<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, 1996

               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)


    384 INVERNESS DRIVE SOUTH, SUITE 211
             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   X      No       
                                                       -----       ----- 

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.

                                          Number of Shares Outstanding as of 
                Class                              December 31, 1996         
     -----------------------------        ---------------------------------- 
     Common Stock, $.001 Par Value                     13,911,974


<PAGE>
                             TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION
                                                                          PAGE
     ITEM 1.  FINANCIAL STATEMENTS

              Consolidated Balance Sheets - December 31, 1996 
                (Unaudited) and September 30, 1996                        1-2

             Consolidated Statements of Operations (Unaudited) 
                for the three months ended December 31, 1996 and 1995       3

             Consolidated Statement of Stockholders' Equity (Unaudited)
                for the three months ended December 31, 1996                4  

             Consolidated Statements of Cash Flows (Unaudited) for 
                the three months ended December 31, 1996 and 1995           5

             Notes to the Consolidated Financial Statements               6-7

     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS                       8-13


PART II -- OTHER INFORMATION

     Item 1-6                                                           14-15

     Signatures                                                            16

     Statement Regarding Computation of per Share Earnings                 17

     Financial Data Schedule                                               18


----------------------
   * The accompanying interim financial statements have not been audited by 
an independent certified public accountant, and are so noted as "Unaudited" 
where applicable.  Only those statements corresponding to a fiscal year-end 
(September 30) are audited.

<PAGE>

                 RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                  DECEMBER 31, 1996 AND SEPTEMBER 30, 1996

                                   ASSETS
                           (Substantially Pledged)


                                                DECEMBER 31,    SEPTEMBER 30,
                                                   1996             1996     
                                                ------------    -------------
                                                (Unaudited)                  
CURRENT ASSETS
  Cash                                          $ 1,761,000     $ 1,450,000 
  Trade Accounts receivable, less 
   allowance for doubtful accounts
   of $50,000 and $10,000                         4,053,000       4,379,000 
  Accounts receivable, related party                112,000          77,000 
  Inventories                                     2,049,000       2,473,000 
  Prepaid expenses                                  264,000         272,000 
  Other                                                   -         120,000 
                                                -----------     ----------- 
    Total Current Assets                          8,239,000       8,771,000 

PROPERTY, PLANT AND EQUIPMENT, net               20,651,000      20,492,000 

DEFERRED INCOME TAXES                               800,000         800,000 

OTHER ASSETS                                      4,988,000       4,792,000 
                                                -----------     ----------- 
    Total Other Assets                            5,788,000       5,592,000 

    TOTAL ASSETS                                $34,678,000     $34,855,000 
                                                -----------     -----------
                                                -----------     -----------



      SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

                                      1 
<PAGE>

                 RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                  DECEMBER 31, 1996 AND SEPTEMBER 30, 1996 


                    LIABILITIES AND STOCKHOLDERS' EQUITY


                                               DECEMBER 31,    SEPTEMBER 30,
                                                   1996             1996    
                                               ------------    -------------
                                               (Unaudited)                  
CURRENT LIABILITIES: 
  Trade accounts payable                       $  2,014,000    $  2,673,000 
  Trade accounts payable - related parties                -          61,000 
  Accrued liabilities:
    Payroll and other                               403,000         500,000 
    Income taxes payable                             80,000         107,000 
    Interest                                         26,000          36,000 
    Interest - related party                              -          15,000 
  Current maturities of long-term debt            1,882,000       1,707,000 
  Current maturities of long-term debt, 
   related parties                                1,450,000       2,075,000 
                                               ------------    ------------ 

    Total Current Liabilities                     5,855,000       7,174,000 

LONG-TERM DEBT:
  Long-term debt, less current maturities        11,816,000      10,067,000 
  Long-term debt - related parties, less 
   current maturities                               789,000       1,951,000 
                                               ------------    ------------ 

    Total Liabilities                            18,460,000      19,192,000 
                                               ------------    ------------ 

COMMITMENTS & CONTINGENCIES:

REDEEMABLE COMMON STOCK,
  $.001 par value, 363,636 shares issued 
   and outstanding                                1,500,000       1,500,000 

STOCKHOLDERS' EQUITY:
  Preferred stock, no par value, 10,000,000
   shares authorized 
  Series C, convertible, 10,000, and 0 
   shares issued and outstanding                    907,000               - 
  Common Stock ($.001 par value), 50,000,000
   shares authorized, 13,450,793 and 
   13,430,793 shares issued and outstanding          13,000          13,000 
  Additional paid-in capital                     25,550,000      25,547,000 
  Accumulated deficit                           (11,752,000)    (11,397,000)
                                               ------------    ------------ 

    Total Stockholders' Equity                   14,718,000      14,163,000 
                                               ------------    ------------ 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $ 34,678,000    $ 34,855,000 
                                               ------------    ------------ 
                                               ------------    ------------ 


      SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

                                      2 
<PAGE>

                   RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                               Three Months Ended:
                                                   December 31,
                                                1996          1995
                                            -----------    ----------
                                            (Unaudited)    (Unaudited)

Revenues:

  Sales                                     $10,216,000    $3,458,000
  Brokerage                                     545,000           -
  Other Income                                    8,000           -
                                            -----------    ----------
    Total revenues                           10,769,000     3,458,000
                                            -----------    ----------

Cost and Expenses:

  Cost of Sales                               8,928,000     3,053,000
  Cost of brokerage                             524,000           -
  Cost of Sales - related party                     -         362,000
  Personnel                                     651,000       431,000
  Professional services                          50,000       143,000
  Travel                                         28,000        17,000
  Occupancy                                      62,000        14,000
  Depreciation and amortization                 227,000        31,000
  Interest                                      459,000        96,000
  Other general and administrative              195,000       120,000
                                            -----------    ----------
    Total Costs and Expenses                 11,124,000     4,267,000
                                            -----------    ----------

Loss before Income Taxes                       (355,000)     (809,000)

Income taxes (benefit)                              -        (441,000)
                                            -----------    ----------
Net Loss                                    $  (355,000)   $ (368,000)
                                            -----------    ----------
                                            -----------    ----------

Net Loss per share                          $     (0.03)   $    (0.04)
                                            -----------    ----------
                                            -----------    ----------

Weighted average shares outstanding          13,892,084     8,460,733
                                            -----------    ----------
                                            -----------    ----------

     SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                     3

<PAGE>

               RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
             CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
         FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)

<TABLE>
                                                                                 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, 1996            -     $     -     13,430,793   $13,000   $25,547,000   $(11,397,000)  $14,163,000
Preferred stock Series C issued    
 for cash net of offerings costs
 of $93,000 (Unaudited)            10,000     907,000              -         -             -              -       907,000

Common stock issued on exercise
 of Series I warrants (Unaudited)       -           -         20,000         -         3,000              -         3,000

Net loss for the period (Unaudited)     -           -              -         -             -       (355,000)     (355,000)
                                   ------   ---------    -----------   -------   -----------   ------------   -----------
Balances, December 31, 1996
  (Unaudited)                      10,000   $ 907,000     13,450,793   $13,000   $25,550,000   $(11,752,000)  $14,718,000
                                   ------   ---------    -----------   -------   -----------   ------------   -----------
                                   ------   ---------    -----------   -------   -----------   ------------   -----------
</TABLE>


                                     4

<PAGE>

                  RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    For the Three Months Ended:
                                                    ---------------------------
                                                     December 31,  December 31,
                                                        1996          1995
                                                    ------------   ------------
                                                     (Unaudited)    (Unaudited)
OPERATING ACTIVITIES:
  Net Loss                                           $  (355,000)   $ (368,000)
  Adjustments to reconcile net loss to net 
   cash provided by (used in) operating activities:
    Depreciation and amortization                        532,000       173,000
    Deferred income taxes                                    -        (441,000)
  Changes in Assets and Liabilities
    Trade accounts receivable                            326,000        16,000
    Inventories                                          424,000      (112,000)
    Prepaid expenses                                       8,000           -
    Other current assets                                 120,000       (16,000)
    Accounts payable                                    (720,000)       72,000
    Accrued liabilities                                 (122,000)       (3,000)
    Income taxes payable                                 (27,000)          -
                                                     -----------    ----------
      Net Cash Provided (Used) by Operating
       Activities                                        186,000      (679,000)
                                                     -----------    ----------
INVESTING ACTIVITIES:
  Additions to equipment                                (261,000)      (50,000)
  Receivable - related party                             (35,000)      161,000
  Additions to acquisition costs and goodwill           (134,000)            -
  Payments for purchases of subsidiaries,
   net of cash acquired                                      -        (300,000)
  Other Assets                                           (99,000)     (170,000)
  Advances to related parties                                -             -
                                                     -----------    ----------
    Net Cash (Used) in Investing Activities             (529,000)     (359,000)
                                                     -----------    ----------
FINANCING ACTIVITIES:
  Principal payments on borrowings - related parties  (1,787,000)      (30,000)
  Proceeds from borrowings                             2,358,000     1,019,000
  Principal payments on borrowings                      (565,000)      (27,000)
  Principal payments on capital lease                    (83,000)      (61,000)
  Payments on line-of-credit, net                        (76,000)          -
  Loan fees paid                                        (103,000)          -
  Proceeds from factor, net                                  -         130,000
  Deferred offering costs                                    -        (110,000)
  Proceeds from issuance of stock                      1,003,000           -
  Costs of stock offerings                               (93,000)          -
                                                     -----------    ----------
    Net Cash Provided by Financing Activities            654,000       921,000
                                                     -----------    ----------
    Increase (decrease) in Cash                          311,000      (117,000)

    CASH, beginning of period                          1,450,000       184,000
                                                     -----------    ----------
    CASH, end of period                              $ 1,761,000    $   67,000
                                                     -----------    ----------
                                                     -----------    ----------



          SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                     5

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


        GENERAL INFORMATION:

I.    The Financial Statements included herein have been prepared by the Company
      without audit except the September 30, 1996 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 statements do not include all
      information required by Generally Accepted Accounting Principles to be
      included in a full set of Financial Statements. 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, 1996.

II.   Inventories as of December 31, 1996 and September 30, 1996, consisted of 
      the following:

                                             DECEMBER 31,     SEPTEMBER 30, 
                                                 1996             1996      
                                             ------------     ------------- 
                                             (UNAUDITED)

              Raw materials                  $ 1,460,000       $ 1,302,000 
              Finished goods                     589,000         1,171,000 
                                             -----------       ----------- 
                 Total                       $ 2,049,000       $ 2,473,000 
                                             -----------       ----------- 
                                             -----------       ----------- 

III. Property, plant and equipment as of December 31, 1996, and September 30,
     1996, consisted of the following:                                       

                                             DECEMBER 31,     SEPTEMBER 30, 
                                                 1996             1996      
                                             ------------     ------------- 
                                             (UNAUDITED)
              Land                           $ 2,692,000       $ 2,692,000 
              Building and improvements        2,779,000         2,768,000 
              Heavy machinery and equipment    5,595,000         5,245,000 
              Automotive shredders             7,655,000         7,645,000 
              Transportation equipment         1,743,000         1,728,000 
              Office equipment                   273,000           121,000 
              Assets under capital lease       1,931,000         1,918,000 
                                             -----------       ----------- 
                 Total                        22,668,000        22,117,000 
              Less accumulated depreciation
               and amortization                2,017,000         1,625,000 
                                             -----------       ----------- 
                 Total                       $20,651,000       $20,492,000 
                                             -----------       ----------- 
                                             -----------       ----------- 
                                      6 
<PAGE>
IV.   Other assets consist of the following at:

                                                 DECEMBER 31,     SEPTEMBER 30, 
                                                     1996             1996      
                                                 ------------     ------------- 
                                                 (UNAUDITED)
      Acquisition costs                           $  195,000        $   38,000
      Goodwill, net of accumulated
        amortization of $184,000 and 
        $141,000                                   2,949,000         3,016,000 
      Noncompete agreements, net of 
        accumulated amortization of 
        $202,000 and $147,000                      1,048,000         1,103,000 
      Engineering plans, net of 
        accumulated amortization of 
        $977,000 and $962,000                        110,000           125,000 
      Patent rights                                   27,000            27,000 
      Land contract                                   70,000            70,000 
      Loan fees, net of accumulated amortization
        of $75,000 and $48,000                       457,000           381,000 
      Other                                          132,000            32,000 
                                                  ----------        ---------- 
                                                  $4,988,000        $4,792,000 
                                                  ----------        ---------- 
                                                  ----------        ---------- 

V.    Net operating loss carry-overs available for the future through the year
      2011 are approximately $9.8 million.

VI.   Supplemental information to the statement of cash flow for non-cash 
      investing and financing activities:

                                                     THREE MONTHS ENDED:    
                                                        DECEMBER 31,        
                                                 -------------------------- 
                                                    1996            1995    
                                                 -----------    ----------- 
                                                 (UNAUDITED)    (UNAUDITED) 
      Cash paid for interest                      $484,000      $   96,000 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Cash paid for income taxes                  $ 27,000      $        - 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Acquisition of subsidiaries
        for stock                                 $      -      $  925,000 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Purchase of equipment for
        notes payable                             $277,000      $        - 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Acquisition of equipment
        under capital lease                       $ 13,000      $        - 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Acquisition of Anglo land and 
        building for note payable                 $      -      $  446,000 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Acquisition of Anglo inventory 
        for notes payable                         $      -      $1,354,000 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Capital lease obligation incurred 
        to finance Anglo acquisition              $      -      $1,800,000 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Note payable issued for Anglo 
        non-compete agreement                     $      -      $  750,000 
                                                  --------      ---------- 
                                                  --------      ---------- 
      Acquisition of Anglo goodwill for 
        note payable                              $      -      $  479,000 
                                                  --------      ---------- 
                                                  --------      ---------- 
                                      7 
<PAGE>

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

     The following discussion should be read in conjunction with the 
Company's Consolidated Financial Statements and the notes thereto included 
elsewhere herein. Statements included on the following discussion concerning 
predictions of economic performance and management's plans and objectives are 
forward looking statements. These statements involve risks and uncertainties 
that could cause actual results to differ materially from the forward looking 
statements. Factors which would cause or contribute to such differences 
include but are not limited to factors detailed in the Company's Registration 
Statement on Form S-1 on file with the Commission, Commission File No. 
333-20289; particularly the "Risk Factors" section; downturns in the 
Company's primary markets; disruptions to the Company's operations from acts 
of God or extended maintenance; disruptions in the availability or pricing of 
raw materials; transportation difficulties; and the unavailability of 
financing to complete management's plans and objectives.

OVERVIEW

     The Company is a full-service metals recycler primarily engaged in the 
collection and processing of various ferrous and non-ferrous metals for resale
to domestic and foreign steel producers and other metal producers and 
processors. Prior to May 1994, the Company was a development stage enterprise
engaged in the development of the MSW Technology. Although the Company has not
obtained a permit or constructed a facility utilizing the MSW Technology, the
Company is pursuing the licensing or sale of this technology to third parties. 

     The Company's current operations commenced in May 1994 with the 
acquisition of Nevada Recycling, Inc., located in Las Vegas, Nevada ("NRI"). 
Since that time, the Company has experienced significant growth from the 
acquisition of other metals recycling facilities. On June 30, 1995, the 
Company acquired a 20% interest in a metals recycling facility located in 
Georgia. On December 11, 1995, the Company acquired Anglo Iron & Metal 
located in Brownsville, Harlingen, McAllen and San Juan, Texas ("Anglo"), on 
April 15, 1996, the Company acquired Mid-America Shredding, located in Ste. 
Genevieve, Missouri ("Mid-America"), and, on August 5, 1996, the Company 
acquired Weissman Iron & Metal, located in Waterloo, Iowa, ("Weissman"). 
These acquisitions, except for the minority interest in the Georgia facility, 
are accounted for under the purchase method for business combinations and, 
accordingly, the results of operations for such acquired businesses are 
included in the Company's financial statements only from the applicable date 
of acquisition. As a result, the Company's historical results of operations 
for the periods presented are not directly comparable. 

     The Company believes these acquisitions will have a positive impact on 
its future results of operations.  Additionally, the historical results of 
operations do not fully reflect the operating efficiencies and improvements 
that are expected to be achieved by integrating the acquired businesses into 
the Company's operations.  Although, the Company has begun to implement these 
efficiencies and improvements, there can be no guarantee that they will 
produce the anticipated results. The Company's business is dependent upon the 
market established prices for processed ferrous and non-ferrous metals sold 
by the Company as well as the market established prices for raw materials. If 
these market prices drop significantly for processed metals or if the market 
prices for raw materials significantly increase, the Company would have 
difficulties continuing to improve future financial performance. 
Additionally, the identified improvements may not attain the estimated levels 
of efficiency projected by the Company.

RESULTS OF OPERATIONS

     The Company's operating results 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. The Company seeks to maintain its operating margins by adjusting the
purchase price for raw ferrous and non-ferrous scrap in response to such
fluctuations, subject to local market conditions. Although the Company is
unable to hedge against changes in market prices, it seeks to minimize this
risk by maintaining low inventory levels of raw and processed scrap.

                                      8 
<PAGE>

THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995

     The results of operations for the three months ended December 31, 1996 and
1995 have been driven primarily by the Company's acquisition activity.  The
results of operations for the three months ended December 31, 1995 do not
reflect the company's acquisition of Mid-America Shredding and Weissman Iron &
Metal, and include only 20 days of operations for Anglo Iron & Metal.

     REVENUES.  For the three months ended December 31, 1996, the Company had 
total revenues of $10,769,000 compared to $3,458,000 for the three months 
ended December 31, 1995, a 211% increase.  The increase in revenues for the 
three months ended December 31, 1996 reflect primarily the acquisitions of 
Mid-America Shredding and Weissman, and a full three months of business 
activity for Anglo Iron & Metal.  

     For the three months ended December 31, 1996, the average sales price per
ton of prepared ferrous scrap was $122, a 2% increase compared to $120 per ton
for the three months ended December 31, 1995.  The average sales price for non-
ferrous scrap was $.31 per pound for the three months ended December 31, 1996,
representing a 40% decline compared to $.52 per pound for the three months ended
December 31, 1995.

      Of the total revenues for the three months ended December 31, 1996, 
$545,000 or 5%, was attributable to brokerage sales and $8,000 or less than 
1%, was attributable to other income.

     COST OF SALES.  For the three months ended December 31, 1996, the 
Company incurred total cost of sales of $9,452,000 compared to $3,415,000 for 
the three months ended December 31, 1995.  The increased cost of sales for 
the three months ended December 31, 1996 was again primarily the result of 
the acquisition of Anglo Iron & Metal, Mid-America Shredding and Weissman. 
Total cost of sales decreased to 88% of total revenues for the three months 
ended December 31, 1996 from 99% of total revenues for the three months ended 
December 31, 1995. This decrease in cost of sales as a percentage of total 
revenues was largely due to improved margins at the company's acquired 
subsidiaries and the initial implementation of improved operating expense 
controls.  These factors caused gross profit to increase to $1,317,000 for 
the three months ended December 31, 1996 from $43,000 for the three months 
ended December 31, 1995. 

     Of the total cost of sales for the three months ended December 31, 1996, 
$524,000 or 6%, was attributable to brokerage cost of sales.

     SELLING AND ADMINISTRATIVE EXPENSES.  Selling and administrative 
expenses were $1,213,000, or 11% of revenues, for the three months ended 
December 31, 1996, compared to $756,000, or 22% of revenues, for the three 
months ended December 31, 1995. The largest components of the dollar increase 
for the three months ended December 31, 1996 as compared to 1995 were salary 
and related expenses, which increased $220,000 and depreciation and 
amortization expenses which increased $196,000. These increases were largely the
result of the Company's acquisitions of Anglo Iron & Metal, Mid-America 
Shredding and Weissman. However, the decrease as a percentage-of-sales was 
due to increased efficiencies at the Company's newly acquired subsidiaries 
and the ability of the Company to spread its corporate overhead over a larger 
revenue base.

     INTEREST EXPENSE.  For the three months ended December 31, 1996, the 
Company incurred interest expense of $459,000 compared to $96,000 for the three
months ended December 31, 1995.  The increase was due primarily to additional
debt incurred to finance the purchase of Anglo Iron & Metal in December 1995, 
Mid-America Shredding in April 1996 and Weissman in August 1996.

     INCOME TAX PROVISION (BENEFIT).  The Company has generated a net loss
carryforward totaling approximately $9,800,000, which expires at various amounts
and dates 

                                      9 
<PAGE>

through the year 2011, due to operating losses previously incurred. During 
fiscal 1995, management determined that $800,000 of the net operating loss 
carryforward was more likely than not to be used in the near future due to 
taxable income anticipated to be generated by the Company.  In October 1996 
management began to implement certain cost cutting strategies, the most 
significant of which is the planned reduction of its labor force and related 
payroll costs which is expected to provide an approximate $1.2 to $1.6 
million reduction in labor costs and, as a result, improve the profitability 
of these operations.  In August 1996, the Company acquired Weissman which is 
anticipated to generate taxable income in future periods. As a result of 
these factors, which are anticipated to result in the generation of net 
income, management has determined that the $800,000 deferred tax asset 
recognized in 1995 and in 1996 is more likely than not to be used in the near 
future.  The aggregate future taxable income required to utilize the deferred 
tax asset recognized is approximately $2,400,000.  As a result of a full year 
of income from the Weissman acquisition and the reduction of labor costs, 
management is projecting achievement of this taxable income level within the 
next two fiscal years. Although the Company has begun to implement 
improvement programs, the identified cost cutting measures may not attain the 
estimated levels of efficiency projected by the Company. The Company may be 
required to add employees in the future to support increases in production 
above the projected future monthly production rates. Additionally, the 
Company's business is dependent upon the market established prices for 
processed ferrous and non-ferrous metals sold by the Company as well as the 
market established prices for raw materials. If these market prices drop 
significantly for processed metals or if the market prices for raw materials 
significantly increase, the Company would have difficulties continuing to 
improve future financial performance.  Therefore, the Company continues to 
recognize a net deferred tax asset of $800,000.  No benefit for income taxes 
was recorded for the three months ended December 31, 1996.  A benefit for 
income taxes in the amount of $441,000 was recorded for the three months 
ended December 31, 1995.

     INCOME (LOSS) FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES.  For the 
three months ended December 31, 1996, the Company had a loss from continuing 
operations, before income taxes, of $355,000, or ($.03) per share, compared 
to a loss of $809,000, or ($.10) per share for the three months ended 
December 31, 1995.  The principal reasons for the improvement were increased 
revenues and lower cost of sales.


     NET INCOME (LOSS).  For the three months ended December 31, 1996, the 
Company had a net loss of $355,000, or ($.03) per share, compared to a net 
loss of $368,000, or ($.04) per share, for the three months ended December 
31, 1995.

LIQUIDITY AND CAPITAL RESOURCES

     As the Company's business has grown, overall cash requirements for 
internal growth and acquisitions have been met through a combination of a 
public offering of the Company's Common Stock in July 1996, private 
placements of debt and equity securities, equipment, receivables and 
inventory financing, and cash flow from operations.  Since commencement of 
its metals recycling operations in May 1994 through December 1996, the 
Company has raised net cash proceeds of $20.1 million through the sale of its 
equity securities. At December 31, 1996, the Company had $18.5 million of 
liabilities and $15.9 million of current and long-term debt outstanding, of 
which $3.3 million is due in the next 12 months.

     On May 11, 1994, the Company acquired its Nevada facility by purchasing 
all of the outstanding common stock of Nevada Recycling, Inc.  As restructured,
the purchase price for the Nevada facility consisted of debt of $5.0 million and
the issuance of 13,000 shares of the Company's Series A Convertible Preferred 

                                      10 
<PAGE>

Stock valued at $1.3 million.  In addition, the Company issued to the sellers a 
warrant to acquire up to 20,000 shares of Common Stock at an exercise price of 
$1.25 per share.

     On June 30, 1995, the Company acquired a 20% interest in a Georgia 
metals recycling facility through its investment in The Loef Company 
("Loef").  This investment had been valued at $277,000, the amount of costs 
incurred by the Company in pursuing its acquisition of Loef.  The Company's 
ownership interest in Loef was to have been reduced to 15% if the Company did 
not invest an additional $200,000 in Loef by June 30, 1996.  The Company did 
not make this payment and, pending the receipt of information regarding the 
current operations and financial performance of Loef, the Company has taken 
the position that its interest was not reduced to 15% on June 30, 1996.  On 
December 3, 1996 Loef declared Chapter 11 bankruptcy to reorganize the 
business.  The Company subsequently decided to write off the $277,000 
investment in Loef as of September 30, 1996.

     On December 11, 1995, the Company acquired its southern Texas facilities 
by acquiring substantially all of the assets of Anglo Metals, Inc., d/b/a 
Anglo Iron & Metal, for $6.1 million.  The purchase price was paid as 
follows:  (i) $2.1 million in cash; (ii) $1.9 million note which is to be 
paid in monthly installments of $181,000 beginning in February 1996; (iii) a 
$446,000 secured promissory note bearing interest at 8% and payable in 60 
monthly installments of $9,000; (iv) a $750,000 unsecured promissory note and 
non-compete agreement payable in 72 consecutive installments of $10,400; and 
(v) 227,693 shares of Common Stock, valued at $925,000.

     On April 15, 1996, the Company acquired its Missouri facility by 
acquiring substantially all of the assets of Mid-America Shredding, Inc., 
d/b/a Mid-America Shredding, for $1.9 million.  The purchase consideration 
consisted of cash of $708,000 and assumed outstanding bank debt of 
$1.2 million.

     On June 20, 1996, the Company secured $4.0 million in inventory and 
receivables financing from Coast Business Credit, an asset-based lender 
specializing in inventory and receivables financing.  In connection with the 
Weissman acquisition, the credit facility was increased to $10.0 million on 
August 15, 1996, and on September 30, 1996 was increased to $12.5 million.

     On July 17, 1996, the Company completed the Public Offering of its 
Common Stock, receiving net proceeds, after deducting underwriting discounts 
and offering expenses of, $14.0 million.  These proceeds were used as follows: 
$5.2 million to pay a portion of the cash purchase price for Weissman on 
August 5, 1996; $5.5 million to repurchase 1,380,585 shares of Common Stock; 
$2.4 million to redeem all of the Company's outstanding Series A Convertible 
Preferred Stock and repurchase 120,000 shares of Common Stock on August 15, 
1996.  The remaining proceeds of approximately $900,000 were used for general 
corporate purposes.

     On August 5, 1996, the Company acquired Weissman for a total purchase 
price of $12.0 million.  The purchase price was paid as follows: (i) 363,636 
shares of Common Stock valued at $1.5 million; (ii) $5.2 million from the 
proceeds of the Public Offering and the Company's operating cash; (iii) a 
$3.5 million term loan bearing interest at prime plus 2.25%, payable in 60 
monthly installments of $58,333 and; (iv) approximately $1.8 million of 
revolving credit borrowings. Under the terms of a Share Price Guaranty 
Agreement ("the Agreement") the Company has agreed to guaranty the $1.5 
million value of 

                                      11 
<PAGE>

363,636 shares ("the Guaranteed Shares").  The Agreement grants the seller 
and its assign, Weissman Financial, (Collectively "Weissman Financial") 
registration rights effective for three years.  If at any time during the 
three year period commencing on the effective date of the registration 
statement, Weissman Financial sells the 363,636 shares of common stock at 
less than the guaranteed amount, the Company is required to pay to the seller 
any shortfall in cash. In addition, Weissman Financial has the right in its 
sole discretion to require the Company, at any time during the two year 
period commencing November 30, 1997, to repurchase the Guaranteed Shares for 
$1.5 million.  As a result of this Agreement to purchase the Guaranteed 
Shares upon the Weissman Financial's request, the $1.5 million value of the 
Guaranteed Shares has not been recorded as equity.

     On August 15, 1996, the Company redeemed all of its outstanding Series A 
Convertible Preferred Stock and repurchased 120,000 shares of Common Stock 
for $2.4 million. This transaction was funded through the proceeds of the 
Public Offering.

     On September 30, 1996, the Company paid the balance of the principal 
plus accrued interest on its bridge indebtedness of $485,000.

     During the quarter ended December 31, 1996, the Company completed a 
private placement of $1.0 million of Series C Preferred Stock.  Net proceeds 
to the Company were $907,000.

     For the three months ended December 31, 1996, net cash provided by 
operations was $186,000. During this period, the Company generated a net loss 
of $355,000, which included depreciation and amortization of $532,000.  
Decreases in accounts receivable, inventory, prepaid expenses and other 
current assets amounted to $878,000, offset by a decrease in accounts 
payable, income taxes payable, and accrued expenses of $869,000.

     For the three months ended December 31, 1996, the Company used net cash 
in investing activities of $529,000 compared to $359,000 for the three months 
ended December 31, 1995.  Such amounts primarily related to capital equipment 
additions, acquisition costs, and goodwill.

     The Company had a positive net worth of approximately $14.7 million at 
December 31, 1996, compared to $7.0 million at December 31, 1995.  This 
improvement in net worth after results of operations is primarily due to 
issuance of $8.6 million (net of redemptions of $8.1 million) of Common Stock 
during the year ended September 30, 1996, the conversion of $1.1 million of 
bridge loan debt to equity, and the Series C Preferred Stock transaction.

     Working capital at December 31, 1996 was $2.4 million as compared to a 
deficit of $1.9 million at December 31, 1995.  The increase in working 
capital is due primarily to the increase in accounts receivable and inventory 
of the Missouri and Iowa facilities, the public offering, and the Series C 
Preferred Stock transaction.

                                      12 
<PAGE>

     The planned capital expenditures over the next 12 months for the 
Company's existing facilities are estimated to be $800,000.  Included in this 
amount are capital improvements for the Company's shredders and materials 
handling equipment designed to increase capacity and improve operating 
efficiencies.

     The Company believes that the cash flow from operations and availability 
under various credit facilities will be sufficient to meet its currently 
anticipated working capital and capital expenditure needs for existing 
operations for at least 12 to 24 months.  The Company may, however, need to 
raise additional capital to fund the acquisition and integration of additional 
metals recycling businesses which is an integral component of the Company's 
strategy.  The Company may raise such funds through warrant exercises, bank 
financings or public or private offerings of its securities.  There can be no 
assurance that the Company will be able to secure such additional financing. 
If the Company is not successful in securing such financing, the Company's 
ability to pursue its acquisition strategy may be impaired and the results of 
operations for future periods may be adversely affected.























                                      13
<PAGE>

                        PART II - OTHER INFORMATION

ITEM 1.  LEGAL  PROCEEDINGS

         The Company is not currently a party to any material litigation and 
is not aware of any threatened litigation that could have a material adverse 
effect on the Company's business, operating results or financial condition.

ITEM 2.  CHANGES IN SECURITIES

   On December 31, 1996, the Company completed a private placement of 10,000 
shares of Series C Convertible Preferred Stock (the "Series C Preferred") for 
total consideration of $1,000,000. Each Series C Preferred is convertible, 
without further payment, into the number of shares of Common Stock determined 
by dividing (i) the sum of (a) $100 plus (b) the amount of all accrued 
dividends on the Series C Preferred by (ii) the lesser of $1.58125 or 73% of 
the average reported closing bid price of a share of Common Stock for the 
five consecutive trading days immediately preceding the date of conversion. 
The proceeds from this private placement were used for general working 
capital purposes. The Company issued to the placement agent of the Series C 
Preferred, Settondown Capital International, Ltd., 20,000 Settondown 
Warrants, each entitling the holder to acquire one share of common stock 
for $2.50.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

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

         None

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBIT 
          NUMBER    DESCRIPTION 
         -------    ----------- 
            3.1     Amended and Restated Articles of Incorporation, incorporated
                    by reference to Exhibit 3.1 to the Company's Registration 
                    Statement of Form S-1, filed May 3, 1996, as amended, 
                    Commission File No. 333-4574.

            3.1(a)  Articles of Amendment to the amended and restated 
                    articles of incorporation, incorporated by reference to 
                    the Company's Registration Statement on Form S-1, filed 
                    January 23, 1997, Commission File No. 333-20289.

            3.2     Amended and Restated Bylaws, incorporated by reference to 
                    Exhibit 3.2 to the Company's Registration Statement on 
                    Form S-1, filed May 3, 1996, as amended, Commission File 
                    No. 333-4574.


                                      14 
<PAGE>


(b)     STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (Exhibit 11)

(c)     FINANCIAL DATA SCHEDULE (Exhibit 27)
















                                      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.

Date:    2/19/97                       By:      /s/  THOMAS J. WIENS           
     -----------------                    ------------------------------------ 
                                          Thomas J. Wiens, Chairman & Chief    
                                            Executive Officer                  



Date:    2/19/97                       By:      /s/  BRIAN L. KLEMSZ           
     -----------------                    ------------------------------------ 
                                          Brian L. Klemsz, Principal 
                                            Financial Officer












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