<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

      /X/       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 1998

      / /      TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER: 0-20179

                           RECYCLING INDUSTRIES, INC.
             (Exact Name of Registrant as Specified in its Charter)

              COLORADO                               84-1103445
-------------------------------       ---------------------------------------
(State or Other Jurisdiction of       (I.R.S. Employer Identification Number)
 Incorporation or Organization)

  9780 S. MERIDIAN BLVD, SUITE 180
          ENGLEWOOD, COLORADO                                 80112
------------------------------------------------            ----------
(Mailing Address of Principal Executive Offices)            (Zip Code)


       Registrant's Telephone Number, Including Area Code: (303) 790-7372

        Securities Registered Pursuant to Section 12(b) of the Act: NONE

Securities Registered Pursuant to Section 12(g) of the Act:  COMMON STOCK, 
$.001 PAR VALUE

Indicate by check mark whether the Registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months, and (2) has been subject to such filing 
requirements for the past 90 days.
                                     Yes       No  X
                                        -----    -----

Indicate the number of shares outstanding of each of the Issuer's classes of 
common stock as of the close of the period covered by this Report.

<TABLE>
<CAPTION>
                                       NUMBER OF SHARES OUTSTANDING AS OF:
            CLASS                               January 31, 1999
------------------------------         ------------------------------------
<S>                                    <C>
Common Stock, $.001 Par Value                     21,325,249

</TABLE>

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION                                            PAGE
<S>                                                                        <C>
  ITEM 1.  FINANCIAL STATEMENTS*

    Consolidated Balance Sheets - December 31, 1998
      and September 30, 1998                                               1-2

    Consolidated Statements of Operations for the three months ended 
      December 31, 1998 and 1997                                             3

    Consolidated Statements of Stockholders' Equity for the three
      months ended December 31, 1998                                         4

    Consolidated Statements of Cash Flows for the three months ended
      December 31, 1998 and 1997                                             5

    Notes to the Consolidated Financial Statements                         6-8


  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
           AND RESULTS OF OPERATIONS                                       9-14

PART II -- OTHER INFORMATION

  ITEM 1.  LEGAL PROCEEDINGS                                                15

  ITEM 2.  CHANGES IN SECURITIES                                            15

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                 15

  SIGNATURES                                                                16

</TABLE>

-------------------
*  The accompanying interim financial statements have not been audited by an 
independent certified public accountant. Only those statements corresponding 
to a fiscal year-end (September 30) are audited.

<PAGE>

                   RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

                                     ASSETS 

<TABLE>
<CAPTION>
                                            DECEMBER 31, 1998     SEPTEMBER 30, 1998
                                            -----------------     ------------------
<S>                                         <C>                   <C>
CURRENT ASSETS:
  Cash                                        $     830                 $     750
  Accounts receivable, net                       23,413                    31,212
  Inventories                                    12,159                    11,473
  Prepaid expenses and other                      4,397                     4,613
                                              ---------                 ---------
    TOTAL CURRENT ASSETS                         40,799                    48,048
                                              ---------                 ---------

PROPERTY AND EQUIPMENT, NET                     170,116                   172,953
                                              ---------                 ---------

OTHER ASSETS:
  Notes receivable, related party                 1,925                     1,925
  Goodwill, net of amortization                  65,852                    66,296
  Other assets, net of amortization              15,704                    15,059
                                              ---------                 ---------
    TOTAL OTHER ASSETS                           83,481                    83,280
                                              ---------                 ---------
TOTAL ASSETS                                  $ 294,396                 $ 304,281
                                              ---------                 ---------

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       1

<PAGE>

                   RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                  DECEMBER 31, 1998     SEPTEMBER 30, 1998
                                                  -----------------     ------------------
<S>                                               <C>                   <C>
CURRENT LIABILITIES:                              
  Current maturities of long-term debt              $ 212,588                 $ 217,204
  Accounts payable                                     10,120                     9,468
  Settlement liability                                  8,150                     8,150
  Accrued interest                                      7,150                     3,575
  Accrued payroll                                       1,914                     2,081
  Other current liabilities                            10,552                     8,655
                                                    ---------                 ---------
    TOTAL  CURRENT LIABILITIES                        250,474                   249,133
                                                    ---------                 ---------
                                                  
LONG-TERM LIABILITIES:                            
  Long-term debt, less current maturities               4,388                     4,335
  Other long-term liabilities                          10,234                    10,625
                                                    ---------                 ---------
    TOTAL LONG-TERM LIABILITIES                        14,622                    14,960
                                                    ---------                 ---------
    TOTAL LIABILITIES                                 265,096                   264,093
                                                    ---------                 ---------
                                                  
COMMITMENTS AND CONTINGENT LIABILITIES:           
  Redeemable common stock, $.001 par value,       
    218,400 shares issued and outstanding               1,500                     1,500
                                                    ---------                 ---------
                                                  
STOCKHOLDERS' EQUITY:                             
  Preferred stock, no par value, 10,000,000       
    shares authorized 76,145 and 10,000           
    shares issued and outstanding                      23,183                    23,183
  Common Stock, $.001 par value, 50,000,000       
    shares authorized, 21,325,249 and             
    14,149,780 shares issued and outstanding               21                        21
  Additional paid-in capital                           63,354                    63,628
  Accumulated deficit                                 (58,758)                  (48,144)
                                                    ---------                 ---------
    TOTAL STOCKHOLDERS' EQUITY                         27,800                    38,688
                                                    ---------                 ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY          $ 294,396                 $ 304,281
                                                    ---------                 ---------

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2

<PAGE>

                   RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                       DECEMBER 31, 1998     DECEMBER 31, 1997
                                                       -----------------     -----------------
<S>                                                    <C>                   <C>
Net sales                                                $     45,002          $     31,275
Cost of sales and operating expenses                           41,570                26,302
                                                          -----------          ------------
Gross profit                                                    3,432                 4,973
Selling, general and administrative expenses, net               6,771                 2,474
                                                          -----------          ------------
Operating income (loss)                                        (3,339)                2,499
                                                          -----------          ------------

OTHER INCOME (EXPENSE):
  Interest expense                                             (7,332)               (2,169)
  Miscellaneous                                                    57                   (55)
                                                          -----------          ------------
  TOTAL OTHER INCOME (EXPENSE)                                 (7,275)               (2,224)
                                                          -----------          ------------

Earnings (loss) before income tax benefit (expense)
  and extraordinary loss                                      (10,614)                  275
Provision for income taxes                                       --                     (87)
                                                          -----------          ------------
Earnings (loss) before extraordinary loss                     (10,614)                  188
Extraordinary loss                                               --                  (2,414)
                                                          -----------          ------------
NET LOSS                                                 $    (10,614)         $     (2,226)
                                                          -----------          ------------

Net loss                                                 $    (10,614)         $     (2,226)
Preferred stock dividends                                         274                    84
                                                          -----------          ------------
Net loss available to common shareholders                $    (10,888)         $     (2,310)
                                                          -----------          ------------

EARNINGS (LOSS) PER SHARE:
  BASIC EARNINGS (LOSS) PER COMMON SHARE
    Before extraordinary item                            $      (0.51)         $       0.01
    Extraordinary item                                           --                   (0.16)
                                                          -----------          ------------
BASIC LOSS PER COMMON SHARE                              $      (0.51)         $      (0.15)
                                                          -----------          ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                 21,325,000            15,351,000
                                                          -----------          ------------
  DILUTED LOSS PER COMMON SHARE
    Before extraordinary item                            $      (0.51)         $       --
    Extraordinary item                                           --                   (0.10)
                                                          -----------          ------------
DILUTED LOSS PER COMMON SHARE                            $      (0.51)         $      (0.10)
                                                          -----------          ------------
WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING         21,325,000            23,495,000
                                                          -----------          ------------

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3

<PAGE>

                   RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                              ADDITIONAL
                                   PREFERRED STOCK         COMMON STOCK        PAID-IN     ACCUMULATED
                                  SHARES     AMOUNT      SHARES      AMOUNT    CAPITAL      (DEFICIT)      TOTAL
                                  ------    -------    ----------    ------   ----------   -----------   ---------
<S>                               <C>       <C>        <C>           <C>      <C>          <C>           <C>
Balances, September 30, 1998      76,145    $23,183    21,325,249     $ 21     $63,628      $ (48,144)   $ 38,688

Preferred stock dividends           --          -             -         --        (274)          --          (274)

Net loss                            --          -             -         --        --          (10,614)    (10,614)
                                  ------    -------    ----------    ------   ----------   -----------   ---------
BALANCES, DECEMBER 31, 1998       76,145    $23,183    21,325,249     $ 21     $63,354      $ (58,758)   $ 27,800
                                  ------    -------    ----------    ------   ----------   -----------   ---------

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>

                   RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 1998     DECEMBER 31, 1997
                                                                -----------------     -----------------
<S>                                                             <C>                   <C>
OPERATING ACTIVITIES:
Net loss                                                            $ (10,614)             $ (2,226)
Adjustments to reconcile net loss to net
 cash provided by operating activities:
   Depreciation and amortization                                        3,345                 1,498
   Extraordinary loss                                                    --                   2,414
   Other operating activities                                           1,329                  --
Changes in assets and liabilities, net of the
 effect of business acquisitions:
   Accounts receivable                                                  7,800                 2,501
   Inventories                                                           (685)               (3,960)
   Prepaid expenses and other                                            (955)                 (132)
   Accounts payable                                                       652                 3,120
   Liabilities, exclusive of debt                                       4,650                (1,001)
                                                                    ---------              --------
Net cash provided by operating activities                               5,522                 2,214
                                                                    ---------              --------

INVESTING ACTIVITIES:
   Capital expenditures, net                                             (298)                 (542)
   Note receivable, related party                                        --                  (1,440)
   Other assets                                                          (290)               (2,382)
   Acquisitions, net of equity issued                                    --                (114,947)
   Cash acquired in acquisitions                                         --                   1,835
                                                                    ---------              --------
Net cash provided by (used in) investing activities                      (588)             (117,476)
                                                                    ---------              --------

FINANCING ACTIVITIES:
   Proceeds from borrowings                                               669               147,868
   Principal payments on borrowings                                    (5,513)              (32,697)
   Other long-term liabilities                                           --                     324
   Prepayment penalty on debt                                            --                  (2,532)
   Loan fees paid                                                        --                  (8,600)
   Dividends paid                                                         (10)                  (84)
   Net proceeds from issuance of stock                                   --                  11,735
                                                                    ---------              --------
Net cash provided by financing activities                              (4,854)              116,014
                                                                    ---------              --------
   Increase (decrease) in cash                                             80                   752
   Cash, beginning of period                                              750                   746
                                                                    ---------              --------
   Cash, end of period                                              $     830              $  1,498
                                                                    ---------              --------

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       5

<PAGE>

                   RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.  COMMENCEMENT OF BANKRUPTCY PROCEEDING

On February 26, 1999, the Company and each of its operating subsidiaries filed 
voluntary petitions for relief under Chapter 11 of the Federal Bankruptcy 
Code in the United States Bankruptcy Court for the District of Colorado (the 
"Chapter 11 Proceeding"). Although the Company plans to reorganize and emerge 
from the Chapter 11 Proceeding, there is no assuarance that this will occur 
or, if it does, that the Company will be able to successfully operate in the 
future.

2.  The consolidated financial statements included herein have been prepared 
by the Company without audit except the September 30, 1998 balance sheet, 
which was audited. The statements have been prepared pursuant to the rules 
and regulations of the Securities and Exchange Commission and reflect all 
adjustments, consisting of only normal recurring accruals which are, in the 
opinion of management, necessary for a fair statement of the results of 
operations for the periods shown. These financial statements should be read 
in conjunction with the financial statements and notes thereto included in 
the Company's latest report on Form 10-K, dated September 30, 1998.

3.  The results of operations for the three months ended December 31, 1998 
and 1997 are not necessarily indicative of the results to be expected for 
the full year.

4.  Inventories as of December 31, 1998 and September 30, 1998, consisted of 
the following:

<TABLE>
<CAPTION>
                              DECEMBER 31, 1998     SEPTEMBER 30, 1998
                              -----------------     ------------------
(THOUSANDS OF DOLLARS)
<S>                           <C>                   <C>
Raw Materials                     $  6,485               $  6,634
Finished Goods                       5,134                  4,213
Other                                  540                    626
                                  --------               --------
  Total                           $ 12,159               $ 11,473
                                  --------               --------

</TABLE>

                                       6

<PAGE>

5.  SUPPLEMENTAL DISCLOSURES FOR EARNINGS (LOSS) PER SHARE

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                     December 31,
                                                           ------------------------------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)                 1998              1997
                                                           ------------       ------------
<S>                                                        <C>                <C>
BASIC LOSS PER COMMON SHARE:
  NUMERATOR
    Earnings (loss) before extraordinary loss              $   (10,614)       $       188
    Preferred stock dividends                                     (274)               (84)
                                                           ------------       ------------
    Earnings (loss) before extraordinary loss
      available to common shareholders                         (10,888)               104
    Extraordinary loss                                            --               (2,414)
                                                           ------------       ------------
    Net loss available to common shareholders              $   (10,888)       $    (2,310)
                                                           ------------       ------------
  DENOMINATOR
    Weighted average common shares outstanding              21,325,000         13,351,000
                                                           ------------       ------------
  PER SHARE AMOUNTS
    Basic earnings (loss) before extraordinary loss        $     (0.51)       $      0.01
    Extraordinary loss                                            --                (0.16)
                                                           ------------       ------------
    Basic loss                                             $     (0.51)       $     (0.15)
                                                           ------------       ------------
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
  NUMERATOR
    Earnings (loss) before extraordinary loss
      available to common shareholders                     $   (10,888)       $       104
    Extraordinary loss                                            --               (2,414)
                                                           ------------       ------------
    Net loss available to common shareholders 
      and assumed conversions outstanding                  $   (10,888)       $    (2,310)
                                                           ------------       ------------
  DENOMINATOR
    Weighted average common shares outstanding              21,325,000         15,351,000
    Effect of dilutive securities:
      Options and warrants                                        --            8,032,000
      Redeemable common shares                                    --              112,000
                                                           ------------       ------------
      Weighted average common shares and
        assumed conversions outstanding                     21,325,000         23,495,000
                                                           ------------       ------------
PER SHARE AMOUNTS
    Diluted loss before extraordinary loss                 $     (0.51)       $      --
    Extraordinary loss                                            --                (0.10)
                                                           ------------       ------------
    Diluted loss                                           $     (0.51)       $     (0.10)
                                                           ------------       ------------

</TABLE>

Potentially dilutive issues not included in the computation of diluted 
earnings per common share:

For the three months ended December 31, 1998, warrants and options to acquire 
9,380,239 shares of common stock at exercise prices of $1.375 to $75.00 per 
share were not included in the computation of diluted EPS because the 
warrants' and options' exercise prices were greater than the average market 
price of the common shares. In addition, warrants and options to acquire 
2,316,615 shares of common stock at exercise prices of $0.01 to $1.31 were 
not included in the computation of diluted EPS as the effect would be 
anti-dilutive. Preferred shares convertible into 12,100,793 common shares, at 
various conversion rates, were not included in the computation of diluted EPS 
as the effect would be anti-dilutive. Contingently issuable common shares of 
9,200,000 were not included in the computation of diluted EPS as the effect 
would be anti-dilutive. Redeemable common shares of 363,636 were not included 
in the computation of diluted EPS as the effect would be anti-dilutive.

                                       7

<PAGE>

For the three months ended December 31, 1997, warrants and options to acquire 
425,936 shares of common stock at exercise prices of $7.50 to $75.00 per 
share were not included in the computation of diluted EPS because the 
warrants' and options' exercises prices were greater than the average market 
price of the common shares. Preferred shares convertible into 678,030 common 
shares, at various conversion rates, were not included in the computation of 
diluted EPS as the effect would be anti-dilutive. Debt convertible into 
1,272,388 common shares was not included in the computation of diluted EPS as 
the effect would be anti-dilutive.

COMMENCEMENT OF BANKRUPTCY PROCEEDING

On February 26, 1999, the Company and each of its operating subsidiaries 
filed voluntary petitions for relief under Chapter 11 of the Federal 
Bankruptcy Code in the United States Bankruptcy Court for the District of 
Colorado (the "Chapter 11 Proceeding"). Although the Company plans to 
reorganize and emerge from the Chapter 11 Proceeding, there is no assurance 
that this will occur or, if it does, that the Company will be able to 
successfully operate in the future.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

ALL STATEMENTS CONTAINED HEREIN, AS WELL AS STATEMENTS MADE IN PRESS RELEASES 
AND ORAL STATEMENTS THAT MAY BE MADE BY THE COMPANY OR ITS OFFICERS, 
DIRECTORS, OR EMPLOYEES ACTING ON ITS BEHALF, THAT ARE NOT STATEMENTS OF 
HISTORICAL FACT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF 
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT.  SUCH 
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND 
OTHER FACTORS THAT COULD CAUSE THE ACTUAL RESULTS OF THE COMPANY TO BE 
MATERIALLY DIFFERENT FROM HISTORICAL RESULTS OR FROM ANY FUTURE RESULTS 
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AND RISK FACTORS 
DESCRIBED FROM TIME TO TIME IN THE COMPANY'S REPORTS FILED WITH THE 
COMMISSION.  IN ADDITION TO STATEMENTS THAT EXPLICITLY DESCRIBE SUCH RISKS 
AND UNCERTAINTIES, READERS ARE URGED TO CONSIDER STATEMENTS THAT INCLUDE THE 
TERMS "BELIEVES," "BELIEF," "EXPECTS," "PLANS," "ANTICIPATES," "INTENDS" OR 
THE LIKE TO BE UNCERTAIN AND FORWARD-LOOKING.  ALL CAUTIONARY STATEMENTS MADE 
HEREIN SHOULD BE READ AS BEING APPLICABLE TO ALL FORWARD-LOOKING STATEMENTS 
WHEREVER THEY APPEAR.

GENERAL

The largest portion of the Company's operations involves the collection, 
processing and sale of ferrous scrap, the primary raw material for mini-mill 
steel producers who utilize electric arc furnace technology.  The Company's 
operations consist of purchasing and processing unprepared scrap and selling 
processed scrap.  Scrap is categorized as either ferrous, containing iron and 
consisting primarily of steel, or non-ferrous.  Ferrous scrap is generated in 
two forms consisting of prompt industrial scrap and old scrap.  Prompt 
industrial scrap is the material left over from manufacturing processes that 
use steel, such as automobile and appliance manufacturing.  Old scrap 
includes obsolete or broken goods consisting of automobiles, refrigerators 
and other consumer and industrial steel goods.  The Company purchases 
unprepared scrap primarily from automobile salvage and wrecking yards, 
demolition firms, ordnance depots, military bases, public utilities, 
industrial facilities, metal fabricators, machine shops, railroads, 
refineries, shipyards and numerous independent scrap collectors.  Unprepared 
scrap is processed for resale by resorting, cleaning, shearing and shredding 
by a variety of methods according to customer specifications and market 
demand.  The Company sells its processed ferrous scrap to mini-mill steel 
producers, integrated steel producers, foundries and brokers.

The principal elements of the Company's cost of sales are raw materials, 
direct labor and manufacturing overhead.  The Company seeks to partially 
offset fluctuations in raw material costs by entering into supply 
arrangements with certain customers, none of which is material to the 
Company's operations.  The Company purchases and processes many different 
grades of ferrous and non-ferrous material with varying gross margins.  
Accordingly, the Company's overall gross margin is impacted by its material 
mix, raw material costs and its ability to efficiently process various 
ferrous and non-ferrous materials.

The following table sets forth selected statement of income data as a 
percentage of net sales for the periods indicated:

                                       8

<PAGE>

<TABLE>
<CAPTION>
                                                     Three Months Ended
                                                        December 31,
                                                     -------------------
STATEMENT OF OPERATIONS DATA:                          1998       1997
                                                     --------   --------
<S>                                                  <C>        <C>
Net Sales                                             100.0%     100.0%
Cost of sales and operating expenses                   92.4       84.1  
                                                      ------     ------
Gross profit                                            7.6       15.9  
Selling, general and administrative expenses           15.0        7.9  
                                                      ------     ------
Operating income (loss)                                (7.4)       8.0  
Interest expense and other                             16.2        7.1  
                                                      ------     ------
Earnings (loss) before income taxes and 
  extraordinary loss                                  (23.6)       0.9  
Income tax provision                                     --       (0.3)
Extraordinary loss                                       --       (7.7) 
                                                      ------     ------
Net loss                                              (23.6)      (7.1) 
                                                      ------     ------
EBITDA (1)                                               --       12.2  
                                                      ------     ------

</TABLE>

(1)  "EBITDA" represents, for any period, operating income before interest
     expense, income taxes, depreciation and amortization.  EBITDA is presented
     because it is a widely accepted financial indicator of a company's ability
     to service and/or incur indebtedness.  Management believes that
     presentation of EBITDA is helpful to investors.  However, EBITDA should not
     be considered as an alternative to net income as a measure of the Company's
     operating results or cash flows as a measure of liquidity.  In addition,
     although the EBITDA measure of performance is not recognized under
     generally accepted accounting principles, it is widely used by industrial
     companies as a general measure of a company's operating performance because
     it assists in comparing performance on a relatively consistent basis across
     companies without regard to depreciation and amortization, which can vary
     significantly depending on accounting methods (particularly where
     acquisitions are involved) or non-operating factors such as historical cost
     bases.  Because EBITDA is not calculated identically by all companies, the
     presentation herein may not be comparable to other similarly titled
     measures of other companies.

RESULTS OF OPERATIONS

The Company's operating results, for the three months ended December 31, 1998 
compared to 1997, depend in large part on its ability to effectively manage 
the purchase, processing and sale of scrap metals.  The demand for processed 
ferrous and non-ferrous scrap is subject to general economic, industry and 
market-specific conditions beyond the Company's control, which may result in 
periodic fluctuations in the sales prices of the Company's products.  
Operating margins declined as a result of significant declines in the average 
sales price of processed ferrous and non-ferrous material and insufficient 
liquidity to purchase and process material at normal operating levels.  

NET SALES. Net sales for the three months ended December 31, 1998, were $45.0 
million an increase of $13.7 million or 440% compared to the same period one 
year earlier.  The increase was primarily related to increased processing 
capacity resulting from acquisitions completed in December 1997, April 1998 
and May 1998.  Total tons processed of ferrous material for the three 

                                       9

<PAGE>

months ended December 31, 1998 increased by approximately 61% to 265,000 tons 
compared to the same period one year earlier.  Total pounds processed of 
non-ferrous material for the three months ended December 31, 1998 increased 
by approximately 169% to 41,563,000 pounds compared to the same period one 
year earlier.  The increase in non-ferrous quantities processed was primarily 
related to the acquisitions completed during fiscal 1998.   

The average sales price of prepared ferrous material for the three months 
ended December 31, 1998 was $92 per ton a decline of $52 per ton or 
approximately 36% compared to the same period one year earlier. The Company's 
average sales price of prepared non-ferrous material for the three months 
ended December 31, 1998 was $0.37 per pound representing a decrease of 16% or 
$0.07 per pound compared to the same period one year ago. The decline in the 
Company's average sales price of both ferrous and non-ferrous material is a 
result of a current trend in the metals market.  Weak demand for exports of 
ferrous and non-ferrous prepared scrap as well as an increase in steel 
imports from Europe and Asia has served to reduce prices and demand of 
shredded scrap.

Net sales from brokerage activities for the three months ended December 31, 
1998 was $1.9 million, an increase of approximately 104% compared to the same 
period one year earlier.  The increase was primarily related to acquisitions 
completed during fiscal 1998.  

GROSS PROFIT.  Gross profit for the three months ended December 31, 1998 was 
$3.4 million a decrease of $1.6 million compared to the same period one year 
earlier.  Gross profit margin for the three months ended December 31, 1998 
was 7.6% as a percentage of net sales compared to 15.9% for the same period 
in 1997. The decrease in gross profit was primarily related to the 
significant declines in the average sales price and demand of processed 
ferrous and non-ferrous scrap and the ability of the Company to procure and 
process material at normal operating levels.  During the quarter, the Company 
has not been able to purchase sufficient quantities of ferrous and 
non-ferrous scrap due to insufficient cash flow resulting from prolonged 
price declines of processed ferrous and non-ferrous material.  Tons processed 
of ferrous scrap declined during the quarter by 123,000 ton compared to the 
fourth quarter ended September 30, 1998.  

SELLING, GENERAL, AND ADMINISTRATIVE.  Selling, general, and administrative 
(SG&A) expenses increased to $6.8 million for the three months ended December 
31, 1998 from $2.5 million during the three months ended December 31, 1997, 
an increase of $4.3 million or 173%.  The increase was primarily the result 
of acquisitions completed during fiscal 1998 and staffing and other related 
administrative expenses in anticipation of planned growth.  As a percent of 
net sales, SG&A increased to 15.0% for the three months ended December 31, 
1998 compared to 7.9% for the three months ended December 31, 1997.

OPERATING INCOME (LOSS).  The Company reported an operating loss for the 
three months ended December 31, 1998 of $3.3 million compared to operating 
income of $2.5 million for the three months ended December 31, 1997, a 
decrease of $5.8 million.  The decrease is principally the result of declines 
in the average selling prices and demand of ferrous and non-ferrous material. 
As a result of prolonged price declines of ferrous and non-ferrous material, 
the Company's results of operations have not been sufficient to generate 
liquidity to allow the Company to purchase and process material at normal 
operating levels. Management is continuously monitoring the operations of the 
facilities and has implemented and continues to implement certain cost 
cutting strategies in order to improve operating income without reducing net 
sales.  

The Company's second quarter 1999 results continued to be adversely 
effected from insufficient cash flow which has resulted in the Company not 
being able to procure and process 

                                       10

<PAGE>

material at normal operating levels. As a result of these factors, the 
Company sought relief under Chapter 11 of the United States Bankruptcy Code.

INTEREST EXPENSE.  Interest expense increased to $7.3 million for the three 
months ended December 31, 1998 from $2.2 million for the three months ended 
December 31, 1997 an increase of $5.2 million or 238%.  The increase was 
primarily related to increases in long-term debt to finance the acquisitions 
completed in December 1997, April 1998 and May 1998 and the amortization of 
transaction costs associated with the Company's Senior Credit Facility and 
Senior Subordinated Debt.

EARNINGS BEFORE EXTRAORDINARY LOSS.  Net loss for the three months ended 
December 31, 1998 was $10.6 million compared to earnings of $0.2 million for 
the same period one year earlier.  During the first quarter of 1998, the 
Company recorded a $2.4 million extraordinary loss from early extinguishment 
of debt. 

INCOME TAX EXPENSE. At December 31, 1998, the Company has a federal income 
tax loss carryforward of approximately $68.4 million which expires at various 
amounts and dates through the year 2013.  The Company has not recorded a 
deferred tax asset at December 31, 1998 since it is more likely than not the 
tax assets will not be realized.

The Internal Revenue Service has completed an examination of the Company's 
federal income tax return for the year ended September 30, 1996 with a no 
change ruling.   

The Company does not believe its businesses have been adversely affected by 
general inflation.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)              DECEMBER 31,   DECEMBER 31,
                                      1998           1997
                                   ------------   ------------
<S>                                <C>            <C>
Current ratio                         .16:1          3.6:1
Working capital (deficiency)        $(209.7)       $  34.8
</TABLE>

At December 31, 1998 and September 30, 1998, the Company was in default under 
certain provisions of the senior credit agreement.  On December 31, 1998, the 
Company failed to make the scheduled interest payments due on its Senior 
Subordinated Debt resulting in a default under the terms of the Senior 
Subordinated Debt.  In connection with the default, all amounts due under the 
senior credit agreement and senior subordinated debt agreement have been 
classified as a component of current liabilities. 

The Company invested $0.3 million in property and equipment, not including 
property and equipment acquired in business acquisitions, during the three 
months ended December 31, 1998 for expansion of the Company's ferrous and 
non-ferrous processing capacity and general modernization and efficiency 
upgrades.  Planned capital expenditures for the remainder of the fiscal year 
for the Company's existing facilities are estimated to be $1.0 million.  
Included in this amount are capital expenditures for the Company's shredders 
and materials handling 

                                       11

<PAGE>

equipment designed to increase capacity and improve operating efficiencies.  
Management anticipates the capital expenditures will be paid with long-term 
debt financing, if available.

At December 31, 1998, approximately $12.1 million was outstanding under the 
$45 million revolving credit facility.  During the quarter ended December 31, 
1998, the Company at times was restricted from advancing funds under the 
credit facility due to insufficient availability resulting from declines in 
accounts receivable, inventories and negative operating results. Funding 
under the credit facility is restricted to the Company's eligible accounts 
receivable and inventory balances which have declined as a result of 
prolonged price declines of ferrous and non-ferrous material.  The Company 
was unable to fund expenditures incurred in the normal course of operations.

The Company has not paid dividends on its Common Stock and the Board of 
Directors intends to continue a policy of retaining earnings to finance 
growth and for general corporate purposes and, therefore, does not anticipate 
paying any such dividends in the future.  In addition, the Credit Facility 
contains limitations on payment of cash dividends or other distributions of 
assets which may restrict the Company's ability to pay dividends.

YEAR 2000 ISSUES

Many computer systems and other equipment with embedded chips or 
microprocessors may not be able to appropriately interpret dates after 
December 31, 1999 because such systems use only two digits to indicate a year 
in the date field rather than four digits.  If not corrected, many computers 
and computer applications could fail or create miscalculations, causing 
disruptions to the Company's operations.  In addition, the failure of 
customer and supplier computer systems could result in interruption of sales 
and deliveries of key supplies or utilities.  Because of the complexity of 
the issues and the number of parties involved, the Company cannot reasonably 
predict with certainty the nature or likelihood of such impacts.

Using internal staff and outside consultants, the Company is actively 
addressing this situation and anticipates that it will not experience a 
material adverse impact to its operations, liquidity or financial condition 
related to systems under its control.  The Company is addressing the Year 
2000 issue in four overlapping phases:  (i) identification and assessment of 
all critical software systems and equipment requiring modification or 
replacement prior to 2000; (ii) assessment of critical business relationships 
requiring modification prior to 2000; (iii) corrective action and testing of 
critical systems; (iv) development of contingency and business continuation 
plans to mitigate any disruption to the Company's operations arising from the 
Year 2000 issue.

During 1998, in order to improve access to financial information through 
common, integrated computing systems across the company, the Company began an 
accounting system replacement and upgrade project.  The Company has completed 
its corporate financial accounting software implementation to SAP America, 
Inc., and is in the process of reviewing certain subsidiary's financial 
systems to determine the cost and benefit of converting such subsidiaries to 
SAP America, Inc. as well. Approximately 53% of the Company's subsidiaries 
existing financial systems have been upgraded to be Year 2000 compliant.

The Company is in the process of implementing a plan to obtain information from
its external service providers, significant suppliers and customers, and
financial institutions to confirm their plans and readiness to become Year 2000
compliant, in order to better understand and evaluate 

                                       12

<PAGE>

how their Year 2000 issues may affect the Company's operations.  The Company 
currently is not in a position to assess this aspect of the Year 2000 issue, 
however the Company plans to take the necessary steps to provide itself with 
reasonable assurance that its service providers, suppliers, customers and 
financial institutions are Year 2000 compliant.  This phase is 20% complete 
to date.

The Company is developing contingency plans to identify and mitigate 
potential problems and disruptions to the Company's operations arising from 
the Year 2000 issue.  This phase is expected to be completed by November 1999.

The total cost to achieve Year 2000 compliance is currently estimated at $4.3 
million.  Approximately $1.5 million has been spent to date.  Reaching 
compliance will require additional funding which will be dependant upon the 
Company's lending institutions willingness and ability to continue to fund 
necessary Year 2000 compliance projects.  Through December 31, 1998, funds 
from operations and availability under the Company's Credit Facility were 
insufficient to allow the Company to commence its Year 2000 compliance 
projects.

While the Company believes that its own internal assessment and planning 
efforts with respect to its external service providers, suppliers, customers 
and financial institutions are and will be adequate to address its Year 2000 
concerns, there can be no assurance that these efforts will be successful or 
will not have a material adverse effect on the Company's operations.

RECENT ACCOUNTING PRONOUNCEMENTS

During the quarter, the Company was required to implemented FAS No. 130 
"Reporting Comprehensive Income".  FAS No. 130 establishes standards for 
reporting and display of comprehensive income, its components and accumulated 
balances.  Comprehensive income is defined to include all changes in equity 
except those resulting from investments by owners and distributions to 
owners. Among other disclosures, FAS No. 130 requires that all items that are 
required to be recognized under current accounting standards as components of 
comprehensive income be reported in a financial statement that displays with 
the same prominence as other financial statements.  The implementation of FAS 
No. 130 has no material impact on the financial presentation of the Company.

The Company is required to implement FAS No. 131 "Disclosures about Segments 
of an Enterprise and related Information" for the year ended September 30, 
1999. FAS No. 131 supersedes FAS No. 14 "Financial Reporting for Segments of 
a Business Enterprise".  FAS No. 131 establishes standards on the way that 
public companies report financial information about operating segments in 
annual financial statements and requires reporting of selected information 
about operating segments in interim financial statements issued to the 
public. It also establishes standards for disclosures regarding products and 
services, geographic areas and major customers.  FAS No. 131 defines 
operating segments as components of a company about which separate financial 
information is available that is evaluated regularly by the chief operating 
decision maker in deciding how to allocate resources and in assessing 
performance.  FAS 131 require comparative information for earlier years to be 
restated.  Because of the recent issuance of the standards, management has 
been unable to fully evaluate the impact, if any, the standard may have on 
the future financial statement disclosures.  Results of operations and 
financial position, however, will be unaffected by implementation of this 
standard.

                                       13

<PAGE>

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about 
Pensions and Other Postretirement "Benefits" which standardizes the 
disclosure requirements for pensions and other postretirement benefits and 
requires additional information on changes in the benefit obligations and 
fair values of plan assets that will facilitate financial analysis.  SFAS No. 
132 is effective for years beginning after December 15, 1997 and requires 
comparative information for earlier years to be restated, unless such 
information is not readily available.  Management believes the adoption of 
this statement will have no material impact on the Company's financial 
statements.

In June 1998, the Financial Accounting Standards Board issued FAS No. 133, 
accounting for derivative instruments and hedging activities.  FAS No. 133 
requires companies to recognize all derivatives contracts as either assets or 
liabilities in the balance sheet and to measure them at fair value.  If 
certain conditions are met, a derivative may be specifically designated as a 
hedge of the:  (i) exposure to changes in the fair value of a recognized 
asset or liability or an unrecognized firm commitment ("fair value hedges"), 
(ii) exposure to variable cash flows of a forecasted transaction ("cash flow 
hedges"), or (iii) foreign currency exposure of a net investment in a foreign 
operation, an unrecognized firm commitment, an available-for-sale security, 
or a foreign-currency-denominated forecasted transaction ("foreign currency 
hedges"). The objective of hedge accounting is to match the timing of gain or 
loss recognition on the hedging derivative with the recognition of (i) the 
changes in the fair value of the hedged asset or liability that are 
attributable to the hedged risk or (ii) the earnings effect of the hedged 
forecasted transaction. For a derivative not designated as a hedging 
instrument (e.g., derivative contracts entered into for speculative 
purposes), the gain or loss is recognized in income in the period of change.  

FAS No. 133 is effective for all fiscal quarters of fiscal years beginning 
after June 15, 1999.  The Company currently plans to adopt FAS No. 133 on 
October 1, 1999.  On that date, hedging relationships will be designated anew 
and documented.  The Company has not yet evaluated the financial statement 
impact of adopting FAS No. 133.

                                       14

<PAGE>

PART II - OTHER INFORMATION


ITEM 1. - LEGAL PROCEEDINGS.

Caside Associates/John Silvia, Jr. Litigation

On January 7, 1999, the Company paid $7.0 million to the Caside Associates 
and Environmental Recovery Systems of Somerset, Inc. bankruptcy trustees in 
accordance with the amended stipulation of settlement described in the 
Company's Form 10-K for the year ended September 30, 1998. As a result, all 
pending and potential claims of investors in the Caside and ERSS 
bankruptcies, including all investors in Caside, ERSS and the Company who 
claim they were defrauded, are permanently enjoined against the Company, its 
officers and directors. In addition, each of the following actions is 
permanently enjoined against the Company, its officers and directors:

1.  Allan R.A. Beeber, et al., Plaintiffs, v. John Silvia, Jr., et al., 
    Defendants, U.S.D. Ct., D. Mass., Civil Action No. 96-12416-JLT.

2.  William C. Mitchell, et al., Plaintiffs v. Recycling Industries, Inc., 
    Defendant, Mass. Superior Court, Bristol Div., Civil Action No. C97-00845.

3.  Dwight Silvia, et al., Plaintiff, v. Recycling Industries, Inc., 
    Defendant, U.S.D. Ct., D. Mass Civil Action No. 97-12015-JLT.

4.  Ferreira, et al., Plaintiffs, v. Recycling Industries, Inc., Defendant, 
    U.S.D. Ct., D. Mass, Civil Action No. 97-12660-JLT.

5.  Rocha, Plaintiff, v. John Silvia, Jr. et al., Defendants, Mass. Superior 
    Court, Bristol Div., Civil Action No. 9501347.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K


EXHIBITS
None


REPORTS ON FORM 8-K

Current report on Form 8-K dated October 9, 1998, reporting the appointment 
of AJ. Robbins, P.C.

                                       15

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.


                                       Recycling Industries, Inc.

Date: March 31, 1999                   By:  /s/ Thomas J. Wiens
                                          -----------------------------------
                                          Thomas J. Wiens, Chairman & Chief 
                                          Executive Officer

Date: March 31, 1999                   By:  /s/ Brian L. Klemsz
                                          -----------------------------------
                                          Brian L. Klemsz, Principal Financial
                                          Officer


                                       16