<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
Quarterly report pursuant to Section 13 or 15 (d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended or
X Transition report pursuant to Section 13 or 15 (d) of the Securities
- --- Exchange Act of 1934
For the transition period November 1, 1995 to March 31, 1996
Commission File Number 0-14836
METAL MANAGEMENT, INC.
(formerly General Parametrics Corporation)
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-2835068
(State of incorporation) (I.R.S. Employer Identification No.)
1250 Ninth Street, Berkeley, California 94710
(Address of principal executive office including zip code)
(510)-524-3950
(Telephone including area code)
General Parametrics Corporation, Fiscal Year Ending October 31, 1996
(Former name, former address and former fiscal year, if changed since
last report)
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 (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
At May 13, 1996, there were 8,844,653 shares of Common Stock of the Registrant
outstanding.
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METAL MANAGEMENT, INC.
(formerly General Parametrics Corporation)
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
March 31, 1996 and October 31, 1995 3
Consolidated Condensed Statements of Operations
For the two months and five months ended
March 31, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows
For the two months and five months ended
March 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 2. Legal Proceedings 14
Item 4. Submission of Matters to Vote of Securities Holders 14
Item 6: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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METAL MANAGEMENT, INC.
(formerly General Parametrics Corporation)
Consolidated Condensed Balance Sheet
Part I- Financial Information
Item 1
<TABLE>
<CAPTION>
March 31, October 31,
1996 1995
(unaudited)
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,093,000 $ 3,032,000
Marketable securities (Note 5) 2,644,000 3,246,000
Accounts receivable, net 1,488,000 1,599,000
Loan to EMCO Recycling Corp. (Notes 6 and 7) 1,000,000 --
Inventories (Note 4) 1,359,000 1,718,000
Prepaid expenses 58,000 36,000
Refundable income taxes 70,000 326,000
----------- -----------
Total current assets 9,712,000 9,957,000
Marketable securities (Note 5) 115,000 115,000
Deferred charges (Note 7) 478,000 --
Property and equipment, net 44,000 58,000
----------- -----------
Total assets $10,349,000 $10,130,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 282,000 $ 331,000
Accrued compensation and benefits 149,000 169,000
Other accrued liabilities 310,000 317,000
----------- -----------
Total current liabilities 741,000 817,000
----------- -----------
Stockholders' equity (Note 7):
Common stock 53,000 51,000
Additional paid-in capital 3,325,000 3,038,000
Retained earnings 6,230,000 6,224,000
----------- -----------
9,608,000 9,313,000
----------- -----------
$10,349,000 $10,130,000
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
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METAL MANAGEMENT, INC.
(formerly General Parametrics Corporation)
Consolidated Condensed Statements of Operations
<TABLE>
<CAPTION>
Two Months Ended Five Months Ended
March 31, March 31,
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 1,072,000 $ 1,609,000 $ 3,074,000 $ 4,501,000
Cost of sales 727,000 977,000 1,969,000 2,773,000
----------- ----------- ----------- -----------
Gross margin 345,000 632,000 1,105,000 1,728,000
----------- ----------- ----------- -----------
Operating expenses:
Marketing and sales 207,000 405,000 546,000 961,000
Research and development 32,000 174,000 77,000 431,000
General and administrative 207,000 121,000 618,000 366,000
----------- ----------- ----------- -----------
446,000 700,000 1,241,000 1,758,000
----------- ----------- ----------- -----------
Income (loss) from operations (101,000) (68,000) (136,000) (30,000)
Interest income 59,000 41,000 142,000 132,000
----------- ----------- ----------- -----------
Income (loss) before income taxes (42,000) (27,000) 6,000 102,000
Provision (benefit) for (from) income taxes -- (12,000) -- 27,000
----------- ----------- ----------- -----------
Net income (loss) $ (42,000) $ (15,000) $ 6,000 $ 75,000
=========== =========== =========== ===========
Net income (loss) per share $ (0.01) $ (0.00) $ 0.00 $ 0.01
=========== =========== =========== ===========
Average number of common shares
and common share equivalents 5,345,000 5,114,000 5,870,000 5,114,000
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
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METAL MANAGEMENT, INC.
(formerly General Parametrics Corporation)
Consolidated Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Five Months Ended
March 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income $ 6,000 $ 75,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation, amortization and
deferred taxes 26,000 171,000
(Increase) decrease in current assets other than
cash, cash equivalents and
marketable securities (296,000) 669,000
Increase (decrease) in current liabilities (76,000) (322,000)
----------- -----------
Net cash provided by operating activities (340,000) 593,000
----------- -----------
Cash flows provided (used) by investing activities:
Marketable securities 602,000 330,000
Purchases of property and equipment (12,000) (12,000)
Capitalized software development costs -- (138,000)
Deferred charges (478,000) --
----------- -----------
Net cash provided (used) by investing
activities 112,000 180,000
----------- -----------
Cash flows provided (used) by financing activities:
Common Stock issued under Employee Stock
Purchase, Employee Stock Option and
Executive Bonus Plans 289,000 18,000
Payment of cash dividends -- (613,000)
----------- -----------
Net cash provided (used) by financing
activities 289,000 (595,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 61,000 178,000
Cash and cash equivalents at beginning of period 3,032,000 639,000
----------- -----------
Cash and cash equivalents at end of period $ 3,093,000 $ 817,000
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
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METAL MANAGEMENT, INC.
(formerly General Parametrics Corporation)
Notes to financial statements
Note 1- Changes of Company's name and fiscal year.
Effective April 11, 1996, the Company changed its name from General Parametrics
Corporation to Metal Management, Inc. Effective April 15, 1996, the Company
formally changed its Nasdaq stock symbol to "MTLM".
On April 25,1996, the Board of Directors of the Company approved a change in the
Company's fiscal year end from October 31 to March 31, effective April 1, 1996.
This Form 10-Q is filed for the transitional five-month period ended March 31,
1996.
See Note 7-Subsequent Events for acquisition of EMCO Recycling Corp.
Note 2- Financial Statements
The accompanying Consolidated Condensed Balance Sheet of Metal Management, Inc.
(herein referred to as "Metal Management" or the "Company") ( formerly General
Parametrics Corporation) at March 31, 1996 and the Consolidated Condensed
Statements of Operations for the two and five months ended March 31, 1996 and
1995, respectively, and the Consolidated Condensed Statements of Cash Flows for
the five months ended March 31, 1996 and 1995, respectively, have not been
audited by independent accountants. However, in the opinion of management, all
adjustments, consisting only of normal, recurring adjustments necessary for a
fair statement of the results of operations for the interim periods, have been
made.
The results contained herein are not indicative of the post-merger results of
the consolidated entity. Also, the results of operations for the five months
ended March 31, 1996 are not necessarily indicative of results expected for the
fiscal year ended March 31, 1997. The Consolidated Condensed Financial
Statements included in this Form 10-Q should be read in conjunction with the
audited Consolidated Financial Statements and Notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995,
as well as with the Company's Definitive Joint Proxy Statement dated March 8,
1996 filed with the Commission.
Note 3- Revenues from discontinued products
Effective October 31, 1995, the Company elected to terminate a portion of its
electronic presentation products, including VideoShow, VideoShow PRESENTER and
related products. Revenues for terminated products were $105,000 and $397,000
for the two months and five months ended March 31, 1996, respectively, compared
to $188,000 and $915,000 for the prior periods, respectively.
Note 4- Inventories
Inventories consisted of:
<TABLE>
<CAPTION>
March 31, October 31,
1996 1995
<S> <C> <C>
Raw materials $ 363,000 $ 534,000
Work-in-progress 148,000 111,000
Finished goods 848,000 1,073,000
---------- ----------
$1,359,000 $1,718,000
========== ==========
</TABLE>
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Note 5- Marketable securities
Marketable securities are stated at cost, which approximates market value.
Marketable securities maturing within one year are classified as current assets.
The Company's marketable securities are classified in accordance with Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under SFAS No. 115, management is
required to determine the appropriate classification of its securities at the
time of purchase and reevaluate such designation as of each balance sheet.
Held-to-maturity securities are reported at amortized cost. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, net
reported in a separate component of shareholders' equity until disposition.
Realized gains and losses and declines in value judged to be other than
temporary are included in interest income.
All marketable securities are classified as available-for-sale securities as of
March 31, 1996. Gross unrealized losses were not material to the financial
statements taken as a whole as of March 31, 1996.
Note 6- Loans to EMCO Recycling Corp.
On March 8, 1996, the Company loaned EMCO $1,000,000, with interest at 9%, due
and payable on demand. See also Note 7.
Note7- Subsequent events
On April 11, 1996, the Company acquired EMCO Recycling Corp., an Arizona
corporation ("EMCO"), pursuant to a Merger Agreement dated as of December 1,
1995, and as amended through March 7, 1996. The acquisition will be accounted
for under the purchase method of accounting. In the merger, the outstanding
shares of EMCO were converted into the right to receive 3,500,000 shares of
Common Stock of the Company, warrants to purchase an aggregate of an additional
1,000,000 shares of Common Stock of the Company and $1,150,000 in cash. In
connection with the Merger, the Company has deferred transaction related costs
of $478,000 which will ultimately be included in the purchase price, such total
expected to be approximately $750,000. The unaudited supplemental information of
EMCO Recyling Corp. for the ten months ended January 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues $59,354,000 $45,573,000
Net income $ 470,000 $ 1,535,000
</TABLE>
The results contained herein are not indicative of the post-merger results of
the consolidated entity. Also, the unaudited supplemental proforma information
of EMCO Recyling Corp. for the ten months ended January 31, 1996 and 1995 are
not necessarily indicative of results expected for the fiscal year ended March
31, 1997. The unaudited supplemental proforma information of EMCO Recyling Corp.
for the ten months ended January 31, 1996 and 1995 included in this Form 10-Q
should be read in conjunction with the audited Consolidated Financial Statements
and Notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995, as well as with the Company's Definitive
Joint Proxy Statement dated March 8, 1996 filed with the Commission.
In addition, the Company has purchased two parcels of land from the direct and
indirect beneficial affiliates of Harold M. Rubenstein, the former principal
shareholder of EMCO, a newly appointed member of the Board of Directors of the
Company and the Company's largest beneficial owner of the Company's
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<PAGE> 8
shares. The terms call for payments totaling $100,000 and notes payable to those
affiliates and/or Mr. Rubenstein of $950,000, with interest of 9%, principal due
in three years.
In addition, upon the closing of the EMCO merger in April 1996, the Company paid
a demand note of $950,000 to Donald F. Moorehead, a related party of the
Company. Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations: Liquidity and Capital Resources" for a
further discussion of certain liquidity and capital resource issues regarding
the Company's wholly owned subsidiary, EMCO Recycling Corp.
The unaudited proforma revenues and net income of the merged companies for the
fiscal year ended October 31, 1995, as if the merger occurred as of the
beginning of the fiscal year were $79,101,000 and $122,000, respectively.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed throughout this Form 10-Q filing are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
include, but are not limited to, the following: the risk that announced mergers
are not consummated., the risk of slowing growth in the demand for the Company's
color printer and related products, the risk of challenges from the Company's
competition, and the risk that the Company will face difficulties in
assimilating disparate businesses, as well as other risk factors discussed in
"Factors Affecting Future Results" below.
On April 11, 1996, the Company acquired EMCO Recycling Corp., an Arizona
corporation ("EMCO"), pursuant to a Merger Agreement dated as of December 1,
1995, and as amended through March 7, 1996. The results contained herein are not
indicative of the post-merger results of the consolidated entity. Also, the
results of operations for the five months ended March 31, 1996 are not
necessarily indicative of results expected for the fiscal year ended March 31,
1997. The Consolidated Condensed Financial Statements included in this Form 10-Q
should be read in conjunction with the audited Consolidated Financial Statements
and Notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995, as well as with the Company's Definitive
Joint Proxy Statement dated March 8, 1996 filed with the Commission.
RESULTS OF OPERATIONS
Net sales were $1,072,000 and $3,074,000 for the two months and five months
ended March 31, 1996, respectively, a 33.4% and 31.7% decrease compared to net
sales of $ 1,609,000 and $4,501,000 for the two months and five months ended
March 31, 1995, respectively. Effective October 31, 1995, the Company elected to
terminate a portion of its electronic presentation products, including
VideoShow, VideoShow PRESENTER and related products. Revenues for terminated
products were $105,000 and $ 397,000 for the two months and five months ended
March 31, 1996, respectively, compared to $188,000 and $915,000 for the two
months and five months ended March 31, 1995, respectively.
The decrease in net sales was attributed to lower unit shipments for the
Company's terminated electronic presentation products, lower unit shipments in
the Company's color printer line of products, and lower unit shipments in the
Company's consumables line of products. The decrease in the color printer line
of products was attributed to competitive product pressures such as ink-jet,
color laser and phase change printer products, as well as color thermal and
dye-sublimation product competition. The color printer market is a highly
competitive market and is increasingly becoming dominated by large, well known,
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<PAGE> 9
strongly capitalized companies with the ability to spend significantly more
resources than the Company. Through advertising and related programs,
demonstration unit programs and similar sales and marketing efforts, the Company
is attempting to increase its lead count and ultimately sales. However, although
the recent results of its marketing programs have not been successful as
measured by the sharp decrease in sales, the Company continues its efforts to
identify and expand its product offerings and its distribution channels. There
can be no assurance that the Company's efforts will be successful and that the
sharp revenue declines will not continue for the foreseeable future. There can
also be no assurance that the Company's efforts at lead count generation, brand
name identification, and expanded product offerings will be successful or will
lead to increased sales. In addition, increased competitive pressures could
result in further price reductions for the Company's existing color thermal and
dye sublimation products and consumables, which would have a materially adverse
impact on operating results. See Note 1 to this section below.
Gross profit was 32.2% and 35.9% of net sales for the two months and five months
ended March 31, 1996, respectively, compared to 39.3% and 38.4% for the same
periods one year ago. Gross margins decreased due to lower per unit prices of
color printers and consumables resulting from increased competitive pressures,
and the inability to replace higher margin discontinued products with growth in
the continuing product lines. Increased competitive pressures could result in
further price reductions for the Company's continuing products, which could have
a material adverse impact on gross margins and operating results. In addition,
once the termination of the VideoShow and VideoShow Presenter product lines is
completed, overall company gross margins could decrease further. The Company
currently expects gross margins for its ongoing printer and consumables business
to be in the 30%-35% range for fiscal 1997, however, due to significant
competitive pressures, it is expected that the margins would trend towards the
lower end of the range. See Note 1 to this section below.
Marketing and sales expenses were $207,000 and $546,000 (19.3% and 17.8% of the
net sales) for the two months and five months ended March 31, 1996,
respectively, compared to $405,000 and $961,000 (25.2% and 21.4% of the net
sales) for the same periods one year ago, respectively. The decreases in
expenditures were the result of planned reductions in payroll and related
expenditures, travel and entertainment costs and certain other expenditures. The
Company currently does not foresee any material events changing its current
level of marketing and sales expenses relative to the printer and consumables
business for the foreseeable future. See Note 1 to this section below.
Research and development costs were $32,000 and $77,000 (3.0% and 2.5% of net
sales) for the two months and five months ended March 31, 1996, respectively,
compared to $174,000 and $431,000 (10.8% and 9.6% of net sales) for the same
period one year ago, respectively. The decreased expenditures were primarily in
payroll and related costs and overhead costs. As a result of the termination of
a portion of the Company's electronic presentation products business at the end
of the fourth quarter of fiscal 1995, the Company spends significantly less time
and costs on research and development than it has in the past. See Note 1 to
this section below.
The Company has placed more emphasis on the identification of new products that
it can acquire and re-sell under its own label, while attempting to maintain the
quality of its existing color thermal and dye sublimation product offerings
through the use of outside consultants as needed. The Company is currently not
aware of any items which would materially impact the trend of research and
development costs relative to the printer and consumables business for the
foreseeable future either positively or negatively from the level of the five
months ended March 31, 1996. See Note 1 to this section below.
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General and administrative expenditures were $207,000 and $618,000 (19.3% and
20.1% of the net sales for the two months and five months ended March 31, 1996,
respectively, compared to $121,000 and $366,000 (7.5% and 8.1% of net sales) for
the same period one year ago, respectively. The increased expenditures were
primarily due to increased costs associated with the Company's new direction.
The Company expects general and administrative costs to increase from the levels
of the five months ended March 31, 1996 associated with the Company's new
strategic direction. See Note 1 to this section below.
As a result of the above-mentioned factors, the loss from operations was
$101,000 and $136,000 for the two months and five months ended March 31, 1996,
respectively, compared to the loss from operations of $68,000 and $30,000 for
the same periods one year ago, respectively.
Interest income was $59,000 and $142,000 for the two months and five months
ended March 31, 1996, respectively, compared to $41,000 and $132,000 for the
same periods one year ago, respectively. The slight increase in interest was the
result of slightly higher average cash, cash equivalent and short-term
marketable securities balances. As a result of its merger with EMCO and the
corresponding usage of cash and equivalents, the Company expects interest income
to decrease. See Note 1 to this section below.
As a result of the above mentioned factors, the loss before income taxes was
$42,000 for the two months ended March 31, 1996 and the income before income
taxes was $6,000 for the five months ended March 31, 1996, compared to the loss
before income taxes of $27,000 for the two months ended March 31, 1995 and the
income before income taxes of $102,000 for the five months ended March 31, 1995.
No benefit for income taxes was provided for in the periods ended March 31, 1996
due to the uncertainties surrounding realization of the benefits that would be
generated. All such benefits have been reserved pursuant to Statement of
Financial Accounting Standards No. 109.
The net loss was $42,000 ($.01 per share) for the two months ended March 31,
1996 and the net income was $6,000 ($0.00 per share) for the five months ended
March 31, 1996, compared to the net loss of $15,000 ($0.00 per share) for the
two months ended March 31, 1995 and the net income was $75,000
($0.01 per share) for the five months ended March 31, 1995.
Note 1: This paragraph contains forward-looking statements reflecting current
expectations. The Company's actual results may differ materially from current
expectations. Stockholders are urged to review facts that could cause actual
results to vary from current expectations contained throughout this Management's
Discussion and Analysis section as well as in the subsections titled "Factors
Affecting Future Results" and "Merger with EMCO Recycling Corp.".
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash is the collection of accounts receivable
arising from the sale of its products. At March 31, 1996, the Company had cash,
cash equivalents and marketable securities of $6,995,000 compared to $6,393,000
at October 31, 1995. The increase in cash was primarily due to the net
collections of accounts receivable, less purchases of inventory and reductions
in operating expenses.
On April 11, 1996, the Company acquired EMCO Recycling Corp., an Arizona
corporation ("EMCO"), pursuant to a Merger Agreement dated as of December 1,
1995, and as amended through March 7, 1996. In the merger, the outstanding
shares of EMCO were converted into the right to receive 3,500,000 shares of
Common Stock of the Company, warrants to purchase an aggregate of an additional
1,000,000 shares
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<PAGE> 11
of Common Stock of the Company and $1,150,000 in cash. In connection with the
Merger, the Company has deferred transaction related costs of $478,000 as of
March 31, 1996, such total expected to be approximately $750,000, which will
ultimately be included in the purchase price. In addition, the Company has
purchased two parcels of land from the direct and indirect beneficial affiliates
of Harold M. Rubenstein, the former principal shareholder of EMCO, a newly
appointed member of the Board of Directors of the Company, and the Company's
largest beneficial owner of the Company's shares for a total of $1,150,000 of
which, $100,000 was paid in the form of cash and the remainder in the form of
notes payable, due in three years, bearing interest at 9%. During March 1996,
the Company loaned EMCO $1,000,000. Subsequent to March 31, 1996, the Company
paid EMCO's $950,000 demand note to a current Board member and related party and
provided EMCO further working capital of $500,000.
This Form 10-Q should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1995, as well as with the
Company's Definitive Joint Proxy Statement dated March 8, 1996 filed with the
Commission. Refer also to the section below titled "Factors Affecting Future
Results".
EMCO has recently required cash infusions from the Company. Refer to Item 5.
Other Information.
The Company's Board of Directors intends to cause the Company to actively pursue
acquisitions and mergers in unrelated fields, including, but not limited to,
scrap metal recycling and/or telecommunications. Depending on the nature and
size of potential acquisitions, mergers and other transactions, if any, the
Company's cash flows from operating and investing activities, together with its
cash, cash equivalents and marketable securities may not be sufficient in the
future. The Company may have to supplement these sources of liquidity with
additional sources of funds such as borrowings, stock offerings, etc. Refer also
to the section below titled "Factors Affecting Future Results".
The Company's secured documentary letter of credit line expired effective March
31, 1996. The Company opens documentary letters of credit with Union Bank
through the use of a secured cash account, such that for each dollar of letter
of credit, the Company deposits the equivalent amount in a segregated cash
account at Union Bank. Such segregated funds are released to the Company upon
negotiation of the specific letter of credit. The segregated funds and purchase
commitments outstanding at March 31, 1996 totaled $137,000.
The Company has a deferred tax asset valuation allowance which is primarily
attributable to U.S. federal and state deferred tax assets. Realization of the
deferred tax assets is dependent on generating sufficient income to utilize
future deductions and credits. Management believes sufficient uncertainty exists
regarding realization of these deferred tax assets that a valuation allowance is
required. Although management believes that achievement of the required income
is reasonably possible, there could be certain transactions and actions that
change this belief in the future. The amount of the valuation allowance may be
adjusted as income improves. Further, although management currently believes
that no material deferred tax asset realization impairment would occur upon
completion of the merger with EMCO, there can be no assurance that some or all
of the deferred tax assets at March 31, 1996 will be fully realized.
During the first five months of fiscal 1996, additions to property and equipment
were $12,000 compared to $12,000 for the same period one year earlier.
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<PAGE> 12
FACTORS AFFECTING FUTURE RESULTS
The operating results of the post-merger Company will be cyclical in nature. In
the past, during periods of national recession, EMCO's operations have
materially been affected. Future economic downturns are expected to materially
and adversely affect the operating results of the Company. In addition, the
Company's results of operations are operations subject to price fluctuations
which occur in the metals commodities markets. While EMCO has in the past found
it unnecessary to hedge its exposures to fluctuating metals prices, an
abnormally sharp decline in prices could expose the Company to potential losses
on inventories which have not been committed to specific sales contracts. Such
losses could have a material adverse affect on the Company's results of
operations.
Following the merger, the Company intends to continue to pursue additional
acquisitions in the scrap metal area, and potentially, in other related fields.
There can be no assurance that the Company will be able to effectively manage
different business enterprises. The inability to control or manage growth
effectively or to successfully integrate future new businesses into the
Company's operations would have a material adverse affect on the Company's
financial condition and results of operations.
As a result of the merger, the Company will have approximately $12 million in
consolidated debt. In order to pursue additional expansion and acquisition
opportunities, the Company may find it necessary to incur additional debt. The
servicing of such present and future debt of the Company will utilize cash
either in the form of cash-on-hand or cash generated by operating activities.
The scrap metal processing industry is highly competitive. Competition in the
industry is intense in part because there are relatively low barriers of entry
into the scrap metal collection business. In addition, the Company faces
competition from producers of finished steel products, many of whom have
substantially greater financial resources than the Company. The inability of the
Company to compete in this environment would have a material adverse affect on
the Company's financial condition and results of operations.
Scrap metal processing companies such as the Company have substantial ongoing
working capital and capital equipment requirements in order to continue to grow.
As a result, the Company may choose to seek equity or debt financing to fund
future improvements and expansion of its business, as well as to make other
acquisitions of scrap metal processing facilities. There can be no assurance
that such financing will be available when needed or, if available, will be on
satisfactory terms. The failure to obtain such financing would hinder the
Company's ability to make continued investments in capital equipment and pursue
expansions, which could materially adversely affect the Company's results of
operations.
In addition, certain factors will continue to affect the Company's color printer
and consumables operation. The Company had maintained a continuous program of
enhancing existing products and introducing new products that have extended its
various product lines. The Company believes that its future success will depend
on its ability to continue to enhance its existing products and to develop new
products which meet specific market needs in a cost-effective manner. There can
be no assurance, however, that the Company's products will not be rendered
obsolete by changing technology. Additionally, the introduction of new or
enhanced products by its competitors could adversely affect the company's sales
of existing products. In addition, lack of commercial acceptance of enhanced or
new products introduced by the Company could adversely affect the Company's
results of operations.
The Company's color printer and consumables operation principally uses standard
components from multiple vendors. However, in many of its products, certain
components are purchased from sole-source suppliers. The Company also purchases
some printer consumables from sole-sources. There is no guarantee that the
supply of sole-source components and consumables from these suppliers, along
with
- 12 -
<PAGE> 13
any new, improved and lower cost components will continue to be made available
to the Company. The Company attempts to reduce the risk of interruption in
supply of components by maintaining adequate inventory. Loss or interruption of
the supply of components from sole-source suppliers would require additional
management and engineering efforts to develop and qualify alternate sources and
any such loss could result in delays in product shipments which could adversely
affect the Company's results of operations.
MERGER WITH EMCO RECYCLING CORP.
At its Annual Meeting of Shareholders held April 9, 1996, the Company's
shareholders approved its previously announced merger with EMCO Recycling Corp.,
("EMCO. At that same meeting, the Company's shareholders also approved the
Company's corporate name change to Metal Management, Inc. Effective April 11,
1996, the Company completed this merger, and effective April 15, 1996, formally
changed its Nasdaq stock symbol to "MTLM". In addition, on April 25, 1996, the
Company elected to change its fiscal year end from October 31 to March 31. EMCO
has become a wholly-owned subsidiary of Metal Management, and the EMCO
shareholders received a total of 3,500,000 shares of common stock of GPC, plus
warrants to purchase 1,000,000 shares of Metal Management, plus $1,150,000 in
cash.
As a result of the substantial change in the Company's business as a result of
the merger described above, , past financial performance should not be
considered to be a reliable indicator of future performance. Stockholders should
not use historical trends to anticipate results or trends in future periods.
Further, the Company's stock price is subject to volatility. Any of these
factors discussed above could have an adverse impact on the Company's stock
price. In addition, failure of revenues or earnings in any quarter to meet the
investment community's expectations, if any, as well as broader market trends
unrelated to the company's performance could have an adverse impact on the
Company's stock price.
This Form 10-Q should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1995, as well as with the
Company's Definitive Joint Proxy Statement dated March 8, 1996 filed with the
Commission.
RECENT ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issue Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed Of". The statement must be adopted for its fiscal year
beginning April 1, 1996. Based upon its preliminary review, management believes
that there will be no material impact on the results of operations or financial
condition upon adoption.
In October 1995, the FASB issued Statement No. 123 "Accounting for Stock-Based
Compensation." The Company must adopt the disclosure requirements for its fiscal
year beginning April 1, 1996. Based upon its preliminary review, management
believes that there will be no material impact on the results of operations or
financial condition upon adoption.
Item 5. Other Information
EMCO has recently required cash infusions from the Company due to what it
believes to be short-term liquidity requirements. From February 1996 through
March 1996, EMCO's margins declined over the results noted in the Company's
Definitive Joint Proxy Statement dated March 8, 1996 filed with
- 13 -
<PAGE> 14
the Commission, but such margins have ceased declining in April 1996. As a
result of the above and increased interest expense, EMCO's operating results for
the period from February 1, 1996 through April 30, 1996 declined from the
pro-forma information contained in the proxy dated March 8, 1996. This paragraph
contains forward-looking statements reflecting current expectations. The
Company's actual results may differ materially from current expectations.
Stockholders are urged to review facts that could cause actual results to vary
from current expectations contained throughout this Management's Discussion and
Analysis section as well as in the subsections titled "Merger with EMCO
Recycling Corp." and "Factors Affecting Future Results".
PART II OTHER INFORMATION
Item 2. Legal Proceedings
In connection with a divorce claim brought by Ellis Rubenstein, who is the son
of Harold Rubenstein, a Board member of the Company, against Kristi Kae
Rubenstein, Ms. Rubenstein asserted that EMCO should be made party to the
proceeding. In response, on June 22, 1995, EMCO brought action for declaratory
judgment against Ms. Rubenstein in Maricopa County Superior Court, Arizona. Also
named as related party defendants in the action were Ellis Rubenstein, Empire
Metals, Inc., Copperstate Metals, Inc., George O. Moorehead and Donald F.
Moorehead. The action seeks to resolve whether or not Ellis Rubenstein or Kristi
Kae Rubenstein own any shares in EMCO, whether or not Ellis Rubenstein or Kristi
Kae Rubenstein own any portion of lease rights to a skybox paid for by EMCO and
whether Ellis Rubenstein was lawfully terminated from his employment from EMCO.
Kristi Kae Rubenstein contends that Ellis Rubenstein owns stock in EMCO in his
individual name, that the skybox lease paid for by EMCO is subject to claims of
usage by her and her family and that whether Ellis Rubenstein was unlawfully
terminated from his employment from EMCO. EMCO believes that it has valid
defenses to each of these claims, including the claim that Ellis Rubenstein is a
shareholder in EMCO. EMCO filed a motion for summary judgment with respect to
certain issues in November 1995 and a response from the defendants is to be
filed with the court in June 1996. No hearing date has been set for the Summary
Judgment motion. At this time, there can be no estimate of the outcome of this
matter. While EMCO management believes that it has valid defenses to Kristi Kae
Rubenstein's claims, there can be no assurance that any or all claims will not
be resolved against EMCO.
Empire Metals, Inc. and Harold Rubenstein, the President and a substantial
stockholder of Empire, have agreed to indemnify the Company and EMCO for any
damages or costs resulting from claims made against the Company and EMCO
relating to such action. Such indemnification obligations shall continue until
Ellis Rubenstein and his spouse have released the Company and EMCO from all
claims resulting from such action or a final non-appealable judgment in favor of
the Company and EMCO has been entered and no other claim is pending against the
Company and EMCO from any and all claims relating to such action. Empire and Mr.
Rubenstein have granted to the Company a security interest in certain of the
shares of the Company's common stock that Empire received or would be entitled
to receive upon exercise of warrants in the Merger.
Item 4. Submission of Matters to Vote of Securities Holders.
(a) The Registrant held its Annual Meeting of Shareholders April 9, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14A.
(b) The following management nominees for director were elected until the
Company's next Annual Meeting of Stockholders or until their successors are
elected and/or appointed, with the votes in favor and withheld for each
nominee in parenthesis: Gerard M. Jacobs (4,890,685/61,444), T. Benjamin
Jennings (4,893,351/58,778), Donald F. Moorehead (4,890,685/61,444), and
Xavier Hermosillo (4,890,685/61,444).
- 14 -
<PAGE> 15
In addition, George O. Moorehead, Harold R. Rubenstein and Raymond Zack
were appointed by the new Board of Directors to the Board of Directors on
April 9, 1996 following the conclusion of the Annual Meeting.
The Stockholders approved the Merger Agreement dated as of December 1, 1995
and as amended through March 7, 1996, between the Company, GPAR Merger,
Inc., EMCO Recycling Corp. and the direct and indirect beneficial owners of
EMCO common stock and the related Agreement of Merger between the Company
and EMCO, which provides for the merger of GPC with and into EMCO. The
number of shares voting in favor were 3,435,279, against were 90,505,
broker non-vote were 1,748,633, and abstain were 60,236.
The Stockholders approved the amendment to the Certificate of Incorporation
of the Company in order to increase the number of authorized shares of
Common Stock of the Company by 20 million to 40 million. The number of
shares voting in favor were 4,733,526, against were 153,321, broker non-
vote were 382,524, and abstain were 65,282.
The Stockholders approved the amendment to the Certificate of Incorporation
of the Company in order to change the name of the Company to "Metal
Management, Inc.". The number of shares voting in favor were 4,758,934,
against were 129,770, broker non-vote were 382,524, and abstain were
63,425.
The Stockholders approved the Board of Directors' adoption of the 1996
Director Option Plan, and the reservation of 100,000 shares of Common Stock
of the Company for issuance thereunder. The number of shares voting in
favor were 4,575,951, against were 198,391, broker non-vote were 483,485,
and abstain were 76,826.
The Stockholders approved an amendment to the 1995 Stock Option Plan in
order to increase the number of shares of Common Stock reserved for
issuance under the Plan by 800,000 shares. The number of shares voting in
favor were 3,435,279, against were 90,505, broker non-vote were 1,748,633,
and abstain were 60,236.
The Stockholders approved an amendment to the Bylaws to provide that the
Board of Directors shall have the power to determine the number of
authorized directors of the Company. The number of shares voting in favor
were 3,206,635, against were 304,884, broker non-vote were 1,731,122, and
abstain were 92,012.
The Stockholders approved and ratified the Board of Directors' selection of
Price Waterhouse LLP as independent public accountants for the Company for
the fiscal year ending October 31, 1996. The number of shares voting in
favor were 4,870,261, against were 10,113, broker non-vote were 382,774 and
abstain were 71,505.
Item 6. Exhibits and Reports of Form 8-K.
(a) Exhibits: 27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K dated April 25, 1996. The Form 8-K reported
that by virtue of the merger with EMCO Recycling Corp. there may have been
a change in control of the registrant (Item 1) and acquisition or
disposition of assets (Item 2). In addition, the Form 8-K reported a change
in fiscal year (Item 8).
- 15 -
<PAGE> 16
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.
METAL MANAGEMENT, INC.
Dated: May 22, 1996 By / s / Gerard M. Jacobs
------------------------
President, Chief Executive Officer and Director
(Principal Executive Officer)
Dated: May 22, 1996 By / s / William A. Spazante
--------------------------
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
- 16 -
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