<PAGE>   1

================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                  FORM 10-Q/A
                               (AMENDMENT NO. 1)
 
[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 1998
 
[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                          COMMISSION FILE NO. 0-14836
 
                             METAL MANAGEMENT, INC.
             (Exact name of Registrant as specified in its charter)
 
<TABLE>
<S>                                                         <C>
                      DELAWARE                                                   94-2835068
           (State or other jurisdiction of                                    (I.R.S. Employer
           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
 
     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 
                                  ---          --- 
 
     As of October 31, 1998, the Registrant had 41,077,983 shares of Common
Stock outstanding.

================================================================================
<PAGE>   2
 
                               INTRODUCTORY NOTE
 
     This Form 10-Q/A amends and restates the Quarterly Report of Metal
Management, Inc. (the "Company") as of September 30, 1998 and for the three and
six months ended September 30, 1998 and September 30, 1997. The restatement is
the result of a change in the method of accounting for warrants to purchase 1.4
million shares of Common Stock issued to the former shareholders of the general
partner of Reserve Iron & Metal L.P. ("Reserve"), in connection with the
acquisition of Reserve. The warrants were originally recorded as a component of
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. The
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," require the warrants to be treated as variable
instruments. Adjustments have been reflected in the attached financial
statements of the Company to apply this change and accounting determination.
 
     The information included in Part II of this Quarterly Report on Form 10-Q/A
has not been amended and does not purport to update the disclosure made therein.
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>       <C>                                                             <C>
PART I:   FINANCIAL INFORMATION
ITEM 1:   Financial Statements
          Condensed Consolidated Balance Sheets -- September 30, 1998
            (unaudited) and March 31, 1998............................      1
          Condensed Consolidated Statements of Operations -- three
            months and six months ended September 30, 1998 and 1997
            (unaudited)...............................................      2
          Condensed Consolidated Statements of Cash Flows -- six
            months ended September 30, 1998 and 1997 (unaudited)......      3
          Condensed Consolidated Statement of Stockholders'
            Equity -- six months ended September 30, 1998
            (unaudited)...............................................      4
          Notes to Condensed Consolidated Financial Statements
            (unaudited)...............................................      5
ITEM 2:   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.................................     14
PART II:  OTHER INFORMATION
ITEM 1:   Legal Proceedings...........................................     23
ITEM 2:   Changes in Securities.......................................     23
ITEM 5:   Other Information...........................................     24
ITEM 6:   Exhibits and Reports on Form 8-K............................     24
          SIGNATURES..................................................     25
          Exhibit Index...............................................     26
</TABLE>
<PAGE>   3
 
                         PART I: FINANCIAL INFORMATION
 
ITEM 1 -- FINANCIAL STATEMENTS
 
                             METAL MANAGEMENT, INC.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                SEPTEMBER 30, 1998    MARCH 31, 1998
                                                                ------------------    --------------
                                                                   (UNAUDITED)          (RESTATED)
                                                                    (RESTATED)
<S>                                                             <C>                   <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................         $  3,610            $  4,464
  Accounts receivable, net..................................          124,378             122,404
  Inventories...............................................           82,644              61,942
  Prepaid expenses and other assets.........................            8,609               8,569
                                                                     --------            --------
     Total current assets...................................          219,241             197,379
Property and equipment, net.................................          182,387             109,886
Goodwill, net...............................................          300,547             176,027
Deferred financing costs and other intangibles, net.........           13,383               5,284
Investments in joint ventures...............................            8,255               7,496
Other assets................................................              967               1,162
                                                                     --------            --------
     Total assets...........................................         $724,780            $497,234
                                                                     ========            ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................         $ 70,681            $ 66,845
  Other accrued liabilities.................................           27,023              17,018
  Current portion of notes payable to related parties.......           11,580              10,830
  Current portion of long-term debt.........................            1,413               1,047
                                                                     --------            --------
     Total current liabilities..............................          110,697              95,740
Long-term notes payable to related parties, less current
  portion...................................................           10,830              31,762
Long-term debt, less current portion........................          323,616             107,827
Deferred taxes..............................................            7,951              11,177
Other liabilities...........................................            2,306               2,339
                                                                     --------            --------
     Total liabilities......................................          455,400             248,845
Stockholders' equity:
  Convertible preferred stock -- Series A...................           10,806              13,981
  Convertible preferred stock -- Series B...................           18,679              19,027
  Common stock..............................................              396                 341
  Warrants..................................................           40,618              47,000
  Additional paid-in-capital and other......................          247,473             200,275
  Accumulated deficit.......................................          (48,592)            (32,235)
                                                                     --------            --------
     Total stockholders' equity.............................          269,380             248,389
                                                                     --------            --------
     Total liabilities and stockholders' equity.............         $724,780            $497,234
                                                                     ========            ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements
 
                                        1
<PAGE>   4
 
                             METAL MANAGEMENT, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                SIX MONTHS ENDED
                                                    -----------------------------    -----------------------------
                                                    SEPTEMBER 30,   SEPTEMBER 30,    SEPTEMBER 30,   SEPTEMBER 30,
                                                        1998            1997             1998            1997
                                                    -------------   -------------    -------------   -------------
                                                     (RESTATED)      (RESTATED)       (RESTATED)      (RESTATED)
<S>                                                 <C>             <C>              <C>             <C>
Net sales.........................................    $217,256        $127,254         $432,207        $209,359
Cost of sales.....................................     207,369         115,990          402,571         190,721
                                                      --------        --------         --------        --------
Gross profit......................................       9,887          11,264           29,636          18,638
Operating expenses:
  General and administrative......................      16,092           6,114           27,637          10,324
  Depreciation and amortization...................       6,252           2,420           10,650           3,704
  Non-cash and non-recurring expense (income).....      (2,575)         11,758           (3,361)         14,355
                                                      --------        --------         --------        --------
         Total operating expenses.................      19,769          20,292           34,926          28,383
                                                      --------        --------         --------        --------
Operating loss from continuing operations.........      (9,882)         (9,028)          (5,290)         (9,745)
Income (loss) from joint ventures.................        (771)             59             (931)            189
Interest expense..................................       8,658           2,585           13,591           4,105
Interest and other income, net....................         747             390            1,316             485
                                                      --------        --------         --------        --------
Loss from continuing operations before income
  taxes and extraordinary charge..................     (18,564)        (11,164)         (18,496)        (13,176)
Benefit for income taxes..........................      (4,323)         (4,495)          (3,783)         (5,289)
                                                      --------        --------         --------        --------
Loss from continuing operations before
  extraordinary charge............................     (14,241)         (6,669)         (14,713)         (7,887)
Discontinued operations:
  Gain on sale of discontinued operations, net of
    taxes.........................................          27             107               74             208
                                                      --------        --------         --------        --------
Loss before extraordinary charge..................     (14,214)         (6,562)         (14,639)         (7,679)
Extraordinary charge for early retirement of debt,
  net of taxes....................................           0               0              862               0
                                                      --------        --------         --------        --------
Net loss..........................................     (14,214)         (6,562)         (15,501)         (7,679)
Accretion of preferred stock to redemption
  value...........................................           0              57                0              57
Preferred stock dividends.........................         415             315              856             315
                                                      --------        --------         --------        --------
Net loss applicable to Common Stock...............    $(14,629)       $ (6,934)        $(16,357)       $ (8,051)
                                                      ========        ========         ========        ========
Basic earnings (loss) per common share for:
  Continuing operations applicable to Common
    Stock.........................................    $  (0.38)       $  (0.43)        $  (0.43)       $  (0.56)
  Gain on sale of discontinued operations.........    $   0.00        $   0.01         $   0.00        $   0.01
  Extraordinary charge............................    $   0.00        $   0.00         $  (0.02)       $   0.00
                                                      --------        --------         --------        --------
  Net loss applicable to Common Stock.............    $  (0.38)       $  (0.42)        $  (0.45)       $  (0.55)
                                                      ========        ========         ========        ========
Weighted average shares outstanding...............      38,991          16,501           36,647          14,738
Diluted earnings (loss) per share for:
  Continuing operations applicable to Common
    Stock.........................................    $  (0.38)       $  (0.43)        $  (0.43)       $  (0.56)
  Gain on sale of discontinued operations.........    $   0.00        $   0.01         $   0.00        $   0.01
  Extraordinary charge............................    $   0.00        $   0.00         $  (0.02)       $   0.00
                                                      --------        --------         --------        --------
  Net loss applicable to Common Stock.............    $  (0.38)       $  (0.42)        $  (0.45)       $  (0.55)
                                                      ========        ========         ========        ========
Weighted average diluted shares outstanding.......      38,991          16,501           36,647          14,738
</TABLE>
 
   The accompanying notes are an integral part of these financial statements
 
                                        2
<PAGE>   5
 
                             METAL MANAGEMENT, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED, IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                       SIX MONTHS ENDED
                                                                ------------------------------
                                                                SEPTEMBER 30,    SEPTEMBER 30,
                                                                    1998             1997
                                                                -------------    -------------
                                                                 (RESTATED)       (RESTATED)
<S>                                                             <C>              <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Loss from continuing operations.............................      $ (14,713)       $ (7,887)
Adjustments to reconcile loss from continuing operations to
  cash flows from continuing operations:
  Discontinued operations...................................            135             208
  Extraordinary charge on retirement of debt................           (862)              0
  Depreciation and amortization.............................         10,650           3,704
  Deferred taxes............................................         (2,908)         (6,080)
  Non-cash and non-recurring expense (income)...............         (6,775)         14,355
  Amortization of debt issuance costs.......................            935               0
  Other.....................................................           (681)           (302)
Changes in assets and liabilities, net of effects of
  acquisitions:
  Accounts receivable, net..................................         27,553             783
  Inventories...............................................          2,392          11,966
  Accounts payable..........................................         (1,904)        (16,489)
  Other.....................................................          6,915          (3,002)
                                                                  ---------        --------
Cash flows from continuing operations.......................         20,737          (2,744)
CASH FLOWS USED BY INVESTING ACTIVITIES:
  Purchases of property and equipment.......................        (11,281)         (1,809)
  Costs of operating lease buyouts..........................        (10,623)              0
  Acquisitions, net of cash acquired........................       (182,631)        (14,092)
  Other.....................................................          3,412             602
                                                                  ---------        --------
Net cash used by investing activities.......................       (201,123)        (15,299)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
  Net borrowings on lines-of-credit.........................              0           1,318
  Issuances of long-term debt...............................        975,547           1,774
  Repayments of long-term debt..............................       (785,124)        (18,073)
  Fees paid to issue long-term debt.........................        (10,715)              0
  Penalties paid on early retirement of debt................           (973)              0
  Issuances of convertible preferred stock..................              0          23,950
  Issuances of Common Stock.................................            797          15,294
                                                                  ---------        --------
Net cash provided by financing activities...................        179,532          24,263
                                                                  ---------        --------
Net increase (decrease) in cash and cash equivalents........           (854)          6,220
Cash and cash equivalents at beginning of period............          4,464           5,768
                                                                  ---------        --------
Cash and cash equivalents at end of period..................      $   3,610        $ 11,988
                                                                  =========        ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...............................................      $   5,889        $  3,266
Income taxes paid...........................................      $   1,449        $    842
</TABLE>
 
   The accompanying notes are an integral part of these financial statements
 
                                        3
<PAGE>   6
 
                             METAL MANAGEMENT, INC.
 
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    (UNAUDITED, IN THOUSANDS, EXCEPT SHARES)
 
<TABLE>
<CAPTION>
                                                          COMMON STOCK
                                   PREFERRED STOCK     -------------------              ADDITIONAL
                                 -------------------   NUMBER OF                         PAID-IN-    ACCUMULATED
                                 SERIES A   SERIES B     SHARES     AMOUNT   WARRANTS    CAPITAL       DEFICIT      TOTAL
                                 --------   --------   ---------    ------   --------   ----------   -----------    -----
<S>                              <C>        <C>        <C>          <C>      <C>        <C>          <C>           <C>
BALANCE AT MARCH 31, 1998
  (RESTATED)...................  $13,981    $19,027    34,080,830    $341    $47,000     $200,275     $(32,235)    $248,389
Conversion of preferred
  stock........................   (3,175)      (348)      869,332       8          0        4,514            0          999
Equity issued for
  acquisitions.................        0          0     4,492,851      45        699       41,718            0       42,462
Preferred stock dividends......        0          0             0       0          0            0         (856)        (856)
Exercise of options/warrants...        0          0       186,741       2       (306)         987            0          683
Warrants issued to employees...        0          0             0       0     (6,775)           0            0       (6,775)
Other..........................        0          0        18,294       0          0          (21)           0          (21)
Net loss.......................        0          0             0       0          0            0      (15,501)     (15,501)
                                 -------    -------    ----------    ----    -------     --------     --------     --------
BALANCE AT SEPTEMBER 30, 1998
  (RESTATED)...................  $10,806    $18,679    39,648,048    $396    $40,618     $247,473     $(48,592)    $269,380
                                 =======    =======    ==========    ====    =======     ========     ========     ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements
 
                                        4
<PAGE>   7
 
                             METAL MANAGEMENT, INC.
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
 
     The accompanying unaudited condensed consolidated financial statements
include the accounts of Metal Management, Inc. and its subsidiaries (herein
referred to as "MTLM" or the "Company") and have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany accounts, transactions and profits have been
eliminated. Certain information related to the Company's organization,
significant accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These unaudited condensed
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to fairly state the financial position and the results of operations for the
periods presented and the disclosures herein are adequate to make the
information presented not misleading. Operating results for interim periods are
not necessarily indicative of the results that can be expected for a full year.
These interim financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K/A for the year ended March 31, 1998.
 
     In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements in order to conform with the financial statement
presentation of the current period.
 
     The financial statements as of September 30, 1998 and March 31, 1998 and
for the three and six months ended September 30, 1998 and 1997 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 have been restated to
reflect the warrants as non-cash warrant compensation expense or income.
 
     The restatement results in a reduction in the purchase price of Reserve
totaling $8.1 million and a reduction in recorded goodwill at September 30, 1998
of $5.2 million. The effect of the restatement also causes a decrease in
non-cash and non-recurring expenses of $5.1 million and $6.8 million for the
three and six months ended September 30, 1998, respectively, and an increase in
non-cash and non-recurring expenses of $11.8 million and $14.4 million for the
three and six months ended September 30, 1997, respectively. The after-tax
effects of these adjustments was to decrease net loss by $2.9 million and $3.6
million for the three and six months ended September 30, 1998, respectively, and
to increase net loss by $6.9 million and $8.4 million for the three and six
months ended September 30, 1997, respectively.
 
                                        5
<PAGE>   8
                             METAL MANAGEMENT, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
     The following table presents the impact of the restatement on previously
reported results for the three and six months ended September 30, 1998 (in
thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                         QUARTER ENDED        QUARTER ENDED       SIX MONTHS ENDED     SIX MONTHS ENDED
                                       SEPTEMBER 30, 1998   SEPTEMBER 30, 1997   SEPTEMBER 30, 1998   SEPTEMBER 30, 1997
                                       ------------------   ------------------   ------------------   ------------------
<S>                                    <C>                  <C>                  <C>                  <C>
Non-cash and non-recurring expense
  (income):
  As previously reported.............       $  2,482             $     0              $  3,414             $     0
  As restated........................       $ (2,575)            $11,758              $ (3,361)            $14,335
Income (loss) from continuing
  operations applicable to Common
  Stock before extraordinary charges:
  As previously reported.............       $(17,536)            $  (143)             $(19,129)            $   143
  As restated........................       $(14,656)            $(7,041)             $(15,569)            $(8,259)
Net income (loss) applicable to
  Common Stock:
  As previously reported.............       $(17,509)            $   (36)             $(19,917)            $   351
  As restated........................       $(14,629)            $(6,934)             $(16,357)            $(8,051)
Basic earnings (loss) per share:
  Income (loss) from continuing
    operations applicable to Common
    Stock:
    As previously reported...........       $  (0.45)            $ (0.01)             $  (0.52)            $  0.01
    As restated......................       $  (0.38)            $ (0.43)             $  (0.43)            $ (0.56)
  Net income (loss) applicable to
    Common Stock:
    As previously reported...........       $  (0.45)            $ (0.00)             $  (0.54)            $  0.02
    As restated......................       $  (0.38)            $ (0.42)             $  (0.45)            $ (0.55)
Diluted earnings (loss) per share:
  Income (loss) from continuing
    operations applicable to Common
    Stock:
    As previously reported...........       $  (0.45)            $ (0.01)             $  (0.52)            $  0.01
    As restated......................       $  (0.38)            $ (0.43)             $  (0.43)            $ (0.56)
  Net income (loss) applicable to
    Common Stock:
    As previously reported...........       $  (0.45)            $ (0.00)             $  (0.54)            $  0.02
    As restated......................       $  (0.38)            $ (0.42)             $  (0.45)            $ (0.55)
</TABLE>
 
NOTE 2 -- MERGERS AND ACQUISITIONS
 
Mergers accounted for as Pooling-of-Interests
 
     On May 28, 1998, a subsidiary of the Company merged with R&P Holdings,
Inc., the parent of Charles Bluestone Company and R&P Real Estate, Inc.
(hereinafter, "Bluestone") through a tax-free stock-for-stock exchange. In
connection with the merger, the Company issued 1,034,826 shares of common stock,
par value $.01 per share ("Common Stock") in exchange for all the outstanding
common stock of Bluestone. The merger is accounted for as a pooling-of-interests
under Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations." All financial data of the Company, including the Company's
previously issued financial statements presented in this Form 10-Q/A, have been
restated to include the historical financial information of Bluestone. Certain
reclassifications were made to Bluestone's financial statements to conform to
the Company's presentation.
 
                                        6
<PAGE>   9
                             METAL MANAGEMENT, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
     The following table presents net sales and net income (loss) applicable to
Common Stock for the six months ended September 30. The only conforming
accounting adjustment reflected is to change Bluestone's inventory valuation
methodology from a LIFO basis to an average cost basis (in thousands):
 
<TABLE>
<CAPTION>
                                                                  1998        1997
                                                                  ----        ----
<S>                                                             <C>         <C>
NET SALES:
  The Company -- historical.................................    $421,674    $157,346
  Bluestone.................................................      10,533      52,013
                                                                --------    --------
  Combined..................................................    $432,207    $209,359
                                                                ========    ========
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK:
  The Company -- historical.................................    $(15,243)   $ (8,248)
  Bluestone.................................................        (326)        234
  Conforming accounting adjustments, net of tax.............           0        (245)
                                                                --------    --------
  Loss from continuing operations...........................     (15,569)     (8,259)
  Income from discontinued operations.......................          74         208
  Extraordinary charge on early retirement of debt..........        (862)          0
                                                                --------    --------
  Combined net loss applicable to Common Stock..............    $(16,357)   $ (8,051)
                                                                ========    ========
</TABLE>
 
     In connection with the Bluestone merger, the Company recognized merger
expenses of $1.7 million, see Note 3 -- Non-cash and non-recurring expense
(income).
 
Acquisitions completed during the six months ended September 30, 1998
 
     - In April 1998, the Company, through its Cozzi Iron & Metal, Inc.
       ("Cozzi") subsidiary, acquired certain assets of Midwest Industrial
       Metals Corp., located in Chicago, Illinois.
 
     - In May 1998, the Company acquired substantially all of the assets of 138
       Scrap, Inc. and Katrick, Inc., located in Riverdale, Illinois.
 
     - In June 1998, the Company acquired certain assets related to the scrap
       metal businesses of Goldin Industries, Inc., Goldin of Alabama, Inc., and
       Goldin of Louisiana, Inc. (collectively "Goldin"). Goldin's operations
       (now operated under the name Metal Management Gulf Coast, Inc.) are
       located in Gulfport, Mississippi, Mobile, Alabama and Harvey, Louisiana.
 
     - In June 1998, a wholly owned subsidiary of the Company merged with and
       into Newell Recycling of Denver, Inc., which subsequently changed its
       name to Newell Recycling West, Inc. ("Newell"). Newell operates
       facilities in Denver and Colorado Springs, Colorado. In June 1998, Newell
       acquired substantially all of the assets of Newell Recycling of Utah,
       LLC, in a related transaction.
 
     - In July 1998, the Company acquired the common stock of Naporano Iron &
       Metal Co. and Nimco Shredding Co. (collectively "Naporano"), located in
       Newark, New Jersey.
 
     - 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.
 
                                        7
<PAGE>   10
                             METAL MANAGEMENT, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
     - In July 1998, the Company, through its Cozzi subsidiary, acquired certain
       assets of Midwest Metallics, L.P., located in Chicago, Illinois.
 
     The purchase consideration for the above acquisitions was as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                                NAPORANO     OTHERS      TOTAL
                                                                --------     ------      -----
<S>                                                             <C>         <C>         <C>
Shares of restricted Common Stock issued....................       1,939       2,554       4,493
Warrants issued to purchase Common Stock....................           0         150         150
Cash paid, including transaction costs......................    $ 86,552    $ 99,675    $186,227
Value of Common Stock issued................................      18,497      23,266      41,763
Value of warrants issued....................................           0         699         699
Promissory notes issued.....................................           0         750         750
                                                                --------    --------    --------
          Total purchase consideration......................    $105,049    $124,390    $229,439
                                                                ========    ========    ========
</TABLE>
 
     The preliminary allocation of purchase consideration was as follows at
September 30, 1998 (in thousands):
 
<TABLE>
<S>                                                             <C>
Fair value of tangible assets acquired......................    $120,287
Goodwill....................................................     126,668
Liabilities assumed.........................................     (17,916)
Stock and warrants issued...................................     (42,462)
Promissory notes issued.....................................        (750)
                                                                --------
Cash paid...................................................     185,827
  Less: cash acquired.......................................      (3,200)
                                                                --------
Net cash paid for acquisitions..............................    $182,627
                                                                ========
</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 are revised during the allocation period as necessary when
information regarding contingencies becomes available to define and quantify
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, Reserve, the Isaac
Corporation and Ferrex Trading Corporation (collectively "Isaac"), Proler
Southwest Inc. and Proler Steelworks L.L.C. (collectively "Proler"), Cozzi,
Aerospace Metals, Inc. ("Aerospace") and Naporano (collectively, the "Pro Forma
Acquisitions") as if these acquisitions had occurred on April 1, 1997. The
Reserve, Isaac, Proler, Cozzi and Aerospace acquisitions were completed by the
Company during fiscal 1998. 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 acquired, additional amortization expense as a result of goodwill and
interest expense related to cash portions of purchase consideration and assumed
debt. The pro forma statement of operations includes non-cash and non-recurring
expense (income) of $(3.4) million for the six months ended September 30, 1998
and $43.5 million for the twelve months ended March 31, 1998. The pro forma
statement of operations for the twelve months ended March 31, 1998 also includes
a charge for a $5.6 million non-cash dividend on the beneficial conversion
feature of convertible preferred stock. The pro forma results do not
 
                                        8
<PAGE>   11
                             METAL MANAGEMENT, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
purport to be indicative of the financial results which actually would have
occurred had the Pro Forma Acquisitions taken effect on April 1, 1997 (in
thousands, except per share data).
 
<TABLE>
<CAPTION>
                                                                    SIX MONTHS        TWELVE MONTHS
                                                                      ENDED               ENDED
                                                                SEPTEMBER 30, 1998    MARCH 31, 1998
                                                                ------------------    --------------
                                                                            (UNAUDITED)
<S>                                                             <C>                   <C>
PRO FORMA STATEMENT OF OPERATIONS
  Net sales.................................................         $472,363           $1,020,030
  Net loss from continuing operations applicable to Common
     Stock..................................................         $(18,394)          $  (44,410)
  Basic and diluted net loss per share from continuing
     operations.............................................         $  (0.46)          $    (1.19)
</TABLE>
 
Acquisitions completed subsequent to September 30, 1998
 
     - In November 1998, a wholly owned subsidiary of the Company merged with
       FPX, Inc. The sole asset of FPX, Inc. is a 50% joint venture interest in
       PerlCo, L.L.C. ("PerlCo"). The Company's Cozzi subsidiary owns the other
       50% of PerlCo. PerlCo is a scrap metal recycling operation located in
       Memphis, Tennessee.
 
NOTE 3 -- NON-CASH AND NON-RECURRING EXPENSE (INCOME)
 
     During the three and six months ended September 30, 1998, the Company
recorded the following non-cash and non-recurring pre-tax (income) expense (in
thousands):
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS      SIX MONTHS
                                                                ENDED 9/30/98    ENDED 9/30/98
                                                                -------------    -------------
<S>                                                             <C>              <C>
Bluestone merger expenses...................................       $   753          $ 1,685
Non-cash warrant compensation expense (income)..............        (5,057)          (6,775)
Terminated merger expenses..................................         1,082            1,082
Severance and other benefits................................           107              107
Integration/facility closure charges........................           540              540
                                                                   -------          -------
                                                                   $(2,575)         $(3,361)
                                                                   =======          =======
</TABLE>
 
     In connection with the Company's merger with Bluestone, the Company
recognized merger expenses consisting primarily of fees and expenses for
accountants, attorneys, and investment bankers. The merger expenses also
included a charge of $750,000 related to the buy-out of existing contracts at
Bluestone.
 
     On May 1, 1997, the Company issued warrants to purchase 1,400,000 shares of
Common Stock to the former shareholders of the general partner of Reserve. The
warrants have initial exercise prices of $3.50 and $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 holders.
 
     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"
require that they be accounted for as non-cash compensation expense in
accordance with the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employers." Non-cash warrant compensation expense is calculated for
exercised and non-exercised warrants at each reporting period based on the
vesting
 
                                        9
<PAGE>   12
                             METAL MANAGEMENT, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
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.
 
     During the quarter ended September 30, 1998, the Company elected, due to
adverse scrap metals market conditions, to terminate all negotiations and
related due diligence processes with potential acquisition candidates. The
terminated merger expenses recognized represent all incurred transaction costs
associated with acquisitions that the Company was pursuing.
 
     During the quarter ended September 30, 1998, and as a result of the adverse
market conditions, the Company closed certain facilities resulting in the
write-off of equipment which became impaired and the recording of severance
accruals for employee termination. The Company will continue its ongoing review
of all of its facilities during the third quarter of fiscal 1999 and will take
actions as required in response to market conditions.
 
NOTE 4 -- 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 at (in thousands):
 
<TABLE>
<CAPTION>
                                                    SEPTEMBER 30, 1998    MARCH 31, 1998
                                                    ------------------    --------------
<S>                                                 <C>                   <C>
Ferrous metals..................................         $48,660             $35,934
Non-ferrous metals..............................          31,393              25,222
Other...........................................           2,591                 786
                                                         -------             -------
                                                         $82,644             $61,942
                                                         =======             =======
</TABLE>
 
NOTE 5 -- DEBT
 
Senior Credit Facility
 
     On March 31, 1998, the Company and its subsidiaries entered into a
three-year credit facility (the "Senior Credit Facility") with BT Commercial
Corporation, as agent for the lenders (the "Agent"), and certain commercial
lending institutions. 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 as described below. 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. Pursuant to the Senior Credit Facility, the Company
also pays a fee of .375% on the undrawn portion of the facility. The Senior
Credit Facility also contains certain financial covenants, including an interest
coverage ratio (subsequently amended as described below), and imposes certain
limitations on the Company's ability to make 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 the
capital stock of the Company's 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
fixed asset sublimit ($55.6 million as of September 30, 1998) that amortizes on
a
 
                                       10
<PAGE>   13
                             METAL MANAGEMENT, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
quarterly basis. At September 30, 1998, the Company had borrowings of $141.0
million outstanding and letters of credit aggregating $25.1 million under the
Senior Credit Facility.
 
     During April 1998, the Company borrowed under the Senior Credit Facility to
refinance existing secured debt, buyout certain operating leases and pay
prepayment penalties associated with the early retirement of debt. In connection
with the refinancing of debt, the Company recognized an extraordinary charge of
$862,000 consisting of the following (in thousands):
 
<TABLE>
<S>                                                             <C>
Prepayment penalties........................................    $  973
Write-off of related unamortized financing costs............       487
                                                                ------
Extraordinary charge before income tax benefit..............    $1,460
Income tax benefit..........................................       598
                                                                ------
Net extraordinary charge....................................    $  862
                                                                ======
</TABLE>
 
     As a result of adverse market conditions in the steel and scrap metals
sectors and the effect of such conditions on the Company's results of
operations, effective as of September 30, 1998, the Company and its bank group
amended the Company's Senior Credit Facility to, among other things, modify the
Company's minimum interest coverage test. Pursuant to the amendment, the
Company's interest coverage ratio tests (i) for the quarters ending September
30, 1998 and December 31, 1998 were replaced with tests of minimum aggregate
six- and nine-month EBITDA amounts of $1.5 million and $6.0 million
respectively, and (ii) for the quarters ending March 31, 1999 and June 30, 1999
were amended to apply to only the respective six- and nine-month periods then
ended. The Company was in compliance with the financial covenants at September
30, 1998.
 
Senior Subordinated Notes
 
     On May 13, 1998, the Company issued $180.0 million of 10.0% Senior
Subordinated Notes due on May 15, 2008 (the "Notes") in a private placement
under Rule 144A of the Securities Act (the "Subordinated Debt Placement").
Interest on the Notes is payable semi-annually, beginning November 15, 1998. The
Company received net proceeds of $174.6 million in the Subordinated Debt
Placement. The Notes are general unsecured obligations of the Company and are
subordinated in right to payment to all senior debt of the Company, including
the indebtedness of the Company under the Senior Credit Facility. The Company's
payment obligations are jointly and severally guaranteed by all of the Company's
current and certain future subsidiaries. The proceeds of the Notes were used to
repay approximately $119.0 million then outstanding under the Company's Senior
Credit Facility and approximately $19.1 million of notes payable to related
parties.
 
     Except as described below, the Notes are not redeemable at the Company's
option prior to May 15, 2003. After May 15, 2003, the Notes are redeemable by
the Company at the redemption prices (expressed as a percentage of the principal
amount and rounded to the nearest whole percentage) plus accrued and unpaid
interest, if redeemed during the twelve-month period beginning on May 15 of each
of the years indicated below:
 
<TABLE>
<CAPTION>
YEAR                                                     PERCENTAGE
----                                                     ----------
<S>                                                      <C>
2003.................................................       105%
2004.................................................       103%
2005.................................................       102%
2006 and thereafter..................................       100%
</TABLE>
 
                                       11
<PAGE>   14
                             METAL MANAGEMENT, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
     Also, prior to May 15, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes at a redemption price of 110% of the
principal amount of the Notes, plus accrued and unpaid interest from the
proceeds of one or more sales of Common Stock. The 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 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 coverage 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 Notes; (iii) pay dividends or distributions, or make certain
types of investments or other restricted 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, subject to certain
exceptions; (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.
 
NOTE 6 -- CONVERTIBLE PREFERRED STOCK
 
     The Company's Amended and Restated Certificate of Incorporation allows the
issuance of up to 4,000,000 shares of preferred stock. During fiscal 1998, the
Company issued 25,000 shares of Series A Convertible Preferred Stock, par value
$.01 per share, stated value $1,000 per share (the "Series A Preferred Stock"),
and 20,000 shares of Series B Convertible Preferred Stock, par value $.01 per
share, stated value $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.
 
     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. The holders of Series B Preferred Stock
are able to convert the shares into Common Stock at a price equal to the lower
of: (i) 120% of the closing bid price for the Common Stock on the date of
purchase of the Series B Preferred Stock; (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.
 
                                       12
<PAGE>   15
                             METAL MANAGEMENT, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
     The following presents a summary of the Series A Preferred Stock and Series
B Preferred Stock issued and converted during the six months ended September 30,
1998:
 
<TABLE>
<CAPTION>
                                                                SERIES A    SERIES B
                                                                --------    --------
<S>                                                             <C>         <C>
Shares outstanding at March 31, 1998........................     15,094      20,000
Shares converted into Common Stock..........................     (3,394)       (710)
Shares issued for dividends.................................        228         366
                                                                 ------      ------
Shares outstanding at September 30, 1998....................     11,928      19,656
                                                                 ======      ======
</TABLE>
 
NOTE 7 -- RECENTLY ISSUED ACCOUNTING STANDARDS
 
     Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued by the FASB in
September 1998 and is effective for fiscal years beginning after September 15,
1999. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company is
evaluating SFAS No. 133 to determine its impact on the consolidated financial
statements.
 
NOTE 8 -- LOSS PER COMMON SHARE
 
     In fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share." Per
share amounts for the three and six months ended September 30, 1997 have been
restated to conform to the requirements of SFAS No. 128. The following table
presents the calculation of loss per common share from continuing operations
before extraordinary charge (in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED      SIX MONTHS ENDED
                                                             SEPTEMBER 30,          SEPTEMBER 30,
                                                          -------------------    -------------------
                                                            1998       1997        1998       1997
                                                            ----       ----        ----       ----
<S>                                                       <C>         <C>        <C>         <C>
INCOME (NUMERATOR):
Loss from continuing operations.......................    $(14,241)   $(6,669)   $(14,713)   $(7,887)
Dividends on convertible preferred stock..............         415        372         856        372
                                                          --------    -------    --------    -------
Loss applicable to Common Stock.......................    $(14,656)   $(7,041)   $(15,569)   $(8,259)
                                                          ========    =======    ========    =======
SHARES (DENOMINATOR):
Weighted average number of shares outstanding during
  the period..........................................      38,991     16,501      36,647     14,738
Incremental common shares attributable to dilutive
  stock options and warrants..........................           0          0           0          0
                                                          --------    -------    --------    -------
Diluted number of shares outstanding during the
  period..............................................      38,991     16,501      36,647     14,738
                                                          ========    =======    ========    =======
Basic loss per share applicable to Common Stock.......    $  (0.38)   $ (0.43)   $  (0.43)   $ (0.56)
                                                          ========    =======    ========    =======
Diluted loss per share applicable to Common Stock.....    $  (0.38)   $ (0.43)   $  (0.43)   $ (0.56)
                                                          ========    =======    ========    =======
</TABLE>
 
     For all the periods, the effect of dilutive stock options and warrants were
not included as their effect would have been anti-dilutive. However, if the
Company would have reported net earnings, the incremental shares attributable to
dilutive stock options and warrants would have been approximately 747,000 and
1,864,000 for the three and six months ended September 30, 1998, respectively,
and 3,543,000 and 2,760,000 for the three and six months ended September 30,
1997, respectively. 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.
 
                                       13
<PAGE>   16
 
     This Form 10-Q/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-Q/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. These factors are set forth under the caption "Investment
Considerations" appearing in the Company's Annual Report on Form 10-K and in the
Form 10-K/A for the year ended March 31, 1998, as the same may be amended time
to time. Some of the factors which could affect the Company's performance
include, among other things: the effects of leverage on the Company, immediate
and future capital requirements, risk of dilution to existing shareholders,
potential inability to control growth or to successfully integrate acquired
businesses, limited operating history, cyclicality of the metals recycling
industry, potential inability to complete pending acquisitions, commodity price
fluctuations, compliance with environmental, health and safety and other
regulatory requirements applicable to the Company, potential environmental
liability, risk of deterioration in relations with labor unions, control by
principal stockholders and dependence on key management, dependence on suppliers
of scrap metals, concentration of customer risk, competition in the scrap metals
industry, availability of scrap alternatives, stock market volatility and year
2000 compliance.
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
     The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included under
Item 1. In addition, reference should be made to the audited consolidated
financial statements and notes thereto and related Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K/A for the year ended March 31, 1998.
 
GENERAL OVERVIEW
 
     Metal Management is one of the largest and fastest-growing full service
metals recyclers in the United States, with 57 recycling facilities in 15
states. The Company is a leading consolidator in the metals recycling industry
and has achieved this position primarily through the implementation of its
national strategy of completing and integrating regional acquisitions. The
Company believes that its consolidation strategy will enhance the competitive
position and profitability of the operations that it acquires through improved
managerial and financial resources and increased economies of scale.
 
     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
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. The Company believes that it provides one of the
most comprehensive offerings of both ferrous and non-ferrous scrap metals in the
industry. The Company's ferrous products primarily include shredded, sheared,
hot briquetted, cold briquetted and bundled scrap and broken furnace iron. The
Company also processes non-ferrous metals, including aluminum, copper, stainless
steel, brass, titanium and high-temperature alloys, using similar techniques and
through application of the Company's proprietary technologies.
 
     The Company's predecessor was incorporated on September 24, 1981 as a
California corporation under the name General Parametrics Corporation, and was
re-incorporated as a Delaware corporation in September 1986 under the same
name. Prior to April 1996, the Company manufactured and marketed color thermal
and dye sublimation printers and related consumables, including ribbons,
transparencies and paper. The Company sold that business in two separate
transactions in July and December of 1996 for $1.3 million in cash and future
royalty streams which the Company does not anticipate will result in material
payments to the Company. On April 12, 1996, the Company changed its name to
"Metal Management, Inc."
                                       14
<PAGE>   17
 
     The Company's Common Stock, is traded on the NASDAQ Stock Market under the
trading symbol "MTLM". The Company's principal executive offices are located at
500 North Dearborn Street, Suite 405, Chicago, Illinois 60610, and its telephone
number is (312) 645-0700.
 
ACQUISITION STRATEGY
 
     In pursuing its acquisition strategy, the Company seeks to identify
companies that (i) have a successful operating history; (ii) are located in
major metropolitan or regional markets (population of 1,000,000 or more) and
present synergies with existing or planned acquisition candidates in a
particular region; (iii) offer strong management which can be retained following
an acquisition; (iv) complement the Company's regional and national customer
base; (v) have a history of high integrity in their management and operations;
(vi) have convenient access to water or rail transportation facilities; (vii) do
not present serious environmental or regulatory issues; and (viii) either have
existing shredder operations or the ability to support the installation of such
equipment. While a target company does not have to meet all of the acquisition
criteria, it is important that a metropolitan or regional "hub" company meet
most of the criteria and that other acquisition candidates that can complement
the operations of the "hub" company are identified within a region.
 
     Once an acquisition candidate has been identified, the Company conducts
financial, legal and operational due diligence investigations of the target
company. This due diligence investigation will generally include an
environmental site assessment and a review of the target company's environmental
compliance procedures and practices, a review of the legal and regulatory
affairs of the target, and a review of the target company's financial books and
records, including an independent audit of its financial statements, in certain
cases.
 
     The Company generally enters into multi-year employment contracts with
certain senior managers of the acquired company which often provide for
incentive compensation in the form of stock options and warrants. In addition, a
significant portion of the purchase price for an acquired company is often paid
in restricted Common Stock. The Company believes that these arrangements provide
strong incentives for the management of the regional operations to maximize the
operating performance of the Company's subsidiaries.
 
     During the quarter ended September 30, 1998, the Company terminated all
acquisitions that were under a letter of intent, other than the acquisition of a
50% membership interest in PerlCo which was completed on November 2, 1998. In
connection with the termination of such mergers, the Company recognized a $1.1
million pre-tax charge to continuing operations relating to acquisition and
transaction costs. The Company's decision to terminate its proposed acquisitions
was primarily due to adverse and unprecedented market conditions.
 
     Set forth below is a table identifying the recycling operations (the
"Acquired Operations") acquired by the Company since April 1996:
 
<TABLE>
<CAPTION>
                                                            LOCATION OF
                                                        PRINCIPAL PROCESSING            DATE OF
NAME                                                         FACILITIES               ACQUISITION
----                                                    --------------------          -----------
<S>                                                <C>                               <C>
Metal Management Arizona, Inc. ("MTLM
  Arizona")....................................    Phoenix, Arizona                  April 1996
California Metals Recycling, Inc., Firma, Inc.
  Firma Plastic Co. Inc., MacLeod Metals Co and
  Trojan Trading Co. (collectively,
  "MacLeod")...................................    Los Angeles County, California    January 1997
HouTex Metals Company, Inc. ("HouTex").........    Houston, Texas                    January 1997
Reserve Iron & Metal Limited Partnership
  ("Reserve")(1)...............................    Cleveland, Ohio                   May 1997
                                                   Chicago, Illinois
                                                   Attalla, Alabama
</TABLE>
 
                                       15
<PAGE>   18
 
<TABLE>
<CAPTION>
                                                            LOCATION OF
                                                        PRINCIPAL PROCESSING            DATE OF
NAME                                                         FACILITIES               ACQUISITION
----                                                    --------------------          -----------
<S>                                                <C>                               <C>
Briquetting Corporation of America, Ferrex
  Trading Corporation, The Isaac Corporation
  and Paulding Recycling, Inc. (collectively,
  "Isaac").....................................    Bryan, Ohio                       June 1997
                                                   Cleveland, Ohio
                                                   Dayton, Ohio
                                                   Defiance, Ohio
Proler Southwest Inc. and Proler Steelworks
  L.L.C. (collectively, "Proler")..............    Houston, Texas                    August 1997
                                                   Jackson, Mississippi
Cozzi Iron & Metal, Inc. ("Cozzi").............    Chicago, Illinois                 December 1997
                                                   East Chicago, Indiana
                                                   Pittsburgh, Pennsylvania
Kankakee Scrap Corporation.....................    Kankakee, Illinois                December 1997
Houston Compressed Steel Corp..................    Houston, Texas                    January 1998
Aerospace Metals, Inc. ("Aerospace")...........    Hartford, Connecticut             January 1998
Salt River Recycling L.L.C. ("Salt
  River")(2)...................................    Phoenix, Arizona                  January 1998
Accurate Iron & Metal Co.(3)...................    Franklin Park, Illinois           February 1998
Superior Forge, Inc. ("Superior")..............    Huntington Beach, California      March 1998
Ellis Metals, Inc..............................    Tucson, Arizona                   March 1998
Midwest Industrial Metals Corp.(3).............    Chicago, Illinois                 April 1998
138 Scrap, Inc. and Katrick, Inc...............    Riverdale, Illinois               May 1998
R&P Holdings, Inc., Charles Bluestone Company,
  and R&P Real Estate, Inc.(4) (collectively,
  "Bluestone").................................    Elizabeth, Pennsylvania           May 1998
                                                   Sharon, Pennsylvania
Goldin Industries, Inc., Goldin Industries
  Louisiana, Inc. and Goldin of Alabama,
  Inc.(5) (collectively, "Goldin").............    Gulfport, Mississippi             June 1998
                                                   Mobile, Alabama
                                                   Harvey, Louisiana
Newell Recycling of Denver, Inc. and Newell
  Recycling of Utah, L.L.C.(6).................    Denver, Colorado                  June 1998
                                                   Colorado Springs, Colorado
Naporano Iron & Metal Co. and Nimco Shredding
  Co. (collectively "Naporano")................    Newark, New Jersey                July 1998
Michael Schiavone & Sons, Inc. and related
  entities ("Schiavone").......................    North Haven, Connecticut          July 1998
                                                   Torrington, Connecticut
M. Kimerling & Sons, Inc. ("Kimerling")........    Birmingham, Alabama               July 1998
Nicroloy Company ("Nicroloy")..................    Heidelberg, Pennsylvania          July 1998
Midwest Metallics L.P.(3)......................    Chicago, Illinois                 July 1998
PerlCo, L.L.C. ("PerlCo")(7)...................    Memphis, Tennessee                November 1998
</TABLE>
 
-------------------------
(1) The Attalla, Alabama recycling facility is operated through a joint venture
    in which the Company's subsidiary, Reserve, holds a 50% interest.
 
                                       16
<PAGE>   19
 
(2) At the time it was acquired by the Company, Cozzi held a 50% joint venture
    interest in Salt River.
 
(3) The Company purchased substantially all of the assets of Accurate Iron &
    Metal Co. and certain of the assets of Midwest Industrial Metals Corp. and
    Midwest Metallics L.P., all of which have been integrated into the Company's
    Cozzi operations.
 
(4) The Sharon, Pennsylvania recycling facility is operated through a joint
    venture in which the Company's subsidiary, Bluestone, holds a 50% interest.
 
(5) A new subsidiary, Metal Management Gulf Coast, Inc. was formed with which
    the Company purchased substantially all of the scrap metal assets of Goldin.
 
(6) A new subsidiary, Newell Recycling West, Inc. was formed and merged with
    Newell Recycling of Denver, Inc. (with Newell Recycling West, Inc. surviving
    the merger). Concurrently therewith, Newell Recycling West, Inc. purchased
    substantially all of the scrap metal assets of Newell Recycling of Utah,
    L.L.C.
 
(7) At the time the PerlCo acquisition was completed, the Company's Cozzi
    subsidiary held a 50% joint venture interest in PerlCo.
 
RESULTS OF OPERATIONS
 
     On May 28, 1998, the Company merged with Bluestone through a tax-free,
stock-for-stock exchange. The merger is accounted for as a pooling-of-interests
under APB Opinion No. 16, "Business Combinations". All information set forth
below includes the historical information of the Company and Bluestone on a
pooled basis for all periods presented.
 
     Consolidated net sales for the three months ended September 30, 1998 and
1997 in broad product categories were as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                       9/30/98                          9/30/97
                                            -----------------------------     ----------------------------
               COMMODITY                    WEIGHT     NET SALES      %       WEIGHT    NET SALES      %
               ---------                    ------     ---------      -       ------    ---------      -
<S>                                         <C>        <C>          <C>       <C>       <C>          <C>
Ferrous metals (tons)...................      1,023    $114,300      52.6        458    $ 54,708      43.0
Non-ferrous metals (lbs)................    128,523      64,036      29.5     76,919      37,637      29.6
Brokerage -- ferrous (tons).............        293      29,123      13.4        246      28,674      22.5
Brokerage -- non ferrous(lbs)...........     28,107       7,452       3.4     15,288       5,029       4.0
Other...................................         --       2,345       1.1         --       1,206       0.9
                                                       --------     -----               --------     -----
                                                       $217,256     100.0               $127,254     100.0
                                                       ========     =====               ========     =====
</TABLE>
 
     Consolidated net sales for the six months ended September 30, 1998 and 1997
in broad product categories were as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                       9/30/98                          9/30/97
                                            -----------------------------    -----------------------------
               COMMODITY                    WEIGHT     NET SALES      %      WEIGHT     NET SALES      %
               ---------                    ------     ---------      -      ------     ---------      -
<S>                                         <C>        <C>          <C>      <C>        <C>          <C>
Ferrous metals (tons)...................      1,916    $224,472      52.0        675    $ 82,062      39.2
Non-ferrous metals (lbs)................    255,577     130,182      30.1    144,120      74,463      35.6
Brokerage -- ferrous (tons).............        544      61,447      14.2        389      37,785      18.0
Brokerage -- non ferrous (lbs)..........     39,353      13,051       3.0     36,405      13,503       6.4
Other...................................         --       3,055       0.7         --       1,546       0.8
                                                       --------     -----               --------     -----
                                                       $432,207     100.0               $209,359     100.0
                                                       ========     =====               ========     =====
</TABLE>
 
     Consolidated net sales for the three and six months ended September 30,
1998 were $217.3 million and $432.2 million, respectively, compared with
consolidated net sales of $127.3 million and $209.4 million for the three and
six months ended September 30, 1997, respectively. Since September 1997, the
Company has acquired 18 companies, including Cozzi, Naporano and Schiavone. The
acquisitions have mainly contributed to the increase in sales from the prior
year period. However, as a result of adverse market conditions in the
 
                                       17
<PAGE>   20
 
scrap metal industry during the quarter, the Company's consolidated net sales
were significantly lower than expected.
 
     The results for the three and six months ended September 30, 1998 reflect
the continued adverse impact on the Company of certain adverse changes in market
fundamentals in the scrap metal industry. Management believes these difficult
market conditions are characterized by unusually high levels of supply due to,
among other things, the disruption in the scrap metal export market arising from
the international financial and currency devaluation crisis coupled with a
strong supply of scrap metal from high levels of manufacturing in the U.S. In
addition, domestic steel mills significantly reduced their purchases of scrap
metal during the three months ended September 30, 1998 as record imports of low
priced steel into the U.S. curtailed domestic production at integrated steel
producers and mini-mills.
 
     Ferrous sales of processed materials represented 52.6% and 52.0% of
consolidated net sales for the three and six months ended September 30, 1998,
respectively, compared to 43.0% and 39.2% of consolidated net sales for the
three and six months ended September 30, 1997, respectively. The increase in
ferrous sales is primarily due to the inclusion of sales by Cozzi, Naporano and
Schiavone from their respective dates of acquisition. Each of these subsidiaries
sales are primarily derived from ferrous metals.
 
     Non-ferrous sales of processed materials represented 29.5% and 30.1% of
consolidated net sales for the three and six months ended September 30, 1998,
respectively, compared to 29.6% and 35.6% of consolidated net sales for the
three and six months ended September 30, 1997, respectively. While the sale of
non-ferrous metals increased during the three and six months ended September 30,
1998 in absolute dollar terms as a result of the inclusion of the sales of
Aerospace, Superior and Kimerling, they decreased as a percentage of overall
sales as a result of the acquisition of companies with significant ferrous
sales.
 
     Brokerage ferrous sales represented 13.4% and 14.2% of consolidated net
sales for the three and six months ended September 30, 1998, respectively,
compared to 22.5% and 18.0% of consolidated net sales for the three and six
months ended September 30, 1997, respectively. The increase in brokerage ferrous
sales is due to the acquisitions of Cozzi and Isaac.
 
     Brokerage non-ferrous sales represented 3.4% and 3.0% of consolidated net
sales for the three and six months ended September 30, 1998, respectively,
compared to 4.0% and 6.4% of consolidated net sales for the three months and six
months ended September 30, 1997, respectively. The Company's brokerage
non-ferrous sales are generated primarily by Bluestone.
 
     Consolidated gross profit was $9.9 million (4.6% of consolidated net sales)
and $29.6 million (6.9% of consolidated net sales) for the three and six months
ended September 30, 1998, respectively, compared with consolidated gross profit
of $11.3 million (8.9% of consolidated net sales) and $18.6 million (8.9% of
consolidated net sales) for the three and six months ended September 30, 1997,
respectively. The decrease in consolidated gross profit as a percentage of
consolidated net sales for the three and six months ended September 30, 1998
resulted primarily from adverse market conditions which caused sales and metal
margins to decline significantly.
 
     Consolidated general and administrative expenses were $16.1 million (7.4%
of consolidated net sales) and $27.6 million (6.4% of consolidated net sales)
for the three and six months ended September 30, 1998, respectively, compared
with $6.1 million (4.8% of consolidated net sales) and $10.3 million (4.9% of
consolidated net sales) for the three and six months ended September 30, 1997,
respectively. The increase in general and administrative expenses over the prior
year period is due to the inclusion of general and administrative expenses of
those operations acquired by the Company since September 1997. The increase in
consolidated general and administrative expenses as a percentage of consolidated
net sales for the periods presented primarily reflects the decrease in the
Company's consolidated net sales from expected levels due to adverse market
conditions.
 
     Depreciation and amortization expense was $6.3 million (2.9% of
consolidated net sales) and $10.7 million (2.5% of consolidated net sales) for
the three and six months ended September 30, 1998, respectively, compared with
$2.4 million (1.9% of consolidated net sales) and $3.7 million (1.8% of
consolidated net sales) for the three and six months ended September 30, 1997,
respectively. The increase is attributed to the
                                       18
<PAGE>   21
 
inclusion of goodwill amortization and depreciation of fixed assets of those
operations acquired by the Company since September 1997. The increase in
depreciation and amortization expense as a percentage of consolidated net sales
is primarily due to the reduced sales volumes resulting from adverse market
conditions.
 
     During the three and six months ended September 30, 1998, the Company
recorded non-cash and non-recurring income of $2.6 million and $3.4 million,
respectively, as compared to non-cash and non-recurring expense of $11.8 million
and $14.4 million for the three and six months ended September 30, 1997,
respectively. See Note 3 to the condensed consolidated financial statements.
 
     Interest expense was $8.7 million (4.0% of consolidated net sales) and
$13.6 million (3.1% of consolidated net sales) for the three and six months
ended September 30, 1998, respectively, compared to $2.6 million (2.0% of
consolidated net sales) and $4.1 million (2.0% of consolidated net sales) for
the three and six months ended September 30, 1997, respectively. The increase is
primarily due to the issuance of the Notes and additional borrowings made by the
Company under the Senior Credit Facility to fund acquisitions.
 
     Loss from continuing operations, after preferred stock dividends, was $14.7
million ($0.38 per share) and $15.6 million ($0.43 per share) for the three and
six months ended September 30, 1998, respectively. The increase in the loss was
primarily due to unprecedented weakness in the scrap metal industry during the
period, which resulted in lower than anticipated sales volumes and lower
realized scrap prices during the quarter.
 
     Income tax benefit for the six months ended September 30, 1998 was $3.8
million, which yields an effective tax rate of 20%. The effective tax rate
differs from the statutory rate primarily due to the permanent differences
represented by non-deductible goodwill amortization, other non-deductible
expenses, and the reversal of $1.9 million of tax benefits previously
established for warrant compensation expense resulting from the decline in the
quoted market value of the Company's Common Stock.
 
     During the six months ended September 30, 1998, the Company recognized an
extraordinary charge of $0.9 million, net of taxes, related to the early
retirement of debt and other costs incurred in connection with the closing of
the Senior Credit Facility. See Note 5 to the Condensed Consolidated Financial
Statements.
 
OUTLOOK
 
     As a result of the adverse scrap market conditions during the quarter ended
September 30, 1998, the Company has initiated a number of cost cutting measures
and accelerated the integration of its businesses in an effort to reduce annual
operating costs by at least $30.0 million.
 
     The cost cutting efforts include an overall reduction in labor costs due in
large part to a reduction of more than 350 employees or approximately 15% of the
Company's workforce. The Company is currently evaluating the operations at each
of its facilities in response to market conditions. The Company also continues
to consolidate its insurance, retirement plan administration, purchasing,
freight and logistics and telecommunications programs in order to take advantage
of economies of scale, with further cost savings to be achieved through
consolidation.
 
     While the Company has seen some indications of firming in scrap prices in
certain regions of the U.S. and for certain grades of scrap metal, the Company
cannot predict when the scrap metals markets will stabilize. Any further
decreases in scrap metal prices could cause the Company to adjust downward the
value of its inventory, thereby reducing margins and sales and would put the
Company at risk of violating the covenants in the Senior Credit Facility. Once
the scrap metals markets do stabilize, the Company expects that its current
efforts to reduce costs and improve operating controls at the Company's
operations will allow it to expand profit margins.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's principal sources of cash are derived from its operations and
from borrowings under the Senior Credit Facility. The Company has financed its
operations, acquisitions and capital expenditures primarily from the issuance of
the Notes and from borrowings under the Senior Credit Facility. At September 30,
1998, the Company had $3.6 million in cash and cash equivalents, compared with
cash and
                                       19
<PAGE>   22
 
cash equivalents of $4.5 million at March 31, 1998. As of October 31, 1998, the
Company had undrawn availability of $29.9 million under the Senior Credit
Facility.
 
     The Company believes that its Senior Credit Facility, along with internally
generated cash and financing capacity, are adequate to meet its near term
anticipated operating and capital requirements, including a $9.1 million
interest payment due on the Notes on November 16, 1998. However, there can be no
assurance that if scrap metal markets do not stabilize, that the Company would
not violate the Senior Credit Facility loan covenants.
 
     The Company is currently continuing to evaluate the prospects to raise
capital from the issuance of equity as well as the potential sale of assets or
businesses as well as the potential for sale and leaseback of certain assets. No
assurance can be made that the Company will be able to raise capital from equity
issuances, the sale of assets or businesses or from the sale and leaseback of
assets.
 
Six Months Ended September 30, 1998 compared to Six Months Ended September 30,
1997
 
     Cash Flows from Continuing Operations. The Company generated $20.7 million
of cash from continuing operations during the six months ended September 30,
1998 versus $2.7 million of cash which was utilized by continuing operations
during the six months ended September 30, 1997. The Company generated cash flows
from continuing operations mainly from the collection of accounts receivable and
reduced inventory carrying values.
 
     Cash Flows from Investing Activities. During the six months ended September
30, 1998, the Company purchased $11.3 million of property and equipment and
utilized cash of $10.6 million to buyout operating leases. The Company also used
cash of $182.6 million for the acquisitions of and transaction costs related to
acquisitions completed during the six months ended September 30, 1998. During
the six months ended September 30, 1997, the Company purchased $1.8 million of
property and equipment and utilized cash of $14.1 million for acquisitions. The
increase in cash used for investing activities during the period is a result of
acquisitions completed during the six months ended September 30, 1998.
Management anticipates the Company will continue to make capital expenditures
for new equipment, and upgrade and expand existing equipment and facilities,
although the Company is presently limiting such investments by delaying and
deferring discretionary capital investments due to adverse market conditions.
 
     Cash Flows from Financing Activities. During the six months ended September
30, 1998, the Company borrowed under its Senior Credit Facility to refinance
substantially all existing secured debt. The Company also issued $180.0 million
of Notes and received net proceeds of approximately $174.4 million. In
connection with the debt issuances, the Company incurred approximately $10.7
million in fees and $1.0 million of pre-payment penalties. The Company
anticipates that it will require additional capital to fund future operating and
capital investment requirements.
 
FINANCIAL CONDITION
 
Significant Transactions
 
     During the six months ended September 30, 1998, the Company completed
certain significant debt transactions. The Company entered into a $250.0 million
Senior Credit Facility, which refinanced substantially all of the Company's
existing indebtedness. On May 13, 1998, the Company sold, in a Rule 144A private
placement and pursuant to Regulation S under the Securities Act, $180.0 million
of Notes. The Notes mature on May 15, 2008 and bear interest at the rate of 10%
per annum. The net proceeds of the Notes were used, in part, to repay
indebtedness of the Company, with the remainder used for acquisitions.
 
     During the six months ended September 30, 1998, the Company utilized cash
of $182.6 million in connection with acquisitions.
 
                                       20
<PAGE>   23
 
Cash Requirements for Maturing Debt Obligations and Interest Payments
 
     In connection with the acquisition of Isaac, the Company issued and assumed
notes payable. Such notes, which are secured by a letter of credit under the
Senior Credit Facility, require quarterly interest payments and require
principal payments of $10.8 million on February 15, 1999 and $10.8 million on
February 15, 2000. The Company expects to make these payments with borrowings
under the Senior Credit Facility. Because the principal repayment of these notes
is secured by a letter of credit under the Senior Credit Facility, its repayment
would have a neutral effect on the Company's availability under the Senior
Credit Facility.
 
     On November 16, 1998, the Company is required to make a semi-annual
interest payment on the Notes. The interest payment of $9.1 million will be
funded from borrowings under the Senior Credit Facility.
 
Working Capital Availability and Requirements
 
     Accounts receivable balances increased from $122.4 million at March 31,
1998 to $124.4 million at September 30, 1998. Approximately $30.0 million of
accounts receivable were acquired in connection with acquisitions completed
during the current fiscal year. The Company generated approximately $27.6
million of cash from the collection of accounts receivable during the six months
ended September 30, 1998. Accounts payable increased from $66.8 million at March
31, 1998 to $70.7 million at September 30, 1998 principally as a result of the
assumption of accounts payable of companies acquired since March 31, 1998.
 
     Inventory levels can vary significantly among the Company's operations.
Inventory on hand at September 30, 1998 and March 31, 1998, respectively,
consisted of the following categories and amounts (in thousands):
 
<TABLE>
<CAPTION>
                                                    SEPTEMBER 30, 1998    MARCH 31, 1998
                                                    ------------------    --------------
<S>                                                 <C>                   <C>
Ferrous metals..................................         $48,660             $35,934
Non-ferrous metals..............................          31,393              25,222
Other...........................................           2,591                 786
                                                         -------             -------
                                                         $82,644             $61,942
                                                         =======             =======
</TABLE>
 
     The Company acquired approximately $23.0 million of inventory in connection
with the acquisitions completed during the current fiscal year. The adverse
market conditions prevalent in the most recent quarter have slowed the Company's
inventory turns. During the six months ended September 30, 1998, the Company
recorded significant inventory adjustments principally as a result of adverse
market conditions. The Company's inventory at September 30, 1998 is stated at
the lower of average cost or market.
 
     Property and equipment increased from $109.9 million at March 31, 1998 to
$182.4 million at September 30, 1998. During the six months ended September 30,
1998, the Company made capital expenditures of $11.3 million, bought-out certain
operating leases for $10.6 million, and acquired $59.0 million of property and
equipment in connection with the acquisitions completed during the current
fiscal year. Although discretionary spending has been significantly curtailed
pending an improvement in current market conditions, the Company expects to
continue to make investments in additional equipment and property for expansion
and for replacement of assets.
 
     At September 30, 1998, the Company had outstanding borrowings under its
Senior Credit Facility of approximately $141.0 million. Borrowings outstanding
on the Senior Credit Facility bore interest at a weighted average interest rate
of 7.4%. Amounts outstanding under the Senior Credit Facility ranged from $0.0
to $154.0 million during the six months ended September 30, 1998.
 
     As a result of recent adverse market conditions and the effect of such
conditions on the Company's results of operations, effective as of September 30,
1998, the Company and its bank group amended the Company's Senior Credit
Facility to, among other things, modify the Company's minimum interest coverage
test. Pursuant to the amendment, the Company's interest coverage ratio tests (i)
for the quarters ending September 30, 1998 and December 31, 1998 were replaced
with tests of minimum aggregate six- and nine-month EBITDA amounts of $1.5
million and $6.0 million, respectively, and (ii) for the quarters ending
 
                                       21
<PAGE>   24
 
March 31, 1999 and June 30, 1999 were amended to apply to only the respective
six- and nine-month periods then ended. If the scrap metal markets do not
stabilize, the Company may be required to pursue amendments to the Senior Credit
Facility, or waiver of defaults thereunder, prospectively. No assurance can be
provided that there will be accommodations from the banks should such amendments
be requested by the Company. To the extent a default were to occur under the
Senior Credit Facility and such default was not cured timely or otherwise
waived, the Company would be adversely impacted.
 
YEAR 2000 LIABILITY
 
     A year 2000 problem arises because some existing computer programs only
recognize the last two digits rather than four digits to define the applicable
year. Use of non-year 2000 compliant programs can result in system failures,
miscalculations or errors causing disruptions of operations or other business
failures, including, among other things, a potential inability to process
invoices or transactions or engage in other normal business activities.
 
     The Company has experienced tremendous growth as a result of having
completed 25 acquisitions since April 1996. Essentially all of the Acquired
Operations operated on separate computer hardware, software, systems and
processes ("Information Systems"). In order to address the potential year 2000
problem, among other Information Systems challenges faced by the Company, in
fiscal 1998, the Company created an MIS Steering Committee. The MIS Steering
Committee has developed a plan for year 2000 compliance which includes four
major phases -- assessment, remediation, testing and implementation.
 
     The Company has substantially completed its assessment of the impact of the
year 2000 problem on its Information Systems. Based on this assessment, the
Company does not expect the cost of making the Company's Information Systems
year 2000 compliant to have a material adverse impact on the Company's financial
position or results of operations in future periods. The Company has completed
approximately 88% of its remediation phase for all of its significant
Information Systems, and estimates that it will complete software upgrades
and/or replacement by the end of the current fiscal year. To date, the Company
has completed approximately 26% of its testing and has implemented approximately
26% of the required remediation for such Information Systems. The testing and
implementation phases are targeted to be substantially complete by the end of
the second quarter of next fiscal year.
 
     The Company has begun its assessment of the impact of year 2000 problems on
its non-information technology systems (such as telephones, processing equipment
or other equipment containing embedded technology such as microcontrollers)
("Non-IT Systems"). As part of the assessment, the Company has created an
equipment inventory database of Non-IT Systems to help with the assessment. The
Company believes assessment will be completed before the end of the current
fiscal year, and that remediation, testing and implementation will be completed
by the end of the second quarter of next fiscal year.
 
     The Company is in the process of identifying third parties (i.e., suppliers
and service providers) with whom it has significant relationships that, in the
event of a year 2000 failure by any of the third parties, could have a material
adverse impact on the Company's financial position or results of operations. The
Company expects that this process will be on-going throughout the current and
next fiscal year.
 
     The Company believes that, as a result of these efforts, any year 2000
problem that it may become subject to will not be material. However, there can
be no assurance that this will be the case. The Company is unable at this time
to state its "worst case" year 2000 scenario. A contingency plan in the event of
noncompliance is currently being developed.
 
                                       22
<PAGE>   25
 
                          PART II -- OTHER INFORMATION
 
ITEM 1: LEGAL PROCEEDINGS
 
     On July 24, 1998, the City of Chicago served Cozzi with a lawsuit that
alleges violations of various municipal ordinance provisions relating to
facility operations and waste handling. (City of Chicago v. Cozzi Iron & Metal,
Inc., 98 CH 9810). Cozzi is negotiating with the City to reach an appropriate
resolution of this matter. At this time, Cozzi cannot estimate the costs, if
any, that may result from this lawsuit. Based on its analysis of the situation,
the management of the Company does not believe such costs would have a material
adverse effect on the Company's business or financial condition; however, there
can be no assurance that this will be the case.
 
     On August 25, 1998, a federal grand jury indicted Newell Recycling of
Denver, Inc. (now Newell Recycling West) in connection with an allegation Newell
Recycling of Denver, Inc. knowingly endangered employees by illegally storing
and disposing gasoline in violation of the Resource Conversation and Recovery
Act. Two former employees and one current employee of Newell Recycling West were
charged with illegal storage and disposal of hazardous waste. The allegations
relate to a fire that occurred at Newell Recycling West's Denver facility on
October 30, 1995, before Newell Recycling West was purchased by the Company. The
Company has received an indemnity from the previous owner for all costs and
expenses related to the fire. However, there can be no assurance that the
pending proceeding will not materially adversely affect the Company.
 
     By letter dated September 22, 1998, the Indiana Department of Environmental
Management ("IDEM") issued Cozzi a notice of violation that alleges
noncompliance with provisions primarily related to stormwater management at
Cozzi's East Chicago, Indiana facility. The notice of violation requests that
certain actions be taken and that Cozzi agree to the entry of an order imposing
a $252,500 penalty. The notice of violation relates in part to a July 4, 1998
fire at the facility. Cozzi has begun to negotiate a resolution of this matter
with IDEM. At this time, Cozzi cannot estimate the costs, if any, that may
result from this notice of violation, although such costs are expected to be
significantly less than the proposed penalty. Based on its analysis of the
situation, the management of the Company does not believe such costs will have a
material adverse effect on the Company's business or financial condition;
however, there can be no assurance that this will be the case.
 
ITEM 2: CHANGES IN SECURITIES
 
     (c) Sales and/or Issuances of unregistered shares during the three months
ended September 30, 1998:
 
          The following discusses all unregistered sales of the Company's Common
     Stock during the three months ended September 30, 1998. Each of the private
     placements described below was made to a limited number of investors,
     including accredited investors, in reliance upon the exemption from
     registration provided by Section 4(2) of the Securities Act.
 
          On July 1, 1998, the Company issued 1,938,879 shares of Common Stock
     to the former shareholders of Naporano as partial consideration for all the
     outstanding common stock of Naporano. The shares were valued at $18.5
     million for financial reporting purposes.
 
          On July 1, 1998, the Company issued 435,558 shares of Common Stock to
     the former shareholders of Schiavone as partial consideration for certain
     assets of Schiavone. The shares were valued at $4.3 million for financial
     reporting purposes.
 
          On July 7, 1998, the Company issued 650,000 shares of Common Stock to
     the former shareholders of Kimerling as partial consideration for certain
     assets of Kimerling. The shares were valued at $5.4 million for financial
     reporting purposes. The Company also issued warrants to purchase an
     aggregate of 100,000 shares of Common Stock at $13.00 per share in
     consideration for services rendered or to be rendered.
 
                                       23
<PAGE>   26
 
          On July 8, 1998, the Company issued 203,692 shares of Common Stock to
     the former shareholder of Nicroloy as partial consideration for certain
     assets of Nicroloy. The shares were valued at $1.9 million for financial
     reporting purposes.
 
          On July 15, 1998, the Company issued 362,088 shares of Common Stock to
     the Midwest Metallics, L.P. as partial consideration for certain assets of
     Midwest Metallics, L.P. the shares were valued at $3.1 million for
     financial reporting purposes.
 
ITEM 5: OTHER INFORMATION
 
     Effective August 27, 1998, Joseph Naporano was appointed a director of the
Company and as the Vice-Chairman of the Board of Directors.
 
     Effective September 1, 1998, Harold Rubenstein resigned as a director of
the Company.
 
     Effective November 2, 1998, Kenneth A. Merlau was appointed an Executive
Vice-President of the Company. Mr. Merlau currently serves on the Company's
Board of Directors.
 
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
 
(a) Exhibits
 
     See Exhibit Index
 
(b) Reports on Form 8-K
 
     The following reports on Form 8-K were filed during the quarter ended
September 30, 1998:
 
     (1) Form 8-K dated July 1, 1998, filed July 2, 1998 (providing
         supplementary consolidated financial statements of the Company that
         give effect to the Company's merger with Bluestone, accounted for as a
         pooling of interests).
 
     (2) Form 8-K dated July 1, 1998, filed July 7, 1998, and amendment thereto
         on Form 8-K/A, filed July 10, 1998 (relating to the acquisition of
         Naporano and including historical and pro forma financial statements).
 
                                       24
<PAGE>   27
 
                                   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.
 
                                        METAL MANAGEMENT, INC.

                                        By: /s/ T. BENJAMIN JENNINGS
                                           ------------------------------------
                                           T. Benjamin Jennings
                                           Director, Chairman of the Board and
                                           Chief Executive Officer

                                        By: /s/ ALBERT A. COZZI 
                                           ------------------------------------
                                           Albert A. Cozzi
                                           Director, President and
                                           Chief Operating Officer

                                        By: /s/ ROBERT C. LARRY 
                                           ------------------------------------
                                           Robert C. Larry
                                           Executive Vice President of Finance,
                                           Treasurer, Chief Financial Officer
                                           and Assistant Secretary

                                        Date: May 4, 1999
 
                                       25
<PAGE>   28
 
                             METAL MANAGEMENT, INC.
 
                                 EXHIBIT INDEX
 
NUMBER AND DESCRIPTION OF EXHIBIT
 
<TABLE>
<C>       <S>
 3.1      Amended and Restated Certificate of Incorporation of the
          Company, as filed with the Secretary of State of the State
          of Delaware on November 2, 1998.
 3.2      Certificate of Designations, Preferences and Rights of
          Series C Convertible Preferred Stock of the Company, as
          filed with the Secretary of State of the State of Delaware
          on November 2, 1998.
 3.3      Restated By-Laws of the Company, as amended through August
          27, 1998.
 4.1      Sixth Supplemental Indenture, dated as of July 7, 1998,
          executed by Kimerling Acquisition Corp., amending Indenture,
          dated as of May 13, 1998, among the Company, the Guarantors
          and LaSalle National Bank, as Trustee (incorporated by
          reference to Exhibit 4.17 of the Company's Amendment No. 1
          to Registration Statement on Form S-4 filed October 6,
          1998).
 4.2      Seventh Supplemental Indenture, dated as of July 9, 1998,
          executed by Nicroloy Acquisition Corp., amending Indenture,
          dated as of May 13, 1998, among the Company, the Guarantors
          and LaSalle National Bank, as Trustee (incorporated by
          reference to Exhibit 4.18 of the Company's Amendment No. 1
          to the Registration Statement on Form S-4 filed October 6,
          1998).
 4.3      Eighth Supplemental Indenture, dated as of November 3, 1998,
          executed by FPX, Inc., amending Indenture, dated as of May
          13, 1998, among the Company, the Guarantors and LaSalle
          National Bank, as Trustee.
 4.4      Ninth Supplemental Indenture, dated as of November 3, 1998,
          executed by PerlCo, L.L.C., amending Indenture, dated as of
          May 13, 1998, among the Company, the Guarantors and LaSalle
          National Bank, as Trustee.
 4.5      Registration Rights Agreement, dated as of July 1, 1998,
          between the Company, McDonald & Company Securities, Inc.,
          Joseph F. Naporano and Andrew J. Naporano (incorporated by
          reference to Exhibit 10.1 of the Company's Current Report on
          Form 8-K dated July 1, 1998).
 4.6      Registration Rights Agreement, dated as of July 7, 1998,
          between the Company and M. Kimerling & Sons, Inc.
          (incorporated by reference to Exhibit 4.25 of the Company's
          Amendment No. 1 to Registration Statement on Form S-3 filed
          July 31, 1998).
 4.7      Registration Rights Agreement, dated as of July 9, 1998,
          between the Company and Nicroloy Company (incorporated by
          reference to Exhibit 4.24 of the Company's Amendment No. 1
          to Registration Statement on Form S-3 filed July 31, 1998).
 4.8      Registration Rights Agreement, dated as of July 14, 1998,
          between the Company and Midwest Metallics, L.P.
          (incorporated by reference to Exhibit 4.26 of the Company's
          Amendment No. 1 to Registration Statement on Form S-3 filed
          July 31, 1998).
 4.9      Metal Management, Inc. 1995 Stock Plan.
4.10      Metal Management, Inc. 1998 Director Compensation Plan.
4.11      Metal Management, Inc. 1998 Employee Stock Purchase Plan.
10.1      Amendment No. 3A to Credit Agreement, dated as of September
          30, 1998, by and among the Company and its subsidiaries
          named therein and BT Commercial Corporation (incorporated by
          reference to Exhibit 10.1 of the Company's Current Report on
          Form 8-K dated October 5, 1998).
10.2      Secured Promissory Note, dated July 22, 1998, executed by T.
          Benjamin Jennings in favor of the Company.
10.3      Pledge Agreement, dated as of July 22, 1998, between T.
          Benjamin Jennings and the Company.
10.4      Secured Promissory Note, dated July 22, 1998, executed by
          Gerard M. Jacobs in favor of the Company.
10.5      Pledge Agreement, dated as of July 22, 1998, between Gerard
          M. Jacobs and the Company.
</TABLE>
 
                                       26
<PAGE>   29
 
<TABLE>
<C>        <S>
     10.6  Employment Agreement, dated July 1, 1998, between Naporano Iron & Metal Co., Nimco Shredding Co., the
           Company and Joseph F. Naporano.
    27.1*  Financial Data Schedule.
</TABLE>
 
-------------------------
* Included herein
 
                                       27