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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 1996
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
-- OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20179
RECYCLING INDUSTRIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-1103445
------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
384 INVERNESS DRIVE SOUTH, SUITE 211
ENGLEWOOD, COLORADO 80112
- ------------------------------------------------ ----------
(Mailing Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (303) 790-7372
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK,
$.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the close of the period covered by this Report.
Number of Shares Outstanding as of
Class December 31, 1996
----------------------------- ----------------------------------
Common Stock, $.001 Par Value 13,911,974
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TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 1996
(Unaudited) and September 30, 1996 1-2
Consolidated Statements of Operations (Unaudited)
for the three months ended December 31, 1996 and 1995 3
Consolidated Statement of Stockholders' Equity (Unaudited)
for the three months ended December 31, 1996 4
Consolidated Statements of Cash Flows (Unaudited) for
the three months ended December 31, 1996 and 1995 5
Notes to the Consolidated Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-13
PART II -- OTHER INFORMATION
Item 1-6 14-15
Signatures 16
Statement Regarding Computation of per Share Earnings 17
Financial Data Schedule 18
- ----------------------
* The accompanying interim financial statements have not been audited by
an independent certified public accountant, and are so noted as "Unaudited"
where applicable. Only those statements corresponding to a fiscal year-end
(September 30) are audited.
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
ASSETS
(Substantially Pledged)
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
(Unaudited)
CURRENT ASSETS
Cash $ 1,761,000 $ 1,450,000
Trade Accounts receivable, less
allowance for doubtful accounts
of $50,000 and $10,000 4,053,000 4,379,000
Accounts receivable, related party 112,000 77,000
Inventories 2,049,000 2,473,000
Prepaid expenses 264,000 272,000
Other - 120,000
----------- -----------
Total Current Assets 8,239,000 8,771,000
PROPERTY, PLANT AND EQUIPMENT, net 20,651,000 20,492,000
DEFERRED INCOME TAXES 800,000 800,000
OTHER ASSETS 4,988,000 4,792,000
----------- -----------
Total Other Assets 5,788,000 5,592,000
TOTAL ASSETS $34,678,000 $34,855,000
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
(Unaudited)
CURRENT LIABILITIES:
Trade accounts payable $ 2,014,000 $ 2,673,000
Trade accounts payable - related parties - 61,000
Accrued liabilities:
Payroll and other 403,000 500,000
Income taxes payable 80,000 107,000
Interest 26,000 36,000
Interest - related party - 15,000
Current maturities of long-term debt 1,882,000 1,707,000
Current maturities of long-term debt,
related parties 1,450,000 2,075,000
------------ ------------
Total Current Liabilities 5,855,000 7,174,000
LONG-TERM DEBT:
Long-term debt, less current maturities 11,816,000 10,067,000
Long-term debt - related parties, less
current maturities 789,000 1,951,000
------------ ------------
Total Liabilities 18,460,000 19,192,000
------------ ------------
COMMITMENTS & CONTINGENCIES:
REDEEMABLE COMMON STOCK,
$.001 par value, 363,636 shares issued
and outstanding 1,500,000 1,500,000
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000
shares authorized
Series C, convertible, 10,000, and 0
shares issued and outstanding 907,000 -
Common Stock ($.001 par value), 50,000,000
shares authorized, 13,450,793 and
13,430,793 shares issued and outstanding 13,000 13,000
Additional paid-in capital 25,550,000 25,547,000
Accumulated deficit (11,752,000) (11,397,000)
------------ ------------
Total Stockholders' Equity 14,718,000 14,163,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,678,000 $ 34,855,000
------------ ------------
------------ ------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended:
December 31,
1996 1995
----------- ----------
(Unaudited) (Unaudited)
Revenues:
Sales $10,216,000 $3,458,000
Brokerage 545,000 -
Other Income 8,000 -
----------- ----------
Total revenues 10,769,000 3,458,000
----------- ----------
Cost and Expenses:
Cost of Sales 8,928,000 3,053,000
Cost of brokerage 524,000 -
Cost of Sales - related party - 362,000
Personnel 651,000 431,000
Professional services 50,000 143,000
Travel 28,000 17,000
Occupancy 62,000 14,000
Depreciation and amortization 227,000 31,000
Interest 459,000 96,000
Other general and administrative 195,000 120,000
----------- ----------
Total Costs and Expenses 11,124,000 4,267,000
----------- ----------
Loss before Income Taxes (355,000) (809,000)
Income taxes (benefit) - (441,000)
----------- ----------
Net Loss $ (355,000) $ (368,000)
----------- ----------
----------- ----------
Net Loss per share $ (0.03) $ (0.04)
----------- ----------
----------- ----------
Weighted average shares outstanding 13,892,084 8,460,733
----------- ----------
----------- ----------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital (Deficit) Total
------ ------ ----------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, 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 (Unaudited) 10,000 907,000 - - - - 907,000
Common stock issued on exercise
of Series I warrants (Unaudited) - - 20,000 - 3,000 - 3,000
Net loss for the period (Unaudited) - - - - - (355,000) (355,000)
------ --------- ----------- ------- ----------- ------------ -----------
Balances, December 31, 1996
(Unaudited) 10,000 $ 907,000 13,450,793 $13,000 $25,550,000 $(11,752,000) $14,718,000
------ --------- ----------- ------- ----------- ------------ -----------
------ --------- ----------- ------- ----------- ------------ -----------
</TABLE>
4
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended:
---------------------------
December 31, December 31,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net Loss $ (355,000) $ (368,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 532,000 173,000
Deferred income taxes - (441,000)
Changes in Assets and Liabilities
Trade accounts receivable 326,000 16,000
Inventories 424,000 (112,000)
Prepaid expenses 8,000 -
Other current assets 120,000 (16,000)
Accounts payable (720,000) 72,000
Accrued liabilities (122,000) (3,000)
Income taxes payable (27,000) -
----------- ----------
Net Cash Provided (Used) by Operating
Activities 186,000 (679,000)
----------- ----------
INVESTING ACTIVITIES:
Additions to equipment (261,000) (50,000)
Receivable - related party (35,000) 161,000
Additions to acquisition costs and goodwill (134,000) -
Payments for purchases of subsidiaries,
net of cash acquired - (300,000)
Other Assets (99,000) (170,000)
Advances to related parties - -
----------- ----------
Net Cash (Used) in Investing Activities (529,000) (359,000)
----------- ----------
FINANCING ACTIVITIES:
Principal payments on borrowings - related parties (1,787,000) (30,000)
Proceeds from borrowings 2,358,000 1,019,000
Principal payments on borrowings (565,000) (27,000)
Principal payments on capital lease (83,000) (61,000)
Payments on line-of-credit, net (76,000) -
Loan fees paid (103,000) -
Proceeds from factor, net - 130,000
Deferred offering costs - (110,000)
Proceeds from issuance of stock 1,003,000 -
Costs of stock offerings (93,000) -
----------- ----------
Net Cash Provided by Financing Activities 654,000 921,000
----------- ----------
Increase (decrease) in Cash 311,000 (117,000)
CASH, beginning of period 1,450,000 184,000
----------- ----------
CASH, end of period $ 1,761,000 $ 67,000
----------- ----------
----------- ----------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION:
I. The Financial Statements included herein have been prepared by the Company
without audit except the September 30, 1996 balance sheet, which was
audited. The Statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments, consisting of only normal recurring accruals which are, in
the opinion of management, necessary for a fair statement of the results
of operations for the periods shown. These statements do not include all
information required by Generally Accepted Accounting Principles to be
included in a full set of Financial Statements. These Financial Statements
should be read in conjunction with the Financial Statements and notes
thereto included in the Company's latest report on Form 10-K, dated
September 30, 1996.
II. Inventories as of December 31, 1996 and September 30, 1996, consisted of
the following:
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
(UNAUDITED)
Raw materials $ 1,460,000 $ 1,302,000
Finished goods 589,000 1,171,000
----------- -----------
Total $ 2,049,000 $ 2,473,000
----------- -----------
----------- -----------
III. Property, plant and equipment as of December 31, 1996, and September 30,
1996, consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
(UNAUDITED)
Land $ 2,692,000 $ 2,692,000
Building and improvements 2,779,000 2,768,000
Heavy machinery and equipment 5,595,000 5,245,000
Automotive shredders 7,655,000 7,645,000
Transportation equipment 1,743,000 1,728,000
Office equipment 273,000 121,000
Assets under capital lease 1,931,000 1,918,000
----------- -----------
Total 22,668,000 22,117,000
Less accumulated depreciation
and amortization 2,017,000 1,625,000
----------- -----------
Total $20,651,000 $20,492,000
----------- -----------
----------- -----------
6
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IV. Other assets consist of the following at:
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
(UNAUDITED)
Acquisition costs $ 195,000 $ 38,000
Goodwill, net of accumulated
amortization of $184,000 and
$141,000 2,949,000 3,016,000
Noncompete agreements, net of
accumulated amortization of
$202,000 and $147,000 1,048,000 1,103,000
Engineering plans, net of
accumulated amortization of
$977,000 and $962,000 110,000 125,000
Patent rights 27,000 27,000
Land contract 70,000 70,000
Loan fees, net of accumulated amortization
of $75,000 and $48,000 457,000 381,000
Other 132,000 32,000
---------- ----------
$4,988,000 $4,792,000
---------- ----------
---------- ----------
V. Net operating loss carry-overs available for the future through the year
2011 are approximately $9.8 million.
VI. Supplemental information to the statement of cash flow for non-cash
investing and financing activities:
THREE MONTHS ENDED:
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
Cash paid for interest $484,000 $ 96,000
-------- ----------
-------- ----------
Cash paid for income taxes $ 27,000 $ -
-------- ----------
-------- ----------
Acquisition of subsidiaries
for stock $ - $ 925,000
-------- ----------
-------- ----------
Purchase of equipment for
notes payable $277,000 $ -
-------- ----------
-------- ----------
Acquisition of equipment
under capital lease $ 13,000 $ -
-------- ----------
-------- ----------
Acquisition of Anglo land and
building for note payable $ - $ 446,000
-------- ----------
-------- ----------
Acquisition of Anglo inventory
for notes payable $ - $1,354,000
-------- ----------
-------- ----------
Capital lease obligation incurred
to finance Anglo acquisition $ - $1,800,000
-------- ----------
-------- ----------
Note payable issued for Anglo
non-compete agreement $ - $ 750,000
-------- ----------
-------- ----------
Acquisition of Anglo goodwill for
note payable $ - $ 479,000
-------- ----------
-------- ----------
7
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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.
OVERVIEW
The Company is a full-service metals recycler primarily engaged in the
collection and processing of various ferrous and non-ferrous metals for resale
to domestic and foreign steel producers and other metal producers and
processors. Prior to May 1994, the Company was a development stage enterprise
engaged in the development of the MSW Technology. Although the Company has not
obtained a permit or constructed a facility utilizing the MSW Technology, the
Company is pursuing the licensing or sale of this technology to third parties.
The Company's current operations commenced in May 1994 with the
acquisition of Nevada Recycling, Inc., located in Las Vegas, Nevada ("NRI").
Since that time, the Company has experienced significant growth from the
acquisition of other metals recycling facilities. On June 30, 1995, the
Company acquired a 20% interest in a metals recycling facility located in
Georgia. On December 11, 1995, the Company acquired Anglo Iron & Metal
located in Brownsville, Harlingen, McAllen and San Juan, Texas ("Anglo"), on
April 15, 1996, the Company acquired Mid-America Shredding, located in Ste.
Genevieve, Missouri ("Mid-America"), and, on August 5, 1996, the Company
acquired Weissman Iron & Metal, located in Waterloo, Iowa, ("Weissman").
These acquisitions, except for the minority interest in the Georgia facility,
are accounted for under the purchase method for business combinations and,
accordingly, the results of operations for such acquired businesses are
included in the Company's financial statements only from the applicable date
of acquisition. As a result, the Company's historical results of operations
for the periods presented are not directly comparable.
The Company believes these acquisitions will have a positive impact on
its future results of operations. Additionally, the historical results of
operations do not fully reflect the operating efficiencies and improvements
that are expected to be achieved by integrating the acquired businesses into
the Company's operations. Although, the Company has begun to implement these
efficiencies and improvements, there can be no guarantee that they will
produce the anticipated results. The Company's business is dependent upon the
market established prices for processed ferrous and non-ferrous metals sold
by the Company as well as the market established prices for raw materials. If
these market prices drop significantly for processed metals or if the market
prices for raw materials significantly increase, the Company would have
difficulties continuing to improve future financial performance.
Additionally, the identified improvements may not attain the estimated levels
of efficiency projected by the Company.
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.
8
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THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
The results of operations for the three months ended December 31, 1996 and
1995 have been driven primarily by the Company's acquisition activity. The
results of operations for the three months ended December 31, 1995 do not
reflect the company's acquisition of Mid-America Shredding and Weissman Iron &
Metal, and include only 20 days of operations for Anglo Iron & Metal.
REVENUES. For the three months ended December 31, 1996, the Company had
total revenues of $10,769,000 compared to $3,458,000 for the three months
ended December 31, 1995, a 211% increase. The increase in revenues for the
three months ended December 31, 1996 reflect primarily the acquisitions of
Mid-America Shredding and Weissman, and a full three months of business
activity for Anglo Iron & Metal.
For the three months ended December 31, 1996, the average sales price per
ton of prepared ferrous scrap was $122, a 2% increase compared to $120 per ton
for the three months ended December 31, 1995. The average sales price for non-
ferrous scrap was $.31 per pound for the three months ended December 31, 1996,
representing a 40% decline compared to $.52 per pound for the three months ended
December 31, 1995.
Of the total revenues for the three months ended December 31, 1996,
$545,000 or 5%, was attributable to brokerage sales and $8,000 or less than
1%, was attributable to other income.
COST OF SALES. For the three months ended December 31, 1996, the
Company incurred total cost of sales of $9,452,000 compared to $3,415,000 for
the three months ended December 31, 1995. The increased cost of sales for
the three months ended December 31, 1996 was again primarily the result of
the acquisition of Anglo Iron & Metal, Mid-America Shredding and Weissman.
Total cost of sales decreased to 88% of total revenues for the three months
ended December 31, 1996 from 99% of total revenues for the three months ended
December 31, 1995. 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 $1,317,000 for
the three months ended December 31, 1996 from $43,000 for the three months
ended December 31, 1995.
Of the total cost of sales for the three months ended December 31, 1996,
$524,000 or 6%, was attributable to brokerage cost of sales.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses were $1,213,000, or 11% of revenues, for the three months ended
December 31, 1996, compared to $756,000, or 22% of revenues, for the three
months ended December 31, 1995. The largest components of the dollar increase
for the three months ended December 31, 1996 as compared to 1995 were salary
and related expenses, which increased $220,000 and depreciation and
amortization expenses which increased $196,000. 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 three months ended December 31, 1996, the
Company incurred interest expense of $459,000 compared to $96,000 for the three
months ended December 31, 1995. 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 has generated a net loss
carryforward totaling approximately $9,800,000, which expires at various amounts
and dates
9
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through the year 2011, due to operating losses previously incurred. 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 by the Company. 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 achievement of this taxable income level within the
next two fiscal years. Although the Company has begun to implement
improvement programs, the identified cost cutting measures may not attain the
estimated levels of efficiency projected by the Company. The Company may be
required to add employees in the future to support increases in production
above the projected future monthly production rates. Additionally, the
Company's business is dependent upon the market established prices for
processed ferrous and non-ferrous metals sold by the Company as well as the
market established prices for raw materials. If these market prices drop
significantly for processed metals or if the market prices for raw materials
significantly increase, the Company would have difficulties continuing to
improve future financial performance. Therefore, the Company continues to
recognize a net deferred tax asset of $800,000. No benefit for income taxes
was recorded for the three months ended December 31, 1996. A benefit for
income taxes in the amount of $441,000 was recorded for the three months
ended December 31, 1995.
INCOME (LOSS) FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES. For the
three months ended December 31, 1996, the Company had a loss from continuing
operations, before income taxes, of $355,000, or ($.03) per share, compared
to a loss of $809,000, or ($.10) per share for the three months ended
December 31, 1995. The principal reasons for the improvement were increased
revenues and lower cost of sales.
NET INCOME (LOSS). For the three months ended December 31, 1996, the
Company had a net loss of $355,000, or ($.03) per share, compared to a net
loss of $368,000, or ($.04) per share, for the three months ended December
31, 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 December 1996, the
Company has raised net cash proceeds of $20.1 million through the sale of its
equity securities. At December 31, 1996, the Company had $18.5 million of
liabilities and $15.9 million of current and long-term debt outstanding, of
which $3.3 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
10
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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 had 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.
On April 15, 1996, the Company acquired its Missouri facility by
acquiring substantially all of the assets of Mid-America Shredding, Inc.,
d/b/a Mid-America Shredding, for $1.9 million. The purchase consideration
consisted of cash of $708,000 and assumed 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
11
<PAGE>
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 its
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 not been recorded as 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.
During the quarter ended December 31, 1996, the Company completed a
private placement of $1.0 million of Series C Preferred Stock. Net proceeds
to the Company were $907,000.
For the three months ended December 31, 1996, net cash provided by
operations was $186,000. During this period, the Company generated a net loss
of $355,000, which included depreciation and amortization of $532,000.
Decreases in accounts receivable, inventory, prepaid expenses and other
current assets amounted to $878,000, offset by a decrease in accounts
payable, income taxes payable, and accrued expenses of $869,000.
For the three months ended December 31, 1996, the Company used net cash
in investing activities of $529,000 compared to $359,000 for the three months
ended December 31, 1995. Such amounts primarily related to capital equipment
additions, acquisition costs, and goodwill.
The Company had a positive net worth of approximately $14.7 million at
December 31, 1996, compared to $7.0 million at December 31, 1995. This
improvement in net worth after results of operations is primarily due to
issuance of $8.6 million (net of redemptions of $8.1 million) of Common Stock
during the year ended September 30, 1996, the conversion of $1.1 million of
bridge loan debt to equity, and the Series C Preferred Stock transaction.
Working capital at December 31, 1996 was $2.4 million as compared to a
deficit of $1.9 million at December 31, 1995. The increase in working
capital is due primarily to the increase in accounts receivable and inventory
of the Missouri and Iowa facilities, the public offering, and the Series C
Preferred Stock transaction.
12
<PAGE>
The planned capital expenditures over the next 12 months for the
Company's existing facilities are estimated to be $800,000. Included in this
amount are capital improvements for the Company's shredders and materials
handling equipment designed to increase capacity and improve operating
efficiencies.
The Company believes that the cash flow from operations and availability
under various credit facilities will be sufficient to meet its currently
anticipated working capital and capital expenditure needs for existing
operations for at least 12 to 24 months. The Company may, however, need to
raise additional capital to fund the acquisition and integration of additional
metals recycling businesses which is an integral component of the Company's
strategy. The Company may raise such funds through warrant exercises, bank
financings or public or private offerings of its securities. There can be no
assurance that the Company will be able to secure such additional financing.
If the Company is not successful in securing such financing, the Company's
ability to pursue its acquisition strategy may be impaired and the results of
operations for future periods may be adversely affected.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation and
is not aware of any threatened litigation that could have a material adverse
effect on the Company's business, operating results or financial condition.
ITEM 2. CHANGES IN SECURITIES
On December 31, 1996, the Company completed a private placement of 10,000
shares of Series C Convertible Preferred Stock (the "Series C Preferred") for
total consideration of $1,000,000. Each Series C Preferred is convertible,
without further payment, into the number of shares of Common Stock determined
by dividing (i) the sum of (a) $100 plus (b) the amount of all accrued
dividends on the Series C Preferred by (ii) the lesser of $1.58125 or 73% of
the average reported closing bid price of a share of Common Stock for the
five consecutive trading days immediately preceding the date of conversion.
The proceeds from this private placement were used for general working
capital purposes. The Company issued to the placement agent of the Series C
Preferred, Settondown Capital International, Ltd., 20,000 Settondown
Warrants, each entitling the holder to acquire one share of common stock
for $2.50.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Articles of Incorporation, incorporated
by reference to Exhibit 3.1 to the Company's Registration
Statement of Form S-1, filed May 3, 1996, as amended,
Commission File No. 333-4574.
3.1(a) Articles of Amendment to the amended and restated
articles of incorporation, incorporated by reference to
the Company's Registration Statement on Form S-1, filed
January 23, 1997, Commission File No. 333-20289.
3.2 Amended and Restated Bylaws, incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File
No. 333-4574.
14
<PAGE>
(b) STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (Exhibit 11)
(c) FINANCIAL DATA SCHEDULE (Exhibit 27)
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 2/19/97 By: /s/ THOMAS J. WIENS
----------------- ------------------------------------
Thomas J. Wiens, Chairman & Chief
Executive Officer
Date: 2/19/97 By: /s/ BRIAN L. KLEMSZ
----------------- ------------------------------------
Brian L. Klemsz, Principal
Financial Officer
16
<PAGE>
EXHIBIT 11
RECYCLING INDUSTRIES INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended
December 31,
--------------------------
1996 1995
------------ -----------
Primary earnings
Net loss $ (355,000) $ (368,000)
----------- ----------
----------- ----------
Shares
Weighted average number of
common shares outstanding 13,882,482 8,452,066
----------- ----------
----------- ----------
Primary earnings per common share
Net loss $ (0.03) $ (0.04)
----------- ----------
Fully diluted earnings
Net loss $ (355,000) $ (368,000)
----------- ----------
----------- ----------
Shares
Weighted average number of common
shares outstanding as adjusted 13,882,482 8,452,066
Assuming conversion of convertible
preferred stock 9,602 8,667
----------- ----------
Weighted average number of common
shares outstanding as adjusted 13,892,084 8,460,733
----------- ----------
----------- ----------
Fully diluted earnings per common share
Net loss $ (0.03) $ (0.04)
----------- ----------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,761,000
<SECURITIES> 0
<RECEIVABLES> 4,103,000
<ALLOWANCES> 50,000
<INVENTORY> 2,049,000
<CURRENT-ASSETS> 8,239,000
<PP&E> 22,668,000
<DEPRECIATION> 2,017,000
<TOTAL-ASSETS> 34,678,000
<CURRENT-LIABILITIES> 5,855,000
<BONDS> 0
0
907,000
<COMMON> 13,000
<OTHER-SE> 13,798,000
<TOTAL-LIABILITY-AND-EQUITY> 34,678,000
<SALES> 10,761,000
<TOTAL-REVENUES> 10,769,000
<CGS> 9,452,000
<TOTAL-COSTS> 9,452,000
<OTHER-EXPENSES> 1,213,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459,000
<INCOME-PRETAX> (355,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (355,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (355,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
