<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           -------------------------
 
                                  FORM 10-K/A
                               (AMENDMENT NO. 1)
[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                    FOR THE FISCAL YEAR ENDED MARCH 31, 1998
 
                                       OR
 
[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                         COMMISSION FILE NUMBER 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 June 15, 1998 as reported on the NASDAQ National Market System, was
approximately $175.8 million. Shares of Common Stock held by each officer and
director and by 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. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
 
     As of June 15, 1998, the Registrant had 34,333,963 shares of Common Stock
outstanding.
 
                   DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>   2
 
                               INTRODUCTORY NOTE
 
     This Form 10-K/A amends and restates Items 6, 7, and 8 of Part II and the
Consolidated Financial Statements of Metal Management, Inc. and Subsidiaries in
Item 14 of Part IV included in the Annual Report on Form 10-K of Metal
Management, Inc. (the "Company") for the fiscal year ended March 31, 1998. The
restatement is the result of a change in the method of accounting for the 1.4
million warrants (the "Warrants") to purchase Common Stock of the Company issued
to the former shareholders of the general partner of Reserve Iron & Metal, L.P.
("Reserve Iron & Metal") in connection with the Company's May 1, 1997
acquisition of Reserve Iron and Metal. The Warrants were initially recorded as a
component of the purchase consideration for Reserve Iron and Metal; however it
was subsequently determined that the provisions of EITF 95-8 "Accounting for
Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a
Purchase Business Combination" require that they be accounted for as non-cash
warrant compensation expense. The provisions of Accounting Principles Board
("APB") Opinion No. 25 "Accounting for Stock Issued to Employees," require the
Warrants to be treated as variable instruments.
 
     The financial statements, as revised, also reflects the inclusion of
historical financial information of R&P Holdings, Inc., the parent of Charles
Bluestone Company and R&P Real Estate, Inc. (collectively, "Bluestone") which
was merged with a wholly-owned subsidiary of the Company on May 28, 1998,
through a tax-free stock-for-stock exchange. This merger was accounted for as a
pooling-of-interests under APB Opinion No. 16, "Business Combinations." The
financial statements of the Company reflecting the merger with Bluestone had
previously been filed with the Securities and Exchange Commission on a Form 8-K
dated October 6, 1998.
 
     This Form 10-K/A does not serve to amend or update the disclosure included
in Items of the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, which are not restated herein, including without limitation, the
discussion included therein under the heading "Investment Considerations."
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                            PAGE
<S>         <C>                                                             <C>
                                      PART II
Item 6:     Selected Consolidated Financial Data........................     1
Item 7:     Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................     2
Item 8:     Financial Statements and Supplementary Data.................     7
                                      PART IV
Item 14:    Exhibits, Financial Statement Schedules and Reports on Form
            8-K.........................................................     8
</TABLE>
<PAGE>   3
 
                                    PART II
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(in millions, except per share data)
 
     The following table sets forth selected consolidated financial data of the
Company for the periods indicated. The information contained in this table
should be read in conjunction with "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 financial
data included in the table below reflect the results of the Company's prior
operations of designing, manufacturing and marketing electronic presentation
products and color printers and related consumable products as discontinued
operations. The Company sold the assets relating to these operations in July and
December 1996. The financial data for all periods has been restated to reflect
the results of the Company's merger with Bluestone on May 28, 1998, accounted
for as a pooling of interests. For information about principal acquisitions and
divestitures, see Notes 3 and 4 to the consolidated financial statements
included in Part IV, Item 14 of this report. The historical results are not
necessarily indicative of results to be expected for any future period.
 
<TABLE>
<CAPTION>
                                                                         FOR THE
                                             FOR THE YEARS ENDED       FIVE MONTHS   FOR THE YEARS ENDED
                                                 OCTOBER 31,              ENDED           MARCH 31,
                                         ---------------------------    MARCH 31,    -------------------
                                          1993      1994      1995        1996         1997       1998
                                         -------   -------   -------   -----------   --------   --------
<S>                                      <C>       <C>       <C>       <C>           <C>        <C>
INCOME STATEMENT DATA
Net sales..............................  $  40.4   $  64.8   $ 112.8     $  36.3     $  141.8   $  570.0
Gross profit...........................      1.5       3.5       7.8         1.4         11.4       52.1
General and administrative expenses....      2.2       2.0       6.3         2.3         10.4       28.2
Depreciation and amortization..........      0.2       0.1       0.1         0.1          2.5       10.1
Non-cash and non-recurring
  expenses(a)..........................        0         0         0           0            0       43.5
Interest expense.......................      0.3       0.4       1.2         0.5          2.3       10.0
Interest and other income, net.........      0.6       0.4       0.6         0.2          0.4        0.4
Income (loss) from continuing
  operations applicable to Common
  Stock(a).............................     (0.5)      1.9       1.1        (0.9)        (2.1)     (41.5)
Income (loss) from discontinued
  operations...........................     (0.2)     (0.4)     (2.7)        0.0          0.8        0.2
Net income (loss) applicable to Common
  Stock(a).............................  $  (0.7)  $   1.5   $  (1.6)    $  (0.9)    $   (1.3)  $  (41.3)
Basic income (loss) per share
  applicable to Common Stock:
Continuing operations(a)...............  $  (.08)  $   .31   $   .18     $  (.15)    $   (.21)  $  (2.00)
Discontinued operations................     (.03)     (.07)     (.44)        .00          .09        .01
                                         -------   -------   -------     -------     --------   --------
  Net income (loss)(a).................  $  (.11)  $   .24   $  (.26)    $  (.15)    $   (.12)  $  (1.99)
                                         =======   =======   =======     =======     ========   ========
Weighted average shares outstanding....    6,130     6,126     6,160       6,344       10,141     20,762
Diluted income (loss) per share
  applicable to Common Stock:
Continuing operations(a)...............  $  (.08)  $   .31   $   .18     $  (.15)    $   (.21)  $  (2.00)
Discontinued operations................     (.03)     (.07)     (.44)        .00          .09        .01
                                         -------   -------   -------     -------     --------   --------
  Net income (loss)(a).................  $  (.11)  $   .24   $  (.26)    $  (.15)    $   (.12)  $  (1.99)
                                         =======   =======   =======     =======     ========   ========
Weighted average diluted shares
  outstanding..........................    6,130     6,126     6,160       6,344       10,141     20,762
BALANCE SHEET DATA
  (AT END OF PERIOD)
Working capital (deficit)..............  $  11.9   $  10.7   $  11.1     $  11.1     $   (9.7)  $  101.6
Total assets...........................     22.5      30.6      39.1        31.7         94.7      497.2
Long-term debt, including current......      2.7       8.1      17.6        11.6         48.1      151.5
Convertible preferred stock............        0         0         0           0            0       33.0
Stockholders' equity...................     15.8      15.8      12.6        12.4         27.2      248.4
Cash dividends declared per share of
  Common Stock.........................  $  0.20   $  0.20   $  0.15     $  0.00     $   0.00   $   0.00
</TABLE>
 
---------------
(a) The financial data as of and for the year ended March 31, 1998 has been
    restated to reflect the impact of warrants issued in connection with the
    Reserve Iron & Metal acquisition as non-cash warrant compensation expense
    (see Notes 2 and 5 to the consolidated financial statements included in Part
    IV, Item 14 of this report.)
 
                                        1
<PAGE>   4
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.
 
     This Form 10-K/A 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/A which address
activities, events or developments that the Company expects or anticipates 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 the Company's business and operations and other such matters are
forward-looking statements. Although the Company believes the expectations
expressed in such forward-looking statements are based on reasonable assumptions
within the bounds of its knowledge of its business, a number of factors could
cause actual results to differ materially from those expressed in any
forward-looking statements, whether oral or written, made by or on behalf of the
Company. Many of these factors have previously been identified in filings or
statements made by or on behalf of the Company. See, in particular, the
discussion included under the heading "Investment Considerations" in the
Company's Annual Report on Form 10-K filed for the year ended March 31, 1998.
 
     The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of the Company, including changes arising
from recent acquisitions by the Company, the timing and nature of which have
significantly affected the Company's results of operations. The following
discussion and analysis does not include a comparison of the financial condition
and results of operation for the year ended March 31, 1997 to any prior periods.
The Company's prior operations of designing, manufacturing and marketing
electronic presentation products and color printers and related consumable
products were sold in July and December 1996 and since April 1996, the Company
consummated 18 acquisitions and now operates 54 recycling facilities in 12
states. In the opinion of management, any comparison of the results of
operations for the year ended March 31, 1997 to prior periods would not provide
information relevant to an assessment of the financial condition or results of
operations of the Company. 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
 
     Metal Management is one of the largest and fastest-growing full-service
metals recyclers in the United States, with 54 recycling facilities in 12
states. Metal Management is primarily engaged in the 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
and obsolete scrap, processes it into reusable forms and supplies the recycled
metals to its approximately 800 customers, including mini-mills, integrated
steel mills, foundries and metals brokers. Since April 1996 the Company has
experienced significant growth, principally through acquisitions.
 
     On May 28, 1998, a wholly owned subsidiary of the Company merged with R&P
Holdings, Inc., the parent of Charles Bluestone Company and R&P Real Estate,
Inc. of Pittsburgh, Pennsylvania (collectively, "Bluestone"), through a tax-free
stock-for-stock exchange. The merger was accounted for as a pooling-of-
interests under Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations." All information set forth below has been restated to include the
historical information of Bluestone and the Company on a pooled basis.
 
     The Company's revenues consist primarily of revenues derived from the sale
and brokerage of scrap metals. The Company recognizes revenues from processed
product sales at the time of shipment. Revenues related to brokerage sales are
generally 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, 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 the Company's marketing
and business development activities.
 
                                        2
<PAGE>   5
 
     Non-cash and non-recurring expenses include costs (a) recognized during
December 1997, that were principally non-cash and which were incurred with
respect to write-offs of certain of its investments in EMCO Recycling, severance
benefits for a former officer, and the cost of certain compensatory warrants
which were issued on December 1, 1997 and, (b) non-cash expenses recognized
during the current fiscal year related to warrants issued in connection with the
acquisition of Reserve Iron & Metal. These warrants have been presented for
financial reporting purposes as non-cash warrant compensation expense and are
treated as variable instruments under APB Opinion No. 25, "Accounting for Stock
issued to Employees."
 
     Other income and expense consists principally of 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 the Company in two joint ventures. Both joint ventures are accounted for
under the equity method of accounting.
 
RESULTS OF OPERATIONS
 
Year Ended March 31, 1998 Compared to Year Ended March 31, 1997
 
     Consolidated net sales for the years ended March 31, 1998 ("Fiscal 1998")
and 1997 ("Fiscal 1997") in broad product categories were as follows (in
millions):
 
<TABLE>
<CAPTION>
                                                  3/31/98 (FISCAL 1998)        3/31/97 (FISCAL 1997)
                                                --------------------------   --------------------------
COMMODITY (WEIGHT IN THOUSANDS)                 WEIGHT    NET SALES    %     WEIGHT    NET SALES    %
-------------------------------                 -------   ---------   ----   -------   ---------   ----
<S>                                             <C>       <C>         <C>    <C>       <C>         <C>
Ferrous metals (tons).........................    2,127    $266.4     46.7       152    $ 20.8     14.6
Non-ferrous metals (lbs)......................  331,414     166.5     29.3   200,618     105.6     74.5
Brokerage -- ferrous (tons)...................      952     113.0     19.8         0       0.0      0.0
Brokerage -- non ferrous (lbs)................   68,754      21.9      3.8    51,675      14.4     10.2
Other.........................................       --       2.2      0.4        --       1.0      0.7
                                                           ------     ----              ------     ----
                                                           $570.0     100%              $141.8     100%
                                                           ======     ====              ======     ====
</TABLE>
 
     Consolidated net sales for the year ended March 31, 1998 were $570.0
million compared with consolidated net sales of $141.8 million for the year
ended March 31, 1997. The significant increase in consolidated net sales was
principally due to the inclusion of the net sales of the companies acquired by
Metal Management during the year ended March 31, 1998.
 
     Ferrous sales of processed materials represented 46.7% of consolidated net
sales for the year ended March 31, 1998 compared to 14.6% of consolidated net
sales for the year ended March 31, 1997. The significant increase in ferrous
sales, both in tons sold and as a percentage of consolidated net sales, was due
primarily to the inclusion of ferrous sales of HouTex, Reserve Iron & Metal,
Isaac Group, Proler Southwest and Cozzi Iron & Metal, each of which is primarily
engaged in the sale of ferrous metals.
 
     Non-ferrous sales of processed materials represented 29.3% of consolidated
net sales for the year ended March 31, 1998 compared to 74.5% of consolidated
net sales for the year ended March 31, 1997. The decrease in percentage of
non-ferrous sales was due to the acquisitions of HouTex, Reserve Iron & Metal,
Isaac Group, Proler Southwest and Cozzi Iron & Metal, which primarily sell
ferrous metals. The increase in pounds of non-ferrous metals sold was due to the
inclusion of non-ferrous sales of the MacLeod Companies and Aerospace, which are
primarily engaged in the sale of non-ferrous metals.
 
     Brokerage ferrous sales represented 19.8% of consolidated net sales for the
year ended March 31, 1998. The Company did not have any brokerage ferrous sales
for the year ended March 31, 1997. Brokerage ferrous sales are mainly generated
by Reserve Iron & Metal, Isaac Group and Cozzi Iron & Metal, each of which was
acquired during the year ended March 31, 1998.
 
     Brokerage non-ferrous sales represented 3.8% of consolidated net sales for
the year ended March 31, 1998 compared to 10.2% of consolidated net sales for
the year ended March 31, 1997. The increase in pounds and
 
                                        3
<PAGE>   6
 
dollars of brokerage non-ferrous sales is due to the acquisitions of Isaac Group
and Aerospace, each of which was acquired during the year ended March 31, 1998.
 
     Consolidated gross profit was $52.1 million (9.1% of consolidated net
sales) for the year ended March 31, 1998 compared with consolidated gross profit
of $11.4 million (8.0% of consolidated net sales) for the year ended March 31,
1997. The price of scrap metal is affected by regional and seasonal variations.
Furthermore, prices for scrap metal are also impacted by broad and global
cyclical movements and as such equilibrates supply and demand.
 
     Consolidated general and administrative expenses were $28.2 million (4.9%
of consolidated net sales) for the year ended March 31, 1998 compared with $10.4
million (7.3% of consolidated net sales) for the year ended March 31, 1997. The
increase in general and administrative expenses primarily reflects the inclusion
of a full year of administrative expenses for those operations acquired during
the year ended March 31, 1997 and the inclusion of a partial year of
administrative expenses for the operations acquired by the Company during the
year ended March 31, 1998. Corporate overhead also increased due to additions in
corporate staff and corporate expenses (i.e. legal, audit, travel, etc.) to
support the acquisition strategy the Company is pursuing. The reduction in
general and administrative expenses as a percent of consolidated net sales
reflects the large scale of operations at Reserve Iron & Metal, Isaac Group and
Cozzi Iron & Metal that provides for more efficient allocation of administrative
expenses.
 
     Depreciation and amortization expense was $10.1 million (1.8% of
consolidated net sales) for the year ended March 31, 1998 compared with $2.5
million (1.8% of consolidated net sales) for the year ended March 31, 1997. The
increase was attributed to the inclusion of goodwill amortization and
depreciation of fixed assets of those operations acquired by the Company since
the year ended March 31, 1997.
 
     During the year ended March 31, 1998, the Company recorded the following
non-cash and non-recurring pre-tax expenses, totaling $43.5 million (7.6% of
consolidated net sales) (in millions):
 
<TABLE>
<S>                                                           <C>
Non-cash warrant compensation expense.......................  $30.6
Severance and other termination benefits....................    1.1
EMCO Recycling Shut-down....................................   11.8
                                                              -----
                                                              $43.5
                                                              =====
</TABLE>
 
     See further discussion at Note 5 to the Consolidated Financial Statements
included in Part IV, Item 14 of this Report.
 
     Interest expense was $10.0 million (1.8% of consolidated net sales) for the
year ended March 31, 1998 compared to $2.3 million (1.6% of consolidated net
sales) for the year ended March 31, 1997. This increase was due to the issuance
of notes to sellers and the incurrence and/or assumption of debt associated with
the acquisitions completed since the year ended March 31, 1997.
 
     Loss from continuing operations, after preferred stock dividends and
accretion, was $41.5 million ($2.00 per share) for the year ended March 31, 1998
compared to a net loss of $2.1 million ($0.21 per share) for the year ended
March 31, 1997. The increase in the loss was primarily attributable to the
non-cash and non-recurring expenses recorded by the Company in the year ended
March 31, 1998. Loss from continuing operations, excluding the non-cash and
non-recurring expenses and the one-time non-cash dividend charge, was $0.2
million ($0.01 per share) for the year ended March 31, 1998.
 
     Income from discontinued operations was $0.2 million ($0.01 per share) for
the year ended March 31, 1998 compared to $0.8 million ($0.09 per share) for the
year ended March 31, 1997. Income during the current fiscal year mainly reflects
the royalty income recognized by the Company from the sale of its discontinued
operations, net of certain expenses paid. Prior year results reflect three
months of operations of the discontinued businesses as well as the gain on sale
of the discontinued operations.
 
                                        4
<PAGE>   7
 
     Income tax benefit for the year ended March 31, 1998 was $4.6 million (0.8%
of consolidated net sales), which yields an effective tax rate of 11.7%. The
effective tax rate differs from the statutory rate primarily due to the
permanent differences represented by non-deductible goodwill amortization and
certain non-deductible, non-cash and non-recurring expenses.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company will continue to pursue acquisitions in the scrap metal
recycling industry and anticipates financing these acquisitions through a
combination of cash and the issuance of debt and equity. The Company will
require substantial capital to fund future acquisitions and current operations.
There can be no assurance that any additional financing will be available on
terms acceptable to the Company, if at all.
 
  Cash Flows from Continuing Operations
 
     The Company generated $2.0 million of cash flows from continuing operations
during the year ended March 31, 1998 compared with cash outflows of $1.7 million
during the year ended March 31, 1997. The increase mainly reflects cash flows
generated from operations acquired during the year ended March 31, 1998.
 
  Cash Flows from Investing Activities
 
     The Company made capital expenditures of approximately $7.6 million during
the year ended March 31, 1998, compared with capital expenditures of $3.3
million during the year ended March 31, 1997. The Company utilized cash of
approximately $43.9 million to complete the acquisitions of, and transaction
costs related to, the operations acquired by the Company during the year ended
March 31, 1998. Management anticipates continuing to make acquisitions, make
capital expenditures for new equipment, and upgrade and expand existing
equipment and facilities. The Company expects that these expenditures may
increase in the future due to the internal and external growth of the Company.
 
  Cash Flows from Financing Activities
 
     During the year ended March 31, 1998, the Company issued 3,495,588 shares
of restricted Common Stock and warrants to purchase 600,000 shares of Common
Stock in two private offerings which aggregated $39.7 million and received
proceeds from the issuance of 45,000 shares of Series A Preferred Stock and
Series B Preferred Stock which aggregated $42.8 million (collectively, the
"Private Placements"). The proceeds from the Private Placements were used to
fund purchase consideration with respect to acquisitions, repay debt and provide
working capital. The Company anticipates growing through acquisitions and will
require additional debt or equity to fund its potential and future acquisitions.
 
  Cash Flows from Discontinued Operations
 
     The Company's cash flows from discontinued operations for the year ended
March 31, 1998 reflects royalty income recognized from the sale of the assets of
the discontinued operations, net of expenses paid. Cash flows during the year
ended March 31, 1997 reflect the cash generated by the discontinued operations
as well as the proceeds related to the sale of the discontinued operations.
 
FINANCIAL CONDITION
 
     The Company's principal sources of cash are its existing cash and cash
equivalents balances, collection of accounts receivable and proceeds from lines
of credit and other borrowings. At March 31, 1998, the Company had $4.5 million
in cash and cash equivalents, compared with cash and cash equivalents of $5.8
million at March 31, 1997.
 
  Significant Transactions
 
     During the year ended March 31, 1998, the Company completed certain
significant debt and equity transactions. The Company raised approximately $39.7
million from the issuance of restricted Common Stock
 
                                        5
<PAGE>   8
 
and raised approximately $42.8 million from the issuance of convertible
preferred stock (see Note 11 to the Consolidated Financial Statements included
in Part IV, Item 14 of this report). The Company utilized a portion of the cash
to pay approximately $36.0 million of notes which were issued in connection with
certain acquisitions, to pay a $6.5 million term loan and to fund $33.8 million
of the cash portion of the purchase price for certain acquisitions.
 
  Cash Requirements for Maturing Debt Obligations
 
     In connection with the acquisition of the Isaac Group, the Company issued
and assumed notes payable. The notes require quarterly interest payments and
require principal payments of $10.8 million on February 15, 1999 and $10.8
million on February 15, 2000.
 
  Cash Requirements for Pending Acquisitions
 
     The Company expects that the cash component of purchase price for Pending
Acquisitions, if all such acquisitions are completed, will be $155.1 million.
 
  Working Capital Availability and Requirements
 
     Accounts receivable balances increased from $27.0 million at March 31, 1997
to $122.4 million at March 31, 1998, primarily as a result of the inclusion of
the accounts receivable of the operations acquired by the Company since March
31, 1997. Accounts payable increased from $13.1 million at March 31, 1997 to
$66.8 million at March 31, 1998, primarily as a result of such acquisitions.
 
     Inventory levels can vary significantly among the Company's subsidiaries.
Inventory on hand at March 31, 1998 and March 31, 1997, respectively, consisted
of the following categories and amounts (in thousands):
 
<TABLE>
<CAPTION>
                                                             1998      1997
                                                            -------   -------
<S>                                                         <C>       <C>
Ferrous metals............................................  $35,934   $ 2,707
Non-ferrous metals........................................   25,222     9,747
Other.....................................................      786       954
                                                            -------   -------
                                                            $61,942   $13,408
                                                            =======   =======
</TABLE>
 
     The increase in the value of inventory is primarily due to the inclusion of
the inventories of Reserve Iron & Metal, the Isaac Group, Aerospace and Cozzi
Iron & Metal, all of which were acquired during the year ended March 31, 1998.
 
     The Company expects to make substantial investments in additional equipment
and property for expansion, for replacement of assets, and in connection with
future acquisitions.
 
     At March 31, 1998, the Company and its wholly-owned subsidiaries had
outstanding borrowings with commercial lenders under various short-term
revolving lines of credit in the aggregate principal amount of $58.5 million.
The facilities provided for revolving credit at interest rates that range from
8.5% to 16.5%.
 
     On March 31, 1998, the Company and its subsidiaries entered into a credit
facility (the "Senior Credit Facility") with BT Commercial Corporation, as agent
for the lenders (the "Agent"), and certain commercial lending institutions
providing for a revolving credit and letter of credit facility of $200.0
million. On June 19, 1998, the Senior Credit Facility was amended to increase
the facility to $250.0 million. The Senior Credit Facility matures on March 31,
2001. The Senior Credit Facility bears interest at a floating rate per annum
equal to (at the Company's option): (i) 1.75% over LIBOR or (ii) 0.5% over
Bankers Trust Company's prime rate as in effect from time to time. The Senior
Credit Facility is available for working capital and general corporate purposes,
including acquisitions. The Company and its subsidiaries are required under the
Senior Credit Facility to pay the Agent and the lenders certain fees and
expenses which include an unused line fee on a monthly basis. The obligations of
the Company and its subsidiaries under the Senior Credit Facility are secured by
a security interest in substantially all of the assets and properties of the
Company and its subsidiaries. Availability of loans and letters of credit under
the Senior Credit Facility is generally limited to a
                                        6
<PAGE>   9
 
borrowing base constituted of 85% of eligible accounts receivable, 70% of
eligible inventory and a $40 million fixed asset sublimit that amortizes on a
quarterly basis.
 
     On April 1, 1998, the Company made borrowings of $106.8 million under the
Senior Credit Facility to: (i) repay outstanding secured debt of approximately
$96.5 million; (ii) buyout operating leases of approximately $9.3 million; and
(iii) pay prepayment penalties of approximately $1.0 million, leaving the
Company with approximately $17.3 million available under the Senior Credit
Facility as of such date. Borrowings outstanding under the Senior Credit
Facility as of April 1, 1998 bore interest at 9.0%.
 
     On May 13, 1998, the Company sold, in a Rule 144A private offering and
pursuant to Regulation S under the Securities Act of 1933, as amended, $180
million of senior subordinated notes (the "Notes"). The Notes mature on May 15,
2008 and bear interest at the rate of 10% per annum. The proceeds of the
offering were used in part to repay indebtedness of the Company, with the
remainder used for acquisitions and general corporate purposes.
 
     The weighted average interest rate on the borrowings outstanding under the
Company's working capital lines of credit at March 31, 1998 was 9.5%. Average
borrowings under the various working capital lines of credit during fiscal 1998
were approximately $28.5 million. During fiscal 1998, amounts outstanding under
the various working capital lines of credit ranged from $18.0 million to $57.6
million.
 
YEAR 2000 LIABILITY
 
     The Company is in the process of reviewing its existing computer software
systems, and in connection with that process is analyzing whether or not the
Company faces a "Year 2000" problem, a problem that is expected to arise with
respect to computer programs that use only two digits to identify a year in the
date field, and which were designed and developed without considering the impact
of the upcoming change in the century. Although the Company has not yet made a
final determination as to whether the various computer systems at its operations
will give rise to a "Year 2000" problem, the Company believes that any such
problem, if it arises in the future, should not be material to the Company's
operations.
 
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.
 
                                        7
<PAGE>   10
 
                                    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 year ended
  October 31, 1995, the five months ended March 31, 1996,
  and the years ended March 31, 1997 and 1998...............   F-2
Consolidated Balance Sheets at March 31, 1997 and 1998......   F-3
Consolidated Statements of Cash Flows for the year ended
  October 31, 1995, the five months ended March 31, 1996,
  and the years ended March 31, 1997 and 1998...............   F-4
Consolidated Statements of Stockholders' Equity for the year
  ended October 31, 1995, the five months ended March 31,
  1996, and the years ended March 31, 1997 and 1998.........   F-5
Notes to Consolidated Financial Statements..................   F-6
(a)(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and qualifying accounts -- for the
  year ended October 31, 1995, the five months ended March
  31, 1996, and the years ended March 31, 1997 and 1998.....  F-31
</TABLE>
 
     Schedules not listed above have been omitted because they are not required
or they are inapplicable.
 
(a)(3) EXHIBITS:
 
     A list of the exhibits included as part of this Form 10-K/A is set forth in
the Exhibit Index that immediately precedes such exhibits, which is incorporated
herein by reference.
 
(b) REPORTS ON FORM 8-K:
 
     The following reports on Form 8-K were filed during the fourth quarter of
fiscal 1998:
 
          (1) The Company filed a report on Form 8-K on January 2, 1998, dated
              December 18, 1997, disclosing the Securities Purchase Agreement
              between the Company and Samstock, L.L.C.
 
          (2) The Company filed a report on Form 8-K on January 22, 1998, dated
              January 8, 1998, disclosing the terms of the acquisition of
              Houston Compressed Steel Corp.
 
          (3) The Company filed a report on Form 8-K on February 4, 1998, dated
              January 20, 1998, disclosing the terms of the acquisition of
              Aerospace Metals, Inc., Aerospace Parts Security, Inc. and The
              Suisman Titanium Corporation.
 
                                        8
<PAGE>   11
 
                                   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 May 4, 1999.
 
                                    METAL MANAGEMENT, INC.
 
                                    By:       /s/ T. BENJAMIN JENNINGS
 
                                       -----------------------------------------
                                                 T. Benjamin Jennings
                                          Director, 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 May 4, 1999.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                            TITLE
                      ---------                                            -----
<C>                                                    <S>
 
                /s/ GERARD M. JACOBS                   Director
-----------------------------------------------------
                  Gerard M. Jacobs
 
              /s/ T. BENJAMIN JENNINGS                 Director, Chairman of the Board and Chief
-----------------------------------------------------    Executive Officer (Principal Executive
                T. Benjamin Jennings                     Officer)
 
                 /s/ ALBERT A. COZZI                   Director, President and Chief Operating
-----------------------------------------------------    Officer
                   Albert A. Cozzi
 
               /s/ GEORGE A. ISAAC III                 Director and Executive Vice President
-----------------------------------------------------
                 George A. Isaac III
 
                 /s/ FRANK J. COZZI                    Director and Vice President
-----------------------------------------------------
                   Frank J. Cozzi
 
                /s/ GREGORY P. COZZI                   Director
-----------------------------------------------------
                  Gregory P. Cozzi
 
                /s/ WILLIAM T. PROLER                  Director
-----------------------------------------------------
                  William T. Proler
 
                                                       Director
-----------------------------------------------------
                   Rod F. Dammeyer
 
                 /s/ ROBERT C. LARRY                   Executive Vice President, Finance, Treasurer
-----------------------------------------------------    and Chief Financial Officer (Principal
                   Robert C. Larry                       Financial and Accounting Officer)
 
                                                       Director
-----------------------------------------------------
                 Timothy T. Orlowski
 
               /s/ JOSEPH P. NAPORANO                  Director
-----------------------------------------------------
                 Joseph P. Naporano
 
                                                       Director
-----------------------------------------------------
                  Gene C. McCaffery
 
                /s/ KENNETH A. MERLAU                  Director and Executive Vice President
-----------------------------------------------------
                  Kenneth A. Merlau
</TABLE>
 
                                        9
<PAGE>   12
 
                             METAL MANAGEMENT, INC.
 
                                 EXHIBIT INDEX
 
NUMBER AND DESCRIPTION OF EXHIBIT
 
<TABLE>
<C>     <S>
23.1    Consent of PricewaterhouseCoopers LLP.
27.1    Financial Data Schedule.
</TABLE>
 
                                      EX-1
<PAGE>   13
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and
  Stockholders of Metal Management, Inc.
 
     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
stockholders' equity present fairly, in all material respects, the financial
position of Metal Management, Inc. and its subsidiaries at March 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
two years in the period ended March 31, 1998, the five months ended March 31,
1996 and for the year ended October 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards 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.
 
     As discussed in Notes 2 and 5, the consolidated financial statements as of
and for the year ended March 31, 1998 have been restated to reflect a change in
accounting for certain warrants issued in connection with a business
combination.
 
PRICE WATERHOUSE LLP
 
May 28, 1998, except as to Notes 2 and 5,
  which are as of May 4, 1999
 
                                       F-1
<PAGE>   14
 
                             METAL MANAGEMENT, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
 
<TABLE>
<CAPTION>
                                                                 FIVE MONTHS
                                                   YEAR ENDED       ENDED      YEAR ENDED   YEAR ENDED
                                                   OCTOBER 31,    MARCH 31,    MARCH 31,    MARCH 31,
                                                      1995          1996          1997         1998
                                                   -----------   -----------   ----------   ----------
                                                                                            (RESTATED)
<S>                                                <C>           <C>           <C>          <C>
NET SALES........................................   $112,775       $36,366      $141,830     $570,035
Cost of sales....................................    104,960        34,907       130,423      517,894
                                                    --------       -------      --------     --------
Gross profit.....................................      7,815         1,459        11,407       52,141
OPERATING EXPENSES:
  General and administrative.....................      6,291         2,311        10,387       28,191
  Depreciation and amortization..................        154           110         2,525       10,105
  Non-cash and non-recurring expenses (Note 5)...          0             0             0       43,548
                                                    --------       -------      --------     --------
Total operating expenses.........................      6,445         2,421        12,912       81,844
                                                    --------       -------      --------     --------
Operating income (loss) from continuing
  operations.....................................      1,370          (962)       (1,505)     (29,703)
Income (loss) from joint ventures................      1,038          (362)          436          370
Interest expense.................................     (1,223)         (514)       (2,304)      (9,995)
Interest and other income, net...................        627           233           363          366
                                                    --------       -------      --------     --------
Income (loss) from continuing operations before
  income taxes...................................      1,812        (1,605)       (3,010)     (38,962)
Provision (benefit) for income taxes.............        674          (652)         (903)      (4,555)
                                                    --------       -------      --------     --------
Income (loss) from continuing operations.........      1,138          (953)       (2,107)     (34,407)
Discontinued operations (Note 4):
  Gain on sale of discontinued operations, net of
     income taxes................................          0             0           502          200
  Income (loss) from discontinued operations, net
     of income taxes.............................     (2,698)           22           345            0
                                                    --------       -------      --------     --------
Net loss.........................................     (1,560)         (931)       (1,260)     (34,207)
Accretion of preferred stock to redemption
  value..........................................          0             0             0          (57)
Non-cash beneficial conversion feature of
  convertible preferred stock....................          0             0             0       (5,592)
Preferred stock dividends........................          0             0             0       (1,451)
                                                    --------       -------      --------     --------
Net loss applicable to Common Stock..............   $ (1,560)      $  (931)     $ (1,260)    $(41,307)
                                                    ========       =======      ========     ========
BASIC EARNINGS (LOSS) PER SHARE:
  Income (loss) from continuing operations
     applicable to Common Stock (Note 12)........   $   0.18       $ (0.15)     $  (0.21)    $  (2.00)
  Gain on sale of discontinued operations........       0.00          0.00          0.05         0.01
  Income (loss) from discontinued operations.....      (0.44)         0.00          0.04         0.00
                                                    --------       -------      --------     --------
  Net loss applicable to Common Stock............   $  (0.26)      $ (0.15)     $  (0.12)    $  (1.99)
                                                    ========       =======      ========     ========
  Weighted average shares outstanding............      6,160         6,334        10,141       20,762
DILUTED EARNINGS (LOSS) PER SHARE:
  Income (loss) from continuing operations
     applicable to Common Stock (Note 12)........   $   0.18       $ (0.15)     $  (0.21)    $  (2.00)
  Gain on sale of discontinued operations........       0.00          0.00          0.05         0.01
  Income (loss) from discontinued operations.....      (0.44)         0.00          0.04         0.00
                                                    --------       -------      --------     --------
  Net loss applicable to Common Stock............   $  (0.26)      $ (0.15)     $  (0.12)    $  (1.99)
                                                    ========       =======      ========     ========
  Weighted average diluted shares outstanding....      6,160         6,334        10,141       20,762
Dividends declared per share of Common Stock.....   $   0.15       $  0.00      $   0.00     $   0.00
</TABLE>
 
          See accompanying notes to Consolidated Financial Statements.
                                       F-2
<PAGE>   15
 
                             METAL MANAGEMENT, INC.
                          CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
 
<TABLE>
<CAPTION>
                                                               MARCH 31, 1997   MARCH 31, 1998
                                                               --------------   --------------
                                                                                  (RESTATED)
<S>                                                            <C>              <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................      $ 5,768          $  4,464
  Accounts receivable, net..................................       26,972           122,404
  Inventories...............................................       13,408            61,942
  Prepaid expenses and other assets.........................        2,232             5,961
  Deferred taxes............................................          351             2,608
                                                                  -------          --------
     Total current assets...................................       48,731           197,379
Property and equipment, net.................................       21,262           109,886
Goodwill and other intangibles, net.........................       23,484           181,311
Investments in joint ventures...............................          622             7,496
Other assets................................................          602             1,162
                                                                  -------          --------
     Total assets...........................................      $94,701          $497,234
                                                                  =======          ========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Operating lines of credit.................................      $19,056          $      0
  Accounts payable..........................................       13,098            66,845
  Other accrued liabilities.................................        2,896            17,018
  Current portion of notes payable to related parties.......       12,575            10,830
  Current portion of long-term debt.........................       10,813             1,047
                                                                  -------          --------
     Total current liabilities..............................       58,438            95,740
Long-term notes payable to related parties, less current
  portion...................................................        1,620            31,762
Long-term debt, less current portion........................        3,974           107,827
Deferred taxes..............................................        1,674            11,177
Other liabilities...........................................        1,815             2,339
                                                                  -------          --------
     Total liabilities......................................       67,521           248,845
Commitments and contingencies (Note 15)
Stockholders' equity:
Preferred Stock, $.01 par value -- 4,000,000 shares
  authorized:
  Convertible preferred stock -- Series A, $1,000 stated
     value; 25,759 shares issued; 15,094 shares
     outstanding............................................            0            13,981
  Convertible preferred stock -- Series B, $1,000 stated
     value; 20,000 shares issued and outstanding............            0            19,027
Common Stock, $.01 par value -- 80,000,000 shares
  authorized; 11,189,566 and 34,080,830 issued and
  outstanding at March 31, 1997 and 1998, respectively......          112               341
Warrants, 2,015,038 and 8,224,540 exercisable into Common
  Stock at March 31, 1997 and 1998, respectively............        1,351            47,000
Additional paid-in-capital..................................       16,688           200,305
Minimum pension liability...................................          (43)              (30)
Retained earnings (deficit).................................        9,072           (32,235)
                                                                  -------          --------
     Total stockholders' equity.............................       27,180           248,389
                                                                  -------          --------
  Total liabilities and stockholders' equity................      $94,701          $497,234
                                                                  =======          ========
</TABLE>
 
          See accompanying notes to Consolidated Financial Statements.
 
                                       F-3
<PAGE>   16
 
                             METAL MANAGEMENT, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                                                       FIVE MONTHS
                                                         YEAR ENDED       ENDED       YEAR ENDED   YEAR ENDED
                                                         OCTOBER 31,    MARCH 31,     MARCH 31,    MARCH 31,
                                                            1995           1996          1997         1998
                                                         -----------   ------------   ----------   ----------
                                                                                                   (RESTATED)
<S>                                                      <C>           <C>            <C>          <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Income (loss) from continuing operations..............     $ 1,138       $  (953)      $(2,107)     $(34,407)
Adjustments to reconcile income (loss) from continuing
  operations to cash flows from continuing operations:
  Depreciation and amortization.......................         154           110         2,525        10,105
  Non-cash and non-recurring expenses.................           0             0             0        41,893
  Deferred income taxes...............................         601           (63)       (1,012)       (5,495)
  Undistributed partnership earnings..................      (1,038)          362          (436)         (370)
  Other...............................................         (25)            5           284           960
Changes in assets and liabilities, net of
  acquisitions:
  Accounts and notes receivable.......................      (8,806)        5,034        (3,982)       (1,843)
  Inventories.........................................      (4,176)        3,313           886        17,226
  Accounts payable....................................       2,663        (1,635)          790       (21,498)
  Other...............................................          77          (149)        1,309        (4,577)
                                                           -------       -------       -------      --------
Cash flows from continuing operations.................      (9,412)        6,024        (1,743)        1,994
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
  Marketable securities matured.......................       1,524           637         2,794            10
  Purchases of property and equipment, net............        (668)          (76)       (3,281)       (7,569)
  Acquisitions, net of cash acquired..................           0             0        (2,545)      (43,905)
  Other...............................................         867             0            67           675
                                                           -------       -------       -------      --------
Net cash provided (used) by investing activities......       1,723           561        (2,965)      (50,789)
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
  Net borrowings (repayments) on lines-of-credit......         277           (44)       (1,052)       15,200
  Issuances of long-term debt.........................       9,191             0         7,985        21,343
  Repayments of long-term debt........................           0        (5,930)       (2,699)      (74,546)
  Issuances of Common Stock, net......................         276           288           317        42,196
  Issuances of convertible preferred stock, net.......           0             0             0        42,846
  Payment of cash dividends...........................        (920)            0             0             0
                                                           -------       -------       -------      --------
Net cash provided (used) by financing activities......       8,824        (5,686)        4,551        47,039
                                                           -------       -------       -------      --------
CASH FLOWS FROM DISCONTINUED OPERATIONS, NET OF
  DIVESTITURE PROCEEDS................................       1,285          (831)        2,751           452
                                                           -------       -------       -------      --------
Net increase (decrease) in cash and cash
  equivalents.........................................       2,420            68         2,594        (1,304)
Cash and cash equivalents at beginning of period......         686         3,106         3,174         5,768
                                                           -------       -------       -------      --------
Cash and cash equivalents at end of period............     $ 3,106       $ 3,174       $ 5,768      $  4,464
                                                           =======       =======       =======      ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.........................................     $ 1,243       $   467       $ 1,925      $  9,719
Income taxes paid (refunded)..........................     $    36       $  (119)      $(1,124)     $  2,715
</TABLE>
 
          See accompanying notes to Consolidated Financial Statements.
                                       F-4
<PAGE>   17
 
                             METAL MANAGEMENT, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         (in thousands, except shares)
 
<TABLE>
<CAPTION>
                                                      COMMON STOCK
                               PREFERRED STOCK     -------------------              ADDITIONAL    MINIMUM    RETAINED
                             -------------------     NUMBER                          PAID-IN-     PENSION    EARNINGS
                             SERIES A   SERIES B   OF SHARES    AMOUNT   WARRANTS    CAPITAL     LIABILITY   (DEFICIT)    TOTAL
                             --------   --------   ----------   ------   --------   ----------   ---------   ---------   --------
<S>                          <C>        <C>        <C>          <C>      <C>        <C>          <C>         <C>         <C>
BALANCE AT OCTOBER 31,
 1994......................  $     0    $     0    6,132,717     $ 61    $     0     $  2,823       $  0     $ 13,743    $ 16,627
Exercise of stock
 options...................        0          0       92,000        1          0          244          0            0         245
Pension Plan Adjustment....        0          0            0        0          0            0        (61)           0         (61)
Common Stock issued under
 Employee Stock Purchase
 Plan......................        0          0       24,927        0          0           31          0            0          31
Payment of cash
 dividends.................        0          0            0        0          0            0          0         (920)       (920)
Net loss...................        0          0            0        0          0            0          0       (1,560)     (1,560)
                             --------   -------    ----------    ----    -------     --------       ----     --------    --------
BALANCE AT OCTOBER 31,
 1995......................        0          0    6,249,644       62          0        3,098        (61)      11,263      14,362
Exercise of stock
 options...................        0          0      108,636        1          0          271          0            0         272
Common Stock issued under
 Employee Stock Purchase
 Plan......................        0          0       11,199        0          0           16          0            0          16
Pension plan adjustment....        0          0            0        0          0            0         16            0          16
Net loss...................        0          0            0        0          0            0          0         (931)       (931)
                             --------   -------    ----------    ----    -------     --------       ----     --------    --------
Balance at March 31,
 1996......................        0          0    6,369,479       63          0        3,385        (45)      10,332      13,735
Equity issued for
 Acquisitions..............        0          0    4,700,000       47      1,049       12,759          0            0      13,855
Exercise of stock
 options...................        0          0      103,850        2          0          281          0            0         283
 Common Stock issued under
   Employee Stock Purchase
   Plan....................        0          0       16,237        0          0           34          0            0          34
Tax benefit on option
 exercises.................        0          0            0        0          0          107          0            0         107
Other......................        0          0            0        0        302          122          2            0         426
Net loss...................        0          0            0        0          0            0          0       (1,260)     (1,260)
                             --------   -------    ----------    ----    -------     --------       ----     --------    --------
BALANCE AT MARCH 31,
 1997......................        0          0    11,189,566     112      1,351       16,688        (43)       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    1,032,874       10          0       10,971          0            0         770
Issuance of Common Stock
 and warrants in private
 offerings, net............        0          0    3,495,588       35      4,450       34,940          0            0      39,425
Equity issued for
 acquisitions..............        0          0    16,980,579     170     14,378      121,252          0            0     135,800
Common Stock issued upon
 conversion of debt........        0          0      524,569        5          0        3,634          0            0       3,639
Exercise of stock options
 and warrants..............        0          0      857,654        9     (3,767)       7,180          0            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        5,592          0       (5,592)          0
Warrants issued to
 employees and
 consultants...............        0          0            0        0     30,588            0          0            0      30,588
Other......................       57          0            0        0          0           48         13          (57)         61
Net loss...................        0          0            0        0          0            0          0      (34,207)    (34,207)
                             --------   -------    ----------    ----    -------     --------       ----     --------    --------
BALANCE AT MARCH 31, 1998
 (RESTATED)................  $13,981    $19,027    34,080,830    $341    $47,000     $200,305       $(30)    $(32,235)   $248,389
                             ========   =======    ==========    ====    =======     ========       ====     ========    ========
</TABLE>
 
          See accompanying notes to Consolidated Financial Statements.
                                       F-5
<PAGE>   18
 
                             METAL MANAGEMENT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 -- ORGANIZATION
 
DESCRIPTION OF BUSINESS
 
     Metal Management, Inc., (herein referred to as the "Company" or "MTLM"),
formerly General Parametrics Corporation ("GPAR"), a Delaware corporation, and
its wholly-owned subsidiaries 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 54 recycling facilities located in 12 states. The
Company's ferrous products primarily include shredded, sheared, hot briquetted,
cold briquetted, bundled scrap 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).
 
CHANGE OF COMPANY NAME AND FISCAL YEAR
 
     On April 9, 1996, the Company changed its name from General Parametrics
Corporation to Metal Management, Inc. Effective April 15, 1996, the Company
formally changed its Nasdaq stock symbol to "MTLM."
 
     On April 25, 1996, the Board of Directors of the Company approved a change
in the Company's fiscal year end from October 31 to March 31, effective April 1,
1996.
 
NOTE 2 -- ACCOUNTING POLICIES
 
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
28th, 1998. 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.
Investments in three joint ventures engaged in ferrous and non-ferrous scrap
metals recycling, in which the Company, through its subsidiaries, owns 50%
interests, are accounted for using the equity method.
 
     The financial statements as of and for the year ended March 31, 1998 have
been restated to reflect a change in accounting for 1,400,000 warrants issued on
May 1, 1997 in connection with the Company's acquisition of Reserve Iron & Metal
L.P. ("Reserve"). The warrants were previously reported as a component of the
purchase price of Reserve and the financial statements for fiscal 1998 have been
restated to reflect the warrants as non-cash warrant compensation expense.
 
     The restatement results in a reduction in the purchase price of Reserve
totaling $8.1 million and a reduction in recorded goodwill at March 31, 1998 of
$5.5 million. The effect of the restatement was to cause an increase in non-cash
and non-recurring expenses of $9.8 million and a decrease in goodwill
amortization of $0.2 million. The after-tax effects of these adjustments was to
increase net loss by $5.6 million.
 
                                       F-6
<PAGE>   19
 
     The following table presents the impact of the restatement for the change
in accounting on previously reported results for the four fiscal quarters and
the year ended March 31, 1998 (in thousands, except per share data):
 
<TABLE>
<CAPTION>
                                 QUARTER ENDED     QUARTER ENDED        QUARTER ENDED     QUARTER ENDED      YEAR ENDED
                                 JUNE 30, 1997   SEPTEMBER 30, 1997   DECEMBER 31, 1997   MARCH 31, 1998   MARCH 31, 1998
                                 -------------   ------------------   -----------------   --------------   --------------
<S>                              <C>             <C>                  <C>                 <C>              <C>
Non-cash and non-recurring
  expense (income):
  As previously reported.......     $    --           $    --             $ 33,710            $   --          $ 33,710
  As restated..................     $ 2,597           $11,758             $ 29,942            $ (749)         $ 43,548
Income (loss) from continuing
  operations applicable to
  Common Stock:
  As previously reported.......     $   286           $  (143)            $(36,334)           $  328          $(35,863)
  As restated..................     $(1,218)          $(7,041)            $(34,064)           $  816          $(41,507)
Net income (loss) applicable to
  Common Stock:
  As previously reported.......     $   387           $   (36)            $(36,376)           $  362          $(35,663)
  As restated..................     $(1,117)          $(6,934)            $(34,106)           $  850          $(41,307)
Basic earnings (loss) per
  share:
  Income (loss) from continuing
    operations applicable to
    Common Stock:
    As previously reported.....     $  0.02           $ (0.01)            $  (1.67)           $ 0.01          $  (1.73)
    As restated................     $ (0.09)          $ (0.43)            $  (1.57)           $ 0.03          $  (2.00)
  Net income (loss) applicable
    to Common Stock:
    As previously reported.....     $  0.03           $ (0.00)            $  (1.67)           $ 0.01          $  (1.72)
    As restated................     $ (0.09)          $ (0.42)            $  (1.57)           $ 0.03          $  (1.99)
Diluted earnings (loss) per
  share:
  Income (loss) from continuing
    operations applicable to
    Common Stock:
    As previously reported.....     $  0.02           $ (0.01)            $  (1.67)           $ 0.01          $  (1.73)
    As restated................     $ (0.09)          $ (0.43)            $  (1.57)           $ 0.02          $  (2.00)
  Net income (loss) applicable
    to Common Stock:
    As previously reported.....     $  0.03           $ (0.00)            $  (1.67)           $ 0.01          $  (1.72)
    As restated................     $ (0.09)          $ (0.42)            $  (1.57)           $ 0.02          $  (1.99)
</TABLE>
 
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 may differ from these
estimates.
 
REVENUE RECOGNITION
 
     The Company recognizes revenue from processed product sales at the time of
shipment. Revenue relating to brokered sales are generally recognized upon
receipt of the materials by the customer.
 
                                       F-7
<PAGE>   20
 
INCOME TAXES
 
     The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards (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 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
 
     During fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share."
SFAS No. 128 established requirements for the computation of basic earnings per
share and diluted earnings per share. Earnings per share amounts for prior
periods have been restated to conform with SFAS No. 128.
 
CASH AND CASH EQUIVALENTS
 
     Highly liquid investments with original maturities of three months or less
are classified as cash equivalents.
 
ACCOUNTS RECEIVABLE
 
     Accounts receivable represents amounts due from customers on product and
broker sales. Reserves for uncollectible accounts and for tonnage variances were
approximately $0.1 million and $1.6 million at March 31, 1997 and 1998,
respectively.
 
PROPERTY AND EQUIPMENT
 
     Property and equipment is recorded at cost less accumulated depreciation.
Major renewals and improvements are capitalized while repairs and maintenance
are expensed as incurred. Property and equipment acquired in purchase
transactions are recorded at its 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 and fixtures and 3 to 15 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 results of operations.
 
GOODWILL AND OTHER INTANGIBLE ASSETS
 
     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. Non-compete agreements are amortized on a
straight-line basis over the period of the non-compete agreements, generally 8
to 10 years. Other intangible assets are amortized on a straight-line basis over
the lesser of their legal or estimated useful lives. The following items
comprised the balance at March 31 (in thousands):
 
<TABLE>
<CAPTION>
                                                                1997       1998
                                                               -------   --------
<S>                                                            <C>       <C>
Goodwill....................................................   $21,653   $178,809
Non-compete agreements......................................     1,403      3,236
Deferred financing costs....................................         0        890
Other intangibles...........................................       979      1,778
                                                               -------   --------
                                                                24,035    184,713
Less -- accumulated amortization............................      (551)    (3,402)
                                                               -------   --------
                                                               $23,484   $181,311
                                                               =======   ========
</TABLE>
 
                                       F-8
<PAGE>   21
 
     Amortization expense for the year ended March 31, 1997 and 1998 was $0.5
million and $3.1 million, respectively. The Company assesses the recoverability
of its goodwill and 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. During fiscal 1998, the Company recognized a charge of
approximately $9.3 million relating to unamortized goodwill resulting from the
Company's acquisition of its EMCO subsidiary.
 
IMPAIRMENT OF LONG-LIVED ASSETS
 
     During fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of."
SFAS No. 121 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 is applicable for most long-lived assets,
identifiable intangibles and goodwill related to those assets.
 
FINANCIAL INSTRUMENTS
 
     The carrying values of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximate the related
fair values because of the relatively short maturity of these instruments. The
carrying values of line of credit borrowings, notes payable to related parties
and long-term debt, including the current portion, approximate the related fair
values as the stated interest rates approximate market rates.
 
CONCENTRATION OF CREDIT RISK
 
     Financial instruments that potentially subject the Company to significant
concentration 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's
wholly-owned subsidiaries have not experienced material losses from the
noncollection of accounts receivables.
 
     For the year ended March 31, 1998, the Company's 10 largest customers
represented approximately 37.6% of consolidated net sales. These customers
comprised approximately 33.1% of accounts receivable at March 31, 1998. No
single customer accounted for more than 10% of consolidated net sales.
 
RECENT ACCOUNTING STANDARDS
 
     SFAS No. 130, "Reporting Comprehensive Income," was issued by the Financial
Accounting Standards Board ("FASB") in June 1997. This Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
will adopt SFAS No. 130 in fiscal 1999 and does not expect the impact to be
material to the Company.
 
     SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued by the FASB in June 1997. This Statement establishes
standards for reporting of selected information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is currently evaluating the
impact of SFAS No. 131.
 
     SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued by the FASB in February 1998. This
Statement revises employers' disclosures about pension and other postretirement
benefit plans. The Company will adopt SFAS No. 132 in fiscal 1999 and does not
expect the impact to be material to the Company.
 
                                       F-9
<PAGE>   22
 
NOTE 3 -- MERGERS AND ACQUISITIONS
 
MERGERS ACCOUNTED AS POOLING OF INTERESTS
 
     On May 28, 1998, R&P Holdings, Inc., ("Bluestone") merged with the Company
through a tax free stock for stock exchange. The Company issued 1,034,826 shares
of Common Stock in exchange for all the outstanding common stock of Bluestone.
The merger was accounted for as a pooling of interests and the consolidated
financial statements of the Company has been restated to reflect the merger with
Bluestone. Accordingly, except for adjustments to reflect conformed accounting
policies, the historical financial statements of the two companies have been
combined in the consolidated financial statements. Merger related expenses will
be recognized as a one time charge in the first quarter of fiscal 1999.
 
     The following presents net sales and net income (loss) applicable to Common
Stock for the periods presented. The only conforming accounting adjustment
changes Bluestone's inventory valuation methodology from a LIFO basis to a FIFO
basis (in thousands):
 
<TABLE>
<CAPTION>
                                                   YEAR ENDED    FIVE MONTHS   YEAR ENDED    YEAR ENDED
                                                  OCTOBER 31,     MARCH 31,     MARCH 31,    MARCH 31,
                                                      1995          1996          1997          1998
                                                  ------------   -----------   -----------   ----------
<S>                                               <C>            <C>           <C>           <C>
NET SALES:
  The Company -- historical....................     $      0       $     0      $ 65,196      $479,707
  Bluestone....................................      112,775        36,366        76,634        90,328
                                                    --------       -------      --------      --------
  Combined.....................................     $112,775       $36,366      $141,830      $570,035
                                                    ========       =======      ========      ========
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK:
  Income (loss) from continuing operations
  The Company -- historical....................     $    261       $   (16)     $ (2,010)     $(41,357)
  Bluestone....................................         (538)         (535)          516           340
  Conforming accounting adjustments, net of
     tax.......................................        1,415          (402)         (613)         (490)
                                                    --------       -------      --------      --------
  Income (loss) from continuing operations.....        1,138          (953)       (2,107)      (41,507)
  Income (loss) from discontinued operations...       (2,698)           22           847           200
                                                    --------       -------      --------      --------
  Combined net income (loss)...................     $ (1,560)      $  (931)     $ (1,260)     $(41,307)
                                                    ========       =======      ========      ========
BASIC AND DILUTED EARNINGS PER SHARE APPLICABLE
  TO COMMON STOCK:
  The Company -- historical....................     $  (0.48)      $  0.00      $  (0.13)     $  (2.09)
                                                    ========       =======      ========      ========
  Combined.....................................     $  (0.26)      $ (0.15)     $  (0.12)     $  (1.99)
                                                    ========       =======      ========      ========
</TABLE>
 
     Mergers and Acquisitions accounted as Purchase transactions during fiscal
1997:
 
     -  In April 1996, the Company merged with EMCO Recycling Corp. ("EMCO"),
        headquartered in Phoenix, Arizona.
 
     -  In January 1997, the Company acquired five companies comprising the
        MacLeod Group ("MacLeod"), headquartered in SouthGate, California. The
        MacLeod Group is comprised of MacLeod Metals Co., California Metals
        Recycling, Inc., Trojan Trading Co., Firma, Inc. and Firma Plastics Co.,
        Inc.
 
     -  In January 1997, the Company acquired HouTex Metals Company, Inc.
        ("HouTex"), headquartered in Houston, Texas.
 
                                      F-10
<PAGE>   23
 
     The purchase consideration for the acquisitions completed during fiscal
1997 was as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                          EMCO     MACLEOD   HOUTEX     TOTAL
                                                         -------   -------   -------   -------
<S>                                                      <C>       <C>       <C>       <C>
Shares of restricted Common Stock issued..............     3,500       725       475     4,700
Warrants issued to purchase Common Stock..............     1,000       175       310     1,485
Cash paid, including transaction costs................   $ 2,219   $ 1,119   $ 1,121   $ 4,459
Value of Common Stock issued..........................     8,807     2,330     1,669    12,806
Value of warrants issued..............................       316       137       596     1,049
Promissory notes issued...............................         0     6,600     6,655    13,255
Other liabilities incurred............................     1,403         0         0     1,403
                                                         -------   -------   -------   -------
  Total purchase consideration........................   $12,745   $10,186   $10,041   $32,972
                                                         =======   =======   =======   =======
</TABLE>
 
     Mergers and Acquisitions accounted as Purchase transactions during fiscal
1998:
 
     -  In May 1997, the Company acquired Reserve Iron & Metal L.P. ("Reserve").
        Reserve operates two processing facilities in Cleveland, Ohio and
        Chicago, Illinois and has a 50% interest in a joint venture which
        operates in Attalla, Alabama.
 
     -  In June 1997, the Company acquired four companies under common ownership
        comprising The Isaac Group ("Isaac"), headquartered in Maumee, Ohio. The
        Isaac Group is comprised of Ferrex Trading Corporation, the Isaac
        Corporation, Paulding Recycling, Inc. and Briquetting Corporation of
        America.
 
     -  In August 1997, the Company acquired Proler Southwest, Inc. and Proler
        Steelworks, L.L.C. (collectively "Proler"). Proler operates a facility
        in Houston, Texas and Jackson, Mississippi.
 
     -  In December 1997, the Company acquired Cozzi Iron & Metal, Inc.
        ("Cozzi") headquartered in Chicago, Illinois. Cozzi also operates
        facilities in East Chicago, Indiana and Pittsburgh, Pennsylvania and has
        a 50% interest in a joint venture which operates in Memphis, Tennessee.
        In December 1997, the Company, through its Cozzi subsidiary, acquired
        Kankakee Scrap Corporation, located in Kankakee, Illinois.
 
     -  In January 1998, the Company acquired Houston Compressed Steel Corp.,
        headquartered in Houston, Texas.
 
     -  In January 1998, the Company, through its Cozzi subsidiary, purchased
        Newell Phoenix, L.L.C.'s 50% membership interest in Salt River
        Recycling, L.L.C. ("Salt River"). At the time of the acquisition, Cozzi
        owned a 50% membership interest in Salt River.
 
     -  In January 1998, the Company purchased substantially all of the assets
        of Aerospace Metals, Inc. ("Aerospace"), and certain of its affiliates
        headquartered in Hartford, Connecticut.
 
     -  In February 1998, the Company, through its Cozzi subsidiary, acquired
        substantially all of the assets of Accurate Iron and Metal, located in
        Chicago, Illinois.
 
     -  In March 1998, the Company, through its Metal Management Arizona
        subsidiary, acquired certain assets of Ellis Metals, Inc., ("Ellis
        Metals") headquartered in Tucson, Arizona.
 
     -  In March 1998, the Company acquired Superior Forge, Inc., headquartered
        in Huntington Beach, California.
 
                                      F-11
<PAGE>   24
 
     The purchase consideration for the acquisitions completed during fiscal
1998 was as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                RESERVE    ISAAC    PROLER     COZZI    AEROSPACE    OTHER     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>
                                                                 1997       1998
                                                               --------   ---------
<S>                                                            <C>        <C>
Fair value of tangible assets acquired......................   $ 35,399   $ 262,426
Goodwill....................................................     21,653     165,064
Identifiable intangibles....................................      1,403       1,834
Liabilities assumed.........................................    (25,483)   (198,329)
Stock and warrants issued...................................    (13,855)   (135,730)
Promissory notes and other consideration issued.............    (14,658)    (50,580)
                                                               --------   ---------
Cash paid...................................................      4,459      44,685
  Less: cash acquired.......................................     (1,914)       (780)
                                                               --------   ---------
Net cash paid for acquisitions..............................   $  2,545   $  43,905
                                                               ========   =========
</TABLE>
 
     The above transactions have been accounted for by the purchase method of
accounting and are included in the Company's results of operations from the
effective date of each respective acquisition. The purchase price was allocated
based on estimates of the fair value of assets acquired and liabilities assumed.
These estimates may be revised as necessary when information becomes available
to finalize amounts allocated to assets acquired and liabilities assumed. The
allocation period varies by acquisition but does not usually exceed one year. It
is not expected that the finalization of purchase accounting will have any
significant effect on the financial position or results of operations of the
Company.
 
     The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company, MacLeod, HouTex, Reserve,
Isaac, Proler, Cozzi, and Aerospace after giving effect to the merger of
Bluestone and as if these acquisitions had occurred on April 1, 1996. The
unaudited pro forma results have 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 and additional amortization expense as
a result of goodwill. The unaudited pro forma information for the years ended
March 31, 1997 and 1998 was as follows (in thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                                 1997       1998
                                                               --------   --------
<S>                                                            <C>        <C>
Net sales...................................................   $773,671   $857,053
Net income (loss) from continuing operations applicable to
  Common Stock..............................................   $    806   $(43,675)
Basic and diluted net income (loss) from continuing
  operations applicable to Common Stock.....................   $   0.02   $  (1.28)
</TABLE>
 
     The pro forma results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions been in
effect on April 1, 1996. In addition to the completed acquisitions, the Company
is in various stages of negotiation to acquire a number of additional scrap
metals recycling and related operations.
 
                                      F-12
<PAGE>   25
 
     See Note 17 -- Subsequent Events and Note 18 -- Events (Unaudited)
Subsequent to Date of Accountants Report
 
NOTE 4 -- DISCONTINUED OPERATIONS
 
     During the second and third quarter of fiscal 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. Accordingly, the operating results and gain on sale have been
classified as discontinued operations for all periods presented in the financial
statements.
 
     Net revenues recognized for the discontinued operations were $9.5 million,
$3.1 million and $2.3 million for the year ended October 31, 1995, the five
months ended March 31, 1996 and the year ended March 31, 1997, respectively.
Additional consideration from royalty income is being recognized as earned and
is reported as an additional gain on sale of discontinued operations.
 
     Income tax provision (benefit) for the discontinued operations were
approximately ($551,000), $52,000, and ($307,000) for the year ended October 31,
1995, the five months ended March 31, 1996 and the year ended March 31, 1997,
respectively. Income tax provision (benefit) for the gain on sale of assets of
discontinued operations was ($15,000) and $133,000 for the years ended March 31,
1997 and 1998, respectively.
 
NOTE 5 -- NON-CASH AND NON-RECURRING EXPENSES
 
     During fiscal 1998, following non-cash and non-recurring pre-tax expenses
were recorded (in thousands):
 
<TABLE>
<CAPTION>
                                                    NON-CASH WARRANT    NON-RECURRING
                                                      COMPENSATION         CHARGES        TOTAL
                                                    ----------------    -------------     -----
<S>                                                 <C>                 <C>              <C>
Non-cash warrant compensation expense...........        $28,888                 --       $28,888
Severance and other termination benefits........          1,700              1,114         2,814
EMCO shutdown...................................             --             11,846        11,846
                                                        -------            -------       -------
                                                        $30,588            $12,960       $43,548
                                                        =======            =======       =======
</TABLE>
 
     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 warrants 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. The warrants have terms that range from 30 to 60
months. The warrants vest over 6 month, 12 month, 18 month and 24 month
intervals for each group of 350,000 warrants, respectively, beginning on May 1,
1997. Upon termination of employment, any unvested warrants are forfeited by the
recipients.
 
     The warrants were initially recorded as a component of the purchase
consideration for Reserve; however, it was subsequently determined that the
provisions of EITF 95-8 "Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in a Purchase Business Combination"
required that they be accounted for as non-cash compensation expense in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employers". Non-cash compensation
expense is calculated for exercised and non-exercised warrants at each reporting
period based on the vesting provisions of the warrants and the difference
between the fair market value of the Company's Common Stock and the warrant
exercise price. Non-cash compensation expense under this calculation method is
adjusted at each reporting period for vested warrants not exercised and
accordingly will result in reversals of previously reported non-cash warrant
compensation expense upon a decrease in the fair market value of the Company's
Common Stock. Non-cash warrant compensation expense for the year ended March 31,
1998 aggregated $9.8 million. Of this amount, $2.8 million related to warrants
exercised in fiscal 1998. During the first quarter of fiscal 1999 $0.3 million
of non-cash compensation expense was recorded for warrants exercised. At
September 30, 1998, all non-cash warrant compensation expense, except the $3.1
million relating to the warrants exercised, had been reversed due to the
subsequent decline in the fair
                                      F-13
<PAGE>   26
 
market value of the Company's Common Stock. Since the warrants are considered
variable instruments under APB No. 25, the Company will record non-cash warrant
compensation expense or income throughout the remaining term of the warrants
whenever the fair market value of its Common Stock exceeds the warrant exercise
price.
 
     On December 1, 1997, the Company issued fully vested warrants to purchase
1,655,000 shares of Common Stock at exercise prices ranging from $4.00 per
shares to $12.00 per share. These warrants were issued to certain officers,
employees and an outside director. The warrants are accounted for under APB No.
25 as fixed instruments and accordingly are valued using the "intrinsic method"
resulting in a one-time non-cash warrant compensation expense of $19.1 million
recorded at December 1, 1997.
 
     On December 1, 1997, the Company entered into a Separation Agreement and a
Stock Warrant Settlement Agreement with a former officer resulting in a
non-recurring charge totaling $2.8 million comprised of (a) $0.9 million of cash
payments, (b) an accrual of $0.2 million for other benefits under the Separation
Agreement, and (c) $1.7 million representing the value (calculated in accordance
with APB No. 25) of warrants issued to purchase 200,000 shares of Common Stock.
 
     The total amount of non-cash warrant compensation expense for variable and
fixed instruments aggregated $30.6.
 
     Upon completion of the Cozzi acquisition in December 1997, the Company
adopted a formal plan to shut down its EMCO operations and to transfer certain
of EMCO's assets to Salt River Recycling, which the Company will operate under
the name of Metal Management Arizona. In connection with the plan to shut down
EMCO, the Company recorded a pre-tax charge of approximately $11.8 million,
comprised of $9.3 million for the impairment of EMCO goodwill, $2.0 million for
the write-down to fair value (less selling costs) of the EMCO fixed assets to be
sold or otherwise abandoned, and $0.5 million for other exit-related costs. The
costs of transferring EMCO's remaining assets to Metal Management Arizona will
be expensed as incurred. The exit plan is expected to be completed by December
31, 1998.
 
NOTE 6 -- 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
consisted of the following categories and amounts at March 31 (in thousands):
 
<TABLE>
<CAPTION>
                                                                1997      1998
                                                               -------   -------
<S>                                                            <C>       <C>
Ferrous metals..............................................   $ 2,707   $35,934
Non-ferrous metals..........................................     9,747    25,222
Other.......................................................       954       786
                                                               -------   -------
                                                               $13,408   $61,942
                                                               =======   =======
</TABLE>
 
NOTE 7 -- PROPERTY AND EQUIPMENT
 
     Property and equipment consisted of the following categories and amounts at
March 31 (in thousands):
 
<TABLE>
<CAPTION>
                                                                1997       1998
                                                               -------   --------
<S>                                                            <C>       <C>
Land and improvements.......................................   $ 5,790   $ 18,915
Buildings and improvements..................................     3,749     16,143
Operating machinery and equipment...........................    13,747     73,167
Automobiles and trucks......................................     3,063     10,569
Furniture and fixtures......................................     1,300      2,306
Construction in progress....................................         0      1,749
                                                               -------   --------
                                                                27,649    122,849
Less -- accumulated depreciation............................    (6,387)   (12,963)
                                                               -------   --------
                                                               $21,262   $109,886
                                                               =======   ========
</TABLE>
 
                                      F-14
<PAGE>   27
 
     Depreciation expense for property and equipment was $2.0 million and $7.4
million for the years ended March 31, 1997 and 1998, respectively. During the
current fiscal year, the Company wrote off approximately $2.0 million of net
fixed assets at its EMCO subsidiary. See Note 5 -- Non-cash and non-recurring
expenses.
 
NOTE 8 -- INVESTMENT IN JOINT VENTURES
 
     During fiscal 1998, the Company owned 50% interests in three joint ventures
which processed and sold ferrous and nonferrous metals. Individually and in the
aggregate, these joint ventures were not material to the Company's fiscal 1998
consolidated financial position or results of operations.
 
     Prior to fiscal 1998, the Company, through Bluestone, owned a 50% interest
in one joint venture. At March 31, 1997, the Company had accounts receivable of
approximately $2.2 million from the joint venture and had accounts payable of
approximately $0.8 million to the joint venture. In addition, sales from the
Company to the joint venture were $10.1 million, $1.4 million and $4.4 million
for the year ended October 31, 1995, the five months ended March 31, 1996 and
the year ended March 31, 1997, respectively. Sales from the joint venture to the
Company were approximately $1.8 million, $0.6 million and $3.0 million for the
year ended October 31, 1995, the five months ended March 31, 1996 and the year
ended March 31, 1997, respectively. Summarized financial information for the
joint venture follows (in thousands):
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED    FIVE MONTHS   YEAR ENDED
                                                              OCTOBER 31,    MARCH 31,    MARCH 31,
                                                                 1995          1996          1997
                                                              -----------   -----------   ----------
<S>                                                           <C>           <C>           <C>
Net sales..................................................     $20,888       $4,498       $15,727
Cost of sales and other expense............................      18,812        5,222        14,855
                                                                -------       ------       -------
Net income (loss)..........................................     $ 2,076       $ (724)      $   872
                                                                =======       ======       =======
Company's share of net income (loss).......................     $ 1,038       $ (362)      $   436
                                                                =======       ======       =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                MARCH 31, 1997
                                                                --------------
<S>                                                             <C>
Current assets..............................................        $5,367
Other assets................................................             3
                                                                    ------
                                                                     5,370
Liabilities.................................................         4,126
                                                                    ------
Members' capital............................................        $1,244
                                                                    ======
Company's share of capital..................................        $  622
                                                                    ======
</TABLE>
 
NOTE 9 -- DEBT
 
LINES-OF-CREDIT
 
     At March 31, 1997 and 1998, the Company and its wholly-owned subsidiaries
had various revolving lines of credit with commercial lenders which provided for
revolving credit at interest rates that ranged from 8.5% to 16.5%. The weighted
average interest rate on the borrowings outstanding at March 31, 1997 and 1998
was 9.1% and 9.5%, respectively. The lines were secured by substantially all of
the assets and stock of the Company's subsidiaries. Availability under the lines
of credit is determined primarily based on levels of inventory and accounts
receivable. Average borrowings under the various lines of credit during fiscal
1997 and 1998 were approximately $13.9 million and $28.5 million, respectively.
Amounts outstanding under the various lines of credit ranged from $10.4 million
to $17.5 million during fiscal 1997 and $18.0 million to $57.6 million during
fiscal 1998. At March 31, 1998, the Company was in compliance with all covenants
under its various lines of credit. These lines were repaid with proceeds from a
new long-term credit facility and were terminated subsequent to March 31, 1998,
or were consolidated with the new facility. As a result, outstanding balances
are classified within long-term debt at March 31, 1998. See subsequent debt
transactions below.
 
                                      F-15
<PAGE>   28
 
NOTES PAYABLE TO RELATED PARTIES
 
     Notes payable to related parties were issued by the Company for
acquisitions or for the purchase of real estate. The Company also assumed notes
payable to related parties in connection with certain acquisitions. At March 31,
notes payable to related parties were issued to the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                  1997        1998
                                                                --------    --------
<S>                                                             <C>         <C>
Notes issued for acquisitions:
Former shareholder of MacLeod (interest rate of 8.0% in 1997
  and 8.5% in 1998).........................................    $  6,400    $  2,981
Former shareholders of HouTex (interest rate of 6.0% in
  1997), secured by a stock pledge agreement................       6,655           0
Former shareholder of Ellis Metals (interest rate of
  9.0%).....................................................           0       1,691
Former shareholders of Isaac, due 2/15/00, (interest rate of
  8.5% in 1998), secured by a letter of credit..............           0      15,965
Former shareholders of Proler (interest rate of 7.0% in
  1998).....................................................           0       2,400
Notes assumed in connection with acquisitions:
Former shareholders of Isaac, due 2/15/00, (interest rate of
  8.5% in 1998), secured by a letter of credit..............           0       5,696
Former shareholder of Cozzi, (interest rate of 6.4% in
  1998).....................................................           0      12,719
Former shareholder of Bluestone, (interest rate of 5% in
  1997 and 1998)............................................         190         190
Notes issued for real estate purchases:
Former shareholder of Ellis Metals (interest rate of 9.0% in
  1997 and 1998), secured by real property..................         950         950
                                                                --------    --------
                                                                  14,195      42,592
Less: current portion.......................................     (12,575)    (10,830)
                                                                --------    --------
Long-term notes payable to related parties..................    $  1,620    $ 31,762
                                                                ========    ========
</TABLE>
 
     During fiscal 1998, certain selling shareholders converted an aggregate
$3.6 million of notes payable into 524,569 shares of Common Stock of the
Company.
 
     Scheduled maturities of notes payable to related parties are as follows (in
thousands):
 
<TABLE>
<CAPTION>
FISCAL YEAR ENDING, MARCH 31,
-----------------------------
<S>                                                            <C>
1999........................................................   $10,830
2000........................................................    10,831
2001........................................................         0
2002........................................................         0
2003 and thereafter.........................................    20,931
                                                               -------
                                                               $42,592
                                                               =======
</TABLE>
 
                                      F-16
<PAGE>   29
 
LONG-TERM DEBT
 
     At March 31, long-term debt consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                 1997       1998
                                                               --------   --------
<S>                                                            <C>        <C>
Term loans, due 1998 to 2001, average interest rate of
  8.45%, secured by equipment or personal guarantees........   $  7,405   $ 40,221
Operating lines of credit, average interest rate of 9.5%,
  reclassed to long-term debt...............................          0     58,494
Mortgage loans, due 1998 to 2009, average interest rate of
  8.23%, secured by real property...........................      4,462      2,102
Other debt, due 1998 to 2006, average interest rate of
  7.85%, generally secured by equipment.....................      2,920      8,057
                                                               --------   --------
                                                                 14,787    108,874
Less current portion........................................    (10,813)    (1,047)
                                                               --------   --------
Long-term debt..............................................   $  3,974   $107,827
                                                               ========   ========
</TABLE>
 
     See subsequent debt transactions below. Scheduled maturities of long-term
debt are as follows (in thousands):
 
<TABLE>
<CAPTION>
FISCAL YEAR ENDING, MARCH 31
----------------------------
<S>                                                             <C>
1999........................................................    $  1,047
2000........................................................       1,485
2001........................................................         757
2002........................................................         219
2003 and thereafter.........................................     105,366
                                                                --------
                                                                $108,874
                                                                ========
</TABLE>
 
SUBSEQUENT DEBT TRANSACTIONS
 
     On March 31, 1998, the Company and its subsidiaries entered into a three
year credit facility (the "Senior Credit Facility"). The Senior Credit Facility,
as amended, provides for a revolving credit and letter of credit facility of
$250.0 million, subject to borrowing base limitations. The Senior Credit
Facility bears interest at a floating rate per annum equal to (at the Company's
option): (i) 1.75% over LIBOR or (ii) 0.5% over the agent lender's prime rate.
The Company pays a unused line fee of .375% and is subject to debt covenants
including an interest coverage ratio and limitations with respect to capital
expenditures. The Senior Credit Facility is available for working capital and
general corporate purposes, including acquisitions. The obligations of the
Company and its subsidiaries under the Senior Credit Facility are secured by a
security interest in substantially all of the assets and properties of the
Company and its subsidiaries including pledges of stock of 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 and a $40 million fixed asset sublimit that amortizes
on a quarterly basis.
 
     On April 1, 1998, the Company borrowed $106.8 million under the Senior
Credit Facility to: (i) repay outstanding secured debt of approximately of $96.5
million; (ii) buyout operating leases of approximately $9.3 million; and (iii)
pay prepayment penalties of approximately $1.0 million. The prepayment penalties
will be reflected as an extraordinary charge in the first quarter of fiscal
1999. Borrowings outstanding under the Senior Credit Facility bore interest at
9.0% as of April 1, 1998.
 
     On May 13, 1998, the Company issued $180.0 million, 10.0% Senior
Subordinated Notes due on May 15, 2008 (the "Senior Subordinated Notes") in a
private placement (the "Subordinated Debt Placement"). Interest on the Notes
will be payable semi-annually. The Company received net proceeds of $174.6
million in the Subordinated Debt Placement. 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
 
                                      F-17
<PAGE>   30
 
indebtedness of the Company under the Senior Credit Facility. The Company's
payment obligations are jointly and severally guaranteed by the Company's
current and certain future subsidiaries. The proceeds of the Senior Subordinated
Notes were used to repay approximately $119.0 million outstanding under the
Company's Senior Credit Facility and approximately $19.1 million of notes
payable to related parties. The balance of the proceeds were invested in
marketable securities held for working capital and general corporate purposes,
including acquisitions.
 
     Except as described below, the Senior Subordinated Notes are not redeemable
at the Company's option prior to May 15, 2003. After May 15, 2003, the Senior
Subordinated Notes are redeemable by the Company at the redemption prices
(expressed as a percentage of the principal amount) 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 March 15, 2001, the Company 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
holder thereof 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 the Company.
 
     The Indenture governing the Senior Subordinated Notes (the "Indenture")
contains certain covenants that limit, among other things, the ability of the
Company and its subsidiaries to (i) incur additional indebtedness (including by
way of guarantee), subject to certain exceptions, unless the Company meets a
fixed charge ratio of 2 to 1 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 thereof prior to the
maturity of the Senior Subordinated Notes; (iii) pay dividends or distributions,
or make certain types of investments or other payments, unless the Company meets
a fixed charge coverage ratio of 2 to 1 and the amount of the dividend or
distribution, investment or other payment (together with all such other
dividend, distributions, investments or other payments made through the date
thereof) is less than 50% of the consolidated net income of the Company from the
beginning of the fiscal quarter immediately following the date of the Indenture
through the most recently ended fiscal quarter plus the aggregate amount of net
equity proceeds received by the Company in such period; (iv) enter into certain
transactions with affiliates; (v) dispose of certain assets, (vi) incur liens
securing pari passu or subordinated indebtedness of the Company or (vii) engage
in certain mergers and consolidations.
 
     See Note 18 -- Events (Unaudited) Subsequent to Date of Accountants Report.
 
                                      F-18
<PAGE>   31
 
NOTE 10 -- INCOME TAXES
 
     The provision (benefit) for federal and state income taxes from continuing
operations is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                     OCTOBER 31,   MARCH 31,   MARCH 31,   MARCH 31,
                                                        1995         1996        1997        1998
                                                     -----------   ---------   ---------   ---------
<S>                                                  <C>           <C>         <C>         <C>
Federal:
  Current.........................................      $ 40         $(469)      $ (33)     $   199
  Deferred........................................       512           (73)       (895)      (4,294)
                                                        ----         -----       -----      -------
                                                         552          (542)       (928)      (4,095)
                                                        ----         -----       -----      -------
State:
  Current.........................................        11           (99)        142          741
  Deferred........................................       111           (11)       (117)      (1,201)
                                                        ----         -----       -----      -------
                                                         122          (110)         25         (460)
                                                        ----         -----       -----      -------
Total tax provision (benefit).....................      $674         $(652)      $(903)     $(4,555)
                                                        ====         =====       =====      =======
</TABLE>
 
     The deferred tax liabilities, net of deferred tax assets, are comprised of
the following at March 31 (in thousands):
 
<TABLE>
<CAPTION>
                                                                1997      1998
                                                               -------   -------
<S>                                                            <C>       <C>
Cash to accrual adjustment..................................   $   251   $   389
Non-compete agreements......................................         0       795
Depreciation................................................     2,320    15,237
Inventory...................................................       304         0
Other.......................................................        20       170
                                                               -------   -------
Gross deferred income tax liabilities.......................     2,895    16,591
                                                               -------   -------
Accounts receivable reserves................................         0      (315)
Inventory...................................................         0       (54)
Deferred compensation.......................................       (49)     (759)
Employee benefit accruals...................................       (66)     (403)
Workers compensation........................................         0      (793)
NOL carryforward............................................      (792)        0
Accrued liabilities.........................................      (449)     (342)
Stock based compensation....................................      (109)   (5,234)
Other.......................................................      (107)     (122)
                                                               -------   -------
Gross deferred income tax assets............................    (1,572)   (8,022)
                                                               -------   -------
Deferred tax asset valuation allowance......................         0         0
                                                               -------   -------
                                                               $ 1,323   $ 8,569
                                                               =======   =======
</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. Although realization is not assured, management believes it is more
likely than not that the Company's deferred tax assets will be realized through
future taxable earnings. The fiscal 1997 U.S. federal net operating loss
carryforward was utilized in fiscal 1998.
 
                                      F-19
<PAGE>   32
 
     The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective rate is as follows ($
in thousands):
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED               5 MONTHS ENDED
                                                  OCTOBER 31, 1995     %      MARCH 31, 1996      %
                                                  ----------------   -----   ----------------   -----
<S>                                               <C>                <C>     <C>                <C>
Normal statutory rate..........................         $616          34.0       $   (546)      (34.0)
State income taxes, net of federal benefit.....          101           5.6            (96)       (6.0)
Tax exempt interest............................          (66)         (3.6)           (18)       (1.1)
Other..........................................           23           1.2              8         0.5
                                                        ----         -----       --------       -----
Provision (benefit) for income taxes...........         $674          37.2       $   (652)      (40.6)
                                                        ====         =====       ========       =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED                 YEAR ENDED
                                                   MARCH 31, 1997      %      MARCH 31, 1998      %
                                                  ----------------   -----   ----------------   -----
<S>                                               <C>                <C>     <C>                <C>
Normal statutory rate..........................       $(1,053)       (35.0)      $(13,637)      (35.0)
State income taxes, net of federal benefit.....          (128)        (4.3)          (412)       (1.1)
Non-deductible goodwill........................           145          4.8            887         2.3
Non-deductible goodwill write-off..............             0          0.0          3,259         8.4
Non-deductible stock based compensation........             0          0.0          4,968        12.8
Other..........................................           133          4.5            380         0.9
                                                      -------        -----       --------       -----
Provision (benefit) for income taxes...........       $  (903)       (30.0)      $ (4,555)      (11.7)
                                                      =======        =====       ========       =====
</TABLE>
 
NOTE 11 -- STOCKHOLDERS' EQUITY
 
COMMON STOCK
 
     On November 29, 1997, the Company's stockholders approved an amendment to
the Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's Common Stock from 40,000,000 to 80,000,000.
 
     During April and May 1997, the Company completed a private sale of
2,025,000 shares of the Company's Common Stock, par value $.01 per share, 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.
 
     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.
 
CONVERTIBLE PREFERRED STOCK
 
     The Company's Certificate of Incorporation allows the issuance of up to
4,000,000 shares of preferred stock.
 
     In accordance with Emerging Issues Task Force (EITF) Topic No. D-60,
"Accounting for the Issuance of Convertible Preferred Stock and Debt Securities
with a Nondetachable Conversion Feature", the Company recorded a one-time non
cash dividend of approximately $5.6 million. EITF Topic No. D-60 requires that a
beneficial conversion feature be recognized if preferred stock is convertible
into common stock at the lower of a conversion rate fixed at the date of issue
or a fixed discount to the common stock's market price at the time of
conversion.
 
                                      F-20
<PAGE>   33
 
     On August 8, 1997, the Company issued 21,000 shares and between August 21,
1997 and September 8, 1997, the Company issued 4,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share, stated value of $1,000
per share, (the "Series A Preferred Stock"). Two thousand five hundred shares of
the Series A Preferred Stock were purchased by certain officers and a director
of the Company. On December 1, 1997, the Company issued an aggregate of 20,000
shares of Series B Convertible Preferred Stock, par value $.01 per share, stated
value of $1,000 per share (the "Series B Preferred Stock").
 
     Dividends on the Series A Preferred Stock and Series B Preferred Stock
accrue, whether or not declared by the Board of Directors, at an annual rate of
6.0% and 4.5%, respectively, of the Stated Value of each outstanding share of
Series A Preferred Stock and Series B Preferred Stock. Dividends are payable in
cash or, at the Company's option, in additional shares of Preferred Stock.
Dividends in arrears at March 31, 1998 for the Series A Preferred Stock and
Series B Preferred Stock were approximately $63,000 and $298,000, respectively.
 
     The Series A Preferred Stock and the Series B Preferred Stock have a
"Liquidation Preference" equal to $1,000 per share plus any accrued and unpaid
dividends. Upon the liquidation, dissolution or winding up of the Company,
holders of the Series A Preferred Stock and Series B Preferred Stock are
entitled to receive payment of the Liquidation Preference before any payment is
made to holders of Common Stock or any stock of the Company junior to the Series
A Preferred Stock and Series B Preferred Stock.
 
     The holders of Series A Preferred Stock are able to convert the shares into
Common Stock at a price equal to the lower of: (i) $18.30; or (ii) 85% of the
average closing bid price for the Common Stock for the five trading days prior
to the date of the conversion notice. At March 31, 1998, the outstanding shares
of the Series A Preferred Stock would have converted into approximately 1.3
million shares of Common Stock, if all holders converted on that date.
 
     If the conversion of the Series A Preferred Stock would result in the
holders receiving more than 2,500,000 Shares of Common Stock, then the Company,
at its option and under certain circumstances, may redeem any shares of Series A
Preferred Stock in excess of 2,500,000 shares at a redemption price equal to:
(i) 117% of the Stated Value of the shares; plus (ii) any accrued and unpaid
dividends on such shares. Any shares of Series A Preferred Stock which have not
been converted on or before August 8, 2000 (the "Maturity Date") will
automatically be converted to shares of Common Stock at the Maturity Date based
on the above conversion price. However, if, at the Maturity Date a Registration
Statement covering the resale of the shares issuable upon conversion is not
effective or a resale of the shares issuable upon conversion cannot be made
pursuant to Rule 144(k), then the Company will be required to pay to the holders
of Series A Preferred Stock, in cash, an amount equal to the Liquidation
Preference for the shares which they own.
 
     The Series A Preferred Stock does not grant holders voting rights except
that, so long as shares of Series A Preferred Stock are outstanding, without the
prior approval of the holders of at least a majority of all shares of the Series
A Preferred Stock outstanding at the time, the Company may not: (i) increase the
number of shares of Series A Preferred Stock which the Company is authorized to
issue; (ii) alter or change the rights, preferences or privileges of the Series
A Preferred Stock or any other capital stock of the Company so as to adversely
affect the Series A Preferred Stock; or (iii) create any new class or series of
capital stock having a preference over the Series A Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Company. Approval of holders of the Series A Preferred Stock as to actions
described in (ii) and (iii) above will not be required if the average closing
price for the Common Stock on the five trading days immediately preceding the
effective date of such a change is equal to or exceeds $27.45.
 
     The holders of Series B Preferred Stock are able to convert the shares into
Common Stock at a price equal to the lowest of: (i) 120% of the closing bid
price for the Common Stock on the date of purchase of the Series B Preferred
Stock (the "Fixed Conversion Price"); (ii) 92.5% of the average closing bid
price for the Common Stock for the five trading days prior to the date of the
conversion notice; 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. At March 31, 1998, the outstanding shares of the Series B
Preferred Stock would have converted into approximately 1.6 million shares of
Common Stock, if all holders converted on that date.
 
                                      F-21
<PAGE>   34
 
     If the conversion of the Series B Preferred Stock would result in the
holders receiving more than 2,000,000 Shares of Common Stock, then the Company
may redeem any shares of Series B Preferred Stock in excess of 2,000,000 shares
at a redemption price equal at its option and under certain circumstances to:
(i) 117% of the Stated Value of the shares; plus (ii) any accrued and unpaid
dividends on such shares. Any shares of Series B Preferred Stock which have not
been converted on or before three years after the date the Series B Preferred
Stock was issued (the "Maturity Date") will automatically be converted to shares
of Common Stock at the Maturity Date based on the above conversion price.
However, if at the Maturity Date a Registration Statement covering the resale of
the shares issuable upon conversion is not effective or a resale of the shares
issuable upon conversion cannot be made pursuant to Rule 144(k), then the
Company will be required to pay to the holders of Series B Preferred Stock, in
cash, an amount equal to the Liquidation Preference for the shares which they
own.
 
     The Series B Preferred Stock does not grant holders voting rights except
that, so long as shares of Series B Preferred Stock are outstanding, without the
prior approval of the holders of at least a majority of all shares of the Series
B Preferred Stock outstanding at the time, the Company may not: (i) increase the
number of shares of Series B Preferred Stock which the Company is authorized to
issue; (ii) alter or change the rights, preferences or privileges of the Series
B Preferred Stock or any other capital stock of the Company so as to adversely
affect the Series B Preferred Stock; or (iii) create any new class or series of
capital stock having a preference over the Series B Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Company. Approval of holders of the Series B Preferred Stock as to actions
described in (ii) and (iii) above will not be required if the average closing
price for the Common Stock on the five trading days immediately preceding the
effective date of such a change is equal to or exceeds 150% of the Fixed
Conversion Price.
 
     The following presents a summary of the Series A Preferred Stock and Series
B Preferred Stock issued and converted during fiscal 1998:
 
<TABLE>
<CAPTION>
                                                                           SERIES
                                                               SERIES A      B
                                                               --------   --------
<S>                                                            <C>        <C>
Beginning balance...........................................         0          0
Shares issued...............................................    25,000     20,000
Shares converted into Common Stock..........................   (10,665)         0
Shares issued for dividends.................................       759          0
                                                               -------     ------
Shares outstanding at March 31, 1998........................    15,094     20,000
                                                               =======     ======
</TABLE>
 
NOTE 12 -- EARNINGS (LOSS) PER SHARE
 
     Basic earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per common share includes the incremental shares
issuable upon the assumed exercise of stock options and warrants, using the
treasury stock method.
 
                                      F-22
<PAGE>   35
 
     The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) from continuing operations per share
computations (in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                                 FIVE MONTHS
                                                   YEAR ENDED       ENDED      YEAR ENDED   YEAR ENDED
                                                   OCTOBER 31,    MARCH 31,    MARCH 31,    MARCH 31,
                                                      1995          1996          1997         1998
                                                   -----------   -----------   ----------   ----------
<S>                                                <C>           <C>           <C>          <C>
INCOME (NUMERATOR):
Income (loss) from continuing operations........     $1,138        $ (953)      $(2,107)     $(34,407)
Dividends and accretion applicable to
  convertible preferred stock...................          0             0             0        (7,100)
                                                     ------        ------       -------      --------
Income (loss) from continuing operations
  applicable to Common Stock....................     $1,138        $ (953)      $(2,107)     $(41,507)
                                                     ======        ======       =======      ========
SHARES (DENOMINATOR):
Weighted average number of shares outstanding
  during the period.............................      6,160         6,334        10,141        20,762
Incremental common shares attributable to
  dilutive options and warrants.................          0             0             0             0
                                                     ------        ------       -------      --------
Diluted shares outstanding during the period....      6,160         6,334        10,141        20,762
                                                     ======        ======       =======      ========
Basic earnings (loss) per share from continuing
  operations applicable to Common Stock.........     $ 0.18        $(0.15)      $ (0.21)     $  (2.00)
                                                     ======        ======       =======      ========
Diluted earnings (loss) per share from
  continuing operations applicable to Common
  Stock.........................................     $ 0.18        $(0.15)      $ (0.21)     $  (2.00)
                                                     ======        ======       =======      ========
</TABLE>
 
     Due to the loss from continuing operations applicable to Common Stock for
the five months ended March 31, 1996 and the years ended March 31, 1997 and
1998, 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 125,656 for the five months ended March 31,
1996, 236,469 for the year ended March 31, 1997 and 3,388,202 for the year ended
March 31, 1998. Also, the potentially dilutive effect of the Company's
convertible preferred stock were not used in the diluted earnings per share
calculation as its effect was anti-dilutive.
 
NOTE 13 -- STOCK OPTIONS AND WARRANTS
 
STOCK OPTION PLANS
 
     On November 29, 1997, the Company's stockholders approved an amendment to
the Company's 1996 Director Option Plan (the "Director Plan") to reserve an
additional 100,000 shares for an aggregate 200,000 shares of Common Stock which
can be issued under the Director Plan. The Director Plan provides for options to
be granted to outside directors of the Company. Under the Director Plan, each
outside director is automatically granted an option to purchase 10,000 shares on
the date on which such person first becomes an outside director. Thereafter,
each outside director is automatically granted an option to purchase 2,500
shares on January 15th of each year, as long as such outside director has served
on the Board of Directors for at least one month. The options are granted at
100% of the market price on the date of the grant, become fully vested and
exercisable on such date and expire 10 years from the date of the grant.
 
     On November 29, 1997, the Company's stockholders approved an amendment to
the Company's 1995 Stock Option Plan (the "1995 Plan") to reserve an additional
1,300,000 shares of Common Stock for an aggregate 2,600,000 shares of Common
Stock which can be issued under the 1995 Plan. The 1995 Plan allows the Board of
Directors to grant options to purchase shares to officers and employees in the
form of either incentive stock options (ISO's) or nonstatutory stock options
(NSO's). 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
 
                                      F-23
<PAGE>   36
 
shares subject to each option and the times at and conditions under which each
option is or becomes exercisable.
 
     During fiscal 1995, the Board of Directors terminated the 1986 Stock Option
Plan with respect to future grants. The following summarizes the activity of the
Director Plan, 1995 Plan and the 1986 Plan for the year ended October 31, 1995,
the five months ended March 31, 1996 and the years ended March 31, 1997 and
1998, respectively:
 
<TABLE>
<CAPTION>
                                                                DIRECTOR & 1995 PLAN
                                 -----------------------------------------------------------------------------------
                                        1995                 1996                 1997                  1998
                                 ------------------   ------------------   ------------------   --------------------
                                           WEIGHTED             WEIGHTED             WEIGHTED               WEIGHTED
                                           AVERAGE              AVERAGE              AVERAGE                AVERAGE
                                           EXERCISE             EXERCISE             EXERCISE               EXERCISE
                                 SHARES     PRICE     SHARES     PRICE     SHARES     PRICE      SHARES      PRICE
                                 -------   --------   -------   --------   -------   --------   ---------   --------
<S>                              <C>       <C>        <C>       <C>        <C>       <C>        <C>         <C>
Beginning balance.............         0    $0.00      51,000    $3.22     716,750    $3.92       752,500    $ 4.03
Granted.......................    51,000    $3.22     665,750    $3.97     110,000    $4.53     1,218,650    $16.01
Exercised.....................         0    $0.00           0    $0.00     (16,750)   $2.90      (150,000)   $ 4.00
Canceled......................         0    $0.00           0    $0.00     (57,500)   $3.89             0    $ 0.00
                                 -------    -----     -------    -----     -------    -----     ---------    ------
Ending balance................    51,000    $3.22     716,750    $3.92     752,500    $4.03     1,821,150    $12.05
                                 =======    =====     =======    =====     =======    =====     =========    ======
Exercisable at end of
  period......................    25,000    $2.50     669,750    $3.91     667,500    $3.96       649,333    $ 5.28
                                 =======    =====     =======    =====     =======    =====     =========    ======
Options available for grant...   449,000               83,250              630,750                812,100
                                 =======              =======              =======              =========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                       1986 PLAN
                                                                -------------------------------------------------------
                                                                          1995                          1996
                                                                -------------------------    --------------------------
                                                                               OPTION                       WEIGHTED
                                                                              PRICE PER                     AVERAGE
                                                                 SHARES         SHARE         SHARES     EXERCISE PRICE
                                                                --------    -------------    --------    --------------
<S>                                                             <C>         <C>              <C>         <C>
Beginning balance...........................................     572,800    $1.90 - $6.00     304,800        $2.71
Granted.....................................................       1,500    $1.57 - $1.63           0        $0.00
Exercised...................................................     (92,000)   $2.34 - $2.98    (108,636)       $2.55
Canceled....................................................    (177,500)   $2.23 - $3.56     (39,314)       $2.77
                                                                --------    -------------    --------        -----
Ending balance..............................................     304,800    $1.57 - $6.00     156,850        $2.82
                                                                ========    =============    ========        =====
Exercisable at end of period................................     277,497    $1.88 - $6.00     141,788        $2.87
                                                                ========    =============    ========        =====
Options available for grant.................................           0                            0
                                                                ========                     ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                1986 PLAN
                                                                -----------------------------------------
                                                                       1997                   1998
                                                                -------------------    ------------------
                                                                           WEIGHTED              WEIGHTED
                                                                           AVERAGE               AVERAGE
                                                                           EXERCISE              EXERCISE
                                                                SHARES      PRICE      SHARES     PRICE
                                                                -------    --------    ------    --------
<S>                                                             <C>        <C>         <C>       <C>
Beginning balance...........................................    156,850     $2.82      5,000      $2.50
Granted.....................................................          0     $0.00          0      $0.00
Exercised...................................................    (87,100)    $2.65      (5,000)    $2.50
Canceled....................................................    (64,750)    $3.07          0      $0.00
                                                                -------                ------
Ending balance..............................................      5,000     $2.50          0      $0.00
                                                                =======                ======
Exercisable at end of period................................      5,000     $2.50          0      $0.00
                                                                =======                ======
Options available for grant.................................          0                    0
                                                                =======                ======
</TABLE>
 
                                      F-24
<PAGE>   37
 
     The following table summarizes information about stock options outstanding
at March 31, 1998:
 
<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>
$2.50 to $7.00........................................      606,000        6.9         $ 4.05     578,500     $ 4.00
$10.00 to $15.13......................................      697,900        4.7         $13.01      50,833     $13.38
$16.50 to $22.13......................................      517,250        4.9         $20.20      20,000     $21.50
                                                          ---------                               -------
                                                          1,821,150                               649,333
                                                          =========                               =======
</TABLE>
 
WARRANTS
 
     The Company issues warrants to purchase restricted Common Stock in
connection with acquisitions or for issuance to employees or consultants for
services. The summary of warrant activity for the year ended October 31, 1995,
the five months ended March 31, 1996 and the years ended March 31, 1997 and
1998, respectively, is as follows:
 
<TABLE>
<CAPTION>
                                           1995                1996                  1997                   1998
                                     -----------------   -----------------   --------------------   --------------------
                                              WEIGHTED            WEIGHTED               WEIGHTED               WEIGHTED
                                              AVERAGE             AVERAGE                AVERAGE                AVERAGE
                                              EXERCISE            EXERCISE               EXERCISE               EXERCISE
                                     SHARES    PRICE     SHARES    PRICE      SHARES      PRICE      SHARES      PRICE
                                     ------   --------   ------   --------   ---------   --------   ---------   --------
<S>                                  <C>      <C>        <C>      <C>        <C>         <C>        <C>         <C>
Beginning balance.................       0     $0.00     10,000    $3.00        20,000    $3.50     2,015,038    $ 4.65
Granted...........................   10,000    $3.00     10,000    $4.00     1,995,038    $4.66     7,016,925    $ 9.69
Exercised.........................       0     $0.00         0     $0.00             0    $0.00      (702,654)   $ 4.14
Canceled..........................       0     $0.00         0     $0.00             0    $0.00      (104,769)   $12.72
                                     ------    -----     ------    -----     ---------    -----     ---------    ------
Ending balance....................   10,000    $3.00     20,000    $3.50     2,015,038    $4.65     8,224,540    $ 8.89
                                     ======    =====     ======    =====     =========    =====     =========    ======
</TABLE>
 
     To facilitate a loan to the Company from a commercial bank, on January 7,
1997, Gerard M. Jacobs, T. Benjamin Jennings, Donald F. Moorehead, George O.
Moorehead, Harold Rubenstein and Raymond F. Zack, each of whom is or was a
director at the time of the loan, provided personal guaranties to a bank. In
consideration for the guaranties, the Company issued warrants to these
individuals to purchase an aggregate of 500,000 shares of restricted Common
Stock of the Company at $4.00 per share (subject to certain restrictions). The
value of the warrants were recorded as other financing costs and the Company
recognized an expense of $151,000 for both the years ended March 31, 1997 and
1998 for the estimated fair value of the loan guaranty.
 
     In fiscal 1998, the Company recognized approximately $30.6 million of
non-cash warrant compensation expense associated with the issuance of warrants
to certain employees, officers and directors. See Note 5 -- Non-cash and
non-recurring expenses.
 
     The following table summarizes information about compensation based
warrants outstanding at March 31, 1998:
 
<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>
$4.00 to $5.91...........................   1,855,000      4.67        $ 4.93      805,000    $ 5.81
$9.90 to $15.75..........................   1,346,923      4.30        $11.86    1,195,673    $12.05
</TABLE>
 
                                      F-25
<PAGE>   38
 
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 APB No. 25 and accordingly does
not recognize compensation cost for options and warrants with exercise prices
equal to 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>
                                                      FIVE MONTHS
                                                         ENDED          YEAR ENDED       YEAR ENDED
                                                     MARCH 31, 1996   MARCH 31, 1997   MARCH 31, 1998
                                                     --------------   --------------   --------------
<S>                                                  <C>              <C>              <C>
Pro forma net loss................................      $(1,493)         $(1,387)         $(45,147)
Pro forma basic and diluted net loss per share....      $ (0.24)         $ (0.14)         $  (2.17)
Assumptions:
Expected life (years).............................            3                3                 3
Expected volatility...............................         34.2%            60.0%             63.7%
Dividend yield....................................           --               --                --
Risk-free interest rate...........................         5.89%            6.52%             5.65%
</TABLE>
 
     For the years ended March 31, 1997 and 1998, the weighted average fair
value of options and warrants granted was as follows:
 
<TABLE>
<CAPTION>
                                                             1997                    1998
                                                      -------------------   ----------------------
                                                      SHARES   FAIR VALUE    SHARES     FAIR VALUE
                                                      ------   ----------   ---------   ----------
<S>                                                   <C>      <C>          <C>         <C>
Exercise price > Market price......................   95,000     $1.59        338,750     $4.37
Exercise price = Market price......................   15,000     $2.07      1,173,323     $7.24
Exercise price < Market price......................      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 14 -- EMPLOYEE BENEFIT PLANS
 
401K AND PROFIT SHARING PLANS
 
     The Company and its wholly-owned subsidiaries sponsor qualified 401(k)
plans and profit sharing plans covering certain eligible employees. Participants
can elect to contribute up to a certain percentage of their qualified pre-tax
compensation. Certain of the qualified 401(k) plans allow the Company to match a
percentage of the contributions of participating employees as specified in the
respective plans and also enable the Company to make a discretionary
contribution based on the plan provisions. For the year ended October 31, 1995,
the five months ended March 31, 1996 and the years ended March 31, 1997 and
1998, expense under the Company's 401(k) and profit sharing plans were
approximately $14,000, $5,000, $68,000 and $382,000, respectively.
 
DEFINED BENEFIT PLANS
 
     The Company's Bluestone subsidiary has a defined benefit pension plan
covering certain employees and groups of employees. During fiscal 1998, the
Company completed acquisitions in which it provided for the
 
                                      F-26
<PAGE>   39
 
continuation of two defined benefit pension plans covering certain employees and
groups of employees. Under the Company's pension plans, benefits are generally
based on years of service and the employees' ending compensation. The Company's
general funding policy is to contribute annually an amount that falls within the
range determined to be deductible for federal tax purposes. Plan assets consist
primarily of stocks, bonds and a receivable from the seller for a fully funded
plan.
 
     Net pension cost includes the following components (in thousands):
 
<TABLE>
<CAPTION>
                                                                FIVE MONTHS
                                                  YEAR ENDED       ENDED      YEAR ENDED   YEAR ENDED
                                                  OCTOBER 31,    MARCH 31,    MARCH 31,    MARCH 31,
                                                     1995          1996          1997         1998
                                                  -----------   -----------   ----------   ----------
<S>                                               <C>           <C>           <C>          <C>
Service cost...................................      $ 22          $  9          $ 27        $ 119
Interest cost..................................        34            16            49          341
Actual return on plan assets...................       (41)          (35)          (10)        (545)
Net amortization and deferral..................        13            23           (25)         247
                                                     ----          ----          ----        -----
Net pension cost...............................      $ 28          $ 13          $ 41        $ 162
                                                     ====          ====          ====        =====
</TABLE>
 
     The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated balance sheets at (in thousands):
 
<TABLE>
<CAPTION>
                                                     OCTOBER 31,   MARCH 31,   MARCH 31,   MARCH 31,
                                                        1995         1996        1997        1998
                                                     -----------   ---------   ---------   ---------
<S>                                                  <C>           <C>         <C>         <C>
Actuarial present value of benefit obligations:
  Vested benefit obligation.......................      $513         $548        $591       $7,797
  Non-vested benefit obligation...................        23          117          86          304
                                                        ----         ----        ----       ------
  Accumulated benefit obligation..................       536          665         677        8,101
  Excess of projected benefit obligation over
     accumulated benefit obligation...............         0            0           0        1,653
                                                        ----         ----        ----       ------
  Projected benefit obligation....................       536          665         677        9,754
  Plan assets at fair value.......................       511          566         551        8,586
                                                        ----         ----        ----       ------
  Projected benefit obligation in excess of plan
     assets.......................................        25           99         126        1,168
  Unrecognized net gain (loss)....................       (61)         (45)        (44)         197
  Prior service cost not yet recognized in net
     periodic pension cost........................       (55)        (134)       (122)        (111)
  Unrecognized transition obligation..............        (9)          (8)         (7)          (6)
  Adjustment required to recognized minimum
     liability....................................       125          187         173          148
                                                        ----         ----        ----       ------
  Accrued pension liabilities.....................      $ 25         $ 99        $126       $1,396
                                                        ====         ====        ====       ======
</TABLE>
 
     Significant assumptions used in determining the accumulated benefit
obligations are:
 
<TABLE>
<CAPTION>
                                                  OCTOBER 31,   MARCH 31,   MARCH 31,    MARCH 31,
                                                     1995         1996        1997          1998
                                                  -----------   ---------   ---------   ------------
<S>                                               <C>           <C>         <C>         <C>
Discount rate..................................      7.50%        7.50%       7.50%        7.50%
Expected long-term rate of return on assets....      7.75%        7.75%       7.75%     7.50 - 9.00%
</TABLE>
 
                                      F-27
<PAGE>   40
 
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
 
LEASES
 
     The Company leases certain facilities and equipment under operating leases
expiring at various dates. Rent expense was $0.6 million and $3.1 million for
the years ended March 31, 1997 and 1998, respectively. Most of the operating
leases contain renewal options. Future minimum lease payments are as follows (in
thousands):
 
<TABLE>
<CAPTION>
FISCAL YEAR ENDING, MARCH 31
----------------------------
<S>                                                            <C>
1999........................................................   $3,448
2000........................................................    3,360
2001........................................................    3,069
2002........................................................    2,487
2003 and thereafter.........................................    7,808
</TABLE>
 
ENVIRONMENTAL MATTERS
 
     The Company is subject to comprehensive local, state, federal 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. The Company and its
subsidiaries may, however, be required from time to time to engage in certain
remedial activities with regard to sites owned or leased by the Company or its
subsidiaries in connection with their business. Furthermore, the Company and its
subsidiaries may be required to pay for a portion of the costs of certain
remedial activities in regard to certain sites owned by third parties under
applicable Federal Superfund laws and regulations. While it is not possible to
predict the ultimate costs of resolving environmental matters, such costs are
not expected to have a material effect on the consolidated financial condition
or results of operations of the Company based on information currently available
to the Company. However, there can be no assurance that potential damages,
liabilities, expenditures, fines, and penalties will not have a material adverse
effect on the Company's financial condition or results of operations. In
addition, 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.
 
PURCHASE OF REAL PROPERTY
 
     On January 7, 1997, the Company's HouTex subsidiary entered into a 10 year
lease agreement with 15/21 Japhet Realty Ltd. ("Japhet"), which is principally
owned by former HouTex shareholders. 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.
 
FUTURES CONTRACTS
 
     The Company utilizes futures contracts in conjunction with the purchase of
certain metals. The Company uses these contracts to hedge its firm sales price
to customers. Such sales commitments amounted to approximately $1.0 million,
$0.6 million, $0.5 million and $0.3 million for the year ended October 31, 1995,
the five months ended March 31, 1996 and the years ended March 31, 1997 and
1998, respectively. Gains and losses on futures contracts are included in cost
of sales in the period of sale. Gains and losses on futures contracts to hedge
excess supply of inventory are recorded as a component of inventory cost.
Outstanding futures contracts at March 31, 1997 and 1998 were not significant.
 
                                      F-28
<PAGE>   41
 
NOTE 16 -- 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
                                                      ----------------------------------------
FISCAL 1997                                           JUNE 30   SEPT. 30   DEC. 31    MAR. 31
-----------                                           -------   --------   --------   --------
<S>                                                   <C>       <C>        <C>        <C>
Net sales..........................................   $34,525   $ 30,846   $ 28,519   $ 47,940
Gross profit.......................................     2,826      1,530      1,448      5,603
Income (loss) from continuing operation............      (218)    (1,207)    (1,223)       541
Income from discontinued operations................       146        148         25        528
Net income (loss)..................................       (72)    (1,059)    (1,198)     1,069
Basic earnings (loss) per share:
  Continuing operations............................   $  (.02)  $   (.12)  $   (.12)  $    .05
  Discontinued operations..........................       .01        .01        .00        .05
  Net income (loss)................................      (.01)      (.11)      (.12)       .10
Diluted earnings (loss) per share:
  Continuing operations............................   $  (.02)  $   (.12)  $   (.12)  $    .05
  Discontinued operations..........................       .01        .01        .00        .04
  Net income (loss)................................      (.01)      (.11)      (.12)       .09
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   QUARTER ENDED
                                                      ----------------------------------------
FISCAL 1998                                           JUNE 30   SEPT. 30   DEC. 31    MAR. 31
-----------                                           -------   --------   --------   --------
<S>                                                   <C>       <C>        <C>        <C>
Net sales..........................................   $82,105   $127,254   $145,837   $214,839
Gross profit.......................................     7,374     11,264     12,532     20,971
Non-cash and non-recurring expense (income)(b).....     2,597     11,758     29,942       (749)
Income (loss) from continuing operations(a)(b).....    (1,218)    (7,041)   (34,064)       816
Income (loss) from discontinued operations.........       101        107        (42)        34
Net income (loss)(a)(b)............................    (1,117)    (6,934)   (34,106)       850
Basic earnings (loss) per share:
  Continuing operations(a)(b)......................   $  (.09)  $   (.43)  $  (1.57)  $    .03
  Discontinued operations..........................       .00        .01       (.00)       .00
  Net income (loss)(a)(b)..........................      (.09)      (.42)     (1.57)       .03
Diluted earnings (loss) per share:
  Continuing operations(a)(b)......................   $  (.09)  $   (.43)  $  (1.57)  $    .02
  Discontinued operations..........................       .00        .01       (.00)       .00
  Net income (loss)(a)(b)..........................      (.09)      (.42)     (1.57)       .02
</TABLE>
 
---------------
(a) amounts include preferred stock dividends, accretion of preferred stock
    discount to redemption value and non-cash beneficial conversion feature of
    convertible preferred stock.
 
(b)As discussed in Notes 2 and 5, fiscal 1998 amounts have been restated to
   reflect a change in accounting for certain warrants issued in connection with
   a purchase business combination.
 
NOTE 17 -- SUBSEQUENT EVENTS
 
PURCHASE TRANSACTIONS
 
--  In April 1998, the Company, through its Cozzi subsidiary, acquired certain
    assets of Midwest Industrial Scrap, Inc., located in Chicago, Illinois.
 
--  In May 1998, the Company acquired substantially all of the assets of 138
    Scrap, Inc. and Katrick, Inc., headquartered in Riverdale, Illinois.
 
                                      F-29
<PAGE>   42
 
NOTE 18 -- EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS REPORT
 
PURCHASE TRANSACTIONS
 
-   In June 1998, a wholly owned subsidiary of the Company acquired certain
    assets related to the scrap metal businesses of Goldin Industries, Inc.,
    Goldin of Alabama, Inc., and Goldin of Louisiana, Inc.
 
-   In June 1998, a wholly owned subsidiary of the Company merged with and into
    Newell Recycling of Denver, Inc. ("Newell Denver"). Newell Denver acquired
    substantially all of the assets of Newell Recycling of Utah, LLC.
 
-   In July 1998 a wholly owned subsidiary of the Company acquired the common
    stock of Naporano Iron and Metal, Inc. and Nimco Shredding Co.
 
-   In July 1998, the Company acquired substantially all of the assets of
    Michael Schiavone & Sons, Inc. and related entities, located in North Haven
    and Torrington, Connecticut.
 
-   In July 1998, the Company acquired substantially all of the assets of M.
    Kimerling & Sons, Inc., located in Birmingham, Alabama.
 
-   In July 1998, the Company acquired substantially all of the assets of
    Nicroloy Company, located in Heidelberg, Pennsylvania.
 
-   In July 1998, the Company through its Cozzi subsidiary, acquired certain
    assets of Midwest Metallics, L.P., located in Chicago, Illinois.
 
                                      F-30
<PAGE>   43
 
                             METAL MANAGEMENT, INC.
                 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
 
     Fiscal 1995 represents the twelve month period ended October 31. Fiscal
1996 represents the five month period from November 1, 1995 to March 31, 1996.
Fiscal 1997 and 1998 represents the twelve month period ended March 31.
 
<TABLE>
<CAPTION>
                                         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>
        Allowance for doubtful
1998    accounts.......................   $101,000    $ 641,000    $1,013,000    $(126,000)   $1,629,000
        Allowance for doubtful
1997    accounts.......................   $474,000    $ 223,000    $        0    $(596,000)   $  101,000
        Tax valuation allowance           $505,000    $(505,000)   $        0    $       0    $        0
        Allowance for doubtful
1996    accounts.......................   $414,000    $  60,000    $        0    $       0    $  474,000
        Tax valuation allowance........   $505,000    $            $        0    $       0    $  505,000
        Allowance for doubtful
1995    accounts.......................   $373,000    $ 231,000    $   10,000    $(200,000)   $  414,000
        Tax valuation allowance........   $      0    $ 505,000    $        0    $       0    $  505,000
</TABLE>
 
                                      F-31