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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2000

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                          COMMISSION FILE NO. 0-14836

                             METAL MANAGEMENT, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                              <C>
                    DELAWARE                                        94-2835068
          (STATE OR OTHER JURISDICTION                           (I.R.S. EMPLOYER
       OF INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NUMBER)
</TABLE>

                        500 N. DEARBORN ST., SUITE 405,
                               CHICAGO, IL 60610
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 645-0700

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01
                                   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 (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 [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     The aggregate market value for the Registrant's voting stock held by
non-affiliates of the Registrant based upon the closing sale price of the Common
Stock on May 1, 2000 as reported on the NASDAQ SmallCap Market, was
approximately $82 million. Shares of Common Stock held by each officer and
director and each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. The
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

     As of May 1, 2000, the Registrant had 57,819,539 shares of Common Stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III of this Report, to the extent not set
forth herein, is incorporated by reference from the Registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held in
2000, which definitive proxy statement shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which
this Report relates.
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                               TABLE OF CONTENTS

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                                                                        PAGE
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<S>       <C>                                                           <C>
          PART I
Item 1:   Business....................................................     1
Item 2:   Properties..................................................    14
Item 3:   Legal Proceedings...........................................    16
Item 4:   Submission of Matters to a Vote of Security Holders.........    17
          PART II
Item 5:   Market for the Registrant's Common Stock and Related
          Stockholder Matters.........................................    18
Item 6:   Selected Consolidated Financial Data........................    18
Item 7:   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................    19
Item 7A:  Quantitative and Qualitative Disclosures About Market
          Risk........................................................    29
Item 8:   Financial Statements and Supplementary Data.................    30
Item 9:   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................    30
          PART III
Item 10:  Directors and Executive Officers of the Registrant..........    31
Item 11:  Executive Compensation......................................    31
Item 12:  Security Ownership of Certain Beneficial Owners and
          Management..................................................    31
Item 13:  Certain Relationships and Related Transactions..............    31
          PART IV
Item 14:  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................    32
          Signatures..................................................    33
</TABLE>
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     Certain statements contained in this Form 10-K under Item 1, in addition to
certain statements contained elsewhere in this Form 10-K, including statements
qualified by the words "believe," "intend," "anticipate," "expects" and words of
similar import, are "forward-looking statements" and are thus prospective. These
statements reflect the current expectations of Metal Management, Inc. (herein,
"Metal Management," the "Company," "we," "us" or other similar terms) regarding
(i) our future profitability and that of our subsidiaries, (ii) the benefits to
be derived from the execution of our industry consolidation strategy and (iii)
other future developments in our business or the scrap metals recycling
industry. All such forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. These risks, uncertainties and other factors are discussed under the
heading "Investment Considerations" in Part I, Item 1 of this Report.

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     We are one of the largest and fastest growing full-service metals recyclers
in the United States, with approximately 50 recycling facilities in 14 states.
We enjoy leadership positions in many major metropolitan markets, including
Chicago, Cleveland, Denver, Hartford, Houston, Memphis, Newark, Phoenix and
Pittsburgh. Through an equity ownership position in Southern Recycling, L.L.C.
("Southern Recycling"), the largest scrap metals recycler in the Gulf Coast
region, we have a leading share of this strategically important market. We also
hold leading market positions in several important product segments, including
stainless steel, copper and aluminum generated from electric utility
applications, and titanium and other high-temperature nickel alloys generated by
the aerospace industry. For the year ended March 31, 2000, we sold approximately
5.3 million tons of ferrous scrap and approximately 656.8 million pounds of
non-ferrous scrap.

     We have achieved a leading position in the metals recycling industry
primarily by implementing a national strategy of completing and integrating
regional acquisitions. Since April 1996, we have completed 27 acquisitions and,
in the process, added in excess of $900 million in annual revenues. In making
acquisitions, we have focused on major metropolitan markets where prime
industrial and obsolete scrap (automobiles, appliances and industrial equipment)
is readily available and from where we believe we can better serve our customer
base. In pursuing this strategy, we have sought to acquire regional platform
companies with strong operational management and a history of successful
financial performance to serve as platforms into which subsequent acquisitions
can be integrated. We believe that through consolidation, we will be able to
enhance the competitive position and profitability of the operations we acquire
because of broader distribution channels, improved managerial and financial
resources, greater purchasing power and increased economies of scale.

     Our operations consist primarily of the collection and processing of
ferrous and non-ferrous metals for resale to metals brokers, steel producers,
and producers and processors of other metals. We collect industrial scrap and
obsolete scrap, process it into reusable forms and supply the recycled metals to
our customers, including steel mini-mills, integrated steel mills, foundries,
secondary smelters and metals brokers. We believe that we provide one of the
most comprehensive offerings of both ferrous and non-ferrous scrap metals in the
industry. Our ferrous products primarily include shredded, sheared, hot
briquetted, cold briquetted, bundled scrap and other purchased scrap, such as
turnings, cast and broken furnace iron. We also process non-ferrous metals,
including aluminum, copper, stainless steel, brass, titanium and high
temperature alloys, using similar techniques and through application of our
proprietary technologies.

     Our common stock, par value $.01 per share ("Common Stock") is traded on
the NASDAQ SmallCap Market under the symbol "MTLM." Our principal executive
offices are located at 500 North Dearborn Street, Suite 405, Chicago, Illinois
60610, and our telephone number is (312) 645-0700.

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INTEGRATION AND BRANDING INITIATIVES

     During the fiscal year ended March 31, 2000 ("Fiscal 2000"), we embarked on
a strategy to accelerate the integration of our operating companies and create
brand awareness for the Metal Management name. We currently operate our Company
as regional operations within a national system of businesses. In Ohio, our
Isaac Group and Reserve Iron & Metal companies were consolidated and now operate
under the Metal Management Ohio name. In Chicago, our Cozzi Iron & Metal
operation changed its name to Metal Management Midwest, and effective April 1,
2000, took operational control of the Chicago facility formerly operated by
Reserve Iron & Metal. On the east coast, our Naporano Iron & Metal subsidiary
changed its name to Metal Management Northeast, and consolidated its operations
with those of Michael Schiavone & Sons of North Haven, Connecticut, which was
renamed Metal Management Connecticut.

     In addition, our titanium and high-temperature alloys business, based in
Hartford, Connecticut and formerly known as Suisman & Blumenthal, now operates
under the Metal Management Aerospace name. During Fiscal 2000, we also completed
the integration of our Pittsburgh stainless steel operations by relocating our
operations from Heidelberg, Pennsylvania to Elizabeth, Pennsylvania, the
location of our Charles Bluestone Company operations. The combined company
formed by this consolidation now operates under the name Metal Management
Pittsburgh.

     Through our integration efforts, we are also standardizing the reporting
systems and business practices of our operations so that we are better able to
gauge operating performance. Although, we believe that cost savings from the
elimination of redundant functions has been, and will continue to be, an
important benefit of consolidation, we expect to realize even greater cost
benefits as we implement best management practices across the country. In
addition, we believe that our strategy of creating brand awareness for the Metal
Management name will help create an awareness by our customers of the size and
geographic scope of our operations and the breadth of our product offerings.
This will benefit us as our customers consolidate their supplier base to create
purchasing efficiencies.

INDUSTRY OVERVIEW

     According to government sources, total revenues generated in the scrap
metals recycling industry in 1995 were approximately $20 billion. Although
significant consolidation has occurred during the industry in the past several
years, the industry remains highly fragmented. The scrap metals industry is
comprised of more than 3,000 independent metals recyclers. Many of these
companies are family-owned and operate only in local or regional markets. We
believe that no single scrap metals recycler has a significant share of the
domestic market, although certain recyclers may have significant shares of their
local or regional markets. We believe that the consolidation in the scrap metals
industry will continue to take place into the foreseeable future because of: (i)
the reduction in purchasing, processing, transportation, labor and selling,
general and administrative costs associated with large, integrated companies;
(ii) the desire of the owners of closely-held family businesses to gain
liquidity by merging with large, public companies while maintaining managerial
input; and (iii) the ability of large, public companies to attract the capital
necessary to make the significant investments in plant and equipment that are
required due to increasingly stringent environmental regulation and the need to
upgrade processing facilities.

     Ferrous Scrap Industry.  Ferrous scrap, used in most steel making
processes, is the primary raw material for mini-mill steel producers that
utilize electric arc furnace, or EAF technology. According to industry sources,
domestic ferrous scrap purchased is approximately 80 to 85 million tons. Ferrous
scrap also sells as a commodity between international markets which are affected
by varying economic conditions, changing currency valuations, and the
availability of ocean going vessels and their related costs. A recent phenomenon
has been the increase in scrap imports from Europe and reduced export
opportunities from the United States as a result of a strong U.S. dollar. Demand
for processed ferrous scrap is highly dependent on the overall strength of the
domestic steel industry, particularly production utilizing EAF technology.

     Much of the growth in the scrap metals industry in recent years has
occurred as a result of the proliferation of mini-mill steel producers which
utilize EAF technology. EAF production has increased from 14.8 million tons
(11.1% of total domestic steel production) in 1966 to 49.5 million tons (46.2%
of total
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domestic steel production) in 1999. We expect this trend to continue in the next
few years as several new EAF facilities start production. We believe that as a
large, reliable supplier of scrap metals, we are well positioned to benefit from
the growth in this industry.

     The growth in EAF production has been fueled by the historically low price
of prepared ferrous scrap and faster conversion time to process, which gives EAF
producers a product cost advantage over integrated steel producers which operate
blast furnaces whose primary raw material feedstock are coke and iron ore. As
the price of ferrous scrap metals increase, EAF operators look for alternatives
to prepared steel scrap, such as pre-reduced iron pellets or pig iron, to supply
their EAF operations. We do not believe that these alternatives to ferrous scrap
will replace ferrous scrap in EAF operations, but will merely be used as a
supplemental feedstock thereby allowing EAF operators to utilize lower grades of
prepared scrap. Additional new EAF mini-mill facilities are being built leading
us to expect rising demand for ferrous scrap over the next several years.

     Due to its low price-to-weight ratio, raw ferrous scrap is generally
purchased locally from industrial companies, demolition firms, junk yards,
railroads, the military, scrap dealers and various other sources, typically in
the form of automobile bodies, appliances and structural steel. Ferrous scrap
prices are local and regional in nature; however, where there are overlapping
regional markets, the prices do not tend to differ significantly between the
regions due to the ability of companies to ship scrap cost-effectively from one
region to the other. The most significant limitation on the size of the
geographic market for ferrous scrap is the transportation cost for the raw or
processed scrap. Therefore, large volume scrap processing facilities are
typically located on or near key modes of transportation, such as railways,
interstate highways or waterways.

     Non-Ferrous Scrap Industry.  Non-ferrous metals include aluminum, copper,
brass, stainless steel, titanium, high-temperature alloys and other exotic
metals. The geographic markets for non-ferrous scrap tend to be larger than
those for ferrous scrap due to the higher selling prices of non-ferrous metals,
which justify the cost of shipping over greater distances. Non-ferrous scrap is
typically sold on a spot basis, either directly or through brokers, to
intermediate or end-users, which include smelters, foundries and aluminum sheet
and ingot manufacturers. Prices for non-ferrous scrap are driven by demand for
finished non-ferrous metal goods and by the general level of economic activity,
with prices generally linked to the price of the primary metal on the London
Metals Exchange or COMEX. Suppliers and consumers of non-ferrous metals can also
use these exchanges to hedge against future price fluctuations by buying or
selling futures contracts.

     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. This is due to the significant savings in energy
consumption, environmental compliance, and labor costs enjoyed by the secondary
smelters. These cost advantages, and the long lead-time necessary to construct
new non-ferrous primary smelting facilities, have generally resulted in
sustained demand and strong prices for processed non-ferrous scrap during
periods of high demand for finished non-ferrous metal products.

     Non-ferrous scrap is typically generated and supplied to us by: (i)
manufacturers and other sources that process or sell non-ferrous metals; (ii)
telecommunications, aerospace, defense and recycling companies that generate
obsolete scrap consisting primarily of copper wire, used beverage cans and other
non-ferrous metal alloys; and (iii) ferrous scrap operations that recover
aluminum, zinc, die-cast metal, stainless steel and copper as by-products from
processing of ferrous scrap. The most widely recycled non-ferrous metals are
aluminum, copper and stainless steel.

RECYCLING OPERATIONS

     Our recycling operations involve buying, processing and selling scrap
metals. The principal forms in which scrap metals are generated include
industrial scrap and obsolete scrap. Industrial scrap results from residual
materials from manufacturing processes. Obsolete scrap consists primarily of
residual metals from old or obsolete consumer and industrial products such as
appliances and automobiles.

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  Ferrous Operations

     Ferrous Scrap Purchasing.  We purchase ferrous scrap from two primary
sources: (i) manufacturers who generate steel and iron ("industrial scrap"); and
(ii) junkyards, demolition firms, railroads, the military and others who
generate steel and iron scrap ("obsolete scrap"). In addition to these sources,
we purchase, at auction, furnace iron from integrated steel mills and obsolete
steel and iron from government and large industrial accounts. Finally, we
purchase materials from small dealers, peddlers and auto wreckers who collect
and deliver obsolete scrap directly to our processing facilities. Prices are
determined primarily by market demand and the composition, quality, size, and
weight of the materials.

     Ferrous Scrap Processing.  We prepare ferrous scrap metal for resale
through a variety of methods including sorting, shredding, shearing or cutting,
baling, briquetting or breaking. We produce a number of differently sized and
shaped products depending upon customer specifications and market demand.

          Sorting.  After purchasing ferrous scrap metal, we inspect the
     material to determine how it should be processed to maximize profitability.
     In some instances, scrap may be sorted and sold without further processing.
     We separate scrap for further processing according to its size and
     composition by using conveyor systems, front-end loaders, crane-mounted
     electromagnets or claw-like grapples.

          Shredding.  Obsolete consumer scrap such as automobiles, home
     appliances and other consumer goods, as well as certain light gauge
     industrial scrap, is processed in our shredding operation. These items are
     fed into a shredder that quickly breaks the scrap down into fist-size
     pieces of ferrous metal. The shredding process uses magnets and other
     technologies to separate ferrous, non-ferrous and non-metallic materials.
     The ferrous material is sold to our customers, including mini-mills, and
     the non-metallic by-product of the shredding operations, referred to as
     "shredder fluff", is disposed of in third-party landfills.

          Shearing or Cutting.  Pieces of oversized ferrous scrap, such as
     obsolete steel girders and used drill pipes, which are too large for other
     processing, are cut with hand torches, crane-mounted alligator shears or
     stationary guillotine shears. After being reduced to specific lengths or
     sizes, the scrap is then sold to those customers who can accommodate larger
     materials, such as mini-mills.

          Baling.  We process light-gauge ferrous metals such as clips and sheet
     iron, and by-products from industrial manufacturing processes, such as
     stampings, clippings and excess trimmings, by baling these materials into
     large, uniform blocks. We use cranes, front-end loaders and conveyors to
     feed the metal into hydraulic presses, which compress the materials into
     uniform blocks at high pressure.

          Briquetting.  We process borings and turnings made of steel and iron
     into briquettes using both hot and cold briquetting methods, and
     subsequently sell these briquettes to steel mills or foundries. We possess
     the technology to control the metallurgical content of briquettes to meet
     customer specifications. The majority of our cold briquetting capacity is
     located at our Metal Management Ohio facility in Defiance, Ohio.

          Breaking of Furnace Iron.  We process furnace iron which includes
     blast furnace iron, steel pit scrap, steel skulls and beach iron. Large
     pieces of iron are broken down by the impact of forged steel balls dropped
     from cranes. The fragments are then sorted and screened according to size
     and iron content.

     Ferrous Scrap Sales.  We sell processed ferrous scrap to end-users such as
steel mini-mills, integrated steel makers and foundries, and brokers who
aggregate materials for other large users. Most of our customers purchase
processed ferrous scrap according to a negotiated sales contract which
establishes the quantity purchased for the month. The price we charge for
ferrous scrap depends upon market demand, as well as quality and grade of the
scrap. We believe profitability may be enhanced by offering a broad product line
to our customers. We believe that our consolidation strategy will allow us to be
a premier supplier of scrap, since we will be able to fill larger quantity
orders due to increased ability to secure large amounts of raw materials.

  Non-Ferrous Operations

     Non-Ferrous Scrap Purchasing.  We purchase non-ferrous scrap from three
primary sources: (i) manufacturers and other non-ferrous scrap sources who
generate or sell waste aluminum, copper, stainless
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steel, brass, high-temperature alloys and other metals; (ii) telecommunications,
aerospace, defense, and recycling companies that generate obsolete scrap
consisting primarily of copper wire, exotic metal alloys and used aluminum
beverage cans; and (iii) peddlers who deliver directly to our facilities
material which they collect from a variety of sources. We collect non-ferrous
scrap from sources other than those that deliver directly to our processing
facilities by placing retrieval bins near these sources. The bins are
subsequently transported to our processing facilities.

     We also produce non-ferrous scrap as a by-product from our ferrous scrap
processing operations. Non-ferrous scrap is recovered from our ferrous
operations through two primary activities: (i) non-ferrous materials, generally
a mixture of aluminum, zinc, die-cast metal, stainless steel and copper, are
recovered as a by-product of the shredding process; and (ii) non-ferrous
materials are identified visually and by using magnetic forces.

     A number of factors can influence the continued availability of non-ferrous
scrap such as the level of manufacturing activity and the quality of our
supplier relationships. Consistent with industry practice, we have certain
long-standing supply relationships (which generally are not the subject of
written agreements) that our management believes will improve as a result of
implementing our consolidation strategy.

     Non-Ferrous Scrap Processing.  We prepare non-ferrous scrap metals,
principally stainless steel, copper and aluminum, for resale by sorting,
shearing, cutting, chopping or baling.

          Sorting.  Our sorting operations separate non-ferrous scrap by using
     conveyor systems and front-end loaders. In addition, many non-ferrous
     metals are sorted and identified by using grinders, hand torches, eddy
     current separation systems and spectrometers. Our ability to identify
     metallurgical composition is critical to maintaining high margins and
     profitability. Due to the high value of many non-ferrous metals, we can
     afford to utilize more labor-intensive sorting techniques than are employed
     in our ferrous operations. We sort non-ferrous scrap for further processing
     according to type, grade, size and chemical composition. Throughout the
     sorting process, we determine whether the material requires further
     processing before being sold.

          Copper.  Copper scrap may be processed in several ways. We process
     copper scrap predominately by using wire choppers which grind the wire into
     small pellets. During chopping operations, the plastic casing of the wire
     is separated from the copper using a variety of techniques. In addition to
     wire chopping, we process scrap copper by baling and other repacking
     methods to meet customer specifications.

          Aluminum and Stainless Steel.  We process aluminum and stainless steel
     based on the size of the pieces and customer specifications. Large pieces
     of aluminum or stainless steel are cut using crane-mounted alligator shears
     and stationary guillotine shears and are baled along with small aluminum or
     stainless steel stampings to produce large bales of aluminum or stainless
     steel. Smaller pieces of aluminum and stainless steel are repackaged to
     meet customer specifications.

          Other Non-Ferrous Materials.  We process other non-ferrous metals
     using similar cutting, baling and repacking techniques as used to process
     aluminum. Other significant non-ferrous metals we process are titanium,
     brass and high-temperature alloys.

     Non-Ferrous Scrap Sales.  We sell processed non-ferrous scrap to end-users
such as specialty steelmakers, foundries, aluminum sheet and ingot
manufacturers, copper refineries and smelters, and brass and bronze ingot
manufacturers. Prices for the majority of non-ferrous scrap metals change based
upon the daily publication of spot and futures prices on the COMEX or London
Metals Exchange.

SEASONALITY AND OTHER CONDITIONS

     We believe that our operations can be adversely affected by protracted
periods of inclement weather or reduced levels of industrial production, which
could reduce the volume of material processed at our facilities. In addition,
periodic maintenance shutdowns or labor disruptions by our larger customers may
have a temporary adverse impact on our operations.

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CORPORATE HISTORY

     Our predecessor was incorporated on September 24, 1981 as a California
corporation under the name General Parametrics Corporation, and was
reincorporated as a Delaware corporation in June 1986 under the same name. Prior
to April 1996, we manufactured and marketed color thermal and dye sublimation
printers and related consumables, including ribbons, transparencies and paper.
We sold this business in two separate transactions in July and December of 1996
for $1.3 million in cash and future royalty streams which were concluded in
Fiscal 2000. On April 12, 1996, we changed our name to "Metal Management, Inc."

EMPLOYEES

     As of March 31, 2000, we employed 1,886 persons, 752 of whom were covered
by collective bargaining agreements. Our management believes that we have good
relations with our employees.

RESEARCH AND DEVELOPMENT

     Our expenditures on research and development have not been material for any
of the years ended March 31, 2000, 1999 and 1998, and we are not currently
involved in any significant research and development projects.

CAPITAL EXPENDITURES

     The scrap metals recycling business is capital intensive. In the fiscal
year ended March 31, 2000, we invested approximately $10.0 million for
replacement of equipment and expansion of our operations.

SIGNIFICANT CUSTOMERS

     For the year ended March 31, 2000, our 10 largest customers represented
approximately 32% of consolidated net sales. These customers comprised
approximately 38% of our accounts receivable balance at March 31, 2000. No
single customer accounted for more than 10% of our consolidated net sales. The
loss of any one of our significant customers could have a material adverse
effect on our results of operations and financial condition.

COMPETITION

     The markets for scrap metals are highly competitive, both in the purchase
of raw scrap and the sale of processed scrap. With regard to the purchase of raw
scrap, we compete with numerous independent recyclers, as well as smaller scrap
companies engaged only in collecting industrial scrap. Successful procurement of
materials is determined primarily on the price offered by the purchaser for the
raw scrap and the proximity of the processing facility to the source of the raw
scrap. With regard to the sale of processed scrap, we compete with other
regional and local scrap metals recyclers. Competition for sales of processed
scrap is based primarily on the price and quality of the scrap metals, as well
as the level of service provided in terms of reliability and timing of delivery.
We believe that our ability to handle substantial volumes, broad product line,
geographic diversity and ability to provide value-added services provide us with
a competitive advantage.

     We face potential competition for sales of processed scrap from producers
of steel products, such as integrated steel mills and mini-mills, which may
vertically integrate their current operations by entering the scrap metals
recycling business. Many of these producers have substantially greater
financial, marketing, and other resources than we do. Scrap metals processors
also face competition from substitutes for prepared ferrous scrap, such as
pre-reduced iron pellets, hot briquetted iron, pig iron, iron carbide and other
forms of processed iron. The availability of substitutes for ferrous scrap could
result in a decreased demand for processed ferrous scrap, which could result in
lower prices for such products.

     In addition, in pursuing our acquisition strategy, we face significant
competition from other consolidators in the scrap metals recycling industry. We
believe that Ferrous Processing, Inc., Philip Services Corporation, Omni Source
Corporation, David J. Joseph Corporation, Schnitzer Steel Industries Inc. and
others are each

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pursuing, to varying degrees, consolidation of the recycling industry. Some of
these competitors may have greater resources than we do.

BACKLOG

     The processing time for scrap metals is generally sufficiently short so as
to permit us to fill orders for most of our products in a period of time which
is generally less than thirty days. Accordingly, we do not consider backlog to
be material to our business.

PATENTS AND TRADEMARKS

     Although we and our subsidiaries own certain patents and trademarks, we do
not believe that our business is dependent on its intellectual property rights.

INVESTMENT CONSIDERATIONS

     In the normal course of our business, we, in an effort to help keep
stockholders and the public informed about our operations, may from time to time
issue or make certain statements, either in writing or orally, that are or
contain forward-looking statements, as that term is defined in the U.S. federal
securities laws. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits from acquisitions made by or to be
made by us, projections involving anticipated revenues, earnings, profitability
or other aspects of operating results or other future developments in our
affairs or the industry in which we conduct business. The words "expect,"
"believe," "anticipate," "project," "estimate" and similar expressions are
intended to identify forward-looking statements. We caution readers that such
statements are not guarantees of future performance or events and are subject to
a number of factors that may tend to influence the accuracy of the statements
and the projections upon which the statements are based, including but not
limited to those discussed below. All phases of our operations are subject to a
number of uncertainties, risks, and other influences, many of which are outside
our control and any one of which, or a combination of which, could materially
affect our financial condition or results of operations, the trading price of
our Common Stock, and whether the forward-looking statements we make ultimately
prove to be accurate.

     The following discussion outlines certain factors that could affect our
financial condition, results of operations or future prospects and cause them to
differ materially from those that may be set forth in forward-looking statements
we make or are made on our behalf.

     Leverage.

     We are highly leveraged. As of March 31, 2000, we had $384.7 million of
debt outstanding. Subject to certain restrictions, exceptions and financial
tests set forth in the Indenture governing our Senior Subordinated Notes
(hereinafter defined), the Indenture governing our Senior Secured Notes
(hereinafter defined) and in our Senior Credit Facility, we may incur additional
indebtedness in the future. The degree to which we are leveraged could have
important negative consequences to the holders of our securities, including, the
following:

     - we will have to use a substantial portion of our cash flow from
       operations to pay debt service rather than for operations;

     - our ability to obtain additional future financing for acquisitions,
       capital expenditures, working capital or general corporate purposes could
       be limited;

     - we will have increased vulnerability to adverse general economic and
       metals recycling industry conditions; and

     - we may be vulnerable to higher interest rates because borrowings under
       some of our credit arrangements are at variable rates of interest.

     We can give you no assurance that our business will generate sufficient
cash flow from operations or that future working capital borrowings will be
available in an amount sufficient to enable us to service our

                                        7
<PAGE>   10

indebtedness, or make necessary capital expenditures. For a description of the
instruments governing our indebtedness, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included in Part II,
Item 7 of this Report.

 Our indebtedness contains covenants that restrict our ability to engage in
 certain transactions.

     Our Senior Credit Facility, the Indenture governing our Senior Subordinated
Notes and the Indenture governing our Senior Secured Notes contain covenants
that, among other things, restrict our and most of our subsidiaries' ability to:

     - incur additional indebtedness;

     - pay dividends;

     - prepay subordinated indebtedness;

     - dispose of some types of assets;

     - make capital expenditures;

     - create liens and make some types of investments or acquisitions; and

     - engage in some fundamental corporate transactions.

     In addition, under our Senior Credit Facility, we are required to satisfy
specified financial covenants, including an interest coverage ratio and ratio of
capital expenditures to consolidated revenues. Our ability to comply with these
provisions may be affected by general economic conditions, industry conditions,
and other events beyond our control. Our breach of any of these covenants could
result in a default under our Senior Credit Facility. In the event of a default,
depending on the actions taken by the lenders under our Senior Credit Facility,
the lenders could elect to declare all amounts borrowed under our Senior Credit
Facility, together with accrued interest, to be due and payable. In addition, a
default under the Indenture governing our Senior Secured Notes or the Indenture
governing our Senior Subordinated Notes would constitute a default under our
Senior Credit Facility and any instruments governing our other indebtedness.

     Both the Indenture governing our Senior Subordinated Notes and the
Indenture governing our Senior Secured Notes contain restrictions on our ability
to incur additional indebtedness, subject to certain exceptions, unless we meet
a fixed charge coverage ratio of 2.0 to 1.0 for the immediately preceding four
calendar quarters. Because of our recent financial performance, we currently
would not satisfy the fixed-charge coverage ratio test, and, accordingly, are
unable and will remain unable in the foreseeable future to incur significant
amounts of additional indebtedness. As a result, if we experience a liquidity
shortfall, our ability to incur additional indebtedness to cover the shortfall
will be severely limited.

  The metals recycling industry is highly cyclical.

     The operating results of the scrap metals recycling industry in general,
and our operations specifically, are highly cyclical in nature. They tend to
reflect and be amplified by general economic conditions, both domestically and
internationally. Historically, in periods of national recession or periods of
slowing economic growth, the operations of scrap metals recycling companies have
been materially and adversely affected. For example, during recessions or
periods of slowing economic growth, the automobile and the construction
industries typically experience major cutbacks in production, resulting in
decreased demand for steel, copper and aluminum. This leads to significant
fluctuations in demand and pricing for our products. Future economic downturns
in the national and international economy would likely materially and adversely
affect our results of operations and financial condition. Our ability to
withstand significant economic downturns in the future will depend in part on
our level of capital and liquidity.

     Our business can also be adversely affected by increases in steel imports
into the United States which generally have an adverse impact on domestic steel
production and a corresponding adverse impact on the demand for scrap metals.
For example, beginning in July 1998, the domestic steel industry and, in turn,
the metals recycling industry suffered a dramatic and precipitous collapse,
resulting in a significant decline in the
                                        8
<PAGE>   11

price and demand for scrap metals. The decline in the steel and scrap metal
sectors was the result, in large part, of the increase in steel imports flowing
into the United States during the last six months of 1998. Our results of
operations were adversely impacted by reduced steel production in the United
States during the year ended March 31, 1999.

 Our inability to control or manage growth effectively or to successfully
 integrate new businesses into our operations would have a material adverse
 effect on our results of operations and financial condition.

     We intend to continue to pursue mergers and acquisitions. We cannot assure
you that we will be successful in acquiring other entities or that we will be
able to effectively manage those acquired entities. Our ability to achieve our
expansion objectives and to manage our growth effectively depends on a variety
of factors, including:

     - our ability to identify appropriate acquisition targets and to negotiate
       acceptable terms for their acquisition;

     - the integration of new businesses into our operations;

     - the achievement of cost savings; and

     - the availability of capital.

     Depending on the nature and size of these transactions, if any, we may
experience working capital and liquidity shortages. We cannot assure you that
additional financing will be available on terms and conditions acceptable to us,
if at all.

  Prices of commodities we own may be volatile.

     Although we have a stated objective to turn over our inventory of raw or
processed scrap metals as rapidly as possible, we are exposed to commodity price
risk during the period that we have title to products that are held in inventory
for processing and/or resale. Prices of commodities, including scrap metals, can
be volatile due to numerous factors beyond our control, including general
economic conditions; labor costs; competition; the availability of imports;
availability and relative pricing of scrap metal substitutes; import duties;
tariffs and currency exchange rates. In an increasing price environment,
competitive conditions may limit our ability to pass on price increases to our
customers. In a decreasing price environment, we may not have the ability to
fully recoup the cost of raw scrap we process and sell to our customers. The
lack of long-term sale agreements with our significant customers may exacerbate
this risk.

  Our operations present significant risk of injury or death.

     Because of the heavy industrial activities conducted at our facilities,
there exists a risk of injury or death to our employees or other visitors of our
operations, notwithstanding the safety precautions we take. During the past
three years, one accidental employee death and a number of serious accidental
injuries, have occurred at our facilities. Our operations are subject to
regulation by federal, state and local agencies responsible for employee health
and safety, including the Occupational Safety and Health Administration
("OSHA"). We, or our predecessor, have been fined in regard to some of these
incidents. We cannot assure you that we will be able to avoid material
liabilities for any employee death or injury that may occur in the future or
that these types of incidents may not have a material adverse effect on our
financial condition.

  We may not be able to negotiate future labor contracts on favorable terms.

     Many of our active employees are represented by various labor unions,
including the Teamsters Union, the United Steel Workers Union and the United
Auto Workers. As our agreements with those unions expire, we cannot assure you
that we will be able to negotiate extensions or replacements on terms favorable
to us, or at all, or that we will be able to avoid strikes, lockouts or other
labor actions from time to time. We cannot assure you that new labor agreements
will be reached with our unions as those labor contracts expire. Any

                                        9
<PAGE>   12

labor action resulting from the failure to reach an agreement with one of our
unions may have a material adverse effect on our results of operations.

 The loss of any member of our senior management team or a significant number of
 our managers could have a material adverse effect on our operations.

     Our operations to date have depended in large part on the skills and
efforts of our senior management team, including Albert A. Cozzi, our Chairman
and Chief Executive Officer, and Michael W. Tryon our President and Chief
Operating Officer. In addition, we rely substantially on the experience of the
management of our subsidiaries with regard to day-to-day operations. While we
have employment agreements with Messrs. Cozzi and Tryon and certain members of
our management team at the subsidiary level, we cannot assure you that we will
be able to retain the services of any of those individuals. The loss of any
member of our senior management team or a significant number of managers could
have a material adverse effect on our operations.

 The profitability of our scrap recycling operations depends, in part, on the
 availability of an adequate source of supply.

     We acquire our scrap inventory from numerous sources. These suppliers
generally are not bound by long-term contracts and have no obligation to
continue selling scrap materials to us. If a substantial number of scrap
suppliers cease selling scrap metals to us, our results of operations or
financial condition would be materially and adversely affected.

 The concentration of our customers and our exposure to credit risk could have a
 material adverse effect on our results of operations or financial condition.

     Our ten largest customers represented approximately 32% of consolidated net
sales in Fiscal 2000. Accounts receivable balances from these customers
represented approximately 38% of consolidated accounts receivable at March 31,
2000. The loss of any significant customers could adversely affect our results
of operations or financial condition.

     In connection with the sale of our products, we generally do not require
collateral as security for customer receivables. Some of our subsidiaries have
significant balances owing from customers that operate in cyclical industries
and under leveraged conditions that may impair the collectibility of those
receivables. Failure to collect a significant portion of amounts due on those
receivables could have a material adverse effect on our results of operations or
financial condition.

 A significant increase in the use of scrap metals alternatives by current
 consumers of processed scrap metals could have a material adverse effect.

     During periods of high demand for scrap metals a tightness can develop in
the supply and demand balance for ferrous scrap. The relative scarcity of
ferrous scrap, particularly the "cleaner" grades, and its high price during such
periods have created opportunities for producers of alternatives to scrap
metals, such as pig iron and direct reduced iron pellets. Although these
alternatives have not been a major factor in the industry to date, we cannot
assure you that the use of alternatives to scrap metals will not proliferate if
the prices for scrap metals rise or if the levels of available unprepared
ferrous scrap decrease.

 Our operations are subject to stringent regulations, particularly under
 applicable environmental laws.

     We are subject to comprehensive local, state, federal and international
statutory and regulatory requirements relating to, among others:

     - the acceptance, storage, treatment, handling and disposal of waste;

     - the discharge of materials into air;

     - wastewater and storm water regulation;

                                       10
<PAGE>   13

     - remediation of soil and groundwater contamination;

     - natural resource damages; and

     - employee health and safety.

     Furthermore, the nature of our business and previous operations by others
at facilities currently or formerly owned or operated by us expose us to risks
of claims under environmental laws and regulations. We believe that we and our
subsidiaries are in material compliance with currently applicable environmental
and other applicable laws and regulations. We can give you no assurance,
however, that we and our subsidiaries will avoid material fines, penalties and
expenses associated with additional compliance issues in the future. We and our
subsidiaries may be required from time to time to engage in certain remedial
activities with regard to sites owned or operated by us or our subsidiaries.
Furthermore, we and our subsidiaries may be required to perform or pay for
certain remedial activities in regard to certain sites owned by third parties.
We are not able to predict the ultimate costs of resolving environmental
matters, but these costs are not expected to have a material effect on our
financial condition or results of operations based on information currently
available to us. However, we can give you no assurance that we will avoid
potential damages, liabilities, expenditures, fines, and penalties that will
have a material adverse effect on our financial condition or results of
operations. In addition, environmental requirements may become more stringent or
new requirements may be enacted which could result in material expenditures or
penalties.

     Environmental legislation and regulations have changed rapidly in recent
years, and it is likely that we will be subject to even more stringent
environmental standards in the future. For example, the ultimate effect of the
regulations to be implemented under the Clean Air Act Amendments of 1990 (the
"Clean Air Act"), and the actual amount of any capital expenditures required
thereby, will depend on how the Clean Air Act is interpreted and implemented
pursuant to regulations that are currently being developed and on additional
factors such as the evolution of environmental control technologies and the
economic viability of these technologies. For these reasons, we cannot predict
future capital expenditures for environmental control facilities with accuracy.
However, we expect that environmental control standards will become increasingly
stringent and that the expenditures necessary to comply with them could increase
substantially.

     Local, state, federal, foreign and international authorities have also from
time to time proposed or adopted other types of laws, regulations or initiatives
with respect to the scrap metals recycling industry, including laws, regulations
and initiatives intended to:

     - ban or restrict the intrastate, interstate or international shipment of
       wastes;

     - impose higher taxes or fees on certain shipments of waste; or

     - classify or reclassify certain categories of non-hazardous wastes as
       hazardous.

     Certain governmental authorities have promulgated "flow control" or other
regulations, which attempt to require that all waste (or certain types of waste)
generated within a particular jurisdiction go to certain disposal sites. None of
these are yet in effect in the primary jurisdictions where we operate. However,
the City of Chicago recently enacted an ordinance regulating recycling
activities which, among other things, requires various permits and materials
handling plans designed to prevent releases into the environment, which will
require additional expenditures by us.

     We are required to obtain, and must comply with, various permits and
licenses to conduct our operations. Violations of any permit or license, if not
remedied, could result in our incurring substantial fines, suspension of
operations or closure of a site. Further, our operations are conducted primarily
outdoors and as such, depending on the nature of the ground cover, involve the
risk of releases of regulated materials to the soil and, possibly, to ground
water. There can be no assurance that material expenditures will not be required
to prevent or address these conditions.

     Governmental authorities have a wide variety of powerful administrative
enforcement actions and remedial orders available to them to cause compliance
with environmental laws or to remedy or punish violations of such laws. Orders
may be directed to various parties, including present or former owners or

                                       11
<PAGE>   14

operators of the concerned sites, or parties that have or had control over the
sites. In certain instances, fines and treble damages may be imposed. In the
event that administrative actions fail to cure a perceived problem or where the
relevant regulatory agency so desires, an injunction or temporary restraining
order or damages may be sought in a court proceeding.

     Some laws also give private parties the right, in addition to existing
common law claims, to file claims for injunctive relief or damages against the
owners or operators of the site. Public interest groups, local citizens, local
municipalities and other persons or organizations may have a right to seek
judicial relief for purported violations of law or releases of pollutants into
the environment. In some jurisdictions, recourse to the courts by individuals
under common law principles such as trespass or nuisance have been or may be
enhanced by legislation providing members of the public with statutory rights of
action to protect the environment. Even if a scrap metals recycling facility is
operated in full compliance with applicable laws and regulations, local citizens
and other persons and organizations may seek compensation for damages allegedly
caused by the operation of the facility. In some cases, the operation of scrap
metals recycling facilities is subjected to heightened public scrutiny because
of residential or other non-industrial property uses that have developed around
such facilities. So-called "Not In My Backyard" ("NIMBY") grass roots community
opposition to such facilities can materially interfere with such facilities'
on-going operations and growth.

     We believe that, with heightened legal, political and citizen awareness and
concerns, all companies in the scrap metals recycling industry may face, in the
normal course of operating their businesses, fines and penalties and the need to
expend substantial funds for capital projects, remedial work and operating
activities, such as environmental contamination monitoring, soil removal,
groundwater treatment, creation of engineered barriers and establishing
institutional controls.

     Regulatory or technological developments relating to the environment may
require companies engaged in the scrap metals recycling industry to modify,
supplement or replace equipment and facilities at costs which may be
substantial. Because the scrap metals recycling industry has the potential for
discharge of regulated materials into the environment, we expect a material
portion of our capital expenditures to relate, directly or indirectly, to
environmental-related equipment and facilities. Moreover, it is possible that
future developments, such as increasingly strict requirements of environmental
laws and regulations, and enforcement policies will require even more
significant capital investments in this regard. Expenditures for environmentally
related capital improvements were not material for the year ended March 31,
2000. However, there can be no assurance that this will be the case in the
future.

     Incompleteness of Site Investigations.  As part of our pre-transaction "due
diligence" investigations, we typically hire an environmental consulting firm to
conduct pre-transaction screen reviews, or Phase I and/or Phase II site
assessments of the sites owned or leased by particular acquisition or merger
candidates. However, these pre-transaction reviews and site assessments have not
covered all of the sites owned or leased by the companies which are acquired by
us. Moreover, those pre-transaction reviews and site assessments which have
occurred have not been designed or expected (and will not in the future be
designed or expected) to disclose all material contamination or liability that
may be present. For example, we have not included soil sampling or core borings
as a standard part of many pre-transaction reviews and site assessments that we
have conducted, even though such sampling and core borings might have increased
the chances of finding contamination on a particular site. Failure to conduct
soil sampling and core borings on a particular site could result in us failing
to identify a seriously contaminated site prior to an acquisition or merger.

     Likelihood of Contamination at Some Sites.  Pre-transaction reviews and
site assessments of our current sites conducted by independent environmental
consulting firms have revealed that some soil, surface water and/or groundwater
contamination, including various metals, arsenic, petrochemical byproducts,
waste oils, polychlorinated biphenyls, volatile organic compounds and baghouse
dust, is likely to be present at certain of these sites, and have recommended
that we conduct additional investigations and remediation. Based on our review
of these reports, we believe that it is likely that contamination at varying
levels exists at our sites, and some of our sites will require additional
investigation, monitoring and remediation.

     The ultimate extent of this contamination cannot be stated with any
certainty at this point, and we can give you no assurance that the cost of
remediation will be immaterial. The existence of this contamination
                                       12
<PAGE>   15

could result in federal, state, local or private enforcement or cost recovery
actions against us, possibly resulting in disruption of our operations, the need
for proactive remedial measures, and substantial fines, penalties, damages,
costs and expenses being imposed against us.

     We expect to require future cash outlays as we incur the actual costs
relating to the remediation of environmental liabilities. The incurrence of the
costs may have a material adverse effect on our results of operations and
financial condition. In this regard, we have established an overall reserve of
$1.4 million at March 31, 2000 for environmental liabilities that have been
identified and quantified.

     Uncertain Costs of Environmental Compliance and Remediation.  Many factors
affect the level of expenditures we will be required to make in the future to
comply with environmental requirements, including:

     - new local, state and federal laws and regulations;

     - the developing nature of administrative standards promulgated under the
       Comprehensive Environmental Response, Compensation, and Liability Act of
       1980, as amended ("Superfund"), and other environmental laws, and
       changing interpretations of such laws;

     - uncertainty regarding adequate control levels, testing and sampling
       procedures, new pollution control technology and cost benefit analyses
       based on market conditions;

     - the incompleteness of information regarding the condition of certain
       sites;

     - the lack of standards and information for use in the apportionment of
       remedial responsibilities;

     - the numerous choices and costs associated with diverse technologies that
       may be used in remedial actions at such sites;

     - the possible ability to recover indemnification or contribution from
       third parties; and

     - the time periods over which eventual remediation may occur.

     Lack of Environmental Impairment Insurance.  In general, our subsidiaries
do not carry environmental impairment liability insurance. If one or more of our
subsidiaries were to incur significant liability for environmental damage not
covered by environmental impairment insurance, our results of operations and
financial condition could be materially adversely affected.

     Risks Associated With Certain By-Products.  Our scrap metals recycling
operations produce significant amounts of by-products. Heightened environmental
risk is associated with some of these by-products. For example, certain of our
subsidiaries operate shredders for which the primary feed materials are
automobile hulks and obsolete household appliances. Approximately 20% of the
weight of an automobile hulk consists of material, referred to as shredder
fluff, which remains after the segregation of ferrous and saleable non-ferrous
metals. Federal environmental regulations require testing or evaluation of
shredder fluff to avoid classification as a hazardous waste. We endeavor to have
hazardous contaminants from the feed material removed prior to shredding. In
general, our subsidiaries treat shredder fluff as a special non-hazardous waste.
If the shredder fluff is tested and determined to be hazardous, then it is
disposed of as a hazardous waste. If we are required to treat shredder fluff as
a hazardous waste, we may incur additional material expenditures for disposal or
treatment.

     Potential Superfund Liability.  Several of our subsidiaries have received
notices from the United States Environmental Protection Agency ("EPA") that each
of these companies and numerous other parties are considered potentially
responsible parties and may be obligated under Superfund to pay a portion of the
cost of remedial investigation, feasibility studies and, ultimately, remediation
to correct alleged releases of hazardous substances at various third party
sites. Superfund may impose joint and several liability for the costs of
remedial investigations and actions on the entities that arranged for disposal
of certain wastes, the waste transporters that selected the disposal sites, and
the owners and operators of these sites. Responsible parties (or any one of
them) may be required to bear all of such costs regardless of fault, legality of
the original disposal, or ownership of the disposal site. Based upon our
analysis of the situation, we currently do not expect

                                       13
<PAGE>   16

the potential liability of our subsidiaries in these matters to have a material
adverse effect on our financial condition or results of operation.

     Compliance History.  We have, in the past, been found not to be in
compliance with certain environmental laws and regulations, and have incurred
fines associated with such violations which have not been material in amount and
may in the future incur additional fines associated with such violations. We
have also paid a portion of the costs of certain remediation actions at certain
sites. We cannot assure you that we will avoid material fines, penalties,
damages and expenses resulting from additional compliance issues and liabilities
in the future.

 We have an accumulated deficit and have incurred significant losses

     We have incurred pre-tax losses from continuing operations of approximately
$118.2 million since April 1, 1997. At March 31, 2000, we had an accumulated
deficit of $95.8 million. Although we do not expect losses in the future, we
cannot assure you that we will not incur further losses.

ITEM 2.  PROPERTIES

     Our facilities generally are comprised of:

     - processing areas;

     - 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;

     - machine or repair shops for the maintenance and repair of vehicles and
       equipment;

     - scales for weighing scrap; and

     - loading and unloading facilities.

     Most of our facilities have specialized equipment for processing various
types and 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 following table sets forth information regarding our principal
properties:

<TABLE>
<CAPTION>
                                                                                   APPROXIMATE   LEASED/
                    LOCATION                                 OPERATIONS            SQUARE FEET    OWNED
                    --------                                 ----------            -----------   -------
<S>                                                <C>                             <C>           <C>
Metal Management, Inc.
  500 N. Dearborn St., Chicago, IL...............  Corporate Office                    11,200    Leased
Metal Management Aerospace, Inc.
  500 Flatbush Ave., Hartford, CT................  Office/Processing                1,481,040    Leased
Metal Management Alabama, Inc.
  2020 Vanderbilt Rd., Birmingham, AL............  Office/Shear/Granulator          1,150,073     Owned
  2222A Vanderbilt Rd., Birmingham, AL...........  Granulator                          25,000    Leased
Metal Management Arizona, L.L.C.
  3640 S. 35th Ave., Phoenix, AZ.................  Office/Shear/Shredder/Baler      1,121,670    Leased
  301 19th Ave., Phoenix, AZ.....................  Baler/Warehouse                     92,924    Leased
  320 S. 19th Ave., Phoenix, AZ..................  Shredder/Shear                     345,010    Leased
  1525 W. Miracle Mile, Tucson, AZ...............  Shredder/Shear                     513,569    Leased
Metal Management Connecticut, Inc.
  234 Universal Drive, North Haven, CT...........  Office/Shredder/Baler/Shear      1,089,000     Owned
</TABLE>

                                       14
<PAGE>   17

<TABLE>
<CAPTION>
                                                                                   APPROXIMATE   LEASED/
                    LOCATION                                 OPERATIONS            SQUARE FEET    OWNED
                    --------                                 ----------            -----------   -------
<S>                                                <C>                             <C>           <C>
Metal Management Indiana, Inc.
  3601 Canal St., East Chicago, IN...............  Maintenance/Balers(2)/Shear        588,784     Owned
  77 E. Railroad St., Mononghahela, PA...........  Office/Warehouse/Baler/Shear       174,240     Owned
Metal Management Memphis, L.L.C.
  540 Weakly St., Memphis, TN....................  Office/Maintenance                 178,596     Owned
  526 Weakly St., Memphis, TN....................  Warehouse/Baler/Shear/Shredder     768,616     Owned
  1270 N. Seventh St., Memphis, TN...............  Warehouse/Baler                    351,399     Owned
Metal Management Midwest, Inc.
  2232 S. Blue Island Ave., Chicago, IL..........  Office                              10,095     Owned
  2305 S. Paulina St., Chicago, IL...............  Maintenance/Shredder               392,040     Owned
  2500 S. Paulina St., Chicago, IL...............  Office/Warehouse/Shear             168,255     Owned
  2425 S. Wood St., Chicago, IL..................  Office/Warehouse/Baler             103,226     Owned
  2451 S. Wood St., Chicago, IL..................  Office/Maintenance                 178,596     Owned
  350 N. Artesian Ave., Chicago, IL..............  Office/Maintenance/Shredder        348,480     Owned
  1509 W. Cortland St., Chicago, IL..............  Warehouse                          162,540     Owned
  1831 N. Elston Ave., Chicago, IL...............  Warehouse                           35,695     Owned
  26th and Paulina Streets, Chicago, IL..........  Office/Maintenance/Baler/          323,848     Owned
                                                   Crusher
  9331 S. Ewing Ave., Chicago, IL................  Office/Maintenance/Shredder        293,087     Owned
  3200 E. 96th St., Chicago, IL..................  Office/Maintenance/Eddy            364,969     Owned
                                                   Current Separation System
  3151 S. California Ave., Chicago, IL...........  Office/Maintenance/Shredder        513,500    Leased
  1000 N. Washington, Kankakee, IL...............  Office/Maintenance/Warehouse       217,800     Owned
  564 N. Entrance Ave., Kankakee, IL.............  Office/Warehouse                   206,910     Owned
  1201 W. 138th St., Riverdale, IL...............  Office/Warehouse/Dismantling         9,000    Leased
  320 Railroad St., Joliet, IL...................  Feeder Yard                         43,760    Leased
  12701 S. Doty Ave., Chicago, IL................  Shear/Iron Breaking                784,080    Leased
Metal Management Mississippi, LLC
  120-121 Apache Dr., Jackson, MS................  Office/Processing                   74,052     Owned
Metal Management Northeast, Inc.
  Foot of Hawkins St., Newark, NJ................  Office/Baler/Shear                 382,846     Owned
  252-254 Doremus Ave., Newark, NJ...............  Shredder/Processing                384,000     Owned
  Port of Newark, Newark, NJ.....................  Barge & Ship                       839,414    Leased
                                                   Terminal/Stevedoring
Metal Management Ohio, Inc.
  Rte. 281 East, Defiance, OH....................  Office/Maintenance/Briquetting   3,267,000     Owned
  1645 Indian Wood Circle, Maumee, OH............  Office                              24,000    Leased
  715 E. Perry St., Bryan, OH....................  Warehouse/Briquetting              187,308     Owned
  15360 State Rte. 613 East, Paulding, OH........  Office/Warehouse                   130,680    Leased
  18899 Snow Rd., Brook Park, OH.................  Office/Maintenance/Briquetting   1,437,480     Owned
  4431 W. 130th St., Cleveland, OH...............  Office/Iron Breaking/Aluminum    2,178,000    Leased
Metal Management Pittsburgh, Inc.
  2045 Lincoln Blvd., Elizabeth, PA..............  Office/Processing                  423,054     Owned
Metal Management Stainless & Alloy, Inc.
  6660 S. Nashville Ave., Bedford Park, IL.......  Office/Warehouse/Baler             304,223     Owned
Metal Management West, Inc.
  5601 York St., Denver, CO......................  Office/Shredder                    392,040     Owned
  3260 W. 500 South St., Salt Lake City, UT......  Office/Shredder                    435,600     Owned
  2690 East Las Vegas St., Colorado Springs,       Feeder Yard                        522,720     Owned
    CO...........................................
</TABLE>

                                       15
<PAGE>   18

<TABLE>
<CAPTION>
                                                                                   APPROXIMATE   LEASED/
                    LOCATION                                 OPERATIONS            SQUARE FEET    OWNED
                    --------                                 ----------            -----------   -------
<S>                                                <C>                             <C>           <C>
Proler Southwest Inc.
  90 Hirsch Rd., Houston, TX.....................  Office/Warehouse/Processing        378,972     Owned
                                                   Office/Warehouse/Barge
  15-21 Japhet, Houston, TX......................  Terminal/Processing              1,960,200    Leased
The MacLeod Companies
  833 W. 182nd St., Gardena, CA..................  Warehouse/Processing                 4,700    Leased
  1022 W. Lomita Blvd., Harbor City, CA..........  Warehouse                           19,223    Leased
  9309 Rayo Ave., Southgate, CA..................  Office/Warehouse/Processing        304,920     Owned
</TABLE>

     We believe that our facilities are suitable for their present and intended
purposes and that we have adequate capacity for our current levels of operation.

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, we are involved in various litigation matters involving
ordinary and routine claims incidental to our business. A significant portion of
these matters result from environmental compliance issues and workers
compensation related claims applicable to our operations. There are presently no
legal proceedings pending against us which, in the opinion of our management, is
likely to have a material adverse effect on our business, financial position or
results of operations. However, we are involved in the litigation as described
below.

     On July 24, 1998, the City of Chicago brought suit against Cozzi Iron &
Metal (now Metal Management Midwest, Inc.) alleging that each of its seven scrap
metal processing facilities within the City was operating in violation of
various ordinance provisions and causing a public nuisance threatening the
health and safety of residents (City of Chicago v. Cozzi Iron & Metal., 98 CH
9801, Circuit Court, Cook County, Chancery Division). The parties recently
settled this matter amicably, and the court entered a consent decree on April
18, 2000. The settlement does not require us to pay a penalty. However, we have
agreed to make certain investments which are intended as operational and
physical changes to plant and equipment. The planned investments are intended to
ensure the protection of public health, welfare and the environment, and to
continue our development of management practices that promote responsible
environmental operations. The investments will be capitalized as improvements to
facilities and are not expected to be material to our financial condition.

     In February 1999, a superseding indictment was issued by a federal grand
jury against Newell Recycling of Denver, Inc. (now Metal Management West,
hereinafter "Newell") alleging that Newell knowingly endangered employees by
illegally storing an ignitable hazardous waste, namely discarded gasoline, and
also illegally disposing of discarded gasoline in violation of the Resource
Conservation and Recovery Act of 1976, as amended. Two former employees and one
current employee of Newell were charged with illegal storage and disposal of
discarded gasoline. The allegations relate to a fire at Newell's facility in
Denver, Colorado on October 30, 1995, before Newell was purchased by us, in
which three employees were burned when entering a pit below an automobile
shredder. The indictment also alleges that liquid waste from the pit was pumped
and disposed of on the ground at the facility. Based on the current indictment,
the maximum potential statutory fine for the alleged acts is $1,350,000. The
prior owner of Newell is contractually obligated to indemnify us for any
liabilities resulting from this matter. The defendants have submitted motions to
dismiss the indictment, which motions are still pending.

     The Connecticut Department of Environmental Protection ("DEP") recently
inspected the North Haven, Connecticut facility (the "facility") of Metal
Management Connecticut and alleged that certain contaminants have been and
continue to be released from the facility into the environment, including oily
material and certain metals. The DEP has informed us that it intends to require
an environmental investigation of the facility to determine the source of the
contaminants and the remediation of the contaminant source areas to appropriate
levels. The facility was acquired from Michael Schiavone & Sons, Inc. and
related companies ("Schiavone") on July 1, 1998, pursuant to an asset purchase
agreement (the "Agreement"). The DEP has also informed us that it believes that
Schiavone failed to comply with
                                       16
<PAGE>   19

Connecticut's Transfer Act, Conn.Gen.Stat. sec. 22a-134 et seq., at the time of
the sale; in particular, the DEP's position is that Schiavone should have
conducted a formal investigation of the facility at the time of the sale and
reported the results to the DEP.

     At this stage, it is not possible to predict the cost of any required
investigation and/or remediation at the facility. The Agreement contains
provisions pursuant to which we intend to seek indemnification from Schiavone
for some or all of the claims and liabilities arising from this matter and that
arose before the closing date. On April 7, 2000, we gave written notification to
Schiavone that we intend to seek indemnification for the potential environmental
liabilities identified at the facility, including the potential DEP-required
investigation and remediation and the removal of certain underground storage
tanks, and the disposal of several drums of nickel-cadmium powder. On May 2,
2000, Schiavone denied that it was responsible for indemnification, claiming
among other arguments that the notification was premature because the
liabilities were still potential in nature and therefore no "loss" had occurred,
and that at least some of the environmental liabilities did not predate the
closing date.

     Metal Management Midwest, Inc. operates seven facilities in the Chicago
area (the "MMMI Facilities") which have been the subject to a series of
inspections dating back to the mid-1990s by, among other agencies, the United
States Environmental Protection Agency ("USEPA") pursuant to the so-called
Greater Chicagoland Initiative to perform multimedia and multi-agency
inspections of scrap yards in the Chicago Area (the "USEPA Initiative"). The
USEPA Initiative included the MMMI Facilities and inspections have occurred
since 1997. In addition, the MMMI Facilities have responded to multiple document
requests.

     In a letter dated January 10, 2000, USEPA alleged that certain of the MMMI
Facilities had violated certain provisions of the Resource Conservation and
Recovery Act, the Clean Air Act, the Clean Water Act, the Oil Pollution
Standards and the Toxic Substances Control Act. MMMI has initiated a dialogue
with the USEPA to respond to USEPA's allegations, however, the negotiations have
reached an impasse. USEPA has informed us that the matter will be referred to
the Department of Justice. We intend to vigorously defend this matter. However,
as with any litigation matter, outcomes are uncertain until definitive
settlement terms are reached or the case is litigated.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to our shareholders during the fourth quarter of
Fiscal 2000.

                                       17
<PAGE>   20

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS

     Our Common Stock, traded under the symbol "MTLM," has traded on the NASDAQ
SmallCap Market since May 28, 1999. Previously, our Common Stock traded on the
NASDAQ National Market. The following table sets forth the high and low bid
information for our Common Stock for the periods indicated. They reflect
inter-dealer prices, without retail mark-up, mark-down or commission.

<TABLE>
<CAPTION>
                                                                HIGH      LOW
                                                                ----      ---
<S>                                                             <C>      <C>

FISCAL 2000 (YEAR ENDED 3/31/00)
Fourth Quarter..............................................    $3.94    $2.00
Third Quarter...............................................     4.25     1.28
Second Quarter..............................................     1.84     1.09
First Quarter...............................................     2.97     1.06

FISCAL 1999 (YEAR ENDED 3/31/99)
Fourth Quarter..............................................    $4.50    $1.22
Third Quarter...............................................     4.38     1.38
Second Quarter..............................................    10.75     2.13
First Quarter...............................................    15.44     9.88
</TABLE>

     As of March 31, 2000, we had 671 registered stockholders based on our
transfer agent's records. On March 31, 2000, the closing price per share of our
Common Stock as reported on the NASDAQ SmallCap Market was $2.22 per share.

     We have not paid any cash dividends since August 31, 1995. We presently
have no intention of paying dividends in the foreseeable future and intend to
utilize our cash for business operations. In addition, we are restricted from
paying cash dividends under our debt agreements.

UNREGISTERED SALES OF SECURITIES

     In November 1999, we issued 347,706 shares of Common Stock to National
Metals Company in exchange for certain assets of National Metals Company. The
fair value of the Common Stock was approximately $0.5 million.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following table sets forth our selected consolidated financial data for
the periods indicated. The information contained in this table should be read in
conjunction with "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes thereto included in Part IV, Item 14 of this Report. The historical data
has been restated to reflect our merger, on May 28, 1998, with R & P Holdings,
Inc. as a pooling-of-interests. The financial data included in the table below
reflect the results of the our prior operations of designing, manufacturing and
marketing electronic presentation products and color printers and related
consumable products as discontinued operations. We sold the assets relating to
these operations in July and December 1996. For information regarding our
principal acquisitions and divestitures, see notes 2 and 4 to the consolidated
financial statements included in Part IV,

                                       18
<PAGE>   21

Item 14 of this Report. The historical results are not necessarily indicative of
results to be expected for any future period.

<TABLE>
<CAPTION>
                                                                 FIVE MONTHS
                                               FISCAL YEAR          ENDED                   FISCAL YEARS
                                            ENDED OCTOBER 31,     MARCH 31,               ENDED MARCH 31,
                                            -----------------    -----------    ------------------------------------
                                                  1995              1996         1997      1998      1999      2000
                                                  ----              ----         ----      ----      ----      ----
                                                              (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                         <C>                  <C>            <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA:
Net sales...............................         $112.8            $ 36.3       $141.8    $570.0    $805.3    $915.1
Gross profit............................            7.8               1.4         11.4      52.1      65.2     110.0
General and administrative expenses.....            6.3               2.3         10.4      28.2      56.4      55.0
Depreciation and amortization...........            0.1               0.1          2.5      10.1      25.6      27.2
Non-cash and non-recurring
  expenses(1)...........................            0.0               0.0          0.0      43.5      16.2       5.0
Operating income (loss) from continuing
  operations............................            1.4              (1.0)        (1.5)    (29.7)    (33.0)     22.8
Interest expense........................            1.2               0.5          2.3      10.0      31.3      38.0
Income (loss) from continuing
  operations............................            1.1              (0.9)        (2.1)    (34.4)    (47.0)    (12.3)
Income (loss) from discontinued
  operations............................           (2.7)              0.0          0.8       0.2       0.1       0.4
Extraordinary charge(2).................            0.0               0.0          0.0       0.0       0.9       0.0
Preferred stock dividends(3)............            0.0               0.0          0.0       7.1       1.8       2.0
Net income (loss) applicable to Common
  Stock.................................           (1.6)             (0.9)        (1.3)    (41.3)    (49.7)    (13.9)
Income (loss) from continuing operations
  applicable to Common Stock:
  Basic.................................         $ 0.18            $(0.15)      $(0.21)   $(2.00)   $(1.22)   $(0.27)
  Diluted...............................         $ 0.18            $(0.15)      $(0.21)   $(2.00)   $(1.22)   $(0.27)
  Cash dividends per common share.......         $ 0.15            $ 0.00       $ 0.00    $ 0.00    $ 0.00    $ 0.00
BALANCE SHEET DATA:
Working capital (deficit)...............         $ 11.1            $ 11.1       $ (9.7)   $101.6    $ 85.9    $140.4
Total assets............................           39.1              31.7         94.7     497.2     667.7     711.0
Total debt (including current
  maturities)...........................           17.6              11.6         48.1     151.5     335.5     384.7
Convertible preferred stock.............            0.0               0.0          0.0      33.0      20.0       6.3
Common stockholders' equity.............           12.6              12.4         27.2     215.4     219.2     215.8
</TABLE>

---------------

(1) Non-cash and non-recurring expenses of $43.5 million for Fiscal 1998
    consisted of non-cash warrant compensation expense of $30.6 million and
    facility abandonment, shut-down and integration charges of $12.9 million.
    Non-cash and non-recurring expenses of $16.2 million for Fiscal 1999
    consisted of non-cash warrant compensation income of $6.8 million, merger
    related costs of $3.2 million, loss on the Superior Forge, Inc. disposition
    of $6.8 million and facility abandonment and integration charges of $13.0
    million. Non-cash and non-recurring expenses of $5.0 million for Fiscal 2000
    primarily relate to termination agreements with two of our former officers.

(2) Extraordinary charge in Fiscal 1999 relates to prepayment penalties, fees,
    and other costs incurred to refinance debt, net of related income tax
    benefit.

(3) Fiscal 1998 includes a $5.6 million non-cash charge for the beneficial
    conversion feature of the preferred stock. Fiscal 2000 includes $1.2 million
    in special dividends paid in connection with the redemption of $5.0 million
    of Series A and Series convertible preferred stock.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     This Form 10-K includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements in this Form 10-K which address
activities, events or developments that the we expect or anticipate will or may
occur in the future, including such things as future acquisitions (including the
amount and nature thereof), business strategy, expansion and growth of our
business and operations and other such matters are forward-looking

                                       19
<PAGE>   22

statements. Although we believe the expectations expressed in such
forward-looking statements are based on reasonable assumptions within the bounds
of our knowledge of our business, a number of factors could cause actual results
to differ materially from those expressed in any forward-looking statements. See
"Investment Considerations" included in Part I, Item 1 of this Report for a
discussion of the factors that could have a significant impact on our financial
condition or results of operations.

     The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to our results of
operations and financial condition, including changes arising from recent
acquisitions made by us, the timing and nature of which have significantly
effected the our results of operations. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto
included in Part IV, Item 14 of this Report.

GENERAL

     We are one of the largest and fastest-growing full-service metals recyclers
in the United States, with approximately 50 recycling facilities in 14 states.
We enjoy a leadership position in many major metropolitan markets, including
Chicago, Cleveland, Denver, Hartford, Houston, Memphis, Newark, Phoenix and
Pittsburgh. Through an equity ownership position in Southern Recycling, L.L.C.
("Southern Recycling"), the largest scrap metals recycler in the Gulf Coast
region, we have a leading share of this strategically important market. We also
hold leading market positions in several important product segments, including
stainless steel, copper and aluminum generated from electric utility
applications and titanium and other high-temperature nickel alloys generated by
the aerospace industry. For the year ended March 31, 2000, we sold approximately
5.3 million tons of ferrous scrap and approximately 656.8 million pounds of
non-ferrous scrap.

     We have achieved a leading position in the metals recycling industry
primarily by implementing a national strategy of completing and integrating
regional acquisitions. Since April 1996, we have completed 27 acquisitions and,
in the process, added in excess of $900 million in revenues. In making
acquisitions, we have focused on major metropolitan markets where prime
industrial and obsolete scrap (automobiles, appliances and industrial equipment)
is readily available and from where we believe we can better serve our customer
base. In pursuing this strategy, we have sought to acquire regional platform
companies with strong operational management and a history of successful
financial performance to serve as platforms into which subsequent acquisitions
can be integrated. We believe that through consolidation, we will be able to
enhance the competitive position and profitability of the operations we acquire
because of broader distribution channels, improved managerial and financial
resources, greater purchasing power and increased economies of scale.

     Our operations consist primarily of the collection and processing of
ferrous and non-ferrous metals for resale to metals brokers, steel producers,
and producers and processors of other metals. We collect industrial scrap and
obsolete scrap, process it into reusable forms and supply the recycled metals to
our customers, including steel mini-mills, integrated steel mills, foundries,
secondary smelters and metals brokers. We believe that we provide one of the
most comprehensive offerings of both ferrous and non-ferrous scrap metals in the
industry. Our ferrous products primarily include shredded, sheared, hot
briquetted, cold briquetted and bundled scrap and other purchased scrap, such as
turnings, cast and broken furnace iron. We also process non-ferrous metals,
including aluminum, copper, stainless steel, brass, titanium and high
temperature alloys, using similar techniques and through application of our
proprietary technologies.

     Our common stock, par value $.01 per share ("Common Stock"), is traded on
the NASDAQ SmallCap Market under the symbol "MTLM." Our principal executive
offices are located at 500 North Dearborn Street, Suite 405, Chicago, Illinois
60610, and our telephone number is (312) 645-0700.

RESULTS OF OPERATIONS

     On May 28, 1998, we merged with R&P Holdings, Inc., ("R&P") the parent of
Charles Bluestone Company, through a tax-free, stock-for-stock exchange. The
merger was accounted for as a pooling of interests. All information set forth
below includes our historical information and R&P on a pooled basis for all
periods presented.

                                       20
<PAGE>   23

     Our consolidated net sales consist primarily of revenues derived from the
sale and brokerage of scrap metals. We recognize revenues from processed product
sales at the time of shipment. Revenues related to brokerage sales are
recognized upon receipt of the material by the customer.

     Cost of sales consists primarily of the cost of metals sold, direct and
indirect labor and related taxes and benefits, repairs and maintenance,
utilities and freight.

     General and administrative expenses include management salaries, clerical
and administrative costs, professional services, facility rentals and related
insurance and utility costs, as well as costs related to our marketing and
business development activities.

     Non-cash and non-recurring expenses include costs recognized relating to
issuances of warrants, one-time merger related costs, loss on sale of
businesses, facility abandonment, shut-down and integration costs, including
long-lived asset impairment charges, severance and other facility closure costs.

     Other income and expense consists principally of interest expense, interest
income, gains or losses on the sale of fixed assets, and income and losses from
joint ventures, which represent an allocation of income and losses attributable
to investments made by us in joint ventures. The joint ventures are accounted
for under the equity method of accounting.

     Our results of operations for the fiscal year ended March 31, 2000 ("Fiscal
2000") represented a substantial recovery from our results of operations during
the fiscal year ended March 31, 1999 ("Fiscal 1999"). Our results in Fiscal 1999
were negatively impacted by the adverse market conditions prevalent in the steel
and scrap metals sectors. These market conditions were characterized by a
significant decline in the price and demand for scrap metals. This decline
resulted in large part from the increase in steel imports flowing into the
United States during the last six months of 1998.

     Our results in Fiscal 2000 benefited from improved demand and pricing in
the scrap metals markets and cost cutting initiatives implemented in Fiscal 1999
and 2000. We believe that the improved demand and pricing fundamentals
demonstrated in Fiscal 2000 represents the beginning of a return to more
normalized market conditions in the scrap metals industry. We believe that as a
result of the cost cutting initiatives undertaken during the adverse market
conditions, we are well positioned to benefit from improving market conditions.

     The following table presents certain items from our statements of
operations as a percentage of net sales for Fiscal 2000, Fiscal 1999 and Fiscal
1998 (year ended March 31, 1998):

<TABLE>
<CAPTION>
                                                                   2000        1999        1998
                                                                   ----        ----        ----
<S>                                                                <C>         <C>         <C>
Net sales...................................................       100.0%      100.0%      100.0%
Cost of sales...............................................        88.0%       91.9%       90.9%
                                                                   -----       -----       -----
Gross profit................................................        12.0%        8.1%        9.1%
Operating expenses:
  General and administrative................................         6.0%        7.0%        4.9%
  Depreciation and amortization.............................         3.0%        3.2%        1.8%
  Non-cash and non-recurring expenses.......................         0.5%        2.0%        7.6%
Operating income (loss) from continuing operations..........         2.5%       (4.1)%      (5.2)%
  Interest expense..........................................         4.2%        3.9%        1.8%
Loss from continuing operations.............................        (1.3)%      (5.8)%      (6.0)%
</TABLE>

                                       21
<PAGE>   24

  Fiscal 2000 compared to Fiscal 1999

     Consolidated net sales for Fiscal 2000 and Fiscal 1999 in broad product
categories were as follows (in millions):

<TABLE>
<CAPTION>
                                                           2000                          1999
                                                --------------------------    --------------------------
                                                            NET                           NET
                                                WEIGHT     SALES       %      WEIGHT     SALES       %
                                                ------     -----       -      ------     -----       -
<S>                                             <C>        <C>       <C>      <C>        <C>       <C>
COMMODITY (WEIGHT IN THOUSANDS)
Ferrous metals (tons).......................      4,350    $482.6     52.7      3,795    $407.3     50.6
Non-ferrous metals (lbs)....................    583,860     288.6     31.5    535,883     246.1     30.6
Brokerage-ferrous (tons)....................        999     103.6     11.3      1,157     114.1     14.2
Brokerage-nonferrous (lbs)..................     72,906      20.5      2.3     91,360      23.6      2.9
Other.......................................         --      19.8      2.2         --      14.2      1.7
                                                           ------    -----               ------    -----
                                                           $915.1    100.0               $805.3    100.0
                                                           ======    =====               ======    =====
</TABLE>

     Consolidated net sales increased $109.8 million (13.6%) to $915.1 million
in Fiscal 2000 from $805.3 million in Fiscal 1999. The increase in consolidated
net sales is principally due to higher units sold and higher average realized
sales prices in both the ferrous and non-ferrous product categories.

     Ferrous sales increased by $75.3 million (18.5%) in Fiscal 2000 compared
with ferrous sales in Fiscal 1999. Ferrous sales in Fiscal 2000 reflect a 14.6%
increase in units sold and higher average realized sales prices resulting from
improving market conditions. Our average sales price for ferrous metals sold
increased by 3.4% to $111 per ton in Fiscal 2000 compared with Fiscal 1999.
Ferrous sales also increased as a result of the inclusion of the sales of Metal
Management Northeast and Metal Management Connecticut for the entire period of
Fiscal 2000 compared with Fiscal 1999 in which such sales were only included for
nine months following the acquisition.

     Non-ferrous sales increased by $42.5 million (17.3%) in Fiscal 2000
compared with non-ferrous sales in Fiscal 1999. Non-ferrous sales during Fiscal
2000 reflect a 9.0% increase in units sold, higher average realized sales prices
and a change in product mix. Non-ferrous sales of stainless steel and high
temperature alloys benefited from higher nickel prices in Fiscal 2000. Our
average selling price for the non-ferrous product category is impacted by market
conditions and the product mix of non-ferrous metals sold. The majority of our
non-ferrous sales are derived from stainless steel, copper and aluminum.

     Brokerage ferrous sales decreased by $10.5 million (9.2%) in Fiscal 2000
compared with brokerage ferrous sales in Fiscal 1999. The decrease was
principally the result of lower units sold, offset by an increase in average
realized sales price. The substantial consolidation of the scrap metal recycling
industry in Ohio, Michigan and Indiana has resulted in reduced opportunities for
brokering scrap metals in an important market for our brokerage activities.

     Brokerage non-ferrous sales decreased by $3.1 million (13.1%) in Fiscal
2000 compared with brokerage non-ferrous sales in Fiscal 1999. Although units of
non-ferrous metals brokered decreased by 18.5 million pounds (20.2%), average
realized sales prices for non-ferrous brokered metals increased to $0.28 per
pound in Fiscal 2000, compared with $0.26 per pound in Fiscal 1999.

     Gross profit improved to 12.0% of net sales in Fiscal 2000 from 8.1% of net
sales in Fiscal 1999. The improvement in the gross profit margin reflects higher
material margins realized from improved market conditions, better purchasing
practices and the benefits from our consolidation and integration initiatives
undertaken during Fiscal 2000. Gross profit in Fiscal 1999 was adversely
impacted by inventory write-downs recorded principally to reflect lower of cost
or market adjustments arising from adverse market conditions.

     General and administrative expense was $55.0 million in Fiscal 2000
compared with $56.3 million in Fiscal 1999. The decrease in general and
administrative expenses reflect reductions in executive and administrative
personnel and other cost containment initiatives undertaken in Fiscal 1999 and
2000. These

                                       22
<PAGE>   25

cost reduction initiatives more than offset the inclusion of a full year of
general and administrative expense from those companies which were acquired
during Fiscal 1999, the general and administrative expenses of which were
included in the Company's results of operations only for a portion of Fiscal
1999.

     Depreciation and amortization expense was $27.2 million in Fiscal 2000
compared with $25.6 million in Fiscal 1999. The increase is attributed to the
inclusion of a full year of goodwill amortization and depreciation of fixed
assets of the businesses we acquired in Fiscal 1999.

     In Fiscal 2000, we recorded non-cash and non-recurring expenses of $5.0
million. In Fiscal 1999, we recorded non-cash and non-recurring expenses of
$16.2 million (see Note 3 to the consolidated financial statements included in
Part IV, Item 14 of this Report, for a description of these costs).

     Income from joint ventures was $0.4 million in Fiscal 2000 compared with a
loss from joint ventures of $1.9 million in Fiscal 1999. Fiscal 2000 income from
joint ventures was primarily from our investment in Southern Recycling, L.L.C.
In Fiscal 1999, our joint venture interests in three scrap metals recycling
companies generated losses due to adverse market conditions in the scrap metals
industry. We liquidated our interests in these three joint ventures during
Fiscal 2000, the results of which were not material.

     Interest expense was $38.0 million in Fiscal 2000 compared with $31.3
million in Fiscal 1999. The increase is primarily attributable to higher
borrowings under the Senior Credit Facility needed to fund our operating and
investing activities, an increase in the applicable base interest rates payable
under the Senior Credit Facility, and the issuance of the Senior Secured Notes
in Fiscal 2000.

     Other expense was $0.3 million in Fiscal 2000 compared with other income of
$2.1 million in Fiscal 1999. The decrease in other income is primarily related
to losses on sales of fixed assets during Fiscal 2000 and reduced interest
income in Fiscal 2000 compared with Fiscal 1999.

     Net loss from continuing operations, after preferred stock dividends, was
$14.3 million ($0.27 per share) in Fiscal 2000 compared with a net loss from
continuing operations, after preferred stock dividends, of $48.8 million ($1.22
per share) in Fiscal 1999. The decrease in the net loss is due to improvements
we were able to achieve in our gross margin resulting from improved scrap metals
market conditions and the realization of consolidation and integration benefits.
These benefits from our consolidation and integration efforts are evidenced by
our reduced general and administrative expenses and increased gross profits
compared with the prior year period.

     We recorded an income tax benefit of $2.8 million in Fiscal 2000 which
yields an effective tax rate of 18.7% compared to an income tax benefit of $17.0
million in Fiscal 1999 which yielded an effective tax rate of 26.6%. Our
effective tax rate differs from the statutory rate primarily due to permanent
differences caused by non-deductible goodwill amortization and certain other
non-deductible, non-cash and non-recurring expenses.

     In Fiscal 1999, we recognized an extraordinary charge of $0.9 million, net
of taxes, related to the early retirement of debt and other costs principally
incurred in connection with the closing of the Senior Credit Facility (see Note
5 to the consolidated financial statements included in Part IV, Item 14 of this
Report for a description of these costs).

                                       23
<PAGE>   26

Fiscal 1999 compared to Fiscal 1998

     Consolidated net sales for Fiscal 1999 and 1998 in broad product categories
were as follows (in millions):

<TABLE>
<CAPTION>
                                                  1999                          1998
                                       --------------------------    --------------------------
                                                   NET                           NET
                                       WEIGHT     SALES       %      WEIGHT     SALES       %
                                       ------     -----       -      ------     -----       -
<S>                                    <C>        <C>       <C>      <C>        <C>       <C>
COMMODITY (WEIGHT IN THOUSANDS)
Ferrous metals (tons)..............      3,795    $407.3     50.6      2,127    $266.4     46.7
Non-ferrous metals (lbs)...........    535,883     246.1     30.6    331,414     166.5     29.3
Brokerage-ferrous (tons)...........      1,157     114.1     14.2        952     113.0     19.8
Brokerage-nonferrous (lbs).........     91,360      23.6      2.9     68,754      21.9      3.8
Other..............................         --      14.2      1.7         --       2.2      0.4
                                                  ------    -----               ------    -----
                                                  $805.3    100.0               $570.0    100.0
                                                  ======    =====               ======    =====
</TABLE>

     Consolidated net sales for Fiscal 1999 were $805.3 million compared with
consolidated net sales of $570.0 million for Fiscal 1998. During Fiscal 1999, we
acquired 11 companies, including Naporano Iron & Metal (now Metal Management
Northeast) and Michael Schiavone and Sons (now Metal Management Connecticut),
which are primarily ferrous processors, and M. Kimerling & Sons (now Metal
Management Alabama) which is primarily a non-ferrous processor. Our consolidated
net sales increased by $235.3 million or 41% to $805.3 million during Fiscal
1999, principally due to acquisitions consummated during the year. Consolidated
net sales for Fiscal 1999, however, were significantly below our expectations,
principally as a result of the effect of the adverse market conditions during
the period. Our consolidated net sales in the quarter ended June 30, 1998, for
example were $215.0 million compared with consolidated net sales of $178.8
million in the quarter ended December 31, 1998 and $194.3 million in the quarter
ended March 31, 1999. The decline in consolidated net sales from quarter to
quarter is notable because we completed five acquisitions in the month of July
1998.

     Ferrous sales of processed materials represented 50.6% of consolidated net
sales in Fiscal 1999 compared to 46.7% of consolidated net sales in Fiscal 1998.
The increase in ferrous sales as a percentage of total sales is primarily due to
the inclusion of the sales of Metal Management Northeast and Metal Management
Connecticut from their respective dates of acquisition and a full year of sales
of Cozzi Iron & Metal (now Metal Management Midwest) which we acquired in
December 1997. Each of these subsidiaries derive their sales principally from
ferrous metals.

     Non-ferrous sales represented 30.6% of consolidated net sales in Fiscal
1999 compared to 29.3% of consolidated net sales in Fiscal 1998. The sale of
non-ferrous metals increased during Fiscal 1999 over the prior year period as a
result of the inclusion of a full year of sales of Aerospace Metals, Inc. (now
Metal Management Aerospace), which we acquired in January 1998, the sales of
Superior Forge, which we acquired in March 1998 through the date of its
disposition in March 1999 and the sales of Metal Management Alabama from its
date of acquisition in July 1998. The sales of each of these companies are
predominately non-ferrous.

     Brokerage ferrous sales represented 14.2% of consolidated net sales in
Fiscal 1999 compared to 19.8% of consolidated net sales in Fiscal 1998. Brokered
ferrous sales increased due to the inclusion of a full year of sales from the
Isaac Group (now part of Metal Management Ohio) in Fiscal 1999 as compared to
only 6 months of sales following the acquisition of the Isaac Group in Fiscal
1998.

     Brokerage non-ferrous sales represented 2.9% of consolidated net sales in
Fiscal 1999 compared to 3.8% of consolidated net sales in Fiscal 1998.

     Other sales reflect, among other categories, stevedoring sales generated by
Metal Management Northeast, which was acquired in Fiscal 1999.

     Consolidated gross profit was $65.2 million in Fiscal 1999 compared with
$52.1 million in Fiscal 1998. The $13.1 million increase in the dollar amount of
the consolidated gross profit resulted principally from increased sales volumes
in Fiscal 1999 over the prior period as a result of the acquisitions completed
during

                                       24
<PAGE>   27

Fiscal 1999. The decrease in consolidated gross profit margin for Fiscal 1999
resulted primarily from adverse market conditions which resulted in lower than
anticipated sales volumes and metal sales margins, principally in the second and
third fiscal quarters. During Fiscal 1999, we recorded approximately $17 million
of inventory write-downs due primarily to lower of cost or market inventory
adjustments. These write-downs are included in cost of sales.

     Consolidated general and administrative expenses were $56.3 million in
Fiscal 1999 compared with $28.2 million in Fiscal 1998. The increase in general
and administrative expenses over the prior year period is due to the inclusion
of general and administrative expenses of those operations we acquired in Fiscal
1999. The increase in consolidated general and administrative expenses as a
percentage of consolidated net sales reflects the decrease in our consolidated
net sales due to adverse market conditions.

     Depreciation and amortization expense was $25.6 million in Fiscal 1999
compared with $10.1 million in Fiscal 1998. The increase, both in dollar and as
a percentage of consolidated net sales, is attributed to the inclusion of
goodwill amortization and depreciation of fixed assets of those operations we
acquired during Fiscal 1999. The increase as a percentage of consolidated net
sales reflects the decrease in our consolidated net sales due to adverse market
conditions.

     During Fiscal 1999, we recorded non-cash and non-recurring expenses of
$16.2 million compared with $43.5 million in Fiscal 1998 (see Note 3 to the
consolidated financial statements included in Part IV, Item 14 of this Report,
for a description of these costs).

     Interest expense was $31.3 million in Fiscal 1999 compared with $10.0
million in Fiscal 1998. The increase is primarily due to the issuance of the
Senior Subordinated Notes and additional borrowings made under the Senior Credit
Facility during Fiscal 1999 to fund acquisitions and operations.

     Net loss from continuing operations, after preferred stock dividends, was
$48.8 million ($1.22 per share) for Fiscal 1999. The net loss for Fiscal 1999
resulted primarily from (i) the lower than anticipated sales volumes, lower
realized scrap prices, and reduced metal margins experienced during the year as
a result of the adverse market conditions which were prevalent during the second
and third quarters of Fiscal 1999, and (ii) from the recognition of $16.2
million of non-cash and non-recurring expenses.

     Income tax benefit for Fiscal 1999 was $17.0 million, which yields an
effective tax rate of 26.6%. The effective tax rate differs from the statutory
rate primarily due to the impact of state taxes and the permanent differences
represented by non-deductible goodwill amortization and goodwill impairment
write-offs, other non-deductible expenses, and the reversal of $1.9 million of
tax benefits previously established for warrant compensation expense resulting
from the decline in the quoted market value of our Common Stock.

     During Fiscal 1999, we recognized an extraordinary charge of $0.9 million,
net of taxes, related to the early retirement of debt and other costs
principally incurred in connection with the closing of the Senior Credit
Facility (see Note 6 to the consolidated financial statements included in Part
IV, Item 14 of this Report, for a description of these costs).

LIQUIDITY AND CAPITAL RESOURCES

     Our future cash needs will be driven by working capital requirements,
planned capital expenditures and acquisition objectives. Capital expenditures
were approximately $10.0 million in Fiscal 2000. Capital expenditures were
approximately $20.6 million and $7.6 million for Fiscal 1999 and 1998,
respectively. Capital expenditures were approximately 50% of depreciation
expense in Fiscal 2000 as we only approved capital projects primarily for
replacement. Capital expenditures are planned to increase in Fiscal 2001 in
order for us to make additional investments in our businesses which will
increase production and capacity. We do not expect such capital expenditures to
have a material adverse effect on our liquidity. Also, our Board of Directors
authorized the repurchase of up to $2.0 million of our Common Stock. We expect
to fund our working capital needs, capital expenditures and share repurchases
with cash provided from operations, supplemented by undrawn borrowing
availability under the Senior Credit Facility. We believe these sources of
capital will be sufficient to fund planned capital expenditures and working
capital requirements for the foreseeable future, although there can be no
assurance that this will be the case. In addition, the instruments
                                       25
<PAGE>   28

governing the Senior Credit Facility, the Senior Subordinated Notes and the
Senior Secured Notes will limit our ability to incur additional debt to fund
significant acquisition or expansion opportunities unless and until our results
of operations show significant improvement for four consecutive quarters.

     During previous fiscal years, we required significant amounts of capital to
fund our acquisition program. We funded our acquisition program principally
through borrowings under the Senior Credit Facility, and the issuance of equity
securities, the Senior Subordinated Notes, and the Senior Secured Notes. During
Fiscal 1999, as a result of adverse market conditions and the impact of those
adverse conditions on our liquidity, we also sold our Superior Forge aluminum
forging operations.

  Cash Flows from Continuing Operations

     During Fiscal 2000, we used $30.9 million of cash for operating activities.
During this period, working capital increased by $54.5 million principally due
to higher accounts receivable and inventory balances. The investment in working
capital was required as a result of business expansion during the current fiscal
year. Pursuant to separation agreements with two former officers, we also made
cash payments totaling $4.0 million (see Note 3 to the consolidated financial
statements included in Part IV, Item 14 of this Report, for a description of
these costs).

  Cash Flows from Investing Activities

     During Fiscal 2000, we used $11.2 million of cash for investing activities.
Purchases of property and equipment were $10.0 million, while we generated $2.0
million of cash from the sale of redundant fixed assets. Proceeds from the sale
of property and equipment include assets sold as part of our plan to abandon and
consolidate certain facilities. We also used $4.6 million of cash for the
acquisition of substantially all of the assets of National Metals Company.

  Cash Flows from Financing Activities

     During Fiscal 2000, our financing activities provided $40.6 million of
cash, principally from increased borrowings under the Senior Credit Facility. On
May 7, 1999, we issued $30.0 million aggregate principal amount of Senior
Secured Notes, and received net proceeds of $25.5 million after the 10%
discount, transaction fees and expenses. Proceeds from the Senior Secured Notes
were used to reduce borrowings under the Senior Credit Facility. We also used
$6.2 million of cash to redeem 2,462 shares of Series A convertible preferred
stock and 2,500 shares of Series B convertible preferred stock at 125% of par
value.

FINANCIAL CONDITION

  Working Capital Availability and Requirements

     Our accounts receivable balances increased from $103.8 million at March 31,
1999 to $155.9 million at March 31, 2000. The increase is primarily due to
higher sales realized during the three months ended March 31, 2000 which
increased by $76.9 million, or 40%, as compared with the three months ended
March 31, 1999. There was also an increase in average days sales outstanding
principally as a result of increased sales of stainless steel metals to
customers which generally require longer payment terms.

     Our accounts payable balances increased from $62.2 million at March 31,
1999 to $76.1 million at March 31, 2000 due to improved support from and
relations with suppliers engaged in trade markets which provide materials to us
coupled with increases in inventories.

                                       26
<PAGE>   29

     Inventory levels can vary significantly among our operations and with
changes in market conditions. Our inventories consist of the following
categories at (in thousands):

<TABLE>
<CAPTION>
                                                       MARCH 31, 2000    MARCH 31, 1999
                                                       --------------    --------------
<S>                                                    <C>               <C>
Ferrous metals.....................................       $38,344           $37,679
Non-ferrous metals.................................        28,069            19,791
Other..............................................         3,862             2,973
                                                          -------           -------
                                                          $70,275           $60,443
                                                          =======           =======
</TABLE>

     Although our ferrous inventories increased by $0.7 million in Fiscal 2000,
total tons of ferrous on hand decreased by approximately 22%. The increase in
the value of ferrous inventories was due to higher prices for ferrous scrap at
the end of Fiscal 2000 compared with Fiscal 1999. Our ferrous inventory levels
in units decreased during the current fiscal year as we implemented a strategy
of reducing inventory levels to enhance plant productivity and to reduce our
exposure to changing market prices for scrap metals. Non-ferrous inventory,
however, has increased due to higher levels of inventory and an increase in
purchase prices for non-ferrous scrap metals, due to improved demand in
non-ferrous metals markets.

COMPANY INDEBTEDNESS

     Our principal indebtedness is represented by borrowings under the Senior
Credit Facility, the Senior Subordinated Notes and the Senior Secured Notes.

  Senior Credit Facility

     The Credit Agreement, dated March 31, 1998, among BT Commercial
Corporation, as agent, the lenders and us (as amended, the "Senior Credit
Facility") provides for a revolving credit and letter of credit facility of
$250.0 million, subject to borrowing base limitations. Our obligations under the
Senior Credit Facility are secured by substantially all of our assets and
properties, including pledges of the capital stock of our subsidiaries.
Availability of loans and letters of credit under the Senior Credit Facility is
generally limited to a borrowing base of 85% of eligible accounts receivable,
70% of eligible inventory (subject to a cap of $100.0 million) and a fixed asset
sublimit ($47.8 million as of March 31, 2000) that amortizes on a quarterly
basis.

     On May 31, 2000, the Senior Credit Facility was amended whereby its
maturity date was extended until March 31, 2004. The covenants pertaining to
interest coverage ratio and capital expenditures were not changed by the
amendment.

     The Senior Credit Facility provides us with the option of borrowing at an
interest rate equal to either the Bankers Trust Company's prime rate plus a
margin or the London Interbank Offered Rate ("LIBOR") plus a margin.

     The Senior Credit Facility also contains certain affirmative covenants,
including a minimum interest coverage ratio, and imposes certain limitations on
our ability to make capital expenditures, incur additional indebtedness, and
generally restricts payments of dividends and equity redemptions. The Senior
Credit Facility limits capital expenditures to 2% of consolidated net sales.

     The interest coverage test of the Senior Credit Facility requires us to
maintain an interest coverage ratio of not less than 1.0 to 1.0 (EBITDA (as
defined in the Senior Credit Facility) to interest expense) for the end of each
fiscal quarter for the twelve-month period then ending. We were in compliance as
of March 31, 2000, with this and other financial covenants set forth in the
Senior Credit Facility.

     At March 31, 2000, we had outstanding borrowings under the Senior Credit
Facility of approximately $170.6 million. As of May 30, 2000, we had undrawn
availability of approximately $20 million under the Senior Credit Facility.

                                       27
<PAGE>   30

  10% Senior Subordinated Notes due 2008

     On May 13, 1998, we issued $180.0 million of 10% Senior Subordinated Notes
due on May 15, 2008 (the "Senior Subordinated Notes") in a private placement
pursuant to exemptions under the Securities Act of 1933. Interest on the Senior
Subordinated Notes is payable semi-annually during May and November of each
year. We received net proceeds of $174.6 million in the offering of the Senior
Subordinated Notes. The Senior Subordinated Notes are our general unsecured
obligations and are subordinated in right of payment to all of our senior debt,
including our indebtedness under the Senior Credit Facility and the Senior
Secured Notes. Our payment obligations are jointly and severally guaranteed by
all of our current and certain future subsidiaries.

     Except as described below, the Senior Subordinated Notes are not redeemable
at our option prior to May 15, 2003. After May 15, 2003, the Senior Subordinated
Notes are redeemable at the redemption prices (expressed as a percentage of the
principal amount and rounded to the nearest whole percentage) plus accrued and
unpaid interest, if redeemed during the twelve month period beginning on May 15
of each of the years indicated below:

<TABLE>
<CAPTION>
                            YEAR                                PERCENTAGE
                            ----                                ----------
<S>                                                             <C>
2003........................................................      105%
2004........................................................      103%
2005........................................................      102%
2006 and thereafter.........................................      100%
</TABLE>

     Also, prior to May 15, 2001, we may redeem up to 35% of the aggregate
principal amount of the Senior Subordinated Notes at a redemption price of 110%
of the principal amount of the Senior Subordinated Notes, plus accrued and
unpaid interest, from the proceeds of one or more sales of Common Stock. The
Senior Subordinated Notes are also redeemable at the option of the holders of
such notes at a repurchase price of 101% of the principal amount thereof, plus
accrued and unpaid interest, in the event of certain change of control events
with respect to us. Subject to certain exceptions, the Senior Subordinated Notes
are redeemable at the option of the holders of such notes at a repurchase price
of 100% of the principal amount thereof, plus accrued and unpaid interest, in
the event we make certain asset sales.

     The Indenture governing the Senior Subordinated Notes contains certain
covenants that limit, among other things, our ability to: (i) incur additional
indebtedness (including by way of guarantee), subject to certain exceptions,
unless we meet a fixed charge coverage ratio of 2.0 to 1.0 or certain other
conditions apply; (ii) issue certain types of securities containing mandatory
redemption rights or which otherwise are redeemable at the option of the holder
prior to the maturity of the Senior Subordinated Notes; (iii) pay dividends or
distributions, or make certain types of investments or other restricted
payments, unless we meet certain specified conditions; (iv) enter into certain
transactions with affiliates; (v) dispose of certain assets; (vi) incur liens
securing indebtedness that is pari passu or subordinated to the Senior
Subordinated Notes; or (viii) engage in certain mergers and consolidations.

  12 3/4% Senior Secured Notes due 2004

     On May 7, 1999, we issued $30.0 million aggregate principal amount of
Senior Secured Notes (the "Senior Secured Notes") in a private placement
pursuant to exemptions under the Securities Act of 1933. The Senior Secured
Notes were issued at 90% of their stated principal amount at maturity. The
Senior Secured Notes mature on June 15, 2004 and bear interest at the rate of
12 3/4% per annum. Interest on the Senior Secured Notes is payable semi-annually
during September and December of each year. We received net proceeds of $25.5
million in the offering of the Senior Secured Notes. The Senior Secured Notes
are our senior obligations and will rank equally in right of payment with all of
our unsubordinated debt, including our indebtedness under the Senior Credit
Facility, and senior in right of payment to all of our subordinated debt,
including the Senior Subordinated Notes.

     Our payment obligations are jointly and severally guaranteed by all of our
current and future subsidiaries. The Senior Secured Notes are also secured by a
second priority lien on substantially all of our personal

                                       28
<PAGE>   31

property, plant (to the extent it constitutes fixtures) and equipment that
secure the Senior Credit Facility. The liens that secure the Senior Secured
Notes are subordinated to the liens that secure the indebtedness under the
Senior Credit Facility.

     The Senior Secured Notes are not redeemable at our option prior to June 15,
2000. Thereafter, we may redeem some or all of the Senior Secured Notes (in
multiples of $10.0 million) at a redemption price of 100% of the principal
amount thereof, plus accrued and unpaid interest. The Senior Secured Notes are
redeemable at the option of the holders of such notes at a repurchase price of
101% of the principal amount thereof, plus accrued and unpaid interest, in the
event we experience a change of control. Subject to certain exceptions, the
Senior Secured Notes are redeemable at the option of the holders of such notes
at a repurchase price of 100% of the principal amount thereof, plus accrued and
unpaid interest, in the event we make certain asset sales.

     The Indenture governing the Senior Secured Notes contains substantially the
same operating restrictions as those contained in the Indenture governing the
Senior Subordinated Notes. These include limits on, among other things, our
ability to: (i) incur additional indebtedness; (ii) pay dividends or
distributions on our capital stock or repurchase its capital stock; (iii) issue
stock of subsidiaries; (iv) make certain investments; (v) create liens on our
assets; (vi) enter into transactions with affiliates; (vii) merge or consolidate
with another company; and (viii) transfer and sell assets or enter into sale and
leaseback transactions.

YEAR 2000

     As previously disclosed, we implemented a plan to address the possible
exposures related to the impact of the Year 2000 on our computer systems and on
our non-information technology systems. Since entering the year 2000, we have
not experienced any major disruptions to our business nor are we aware of any
significant Year 2000 related disruptions impacting our customers and suppliers.

     However, there is no guarantee that we have discovered all possible failure
points. Specific factors contributing to this uncertainty include failure to
identify all systems, non-ready third parties whose systems and operations
impact our operations, and other similar uncertainties. We will continue to
monitor our critical systems over the next several months, but we do not
anticipate any significant impacts due to Year 2000 exposures from our computer
systems, non-information technology systems as well as from the activities of
our suppliers and customers. Costs incurred to date associated with Year 2000
readiness have not been material to our financial position or results of
operations.

RECENT ACCOUNTING PRONOUNCEMENTS

     SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by the FASB in June 1998 and is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 established accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. We have not yet determined the impact of the adoption of SFAS No.
133 on our financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to financial risk resulting from fluctuations in interest
rates and commodity prices. We seek to minimize these risks through regular
operating and financing activities and, where appropriate, through use of
derivative financial instruments. Our use of derivative financial instruments is
limited and related solely to hedges of certain non-ferrous inventory positions
and purchase and sales commitments.

COMMODITY PRICE RISK

     We are exposed to risks associated with fluctuations in the market price
for both ferrous and non-ferrous metals which are at times volatile. See the
discussion under the heading "Investment Considerations -- The metals recycling
industry is highly cyclical," included in Part I, Item 1 of this Report. We
attempt to mitigate this risk by turning our inventories as rapidly as possible
instead of holding inventories in speculation of higher

                                       29
<PAGE>   32

commodity prices. We have also sought to mitigate this risk by entering into
longer term contracts with our customers, with only limited success to date.
However, as proved to be the case in the second half of calendar 1998, we may
not always be successful in controlling the risks, particularly in periods of
low demand for scrap metals. During Fiscal 1999, we were required to write down
the value of our inventories by approximately $17 million principally as a
result of lower cost or market inventory adjustments.

     We employ various strategies to mitigate the risk of fluctuations in the
price of non-ferrous metals. None of the instruments employed by us to hedge
these risks are entered into for trading purposes or speculation, but instead
are effected as hedges of underlying physical transactions and commitments.

INTEREST RATE RISK

     We are exposed to interest rate risk on our long-term fixed interest rate
debt and on our floating rate borrowings. Our long-term fixed borrowings
primarily consist of $30.0 million principal of the 12  3/4% Senior Secured
Notes due 2004 and $180.0 million principal of the 10% Senior Subordinated Notes
due 2008. Changes in interest rates could cause the fair market value of debt
with a fixed interest rate to increase or decrease, and thus increase or
decrease the amount required to refinance the debt. Our long-term variable
borrowings primarily consist of $170.6 million outstanding under the Senior
Credit Facility. Interest on these borrowings is based on either the prime rate
of interest or LIBOR. Any increase in interest rates would lead to higher
interest expense. We do not have any interest rate swaps or caps in place which
would mitigate our exposure to fluctuations in the interest rate on this
indebtedness.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying values of financial instruments including notes and other
receivables, other assets, accounts payable, and current portion of long-term
debt approximate the related fair values because of the relatively short
maturity of these instruments.

     The carrying values and estimated fair values of futures contracts and
long-term debt were as follows at March 31, (in thousands):

<TABLE>
<CAPTION>
                                                                2000                    1999
                                                        --------------------    --------------------
                                                        CARRYING      FAIR      CARRYING      FAIR
                                                         AMOUNT      VALUE       AMOUNT      VALUE
                                                        --------     -----      --------     -----
<S>                                                     <C>         <C>         <C>         <C>
Futures contracts...................................    $    479    $    524    $    678    $    310
Long-term debt, less current maturities.............    $382,601    $337,406    $330,154    $277,054
</TABLE>

     The fair values of futures contracts were determined from market quotes.
The fair values of long-term debt were determined from either market quotes or
from instruments with similar terms and maturities.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See "Index to Consolidated Financial Statements of Metal Management, Inc.
and Subsidiaries" set forth in Part IV, Item 14 of this Report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     Not applicable.

                                       30
<PAGE>   33

                                    PART III

     The information called for by Part III of Form 10-K (consisting of Item 10
-- Directors and Executive Officers of the Registrant, Item 11 -- Executive
Compensation, Item 12 -- Security Ownership of Certain Beneficial Owners and
Management and Item 13 -- Certain Relationships and Transactions), is
incorporated by reference from our definitive proxy statement, which will be
filed with the Securities and Exchange Commission within 120 days after the end
of the fiscal year to which this Report relates.

                                       31
<PAGE>   34

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)(1) FINANCIAL STATEMENTS:

    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF METAL MANAGEMENT, INC. AND
                                  SUBSIDIARIES

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Accountants...........................   F-1
Consolidated Statements of Operations for the years ended
  March 31, 2000, 1999 and 1998.............................   F-2
Consolidated Balance Sheets at March 31, 2000 and 1999......   F-3
Consolidated Statements of Cash Flows for the years ended
  March 31, 2000, 1999 and 1998.............................   F-4
Consolidated Statements of Stockholders' Equity for the
  years ended March 31, 2000, 1999 and 1998.................   F-5
Notes to Consolidated Financial Statements..................   F-6
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and qualifying accounts -- for the
  years ended March 31, 2000, 1999 and 1998.................  F-28
</TABLE>

     Schedules not listed above have been omitted because they are not required
or they are inapplicable.

(3) EXHIBITS:

     A list of the exhibits included as part of this Form 10-K is set forth in
the Exhibit Index that immediately precedes such exhibits, which is incorporated
herein by reference.

(B) REPORTS ON FORM 8-K:

     We did not file any reports on Form 8-K during the fourth quarter of Fiscal
2000.

                                       32
<PAGE>   35

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois
on June 6, 2000.

                                          METAL MANAGEMENT, INC.

                                          By:      /s/ ALBERT A. COZZI
                                            ------------------------------------
                                            Albert A. Cozzi
                                            Chairman of the Board and
                                            Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 6, 2000.

<TABLE>
<CAPTION>
                      SIGNATURE                                              TITLE
                      ---------                                              -----
<C>                                                      <S>

                 /s/ ALBERT A. COZZI                     Director, Chairman of the Board and Chief
-----------------------------------------------------      Executive Officer (Principal Executive
                   Albert A. Cozzi                         Officer)

                /s/ MICHAEL W. TRYON                     President and Chief Operating Officer
-----------------------------------------------------
                  Michael W. Tryon

                 /s/ FRANK J. COZZI                      Director and Vice President
-----------------------------------------------------
                   Frank J. Cozzi

                /s/ GREGORY P. COZZI                     Director
-----------------------------------------------------
                  Gregory P. Cozzi

               /s/ RICHARD L. MEASELLE                   Director
-----------------------------------------------------
                 Richard L. Measelle

                /s/ KENNETH A. MERLAU                    Director
-----------------------------------------------------
                  Kenneth A. Merlau

               /s/ TIMOTHY T. ORLOWSKI                   Director
-----------------------------------------------------
                 Timothy T. Orlowski

             /s/ PATRICK J. OTTENSMEYER                  Director
-----------------------------------------------------
               Patrick J. Ottensmeyer

                /s/ WILLIAM T. PROLER                    Director
-----------------------------------------------------
                  William T. Proler
</TABLE>

                                       33
<PAGE>   36

<TABLE>
<CAPTION>
                      SIGNATURE                                              TITLE
                      ---------                                              -----
<C>                                                      <S>
           /s/ GOVERNOR JAMES R. THOMPSON                Director
-----------------------------------------------------
             Governor James R. Thompson

                 /s/ ROBERT C. LARRY                     Executive Vice President, Finance and Chief
-----------------------------------------------------      Financial Officer (Principal Financial
                   Robert C. Larry                         Officer)

                  /s/ AMIT N. PATEL                      Vice President, Finance and Controller
-----------------------------------------------------      (Principal Accounting Officer)
                    Amit N. Patel
</TABLE>

                                       34
<PAGE>   37

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Metal Management, Inc.

     In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 32 present fairly, in all material
respects, the financial position of Metal Management, Inc. and its subsidiaries
at March 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 2000, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 32 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
June 5, 2000

                                       F-1
<PAGE>   38

                             METAL MANAGEMENT, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                                ----       ----       ----
<S>                                                           <C>        <C>        <C>
NET SALES                                                     $915,140   $805,274   $570,035
Cost of sales                                                  805,155    740,061    517,894
                                                              --------   --------   --------
Gross profit                                                   109,985     65,213     52,141
OPERATING EXPENSES:
  General and administrative                                    55,021     56,348     28,191
  Depreciation and amortization                                 27,167     25,634     10,105
  Non-cash and non-recurring expenses (Notes 2 & 3)              5,014     16,196     43,548
                                                              --------   --------   --------
Total operating expenses                                        87,202     98,178     81,844
                                                              --------   --------   --------
Operating income (loss) from continuing operations              22,783    (32,965)   (29,703)
OTHER INCOME (EXPENSE):
  Income (loss) from joint ventures                                410     (1,921)       370
  Interest expense                                              38,043     31,332      9,995
  Interest and other income (expense), net                        (276)     2,148        366
                                                              --------   --------   --------
  Loss from continuing operations before income taxes and
     extraordinary charge                                      (15,126)   (64,070)   (38,962)
Benefit for income taxes                                        (2,832)   (17,036)    (4,555)
                                                              --------   --------   --------
Loss from continuing operations before extraordinary charge    (12,294)   (47,034)   (34,407)
DISCONTINUED OPERATIONS (NOTE 4):
  Gain on sale of discontinued operations, net of income
     taxes                                                         376        117        200
                                                              --------   --------   --------
Loss before extraordinary charge                               (11,918)   (46,917)   (34,207)
Extraordinary charge for early retirement of debt,
  net of income taxes (Note 6)                                       0        938          0
                                                              --------   --------   --------
NET LOSS                                                       (11,918)   (47,855)   (34,207)
Non-cash beneficial conversion feature of convertible
  preferred stock                                                    0          0     (5,592)
Preferred stock dividends                                       (2,021)    (1,815)    (1,508)
                                                              --------   --------   --------
NET LOSS APPLICABLE TO COMMON STOCK                           $(13,939)  $(49,670)  $(41,307)
                                                              ========   ========   ========
BASIC EARNINGS (LOSS) PER SHARE:
  Loss from continuing operations                             $  (0.27)  $  (1.22)  $  (2.00)
  Gain on sale of discontinued operations                         0.01       0.00       0.01
  Extraordinary charge                                            0.00      (0.02)      0.00
                                                              --------   --------   --------
  Net loss applicable to Common Stock                         $  (0.26)  $  (1.24)  $  (1.99)
                                                              ========   ========   ========
  Weighted average shares outstanding                           54,333     40,139     20,762
DILUTED EARNINGS (LOSS) PER SHARE:
  Loss from continuing operations                             $  (0.27)  $  (1.22)  $  (2.00)
  Gain on sale of discontinued operations                         0.01       0.00       0.01
  Extraordinary charge                                            0.00      (0.02)      0.00
                                                              --------   --------   --------
  Net loss applicable to Common Stock                         $  (0.26)  $  (1.24)  $  (1.99)
                                                              ========   ========   ========
  Weighted average diluted shares outstanding                   54,333     40,139     20,762
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-2
<PAGE>   39

                             METAL MANAGEMENT, INC.
                          CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                    MARCH 31,
                                                              ---------------------
                                                                2000        1999
                                                                ----        ----
<S>                                                           <C>         <C>
                           ASSETS
Current assets:
  Cash and cash equivalents                                   $  1,396    $   2,482
  Accounts receivable, net                                     155,935      103,760
  Inventories                                                   70,275       60,443
  Prepaid expenses and other assets                              9,082       11,405
  Deferred taxes (Note 7)                                        6,090        3,303
                                                              --------    ---------
     Total current assets                                      242,778      181,393
Property and equipment, net                                    165,197      171,240
Goodwill, net                                                  282,418      290,362
Deferred financing costs and other intangibles, net             12,300       13,228
Deferred taxes (Note 7)                                          2,201        3,261
Investments in joint ventures                                    3,473        4,525
Other assets                                                     2,613        3,727
                                                              --------    ---------
     TOTAL ASSETS                                             $710,980    $ 667,736
                                                              ========    =========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt (Note 6)                  $  2,109    $   5,308
  Accounts payable                                              76,094       62,230
  Accrued interest                                               8,524        8,638
  Other accrued liabilities                                     15,618       19,323
                                                              --------    ---------
     Total current liabilities                                 102,345       95,499
Long-term debt, less current portion (Note 6)                  382,601      330,154
Other liabilities                                                3,900        2,879
                                                              --------    ---------
     TOTAL LIABILITIES                                         488,846      428,532
Commitments and contingencies (Note 9)
Stockholders' equity:
Convertible Preferred Stock, $.01 par value, $1,000 stated
  value; 4,000,000 shares authorized:
  Series A, 6.0%; 26,134 and 26,072 shares issued; 0 and
     4,020 shares outstanding at March 31, 2000 and 1999,
     respectively                                                    0        4,020
  Series B, 4.5%; 20,715 and 20,522 shares issued; 1,177 and
     10,877 shares outstanding at March 31, 2000 and 1999,
     respectively                                                1,177       10,877
  Series C, 6.9%; 6,000 shares issued and outstanding at
     March 31, 2000 and 1999                                     5,100        5,100
Common Stock, $.01 par value -- 140,000,000 shares
  authorized; 57,711,427 and 48,890,898 shares issued and
  outstanding at March 31, 2000 and 1999, respectively             577          489
Warrants, exercisable into 8,326,072 and 8,442,947 shares of
  Common Stock at March 31, 2000 and 1999, respectively         40,428       40,745
Additional paid-in-capital                                     270,696      259,878
Accumulated deficit                                            (95,844)     (81,905)
                                                              --------    ---------
     TOTAL STOCKHOLDERS' EQUITY                                222,134      239,204
                                                              --------    ---------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $710,980    $ 667,736
                                                              ========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   40

                             METAL MANAGEMENT, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        YEARS ENDED MARCH 31,
                                                                --------------------------------------
                                                                   2000           1999          1998
                                                                   ----           ----          ----
<S>                                                             <C>            <C>            <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Net loss from continuing operations                             $   (12,294)   $   (47,034)   $(34,407)
Adjustments to reconcile net loss from continuing operations
  to cash flows from continuing operations:
    Depreciation and amortization                                    27,167         25,634      10,105
    Amortization of debt issuance costs                               3,056          2,156         773
    Deferred income taxes                                            (3,698)       (16,584)     (5,495)
    Amortization of bond discount                                       372              0           0
    (Income) loss from joint ventures                                  (410)         1,921        (370)
    Non-cash and non-recurring expense (income)                         143         (6,776)     30,588
    Long-lived asset impairments                                          0         17,161      11,305
    Penalties paid on early retirement of debt                            0           (973)          0
    Other                                                             3,681          1,590         187
Changes in assets and liabilities, net of acquisitions and
  dispositions:
    Accounts and other receivables                                  (53,503)        48,562      (1,843)
    Inventories                                                      (9,461)        22,275      17,226
    Accounts payable                                                 13,864        (12,511)    (21,498)
    Other                                                               193          5,066      (4,577)
                                                                -----------    -----------    --------
Cash flows from continuing operations                               (30,890)        40,487       1,994
CASH FLOWS USED BY INVESTING ACTIVITIES:
  Purchases of property and equipment                                (9,959)       (20,579)     (7,569)
  Acquisitions, net of cash acquired                                 (4,609)      (185,030)    (43,905)
  Proceeds from sale of property and equipment                        1,994          1,557         651
  Dispositions, net of cash sold                                          0         14,242           0
  Costs of operating lease buyouts                                        0        (10,817)          0
  Other                                                               1,418         (2,358)         34
                                                                -----------    -----------    --------
Net cash used by investing activities                               (11,156)      (202,985)    (50,789)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
  Issuances of long-term debt                                     1,071,178      1,438,430      21,343
  Repayments of long-term debt                                   (1,022,018)    (1,266,331)    (74,546)
  Fees paid to issue long-term debt                                  (2,361)       (11,649)          0
  Issuances (redemptions) of convertible preferred stock             (6,215)        (1,057)     42,846
  Issuances of Common Stock                                               0          1,132      42,196
  Net borrowings on short-term lines of credit                            0              0      15,200
  Cash dividends paid on convertible preferred stock                      0           (227)          0
                                                                -----------    -----------    --------
Net cash provided by financing activities                            40,584        160,298      47,039
                                                                -----------    -----------    --------
CASH FLOWS FROM DISCONTINUED OPERATIONS, NET OF DIVESTITURE
  PROCEEDS                                                              376            218         452
                                                                -----------    -----------    --------
Net decrease in cash and cash equivalents                            (1,086)        (1,982)     (1,304)
Cash and cash equivalents at beginning of period                      2,482          4,464       5,768
                                                                -----------    -----------    --------
Cash and cash equivalents at end of period                      $     1,396    $     2,482    $  4,464
                                                                ===========    ===========    ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid                                                   $    34,833    $    19,987    $  9,719
Income taxes paid (refunded)                                    $    (1,867)   $       471    $  2,715
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   41

                             METAL MANAGEMENT, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         (in thousands, except shares)

<TABLE>
<CAPTION>
                                     PREFERRED STOCK              COMMON STOCK
                              ------------------------------   -------------------
                                                                 NUMBER                         ADDITIONAL   RETAINED
                                                                   OF                            PAID-IN-    EARNINGS
                              SERIES A   SERIES B   SERIES C     SHARES     AMOUNT   WARRANTS    CAPITAL     (DEFICIT)    TOTAL
                              --------   --------   --------     ------     ------   --------   ----------   ---------    -----
<S>                           <C>        <C>        <C>        <C>          <C>      <C>        <C>          <C>         <C>
BALANCE AT MARCH 31, 1997     $      0   $     0     $    0    11,189,566    $112    $ 1,351     $ 16,645    $  9,072    $ 27,180
Issuance of preferred
  stock, net                    23,819    19,027          0             0       0          0            0           0      42,846
Conversion of preferred
  stock                        (10,211)        0          0     1,032,874      10          0       10,971           0         770
Issuance of Common Stock
  and warrants in private
  offerings, net                     0         0          0     3,495,588      35      4,450       34,940           0      39,425
Equity issued for
  acquisitions                       0         0          0    16,980,579     170     14,378      121,252           0     135,800
Common Stock issued upon
  conversion of debt                 0         0          0       524,569       5          0        3,634           0       3,639
Exercise of stock options
  and warrants                       0         0          0       857,654       9     (3,767)       7,180           0       3,422
Preferred stock dividends          316         0          0             0       0          0            0      (1,451)     (1,135)
Non-cash dividend on
  beneficial conversion
  feature of preferred
  stock                              0         0          0             0       0          0        5,592      (5,592)          0
Warrants issued to
  employees and consultants          0         0          0             0       0     30,588            0           0      30,588
Other                               57         0          0             0       0          0           61         (57)         61
Net loss                             0         0          0             0       0          0            0     (34,207)    (34,207)
                              --------   -------     ------    ----------    ----    -------     --------    --------    --------
BALANCE AT MARCH 31, 1998       13,981    19,027          0    34,080,830     341     47,000      200,275     (32,235)    248,389
Conversion of preferred
  stock                        (11,387)   (9,645)         0    10,140,257     101          0       20,775           0        (156)
Equity issued for
  acquisitions                       0         0      5,100     4,272,776      43        699       39,572           0      45,414
Preferred stock dividends          313       522          0             0       0          0            0      (1,815)       (980)
Warrants issued to
  employees                          0         0          0             0       0     (6,776)           0           0      (6,776)
Exercise of stock options
  and warrants                       0         0          0       186,741       2       (306)         987           0         683
Other                            1,113       973          0       210,294       2        128       (1,731)          0         485
Net loss                             0         0          0             0       0          0            0     (47,855)    (47,855)
                              --------   -------     ------    ----------    ----    -------     --------    --------    --------
BALANCE AT MARCH 31, 1999        4,020    10,877      5,100    48,890,898     489     40,745      259,878     (81,905)    239,204
Conversion of preferred
  stock                         (1,620)   (7,393)         0     8,329,647      83          0        9,498           0         568
Cash redemption of
  preferred stock               (2,462)   (2,500)         0             0       0          0            0      (1,241)     (6,203)
Equity issued for
  acquisitions                       0         0          0       322,467       3          0          275           0         278
Preferred stock dividends           62       193          0             0       0          0            0        (780)       (525)
Other                                0         0          0       168,415       2       (317)       1,045           0         730
Net loss                             0         0          0             0       0          0            0     (11,918)    (11,918)
                              --------   -------     ------    ----------    ----    -------     --------    --------    --------
BALANCE AT MARCH 31, 2000     $      0   $ 1,177     $5,100    57,711,427    $577    $40,428     $270,696    $(95,844)   $222,134
                              ========   =======     ======    ==========    ====    =======     ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   42

                             METAL MANAGEMENT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS
     Metal Management, Inc., a Delaware corporation, and its wholly-owned
subsidiaries, (herein referred to as the "Company" or "MTLM"), are principally
engaged in the business of collection and processing of ferrous and non-ferrous
metals for resale to metals brokers, steel producers, and producers and
processors of other metals. The Company collects industrial scrap and obsolete
scrap, processes it into reusable forms, and supplies the recycled metals to its
customers, including mini-mills, integrated steel mills, foundries and metals
brokers. These services are provided through the Company's recycling facilities
located in 14 states. The Company's ferrous products primarily include shredded,
sheared, hot briquetted, cold briquetted, bundled scrap, turnings and broken
furnace iron. The Company also processes non-ferrous metals, including aluminum,
stainless steel, copper, brass, titanium and high-temperature alloys, using
similar techniques and through application of certain of the Company's
proprietary technologies. Prior to April 1996, the Company was engaged in the
business of designing, manufacturing and marketing color printers and related
color printer consumable products (see Note 4 -- Discontinued Operations).

BASIS OF PRESENTATION
     The consolidated financial statements have been prepared to reflect the
merger, accounted for as a pooling of interests, with R&P Holdings, Inc. on May
28, 1998 (see Note 2 -- Acquisitions and Divestitures). These consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts, transactions and profits
have been eliminated in consolidation.

     The Company has investments in less than majority-owned companies
(principally corporate joint ventures) which engage in ferrous and non-ferrous
scrap metals recycling. These investments are accounted for using the equity
method. Under the equity method of accounting, the Company's share of the
investee's earnings or loss is included in the consolidated statements of
operations.

REVENUE RECOGNITION
     The Company recognizes revenue from processed product sales at the time of
shipment. Revenue relating to brokered sales are recognized upon receipt of the
materials by the customer.

SEGMENT REPORTING
     The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
in Fiscal 1999. SFAS No. 131 establishes annual and interim reporting standards
for reporting information about an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
The Company's operations, consisting of its scrap metal recycling businesses,
comprise one operating segment.

FUTURES CONTRACTS
     The Company utilizes futures and forward contracts to hedge its position in
certain non-ferrous metals. Any gain or loss, when realized, is recorded as a
component of cost of sales. The Company does not use futures and forward
contracts for trading purposes.

RECENT ACCOUNTING STANDARDS
     SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by the FASB in June 1998 and is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 established accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company has not yet determined the impact of the adoption of
SFAS No. 133 on its consolidated financial statements.

                                       F-6
<PAGE>   43
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS
     The carrying values of financial instruments including notes and other
receivables, other assets, accounts payable, and current portion of long-term
debt approximate the related fair values because of the relatively short
maturity of these instruments.

     The carrying values and estimated fair values of futures contracts and
long-term debt were as follows at March 31, (in thousands):

<TABLE>
<CAPTION>
                                                        2000                    1999
                                                --------------------    --------------------
                                                CARRYING      FAIR      CARRYING      FAIR
                                                 AMOUNT      VALUE       AMOUNT      VALUE
                                                --------     -----      --------     -----
<S>                                             <C>         <C>         <C>         <C>
Futures contracts                               $    479    $    524    $    678    $    310
Long-term debt, less current maturities         $382,601    $337,406    $330,154    $277,054
</TABLE>

     The fair values of futures contracts were determined from market quotes.
The fair values of long-term debt were determined from either market quotes or
from instruments with similar terms and maturities.

CASH AND CASH EQUIVALENTS
     The Company classifies as cash equivalents all highly liquid investments
with original maturities of three months or less. Cash equivalents are carried
at cost which approximates fair value.

ACCOUNTS RECEIVABLE
     Accounts receivable represents amounts due from customers on product and
broker sales. The carrying amount of the Company's accounts receivable
approximates fair value. Reserves for uncollectible accounts and for tonnage
variances were approximately $2.6 million and $2.0 million at March 31, 2000 and
1999, respectively.

PROPERTY AND EQUIPMENT
     Property and equipment are recorded at cost less accumulated depreciation.
Major renewals and improvements are capitalized while repairs and maintenance
costs are expensed as incurred. Property and equipment acquired in purchase
transactions are recorded at their estimated fair value at the time of the
acquisition. Depreciation is determined for financial reporting purposes using
the straight-line method over the following estimated useful lives: 10 to 40
years for buildings and improvements, 3 to 15 years for operating machinery and
equipment, 2 to 10 years for furniture, fixtures and computer equipment and 3 to
10 years for automobiles and trucks. When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts
and any gain or loss is included in the statements of operations. Property and
equipment consist of the following at March 31 (in thousands):

<TABLE>
<CAPTION>
                                                           2000        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Land and improvements                                    $ 28,550    $ 28,575
Buildings and improvements                                 27,811      25,676
Operating machinery and equipment                         129,910     120,464
Automobiles and trucks                                     18,611      18,936
Computer equipment                                          3,482       2,256
Furniture, fixtures and office equipment                    1,288       1,549
Construction in progress                                      649       1,527
                                                         --------    --------
                                                          210,301     198,983
Less -- accumulated depreciation                          (45,104)    (27,743)
                                                         --------    --------
                                                         $165,197    $171,240
                                                         ========    ========
</TABLE>

                                       F-7
<PAGE>   44
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Depreciation expense was $18.9 million, $18.2 million and $7.4 million for
the years ended March 31, 2000, 1999 and 1998, respectively.

GOODWILL AND OTHER INTANGIBLES
     Goodwill represents the excess of purchase consideration paid over the fair
value of net assets acquired. Goodwill is amortized on a straight-line basis
over a period of 40 years. Accumulated goodwill amortization at March 31, 2000
and 1999 was $16.5 million and $9.0 million, respectively. Goodwill amortization
expense was $7.5 million, $7.0 million and $2.4 million for the years ended
March 31, 2000, 1999 and 1998, respectively.

     The Company assesses the recoverability of its goodwill and other
intangible assets on an annual basis or whenever events or changes in
circumstances or business climate indicate that expected undiscounted future
cash flows may not be sufficient to recover the recorded goodwill and intangible
assets.

     Deferred financing costs represent costs incurred in connection with the
placement of long-term debt and are capitalized and amortized to interest
expense over the term of the long-term debt. Other intangible assets are
amortized on a straight-line basis over the lesser of their legal or estimated
useful lives, ranging from 1 to 10 years. Deferred financing costs and other
intangibles amortization expense for the years ended March 31, 2000, 1999 and
1998 was $3.8 million, $2.6 million and $0.9 million, respectively. Deferred
financing costs and other intangibles consist of the following at March 31 (in
thousands):

<TABLE>
<CAPTION>
                                                               2000       1999
                                                               ----       ----
<S>                                                           <C>        <C>
Deferred financing costs                                      $15,100    $12,466
Non-compete agreements                                          3,733      3,733
Other intangibles                                                 367        111
                                                              -------    -------
                                                               19,200     16,310
Less -- accumulated amortization                               (6,900)    (3,082)
                                                              -------    -------
                                                              $12,300    $13,228
                                                              =======    =======
</TABLE>

INVESTMENTS IN JOINT VENTURES
     Investments in joint ventures represents the Company's 28.5% interest in
Southern Recycling, L.L.C., which processes and sells ferrous and non-ferrous
scrap metals. Investment in joint ventures also includes a $3.0 million advance
made during Fiscal 1999 to Southern Recycling, L.L.C. During Fiscal 2000, the
Company liquidated its interest in three joint ventures, the proceeds and
results of which were not significant.

CONCENTRATION OF CREDIT RISK
     Financial instruments that potentially subject the Company to significant
concentrations of credit risk are primarily trade accounts receivable. The
Company sells its products primarily to scrap metal brokers and steel mills
located in the United States. Generally, the Company does not require collateral
or other security to support customer receivables. Historically, the Company has
not experienced material losses from the noncollection of accounts receivables.
Sales to customers outside of the United States are generally settled by payment
in U.S. dollars and secured by letters of credit.

     For the year ended March 31, 2000, the 10 largest customers of the Company
represented approximately 32% of consolidated net sales. These customers
comprised approximately 38% of accounts receivable at March 31, 2000. No single
customer accounted for more than 10% of consolidated net sales.

INCOME TAXES
     The Company utilizes the liability method of accounting for income taxes,
as set forth in SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred income taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in

                                       F-8
<PAGE>   45
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

effect in the years in which the differences are expected to reverse. Income tax
benefits related to non-qualified stock option exercises are credited to
additional paid-in-capital when realized.

EARNINGS (LOSS) PER COMMON SHARE
     Basic and diluted earnings per share ("EPS") are calculated in accordance
with SFAS No. 128, "Earnings Per Share." Basic EPS is computed by dividing
reported net income (loss) applicable to Common Stock by the weighted average
shares outstanding. Diluted EPS includes the incremental shares issuable upon
the assumed exercise of stock options and warrants, using the treasury stock
method.

     The following is a reconciliation of the numerators and denominators used
in computing EPS (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                   YEARS ENDED MARCH 31,                          2000        1999        1998
                   ---------------------                          ----        ----        ----
<S>                                                             <C>         <C>         <C>
LOSS (NUMERATOR):
Loss from continuing operations before extraordinary charge     $(12,294)   $(47,034)   $(34,407)
Non-cash beneficial conversion feature of convertible
  preferred stock                                                      0           0      (5,592)
Dividends on convertible preferred stock                          (2,021)     (1,815)     (1,508)
                                                                --------    --------    --------
Loss from continuing operations before extraordinary charge
  applicable to Common Stock                                    $(14,315)   $(48,849)   $(41,507)
                                                                ========    ========    ========
SHARES (DENOMINATOR):
Weighted average number of shares outstanding during the
  period                                                          54,333      40,139      20,762
Incremental common shares attributable to dilutive stock
  options and warrants                                                 0           0           0
                                                                --------    --------    --------
Diluted number of shares outstanding during the period            54,333      40,139      20,762
                                                                ========    ========    ========
Basic loss per common share                                     $  (0.27)   $  (1.22)   $  (2.00)
                                                                ========    ========    ========
Diluted loss per common share                                   $  (0.27)   $  (1.22)   $  (2.00)
                                                                ========    ========    ========
</TABLE>

     Due to the loss from continuing operations before extraordinary charge
applicable to Common Stock for all the periods presented, the effect of dilutive
stock options and warrants were not included as their effect would have been
anti-dilutive. However, if the Company would have reported net earnings, the
incremental shares attributable to dilutive stock options and warrants would
have been approximately 25,000, 933,000 and 3,388,000 for the years ended March
31, 2000, 1999 and 1998, respectively. Also, the potentially dilutive effect of
the Company's convertible preferred stock was not used in the diluted earnings
per share calculation as its effect was anti-dilutive.

RECLASSIFICATIONS
     In order to maintain consistency and comparability between periods, certain
prior year financial information has been reclassified to conform to the current
year presentation. Such reclassifications had no material effect on the
previously reported consolidated balance sheet, results of operations or cash
flows of the Company.

USES OF ESTIMATES
     The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.

                                       F-9
<PAGE>   46
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- ACQUISITIONS AND DIVESTURES

MERGERS ACCOUNTED FOR AS POOLING OF INTERESTS
     On May 28, 1998, a subsidiary of the Company merged with R&P Holdings, Inc.
("R&P"), the parent of Charles Bluestone Company, through a tax-free
stock-for-stock exchange. In connection with the merger, the Company issued
1,034,826 shares of common stock, par value $.01 per share ("Common Stock") in
exchange for all the outstanding common stock of R&P. The merger was accounted
for using the pooling-of-interests method accounting, and accordingly, the
accompanying consolidated financial statements and notes thereto have been
restated to include the operations of R&P for all periods presented. Certain
reclassifications were made to R&P's financial statements to conform to the
Company's presentation.

     The following table presents net sales and net loss applicable to Common
Stock for the Company and R&P up to the date of the merger. The only conforming
accounting adjustment was to change R&P's inventory valuation methodology from a
LIFO basis to an average cost basis (in thousands):

<TABLE>
<CAPTION>
                    YEAR ENDED MARCH 31,                        1999        1998
                    --------------------                      --------    --------
<S>                                                           <C>         <C>
Net sales:
  The Company                                                 $794,741    $479,707
  R&P                                                           10,533      90,328
                                                              --------    --------
  Combined                                                    $805,274    $570,035
                                                              ========    ========

Net loss applicable to Common Stock:
  The Company                                                 $(48,523)   $(41,357)
  R&P                                                             (326)        340
  Conforming accounting adjustments, net of tax                      0        (490)
                                                              --------    --------
     Loss from continuing operations before extraordinary
      charge applicable to Common Stock                        (48,849)    (41,507)
  Extraordinary charge for early retirement of debt               (938)          0
  Gain on sale of discontinued operations, net of tax              117         200
                                                              --------    --------
  Combined net loss applicable to Common Stock                $(49,670)   $(41,307)
                                                              ========    ========

Basic and diluted loss per share applicable to Common Stock:
  The Company -- historical                                   $  (1.23)   $  (2.09)
                                                              ========    ========
  Combined                                                    $  (1.24)   $  (1.99)
                                                              ========    ========
</TABLE>

ACQUISITIONS ACCOUNTED FOR AS PURCHASE TRANSACTIONS DURING FISCAL 2000
     In November 1999, the Company acquired substantially all of the assets of
National Metals Company. The purchase consideration was not material to the
Company's consolidated financial position or results of operations.

ACQUISITIONS ACCOUNTED FOR AS PURCHASE TRANSACTIONS DURING FISCAL 1999
     In July 1998, the Company acquired the common stock of Naporano Iron &
Metal Co. and Nimco Shredding Co. (collectively "Naporano"). The purchase
consideration for Naporano consisted of approximately 1.9 million shares of
Common Stock and $86.6 million of cash (including transaction costs). The Common
Stock issued to Naporano was valued at $18.5 million for financial reporting
purposes.

     The Company also acquired eleven other businesses which were engaged in the
scrap metals recycling industry during Fiscal 1999. The total purchase
consideration for these acquisitions consisted of approximately $102.2 million
of cash (including transaction costs), 2.3 million shares of Common Stock,
warrants to

                                      F-10
<PAGE>   47
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchase 150,000 shares of Common Stock, 6,000 shares of Series C convertible
preferred stock and promissory notes aggregating $1.3 million. The Common Stock,
Series C convertible preferred stock and warrants to purchase Common Stock were
valued at $21.1 million, $5.1 million and $0.7 million, respectively, for
financial reporting purposes.

ACQUISITIONS ACCOUNTED FOR AS PURCHASE TRANSACTIONS DURING FISCAL 1998
 --   In May 1997, the Company acquired Reserve Iron & Metal Limited Partnership
      ("Reserve").
 --   In June 1997, the Company acquired four companies under common ownership
      comprising The Isaac Group ("Isaac").
 --   In August 1997, the Company acquired Proler Southwest Inc. and Proler
      Steelworks, L.L.C. (collectively "Proler").
 --   In December 1997, the Company acquired Cozzi Iron & Metal, Inc. ("Cozzi").
 --   In January 1998, the Company purchased substantially all of the assets of
      Aerospace Metals, Inc. ("Aerospace").
 --   During Fiscal 1998, the Company also acquired six other businesses engaged
      in the scrap metals recycling industry.

     The purchase consideration for the acquisitions completed during Fiscal
1998 was as follows (in thousands):

<TABLE>
<CAPTION>
                                        RESERVE     ISAAC     PROLER      COZZI     AEROSPACE    OTHERS      TOTAL
                                        -------     -----     ------      -----     ---------    ------      -----
<S>                                     <C>        <C>        <C>        <C>        <C>          <C>        <C>
Shares of restricted Common Stock
  issued                                     0       1,943      1,750     11,500         403       1,385      16,981
Warrants issued to purchase Common
  Stock                                      0         462        375      1,500           0         120       2,457

Cash paid, including transaction
  costs                                 $6,589     $   536    $ 7,760    $ 7,807     $14,802     $ 7,866    $ 45,360
Value of Common Stock issued                 0      21,049     11,130     65,864       5,318      18,060     121,421
Value of warrants issued                     0       4,862      1,574      7,505           0         368      14,309
Promissory notes issued                  1,542      36,547     10,500          0           0       1,991      50,580
                                        ------     -------    -------    -------     -------     -------    --------
    Total purchase consideration        $8,131     $62,994    $30,964    $81,176     $20,120     $28,285    $231,670
                                        ======     =======    =======    =======     =======     =======    ========
</TABLE>

     The purchase consideration was allocated as follows at March 31 (in
thousands):

<TABLE>
<CAPTION>
                                                                  1999        1998
                                                                  ----        ----
<S>                                                             <C>         <C>
Fair value of tangible assets acquired                          $133,376    $262,426
Goodwill                                                         132,370     165,064
Identifiable intangibles                                               0       1,834
Liabilities assumed                                              (30,812)   (198,329)
Convertible preferred stock issued                                (5,100)          0
Stock and warrants issued                                        (40,314)   (135,730)
Promissory notes and other consideration issued                   (1,250)    (50,580)
                                                                --------    --------
Cash paid                                                        188,270      44,685
  Less: cash acquired                                             (3,240)       (780)
                                                                --------    --------
Net cash paid for acquisitions                                  $185,030    $ 43,905
                                                                ========    ========
</TABLE>

     These acquisitions have been accounted for by the purchase method of
accounting and accordingly are included in the Company's results of operations
from and after the date of each acquisition. The purchase price was allocated
based on estimates of the fair value of assets acquired and liabilities assumed.

                                      F-11
<PAGE>   48
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRO FORMA INFORMATION
     The following unaudited pro forma statement of operations information
presents a summary of consolidated results of operations of the Company,
Reserve, Isaac, Proler, Cozzi, Aerospace and Naporano (collectively, the "Pro
Forma Acquisitions") as if these acquisitions had occurred on April 1, 1997. The
unaudited pro forma statement of operations information has been prepared for
comparative purposes only and include certain adjustments, such as additional
depreciation expense as a result of a step-up in basis of the fixed assets
acquired, additional amortization expense as a result of goodwill and interest
expense related to cash portions of purchase consideration and assumed debt. The
pro forma statement of operations information includes non-recurring expenses of
$19.0 million and $43.5 million for the years ended March 31, 1999 and 1998,
respectively. The pro forma statement of operations information for the year
ended March 31, 1998 also includes a charge for a $5.6 million non-cash dividend
with respect to the beneficial conversion feature of convertible preferred
stock. The following pro forma results do not purport to be indicative of the
financial results which actually would have occurred had the Pro Forma
Acquisitions been in effect on April 1, 1997 (in thousands, except share data):

<TABLE>
<CAPTION>
                                                                 (UNAUDITED)
                                                                 -----------
                STATEMENT OF OPERATIONS                       1999         1998
                -----------------------                       ----         ----
<S>                                                         <C>         <C>
Net sales                                                   $845,430    $1,020,030
Net loss from continuing operations applicable to Common
  Stock                                                     $(51,674)   $  (44,410)
Basic and diluted net loss per share from continuing
  operations                                                $  (1.06)   $    (1.19)
</TABLE>

DIVESTITURES
     On March 12, 1999, the Company completed the sale of its Superior Forge,
Inc. ("Superior") subsidiary to a newly formed company formed by a group of
investors led by Gerard M. Jacobs, the Company's former Chief Executive Officer
and a former director of the Company. The Company received proceeds of $16.7
million, consisting of $14.2 million in cash and a $2.5 million promissory note
bearing interest at 10% per annum. The promissory note is payable in five equal
installments of $500,000 beginning on March 12, 2001 and every six months
thereafter. In addition, the sale provides for the payment of an additional $1.0
million to the Company if certain financial targets are met by Superior. The
sale resulted in a loss of $6.8 million, which is included in non-cash and
non-recurring expenses for the year ended March 31, 1999 (see Note 3 -- Non-
cash and Non-recurring expenses).

     Superior has incurred significant losses and cash flow deficits since its
sale. Superior's secured lender has prohibited it from making scheduled interest
payments, since December 1999, to the Company on the promissory note. Unless
there is a significant improvement in its results of operations or a sale,
merger or recapitalization of Superior, there is a reasonable possibility that
the Company may not realize payments of principal or interest on the $2.5
million promissory note. No reserve or allowance has been established against
the $2.5 million promissory note at March 31, 2000.

                                      F-12
<PAGE>   49
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- NON-CASH AND NON-RECURRING EXPENSES

     During Fiscal 2000, 1999 and 1998, the Company recorded the following
non-cash and non-recurring expenses and related reserve activity (in thousands):

<TABLE>
<CAPTION>
                                                          SEVERANCE,            ASSET
                                         NON-CASH      FACILITY CLOSURE      IMPAIRMENT       MERGER
                                         WARRANT          AND OTHER        AND DIVESTITURE    RELATED
                                       COMPENSATION        CHARGES          GAINS/LOSSES       COSTS      TOTAL
                                       ------------    ----------------    ---------------    -------     -----
<S>                                    <C>             <C>                 <C>                <C>        <C>
Balance at March 31, 1997                $      0          $     0            $      0        $     0    $      0
Charge to income                           30,588            1,655              11,305              0      43,548
Cash payments                                   0             (737)                  0              0        (737)
Non-cash application                      (30,588)            (305)            (11,305)             0     (42,198)
                                         --------          -------            --------        -------    --------
Balance at March 31, 1998                       0              613                   0              0         613
Charge (credit) to income                  (6,776)           1,776              17,983          3,213      16,196
Cash payments                                   0             (916)                  0         (1,163)     (2,079)
Non-cash application                        6,776                0             (17,983)        (1,487)    (12,694)
                                         --------          -------            --------        -------    --------
Balance at March 31, 1999                       0            1,473                   0            563       2,036
Charge (credit) to income                       0            5,224                (210)             0       5,014
Cash payments                                   0           (4,896)                  0           (150)     (5,046)
Non-cash application                            0             (993)                210              0        (783)
                                         --------          -------            --------        -------    --------
Balance at March 31, 2000                $      0          $   808            $      0        $   413    $  1,221
                                         ========          =======            ========        =======    ========
</TABLE>

     The Company believes the reserves at March 31, 2000 are adequate for the
remaining obligations associated with these activities.

NON-CASH WARRANT COMPENSATION
     On May 1, 1997, the Company issued warrants to purchase 1,400,000 shares of
Common Stock to the former general partners of Reserve (the "Reserve Warrants").
The Reserve Warrants have terms ranging from 30 to 60 months and have initial
exercise prices of $3.50 or $4.00 per share, subject to a $0.50 per share
increase in the event that the Company's stock price exceeds $10.00 per share on
the date of exercise. Since the exercise price is not fixed, the Reserve
Warrants are considered variable instruments under APB No. 25 "Stock Issued to
Employees," and thus require the Company to record non-cash warrant compensation
expense or income throughout the term of the Reserve Warrants depending on the
fair market value of its Common Stock. In Fiscal 1998, the Company recognized
non-cash warrant compensation expense of $9.8 million related to the Reserve
Warrants. In Fiscal 1999, the Company recognized non-cash warrant compensation
income of $6.8 million which represented the reversal of previously recognized
compensation expense. At March 31, 2000, there were Reserve Warrants outstanding
representing the right to purchase up to 455,000 shares of Common Stock.

     On December 1, 1997, the Company issued warrants to purchase 1,855,000
shares of Common Stock (the "December Warrants") to certain officers, employees
and directors. The December Warrants were fully vested warrants at exercise
prices ranging from $4.00 per share to $12.00 per share. The Company recorded
non-cash warrant compensation expense of $20.8 million related to the December
Warrants in Fiscal 1998. The December Warrants were accounted for under APB No.
25 as fixed instruments and accordingly were valued using the "intrinsic
method."

SEVERANCE, FACILITY ABANDONMENT AND INTEGRATION

FISCAL 1998 ACTIVITY
     Upon completion of the Cozzi acquisition in December 1997, the Company
adopted a formal plan to abandon its EMCO Recycling, Inc. ("EMCO") operations
which had become redundant as a result of the

                                      F-13
<PAGE>   50
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cozzi acquisition, and to transfer certain of EMCO's assets to Salt River
Recycling L.L.C. ("Salt River") Salt River was a joint venture investment of
Cozzi which became a wholly-owned subsidiary of the Company in January 1998. In
November 1999, Salt River changed its name to Metal Management Arizona L.L.C. In
connection with the plan to abandon and shut down EMCO, the Company recorded a
non-cash charge of approximately $11.3 million, comprised of $9.3 million for
the impairment of EMCO goodwill and $2.0 million for the write-down to net
realizable value (less selling costs) the fixed assets to be sold or otherwise
abandoned. The Company also incurred $1.6 million of costs related to severance
paid to the former president of EMCO and other facility closure related costs.
The final shutdown and abandonment of EMCO was completed during Fiscal 1999.

     Cash payments in Fiscal 1998 reflect the payment of severance and facility
closure costs. Non-cash utilization partially reflects the write-off of certain
prepaid deposits and other costs not recoverable as a result of the closure. At
March 31, 1999, there were no remaining liabilities related to the EMCO
abandonment.

FISCAL 1999 ACTIVITY
     In the fourth quarter of Fiscal 1999, the Company executed a plan commenced
during Fiscal 1999 to evaluate the long term economic viability of certain of
its investments and to accelerate the integration of various operations in
recognition of the significant adverse market conditions during Fiscal 1999, its
liquidity needs, and ongoing integration and consolidation efforts. In
connection with the plan, the Company performed an evaluation, in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of," that indicated negative or marginal future
cash flows (undiscounted and without interest charges) from its under-performing
recycling operations which would be less than the aggregate carrying amount of
the Company's investment in these assets, resulting in the need to record
impairment provisions for equipment and goodwill. The plan resulted in decisions
made in the fourth quarter to abandon under-performing recycling operations in
Arizona, Louisiana and Mississippi and to conclude the integration of certain
operations in Houston. In connection with the facility abandonments and other
termination arrangements, the Company incurred $0.6 million of severance and
$1.2 million for lease cancellation, facility cleanup and other facility closure
costs, of which a total of $1.5 million remained accrued at March 31, 1999.

     The plan provided that certain recycling facilities would be abandoned and
the operations integrated, where economically justified, into other Company
facilities. In those instances where equipment would be transferred to other
Company facilities, such equipment was transferred at its carrying value.
Equipment to be disposed of or otherwise converted to scrap was written down to
its net realizable value resulting in a non-cash charge of $6.6 million.
Goodwill impairment associated with abandoned facilities aggregated $4.6
million.

     During Fiscal 2000, facility abandonment payments included severance
payments totaling $0.4 million and facility closure payments totaling $0.6
million. The net non-recurring credit for asset impairments primarily reflects
the gain on sale of certain assets associated with the Fiscal 1999 facility
closure plan. At March 31, 2000, $0.5 million of liabilities remained relating
primarily to future lease payments and additional yard cleanup costs.

FISCAL 2000 ACTIVITY
     Effective July 15, 1999, T. Benjamin Jennings resigned as the Company's
Chairman of the Board and Chief Executive Officer, as a director of the Company,
and as an officer and director of all of the Company's subsidiaries for which he
served in such capacities. In connection with his resignation, the Company
entered into a settlement agreement and general release with Mr. Jennings (the
"Jennings Settlement Agreement"). Mr. Jennings' employment agreement was
terminated and superseded by the terms of the Jennings Settlement Agreement.
Pursuant to the terms of the Jennings Settlement Agreement, Mr. Jennings
received approximately $2.1 million in a lump-sum cash payment from the Company.
Mr. Jennings will also continue to receive health and dental insurance and
certain other benefits as set forth in the Jennings Settlement Agreement through
December 15, 2003. In accordance with the Jennings Settlement Agreement, on
                                      F-14
<PAGE>   51
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

January 2, 2000, the Company also relinquished its rights to an outstanding
$500,000 loan previously advanced to Mr. Jennings, plus accrued interest
thereon. In addition, Mr. Jennings agreed to release, waive and renounce his
interest under and pursuant to the Amended and Restated Stockholders' Agreement,
dated February 12, 1999. The Company and Mr. Jennings agreed to mutual general
releases from any and all liabilities arising out of any matter or event
occurring on or prior to the date of the Jennings Settlement Agreement.

     Effective August 1, 1999, George A. Isaac, III resigned as the Company's
Executive Vice President and as an officer and director of all of the Company's
subsidiaries for which he served in such capacities. In connection with his
resignation, Mr. Isaac invoked a "change of control" provision included in his
employment agreement with the Company which was triggered by the resignation of
Gerard M. Jacobs, the Company's former Chief Executive Officer. In connection
with his resignation and the invocation of the "change of control" provisions of
his employment agreement, the Company entered into a settlement agreement and
general release with Mr. Isaac (the "Isaac Settlement Agreement"). Mr. Isaac's
employment agreement was terminated and superseded by the terms of the Isaac
Settlement Agreement. Pursuant to the terms of the Isaac Settlement Agreement,
Mr. Isaac received cash payments of approximately $1.2 million from the Company.
Mr. Isaac will continue to be covered by the Company's medical, dental and life
insurance plans through June 23, 2002. The Company and Mr. Isaac agreed to
mutual general releases from any and all liabilities arising out of any matter
or event occurring on or prior to the date of the Isaac Settlement Agreement.

     The Fiscal 2000 severance, facility closure and other charges also include
severance, relocation and other employee costs totaling $1.2 million, of which
$0.3 million remained accrued at March 31, 2000. Non-cash utilization primarily
relates to the forgiveness of a note receivable from T. Benjamin Jennings and
non-cash severance and other compensation.

MERGER RELATED COSTS
     In connection with the Company's merger with R&P in Fiscal 1999, the
Company recognized merger expenses consisting of fees and expenses for
accountants, attorneys, and investment bankers totaling $0.9 million. The merger
expenses also included a charge of approximately $0.8 million related to the
buy-out of existing contracts at R&P.

     In September 1998, the Company elected, due to adverse scrap metals market
conditions, to terminate all then pending negotiations and related due diligence
processes with potential acquisition candidates. Terminated merger expenses
totaling $1.5 million represent costs incurred in connection with acquisitions
that the Company had been pursuing but subsequently terminated.

     The Fiscal 1999 activity represents payments made on the buy-out of
existing contracts and transaction costs incurred in connection with the R&P
merger. Non-cash utilization relates to the write-off of prepaid merger costs
which can't be recovered. Fiscal 2000 activity represents payments on the
buy-out of existing contracts.

NOTE 4 -- DISCONTINUED OPERATIONS

     During the year ended March 31, 1997, the Company sold its computer printer
and related products business for approximately $1.3 million in cash and other
contingent consideration in the form of royalties on future product sales. The
royalty agreement expired in Fiscal 2000.

     Consideration from royalty income was recognized as earned and is reported
as additional gain on sale of discontinued operations. Income tax provision for
the gain on sale of discontinued operations was approximately $261,000, $81,000
and $133,000 for the years ended March 31, 2000, 1999 and 1998, respectively.

                                      F-15
<PAGE>   52
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- INVENTORIES

     Inventories for all periods presented are stated at the lower of cost or
market. Cost is determined principally on the average cost method. Inventories
consist of the following categories at March 31 (in thousands):

<TABLE>
<CAPTION>
                                                              2000      1999
                                                              ----      ----
<S>                                                          <C>       <C>
Ferrous metals                                               $38,344   $37,679
Non-ferrous metals                                            28,069    19,791
Other                                                          3,862     2,973
                                                             -------   -------
                                                             $70,275   $60,443
                                                             =======   =======
</TABLE>

NOTE 6 -- DEBT

LONG-TERM DEBT
     Long-term debt consists of the following at March 31 (in thousands):

<TABLE>
<CAPTION>
                                                                2000       1999
                                                                ----       ----
<S>                                                           <C>        <C>
Senior Credit Facility, weighted average interest rate of
  8.26% in 2000 and
  7.64% in 1999                                               $170,590   $144,410
Notes payable to related parties, weighted average interest
  rate of 8.17% in 1999                                              0      3,688
12 3/4% Senior Secured Notes due 2004                           27,372          0
10% Senior Subordinated Notes due 2008                         180,000    180,000
Real property mortgage loans, due 2004 to 2009, weighted
  average interest rate of 8.60% in 2000 and 8.20% in 1999       1,069      1,221
Other debt, due 2000 to 2008, average interest rate of 7.58%
  in 2000 and 7.13% in 1999, with equipment generally
  pledged as collateral                                          5,679      6,143
                                                              --------   --------
                                                               384,710    335,462
Less current portion                                            (2,109)    (5,308)
                                                              --------   --------
                                                              $382,601   $330,154
                                                              ========   ========
</TABLE>

     Scheduled maturities of long-term debt are as follows (in thousands):

<TABLE>
<S>                                                           <C>
FISCAL YEAR ENDING, MARCH 31
2001                                                          $  2,109
2002                                                             1,271
2003                                                               869
2004                                                           171,217
2005                                                            27,950
Thereafter                                                     181,294
                                                              --------
                                                              $384,710
                                                              ========
</TABLE>

     On March 31, 1998, the Company entered into a three year credit facility
(the "Senior Credit Facility") which provides for a revolving credit and letter
of credit facility of $250.0 million, subject to borrowing base limitations. A
security interest on substantially all of the assets and properties of the
Company, including pledges of the capital stock of the Company's subsidiaries,
are pledged as collateral against the obligations of the Company under the
Senior Credit Facility. The Senior Credit Facility provides the Company with the
option of borrowing based either on the Bankers Trust Company's prime rate plus
a margin or at the London Interbank Offered Rate ("LIBOR") plus a margin.
Pursuant to the Senior Credit Facility, the Company pays a fee of .375% on the
undrawn portion of the facility. The Senior Credit Facility is available for
working capital and general corporate purposes, including acquisitions. As of
March 31, 2000, the Company issued letters of credit aggregating $3.8 million.

                                      F-16
<PAGE>   53
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Pursuant to the Senior Credit Facility, the Company is required to satisfy
a minimum EBITDA (as defined in the Senior Credit Facility) interest test
defined as a coverage ratio. The minimum interest coverage required for the end
of each fiscal quarter for the twelve month period then ending requires that the
Company satisfy an interest coverage ratio of not less than 1.0 to 1.0. There
are restrictions as it pertains to investment in capital expenditures which
aggregate investments to annual amounts not to exceed 2% of consolidated sales.
On May 31, 2000, the Senior Credit Facility was amended whereby its maturity
date was extended until March 31, 2004. The covenants pertaining to interest
coverage ratio and capital expenditures were not changed by the amendment.

     On May 7, 1999, the Company issued $30.0 million principal amount of 12
3/4% Senior Secured Notes due on June 15, 2004 (the "Senior Secured Notes").
Interest on the Senior Secured Notes is payable semi-annually. The Senior
Secured Notes were issued at 90% of their principal amount and are redeemable by
the Company, in whole or in part, at 100% of their principal amount at any time
after June 15, 2000. A second priority lien on substantially all of the
Company's personal property, plant (to the extent it constitutes fixtures) and
equipment has been pledged as collateral against the Senior Secured Notes. The
Senior Secured Notes are senior obligations of the Company, ranking equally with
all of its existing and future unsubordinated debt, including indebtedness under
the Senior Credit Facility, and senior to all of its existing and future
subordinated debt, including the Senior Subordinated Notes. The Company's
payment obligation is jointly and severally guaranteed by the Company's current
and future subsidiaries. The Company received net proceeds of approximately
$25.5 million, after the 10% original issue discount and transaction fees and
expenses. Net proceeds were used to reduce borrowings outstanding under the
Senior Credit Facility.

     On May 13, 1998, the Company issued $180.0 million, 10% Senior Subordinated
Notes due on May 15, 2008 (the "Senior Subordinated Notes") and received net
proceeds of $174.6 million. Interest on the Senior Subordinated Notes is payable
semi-annually. The Senior Subordinated Notes are general unsecured obligations
of the Company and are subordinated in right to payment to all senior debt of
the Company, including the indebtedness of the Company under the Senior Credit
Facility and the Senior Secured Notes. The Company's payment obligations are
jointly and severally guaranteed by the Company's current and certain future
subsidiaries. The Senior Subordinated Notes are redeemable at the Company's
option at specified redemption prices and redemption events. The net proceeds
were used to reduce borrowings outstanding under the Senior Credit Facility,
reduce notes payable to related parties and for general corporate purposes,
including acquisitions.

     The Senior Credit Facility, the Indenture governing the Senior Subordinated
Notes and the Indenture for the Senior Secured Notes contain covenants that,
among other things, restrict the Company and most of its subsidiaries' ability
to:

     - incur additional indebtedness;
     - pay dividends;
     - prepay subordinated indebtedness;
     - dispose of some types of assets;
     - make capital expenditures;
     - create liens and make some types of investments or acquisitions; and
     - engage in some fundamental corporate transactions.

     In addition, under the Senior Credit Facility, the Company is required to
satisfy specified financial covenants, including an interest coverage ratio and
ratio of capital expenditures to consolidated revenues. The Company's ability to
comply with these provisions may be affected by general economic conditions,
industry conditions, and other events or circumstances beyond the Company's
control. A breach of any of these covenants could result in a default under the
Senior Credit Facility. In the event of a default, depending on the actions
taken by the lenders under the Senior Credit Facility, the lenders could elect
to declare all amounts borrowed under the Senior Credit Facility, together with
accrued interest, to be due and payable. In addition, a default under the
Indenture for the Senior Secured Notes or the Indenture for the Senior
Subordinated
                                      F-17
<PAGE>   54
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Notes would constitute a default under the Senior Credit Facility and any
instruments governing our other indebtedness.

     Both the Indenture for the Senior Subordinated Notes and the Indenture for
the Senior Secured Notes contain restrictions on the Company's ability to incur,
subject to certain exceptions, additional indebtedness, unless the Company meets
a fixed charge coverage ratio of 2.0 to 1.0 for the immediately preceding four
calendar quarters. Because of recent financial performance, the Company
currently would not satisfy the fixed-charge coverage ratio test, and,
accordingly, is unable and expects to remain unable for the foreseeable future
to incur significant amounts of additional indebtedness.

NOTES PAYABLE TO RELATED PARTIES
     In connection with certain of the Company's acquisitions, notes payable
were issued to or assumed from certain of the selling shareholders as purchase
consideration. At March 31, 1999, $2.4 million of notes payable were outstanding
to the former shareholders of Isaac, including $0.3 million payable to George A.
Isaac III, a former director and officer of the Company. These notes were repaid
during Fiscal 2000.

EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
     During Fiscal 1999, the Company borrowed under the Senior Credit Facility
to (i) refinance existing secured debt (including notes payable to related
parties), (ii) buyout certain operating leases and (iii) pay prepayment
penalties associated with the early retirement of debt. In connection with the
refinancing of debt, the Company recognized extraordinary charges consisting of
the following (in thousands):

<TABLE>
<S>                                                           <C>
Cash prepayment penalties                                     $  973
Value of warrants to purchase 106,797 shares of Common Stock
  issued as a prepayment fee                                     128
Write-off of related unamortized financing costs                 487
                                                              ------
Extraordinary charge before income tax benefit                 1,588
Income tax benefit                                               650
                                                              ------
Net extraordinary charge                                      $  938
                                                              ======
</TABLE>

     The warrants were issued as a prepayment fee to certain former shareholders
of Isaac, including warrants to purchase 18,888 shares of Common Stock issued to
George A. Isaac III, a former director and officer of the Company. The warrants
are exercisable at $6.50 per share over a 3 year period. The value of the
warrants was determined using the Black-Scholes model.

NOTE 7 -- INCOME TAXES

     The provision (benefit) for federal and state income taxes from continuing
operations is as follows (in thousands):

<TABLE>
<CAPTION>
                 YEAR ENDED MARCH 31                     2000       1999      1998
                 -------------------                     ----       ----      ----
<S>                                                     <C>       <C>        <C>
Federal:
     Current                                            $     0   $ (1,149)  $   199
     Deferred                                            (2,609)   (14,173)   (4,294)
                                                        -------   --------   -------
                                                         (2,609)   (15,322)   (4,095)
                                                        -------   --------   -------
State:
     Current                                                866        697       741
     Deferred                                            (1,089)    (2,411)   (1,201)
                                                        -------   --------   -------
                                                           (223)    (1,714)     (460)
                                                        -------   --------   -------
Total tax benefit                                       $(2,832)  $(17,036)  $(4,555)
                                                        =======   ========   =======
</TABLE>

                                      F-18
<PAGE>   55
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of deferred tax assets and liabilities at March 31, related
to the following (in thousands):

<TABLE>
<CAPTION>
                                                               2000      1999
                                                               ----      ----
<S>                                                           <C>       <C>
DEFERRED TAX ASSETS:
  Net operating loss carryforward                             $20,960   $18,089
  Workman's compensation                                        1,131       902
  Employee benefit accruals                                     1,130       410
  Accounts receivable reserves                                  1,082       659
  Facility closure & severance                                    656       843
  Accrued liabilities                                             546       956
  Deferred compensation                                           505       602
  Other                                                         1,354         0
                                                              -------   -------
                                                               27,364    22,461
                                                              -------   -------
DEFERRED TAX LIABILITIES:
  Depreciation                                                (15,639)  (14,070)
  Goodwill                                                     (2,082)        0
  Non-compete agreements                                         (568)     (688)
  Inventory                                                      (314)     (854)
  Other                                                             0       (35)
                                                              -------   -------
                                                              (18,603)  (15,647)
                                                              -------   -------
NET DEFERRED TAX ASSET BEFORE VALUATION ALLOWANCE               8,761     6,814
VALUATION ALLOWANCE                                              (470)     (250)
                                                              -------   -------
NET DEFERRED TAX ASSET                                        $ 8,291   $ 6,564
                                                              =======   =======
</TABLE>

     Realization of deferred tax assets is dependent upon generating sufficient
future taxable income in the periods in which the assets reverse or the benefits
expire. Management believes it is more likely than not that the Company's
deferred tax assets will be realized through future taxable earnings. In
concluding on the level of deferred tax asset valuation allowance to record, the
Company considered a number of factors including the current and expected market
conditions, the cyclicality of the scrap metals recycling industry, integration
and rationalization opportunities identified, the adequacy of its current
liquidity and financial resources and the remaining life of the net operating
loss carryforward. The net operating loss carryforward begins to expire in 2018
for federal purposes. A valuation allowance was provided for future state income
tax benefits related to net operating loss carryforwards which are not expected
to be utilized.

     The reconciliation of the federal income tax rate to the Company's
effective tax rate from continuing operations is as follows:

<TABLE>
<CAPTION>
                  YEAR ENDED MARCH 31                          2000        1999        1998
                  -------------------                          ----        ----        ----
<S>                                                            <C>         <C>         <C>
Normal statutory rate                                          (35.0)%     (35.0)%     (35.0)%
State income taxes, net of federal benefit                      (1.4)       (4.0)       (1.1)
Non-deductible goodwill                                         10.3         2.5         2.3
IRS audit adjustments                                            5.4          --          --
Non-deductible goodwill impairment and business
  disposition write-offs                                          --         6.2         8.4
Non-deductible stock based compensation                           --         3.0        12.8
Other                                                            2.0         0.7         0.9
                                                               -----       -----       -----
Effective tax rate                                             (18.7)%     (26.6)%     (11.7)%
                                                               =====       =====       =====
</TABLE>

                                      F-19
<PAGE>   56
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- EMPLOYEE BENEFIT PLANS

401(K) AND PROFIT SHARING PLANS
     On December 31, 1998, the Company consolidated its various 401(k) and
profit sharing plans into the Metal Management, Inc. 401(k) Plan. The plan
allows employees to defer, within prescribed limits, up to 15% of their income
on a pre-tax basis through contributions to the plan. The Company may match a
portion of the pre-tax contributions through discretionary contributions. The
Company also may make a discretionary profit sharing contribution to the plan.
Matching contributions made by the Company amounted to $0.2 million for Fiscal
2000. No discretionary contributions were made into the Metal Management, Inc.
401(k) Plan for Fiscal 1999.

     Prior to the Metal Management, Inc. 401(k) Plan, the Company and its wholly
owned subsidiaries sponsored qualified 401(k) plans and profit sharing plans
covering certain eligible employees. Certain of the qualified 401(k) plans
allowed the Company's wholly-owned subsidiaries to match a percentage of the
contributions of participating employees as specified in the respective plans
and also enabled discretionary contributions based on the plan provisions. For
the years ended March 31, 1999 and 1998, the Company made matching contributions
of approximately $0.8 million and $0.4 million, respectively.

PENSION PLANS
     Some of the Company's wholly-owned subsidiaries have defined benefit
pension plans covering certain employees and groups of employees. Net pension
cost under these plans for the years ended March 31, 2000, 1999 and 1998 were
approximately $0.3 million, $0.4 million and $0.2 million, respectively.
Actuarially computed obligations under these plans are substantially offset by
the fair value of associated plan assets. As of March 31, 2000, the Company
permanently eliminated benefit accruals for future service for non-union
employees covered under its defined benefit pension plans. As a result, the
Company recognized a net curtailment gain of approximately $0.6 million which
was recorded as a reduction in general and administrative expenses in the fourth
quarter of Fiscal 2000.

NOTE 9 -- COMMITMENTS AND CONTINGENCIES

LEASES
     The Company leases certain facilities and equipment under operating leases
expiring at various dates. Lease rental expense was approximately $6.2 million,
$5.9 million and $3.1 million for the years ended March 31, 2000, 1999 and 1998,
respectively. Future minimum lease payments under non-cancellable operating
leases are as follows (in thousands):

<TABLE>
<S>                                                            <C>
FISCAL YEAR ENDING, MARCH 31
2001                                                           $ 6,060
2002                                                             5,001
2003                                                             4,548
2004                                                             4,333
2005                                                             4,043
Thereafter                                                      10,313
</TABLE>

ENVIRONMENTAL MATTERS
     The Company is subject to comprehensive local, state and international
regulatory and statutory requirements relating to the acceptance, storage,
handling and disposal of solid waste and waste water, air emissions, soil
contamination and employee health, among others. The Company believes that it
and its subsidiaries are in material compliance with currently applicable
environmental and other applicable laws and regulations. However, environmental
legislation may in the future be enacted and create liability for past actions
and the Company or its subsidiaries may be fined or held liable for damages.

                                      F-20
<PAGE>   57
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Certain of the Company's subsidiaries have received notices from the United
States Environmental Protection Agency ("EPA") that each of these companies and
numerous other parties are considered potentially responsible parties and may be
obligated under Superfund to pay a portion of the cost of remedial
investigation, feasibility studies and, ultimately, remediation to correct
alleged releases of hazardous substances at various third party sites. Superfund
may impose joint and several liability for the costs of remedial investigations
and actions on the entities that arranged for disposal of certain wastes, the
waste transporters that selected the disposal sites, and the owners and
operators of these sites. Responsible parties (or any one of them) may be
required to bear all of such costs regardless of fault, legality of the original
disposal, or ownership of the disposal site. Based upon the Company's analysis
of its environmental exposure, the Company currently does not expect the
potential liability of its subsidiaries in these matters to have a material
adverse effect on the Company's financial condition or results of operation.

     At March 31, 2000 and 1999, the Company had reserves of $1.4 million and
$2.2 million, respectively, for environmental related contingencies.

LEGAL PROCEEDINGS
     From time to time, the Company is involved in various litigation matters
involving ordinary and routine claims incidental to its business. A significant
portion of these matters result from environmental compliance issues and workers
compensation related claims arising from the Company's operations. There are
presently no legal proceedings pending against the Company which, in the opinion
of the Company's management, is likely to have a material adverse effect on its
business, financial position or results of operations.

PURCHASE OF REAL PROPERTY
     On January 7, 1997, the Company entered into a 10 year lease agreement with
15/21 Japhet Realty Ltd. ("Japhet"), which provides for the Company's use of
property in Houston, Texas. The lease agreement allows Japhet to sell the
property to the Company for $4.0 million between the 54th month and the 89th
month of the lease term. The Company also has an option to buy the property for
$4.0 million during the same period.

NOTE 10 -- STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK
     The Company's Amended and Restated Certificate of Incorporation allows for
the issuance of up to 4,000,000 shares of preferred stock. During the year ended
March 31, 1998, the Company issued 25,000 shares of convertible preferred stock
(designated as Series A) and 20,000 shares of convertible preferred stock
(designated as Series B). In November 1998, the Company issued 6,000 shares of
convertible preferred stock (designated as Series C) in connection with an
acquisition. The fair value of the Series C convertible preferred stock was
estimated at $5.1 million. Dividends on the Series A, Series B and Series C
convertible preferred stock accrue, whether or not declared by the Board of
Directors, at an annual rate of 6.0%, 4.5% and 6.9%, respectively, of the stated
value of each outstanding share of Series A, Series B and Series C convertible
preferred stock. Dividends are payable in cash, or at the Company's option, in
additional shares of preferred stock, or Common Stock.

     On September 29, 1999, the Company redeemed all of the outstanding shares
of its Series A convertible preferred stock at a price equal to 125% of the
aggregate stated value plus all accrued and unpaid dividends thereon. As a
result, the Company recognized an additional dividend of $0.6 million
representing the premium paid on the redemption. The aggregate price paid by the
Company for the redemption of all remaining shares of Series A convertible
preferred stock was approximately $3.1 million. Upon redemption, the shares of
Series A convertible preferred stock were cancelled by the Company. These shares
are not subject to reissuance by the Company.

     On February 23, 2000, the Company redeemed 2,500 shares or $2.5 million
stated value of Series B convertible preferred stock at a price equal to 125% of
the aggregate stated value plus all accrued and unpaid

                                      F-21
<PAGE>   58
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

dividends thereon. As a result, the Company recognized an additional dividend of
$0.6 million representing the premium paid on the redemption. The aggregate
price paid by the Company for the redemption of the 2,500 shares of Series B
convertible preferred stock was approximately $3.1 million. Upon redemption, the
shares of Series B convertible preferred stock were cancelled by the Company.
These shares are not subject to reissuance by the Company.

     The holders of Series B convertible preferred stock are able to convert
their shares into Common Stock at a price equal to the lower of: (i) $24.60;
(ii) 92.5% of the average closing bid price for the Common Stock for the five
trading days prior to the conversion date; or (iii) if applicable, the lowest
traded price of the Common Stock during the time when the Common Stock is not
listed on a national securities exchange. The holders of the Series C
convertible preferred stock are able to convert their shares into Common Stock
at a price equal to $9.00 per share of Common Stock until November 2003, and
thereafter, at a price equal to the average closing bid price for the Common
Stock for the five trading days prior to the conversion date.

     The following presents a summary of the Series A preferred stock, Series B
preferred stock and Series C preferred stock issued and converted during year
ended March 31, 2000:

<TABLE>
<CAPTION>
                                                 SERIES A       SERIES B       SERIES C
                                                 --------       --------       --------
<S>                                              <C>            <C>            <C>
Shares outstanding at March 31, 1999               4,020         10,877         6,000
Shares converted into Common Stock                (1,620)        (7,393)            0
Shares redeemed for cash                          (2,462)        (2,500)            0
Shares issued for dividends                           62            193             0
                                                 -------         ------         -----
Shares outstanding at March 31, 2000                   0          1,177         6,000
                                                 =======         ======         =====
</TABLE>

COMMON STOCK
     Effective May 28, 1999, the Company's Common Stock was delisted from the
NASDAQ National Market and transferred to the NASDAQ SmallCap Market. The
decision to transfer the Company's Common Stock listing was a result of the
Company's inability to comply with certain aspects of the listing requirements
of the NASDAQ National Market.

     During January 1999, the Company completed a private sale of 192,000 shares
of the Company's Common Stock, at a purchase price of $2.00 per share to certain
officers and directors of the Company. The Company received proceeds of
approximately $0.4 million in that transaction. There were no fees or
commissions paid in the transaction.

     On November 2, 1998, the Company's stockholders approved an amendment to
the Company's Certificate of Incorporation to, among other things, increase the
number of authorized shares of Common Stock from 80,000,000 to 140,000,000.

     On December 19, 1997, the Company issued to Samstock, L.L.C., a Delaware
limited liability corporation ("Samstock") 1,470,588 shares of the Company's
Common Stock, (the "Samstock Shares"), pursuant to a Securities Purchase
Agreement between the Company and Samstock. The Company also issued warrants to
Samstock exercisable at any time prior to December 18, 2002 for: (i) 400,000
shares of Common Stock at an exercise price of $20.00 per share; and (ii)
200,000 shares of Common Stock at an exercise price of $23.00 per share. The
aggregate purchase price of the Samstock Shares and warrants issued to Samstock
was approximately $25.0 million.

     During April and May 1997, the Company completed a private sale of
2,025,000 shares of the Company's Common Stock at $7.25 per share (the "Private
Placement"), including the sale of 260,000 shares to certain officers and
directors of the Company. The Company received net proceeds of approximately
$14.7 million in the Private Placement.

                                      F-22
<PAGE>   59
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- STOCK BASED COMPENSATION

RESTRICTED STOCK
     On November 22, 1999, the Company's stockholders approved the Metal
Management, Inc. Restricted Stock Plan (the "Plan"), which allows for the
issuance of up to 4,000,000 shares of Common Stock to employees and consultants.
Vesting under the Plan is subject to restrictions established by the Executive
Compensation Committee of the Board of Directors. In Fiscal 2000, the Company
awarded 246,835 shares of Common Stock to employees. Compensation expense under
the Plan is charged to earnings over the vesting period and amounted to
approximately $0.3 million in Fiscal 2000.

STOCK OPTION PLANS
     On November 2, 1998, the Company's stockholders approved an amendment to
the Company's 1995 Stock Option Plan (the "1995 Plan") to reserve an aggregate
5,200,000 shares of Common Stock which can be issued to employees and
consultants under the 1995 Plan. The Board of Directors determines, within
limits set forth in the 1995 Plan, the term of each option, the option exercise
price, the number of shares to be granted and the times at and conditions under
which each option is or becomes exercisable. Options under the 1995 Plan are
generally granted at an exercise price equal to or greater than the market price
of the Company's Common Stock on the date of grant. These options generally vest
between 3 to 5 years and have terms ranging from 5 to 10 years. Options granted
under the 1995 Plan must be exercised no later than ten years from the date of
grant.

     On November 2, 1998, the Company's stockholders approved the 1998 Director
Compensation Plan (the "Director Plan") under which up to 250,000 shares of
Common Stock are available for grant to non-employee directors. The Director
Plan replaced the 1996 Director Option Plan, which provided for the issuance of
200,000 shares of Common Stock. Under the Director Plan, as of the first day of
the Company's fiscal year or the first day on which an individual becomes an
outside director, each non-employee director is granted an option to purchase
shares having a value of $30,000 as determined using the Black-Scholes valuation
method. Options granted under the Director Plan are fully vested and exercisable
at the time of grant and may be exercised no later than ten years after the
grant date. The 1996 Director Option Plan has been terminated as to future
awards.

                                      F-23
<PAGE>   60
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Summarized information for the Company's stock option plans are as follows:

<TABLE>
<CAPTION>
                                                                          WEIGHTED
                                                                          AVERAGE
                                                                          EXERCISE
                                                           SHARES          PRICE
                                                           ------         --------
<S>                                                      <C>              <C>
Options outstanding at April 1, 1997                        757,500       $   4.02
Granted                                                   1,218,650          16.01
Exercised                                                  (155,000)          3.95
Expired/forfeited                                                 0           0.00
                                                         ----------       --------
Options outstanding at March 31, 1998                     1,821,150          12.05
Granted                                                   2,698,445           5.35
Exercised                                                   (12,500)          4.65
Expired/forfeited                                        (1,641,150)         14.41
                                                         ----------       --------
Options outstanding at March 31, 1999                     2,865,945           4.44
Granted                                                   1,043,489           2.69
Exercised                                                         0           0.00
Expired/forfeited                                          (432,587)          5.63
                                                         ----------       --------
Options outstanding at March 31, 2000                     3,476,847       $   3.78
                                                         ==========       ========
Exercisable at March 31, 1998                               694,333       $   5.28
Exercisable at March 31, 1999                               701,500       $   5.65
Exercisable at March 31, 2000                             1,225,247       $   4.59
</TABLE>

     Options available for grant as of March 31, 2000, 1999 and 1998 were
1,861,403, 2,487,305 and 812,100, respectively.

     On December 1, 1998, a total of 1,513,900 outstanding stock options with a
weighted average exercise price of $14.42 per share were terminated in exchange
for the grant of 1,135,425 stock options with an exercise price of $3.87 per
share, representing 125% of the closing price of the Company's Common Stock on
December 1, 1998. The options granted in the exchange are exercisable over a
period of 5 years and vest ratably over a period of 3 years. The offer to
exchange was made to substantially all option holders, but did not include the
Company's chairman, chief executive officer and president. The exchange offer
was designed to restore the incentive value of Company stock options and to
encourage the retention of key personnel, particularly in light of the market
conditions in the scrap metal industry during the 1998 calendar year, and its
effect on the Company's stock price.

     The following table summarizes information about stock options outstanding
at March 31, 2000:

<TABLE>
<CAPTION>
                                                      OPTIONS OUTSTANDING
                                              ------------------------------------     OPTIONS EXERCISABLE
                                                            WEIGHTED                  ---------------------
                                                             AVERAGE      WEIGHTED                 WEIGHTED
                                                            REMAINING     AVERAGE                  AVERAGE
                                                           CONTRACTUAL    EXERCISE                 EXERCISE
         RANGE OF EXERCISE PRICES              SHARES      LIFE (YRS)      PRICE       SHARES       PRICE
         ------------------------              ------      -----------    --------     ------      --------
<S>                                           <C>          <C>            <C>         <C>          <C>
$2.00 to $2.75                                  978,489       5.03        $   2.59       51,666    $   2.39
$2.76 to $3.75                                  624,183       3.88        $   3.40      158,361    $   3.51
$3.76 to $3.87                                1,283,175       3.67        $   3.87      436,220    $   3.87
$3.88 to $21.13                                 591,000       4.98        $   5.94      579,000    $   5.63
                                              ---------                               ---------
                                              3,476,847                               1,225,247
                                              =========                               =========
</TABLE>

                                      F-24
<PAGE>   61
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

WARRANTS
     The Company issues warrants to purchase restricted Common Stock in
connection with acquisitions or for issuance to employees or directors for
services. The summary of warrant activity is as follows:

<TABLE>
<CAPTION>
                                                                           WEIGHTED
                                                                           AVERAGE
                                                                           EXERCISE
                                                               SHARES       PRICE
                                                               ------      --------
<S>                                                           <C>          <C>
Warrants outstanding at April 1, 1997                         2,015,038    $   4.65
Granted                                                       7,016,925        9.69
Exercised                                                      (702,654)       4.14
Expired/forfeited                                              (104,769)      12.72
                                                              ---------    --------
Warrants outstanding at March 31, 1998                        8,224,540        8.89
Granted                                                         740,547        7.76
Exercised                                                      (207,100)       4.93
Expired/forfeited                                              (315,040)       9.20
                                                              ---------    --------
Warrants outstanding at March 31, 1999                        8,442,947        8.85
Granted                                                         695,000        3.86
Exercised                                                             0        0.00
Expired/forfeited                                              (811,875)       4.02
                                                              ---------    --------
Warrants outstanding at March 31, 2000                        8,326,072    $   8.91
                                                              =========    ========
</TABLE>

     On December 1, 1998, a total of 245,000 outstanding warrants with a
weighted average exercise price of $10.76 per share were terminated in exchange
for the grant of 183,750 warrants with an exercise price of $3.87 per share,
representing 125% of the closing price of the Company's Common Stock on December
1, 1998. The warrants granted in the exchange are exercisable over a period of 5
years and vest ratably over a period of 3 years. The offer to exchange was made
to certain warrant holders. The exchange offer was designed to restore the
incentive value of the warrants and to encourage the retention of key personnel,
particularly in light of the market conditions in the scrap metal industry
during the 1998 calendar year, and its effect on the Company's stock price.

     The Company recognized approximately $6.8 million of warrant compensation
income and $30.6 million of warrant compensation expense associated with the
issuance of warrants for the years ended March 31, 1999 and 1998, respectively
(see Note 3 -- Non-cash and non-recurring expenses).

     The following table summarizes information about warrants outstanding at
March 31, 2000:

<TABLE>
<CAPTION>
                                                 WARRANTS OUTSTANDING                    WARRANTS EXERCISABLE
                                      ------------------------------------------       ------------------------
                                                       WEIGHTED
                                                        AVERAGE         WEIGHTED                       WEIGHTED
                                                       REMAINING        AVERAGE                        AVERAGE
                                                      CONTRACTUAL       EXERCISE                       EXERCISE
   RANGE OF EXERCISE PRICES            SHARES         LIFE (YRS)         PRICE          SHARES          PRICE
   ------------------------            ------         -----------       --------        ------         --------
<S>                                   <C>             <C>               <C>            <C>             <C>
$2.00 to $4.00                        1,656,873          2.68            $ 3.67        1,326,457        $ 3.80
$4.01 to $5.91                        2,317,741          2.41            $ 5.53        2,163,221        $ 5.53
$5.92 to $12.00                       2,706,457          2.27            $ 9.88        2,471,457        $10.25
$12.01 to $26.00                      1,645,001          2.76            $17.35        1,595,001        $17.48
                                      ---------                                        ---------
                                      8,326,072                                        7,556,136
                                      =========                                        =========
</TABLE>

PRO FORMA DISCLOSURES
     The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." The Company continues to account for
stock-based compensation under the provisions of

                                      F-25
<PAGE>   62
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

APB Opinion No. 25 and, accordingly, does not recognize compensation cost for
options and warrants with exercise prices equal to or greater than market value
at the date of grant. As required by SFAS No. 123, the following disclosure of
pro forma information provides the effects on net loss and net loss per share as
if the Company had accounted for its employee stock based compensation under the
fair value method prescribed by SFAS No. 123 (in thousands, except per share
data and assumptions):

<TABLE>
<CAPTION>
                 YEAR ENDED MARCH 31,                           2000           1999           1998
                 --------------------                           ----           ----           ----
<S>                                                           <C>            <C>            <C>
NET LOSS APPLICABLE TO COMMON STOCK:
  As reported                                                 $(13,939)      $(49,670)      $(41,307)
  Pro forma                                                   $(16,359)      $(59,869)      $(45,147)
BASIC AND DILUTED EPS APPLICABLE TO COMMON STOCK:
  As reported                                                 $  (0.26)      $  (1.24)      $  (1.99)
  Pro forma                                                   $  (0.30)      $  (1.49)      $  (2.17)
ASSUMPTIONS:
Expected life (years)                                                3              3              3
Expected volatility                                              96.15%          76.2%          63.7%
Dividend yield                                                      --             --             --
Risk-free interest rate                                           6.47%          5.07%          5.65%
</TABLE>

     The weighted average fair value of options and compensation based warrants
granted was as follows:

<TABLE>
<CAPTION>
            YEAR ENDED MARCH 31,            2000
                                   -----------------------             1999                       1998
            --------------------------------                  -----------------------    -----------------------
                                    SHARES      FAIR VALUE     SHARES      FAIR VALUE     SHARES      FAIR VALUE
                                    ------      ----------     ------      ----------     ------      ----------
<S>                                <C>          <C>           <C>          <C>           <C>          <C>
Exercise price > Market price      1,728,489      $0.80       2,726,195      $1.74         338,750      $4.37
Exercise price = Market price         10,000      $1.90         456,000      $5.39       1,173,323      $7.24
Exercise price < Market price            n/a        n/a             n/a        n/a       3,258,500      $8.04
</TABLE>

     The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option pricing model. The Black-Scholes option
valuation model was originally developed for use in estimating the fair value of
traded options, which have different characteristics than the Company's employee
stock options and warrants. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. As a result, it is management's opinion that the Black-Scholes model
may not necessarily provide a reliable single measure of the fair value of
employee stock options and warrants.

NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table sets forth certain unaudited quarterly financial
information for the Company's last eight fiscal quarters (in thousands, except
per share amounts)

<TABLE>
<CAPTION>
                                                                       QUARTER ENDED
                                                        --------------------------------------------
             YEAR ENDED MARCH 31, 2000                  JUNE 30     SEPT. 30    DEC. 31     MAR. 31
             -------------------------                  -------     --------    -------     -------
<S>                                                     <C>         <C>         <C>         <C>
Net sales                                               $198,682    $211,466    $233,734    $271,258
Gross profit                                              25,831      24,558      28,489      31,107
Non-cash and non-recurring expense (a)                         0       5,014           0           0
Loss from continuing operations (e)                       (3,338)     (6,741)     (1,771)     (2,465)
Income from discontinued operations                            0          27          14         335
Net loss applicable to Common Stock (b)                   (3,338)     (6,714)     (1,757)     (2,130)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
  Continuing operations                                 $  (0.06)   $  (0.13)   $  (0.03)   $  (0.04)
  Discontinued operations                                   0.00        0.00        0.00        0.00
  Net income (loss)                                        (0.06)      (0.13)      (0.03)      (0.04)
</TABLE>

                                      F-26
<PAGE>   63
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                       QUARTER ENDED
                                                        --------------------------------------------
             YEAR ENDED MARCH 31, 1999                  JUNE 30     SEPT. 30    DEC. 31     MAR. 31
             -------------------------                  -------     --------    -------     -------
<S>                                                     <C>         <C>         <C>         <C>
Net sales                                               $214,951    $217,256    $178,752    $194,315
Gross profit (c)                                          19,749       9,887      11,145      24,432
Non-cash and non-recurring expense (income) (d)             (786)     (2,575)      6,452      13,105
Loss from continuing operations (e)                         (913)    (14,656)    (19,009)    (14,271)
Extraordinary charge                                         862           0          76           0
Income from discontinued operations                           47          27          21          22
Net loss applicable to Common Stock (e)                   (1,728)    (14,629)    (19,064)    (14,249)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
  Continuing operations                                 $  (0.03)   $  (0.38)   $  (0.46)   $  (0.31)
  Extraordinary charge                                     (0.02)       0.00        0.00        0.00
  Net income (loss)                                        (0.05)      (0.38)      (0.46)      (0.31)
</TABLE>

-------------------------
(a) Non-cash and non-recurring expenses for Fiscal 2000 consist mainly of
    severance and facility abandonment and integration charges.
(b) Amounts include preferred stock dividends and special dividends paid upon
    the redemption of convertible preferred stock.
(c) Reflects the impact of lower of cost or market inventory adjustments
    recorded in the aggregate amount of approximately $17 million during the
    quarters ended September 30, 1998 and December 31, 1998.
(d) Non-cash and non-recurring expenses for Fiscal 1999 consisted of non-cash
    warrant compensation income, merger related costs, loss on the Superior
    Forge disposition and facility abandonment and integration charges.
(e) Amounts include preferred stock dividends, accretion of preferred stock
    discount to redemption value and non-cash beneficial conversion feature of
    convertible preferred stock.

                                      F-27
<PAGE>   64

                             METAL MANAGEMENT, INC.
                 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                (A)
                                                 BALANCE AT    CHARGED TO    CHARGED TO    DEDUCTIONS,    BALANCE AT
FISCAL                                           BEGINNING     COSTS AND       OTHER         NET OF         END OF
 YEAR                 DESCRIPTION                OF PERIOD      EXPENSES      ACCOUNTS     RECOVERIES       PERIOD
------                -----------                ----------    ----------    ----------    -----------    ----------
<S>       <C>                                    <C>           <C>           <C>           <C>            <C>
2000      Allowance for doubtful accounts          $2,020        $2,343        $ (500)       $(1,221)       $2,642
          Tax valuation allowance                  $  250        $  220        $    0        $     0        $  470

1999      Allowance for doubtful accounts          $1,629        $  982        $  467        $(1,058)       $2,020
          Tax valuation allowance                  $    0        $  250        $    0        $     0        $  250

1998      Allowance for doubtful accounts          $  101        $  641        $1,013        $  (126)       $1,629
</TABLE>

-------------------------
(a) Includes adjustments to the allowance for doubtful accounts due to
    acquisitions.

                                      F-28
<PAGE>   65

                             METAL MANAGEMENT, INC.

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                    NUMBER AND DESCRIPTION OF EXHIBIT
<C>    <S>
 3.1   Amended and Restated Certificate of Incorporation of the
       Company, as filed with the Secretary of State of the State
       of Delaware on November 2, 1998 (incorporated by reference
       to Exhibit 3.1 of the Company's Quarterly Report on Form
       10-Q for the quarter ended September 30, 1998).
 3.2   Certificate of Designations, Preferences and Rights of
       Series C Convertible Preferred Stock of the Company, as
       filed with the Secretary of State of the State of Delaware
       on November 2, 1998 (incorporated by reference to Exhibit
       3.2 of the Company's Quarterly Report on Form 10-Q for the
       quarter ended September 30, 1998).
 3.3   Restated By-Laws of the Company, as amended through March
       31, 2000 (incorporated by reference to Exhibit 3.3 of the
       Company's Quarterly Report on Form 10-Q for the quarter
       ended December 31, 1999).
 4.1   Indenture, dated as of May 13, 1998, among the Company, the
       Guarantors (as defined therein) and LaSalle National Bank,
       as Trustee (incorporated by reference to Exhibit 10.2 of the
       Company's Current Report on Form 8-K dated May 13, 1998).
 4.2   First Supplemental Indenture, dated as of May 31, 1998,
       executed by R&P Holdings, Inc., Charles Bluestone Company
       and R&P Real Estate, Inc., amending Indenture, dated as of
       May 13, 1998, among the Company, the Guarantors and LaSalle
       National Bank, as Trustee (incorporated by reference to
       Exhibit 4.12 of the Company's Annual Report on Form 10-K for
       the year ended March 31, 1999).
 4.3   Second Supplemental Indenture, dated as of June 19, 1998,
       executed by Metal Management Gulf Coast, Inc., amending
       Indenture, dated as of May 13, 1998, among the Company, the
       Guarantors and LaSalle National Bank, as Trustee
       (incorporated by reference to Exhibit 4.13 of the Company's
       Annual Report on Form 10-K for the year ended March 31,
       1999).
 4.4   Third Supplemental Indenture, dated as of June 24, 1998,
       executed by Newell Recycling West, Inc., amending Indenture,
       dated as of May 13, 1998, among the Company, the Guarantors
       and LaSalle National Bank, as Trustee (incorporated by
       reference to Exhibit 4.14 of the Company's Registration
       Statement on Form S-4 filed July 10, 1998).
 4.5   Fourth Supplemental Indenture, dated as of July 1, 1998,
       executed by Naporano Iron & Metal Co. and NIMCO Shredding
       Co., amending Indenture, dated as of May 13, 1998, among the
       Company, the Guarantors and LaSalle National Bank, as
       Trustee (incorporated by reference to Exhibit 4.15 of the
       Company's Registration Statement on Form S-4 filed July 10,
       1998).
 4.6   Fifth Supplemental Indenture, dated as of July 1, 1998,
       executed by Michael Schiavone & Sons, Inc. and Torrington
       Scrap Company, amending Indenture, dated as of May 13, 1998,
       among the Company, the Guarantors and LaSalle National Bank,
       as Trustee (incorporated by reference to Exhibit 4.16 of the
       Company's Registration Statement on Form S-4 filed July 10,
       1998).
 4.7   Sixth Supplemental Indenture, dated as of July 7, 1998,
       executed by Kimerling Acquisition Corp., amending Indenture,
       dated as of May 13, 1998, among the Company, the Guarantors
       and LaSalle National Bank, as Trustee (incorporated by
       reference to Exhibit 4.17 of the Company's Amendment No. 1
       to Registration Statement on Form S-4 filed October 6,
       1998).
 4.8   Seventh Supplemental Indenture, dated as of July 9, 1998,
       executed by Nicroloy Acquisition Corp., amending Indenture,
       dated as of May 13, 1998, among the Company, the Guarantors
       and LaSalle National Bank, as Trustee (incorporated by
       reference to Exhibit 4.18 of the Company's Amendment No. 1
       to Registration Statement on Form S-4 filed October 6,
       1998).
</TABLE>
<PAGE>   66

<TABLE>
<CAPTION>
                    NUMBER AND DESCRIPTION OF EXHIBIT
<C>    <S>
 4.9   Eighth Supplemental Indenture, dated as of November 3, 1998,
       executed by FPX, Inc., amending Indenture, dated as of May
       13, 1998, among the Company, the Guarantors and LaSalle
       National Bank, as Trustee (incorporated by reference to
       Exhibit 4.3 of the Company's Quarterly Report on Form 10-Q
       for the quarter ended September 30, 1998).
 4.10  Ninth Supplemental Indenture, dated as of November 3, 1998,
       executed by PerlCo, L.L.C., amending Indenture, dated as of
       May 13, 1998, among the Company, the Guarantors and LaSalle
       National Bank, as Trustee (incorporated by reference to
       Exhibit 4.4 of the Company's Quarterly Report on Form 10-Q
       for the quarter ended September 30, 1998).
 4.11  Tenth Supplemental Indenture, dated January 20, 2000,
       executed by Metal Management Services, Inc., Metal
       Management Stainless & Alloy, Inc. and Metal Management West
       Coast Holdings, Inc., amending Indenture, dated as of May
       13, 1998, among the Company, the Guarantors and LaSalle
       National Bank, as Trustee.
 4.12  Indenture, dated as of May 7, 1999, among the Company, the
       Guarantors (as defined therein) and Harris Trust and Savings
       Bank, as Trustee (incorporated by reference to Exhibit 4.1
       of the Company's Current Report on Form 8-K dated May 7,
       1999).
 4.13  First Supplemental Indenture, dated January 20, 2000,
       executed by Metal Management Services, Inc., Metal
       Management Stainless & Alloy, Inc. and Metal Management West
       Coast Holdings, Inc., amending Indenture, dated as of May 7,
       1999, among the Company, the Guarantors and Harris Trust and
       Savings Bank, as Trustee.
 4.14  Registration Rights Agreement, dated April 29, 1998, by and
       between the Company and 138 Scrap, Inc. and Katrick, Inc.
       (incorporated by reference to Exhibit 4.16 of the Company's
       Registration Statement on Form S-3 filed July 7, 1998).
 4.15  Exchange and Registration Rights Agreement, dated as of May
       13, 1998, by and among the Company, the Guarantors, Goldman,
       Sachs & Co., BT Alex. Brown Incorporated and Salomon
       Brothers Inc (incorporated by reference to Exhibit 10.3 of
       the Company's Current Report on Form 8-K dated May 13,
       1998).
 4.16  Registration Rights Agreement, dated June 24, 1998, by and
       between the Company and G. Robert Triesch, III (incorporated
       by reference to Exhibit 4.17 of the Company's Registration
       Statement on Form S-3 filed July 7, 1998).
 4.17  Registration Rights Agreement, dated as of July 1, 1998, by
       and among the Company, McDonald & Company Securities, Joseph
       F. Naporano and Andrew J. Naporano, Jr. (incorporated by
       reference to Exhibit 10.1 of the Company's Current Report on
       Form 8-K dated July 1, 1998).
 4.18  Registration Rights Agreement, dated July 7, 1998, between
       the Company and M. Kimerling & Sons, Inc. (incorporated by
       reference to Exhibit 4.25 of the Company's Amendment No. 1
       to Registration Statement on Form S-3 filed July 31, 1998).
 4.19  Registration Rights Agreement, dated July 9, 1998, between
       the Company and Nicroloy Company (incorporated by reference
       to Exhibit 4.24 of the Company's Amendment No. 1 to
       Registration Statement on Form S-3 filed July 31, 1998).
 4.20  Registration Rights Agreement, dated July 14, 1998, between
       the Company and Midwest Metallics, L.P. (incorporated by
       reference to Exhibit 4.26 of the Company's Amendment No. 1
       to Registration Statement on Form S-3 filed July 31, 1998).
 4.21  Exchange and Registration Rights Agreement, dated as of May
       7, 1999, among the Company, the Guarantors and BT Alex.
       Brown Incorporated (incorporated by reference to Exhibit 4.2
       of the Company's Current Report on Form 8-K dated May 7,
       1999).
 4.22  Metal Management, Inc. 1995 Stock Plan (incorporated by
       reference to Exhibit 4.9 of the Company's Quarterly Report
       on Form 10-Q for the quarter ended September 30, 1998).
</TABLE>
<PAGE>   67

<TABLE>
<CAPTION>
                    NUMBER AND DESCRIPTION OF EXHIBIT
<C>    <S>
 4.23  Metal Management, Inc. 1998 Director Compensation Plan
       (incorporated by reference to Exhibit 4.10 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended
       September 30, 1998).
 4.24  Metal Management, Inc. 1998 Employee Stock Purchase Plan
       (incorporated by reference to Exhibit 4.11 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended
       September 30, 1998).
 4.25  Metal Management, Inc. Restricted Stock Plan (incorporated
       by reference to Exhibit 4.1 of the Company's Registration
       Statement on Form S-8 filed on November 23, 1999).
10.1   Credit Agreement, dated March 31, 1998, by and among the
       Company and its subsidiaries named therein and BT Commercial
       Corporation (incorporated by reference to Exhibit 10.1 of
       the Company's Current Report on Form 8-K dated March 31,
       1998).
10.2   Amendment No. 1 to Credit Agreement, dated as of June 12,
       1998, by and among the Company and its subsidiaries named
       therein and BT Commercial Corporation (incorporated by
       reference to Exhibit 10.28 of the Company's Annual Report on
       Form 10-K for the year ended March 31, 1998).
10.3   Amendment No. 2 to Credit Agreement, dated as of June 19,
       1998, by and among the Company and its subsidiaries named
       therein and BT Commercial Corporation (incorporated by
       referenceto Exhibit 10.29 of the Company's Annual Report on
       Form 10-K for the year ended March 31, 1998).
10.4   Amendment No. 3A to Credit Agreement, dated as of September
       30, 1998, by and among the Company and its subsidiaries
       named therein and BT Commercial Corporation (incorporated by
       reference to Exhibit 10.1 of the Company's Current Report on
       Form 8-K dated October 5, 1998).
10.5   Amendment No. 4 to Credit Agreement, dated as of December
       31, 1998, by and among the Company and its subsidiaries
       named therein, BT Commercial Corporation and the other
       financial institutions signatories thereto as lenders
       (incorporated by reference to Exhibit 10.1 of the Company's
       Current Report on Form 8-K dated January 28, 1999).
10.6   Amendment No. 5 to Credit Agreement, dated as of April 14,
       1999, by and among the Company and its subsidiaries named
       therein, BT Commercial Corporation and the other financial
       institutions signatories thereto as lenders (incorporated by
       reference to Exhibit 10.6 of the Company's Annual Report on
       Form 10-K for the year ended March 31, 1999).
10.7   Amendment No. 6 to Credit Agreement, dated as of April 29,
       1999, by and among the Company and its subsidiaries named
       therein, BT Commercial Corporation and the other financial
       institutions signatories thereto as lenders (incorporated by
       reference to Exhibit 10.1 of the Company's Current Report on
       Form 8-K dated May 7, 1999).
10.8   Amendment No. 7 to Credit Agreement, dated as of May 31,
       2000, by and among the Company and its Subsidiaries named
       therein, BT Commercial Corporation and other financial
       institutions signatories there to as leaders.
10.9   Purchase Agreement, dated May 5, 1999, among the Company,
       its subsidiaries named therein and BT Alex. Brown
       Incorporated (incorporated by reference to Exhibit 10.2 of
       the Company's Current Report on Form 8-K dated May 7, 1999).
10.10  Employment Agreement, dated December 1, 1997 between Albert
       A. Cozzi and the Company (incorporated by reference to
       Exhibit 10.12 of the Company's Current Report on Form 8-K
       dated December 1, 1997).
10.11  Employment Agreement, dated December 1, 1997 between Frank
       J. Cozzi and the Company (incorporated by reference to
       Exhibit 10.15 of the Company's Current Report on Form 8-K
       dated December 1, 1997).
</TABLE>
<PAGE>   68

<TABLE>
<CAPTION>
                    NUMBER AND DESCRIPTION OF EXHIBIT
<C>    <S>
10.12  Employment Agreement, dated December 1, 1997 between Gregory
       P. Cozzi and Cozzi Iron & Metal, Inc. (incorporated by
       reference to Exhibit 10.18 of the Company's Current Report
       on Form 8-K dated December 1, 1997).
10.13  Employment Agreement, dated November 30, 1997 between Larry
       Snyder, the Company and Cozzi Iron & Metal, Inc.
       (incorporated by reference to Exhibit 10.21 of the Company's
       Annual Report on Form 10-K for the year ended March 31,
       1999).
10.14  Employment Agreement, dated August 27, 1997 between William
       T. Proler and the Company (incorporated by reference to
       Exhibit 10.1 of the Company's Current Report on Form 8-K
       dated August 28, 1997).
10.15  Employment Agreement, dated April 1, 2000 between Michael W.
       Tryon and the Company.
10.16  Employment Agreement, dated March 23, 1998 between David A.
       Carpenter and the Company.
10.17  Employment Agreement, dated August 26, 1996 between Robert
       C. Larry and the Company (incorporated by reference to
       Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
       for the quarter ended December 31, 1996).
10.18  Employment Agreement, dated July 1, 1998, between Naporano
       Iron & Metal Co., NIMCO Shredding Co. and Joseph F. Naporano
       (incorporated by reference to Exhibit 10.6 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended
       September 30, 1998).
10.19  Warrant to purchase 377,586 shares of Common Stock, dated
       December 1, 1997, issued by the Company to Albert A. Cozzi
       (incorporated by reference to Exhibit 10.13 of the Company's
       Current Report on Form 8-K dated December 1, 1997).
10.20  Warrant to purchase 377,586 shares of Common Stock, dated
       December 1, 1997, issued by the Company to Albert A. Cozzi
       (incorporated by reference to Exhibit 10.14 of the Company's
       Current Report on Form 8-K dated December 1, 1997).
10.21  Warrant to purchase 291,380 shares of Common Stock, dated
       December 1, 1997, issued by the Company to Frank J. Cozzi
       (incorporated by reference to Exhibit 10.16 of the Company's
       Current Report on Form 8-K dated December 1, 1997).
10.22  Warrant to purchase 291,380 shares of Common Stock, dated
       December 1, 1997, issued by the Company to Frank J. Cozzi
       (incorporated by reference to Exhibit 10.17 of the Company's
       Current Report on Form 8-K dated December 1, 1997).
10.23  Warrant to purchase 81,035 shares of Common Stock, dated
       December 1, 1997, issued by the Company to Gregory P. Cozzi
       (incorporated by reference to Exhibit 10.19 of the Company's
       Current Report on Form 8-K dated December 1, 1997).
10.24  Warrant to purchase 81,035 shares of Common Stock, dated
       December 1, 1997, issued by the Company to Gregory P. Cozzi
       (incorporated by reference to Exhibit 10.20 of the Company's
       Current Report on Form 8-K dated December 1, 1997).
10.25  Warrant to purchase 600,000 shares of Common Stock, dated
       December 19, 1997, issued by the Company to Samstock, L.L.C.
       (incorporated by reference to Exhibit 4.1 of the Company's
       Current Report on Form 8-K dated December 18, 1997).
10.26  Cash Warrant to purchase 95,625 shares of Common Stock,
       dated August 27, 1997, issued by the Company to William T.
       Proler and Gaile Proler Management Trust.
10.27  Conversion Warrant to purchase 42,500 shares of Common
       Stock, dated August 27, 1997, issued by the Company to
       William T. Proler and Gaile Proler Management Trust.
10.28  Warrant to purchase 50,000 shares of Common Stock, dated
       December 3, 1999, issued by the Company to Richard L.
       Measelle (incorporated by reference to Exhibit 10.1 of the
       Company's Quarterly Report on Form 10-Q for the quarter
       ended December 31, 1999).
</TABLE>
<PAGE>   69

<TABLE>
<CAPTION>
                    NUMBER AND DESCRIPTION OF EXHIBIT
<C>    <S>
10.29  Warrant to purchase 50,000 shares of Common Stock, dated
       December 3, 1999, issued by the Company to Richard L.
       Measelle (incorporated by reference to Exhibit 10.2 of the
       Company's Quarterly Report on Form 10-Q for the quarter
       ended December 31, 1999).
10.30  Warrant to purchase 50,000 shares of Common Stock, dated
       December 3, 1999, issued by the Company to Richard L.
       Measelle (incorporated by reference to Exhibit 10.3 of the
       Company's Quarterly Report on Form 10-Q for the quarter
       ended December 31, 1999).
10.31  Warrant to purchase 33,334 shares of Common Stock, dated
       December 3, 1999, issued by the Company to Patrick J.
       Ottensmeyer (incorporated by reference to Exhibit 10.4 of
       the Company's Quarterly Report on Form 10-Q for the quarter
       ended December 31, 1999).
10.32  Warrant to purchase 33,333 shares of Common Stock, dated
       December 3, 1999, issued by the Company to Patrick J.
       Ottensmeyer (incorporated by reference to Exhibit 10.5 of
       the Company's Quarterly Report on Form 10-Q for the quarter
       ended December 31, 1999).
10.33  Warrant to purchase 33,333 shares of Common Stock, dated
       December 3, 1999, issued by the Company to Patrick J.
       Ottensmeyer (incorporated by reference to Exhibit 10.6 of
       the Company's Quarterly Report on Form 10-Q for the quarter
       ended December 31, 1999).
10.34  Warrant to purchase 50,000 shares of Common Stock, dated
       December 3, 1999, issued by the Company to James R. Thompson
       (incorporated by reference to Exhibit 10.7 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended December
       31, 1999).
10.35  Warrant to purchase 50,000 shares of Common Stock, dated
       December 3, 1999, issued by the Company to James R. Thompson
       (incorporated by reference to Exhibit 10.8 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended December
       31, 1999).
10.36  Warrant to purchase 50,000 shares of Common Stock, dated
       December 3, 1999, issued by the Company to James R. Thompson
       (incorporated by reference to Exhibit 10.9 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended December
       31, 1999).
10.37  Warrant to purchase 75,000 shares of Common Stock, dated
       November 3, 1998, issued by the Company to Kenneth A.
       Merlau.
10.38  Settlement Agreement and General Release, dated February 12,
       1999, by and between Gerard M. Jacobs and the Company
       (incorporated by reference to Exhibit 10.2 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended December
       31, 1998).
10.39  Settlement Agreement and General Release, dated July 21,
       1999, by and between T. Benjamin Jennings and the Company
       (incorporated by reference to Exhibit 10.5 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended June 30,
       1999).
10.40  Settlement Agreement and General Release, dated August 6,
       1999 by and between George A. Isaac, III and the Company
       (incorporated by reference to Exhibit 10.6 of the Company's
       Quarterly Report on Form 10-Q for the quarter ended June 30,
       1999).
10.41  Amended and Restated Stockholders' Agreement, dated as of
       February 12, 1999, by and among T. Benjamin Jennings, Gerard
       M. Jacobs, Albert A. Cozzi, Frank J. Cozzi, Gregory P.
       Cozzi, Samstock, L.L.C. and the Company (incorporated by
       reference to Exhibit 10.3 of the Company's Quarterly Report
       on Form 10-Q for the quarter ended December 31, 1998).
10.42  Form of Outside Director Indemnification Agreement.
10.43  Letter Agreement, dated September 24, 1999, between Marshall
       Capital Management, Inc. and the Company (incorporated by
       reference to Exhibit 10.1 of the Company's Current Report on
       Form 8-K dated September 24, 1999).
21.1   Subsidiaries of the Company.
23.1   Consent of Pricewaterhouse Coopers LLP.
27.1   Financial Data Schedule.
</TABLE>