to RIGI and the Parent a Non-Competition Agreement, duly executed by the parties
thereto.
10.5 SPECIAL WARRANTY DEED. ARC shall deliver a special warranty deed
for the Owned Facilities in proper form for recording in the State of Georgia.
10.6 CONTRACT ASSUMPTIONS. ARC shall deliver the written consents to the
assumption by RIGI of the Assumed Contracts.
10.7 CLOSING CERTIFICATE OF ARC. ARC shall deliver to RIGI a closing
certificate dated the Closing Date, in a form reasonably satisfactory to RIGI.
Such certificate shall be signed on behalf of ARC by an executive officer of
ARC.
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10.8 CLOSING CERTIFICATE OF RIGI. RIGI shall deliver to ARC a closing
certificate dated the Closing Date, in a form satisfactory to ARC. Said
certificate shall be signed on behalf of RIGI by an executive officer of RIGI.
10.9 CERTIFICATE REGARDING RESOLUTIONS OF ARC. ARC shall deliver to RIGI
and the Parent copies of resolutions certified as required by Section 8.15.
10.10 CERTIFICATE REGARDING RESOLUTIONS OF PARENT AND RIGI. The Parent
and RIGI shall deliver to ARC and the Stockholders copies of resolutions
certified as required by Section 9.5, 9.6.
10.11 REAL PROPERTY CLOSING. As part of the Closing it is acknowledged
that a settlement statement shall be separately prepared relating to the Owned
Facilities, which settlement statement shall be prepared by the attorney for ARC
at least one business day prior to the Closing. Normal closing adjustments
shall be charged to the parties as follows:
(a) ADJUSTMENTS CHARGED TO ARC. ARC shall be charged with the
following expenses, which shall be reflected on the closing statement and shall
be withheld from the Cash Consideration and be disbursed to the Person to which
each such expense is payable:
(1) Any amount necessary to satisfy and discharge of record
any lien or encumbrance that is not an Assumed Liability, including the cost of
recording or filing any necessary release or termination document;
(2) Any and all real property taxes due and payable, it
being agreed that all real property taxes and personal property taxes shall be
prorated as of the expiration of the day immediately preceding Closing;
(3) Any and all utility charges through the expiration of
the day immediately preceding Closing Date;
(4) The cost of the Survey;
(5) The cost of the title insurance policy for the Owned
Facilities; and
(6) Fees for documentary stamps due upon the recordation of
the deeds from ARC to RIGI and the closing costs associated for the owned
facilities which shall be paid by the RIGI and ARC in accordance with local
custom for commercial real estate transactions.
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10.12 TITLES TO VEHICLES, MACHINERY AND EQUIPMENT. ARC shall deliver to
RIGI duly executed titles to all vehicles, machinery and equipment included in
the ARC Assets (provided such vehicles, machinery and equipment are titled) free
and clear of any Security Interests.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the parties contained in this Agreement shall
survive the Closing for a period of three years after the Closing Date with the
exception of the representations and warranties contained in Section 4.5, which
shall survive for a period of time which is equal to the statute of limitations
period applicable to the respective Tax liability being asserted.
11.2 INDEMNITY AGREEMENTS OF ARC AND THE STOCKHOLDERS.
(a) ARC and the Stockholders, jointly and severely, shall
indemnify, defend, reimburse and hold harmless RIGI and the Parent from and
against any and all claims, demands, penalties, fines, liabilities, obligations,
losses, settlements, damages, costs and expenses resulting from:
(1) any inaccuracy in, or breach of, any representation and
warranty or nonfulfillment of any covenant on the part of ARC or the
Stockholders contained in this Agreement;
(2) any misrepresentation in or omission from or
nonfulfillment of any covenant on the part of ARC or the Stockholders contained
in any other agreement, certificate or other instrument furnished or to be
furnished to RIGI or the Parent by ARC or the Stockholders pursuant to this
Agreement;
(3) all federal, state, county, local, foreign and other
taxes, including income taxes, excise taxes, sales taxes, use taxes, gross
receipts taxes, franchise taxes, employment and payroll related taxes, property
taxes and import duties, and any penalties or interest, whether or not measured
in whole or in part by net income required to be paid by ARC or the Stockholders
relating to the Business through the Closing: (i) which are not paid by either
ARC or the Stockholders; (ii) which RIGI or the Parent pays; and (iii) for which
the liabilities were asserted during the survival period set forth in Section
11.1, hereof;
(4) any and all negligence claims arising out of
occurrences and events prior to the Closing;
(5) the violation or alleged violation by ARC or the
Stockholders of any Environmental Laws or any orders, requirements or demands of
any governmental
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authorities related thereto, arising out of events or circumstances occurring on
or before the Closing except as otherwise included herein as an Assumed
Liability;
(6) any liability of ARC;
(7) any infringement claim related to any patent,
invention, trade secret, trademark, service mark, trade name or copyright where
the infringement alleged is related to products designed prior to the Closing
unless subsequently modified by RIGI in a manner which renders the product to be
infringing;
(8) any liabilities to employees of the Business terminated
in accordance herewith and any future related actions;
(9) reasonable fees and disbursements of counsel incident
to any of the foregoing;
PROVIDED HOWEVER, (A) that the ARC and the Stockholders shall not be
required to indemnify RIGI and Parent until the aggregate amount of any such
indemnification equals or exceeds $25,000, at which time the ARC and the
Stockholders shall indemnify and reimburse RIGI and the Parent for all such
amounts incurred (including the first $25,000) and (B) that the aggregate amount
of such indemnification by ARC and the Stockholders and the only recourse of
RIGI and Parent on the account of the indemnifications provided in this Section
11.2 shall be limited to the Consideration Stock or the proceeds thereof.
11.3 INDEMNITY AGREEMENT OF RIGI AND THE PARENT. RIGI and the Parent
shall jointly and severally indemnify, defend, reimburse and hold harmless ARC
and the Stockholders from and against:
(a) any and all claims, demands, penalties, fines, liabilities,
obligations, losses, settlements, damages, costs and expenses pertaining to the
Purchased Assets and Business which arise from any event occurring on or after
the Closing resulting from:
(1) any inaccuracy in, or breach of, any representation and
warranty or nonfulfillment of any covenant on the part of RIGI or the Parent
contained in this Agreement;
(2) any misrepresentation in or omission from or
nonfulfillment of any covenant on the part of RIGI or the Parent contained in
any other agreement, certificate or other instrument furnished or to be
furnished to ARC by RIGI or the Parent pursuant to this Agreement;
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(3) any liability of ARC arising out of the Assumed
Contracts, unless such liability is due to the actions of ARC, or other action,
events and occurrences prior to the Closing Date;
(4) the violation of any Environmental Law unless such
violation is the result of events, actions, occurrences or the operation of the
Business by ARC, or other actions, events or occurrences prior to the Closing
Date;
(5) any liability for tort claims which are the result of
actions, events, occurrences or the operation of the business by RIGI on or
after the Closing Date;
(6) any liability or tort claims arising out of RIGI's use
of the name "Addlestone Recycling, Inc." for a period of six months after
Closing; and
(7) reasonable fees and disbursement of counsel incident to
any of the foregoing.
PROVIDED HOWEVER, that RIGI and Parent shall not be required to indemnify
the ARC and the Stockholders until the aggregate amount of any such
indemnification equals or exceeds $25,000, at which time the RIGI and Parent
shall indemnify and reimburse the ARC and the Stockholders for all such amounts
incurred (including the first $25,000) and that, except for (i) any breach of
the representations contained in Section 5.5 with respect to the Consideration
Stock, (ii) the breach of any provision set forth in the Designation of
Preferences, Limitations and Relative Rights of the Series D Convertible
Preferred Stock of Recycling Industries, Inc. (copy of which is attached hereto
as Exhibit A), or (iii) the breach of any of the provisions of the Subscription
Agreement (copy of which is attached as Exhibit B), the aggregate amount of the
indemnification obligation of RIGI and Parent shall not exceed $500,000.
11.4 INDEMNIFICATION PROCEDURE FOR THIRD PARTY CLAIMS.
(a) The party seeking indemnification under this Article 11
shall give the party from whom indemnification is sought prompt written notice
of the assertion of any third party claim of which said party has knowledge
which is covered by the indemnity agreements set forth in Section 11.2 or
Section 11.3, and the party obligated to indemnify will undertake the defense
thereof by representatives chosen by the party seeking indemnification but
acceptable to the party obligated to indemnify.
(b) If the party obligated to indemnify, within a reasonable
period of time after notice of any such claim fails to defend, the party seeking
indemnification will have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of the party
obligated to indemnify, subject to the right of the party seeking
indemnification to assume the defense of such claim at any time prior to
settlement, compromise or final determination thereof.
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(c) PAYMENT OF SUMS DUE. After any final judgment or award
shall have been rendered by a court, arbitration board or administrative agency
of competent jurisdiction, or a settlement shall have been completed, or the
parties shall have arrived at a mutually binding agreement, with respect to each
separate third party claim indemnified by the party obligated to indemnify, the
party seeking indemnification shall forward to the party obligated to indemnify
notice of any sums due and owing (and the times when due) by the party seeking
indemnification with respect to such claim and the party obligated to indemnify
shall pay such sums to the party seeking indemnification in cash, within 30 days
after the date of such notice or, if any such sums are due more than 90 days
after the date of such notice, ten days prior to the date each such sums are
due.
11.5 GOOD FAITH EFFORTS TO SETTLE DISPUTES. Each of the parties agrees
that, prior to commencing any litigation against the other concerning any matter
with respect to which such party intends to claim a right of indemnification in
such proceeding, such parties shall meet in a timely manner and attempt in good
faith to negotiate a settlement of such dispute during which time such parties
shall disclose to the others all relevant information relating to such dispute.
11.6 FEES AND EXPENSES. Notwithstanding any other provision in this
Article 11, in the event of any dispute or controversy between any of the
parties to this Agreement, the prevailing party in such dispute shall, in
addition to any other remedies the prevailing party may obtain in such dispute,
be entitled to recover from the other party all of its reasonable legal fees and
out-of-pocket costs incurred by such party in enforcing or defending its rights
hereunder, excluding any costs incurred under Section 11.5.
11.7 NOTICE OF CLAIMS. No claim by any Party for indemnification under
this Article 11 shall be valid unless the Party seeking indemnification provides
written notice of such claim to the other Party on or before the expiration of
the applicable survival period stated in Section 11.1. The liability of any
Party for indemnification with respect to any claim for indemnification for
which the indemnified Party has timely given notice pursuant to Section 11.4(a)
shall continue until such liability for indemnification shall have been finally
determined pursuant to this Article 11.
11.8 LITIGATION SUPPORT. If, and for so long as, any party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (1) any
transaction contemplated hereunder, or (2) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date involving
the Business, the other party will cooperate with the contesting or defending
party and its counsel in the contest or defense, make available its personnel
and provide such testimony and access to its books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending party, unless the contesting or defending
party is entitled to indemnification therefor under this Article 11.
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ARTICLE 12
TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated prior to or on the
Closing Date as follows:
(a) At the election of RIGI or the Parent at any time prior to
Closing if:
(1) if any one or more of the material conditions precedent
to the obligation of RIGI and the Parent to close has not been
fulfilled as of the Closing Date, or if ARC or the Stockholders has
breached any material representation, warranty, covenant or
agreement contained in this Agreement PROVIDED, HOWEVER, ARC and the
Stockholders shall have, at the election of ARC and the
Stockholders, at least fifteen days' notice to cure any such breach
and the Closing Date shall be extended by each day of such cure
period;
(2) for matters reflected in the Environmental Studies as
provided in Section 7.1(c);
(3) On or before March 15, 1997, RIGI and Parent's
independent certified public accountant's determine that the
financial statements of the Business cannot be audited in accordance
with the requirements of the 1934 Act and the rules and regulations
promulgated thereunder; or
(4) RIGI and Parent are unable to satisfy themselves that
any Adverse Item will not have a material adverse effect on the
operations of the Business; or
(5) RIGI and the Parent are unable to complete due
diligence in a manner satisfactory to a company obligated to file
reports under the 1934 Act or if they discover discrepancies in the
books and records of ARC or any other matters unacceptable to them,
in their sole discretion, during the Review Period.
(b) At the election of ARC or the Stockholders at any time prior
to Closing if:
(1) any one or more of the material conditions precedent to
the obligation of ARC and the Stockholders to close has not been
fulfilled as of the Closing Date;
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<PAGE>
(2) RIGI or the Parent has breached any material
representation, warranty, covenant or agreement contained in this
Agreement; provided, however, RIGI and the Parent shall have at
least fifteen days' notice to cure any such breach, except that in
no event shall Closing Date be extended by virtue thereof; or
(c) At the election of any party to this Agreement, if any legal
proceeding is commenced or threatened by any governmental or regulatory body or
other Person directed against the completion of the Transaction and any of the
parties, as the case may be, reasonably and in good faith deem it impractical or
inadvisable to proceed in view of such legal proceeding or threat thereof.
(d) At any time on or prior to the Closing Date, by mutual
written consent of the parties; or
(e) At any time after April 28, 1997 or as the Closing Date may
be otherwise extended pursuant to Section 3.4 or Section 7.9, at the election of
any Party.
12.2 SURVIVAL. If this Agreement is terminated pursuant to Section 12.1,
except as provided in Section 7.8, this Agreement shall become void and of no
further force and effect, and none of the parties hereto shall have any
liability in respect of such termination, except that any party shall be liable
to the extent that failure to satisfy the conditions contained herein results
from the intentional or willful violation of the representations, warranties,
covenants or agreement of such party under this Agreement.
12.3 EFFECT OF FAILURE TO CLOSE. The rights of RIGI and the Parent to
consummate the transaction contemplated by this Agreement shall terminate if
RIGI and the Parent fail to consummate the Agreement on the Closing Date as
herein provided.
ARTICLE 13
CERTAIN ADDITIONAL AGREEMENTS
13.1 PUBLIC STATEMENTS; CONFIDENTIALITY OF INFORMATION. (a) No party
will make any public disclosure (including, without limitation, disclosure to
ARC's employees or customers) of this Agreement or the Acquisition without the
prior consent of the other parties hereto, which consent shall not be
unreasonably withheld, provided that the foregoing shall not preclude any party
from making any disclosure which, in the opinion of its or his counsel, is
required to be made under applicable federal and state securities laws. In no
event shall any disclosure be made without giving the other party an opportunity
to comment on the proposed disclosure. Notwithstanding the foregoing, ARC shall
be entitled to make such limited disclosures as may be required in order to
attempt to satisfy the requirements of this Agreement. Illustrative of the
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<PAGE>
foregoing would be providing information to secure title insurance commitment,
survey and any and all consents and approvals required.
(b) Subject to the Parent's obligation as a public company to
issue appropriate public announcements of material events, and subject to this
Section 13.1 hereof, each party will maintain the confidentiality of all
non-public information obtained from any other party.
13.2 EXPENSES. Each party shall pay its own costs and expenses,
including the fees and disbursements of its respective counsel, in connection
with the negotiation, preparation and execution of this Agreement and the
completion of the Transaction whether or not the Transaction is completed.
13.3 WAIVERS AND CONSENTS. All waivers and consents given hereunder
shall be in writing. No waiver by any party hereto of any breach or anticipated
breach of any provision hereof by any other party shall be deemed a waiver of
any other contemporaneous, preceding or succeeding breach or anticipated breach,
whether or not similar, on the part of the same or any other party.
13.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given only if and when: (1) personally
delivered; or (2) three business days after mailing, postage prepaid, by
certified mail; or (3) when delivered (and receipted for) by an overnight
delivery service; or (4) when delivered by facsimile transmission for which
prompt confirmation has been received from the receiving party, addressed in
each case as follows:
IF TO RIGI OR THE PARENT:
Thomas J. Wiens, Chairman and CEO
Recycling Industries, Inc.
Recycling Industries of Texas, Inc.
384 Inverness Drive South, Suite 211
Englewood, Colorado 80112
telephone: (303) 790-7372
facsimile: (303) 790-4252
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<PAGE>
WITH A COPY TO:
Gerald Raskin, Esq.
John W. Kellogg, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, Colorado 80202
telephone: (303) 571-1400
facsimile: (303) 595-3159
IF TO ARC OR THE STOCKHOLDERS:
Mr. Nathan Addlestone
Addlestone Recycling Corporation
284 Meeting Street
Charleston, South Carolina 29401
telephone: (803) 577-9300
facsimile: (803) 577-9290
WITH A COPY TO:
Lewis Ansbacher, Esq.
Ansbacher & Schneider, P.A.
4215 Southpoint Boulevard, Suite 100
Jacksonville, Florida 32216
telephone: (904) 296-0100
facsimile: (904) 296-2842
A Party may change its address by notice to every other Party.
13.5 FURTHER ASSURANCES. From and after the date of this Agreement, each
of the parties hereto will cooperate with each other and will use its or his
best efforts to obtain all necessary waivers and consents from third parties.
ARC and the Stockholders, at any time and from time to time on and after the
Closing, upon request by RIGI or the Parent and without further consideration,
shall take or cause to be taken such actions and execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such transfers,
conveyances and assurances as may be reasonably requested by RIGI or the Parent
for the better conveying, transferring, assigning, delivering, assuring and
confirming the ARC Assets to RIGI.
13.6 RETENTION OF/ACCESS TO BUSINESS RECORDS. For at least five years
following the Closing Date, ARC shall retain all business records related to the
ARC Assets or the Business not delivered to RIGI. During this period, from time
to time on and after the Closing, upon reasonable request by RIGI or the Parent
and without further consideration, ARC shall
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<PAGE>
provide RIGI or the Parent access to or copies of said business records.
Likewise, for at least five years following the Closing Date, RIGI shall retain
all business records related to the ARC Assets or the Business and, during this
period, from time to time on and after the Closing, upon reasonable request by
ARC or the Stockholders and without further consideration, RIGI shall provide
ARC or the Stockholders access to or copies of said business records.
13.7 AUDIT BY RIGI AND PARENT. For a period of five years after the
Closing, ARC and the Stockholders shall give Parent and RIGI's independent
certified public accountants full access to the financial books and records and
shall fully cooperate with such accountants in conducting and completing any
audits necessary to enable the Parent to meet the disclosure and financial
reporting requirements of the 1934 Act and the rules and regulations promulgated
thereunder.
13.8 ENTIRE AGREEMENT. This Agreement, including all Schedules and
Exhibits hereto, and the other Closing Documents constitute the entire agreement
of the parties with respect to the subject matter hereof and may not be
modified, amended or terminated except by a written instrument specifically
referring to this Agreement signed by each of the parties hereto or as otherwise
provided in this Agreement.
13.9 CONSTRUCTION. In the event of an ambiguity or a question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" means including without limitation. Where appropriate to avoid
any ambiguity and to encompass the broadest meaning, the word "and" shall mean
"and/or," and the word "or" shall mean "and/or." The parties intend that the
each representation, warranty and covenant contained herein shall have
independent significance. If any party has breached any representation,
warranty or covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same subject
matter, regardless of the relative levels of specificity, which the party has
not breached shall not detract from or mitigate the fact that the party is in
breach of the first representation, warranty or covenant.
13.10 RIGHTS OF THIRD PARTIES. All conditions of the obligations of the
parties hereto, and all undertakings herein, except as otherwise provided by a
written consent, are solely and exclusively for the benefit of the parties
hereto and their successors and assigns, and no other Person or entity shall
have standing to require satisfaction of such conditions or to enforce such
undertakings in accordance with their terms or be entitled to assume that any
party hereto will refuse to complete the Transaction contemplated hereby in the
absence of strict compliance with any or all thereof, and no other Person or
entity shall, under any circumstances, be deemed a beneficiary of such
conditions or undertakings, any or all of which may be freely waived in whole or
in part, by mutual consent of the parties hereto at any time, if in their sole
discretion they deem it desirable to do so.
-37-
<PAGE>
13.11 HEADINGS. The Table of Contents and Article and Section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
13.12 GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the internal
laws of the State of Georgia, without regard to principles of conflicts or
choice of law, except to the extent this Agreement, or any agreement to be
entered into at the Closing, contemplates that the laws of Colorado will govern.
13.13 SUBMISSION TO JURISDICTION; WAIVERS. The parties each hereby
irrevocably and unconditionally: (1) agree that any action or proceeding related
to this Agreement shall be brought in, and hereby submits itself and its
property to the jurisdiction of, the courts of the State of Georgia located in
Candler County, Georgia, the courts of the United States of America for the
Southern District of Georgia, Statesboro Division, and the appellate courts from
any thereof; (2) consent to the venue of any such action or proceeding in any of
said courts and waives any objection that it may have, now or hereafter, that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same; and (3) agree that service of process in any such
action or proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage prepaid, to
the party against whom the action or proceeding is brought at its address set
forth in Section 13.4, provided the same is permitted by the appropriate rules
of the governing court.
13.14 PARTIES IN INTEREST. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law, by assignment to the Lender, or with the consent of the other parties.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
13.15 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be
executed in two or more counterparts, all of which taken together shall
constitute one instrument. Execution and delivery of this Agreement by exchange
of facsimile copies bearing the facsimile signature of a Party shall constitute
a valid and binding execution and delivery of this Agreement by such Party.
Such facsimile copies shall constitute enforceable original documents.
13.16 SEVERABILITY. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
13.17 CORPORATE AUTHORITY. The undersigned have executed this Agreement
with all requisite corporate authority.
13.18 TIME OF ESSENCE. Time shall be of the essence hereof.
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<PAGE>
13.19 RIGHT TO STORE. ARC shall have the right to store on the Owned
Facilities any Processed Inventory existing as of the Closing Date without any
charge therefor for a period of six months following Closing. In addition, RIGI
will, at the election of ARC, (i) permit ARC to load such processed scrap with
ARC furnished equipment (but with fuel and operators supplied by RIGI) or (ii)
RIGI will load the same for ARC for $1.00 per gross ton. This provision shall
survive Closing.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their names to be
hereunto subscribed, all as of the day and year first above written.
"RIGI"
February 26, 1997 RECYCLING INDUSTRIES OF GEORGIA, INC.
By:____________________________
Thomas J. Wiens, Chairman and
CEO
THE "PARENT"
February 26, 1997 RECYCLING INDUSTRIES, INC.
By:____________________________
Thomas J. Wiens, Chairman and
CEO
"ARC"
February 26, 1997 ADDLESTONE RECYCLING CORPORATION
By:____________________________
Nathan Addlestone, President
"ADDLESTONE"
February 26, 1997 _______________________________
Nathan Addlestone
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<PAGE>
"ROSEN"
February 26, 1997 _______________________________
Keith Rosen
"BERLIJN"
February 26, 1997 _______________________________
Susan Berlijn
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<PAGE>
LIST OF EXHIBITS
Exhibit A Certificate of Designations, Rights and Preferences of
the Series D Convertible Preferred Stock of Recycling
Industries, Inc.
Exhibit B Form of Subscription Agreement
Exhibit C Non-Competition Agreement
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<PAGE>
LIST OF SCHEDULES
Schedule 2.1(a) Owned Facilities - Legal Description
Schedule 2.1(b) Equipment
Schedule 2.1(c) Intellectual Property
Schedule 2.1(e) Computer Software
Schedule 2.1(g) Contracts and Agreements
Schedule 2.1(i) Leases
Schedule 2.2 Excluded Assets
Schedule 2.3 Assumed Contracts
Schedule 3.3 Allocation of Purchase Price
Schedule 4.2 Title to Assets
Schedule 4.5 Tax Liens and Waivers
Schedule 4.6 Legal Compliance
Schedule 4.7 Permits
Schedule 4.8 Litigation
Schedule 4.9 Other Contracts
Schedule 4.10 Tangible Property
Schedule 4.12 Intellectual Property Exceptions
Schedule 4.13 Real Property
Schedule 4.15 Suppliers and Customers
Schedule 4.17 Curtailment of Operations
Schedule 4.18 Employee Relations
Schedule 4.19 Insurance Policies
Schedule 4.20 Certain Relationships
Schedule 4.23 Employee Information
Schedule 4.24 Environmental Matters
Schedule 4.25 OSHA Compliance
Schedule 7.1 Environmental Studies
Schedule 7.2 Title Commitment
-43-
<PAGE>
Exhibit 11
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Pro Forma
Six Months Ended Six Months Ended Proforma
March 31, March 31, Years Ended September 30, Year Ended
------------- ----------------------- ------------------------------------------- --------------
1997 1997 1996 1996 1995 1994 Sept. 30, 1996
------------- ---------- ----------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Primary earnings
Net income $789,000 $ 186,000 $ 98,000 $(2,961,000) $1,815,000 $(924,000) $ 630,000
------------- ---------- ---------- ------------ ----------- ----------- -------------
------------- ---------- ---------- ------------ ----------- ----------- -------------
Imputed deemed dividend
on Series C Preferre (280,000)
-------------
Net earnings available
to Common Shareholders 509,000
Shares
Weighted average
number of
common shares
outstanding 14,254,000 13,825,000 9,774,000 10,212,236 5,142,498 2,504,762 10,212,236
Assumed exercise
of options
and warrants
(as determined by
the application
of the treasury
stock method) - - - - 957,196 - -
------------- ----------- ---------- ------------ ----------- ----------- -------------
Weighted average
number of common
shares outstanding
as adjusted 14,254,482 13,882,482 8,452,066 10,212,236 6,099,694 2,504,762 10,212,236
------------- ----------- ----------- ------------ ----------- ----------- -------------
------------- ----------- ----------- ------------ ----------- ----------- -------------
Primary earnings
per common share
Net income $ .04 $ .01 $ .01 $(.29) $.30 $(.37) $ .06
------------- ----------- ---------- ------------ ---------- ----------- -------------
Fully diluted earnings
Net income 789,000 $ 186,000 $ 98,000 $(2,961,000) $1,815,000 $(924,000) $ 630,000
------------- ----------- ---------- ------------ ----------- ----------- -------------
------------- ----------- ---------- ------------ ----------- ----------- -------------
Imputed deemed dividend
on Series C Preferred (280,000)
-------------
Net earnings available
to common shareholders 509,000
Shares
Weighted average
Number of common
shares outstanding
as adjusted 14,254,000 13,825,000 9,744,000 10,212,236 6,099,694 2,504,762 10,212,236
Assuming exercise
or conversion of
warrants and options 102,000 102,000 - - - - -
------------- ----------- ---------- ------------ ----------- ----------- -------------
Assuming conversion
of convertible
preferred stock
and convertible debt 543,000 429,000 - - 208,000 118,307 543,000
------------- ----------- ----------- ------------ ---------- ---------- ------------
Weighted average
number of common
shares outstanding
as adjusted 14,899,000 14,356,000 9,774,000 10,212,236 6,307,694 2,623,069 10,755,236
------------- ----------- ----------- ------------ ---------- ---------- ------------
------------- ----------- ----------- ------------ ---------- ---------- ------------
Fully diluted earnings
per common share
Net income $ .03 $ .01 $ .01 $(.29) $.29 $(.35) $ .06
------------- ----------- ----------- ------------ ---------- ---------- ------------
</TABLE>
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our reports dated:
REPORT DATE: FINANCIAL STATEMENTS OF:
------------ ------------------------
March 22, 1996 Anglo Metal, Inc.
dba Anglo Iron & Metal
April 5, 1996 Mid-America Shredding, Inc.
April 21, 1996 Weissman Iron and Metal,
a Division of Weissman Industries, Inc.
October 18, 1996 NR Holdings, Inc. and Subsidiary
November 3, 1995 Recycling Industries, Inc.
and to the reference made to our firm under the caption "Experts" included in
or made part of this S-1 Registration Statement.
/s/ AJ. ROBBINS, P.C.
----------------------------------
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
June 20, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Recycling Industries, Inc.
Englewood, Colorado
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated December 13, 1996, relating
to the consolidated financial statements of Recycling Industries, Inc. and
our report dated May 9, 1997 related to the combined financial statements of
Addlestone Recycling Corporation and Addlestone International Corporation which
are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO Seidman, LLP
Denver, Colorado
June 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,450,000
<SECURITIES> 0
<RECEIVABLES> 4,466,000
<ALLOWANCES> 10,000
<INVENTORY> 2,473,000
<CURRENT-ASSETS> 8,771,000
<PP&E> 22,117,000
<DEPRECIATION> 1,625,000
<TOTAL-ASSETS> 34,855,000
<CURRENT-LIABILITIES> 7,174,000
<BONDS> 0
0
0
<COMMON> 13,000
<OTHER-SE> 14,150,000
<TOTAL-LIABILITY-AND-EQUITY> 34,855,000
<SALES> 27,619,000
<TOTAL-REVENUES> 27,623,000
<CGS> 26,590,000
<TOTAL-COSTS> 30,645,000
<OTHER-EXPENSES> 4,055,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 732,000
<INCOME-PRETAX> (3,022,000)
<INCOME-TAX> 9,000
<INCOME-CONTINUING> (3,031,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 70,000
<CHANGES> 0
<NET-INCOME> (2,961,000)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>