UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

For the fiscal year ended December 31, 2004

or

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

For the transition period from                                          to                                         

Commission file number: 001-32453

Metalico, Inc.

Securities registered under Section 12(b) of the Exchange Act:

Securities registered under Section 12(g) of the Exchange Act:
Common stock, $.001 par value per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES o NO þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES o NO þ

The aggregate market value of voting stock held by non-affiliates of the registrant is not determinable as of June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter as such shares were privately placed and there was no public market for such shares.

Number of shares of Common stock, par value $.001, outstanding as of March 30, 2005: 7,963,543

METALICO, INC.
FOR THE YEAR ENDED DECEMBER 31, 2004
TABLE OF CONTENTS

     This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance, and are identified by words such as “may,” “will,” “should,” “expect,” “scheduled,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “potential,” or “continue” or the negative of such terms or other similar words. You should read these statements carefully because they discuss our future expectations, and we believe that it is important to communicate these expectations to our investors. However, these statements are only anticipations. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the factors discussed under “Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statement.

     Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, we do not assume any responsibility for the accuracy and completeness of such statements in the future. Subject to applicable law, we do not plan to update any of the forward-looking statements after the date of this report to conform such statements to actual results.

PART I

Item 1. Business

     Metalico, Inc. (referred to in this 10-K Report as “the Company,” “Metalico,” “we,” “us,” “our,” and similar terms) operates in twelve locations through eight operating subsidiaries in two distinct business segments: (a) ferrous and non-ferrous scrap metal recycling (“Scrap Metal Recycling”), and (b) lead metal product manufacturing, fabricating, and smelting (“Lead Fabrication and Recycling”).

     Metalico, Inc. was originally organized as a Delaware corporation in 1997. In 1999 the original Metalico was merged into a Colorado corporation. Later that year, the surviving Colorado corporation was merged into a newly organized Delaware corporation named Metalico, Inc., which continues today as our holding company. Our common stock began trading on the American Stock Exchange on March 15, 2005 under the symbol “MEA.”

     We maintain a small corporate team that sets our strategic goals and overall strategy. We manage our operations on a decentralized basis, allowing each subsidiary autonomy for its purchasing and sales. The corporate team approves all acquisitions and operating budgets, allocates capital to the business units based upon expected returns and risk levels, establishes succession plans, ensures operations maintain a consistent level of quality, evaluates risk and holds management of the business units accountable for the performance of their business unit.

SUMMARY OF BUSINESS

Ferrous and Non-Ferrous Scrap Metal Recycling

     The Company has concentrated on acquiring and successfully consolidating scrap operations in Western New York State by initially acquiring companies to serve as platforms into which subsequent acquisitions would be integrated. We believe that through the integration of our acquired

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businesses, we have enhanced our competitive position and profitability of the operations because of broader distribution channels, elimination of redundant functions, greater utilization of operating assets, and improved managerial and financial resources.

     We are one of the largest full-service metals recyclers in Western New York, with five recycling facilities located in that regional market. Our operations primarily involve the collection and processing of ferrous and non-ferrous metals. We collect industrial and obsolete scrap metal, process it into reusable forms and supply the recycled metals to our ultimate consumers, including electric arc furnace mills, integrated steel mills, foundries, secondary smelters, aluminum recyclers and metal brokers. We acquire unprocessed scrap metals primarily in our local and regional markets and sell to consumers nationally and in Canada as well as to exporters and international brokers. We are also able to supply quantities of scrap aluminum to our aluminum recycling facility described below. We believe that we provide comprehensive product offerings of both ferrous and non-ferrous scrap metals.

     Our platform facilities in Rochester and greater Buffalo are well located to highway access and are served by rail. In addition to buying, processing and selling ferrous and non-ferrous scrap metals, we manufacture de-oxidizing aluminum (“de-ox”), a form of refined aluminum, for the steel industry at our Lackawanna, New York aluminum recycling facility. De-ox is used by the steel industry during the steel-making process to remove oxygen from molten steel. The Lackawanna facility also produces other grades of refined aluminum used in aluminum casting applications.

     Our metal recycling business has collection and processing facilities in the following locations:

     Ferrous Scrap Industry. Our ferrous (iron-based) products primarily include sheared and bundled scrap metal and other scrap metal, such as turnings and busheling, cast and broken cast iron. We and others in our industry anticipate that the demand for recycled ferrous metals will increase due to the continuing transformation of the world’s steel producers from virgin iron ore-based blast furnaces to newer, technologically advanced electric arc furnace mini-mills. The electric arc furnace process, which uses primarily recycled metal compared with the traditional steel-making process that uses significantly less recycled metal, is more environmentally sound and energy efficient. By recycling steel, scarce natural resources are preserved and the need to disrupt the environment with the mining of virgin iron ore is reduced. Further, when recycled metal is used instead of iron ore for new steel production, air and water pollution generated by the production process decrease and energy demand is reduced. Currently, almost half of domestic steel and much of foreign-based steel is produced using scrap in the electric arc furnace process.

     Non-Ferrous Scrap Industry. We also sort, process and package non-ferrous metals, which include aluminum, copper, stainless steel, brass, nickel-based alloys and high-temperature alloys, using similar techniques and through application of our technologies. The geographic markets for non-ferrous scrap tend to be larger than those for ferrous scrap due to the higher unit selling prices of

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non-ferrous metals, which justify the cost of shipping over greater distances. Non-ferrous scrap is sold under multi-load commitments or on a single-load spot basis, either mill-direct or through brokers, to intermediate or end-users which include smelters, foundries and aluminum sheet and ingot manufacturers. Secondary smelters, utilizing processed non-ferrous scrap as raw material, can produce non-ferrous metals at a lower cost than primary smelters producing such metals from ore. This is due to the significant savings in energy consumption, environmental compliance, and labor costs enjoyed by the secondary smelters. These cost advantages, and the long lead-time necessary to construct new non-ferrous primary smelting facilities, have generally resulted in sustained demand and strong prices for processed non-ferrous scrap during periods of high demand for finished non-ferrous metal products.

Lead Fabrication and Recycling

     Through six physical operations located in five states, we consume approximately 127 million pounds of lead metal per year that are utilized in more than one hundred different base products. Our products are sold nationally into diverse industries such as roofing, plumbing, radiation shielding, electronic solders, ammunition, automotive, national defense industry, and others.

     Our Lead Fabrication and Recycling segment has production facilities in the following locations:

	•	Tampa, Florida
	•	Birmingham, Alabama
	•	Granite City, Illinois
	•	Carson City, Nevada
	•	Healdsburg, California
	•	Ontario, California

     Our sales are concentrated within four main product lines: sheet lead, shot, strip lead, and bulk lead. Sheet lead is produced in various sizes, thicknesses, and alloys based upon customer requirements. Sheets are rolled to various thicknesses, cut to customer specifications and shipped to roof flashing manufacturers, fabricators of radiation shielding, sound attenuation and roofing contractors and other users. Shot is produced and sold nationwide primarily to the recreational re-load market under the Lawrence and West Coast Shot brands. We also sell shot to cartridge manufacturers and industrial consumers. Shot is produced in several lead alloys and sizes. Strip lead is produced in rolls of various widths and lengths. Strip lead is used primarily in the roofing industry. Bulk lead is typically sold in pig, ingot, plate and rectangular form. Extruded wire and bar are used in plumbing applications, stained glass production, the electronics industry and the radiation shielding industry. Extruded pipe is used in the plumbing and roofing industries. Extruded products are available in flats, rounds, stars, pipe, and custom designed configurations. Other lead products include lead wool, anodes and babbitt.

     We also operate a secondary lead smelter in Tampa, Florida. The lead smelter recycles junk batteries and other lead-bearing waste into highly refined lead and lead alloys according to customer specifications, primarily for re-use in the manufacturing of automotive batteries and wheel weights, roofing and plumbing parts, boat keels, shot and other lead products

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Business Strategies

     The Company’s core business strategy emphasizes continued growth of the ferrous and non-ferrous scrap metal recycling business through accretive acquisitions in existing and new markets, and maintaining and enhancing its status as an efficient and competitive producer of recycled metal and de-ox aluminum products, through investments in state-of-the-art manufacturing equipment and increased production efficiencies. Ferrous and non-ferrous scrap metal recycling represents approximately 82% and 73% of our operating income for the years ended December 31, 2004 and 2003, respectively, before corporate expenses, eliminations, impairment and other nonrecurring charges. Our ferrous and non-ferrous scrap metal recycling operations are the leading processors in their local markets. We intend to continue focusing on increasing our position as the premier recycled metals processor in our existing regional markets and vigorously exploring growth opportunities in contiguous and new geographic markets.

     Our Lead Fabrication and Recycling business generates reliable cash flows and does not require significant capital expenditures except in connection with the lead smelting facility in Tampa, Florida. We anticipate cost cutting and improved cash flows through integration of Mayco Industries L.L.C., (now known as Mayco Industries, Inc.), the Birmingham, Alabama based lead product fabricator and manufacturer that we completed acquiring on September 30, 2004. (Previously we had owned 50% of Mayco through a joint venture.) We do not currently intend to acquire additional smelting facilities and under certain conditions, we would consider divestiture of our facility. However, we will vigorously explore strategic opportunities to increase our market share in lead fabrication.

     Expansion of Scrap Recycling. We will continue to seek expansion opportunities both within our Western New York metropolitan markets and elsewhere in the eastern United States. We will look to continue leveraging owned facilities through strategic tuck-ins. We are considering developing an auto-shredding capacity, either through a strategic joint venture or internal growth, in order to compete in that segment of the scrap recycling industry. In new markets, the Company will identify and attempt to acquire platform facilities that provide growth opportunities. We will continue to grow through sales and marketing and explore selective joint ventures with metals processors and suppliers.

     Complete Value-Creating Acquisitions. Our strategy is to target acquisition candidates we believe will earn after-tax income in excess of our cost of capital. With a strong balance sheet, improving cash flows and available debt and equity capital, we believe the Company is in an attractive position to make acquisitions of operations fitting our long-term strategic plans, if reasonable purchase prices can be attained.

     Invest in State-of-the-Art Processing and Manufacturing. Our goal is to be an efficient and competitive producer of both recycled metals and fabricated lead products in order to maximize the operating margins for both operations. To meet this objective, we emphasize the cost-effective purchasing and efficient processing of metals. We have made significant investments in state-of-the-art equipment to ensure that our operations have cost effective technology producing high quality products and maximizing economies of scale. We have also made significant investments in facility improvements designed to enhance productivity and protect the environment. We continue to invest in modern equipment to improve the operating capabilities of our businesses. Over the last three years, we have spent $7.5 million on capital improvements.

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     Capture Benefits of Integration. We have historically sought to capture the benefits of business integration whenever possible. Our aluminum melting and recovery facility located in Lackawanna, New York, outside of Buffalo, currently consumes many of the grades of aluminum scrap that the Buffalo and Rochester scrap yards process. This relationship allows these subsidiaries to take advantage of transportation efficiencies, to avoid some of the processing costs associated with preparing scrap for sale to third parties, to internalize pricing mark-ups, and to expand customer service. Intercompany transactions are executed at market rates so that no “selling” subsidiary is required to sacrifice more profitable “third-party” sales. We have installed a rotary furnace in our existing aluminum melting and recovery facility that should be operational by year end. The addition of this second furnace will expand the grades and volume of scrap processed by the facility and therefore improve the opportunities to realize benefits from expanded subsidiary interaction.

     The Company believes it enjoys a competitive advantage over non-vertically integrated lead fabrication and recycling companies as a result of its lead smelting and refining capabilities. Our secondary lead smelter has the capability to provide the lead fabrication and recycling facilities with a predictable, high quality supply of non-alloyed or alloyed lead for production of any of their lead-based products. The smelter also uses certain lead byproducts generated by the lead fabrication and recycling facilities as a raw material.

FERROUS AND NON-FERROUS SCRAP METAL RECYCLING

     Our recycling operations encompass buying, processing and selling scrap metals. The principal forms in which scrap metals are generated include industrial scrap and obsolete scrap. Industrial scrap results as a by-product generated from residual materials from metal product manufacturing processes. Obsolete scrap consists primarily of residual metals from old or obsolete consumer and industrial products such as doors and window frames, appliances, plumbing fixtures, automobiles and demolition of structures.

   Ferrous Operations

     Ferrous Scrap Purchasing. We purchase ferrous scrap from two primary sources: (i) manufacturers who generate steel and iron, known as prompt or industrial scrap; and (ii) scrap dealers, peddlers, auto wreckers, demolition firms, railroads and others who generate steel and iron scrap, known as obsolete scrap. We also collect ferrous scrap from sources other than those that are delivered directly to our processing facilities by placing retrieval boxes at these sources. In addition to these sources, we purchase, at auction or through competitive bidding, obsolete steel and iron from large industrial accounts. The primary factors that determine prices are market demand, competitive bidding, and the composition, quality, size, and quantity of the materials.

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

     Sorting. After purchasing ferrous scrap metal, we inspect the material to determine how it can most efficiently be processed to maximize profitability. In some instances, scrap may be sorted

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and sold without further processing. We separate scrap for further processing according to its size and metallurgical composition by using conveyor systems, front-end loaders, crane-mounted electromagnets or claw-like grapples.

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

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

     Briquetting. We process borings and turnings made of steel and iron into briquettes using cold briquetting methods, and sell these briquettes to steel mills or foundries. We possess the technology to control the metallurgical content of briquettes to meet customer specifications.

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

     Ferrous Scrap Sales. We sell processed ferrous scrap to end-users such as steel mini-mills, integrated steel makers and foundries, and brokers who aggregate materials for large consumers. Most of our consumers purchase processed ferrous scrap according to a negotiated spot sales contract that establishes the price and quantity purchased for the month. The price at which we sell our ferrous scrap depends upon market demand and competitive pricing, as well as quality and grade of the scrap. In many cases, our selling price also includes the cost of rail or truck transportation to the buyer. Ferrous scrap is shipped via truck and rail transportation. Ferrous scrap transported via truck is sold predominately to mills usually located in Pennsylvania, New York and metropolitan Toronto within eight hours of our recycling facilities. Ferrous scrap transported via rail can be shipped anywhere in the continental United States. Our recycling facilities ship primarily via rail to consumers in Pennsylvania, Ohio, Illinois, and Indiana. Ferrous scrap metal sales accounted for 28.7% of revenue for the year ended December 31, 2004. We believe our profitability may be enhanced by our offering a broad product line to a diversified group of scrap metal consumers. Our ferrous scrap sales are accomplished through a calendar month sales program managed regionally.

   Non-Ferrous Operations

     Non-Ferrous Scrap Purchasing. We purchase non-ferrous scrap from three primary sources: (i) manufacturers and other non-ferrous scrap sources who generate waste aluminum, copper, stainless steel, brass, nickel-based alloys, high-temperature alloys and other metals; (ii) producers of electricity, telecommunication service providers, aerospace, defense, and recycling companies that generate obsolete scrap consisting primarily of copper wire, titanium and high-temperature alloys

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and used aluminum beverage cans; and (iii) peddlers who deliver directly to our facilities material which they collect from a variety of sources. We also collect non-ferrous scrap from sources other than those that are delivered directly to our processing facilities by placing retrieval boxes at the sources. The boxes are subsequently transported to our processing facilities usually by company owned trucks.

     A number of factors can influence the continued availability of non-ferrous scrap such as the level of manufacturing activity and the quality of our supplier relationships. Consistent with industry practice, we have certain long-standing supply relationships which generally are not the subject of written agreements.

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

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

     Copper and Brass. Copper and brass scrap may be processed in several ways. We sort copper predominantly by hand according to grade, composition and size. We package copper and brass scrap by baling, boxing and other repacking methods to meet consumer specifications.

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

     The aluminum melting and recovery facility uses thermal technology in a sweat furnace to separate aluminum from scrap items such as gas meters, transmissions, engine blocks, window and door frames, kegs, and other aluminum scraps bearing iron content. When operational, the second furnace, a rotary furnace, will expand the quantity and variety of aluminum we can recycle to include turnings, road signs, cans, painted aluminum siding and other forms of aluminum scrap.

     Other Non-Ferrous Materials. We process other non-ferrous metals using similar cutting, baling and repacking techniques as used to process copper and brass. Other significant non-ferrous metals we process come from such sources as catalytic converters which contain precious metals, titanium, brass and high-temperature nickel-based alloys which are often hand sorted to

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achieve maximum value.

     Non-Ferrous Scrap Sales. We sell processed non-ferrous scrap to end-users such as specialty steelmakers, foundries, aluminum sheet and ingot manufacturers, copper refineries and smelters, and brass and bronze ingot manufacturers. Prices for non-ferrous scrap are driven by demand for finished non-ferrous metal goods and by the general level of national and international economic activity, with prices generally linked to quotations for primary metal on the London Metal Exchange or COMEX Division of the New York Mercantile Exchange. Suppliers and consumers of non-ferrous metals also use these exchanges to hedge against metal price fluctuations by buying or selling futures contracts. Most of our consumers purchase processed non-ferrous scrap according to a negotiated spot sales contract that establishes the price and quantity purchased for the month. Non-ferrous scrap is shipped predominately via third-party truck to consumers generally located east of the Mississippi River. Less than 5% of non-ferrous scrap sales are to foreign markets. Non-ferrous metal sales accounted for 35.8% of revenue for the year ended December 31, 2004. The Company does not use futures contracts to hedge prices for its products.

   Competition

     The markets for scrap metals are highly competitive, both in the purchase of raw scrap and the sale of processed scrap. We compete to purchase raw scrap with numerous independent recyclers and large public scrap processors as well as larger and smaller scrap companies engaged only in collecting industrial scrap. Many of these producers have substantially greater financial, marketing and other resources. Successful procurement of materials is determined primarily by the price and promptness of payment for the raw scrap and the proximity of the processing facility to the source of the unprocessed scrap. We compete in a global market with regard to the sale of processed scrap. Competition for sales of processed scrap is based primarily on the price, quantity and quality of the scrap metals, as well as the level of service provided in terms of consistency of quality, reliability and timing of delivery. Our competitive advantage derives from our ability to source and process substantial volumes, deliver a broad product line to consumers, transport the materials efficiently, and sell scrap in regional, national and international markets and to provide other value-added services to our customers.

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

LEAD FABRICATION AND RECYCLING

   Products

     We manufacture a wide variety of lead-based products through our sheet lead, shot, strip lead, and bulk lead product lines used primarily in radiation protection, roofing, plumbing and recreational applications:

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Manufacturing Process

     Lead Shot: Ingot or bulk lead is melted at the top levels of shot towers and poured into steel sizing pans. The molten lead drops several stories through the tower, forming a sphere and hardening while in air and ultimately landing in a water tank. After additional processing, lead shot that meets specifications is sorted by size, polished, weighed and packaged as finished product.

     Sheet Lead: Ingot or bulk lead is melted and alloying elements are added. After impurities are removed from the surface, the molten lead is then poured into heated molds to form various sized

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slabs. The slabs are rolled down into lead sheet, strip, anodes, rolls and plates of desired thickness and cut to size.

     Extruded Product: Lead ingots in alloyed form are melted and poured into a precast die. After additional processing, the prepared lead is compressed. The cool, hardened product is then cut to the desired length and its thickness is measured to ensure the product meets specifications.

   Suppliers

     We obtain refined lead through multi-month contracts and on a spot market basis. We have historically bought large quantities of lead when we determined that commodity pricing was favorable, kept very limited amounts of finished product in inventory and scheduled production to fill orders. Principal sources of refined lead are domestic secondary lead smelters, imported primary lead marketed by brokers and, to a lesser extent, domestic primary lead smelters. We also generate refined lead by purchasing an extensive variety of scrap lead and refining it in our processing facilities. Changing lead markets may impact the Company’s ability to secure the volume of raw materials needed at pricing considered sustainable before driving consumers to consider substitute products.

   Sales, Markets and Customers Served

     We sell our lead fabrications nationally. Products are sold to distributors, wholesalers, and the plumbing and building trades and other consumers. We have stable, long-standing relationships with many of our customers in the Midwest and Northeast and throughout the western U.S. We sell substantial volumes of lead products used in home construction, such as lead flashings and sheet, in many parts of the nation.

     Our sales and marketing department consists of twelve internal salespeople who, in addition to sourcing leads for new business, function in a customer service role, working with existing customers. We also use independent sales representatives and product marketing organizations throughout the country.

   Competition

     Our lead fabrication and recycling facilities compete against one fabricator of similar products who distributes nationally, certain products of another fabricator based in the Southwest, and several smaller regional producers of similar products. To a lesser extent, we also compete against products imported from South America, Canada, Europe and Asia.

   Secondary Smelter and Refiner: Gulf Coast Recycling, Inc.

     In addition to providing product for resale to commodity metal users and fabricators, we seek to reduce raw material availability risk and reduce commodity price risk by owning and operating Gulf Coast Recycling, Inc. (“Gulf Coast”), a secondary lead smelter and refiner, as a source of supply to our fabricating operations. Gulf Coast recycles junk lead plate batteries into highly refined lead and lead alloys according to customer specifications, primarily for re-use in the manufacture of batteries, wheel weights, roofing and plumbing parts, boat keels, radiation protection products and other lead

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products. Gulf Coast regularly sells a portion of its production supply to our fabricators.

     As a result of strict environmental regulations, lead acid batteries are required to be recycled instead of disposed of in landfills or incinerated. A lead secondary smelting plant uses reclaimed lead battery plates, coke, limestone and cast iron to produce lead. Historically, other by-products of the refining process were discarded often haphazardly, leading to various environmental issues faced by all battery recyclers. The combination of increased environmental awareness, more refined recycling processes and better recycling technology have lead to the development of healthy secondary markets for many of the other by-products of battery recycling. A list of lead battery components and current end uses is shown below:

     The price of recycled lead is closely correlated to primary lead prices as quoted on the London Metal Exchange, with an active market for both primary and recycled product. Gulf Coast’s competitive strengths include geographic location (proximity to both suppliers of junk batteries and customers), price and long-term customer and supplier relationships. Our customers are located within trucking distance of our Tampa operation and, on a combined basis, have in the past utilized 100% of the smelting capacity of our facility. Because of the consistent, predictable demand from these long-term customers, Gulf Coast does not have a dedicated sales force to pursue additional contracts.

     Tolling arrangements provide stable streams of income in addition to securing sourcing arrangements, and have evolved as a result of environmental regulations that require a manufacturer to collect one junk battery with the sale of each new battery. As a result, manufacturers have a vested interest in maintaining a healthy secondary recycling market for their batteries. Tolling agreements also reduce transportation distances of raw materials, thereby potentially reducing transportation costs associated with raw materials sourced from more distant locations.

     Gulf Coast is supplied primarily by its tolling customer base and through open market purchases of junk batteries. We source industrial, marine, golf cart and automobile batteries as feedstock for our Gulf Coast smelting operations from a variety of supply sources available throughout the Southeast. Consistent feedstock sourcing is primarily a function of location and price.

     Competition: We believe that our major competitors in the North American lead market are eight secondary lead producers. Competition within the North American market is based primarily on plant location, quality, price, service, timely delivery and reliability. Due to its location within reasonable trucking distance of most of its major customers, Gulf Coast can provide timely delivery at a reasonable cost for those customers. We can also take advantage of Gulf Coast’s smelting capacity to reduce competitive pressures for source lead in our lead fabrication and recycling facilities. Gulf Coast is the only operating secondary lead smelter in Florida and enjoys transportation efficiencies as compared to other consumers of scrap lead and junk batteries that

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compete in Florida for similar raw materials. Combined with supplies provided by our tolling customers, junk batteries generated in the Florida market provide nearly all of Gulf Coast’s battery feedstock needs. We also buy scrap lead from various local sources in Florida.

Seasonality and other conditions

     Both the Scrap Metal Recycling and Lead Fabrication and Recycling segments of our business generally experience seasonal slowness in the months of July and December, as customers tend to reduce production and inventories. In addition, periodic maintenance shutdowns or labor disruptions at our larger customers may have an adverse impact on our operations. Our operations can be adversely affected as well by protracted periods of inclement weather or reduced levels of industrial production, which may reduce the volume of material processed at our facilities.

Employees

     At March 18, 2005, we had 462 employees. Forty-one of these employees, all employed in our Granite City, Illinois facility, are covered by a collective bargaining agreement which expires March 15, 2008. On January 12, 2005, a local of the International Union of Operating Engineers in Buffalo, New York filed a petition with the National Labor Relations Board seeking to organize ten employees of our Lake Erie Recycling Corp. subsidiary. The petition was withdrawn on January 31, 2005, but the local filed a new petition on March 16, 2005 seeking to represent 51 Lake Erie employees. A vote on union representation at Lake Erie Recycling is expected to take place in April 2005. At this time we do not know if the affected employees will vote to approve union representation pursuant to the petition or how any such representation would affect our operations at Lake Erie Recycling Corp. A strike or work stoppage could impact our ability to operate the Granite City facility or the Lake Erie Recycling Corp. facility. Our profitability could be adversely affected if increased costs associated with any future labor contracts are not recoverable through productivity improvements, price increases or cost reductions. We believe that we have good relations with our employees.

Segment reporting

     See Note 20 to the Company’s audited financial statements for the year ended December 31, 2004 located elsewhere in this report.

Available Information

     The Company makes available at no cost on its website, www.metalico.com, its reports to the SEC and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such reports to the SEC. Interested parties should refer to the Investors link on the home page of the Company’s website. In addition, the company’s Code of Business Conduct and Ethics, the charters for the Board of Directors’ Audit Committee and Compensation Committee, and its Statement of Nominating Principles and Procedures, all of which were adopted by our Board of Directors, can be found on the Company’s website through the Corporate Governance link on the Investors page. The Company will provide these governance documents in print to any stockholder who requests them. Any amendment to, or waiver of, any provision of the Code of Ethics and any waiver of the Code of Business Conduct and Ethics for directors or executive officers will be

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disclosed on our website under the Corporate Governance link.

RISK FACTORS

     Set forth below are risks that we believe are material to our business operations. Additional risks and uncertainties not known to us or that we currently deem immaterial may also impair our business operations.

     We are highly leveraged.

     As of December 31, 2004, we had $31.1 million of total debt outstanding, net of cash on hand of $734,000. Subject to certain restrictions, exceptions and financial tests set forth in certain of our debt instruments, we may incur additional indebtedness in the future. We anticipate our debt service payment obligations during the next twelve months to be approximately $8.3 million, comprised of principal coming due within the next twelve months of $6.7 million plus interest of $1.6 million. As of December 31, 2004, approximately $17.7 million of our debt bears interest at variable rates and we may experience material increases in our interest expense as a result of increases in general interest rate levels. Based on actual amounts outstanding as of December 31, 2004, if the interest rate on our variable rate debt were to increase by 1%, our annual debt service payment obligations would increase by approximately $177,000. The degree to which we are leveraged could have important negative consequences to the holders of our securities, including the following:

     • a substantial portion of our cash flow from operations will be needed to pay debt service and will not be available to fund future operations;

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

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

     • we are vulnerable to higher interest rates because interest expense on borrowings under our credit agreement (the “Credit Agreement’’) is based on margins over a variable base rate.

     Our business may not generate sufficient cash flow from operations and future working capital borrowings may not be available in an amount sufficient to enable us to service our indebtedness, or make necessary capital expenditures.

     All borrowings under our Credit Agreement will come due when it terminates in May 2009 and we may be unable to find replacement financing.

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

     Our Credit Agreement contains covenants that, among other things, restrict our ability to:

     • incur additional indebtedness;

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     • pay dividends;

     • prepay subordinated indebtedness;

     • dispose of some types of assets;

     • make capital expenditures;

     • create liens and make acquisitions; and

     • engage in some fundamental corporate transactions.

     Under our Credit Agreement, we are required to satisfy specified financial covenants, including an EBITDA covenant and a capital expenditure covenant. Although we currently expect to be in compliance with the covenants and to satisfy our financial tests, our ability to comply with these covenants may be affected by general economic conditions, industry conditions, severe negative market fluctuation in metal prices, and other events beyond our control. We would also be in violation of a covenant if Carlos Agüero, our Chairman, President, and Chief Executive Officer, for any reason failed to be involved in the day-to-day operations and management of our business. Our breach of any of these covenants could result in a default under our Credit Agreement. In the event of a default, the lender could elect not to make additional loans to us and to declare all amounts borrowed under our Credit Agreement, together with accrued interest, to be due and payable. In that event we would likely be unable to repay all such accelerated indebtedness.

     The metals recycling industry is highly cyclical.

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

     Import and export markets can be volatile.

     Our business may be adversely affected by increases in steel imports into the United States which will generally have an adverse impact on domestic steel production and a corresponding adverse impact on the demand for scrap metals. We could also be negatively affected by strengthening in the U.S. Dollar. For example, beginning in July 1998, the domestic steel industry and, in turn, the metals recycling industry suffered a dramatic and precipitous collapse, resulting in a significant decline in the price and demand for scrap metals. The decline in the steel and scrap metal sectors was the result, in large part, of the increase in steel imports flowing into the United States

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during the last six months of 1998 and our results of operations were adversely impacted by reduced steel production in the United States during fiscal 1999. Export markets, including Asia and in particular China, are important to the scrap metal recycling industry. Weakness in economic conditions in Asia and in particular slowing growth in China could negatively affect us.

     Changing lead markets may impact the Company’s ability to secure the volume of raw materials needed at pricing considered sustainable before driving consumers to substitute products. Our lead fabrication and recycling facilities may be adversely impacted by increases or decreases in lead pricing. A drop in the commodity price of lead would reduce revenues at the secondary lead smelter. The lead smelter may not be able to reduce costs enough to offset the impact of lost revenues. An increase in the cost of lead, the raw material of our lead fabrication and recycling facilities, could reduce the demand for product by making nonlead-bearing alternatives more cost attractive. Additionally, fluctuations in lead pricing could negatively impact the supply of raw material for either or both the secondary lead smelter and the fabricators.

     Prices of commodities we own may be volatile.

     Although we seek to turn over our inventory of raw or processed scrap metals as rapidly as possible, we are exposed to commodity price risk during the period that we have title to products that are held in inventory for processing and/or resale. Prices of commodities, including scrap metals, can be volatile due to numerous factors beyond our control, including:

     • general economic conditions;

     • labor costs;

     • competition;

     • financial condition of our major customers;

     • the availability of imports;

     • the availability and relative pricing of scrap metal substitutes;

     • import duties; and

     • tariffs and currency exchange rates.

     In an increasing price environment, competitive conditions may limit our ability to pass on price increases to our customers. In a decreasing price environment, we may not have the ability to fully recoup the cost of raw scrap we process and sell to our customers.

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

     We acquire our scrap inventory from numerous sources. These suppliers generally are not bound by long-term contracts and have no obligation to sell scrap metals to us. In periods of low industry prices, suppliers may elect to hold scrap waiting for higher prices. If a substantial number of scrap suppliers cease selling scrap metals to us, we would be unable to recycle metals at desired

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levels and our results of operations or financial condition would be materially and adversely affected. In addition, the slowdown and loss of industrial production in the U.S. has reduced the supply of industrial grades of scrap.

     We depend on third-party carriers for virtually all of our outbound product distribution.

     Our products are usually transported to consumers from our facilities by third-party truck and rail carriers. Any interruption or delay in transportation services or any significant change in transportation costs could adversely affect our results of operations or financial condition.

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

     Our operations depend heavily on the skills and efforts of our senior management team, including Carlos E. Agüero, our Chairman, President and Chief Executive Officer, Michael J. Drury, our Executive Vice-President and three other employees who constitute our Executive Management Team. In addition, we rely substantially on the experience of the management of our subsidiaries with regard to day-to-day operations. While we have employment agreements with Messrs. Agüero and Drury and certain other members of our management team, we may nevertheless be unable to retain the services of any of those individuals. The loss of any member of our senior management team or a significant number of managers could have a material adverse effect on our operations.

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

     Sales to the Company’s ten largest customers represented approximately 31.5% of consolidated net sales for the year ended December 31, 2004. Sales to our largest customer represented approximately 5.6% of consolidated net sales for the year ended December 31, 2004. The loss of a significant customer or our inability to collect accounts receivables would negatively impact our revenues and profitability.

     The loss of export sales could adversely affect our results of operations or financial condition.

     The loss of any significant customers could adversely affect our results of operations or financial condition.

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

     A significant increase in the use of scrap metal alternatives by current consumers of processed scrap metals could reduce demand for our products.

     During periods of high demand for scrap metals, tightness can develop in the supply and demand balance for ferrous scrap. The relative scarcity of ferrous scrap, particularly the “cleaner’’ grades, and its high price during such periods have created opportunities for producers of alternatives to scrap metals, such as pig iron and direct reduced iron pellets, to offer their products to

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our consumers. Although these alternatives have not been a major factor in the industry to date, we cannot assure you that the use of alternatives to scrap metals may not proliferate in the future if the prices for scrap metals rise or if the levels of available unprepared ferrous scrap decrease.

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

     We believe that we are currently in material compliance with applicable statutes and regulations governing the protection of human health and the environment, including employee health and safety. We can give no assurance, however, that we will continue to be in compliance or to avoid material fines, penalties and expenses associated with compliance issues in the future.

     The nature of our business and previous operations by others at facilities owned or operated by us make us subject to significant government regulation, including stringent environmental laws and regulations. Among other things, these laws and regulations impose comprehensive local, state, federal, foreign and supranational statutory and regulatory requirements concerning, among other matters, the treatment, acceptance, identification, storage, handling, transportation and disposal of industrial by-products, hazardous and solid waste materials, waste water, storm water effluent, air emissions, soil contamination, surface and ground water pollution, employee health and safety, operating permit standards, monitoring and spill containment requirements, zoning, and land use, among others. Various laws and regulations set prohibitions or limits on the release of contaminants into the environment. Such laws and regulations also require permits to be obtained and manifests to be completed and delivered in connection with the operations of our businesses, and in connection with any shipment of prescribed materials so that the movement and disposal of such material can be traced and the persons responsible for any mishandling of such material can be identified. This regulatory framework imposes significant actual, day-to-day compliance burdens, costs and risks on us. Violation of such laws and regulations may and do give rise to significant liability, including fines, damages, fees and expenses, and closure of a site. Generally, the governmental authorities are empowered to act to clean up and remediate releases and environmental damage and to charge the costs of such cleanup to one or more of the owners of the property, the person responsible for the release, the generator of the contaminant and certain other parties or to direct the responsible party to take such action. These authorities may also impose a tax or other liens to secure the parties’ reimbursement obligations.

     Environmental legislation and regulations have changed rapidly in recent years, and it is possible that we will be subject to even more stringent environmental standards in the future. For these reasons, future capital expenditures for environmental control facilities cannot be predicted with accuracy; however, if environmental control standards become more stringent, one may expect that the expenditures necessary to comply with them could increase substantially. Due to the nature of our Lead Fabrication and Recycling and Scrap Metal Recycling businesses, it is likely that inquiries or claims based upon environmental laws may be made in the future by governmental bodies or individuals against us and any other scrap metal recycling entities that the Company may acquire. The location of some of our facilities in urban areas may increase the risk of scrutiny and claims. We cannot predict whether any such future inquiries or claims will in fact arise or the outcome of such matters. Additionally, it is not possible to predict the amounts of all capital expenditures or of any increases in operating costs or other expenses that we may incur to comply with applicable environmental requirements, or whether these costs can be passed on to customers through product price increases.

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     Moreover, environmental legislation has been enacted, and may in the future be enacted, to create liability for past actions that were lawful at the time taken but that have been found to affect the environment and to create public rights of action for environmental conditions and activities. As is the case with lead fabrication and recycling and scrap metal recycling businesses in general, if damage to persons or the environment has been caused, or is in the future caused, by hazardous materials activities of the Company or its predecessors, the Company may be fined and held liable for such damage. In addition, we may be required to remedy such conditions and/or change procedures. Thus, there can be no assurance that potential liabilities, expenditures, fines and penalties associated with environmental laws and regulations will not be imposed on us in the future or that such liabilities, expenditures, fines or penalties will not have a material adverse effect on our results of operations and financial condition.

     We are subject to potential liability and may also be required from time to time to clean up or take certain remedial action with regard to sites currently or formerly used in connection with our operations. Furthermore, we may be required to pay for all or a portion of the costs to clean up or remediate sites we never owned or on which we never operated if we are found to have arranged for transportation, treatment or disposal of pollutants or hazardous or toxic substances on or to such sites. We are also subject to potential liability for environmental damage that our assets or operations may cause nearby landowners, particularly as a result of any contamination of drinking water sources or soil, including damage resulting from conditions existing prior to the acquisition of such assets or operations. Any substantial liability for environmental damage could materially adversely affect our operating results and financial condition, and could materially adversely affect the marketability and price of our stock.

     Contamination exists at certain of our sites, and we are responsible for certain off-site contamination as well. Such sites require investigation, monitoring and remediation. The existence of such contamination typically results in federal, state, local and/or private enforcement or cost recovery actions against the Company, possibly resulting in disruption of our operations, and/or substantial fines, penalties, damages, costs and expenses being imposed against us. We expect to require future cash outlays as we incur costs relating to the remediation of environmental liabilities and post-remediation compliance. These costs may have a material adverse effect on the Company’s results of operation and financial condition.

     Environmental impairment liability insurance, which we carry on our lead smelting facilities, is prohibitively expensive and limited in the scope of its coverage. Our general liability insurance policies in most cases do not cover environmental damage. If we were to incur significant liability for environmental damage not covered by insurance; or for which we have not adequately reserved; or for which we are not adequately indemnified by third parties; our results of operations and financial condition could be materially adversely affected.

     In the past we have upon occasion been found not to be in compliance with certain environmental laws and regulations, and have incurred fines associated with such violations which have not been material in amount. We may in the future incur additional fines associated with similar violations. We have also paid a portion of the costs of certain remediation actions at certain sites. No assurance can be given that material fines, penalties, damages and expenses resulting from additional compliance issues and liabilities will not be imposed on us in the future.

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     There are risks associated with certain by-products of our operations. Our operations produce recurring amounts of wastes. For example, our secondary lead smelter generates slag as a waste product of the lead smelting process. The slag is tested for hazardous materials and if determined non-hazardous, disposed of at a local sanitary landfill. Slag that tests hazardous is put back into the furnace feedstock and rerun through the furnace. We can give no assurance, however, that such a process will be successful in continuing to remove hazardous contaminants or that the higher charges for waste handling and disposal will be avoided.

     Due diligence reviews in connection with our acquisitions to date and environmental assessments of our operating sites conducted by independent environmental consulting firms have revealed that some soil, surface water and/or groundwater contamination, including various metals, arsenic, petrochemical byproducts, waste oils, and volatile organic compounds, is present at certain of our operating sites. Based on our review of these reports, we believe that it is likely that migratory contamination at varying levels may exist at some of our sites, and we anticipate that some of our sites could require investigation, monitoring and remediation in the future. Moreover, the costs of such remediation could be material. The existence of contamination at some of our facilities could adversely affect our ability to sell our properties, and, will generally require us to incur significant costs to take advantage of selling opportunities. Descriptions of environmental proceedings pending at this time are set out in Item 3 below.

     We may be affected by environmental claims involving property in College Grove, Tennessee.

     The U.S. Environmental Protection Agency (the “EPA”) has asserted a claim against us in connection with superfund remediation activities in College Grove, Tennessee, as more fully described in Item 3 below. While we do not believe the Company is liable for the EPA’s claim, we can provide no assurance that the matter will be resolved or settled on terms acceptable to the Company. Liability for the full amount of the EPA’s claim could have a material adverse effect on the Company’s business and operations.

     There has been a limited established public trading market for our common stock, and we cannot guarantee that our stock price will not decline after the effective date of this report.

     Our common stock began trading on the American Stock Exchange on March 15, 2005 under the symbol “MEA.” We thus have a limited history of public market trading for our common stock, and we cannot predict the price at which our common stock will trade. The price at which our common stock trades may fluctuate significantly, particularly until an orderly market develops. Prices for our common stock will be determined in the trading markets and may be influenced by many factors, including our financial results, developments generally affecting our industries, the performance of each of our business segments, our capital structure (including the amount of our indebtedness), general economic, industry and market conditions, the depth and liquidity of the market for our common stock, fluctuations in metal prices, investor perceptions of our business and us, reports by industry analysts, negative announcements by our customers, competitors or suppliers regarding their own performances, and the impact of other Risk Factors discussed in this report.

     Applicable Securities and Exchange Commission rules governing the trading of “penny stocks’’ limits the trading and liquidity of our common stock, which may affect the trading price of our common stock.

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     Our common stock has at times traded below $5.00 per share. When stock trades below $5.00 per share it is considered a “penny stock’’ and is subject to Securities and Exchange Commission rules and regulations, which impose limitations upon the manner in which the shares can be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. If our common stock is considered a “penny stock’’, these regulations would have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock.

     We may be affected by efforts to organize our employees.

     On January 12, 2005, a local of the International Union of Operating Engineers in Buffalo, New York filed a petition with the National Labor Relations Board seeking to organize ten employees of our Lake Erie Recycling Corp. subsidiary. The petition was withdrawn on January 31, 2005, but the local filed a new petition on March 16, 2005 seeking to represent 51 Lake Erie employees. A vote on union representation is expected to take place in April 2005. At this time we do not know if the affected employees will vote to approve union representation pursuant to the petition or how any such representation would affect our operations at Lake Erie Recycling Corp.

     Approximately 9% of our active employees, all located at our facility in Granite City, Illinois, are represented by the United Steelworkers of America. Our agreement with that union expires on March 15, 2008.

     Our operations present significant risk of injury or death.

     Because of the heavy industrial activities conducted at our facilities, there exists a risk of injury or death to our employees or other visitors of our operations, notwithstanding the safety precautions we take. Our operations are subject to regulation by federal, state and local agencies responsible for employee health and safety, including the Occupational Safety and Health Administration (“OSHA”). We have been fined in regard to some of these incidents. While we have in place policies to minimize such risks, we may nevertheless be unable to avoid material liabilities for any employee death or injury that may occur in the future and these types of incidents may have a material adverse effect on our financial condition.

Item 2. Properties

          Our facilities are generally comprised of:

	•	indoor and outdoor processing areas;
	•	various pieces of production equipment;
	•	warehouses for the storage of repair parts and of unprocessed and processed ferrous and non-ferrous scrap;
	•	storage yards for unprocessed and processed scrap;
	•	machine or repair shops for the maintenance and repair of vehicles and equipment;

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	•	scales for weighing scrap;
	•	loading and unloading facilities;
	•	administrative offices; and
	•	garages for transportation equipment.

     Our scrap processing facilities have specialized equipment and furnaces for processing various types and grades of scrap metal, which may include: grapples and magnets and front-end loaders to transport and process both ferrous and non-ferrous scrap, crane-mounted alligator or stationary guillotine shears to process large pieces of scrap, wire stripping and chopping equipment, balers and torch cutting stations. Processing operators transport inbound and outbound scrap on a fleet of rolloff trucks, dump trucks, stake-body trucks and lugger trucks.

     The majority of our outbound ferrous scrap products are shipped in rail cars generally provided by the railroad company which services each of the Company’s locations.

     Fabrication facilities include shot towers, rolling mills of various sizes, extrusion presses, mold casting lines, refining kettles, battery breaking equipment and a blast furnace used to process and make a variety of lead-based products.

     The following table sets forth information regarding our principal properties:

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          We also have an agreement to sell 3.7 acres of real property in Atlanta, Georgia previously occupied by our Metalico-Evans, Inc. subsidiary. Consummation of this agreement is not certain.

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

Item 3. Legal Proceedings

     From time to time, we are involved in various litigation matters involving ordinary and routine claims incidental to our business. A significant portion of these matters result from environmental compliance issues and workers compensation-related claims applicable to our operations. We are

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involved in litigation and environmental proceedings as described below.

COLLEGE GROVE, TENNESSEE

     In 2000, the Company received correspondence from the United States Environmental Protection Agency (the “EPA”) alleging potential liability for a release of hazardous substances from at least 16 properties (and potentially one additional property) contaminated with lead leaching from contaminated waste battery chips in and around College Grove, Tennessee (collectively the “Site”). No accrual for remediation costs was recorded by the Company at that time because it was not able to reasonably estimate the amount of any range of potential obligation for remediation of the Site.

     The Company subsequently received a letter from the EPA dated January 27, 2003 (the “Notice”) that included a demand for payment of approximately $10,298,000 plus interest for response costs relating to the EPA’s determination that there was a release of hazardous substances from the Site. The EPA alleges battery chips were stockpiled between 1950 and 1970 by General Smelting and Refining, Inc. (“GSR”), which subsequently became a Company subsidiary, made available to the general public during that time period, and transported from the GSR plant facility to the properties that make up the Site. The 2003 letter from the EPA stated that it has cleaned 86 properties relating to the Site and excavated/disposed of approximately 91,000 tons of contaminated soil and battery chip debris. The letter also stated the EPA anticipates that (i) additional funds may be expended on the Site, (ii) the Company is potentially liable for such expenditures plus interest, and (iii) the demand for payment amount is preliminary, and does not limit the EPA from providing a revised figure as additional costs are identified. In its letter the EPA also sought Metalico Inc.’s agreement to assume responsibility for any future removal and other remediation activities that are discovered relating to the Site.

     The Company responded to the Notice on April 4, 2003 through its external legal counsel. The response pointed out that the Company, our Metalico-College Grove, Inc. subsidiary (“MCG”), which purchased certain assets from GSR as discussed below, and GSR are separate corporations. The response also observed that GSR is not the owner or operator of the Site and argued, based on certain deposition testimony in a prior case, that GSR did not arrange for deposit of hazardous materials on the Site. The response also pointed out that neither the Company nor MCG are or could be “arrangers” with respect to the disposal of the subject hazardous materials. Finally, the response argued that under governing federal and state law pertaining to the relationship of parent and subsidiary companies neither the Company nor MCG has any liability for the alleged activities of GSR.

     The EPA replied to the Company’s response on June 28, 2004, when it issued a Third Request for Information (the “Third Request Letter”). The Third Request Letter stated that it was intended to help the EPA evaluate information previously provided by the Company but also increased the EPA’s demand for costs through June 23, 2004 to approximately $11,778,000. The Company’s external legal counsel filed a response to the Third Request Letter with the EPA on September 10, 2004. In October 2004, the EPA asked the Company to consider entering into a tolling agreement for purposes of tolling any statute of limitations potentially applicable to the EPA’s claim. In January of 2005 the Company and the EPA entered into an agreement to toll any such statute of limitations for the period from January 19, 2005 through May 31, 2005.

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     On February 25, 2005, the EPA responded to the Company’s April 4, 2003, letter and submission of additional information (the “February 2005 Letter”). In that letter, the EPA stated that its claim was now approximately $11,871,000 and made demand for that amount “from Metalico and GSR.” While stating again the EPA’s belief that GSR is liable as an arranger, the February 2005 Letter also acknowledged that “EPA is not questioning the propriety of th[e] asset purchase” by which MCG acquired the new plant assets of GSR, and further “acknowledged the legal hurdles associated with piercing the corporate veil or holding a parent directly liable” under applicable environmental law. Nonetheless, the February 2005 Letter stated “EPA sees no practical distinction between GSR and Metalico,” and thus asserted its view that Metalico “should ... fund EPA’s cleanup at the Site.” However, the February 2005 Letter also solicits a settlement offer from Metalico and GSR and further states that that the “EPA is willing to consider a schedule for payment over time, as well as a reduction in the total amount demanded from Metalico and/or GSR.”

     On March 23, 2005, the Company’s external legal counsel replied to the February 2005 Letter. The reply acknowledged the EPA’s concessions in the February 2005 Letter and reiterated the legal bases for the independent corporate existences of Metalico, Inc. and GSR. However, the Company also agreed to develop a good-faith settlement offer as requested, consistent with the Company’s understanding of the facts and law of this matter and its evaluation of the legal strengths and weaknesses of the EPA’s case.

     External legal counsel has advised us that it is too early at this time to determine whether or how the matter could be settled or how the EPA will react to any additional offer the Company might determine appropriate to make, whether the matter will result in litigation, or what the ultimate outcome will be. As a result, management and the Company’s legal counsel are unable to reasonably estimate the amount of ultimate liability, if any, which may be incurred with respect to this matter. Unless and until any settlement is entered into, the Company intends to vigorously contest the EPA’s claim. The financial statements accompanying this report do not include any adjustments that might result from the outcome of this uncertainty.

     On June 17, 2004, the Tennessee Department of Environment and Conservation (“TDEC”) requested reimbursement from the Company of approximately $57,000 for costs incurred through October 2002 by the State in connection with the same College Grove properties. On December 14, 2004, TDEC increased its request to approximately $58,000 for costs incurred through November 2003. The Company has contested TDEC’s claims largely on the same bases cited in its submissions to the EPA. As of March 29, 2005, TDEC had not responded to correspondence from the Company dated January 25, 2005 setting forth the Company’s reasons for denying the claims.

TAMPA, FLORIDA

     Our Gulf Coast Recycling, Inc. subsidiary (“Gulf Coast”), located in Tampa, Florida, is a party to these consent orders:

       1. A Consent Order filed by the EPA on April 20, 1981 required Gulf Coast to determine on-site contamination of soils and groundwater, implement a remedial plan and reduce the concentration of heavy metals in the storm discharge. The storm water discharge was eliminated

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several years ago and the extent of any contamination was delineated. At this time, on-going compliance requirements are met under the Resource Conservation Recovery Act (“RCRA”) and the Hazardous Solid Waste Act (“HSWA”) permits that were issued to Gulf Coast in January 2000.

       2. Under an Agreed Interim Order with the Florida Department of Environmental Protection effective May 16, 1994, Gulf Coast was required to implement an EPA-approved remedial plan for on-site contamination. All remediation has been completed. There are no direct costs associated with this Order.

       3. A Consent Decree filed on February 1, 1991 by the EPA required Gulf Coast to pay response costs and remediate off-site contaminated soils at the Superfund Kassouf-Kimerling Site in Hillsborough County, Florida. The site was completely remediated in 1994 and in 2002 the decree was supplemented by a Letter of Agreement which addressed the response costs and Gulf Coast’s financial assurance for oversight and monitoring. There is an annual cost to maintain the $63,000 Letter of Credit.

       4. Pursuant to an Administrative Order on Consent filed by the EPA on March 17, 2004, Gulf Coast agreed to remediate a residential site located in Tampa, Florida and identified as the River Hills Battery Site. Remediation has been completed. Gulf Coast has filed suit against Henry N. Black, a Florida property owner and potentially responsible party, for contribution in connection with the cost of remediation for the River Hills Battery Site.

     The Company and its subsidiaries are at this time in material compliance with all of their obligations under the consent orders.

Item 4. Submission of Matters to a Vote of Security Holders

          No matter was submitted to a vote of the Company’s security holders during the fourth quarter of the fiscal year covered in this report except for the incurrence of the debt under our November Convertible Notes described in Paragraph 9 of Item 13 below, which required the consent of at least 67% of the holders of our preferred stock. Holders of 99.6% of the outstanding shares of our preferred stock voted in favor of the transaction.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

     Trading in our common stock commenced on the American Stock Exchange on March 15, 2005 under the symbol “MEA.” The table below sets forth, on a per share basis for the period indicated, the high and low closing sale prices for our common stock as reported by the American Stock Exchange.

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     The closing sale price of our common stock as reported by the American Stock Exchange on March 28, 2005 was $5.88.

Holders

     As of March 29, 2005, there were 378 holders of record of our common stock, 21 holders of warrants to purchase our common stock, 18 holders of record of our convertible preferred stock, 18 holders of convertible notes issued between November 18, 2004 and December 9, 2004, and 53 holders of stock options exercisable for shares of our common stock.

Dividends

     We have never declared or paid dividends on our common stock, and we do not expect to pay cash dividends on our common stock in the foreseeable future. Instead, we anticipate that all our earnings, if any, in the foreseeable future will be used to finance the operation and growth of our business. In addition, our ability to pay dividends to holders of our capital stock is limited by our senior secured credit facility. Any future determination to pay dividends on our common stock is subject to the discretion of our board of directors and will depend upon various factors, including, without limitation, our results of operations and financial condition. In addition, at this time our senior secured credit facility prohibits the payment of dividends. There is no preferred dividend accrued or accruing on our preferred stock. The holders of our preferred stock will share with common stockholders on an as-converted basis in all dividends declared on common stock, if any. The preferred stock ranks senior to the common stock as to the payment of dividends.

Recent Sales of Unregistered Securities

     The following is a description of all securities sold by the Company during the year ending December 31, 2004 that were not registered under the Securities Act of 1934:

       1. In May of 2004, we exchanged 16,510,658 newly issued shares of new preferred stock (convertible to common stock on a one-to-one basis) in exchange for the 7,155,435 shares of our Class A preferred stock and Class B preferred stock outstanding at that time (which were convertible to 12,402,732 shares of common stock) and the rights to all accrued dividends on our Class A preferred stock and Class B preferred stock. Our Class A preferred stock and Class B preferred stock was then cancelled.

       2. In June of 2004, we issued 435,000 shares of our common stock to Carlos E. Agüero, our President and Chief Executive Officer, in exchange for and satisfaction of debt payable to Mr. Agüero in the amount of $870,000.

       3. In June of 2004 we issued warrants to our Executive Vice President, Michael J. Drury, and our Senior Vice President and Chief Financial Officer, Eric W. Finlayson, to purchase 90,000 shares and 10,000 shares, respectively, of our common stock at an exercise price of $.01 per

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share. The warrants were awarded as compensation in recognition of services performed on behalf of the Company and its subsidiaries. Both warrants were fully vested upon issuance and would expire if not exercised on or before June 1, 2009.

       4. In June of 2004, we issued 10,000 shares of our common stock to Mr. Finlayson upon his exercise of the warrant to purchase that number of shares described above in the immediately preceding paragraph.

       5. On September 1, 2004, we issued a total of 50,000 shares of our common stock to eight charities upon their exercises of options to purchase, collectively, that number of shares at an exercise price of $1.10 per share. The options were originally granted to Bret R. Maxwell, a director of the Company and the representative of five investment funds that hold preferred stock in the Company, on September 1, 1998 and were subsequently donated to the charities by Mr. Maxwell with the consent of the Company.

       6. From July 30, 2004 through September 30, 2004, we offered certain of our managers and supervisors (other than executive officers) the opportunity to buy our common stock at a rate of $2.25 per share in compensation for their continuing efforts on behalf of the Company and its subsidiaries. Thirteen managers and supervisors purchased an aggregate total of 87,830 shares of our common stock pursuant to the offer.

       7. On September 30, 2004, the Company issued the September Convertible Notes described in Paragraph 8 of Item 13 below. The aggregate face amount of all outstanding September Convertible Notes was $3,850,000. The September Convertible Notes accrued interest at a rate of 7% per annum and were scheduled to mature on September 30, 2005. Individual noteholders, at their respective options, were entitled to convert the outstanding principal balances of their respective notes into shares of the Company’s common stock at a conversion price of $2.75 per share on or before March 29, 2005. All debt evidenced by September Convertible Notes was converted to shares of our common stock, resulting in the issuance of 1,400,000 shares.

       8. Between November 18, 2004 and December 15, 2004, the Company issued the November Convertible Notes described in Paragraph 9 of Item 13 below. The aggregate face amount of all outstanding November Convertible Notes is $4,422,375. Individual noteholders may, at their respective options, convert the outstanding principal balances of their notes into shares of the Company’s common stock at a conversion price of $3.25 per share at any time prior to the noteholder’s respective maturity date. Each November Convertible Note bears interest at a rate of 7% per annum and matures on the second anniversary of its date of issuance. The outstanding principal balance of the November Convertible Notes will automatically convert to shares of our common stock at the conversion price of $3.25 per share at such time as (a) the common stock underlying such conversion has been registered under applicable securities laws and our common stock issued upon conversion of the November Convertible Notes is freely tradable and (b) shares of our common stock have traded for a price equal to or greater than $4.00 per share for twenty trading sessions on the American Stock Exchange or a comparable securities exchange or its equivalent. Each holder of a November Convertible Note also received warrants to purchase 0.20 shares of our common stock for every one share of our common stock to which the principal amount of such holder’s respective November Convertible Note may be converted, exercisable for a period of three years from the date of the Note with an exercise price of $4.00 per share.

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       9. In November of 2004 we issued 200,000 shares of our common stock to the sole stockholder of Samuel Frank Metal Company, Inc., a New York corporation (“Frank Metal”), as part of the consideration for our purchase of Frank Metal. The stockholder has the right to put all or any portion of the stock delivered to him to us for a price of $5.00 per share at any time, or from time to time, from and after November 18, 2005, provided that our obligation to accept the put terminates if, from and after such time as any and all legal restrictions (including without limitation any restrictions imposed by applicable securities law) on the stockholder’s ability to transfer the stock have been removed, and before we have received a written demand for payment from the stockholder, shares of our common stock have traded for a price equal to or greater than $5.00 per share for twenty trading sessions on the American Stock Exchange or a comparable securities exchange or its equivalent.

       10. In December of 2004, six of our employees exercised a total of 44,133 options to purchase our common stock (at either $2.50 or $1.00 per share, depending on the date of the original grant) that were due to expire by the end of the year. These employees included Michael J. Drury, our executive vice president, who purchased 10,000 shares at a rate of $2.50 per share and 15,000 shares at a rate of $1.00 per share, and Eric W. Finlayson, our senior vice president and chief financial officer, who purchased 1,508 shares at a rate of $2.50 per share and 5,500 shares at a rate of $1.00 per share.

Item 6. Selected Financial Data

SELECTED HISTORICAL FINANCIAL DATA
(Unaudited)

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis includes forward-looking statements. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements. Please refer to “Special Note Regarding Forward-Looking Statements” for more information. The results for the periods reflected herein are not necessarily indicative of results that may be expected for future periods.

General

     We operate primarily in two distinct business segments: (i) ferrous and nonferrous scrap metal recycling (“Scrap Metal Recycling”), and (ii) product manufacturing, fabricating, smelting and refining of lead and other metals (“Lead Fabrication and Recycling”). The Scrap Metal Recycling segment includes scrap metal recycling yards located in Buffalo and Rochester, New York, and an aluminum de-ox plant and a scrap handling company each located in Lackawanna, New York.

     The Lead Fabrication and Recycling segment includes five lead fabrication and recycling plants located in Birmingham, Alabama; Healdsburg and Ontario, California; Carson City, Nevada and Granite City, Illinois and a secondary lead smelting and refining plant located in Tampa, Florida.

Critical Accounting Policies

     Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires the use of estimates and judgments that affect the reported amounts and related disclosures of commitments and contingencies. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual

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results may differ materially from these estimates.

     We believe the following critical accounting policies, among others, affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Contingencies

     We establish reserves for estimated liabilities, which primarily includes environmental remediation. A loss contingency is accrued when our assessment indicates that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Our estimates are based upon currently available facts and presently enacted laws and regulations. These estimated liabilities are subject to revision in future periods based on actual costs or new information.

Valuation of Long-lived Assets and Goodwill

     We regularly review the carrying value of certain long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value.

     Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill be reviewed at least annually for impairment based on the fair value method. Prior to January 1, 2002, goodwill was amortized on a straight-line basis over 30 years.

Revenue Recognition

     The Company recognizes revenue when it has a contract or purchase order from a customer with a fixed price, the title and risk of loss transfer to the buyer, and collectibility is reasonably assured which is upon shipment. Brokerage sales are recognized upon receipt of the materials by the customer. Brokerage sales and costs are reported net in product revenues. The Lead Fabrication and Recycling segment records revenue when goods are shipped and when services are performed under tolling agreements. Tolling arrangements are provided by our smelting plant and occasionally by our shot manufacturers. Based on a per pound fee, our smelting plant receives a customer’s junk batteries (auto, golf cart, marine, etc.) and will return refined lead alloyed to the customer’s specifications. For our shot manufacturers a customer will deliver recovered shot and, for a fee, be supplied new shot sized and alloyed to the customer’s specifications. Ferrous and nonferrous recycled metal sales and sales of finished lead are generally made on open account. Historically, there have been very few sales returns and adjustments that impact the ultimate collection of revenues; therefore no provisions are made when the sale is recognized.

Accounts Receivable and Allowance for Uncollectible Accounts Receivable

     Accounts receivable consist primarily of amounts due from customers from product sales. The allowance for uncollectible accounts receivable totaled $606,000, $292,000, and $287,000 at December 31, 2004, 2003, and 2002, respectively. Our determination of the allowance for

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uncollectible accounts receivable includes a number of factors, including the age of the accounts, past experience with the accounts, changes in collection patterns and general industry conditions.

     The loss of any significant customer could adversely affect our results of operations or financial condition. While we believe our allowance for uncollectible accounts is adequate, changes in economic conditions or any weakness in the steel, metals, or construction industry could adversely impact our future earnings.

Inventory

     Our inventories consist of ferrous and non-ferrous scrap metals and lead metals and lead products. Inventories are valued at the lower of cost or market determined on a first-in, first-out basis. Quantities of inventories are determined based on our inventory systems and are subject to periodic physical verification using techniques including observation, weighing and estimates. Prices of commodities we own may be volatile. We are exposed to risks associated with fluctuations in the market price for both ferrous and non-ferrous metals, which are at times volatile. We attempt to mitigate this risk by seeking to turn our inventories promptly and efficiently.

Deferred Taxes

     The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Generally accepted accounting principles require the recording of a valuation allowance against the net deferred tax asset if it is “more likely than not” that the Company will not be able to utilize the benefits to offset future taxes. Management judgment is required in determining the Company’s valuation allowance and the recoverability of the deferred tax asset. It is based on estimates of future taxable income and the period over which the deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, a change in the valuation allowance would need to be recorded.

RESULTS OF OPERATIONS

     The Company is divided into two industry segments: Scrap Metal Recycling, which breaks down into two general product categories, ferrous and non-ferrous metals, and Lead Fabrication and Recycling, comprised of lead fabrication and recycling and lead smelting.

     The following table sets forth information regarding the breakdown of revenues between the Company’s Scrap Metal Recycling segment and its Lead Fabrication and Recycling segment ($, pounds and tons in thousands):

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     The results of the Scrap Metal Recycling segment operations depend in large part upon demand and prices for recycled metals in world markets and steel products in the Northeastern United States. For example, increasing steel demand and prices led to improved profitability for the industry during the years 1995 through 1997. However, during the years 1998 and 1999, the Asian financial crisis severely curtailed demand and decreased prices, causing a negative impact on the results of our Scrap Metal Recycling segment. During the year 2000, the Company saw demand for recycled metal rise, but unusually large supplies of recycled ferrous metal became available from certain countries that were part of the former Soviet Union, thereby holding prices down. In addition, domestic demand for finished steel products was strong, but lower cost imports, primarily from Asia, caused average prices to generally decline. In the year 2001, the demand for recycled metals declined in the United States as domestic steel production declined; however, demand in Asia, particularly in China, remained firm. Selling prices also continued to be adversely affected by supplies coming out of the former Soviet Union and during the first six months of the year 2002, recycled metals prices approached record lows due primarily to this surplus coupled with weak domestic demand. Domestic demand for finished steel products declined due to the slowing United States economy and competition from lower cost imports. The result was a record low average net selling price for the ferrous manufacturing business during the year 2002.

     During the second half of the year 2002, certain countries of the former Soviet Union started imposing export tariffs and bans on recycled ferrous metal. As a result, recycled ferrous metal supplies to global markets declined causing prices to increase. Demand, which is being fueled primarily by Asia, continued to remain strong and the Company continues to experience improved market conditions. Throughout much of the remainder of the year 2003, selling prices continued to rise primarily due to the tight supply of ferrous metal available in the export market and the weakness of the U.S. dollar relative to other foreign currencies.

     The ferrous manufacturing business saw higher average selling prices and higher sales volumes during the 2003 and into 2004 due primarily to a higher valued product sales mix and lower volumes of competing imported steel, which is partially attributed to the weakness of the U.S. dollar.

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     The Lead Fabrication and Recycling segment is influenced by the price of lead raw metals. The lead fabrication and recycling businesses are positively affected by lower pricing of raw lead metals while the smelting businesses are negatively affected by lower pricing. During 2001, 2002 and the first half of 2003 the price of raw lead metals was at low pricing levels due primarily to strong supply into the U.S. principally by China and the U.S. government selling off warehoused stockpiles. Beginning with the third quarter of 2003 pricing of lead raw materials began to increase primarily due to China changing from a supplier of lead to a consumer. Between December 31, 2003 and December 31, 2004, the price of lead on the London Metal Exchange increased 44%. In a business environment of increasing raw material costs like this, lead fabricators rely on their ability to pass on these increased lead raw material prices to maintain their profitability.

     Revenue in the Lead Fabrication and Recycling segment, for the years ended December 31, 2004, 2003 and 2002, include one specific customer (which accounted for 10% or more of total revenue of the Company in some of those years), together with the receivable due from the customer:

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

     Consolidated net sales increased by $54.1 million (88.1%) to $115.4 million in the year ended December 31, 2004, compared to consolidated net sales of $61.3 million in the year ended December 31, 2003. The $54.1 million increase in consolidated net sales is due to higher average selling prices accounting for $35.8 million of the total increase in sales; the purchase of the remaining 50% joint venture interest in Mayco Industries, L.L.C. on September 30, 2004 adding an additional $12.0 million in sales and an increase in volume sold totaling $2.3 million. Additionally, the acquisition of a scrap handling company in February 2004 and an additional scrap yard in November 2004, contributed another $3.4 million and $627,000 respectively to the total increase in sales. The $2.3 million increase in volume is comprised of increases in sales volumes for ferrous products of $3.0 million and non-ferrous products of $3.3 million and were offset by a $1.6 million decrease in sales volumes for our Lead Fabricating and Recycling segment (excluding Mayco) and a $2.4 million decrease in tolling activities.

Scrap Metal Recycling

     Ferrous Sales

     Ferrous sales increased by $20.0 million (153%) to $33.0 million in the year ended December 31, 2004, compared to ferrous sales of $13.0 million in the year ended December 31, 2003. The increase was attributable to a 104% increase in average selling prices accounting for $16.8 million of the total increase in sales of ferrous products combined with a 23.9% increase in sales volumes or an additional 28.2 tons representing an increase in sales of $3.2 million. The average selling price for ferrous products was approximately $226 per ton for the year ended December 31, 2004, compared to $111 per ton for the year ended December 31, 2003. We benefited from strong international

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demand during the first quarter of 2004 and robust domestic demand during the third and fourth quarter of 2004.

     Non-Ferrous Sales

     Non-ferrous sales increased by $16.2 million (64.8%) to $41.3 million in the year ended December 31, 2004, compared to non-ferrous sales of $25.1 million in the year ended December 31, 2003. The increase was due to higher average selling prices and higher sales volumes. The average selling price for non-ferrous products was approximately $0.69 per pound for the year ended December 31, 2004, compared to $0.48 per pound for the year ended December 31, 2003, an increase of approximately 43.8% accounting for approximately $12.5 million of the total increase in non-ferrous sales. An increase in sales volume of approximately 7.8 million pounds sold contributed $3.7 million to the total increase in sales of non-ferrous products.

     As indicated in the discussions above, the Company has significantly benefited from increases in metal commodity prices accounting for approximately 85.2% of the total increase in sales for the year ended December 31, 2004, excluding the addition of Mayco in the fourth quarter of 2004, as compared to the year ended December 31, 2003. While the supply of non-ferrous scrap has increased as the U.S. economy has strengthened, resulting in increased domestic manufacturing activity, selling prices have remained strong due to robust global demand. Additionally, scrap consumers have been undeterred by higher pricing due to high demand for their products. Due to the volatile nature of metal commodity prices, it is difficult for us to predict future revenue trends as shifting international and domestic demand can significantly impact the prices of our products and effect anticipated future results.

Lead Fabrication and Recycling

          Sales in our Lead Fabrication and Recycling segment increased by $14.4 million or 62.1% to $37.6 million for the year ended December 31, 2004, compared to sales of $23.2 million for the year ended December 31, 2003. The primary reason for the increase in sales is the purchase of the remaining 50% joint venture interest of Mayco Industries, L.L.C. on September 30, 2004.

Lead Fabrication

          Lead fabrication sales increased by $13.5 million in 2004 versus 2003. The total addition to sales as a result of the Mayco purchase amounted to $12.0 million of the total increase. Excluding the effect of the Mayco purchase, sales in lead fabricating increased by $1.5 million. Rising product pricing amounted to $3.3 million of the increase, excluding Mayco, offset by a reduction in volume amounting to $1.8 million.

Lead Smelting

     Refined lead sales also increased by $3.1 million in 2004 versus 2003, of which, $2.9 million can be attributed to increased selling prices and an additional $207,000 resulting from increased selling volume. The average selling price for refined lead increased approximately $0.23 per pound or 100% from $0.23 to $0.46 for the year ending December 31, 2004 compared to the year ending December 31, 2003.

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Lead Tolling

          Tolling arrangements receive an agreed upon amount for each pound of lead processed for a customer. Refined lead sales per pound exceed the tolling amount per pound sold because they include the cost of raw materials. Tolling sales decreased by $2.2 million or 31.4% at our lead smelting facility from $7.0 million for the year ending December 31, 2003 to $4.8 million for the year ending December 31, 2004. In an effort to increase profit margins, our Gulf Coast Recycling, Inc. subsidiary has focused efforts on reducing its tolling services to concentrate more on sales of alloyed lead.

Gross Profit

     Total gross profit was $23.4 million or 20.3% of sales for the year ended December 31, 2004, compared to $11.4 million or 18.6% of sales during the year ended December 31, 2003. The $12.0 million improvement in the year ended December 31, 2004 was due primarily to the Scrap Metal Recycling segment’s improved results of operations which contributed $9.7 million to the increase in gross profit. The Company also experienced increased gross profit in the Lead Fabrication and Recycling segment of $2.3 million primarily the result of the Mayco purchase which comprised $2.2 million of the increase. Included in the $23.4 million of gross profit for the year ended December 31, 2004 was $869,000 derived from tolling operations down $290,000 from $1.2 million for the year ending December 31 2003. While operating expenses decreased as a percentage of sales from 29.3% of sales for the year ended December 31, 2003 to 22.7% sales for the year ended December 31, 2004 due to more efficient processing of metals, these efficiencies were partially offset by an increase in the cost of purchased metals from 52.1% of sales for the year ended December 31, 2003 to 57.0% sales for the year ended December 31, 2004.

Selling, General and Administrative

     Selling, general and administrative expenses were $9.4 million or 8.1% of sales for the year ended December 31, 2004, compared to $5.3 million or 8.6% of sales for the year ended December 31, 2003. The percentage of general and administrative expenses to sales for 2004 and 2003 decreased while total costs increased by $4.1 million. The increase in costs is due to the purchase of the remaining 50% joint venture interest of Mayco Industries, L.L.C. on September 30, 2004 adding an additional $1.1 million and the acquisition of a scrap handling company in February and an additional scrap yard in November 2004, totaling another $375,000 in expense. Other components contributing to the increase in selling, general and administrative expenses were increased employee wages and benefits of $1.4 million, professional service fees of $469,000 and other miscellaneous general and administrative expenses of $756,000.

Depreciation and Amortization

     Depreciation and amortization expenses were $3.0 million or 2.6% of sales for the year ended December 31, 2004, compared to $2.1 million or 3.4% of sales for the year ended December 31, 2003. The increase is due to the depreciation of a greater balance of depreciable assets in 2004 as compared to 2003, of which $4.0 million in additions were recorded during 2004.

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Operating Income

     Operating income for the year ended December 31, 2004 increased $7.5 million or 208% to $11.1 million compared to $3.6 million for the year ended December 31, 2003 and is a result of the factors discussed above.

Financial and Other Income/(Expense)

     Interest expense was $1.8 million or 1.6% of sales during the year ended December 31, 2004, compared to $1.0 million, also 1.6% of sales, during the year ended December 31, 2003. The increase in interest expense during 2004 was due to financing the acquisition of a scrap handling company in February 2004 adding $1.1 million in debt and the sale of a total of $8.3 million in convertible debt, $3.9 million in September to finance the remaining 50% joint venture interest in Mayco Industries, L.L.C. and $4.4 million in November and December 2004 to finance the acquisition of an additional scrap yard in November as well as the financing of higher receivable and inventory balances.

Income from Joint Venture

     Income from Mayco Industries, L.L.C. (Mayco Industries, Inc. since September 30, 2004) was $1.1 million for the nine months ended September 30, 2004, compared to $756,000 for the year ended December 31, 2003. On September 30, 2004, the Company purchased the 50% interest in Mayco Industries, L.L.C. that it did not previously own, and for the fourth quarter of 2004, the results of Mayco are reported in the consolidated totals. During the second half of 2003 and into the year 2004, the price of lead we purchase as a raw material for our products increased significantly. The London Metal Exchange reported the following increases of spot bid pricing as follows:

     Mayco Industries, L.L.C. was able to pass the higher raw material costs through to its customers and increase unit volume sales, resulting in increased earnings.

Income Taxes

     For the year ended December 31 2004, the Company recognized income tax expense of $3.4 million, resulting in an effective income tax rate of approximately 32%. For the year ended December 31, 2003, the Company reported a tax benefit of $1.4 million resulting from a $2.6 million decrease in the Company’s valuation allowance on net deferred tax assets. The valuation allowances were reduced due to management’s anticipation of future taxable income. We expect that the future effective combined federal and state tax rates to be approximately 35%.

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Discontinued Operations

     For the year ended December 31, 2004, we recorded a discontinued operations loss of $429,000, compared to discontinued operations losses for the year ended 2003 of $2.9 million. During the fourth quarter of 2003, the company idled operations at its secondary lead smelting and refining plant in College Grove, Tennessee. The plant was substantially inactive during the fourth quarter of 2003 except for certain clean-up activities in preparation to ready the plant for sale in the future. An impairment loss on property and equipment was recognized in the second quarter of 2003 for approximately $2 . 3 million. Discontinued operating losses in 2004 represents additional incurred and anticipated environmental monitoring costs for the College Grove Tennessee plant.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

     Consolidated net sales for the year ending December 31, 2003 increased $2.0 million to $61.3 million from $59.3 million for the year ending December 31, 2002. The increase in consolidated net sales was primarily due to higher average selling prices for both ferrous and non-ferrous metals and higher volumes of ferrous metals. Ferrous metals contributed $1.9 million due to higher volumes and $1.6 million due to higher selling prices. The increase in higher average selling prices for non-ferrous scrap metal contributed $3.7 million offset by $1.9 million due to lower volume of non-ferrous scrap products sold. Partially offsetting these increases in Scrap Metal Recycling segment was a loss of sales in our lead fabrication and recycling segment of $3.3 million primarily due to the contribution to Mayco, on March 18, 2002, of certain assets, including customer lists. Mayco was at that time a 50%-owned joint venture. The assets contributed to Mayco generated $3.9 million of sales during the first quarter of 2002 prior to the contribution. As of March 19, 2002, the Company’s assets and related sales contributed to Mayco were no longer consolidated into the Company’s financial statements but were reported in Mayco’s results of operations.

     On April 30, 2002, a Company subsidiary acquired a substantial portion of the assets and business operations of a competitor ferrous and non-ferrous scrap metal recycling operation. The results of operations generated from these assets have been included in the consolidated financial statements since that date. The purchase price was approximately $3.3 million.

   Scrap Metal Recycling

     Ferrous Sales

     Ferrous sales increased $3.5 million or 36.7% to $13.0 million for the year ended December 31, 2003 compared to $9.5 million for the year ended December 31, 2002. The increase in ferrous metal sales was attributable to an increase in volume sold of approximately 19,200 tons amounting to $1.8 million in additional sales coupled with a 14% increase in average selling prices which produced an increase of $1.6 million in sales. The average selling price for ferrous products was approximately $111 per ton for the year ended December 31, 2003 compared to approximately $97 per ton for the year ended December 31, 2002 an increase of approximately $14 per ton or 14.4%. The Company sold 117,700 tons of ferrous metals in 2003 and 98,500 tons in 2002.

     Non-Ferrous Sales

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     Non-ferrous sales increased $1.8 million or 7.6% to $25.1 million for the year ended December 31, 2003 compared to $23.3 million for the year ended December 31, 2002. The increase in revenues for non-ferrous products was primarily attributable to higher average selling prices for the year ending December 31, 2003 which amounted to an increase of $3.6 million in sales, partially offset by a decrease in volume sold. The total sales volume for non-ferrous products decreased by 7.0% representing approximately 3.9 million pounds. The average selling price for non-ferrous products was approximately $0.48 per pound for the year ended December 31, 2003 compared to $0.41 per pound for the year ended December 31, 2002, an increase of approximately $0.07 per pound or 15.7%.

   Lead Fabrication and Recycling

     Lead Fabrication

     Lead fabrication sales decreased $3.7 million or 21.4% to $13.4 million for the year ended December 31, 2003 compared to $17.1 million for the year ended December 31, 2002. The decrease is primarily attributable to the contribution to Mayco, a 50% owned joint venture, on March 18, 2002, of certain assets, and their corresponding sales. Sales attributable to the assets contributed to Mayco during the first quarter of 2002 prior to the contribution were approximately $3.9 million (7.0 million pounds). Average selling prices (excluding sales attributable to the assets contributed to Mayco) were approximately $0.493 per pound for the year ending December 31, 2003 compared to $0.570 per pound for the year ending December 31, 2002 a decrease of 13.5%.

     Lead Smelting

     Refined lead sales increased $728,000 or 36% to $2.7 million for the year ending December 31, 2003 compared to $2.0 million for the year ending December 31, 2002. The increase is primarily attributable to a volume increase in pounds sold. The average selling price for refined lead increased approximately $0.01 per pound or 4.5% for the year ending December 31, 2003 compared to the year ending December 31, 2002.

     Lead Tolling Services

     Lead tolling sales decreased by $285,000 or 3.9% to $7.0 million for the year ending December 31, 2003 compared to $7.3 million for the year ending December 31, 2002. The decrease is due to lower volumes.

   Gross Profit

     For the year ended December 31, 2003, consolidated gross profit amounted to $11.4 million or 18.6% of total sales, a decrease of $1.4 million or 11.3% compared to $12.8 million or 21.6% of total sales for the year ended December 31, 2002. The decrease in gross profit is primarily attributable to the Lead Fabrication and Recycling segment. Gross profit for refined lead decreased $294,000 in 2003 versus 2002 primarily due to increased operating and environmental costs. The Lead Fabrication and Recycling segment gross profit also decreased by $294,000 due to the contribution of assets to Mayco on March 18, 2002. Those contributed assets were reported on the equity method and not consolidated into Metalico’s financial statements after March 18, 2002. The

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remaining decrease for the Lead Fabrication and Recycling Segment gross profit was due to lower sales volumes of shot and lead fabricated products of $371,000. Gross profit for tolling services decreased by $958,000 in 2003 versus 2002 due to lower sales, and increased operating and environmental costs. The Scrap Metal Recycling segment reported increased gross profit of $474,000 due to the previously discussed increases in sales pricing and volumes.

   Selling, General and Administrative

     Selling, general and administrative expenses were $5.3 million for the year ended December 31, 2003 compared to $6.0 million for the year ended December 31, 2002 a decrease of $0.7 million. Approximately $0.5 million of the decrease was due to the reduction of selling, general and administrative expenses associated with the assets contributed to Mayco. Selling and general administrative costs for the year 2003 were consistent with those of 2002 although the Company recorded higher sales in 2003 due to diligent cost monitoring efforts by company management.

   Depreciation and Amortization

     Depreciation and amortization for the year ended December 31, 2003 was $2.1 million and was unchanged from the $2.1 million expense recorded for the year ended December 31, 2002.

   Impairment and Other Losses and Net Realized Gain/Loss on Nonoperating Property

     During the year 2003 an impairment loss of $610,000 offset by a gain on the sale of property of $152,000 was incurred for environmental remediation costs of a decommissioned plant site in Tennessee.

   Operating Income

     Operating income for the year ended December 31, 2003 decreased $1.2 million or 24.8% to $3.5 million compared to $4.7 million for the year ended December 31, 2002 and is a result of the factors discussed above.

   Financial and Other Income/(Expense)

     For the year ended December 31, 2003, other expense totaled $69,000 as compared to $363,000 for the year ended December 31, 2002, a decrease of $294,000. The change in other expense resulted from a mix of items. Equity income from Mayco rose from $189,000 in 2002 to $756,000 in 2003 due to a full year of earnings in 2003 and improved profits. During 2002 there was a gain from the termination and final distribution of assets of a defined benefit plan of $247,000. During 2002 there was a gain from the extinguishment of debt of $385,000 versus $62,000 in 2003. Interest expense decreased approximately $300,000 to $983,000 for the year ended December 31, 2003 compared to $1.3 million for the year ended December 31, 2002. The decrease in interest expense reflects a lower average of outstanding debt in 2003 compared to 2002 and lower interest rates charged to the Company under our senior secured credit facility.

   Income Taxes

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     For the year ended December 31, 2003, the Company reported a tax benefit of $1.4 million resulting from a $2.6 million decrease in the Company’s valuation allowance on net deferred tax assets. Management’s decision to reduce its valuation allowance is based upon increased anticipated future taxable income from increased profitability of our lead fabrication and recycling subsidiaries and the idling of a secondary lead smelting subsidiary during the fourth quarter of 2003. For the year ended December 31, 2002, income taxes reflected a charge of $509,000 primarily for state income taxes.

   Discontinued Operations

     Discontinued operations reflect a loss of $2.9 million net of income tax effects for the year ending December 31, 2003. In October 2003, the Company idled its secondary lead smelting subsidiary in College Grove, Tennessee. The loss of $2.9 million reflects the operating activity of the facility through October 2003 and certain clean-up activities in connection with the idling of the plant. For the year ended December 31, 2002, the discontinued operations of the idled subsidiary resulted in a loss of $1.1 million.

   Net Income

     Net income was $2.0 million for the year ended December 31, 2003, a reduction of $800,000 compared to net income of $2.8 million in the year ended December 31, 2002 as a result of the factors discussed above.

QUARTERLY FINANCIAL INFORMATION
(Unaudited)

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LIQUIDITY AND CAPITAL RESOURCES

     The Company has certain contractual obligations and commercial commitments to make future payments. The following table summarizes these future obligations and commitments as of December 31, 2004 ($ in thousands):

   Cash Flows

     During the year ended December 31, 2004, our operating activities generated net cash of $6.4 million compared to net cash generated of $3.0 million for the year ended December 31, 2003. During the year ended December 31, 2004 net income of $6.7 million, noncash items of depreciation and amortization of $3.4 million and deferred income taxes of $3.0 million was partially offset by an increase in accounts receivable of $4.4 million (used in operating activities) due to increased sales. During the year ended December 31, 2003 net income of $2.0 million, noncash items of depreciation and amortization of $2.4 million and a non-cash impairment loss of $2.3 million for the write-down of fixed assets at our College Grove, Tennessee plant (plant idled in October 2003) was partially

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offset by deferred taxes and an increase in inventory of $2.2 million (used in operating activities). For the year ending December 31, 2002, cash provided by operating activities totaled $3.9 million. Net income of $2.8 million and noncash charges for depreciation and amortization of $2.6 million were partially offset by increased accounts receivable of $3.0 million

          We used $18.7 million in net cash for investing activities in the year ended December 31, 2004 compared to using net cash of $3.4 million in the year ended December 31, 2003. During the year ended December 31, 2004 we purchased a scrap handling company located in Lackawanna, New York which used cash of $1.6 million, the outstanding membership interests of Mayco Industries, LLC for $7.6 million and an additional scrap yard in Rochester, New York for $4.9 million. During the year ending December 31, 2003, we purchased a scrap yard in Rochester, New York for $1.2 million. The remaining cash expenditures for both years were used primarily for purchases of equipment.

          During the year ended December 31, 2004 we generated $12.4 million of net cash from financing activities compared to $ 462,000 of net cash during the year ended December 31, 2003. During the year ended December 31, 2004 total borrowings amounted to $15.9 million used primarily to finance the acquisition of a scrap handling company in February 2004, an additional scrap yard in November 2004, the outstanding membership interests of Mayco Industries, LLC, as well as for equipment purchases and other working capital needs. Total debt repayments in 2004 totaled $3.5 million. During 2003, the Company borrowed $2.2 million under its revolving credit facility for working capital and debt repayments on other debt totaled $1.6 million.

     On June 29, 2004, our loan agreement was amended and extended to May 31, 2009 (a three-year extension). The agreement provides maximum credit facilities of up to $35 million and is comprised of term, equipment, real estate and revolving loans, collateralized by substantially all assets of the Company. Borrowings under the revolving credit facility are generally limited to percentages of eligible accounts receivable and inventory and recent collections on accounts receivable. Total borrowings under the revolver were limited to a maximum of $21.0 million at December 31, 2004. Interest on revolving advances is payable monthly at the lender’s base rate plus a margin (an effective rate of 5.75% at December 31, 2004) or, if a LIBOR option loan, at the LIBOR rate plus a margin (an effective rate of 5.46% at December 31, 2004).

     Under the terms of the loan agreement, the Company is required to maintain certain depository accounts with the lender and comply with certain financial covenants, including minimum EBITDA and not to exceed maximum capital expenditures. The Company also is generally restricted from entering into financing, equity, and certain other transactions, as defined in the loan agreement, without written consent of the primary lender. In addition, the Company is responsible to the lender for a monthly servicing fee, a contingent anniversary fee each May if its EBITDA for the fiscal year immediately prior to such anniversary date is less than its projected EBITDA for such fiscal year, unused line of credit and letter of credit fees equal to a percentage of the average daily unused portion of the Revolver and letters-of-credit and certain other fees. Lender fees (excluding those capitalized as debt issue costs in year of issuance) are included as a component of interest expense in the period assessed.

     Upon giving effect to the closing of our Mayco acquisition and the refinancing of Mayco debt on September 30, 2004, the Company exceeded the maximum funded amount available under a term

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loan commitment provided under our loan agreement. Our lender waived this violation provided the excess was paid in full by December 1, 2004. The excess was timely paid. Another provision of our loan agreement requires us to deliver projections for the forthcoming three years to our lender within thirty days prior to the start of each fiscal year. Our projections for fiscal 2005 and thereafter were not delivered by the required date because our closing of an acquisition on November 18, 2004, caused us to reexamine the assumptions and conclusions underlying our earlier draft projections. Updated projections were subsequently delivered and our lender waived the covenant violation.

     Except as described in the immediately preceding paragraph, the Company was in compliance with all covenants as of December 31, 2004. As of December 31, 2004, we had outstanding borrowings of approximately $17.7 million under our senior secured credit facility. As of December 31, 2004 the Company had $5.1 million of borrowing availability under the senior secured credit facility.

     Our senior secured credit facility contains a holdback provision limiting total borrowings to $27.5 million until certain minimal conditions are met.

   Future Capital Requirements

     We expect to fund our working capital needs, interest payments and capital expenditures over the next twelve months with cash generated from operations, supplemented by borrowings available under the loan agreement and potentially available elsewhere, such as vendor financing, manufacturer financing, operating leases and other equipment lines of credit that are offered to us from time to time.

   Refinancing and Restructuring

     In an effort to restructure the Company’s balance sheet and provide operating liquidity, in 2001, the Company refinanced a significant portion of its debt and entered into a Termination Agreement with certain lender banks, pursuant to which the Company issued subordinated notes for the refinanced debt. The Company entered into agreements with the banks during 2002 through 2004 for the payment of the restructured debt and interest and the redemption of all outstanding warrants issued to the banks in connection with the restructuring. Amounts paid for the estimated value of the warrants were generally negotiated between the parties as a part of the agreements. The Company made total payments of approximately $1.7 million retiring debt of $1.3 million, interest of $392,000 and redemption of warrants of $251,000. The Company recognized additional gains from debt forgiveness of $62,000 in 2002 and $104,000 in 2003 resulting from the settlement agreements with the banks.

   Conversion of Debt to Equity and Changes in Preferred Stock

     Effective May 24, 2004, Metalico, Inc. entered into an Exchange Agreement with the holders of its preferred stock whereby the existing outstanding shares of Class A and B preferred stock, including all rights associated with such stock, were exchanged for 16,510,658 newly issued shares of preferred stock. The Company had no outstanding shares of Class B2 preferred stock at the time. The Company amended and restated its Certificate of Incorporation (the “Amended Certificate”) to, among other things, terminate the Class A, B, and B2 existing series of preferred stock, provide for

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revised terms for the new preferred stock, and restate and integrate into a single instrument all of the provisions of the Company’s Certificate of Incorporation as so amended. Also included in the Amended Certificate were provisions that eliminated the redeemable features of the prior preferred stock and its dividend participation requirements. The holders of preferred stock are entitled to receive dividends as the Board of Directors may determine at its sole discretion, and will share with common stockholders on an as-converted basis in all dividends declared on common stock. The preferred stock ranks senior to the common stock as to the payment of dividends and the distribution of assets upon liquidation.

     In addition, debt of $870,000 owed to a stockholder was converted to 435,000 shares of common stock at a conversion rate of $2.00 per share in June of 2004.

   Off-Balance Sheet Arrangements

     Other than operating leases, we do not have any significant off-balance sheet arrangements that are likely to have a current or future effect on our financial condition, result of operations or cash flows.

     Upon formation, Mayco Industries, LLC entered into a three-year loan agreement with Foothill Capital Corporation. The agreement was structured to follow the existing Metalico, Inc. loan agreement as a template. In order to secure the financing for its 50% owned subsidiary, Metalico agreed to guarantee Mayco’s borrowings under the agreement. On September 30, 2004, the Company completed the acquisition of the outstanding membership interests of Mayco Industries, L.L.C., and the conversion of Mayco to a corporation renamed Mayco Industries, Inc. Simultaneously with closing, the Company retired all of the outstanding Mayco debt, including the Foothill debt, thereby canceling the guarantee.

   Mayco Industries; Real Estate Acquisition

     On March 18, 2002, Mayco Industries, L.L.C. (Mayco) was formed as a joint venture among Mayfield Manufacturing Company, Inc. (50%), an unaffiliated third party, and our Metalico-Evans, Inc. (25%), and Metalico-Granite City, Inc. (25%) subsidiaries (the L.L.C. members). Mayco entered into Asset Contribution Agreements with such members whereby substantially all of the assets and operations, except for real property, of Mayfield Manufacturing Company, Inc. and Metalico-Evans, Inc., and the lead fabricating division of Metalico-Granite City, Inc. were contributed to Mayco in return for the issuance of its L.L.C. interests to the members and the assumption by Mayco of substantially all the liabilities of the members, except those applicable to assets and operations not transferred. The net assets contributed by Metalico-Evans, Inc. and Metalico-Granite City, Inc., at the date of transfer, were reclassified to the investment in joint venture account at carrying amounts as reported by the subsidiaries, and such investment was reported in accordance with the equity method of accounting. Our participation in the joint venture was considered a strategic expansion of our lead fabrication segment. The purchase price of the 50% membership interest acquired in 2004 was determined as a result of a contractual bid process that was initiated by the Mayfield Manufacturing member. The bidding was based upon a trailing twelve-month EBITDA with each member having the opportunity to counter bid until a receiving member deemed a bid acceptable. The acquisition of the membership interests held by our co-venturers strategically enhances our position in the lead fabrication industry and allows us to exploit synergies with our other fabricating units.

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     The Company completed the acquisition of the outstanding membership interests of Mayco Industries, L.L.C., and the conversion of Mayco to a corporation renamed “Mayco Industries, Inc.” on September 30, 2004. The purchase was funded with debt, including borrowings under our loan agreement and convertible debt issued at a 10% discount bearing an interest rate of 7% per annum and maturing on September 30, 2005. The convertible debt, in the aggregate amount of $3.9 million, has been converted at the option of individual holders to our common stock at a rate of $2.75 per share on March 29, 2005. In connection with the Mayco acquisition, the Company assumed and refinanced Mayco’s outstanding indebtedness of $5.4 million.

     The contractual bidding process for the Mayco membership interest further obligated us to buy the underlying real estate for Mayco’s Birmingham, Alabama lead fabrication plant from an affiliate of Mayfield Manufacturing in a separate transaction. We closed the real estate acquisition on January 7, 2005 for a purchase price of approximately $3.2 million. Approximately $2.2 million of the purchase price was financed with the proceeds of a term loan provided under an amendment to our loan agreement, with the remainder funded by revolving borrowings under the same agreement. Interest on the term loan accrues at a floating rate equal to the base rate under our credit agreement plus 1%. The term loan is payable in monthly principal installments plus interest based on a five-year amortization with a one-year balloon maturity. Including the real estate transaction the total debt assumed and incurred in the Mayco transaction was approximately $16.6 million, financed as follows:

   Contingencies

     In 2000, the Company received correspondence from the United States Environmental Protection Agency (the “EPA”) alleging potential liability for a release of hazardous substances from at least 16 properties (and potentially one additional property) contaminated with lead leaching from contaminated waste battery chips in and around College Grove, Tennessee (collectively the “Site”). No accrual for remediation costs was recorded by the Company at that time because it was not able to reasonably estimate the amount of any range of potential obligation for remediation of the Site.

     The Company subsequently received a letter from the EPA dated January 27, 2003 (the “Notice”) that included a demand for payment of approximately $10.3 million plus interest for response costs relating to the EPA’s determination that there was a release of hazardous substances from the Site. The EPA alleges battery chips were stockpiled between 1950 and 1970 by General Smelting and Refining, Inc. (“GSR”), which subsequently became a Company subsidiary, were made available to

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the general public during that time period, and were transported from the GSR plant facility to the properties that make up the Site. The 2003 letter from the EPA stated that it has cleaned 86 properties relating to the Site and excavated/disposed of approximately 91,000 tons of contaminated soil and battery chip debris. The letter also stated the EPA anticipates that (i) additional funds may be expended on the Site, (ii) the Company is potentially liable for such expenditures plus interest, and (iii) the demand for payment amount is preliminary, and does not limit the EPA from providing a revised figure as additional costs are identified. In its letter the EPA also sought Metalico Inc.’s agreement to assume responsibility for any future removal and other remediation activities that are discovered relating to the Site.

     The Company responded to the Notice on April 4, 2003 through its external legal counsel. The response pointed out that the Company, our Metalico-College Grove, Inc. subsidiary (“MCG”), which purchased certain assets from GSR as discussed below, and GSR are separate corporations. The response also observed that GSR is not the owner or operator of the Site and argued, based on certain deposition testimony in a prior case, that GSR did not arrange for deposit of hazardous materials on the Site. The response also pointed out that neither the Company nor MCG are or could be “arrangers” with respect to the disposal of the subject hazardous materials. Finally, the response argued that under governing federal and state law pertaining to the relationship of parent and subsidiary companies neither the Company nor MCG has any liability for the alleged activities of GSR.

     The EPA replied to the Company’s response on June 28, 2004, when it issued a Third Request for Information (the “Third Request Letter”). The Third Request Letter stated that it was intended to help the EPA evaluate information previously provided by the Company but also increased the EPA’s demand for costs through June 23, 2004 to $11,778,000. The Company’s external legal counsel filed a response to the Third Request Letter with the EPA on September 10, 2004. In October 2004, the EPA asked the Company to consider entering into a tolling agreement for purposes of tolling any statute of limitations potentially applicable to the EPA’s claim. In January of 2005 the Company and the EPA entered into an agreement to toll any such statute of limitations for the period from January 19, 2005 through May 31, 2005.

     On February 25, 2005, the EPA responded to Metalico’s April 4, 2003, letter and submission of additional information (the “February 2005 Letter”). In that letter, the EPA stated that its claim was now $11,871,026 and made demand for that amount “from Metalico and GSR.” While stating again the EPA’s belief that GSR is liable as an arranger, the February 2005 Letter also acknowledged that “EPA is not questioning the propriety of th[e] asset purchase” by which MCG acquired the new plant assets of GSR, and further “acknowledged the legal hurdles associated with piercing the corporate veil or holding a parent directly liable” under applicable environmental law. Nonetheless, the February 2005 Letter stated “EPA sees no practical distinction between GSR and Metalico,” and thus asserted its view that Metalico “should ... fund EPA’s cleanup at the Site.” However, the February 2005 Letter also solicits a settlement offer from Metalico and GSR and further states that that the “EPA is willing to consider a schedule for payment over time, as well as a reduction in the total amount demanded from Metalico and/or GSR.”

     On March 23, 2005, the Company’s external legal counsel replied to the February 2005 Letter. The reply acknowledged the EPA’s concessions in the February 2005 Letter and reiterated the legal bases for the independent corporate existences of Metalico and GSR. However, the Company also

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agreed to develop a good-faith settlement offer as requested, consistent with the Company’s understanding of the facts and law of this matter and its evaluation of the legal strengths and weaknesses of the EPA’s case.

     External legal counsel has advised us that it is too early at this time to determine whether or how the matter could be settled or how the EPA will react to any additional offer the Company might determine appropriate to make, whether the matter will result in litigation, or what the ultimate outcome will be. As a result, management and the Company’s legal counsel are unable to reasonably estimate the amount of ultimate liability, if any, which may be incurred with respect to this matter. Unless and until any settlement is entered into, the Company intends to vigorously contest the EPA’s claim. The financial statements accompanying this report do not include any adjustments that might result from the outcome of this uncertainty.

     We are involved in certain other legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such other proceedings and litigation will not materially affect the Company’s financial position, results of operations, or cash flows.

     The Company does not carry, and does not expect to carry for the foreseeable future, significant insurance coverage for environmental liability because the Company believes that the cost for such insurance is not economical. Accordingly, if the Company were to incur liability for environmental damage in excess of accrued environmental remediation liabilities, its financial position, results of operations, and cash flows could be materially adversely affected.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to financial risk resulting from fluctuations in interest rates and commodity prices. We seek to minimize these risks through regular operating and financing activities. We do not use derivative financial instruments.

   Interest rate risk

     We are exposed to interest rate risk on our floating rate borrowings. As of December 31, 2004, variable rate borrowings mainly consisted of outstanding borrowings of $17.7 million under our senior secured credit facility. Borrowings under our senior secured credit facility bear interest at either the prime rate of interest plus a margin or LIBOR plus a margin. Any increase in either the prime rate or LIBOR will increase interest expense. We do not have any interest rate swaps or caps in place which would mitigate our exposure to fluctuations in the interest rate on this indebtedness. Assuming our variable borrowings were to equal the average borrowings under our senior secured credit facility during a fiscal year, a hypothetical increase or decrease in interest rates by 1% would increase or decrease interest expense on our variable borrowings by approximately $177,000 per year, with a corresponding change in cash flows.

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   Commodity price risk

     We are exposed to risks associated with fluctuations in the market price for both ferrous and non-ferrous metals which are at times volatile. See the discussion under the section entitled “Risk Factors — The metals recycling industry is highly cyclical and export markets can be volatile.” We attempt to mitigate this risk by seeking to turn our inventories quickly instead of holding inventories in speculation of higher commodity prices.

     Foreign currency risk

     International sales account for an immaterial amount of our consolidated net sales and all of our international sales are denominated in U.S. dollars. We also purchase a small percentage of our raw materials from international vendors and these purchases are also denominated in local currencies. Consequently, we do not enter into any foreign currency swaps to mitigate our exposure to fluctuations in the currency rates.

Item 8. Financial Statements and Supplementary Data

     The financial statements and supplementary data required by this Item 8 are set forth at the pages indicated at Item 15(a)(1).

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     There were no changes in or disagreements with accountants during 2004.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective as of December 31, 2004. Management, including our Chief Executive Officer and Chief Financial Officer, is in the process of evaluating the effectiveness of its internal control over financial reporting as defined in Rule 13a–15(f) under the Securities Exchange Act of 1934 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on preliminary results to date, management has not identified any material weaknesses in internal control over financial reporting as of January 1, 2005. No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the fourth quarter of our fiscal year ended December 31, 2004 that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are

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subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B. Other Information

     None.

Item 10. Directors and Executive Officers of the Registrant

MANAGEMENT

     The names of our directors and executive officers, their ages as of March 31, 2005, and certain other information about them are set forth below:

     Carlos E. Agüero founded the Company in August of 1997 and has served as our Chairman, President and Chief Executive Officer and as a Director since that time. From February 1988 to December 1996, he held the position of President, Chief Executive Officer and Director of Continental Waste Industries, Inc., which he founded in February 1988 and helped guide through more than thirty acquisitions and mergers. Continental commenced trading on the NASDAQ National Market in November of 1993 and was acquired by Republic Industries, Inc., in December of 1996.

     Michael J. Drury has been an Executive Vice President of the Company since its founding in August 1997 and a director since September 1997. He served as Secretary of the Company from March 2000 to July 2004. From February 1988 through June 1997, Mr. Drury was Senior Vice President, Chief Financial Officer, and a member of the Board of Directors of Continental Waste Industries, Inc. His responsibilities include acquisition development, investor relations, operations, and debt management.

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     Earl B. Cornette has been a Director of the Company since September 1997. Since 1995 Mr. Cornette has been President of EBC Consulting, Inc., a consulting firm in the lead and environmental industries based in Palm Harbor, Florida. From 1990 through 1995, Mr. Cornette was Chairman of the Board of Directors of Schuylkill Holdings Corporation, a secondary lead smelter. From 1989 through 1997, Mr. Cornette was Chairman of the Association of Battery Recyclers, an organization composed of secondary lead smelting companies dedicated to sound recycling practices and good environmental controls. From 1995 through 1997, Mr. Cornette was also a consultant to ENTACT, Inc., a firm that specializes in environmental cleanups, especially lead related.

     Bret R. Maxwell has been a Director of the Company since September of 1997. He has been the managing general partner of MK Capital LP, a venture capital firm specializing in investments in technology and outsourcing companies, since its formation in 2001. From May of 1982 to January of 2002 Mr. Maxwell was employed by First Analysis Corporation, where he founded a venture capital practice in 1985 and served as co-chief executive officer from February of 1998 until his departure. Mr. Maxwell holds his seat on the Board as a Director designated by, collectively, five investment funds managed by First Analysis Corporation that hold a portion of the Company’s preferred stock, pursuant to the Stockholders’ Agreement described below. He is the managing general partner of each of the five funds. Mr. Maxwell chairs the Board’s Compensation Committee.

     Walter H. Barandiaran has been a Director of the Company since June of 2001. He is a founder and a managing partner of The Argentum Group, a New York-based private equity firm founded in 1987 that serves as a general partner of several investment funds focusing in the Healthcare Services, Information Technology, Industrial Sector, and Outsource Businesses. Mr. Barandiaran also serves as the Chairman of HorizonWimba, Inc., a software platform for virtual classrooms and collaboration tools, since March 2002; and as the Chairman of AFS Technologies, Inc., a provider of ERP software to the food industry, since March 2003. Mr. Barandiaran has also been the CEO of HorizonWimba, Inc. from March 2002 until June 2004. He also serves on the Boards of Directors of several privately held corporations in which The Argentum Group or its affiliates have invested. Mr. Barandiaran holds his seat on the Board as a Director designated by, collectively, two investment funds (Argentum Capital Partners, L.P., and Argentum Capital Partners II, L.P.) that hold a portion of the Company’s preferred stock, pursuant to the Stockholders’ Agreement described below.

     Paul A. Garrett has been a Director since March 16, 2005. From 1991 to 1998 he was the chief executive officer of FCR, Inc., an environmental services company involved in the recycling of paper, plastic, aluminum, glass and metals. Upon FCR’s merger in 1998 into KTI, Inc., a solid waste disposal and recycling concern that operated waste-to-energy facilities and manufacturing facilities utilizing recycled materials, he was appointed vice chairman and a member of KTI’s Executive Committee. He held those positions until KTI was acquired by Casella Waste Systems, Inc., in 1999. For a period of ten years before his entry into the recycling industry Mr. Garrett was an audit partner with the former Arthur Andersen & Co. Mr. Garrett chairs the Board’s Audit Committee and is an Audit Committee Financial Expert.

     Arnold S. Graber joined the Company as Executive Vice President and General Counsel in May of 2004. From 2002 until that time he practiced law with the firm of Otterbourg, Steindler, Houston & Rosen, P.C. in New York, New York. From 1998 to 2001 he served as general counsel of TSR

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Wireless LLC, a privately held paging carrier and telecommunications retailer based in Fort Lee, New Jersey, which filed a petition under Chapter 7 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey on December 8, 2000. From 1988 to 1998 Mr. Graber was a member of the Law Department of The First National Bank of Chicago. He was elected the Company’s Secretary on July 1, 2004.

     Eric W. Finlayson has been Senior Vice President and Chief Financial Officer of the Company since its founding in August of 1997. Mr. Finlayson has responsibility for our Corporate Cash Management and Insurance programs, accounting, pensions, and transitioning newly acquired companies into the policies and procedures of Metalico. From September 1993 through June 1997, Mr. Finlayson was Corporate Controller of Continental Waste Industries, Inc., where his primary duties included SEC reporting, cash management, accounting, and investor relations. Mr. Finlayson is a Certified Public Accountant.

STOCKHOLDERS’ AGREEMENT

     We have entered into a Second Amended and Restated Stockholders’ Agreement (the “Stockholders’ Agreement) with certain holders of our preferred stock and certain of our significant stockholders and members of management. Under the Stockholders’ Agreement, the Company and holders who owned collectively 16,066,075 (or about 97%) of the Company’s outstanding preferred stock and 3,254,159 (or about 57%) of the Company’s outstanding common stock as of May 24, 2004 (collectively, about 87% of our voting stock on a fully diluted basis) agree to vote, as stockholders, their shares of our equity securities for the election, as directors of our company, of the four individuals designated by, respectively:

     (i) Seacoast Capital Partners Limited Partnership,

     (ii) collectively, five investment funds affiliated with First Analysis Corporation (i.e., Apex Investment Fund III, LP, Apex Strategic Partners, LLC, Infrastructure & Environmental Private Equity Fund III, LP, Environmental & Information Technology Private Equity Fund III, and The Productivity Fund III, L.P.),

     (iii) RFE Investment Partners V, L.P., and

     (iv) collectively, two investment funds affiliated with The Argentum Group (i.e., Argentum Capital Partners, L.P. and Argentum Capital Partners II, L.P.),

in each case so long as such individual or collective entity, all of whom are investors in the Company, owns at least 75% of the preferred stock held by it on May 24, 2004. Each such individual or collective entity may withdraw its designation of an individual director or designate a new individual to be a director of the Company in its own discretion from time to time. At such time as any such individual or collective entity identified in clauses (i) through (iv) above owns less than 75% of the preferred stock held by it on May 24, 2004, its designated director will be removed from the board and the remaining individual and collective entities, voting together as a group, will designate a successor director, provided that at the time of designation such remaining investors collectively own 50% of the preferred stock owned by all of the investors identified in clauses (i) through (iv) above on May 24, 2004. If they do not, the successor director will be elected by the

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holders of all voting capital stock voting together as a single class, with each remaining holder of preferred stock being entitled to cast the number of votes equal to the number of votes which could be cast by such holder upon conversion of the holder’s preferred stock to common stock. Effective December 31, 2004, Seacoast Capital Partners Limited Partnership and RFE Investment Partners V, L.P., have waived their rights to designate directors.

     The Stockholders’ Agreement terminates upon the first to occur of (i) the consummation of an issuance of our common stock having a value of at least $30,000,000 pursuant to a registration statement under the Securities Act in a single offering, (ii) the occurrence of any event causing an automatic conversion of all shares of outstanding preferred stock (other than a request for conversion by holders of 67% of the preferred stock) as described in our Certificate of Incorporation, or (iii) the written agreement of the holders of 95% of the fully diluted capital stock held by parties to the Stockholders’ Agreement.

COMMITTEES OF THE BOARD OF DIRECTORS

     Our Board of Directors has a Compensation Committee and an Audit Committee. The Board may also establish other committees from time to time to assist in the discharge of its responsibilities.

  Compensation Committee

     The Compensation Committee conducts a general review of our compensation and benefit plans to ensure that they meet corporate objectives. In addition, the Compensation Committee reviews our chief executive officer’s recommendations on compensating our officers and adopting and changing major compensation policies and practices, and reports its recommendations to the whole board of directors for approval and authorization. The Compensation Committee also administers our employee benefit plans. Our Compensation Committee currently consists of Mr. Maxwell, the chairman, and Messrs. Cornette and Barandiaran.

  Audit Committee

     The Audit Committee makes recommendations to the Board of Directors regarding the independent auditors to be nominated for election by the stockholders and reviews the independence of such auditors, approves the scope of the annual audit activities of the independent auditor, approves the audit fee payable to the independent auditor and reviews such audit results with the independent auditor. The Audit Committee is currently composed of Mr. Garrett, the chairman, and Messrs. Barandiaran and Maxwell. The Board has determined that Mr. Garrett satisfies the requirements for an “audit committee financial expert” under the rules and regulations of the Securities and Exchange Commission. McGladrey & Pullen, LLP currently serves as our independent auditor.

  Compensation Committee Interlocks and Insider Participation

     The members of our Compensation Committee are Messrs. Maxwell, who serves as chairman, and Messrs. Cornette and Barandiaran. None of the members of our Compensation Committee has at any time been one of our officers or employees. None of our executive officers serves as a

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director or compensation committee member of any entity that has one or more of its executive officers serving as one of our directors or on our Compensation Committee.

DIRECTOR COMPENSATION

     Mr. Cornette receives a payment of $1,000 per meeting of the Board of Directors attended. Mr. Garrett receives an annual fee of $30,000 for his services as a director and chairman of our Audit Committee, payable in monthly installments of $2,500, and an additional payment of $1,500 for each board or committee meeting attended. As an inducement to join the Board and to chair its Audit Committee, Mr. Garrett was granted options for 10,000 shares of our common stock at an exercise price of $3.50 per share on March 16, 2005. The options vest in equal monthly installments over a period of two years and expire on March 16, 2010. None of the other outside Directors is compensated for service to the Company and we do not pay additional fees for membership on committees of the Board.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     The Company was not subject to the provisions of Section 16(a) of the Exchange Act for the year ended December 31, 2004.

CODE OF ETHICS

     The Company has adopted a code of business conduct and ethics applicable to the Company’s Directors, officers (including the Company’s principal executive officer, principal financial officer and controller) and employees, known as the Code of Business Conduct and Ethics. The Code is available on the Company’s website at www.metalico.com. In the event that we amend or waive any of the provisions of the Code applicable to our principal executive officer, principal financial officer or controller, we intend to disclose the same on the Company’s website.

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Item 11. Executive Compensation

COMPENSATION SUMMARY

     The following table sets forth the total compensation for the Chief Executive Officer and all other executive officers (the “Named Officers”) whose total compensation exceeded $100,000 during 2004 for their services to the Company and its subsidiaries for each of the years ended December 31, 2004, 2003 and 2002. Employees not deemed to be “executive officers” of the Company who earned more than $100,000 in salary and bonus are excluded from this table.

SUMMARY COMPENSATION TABLE

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OPTION GRANTS IN LAST FISCAL YEAR

     In June of 2004 we issued warrants to our Executive Vice President, Michael J. Drury, and our Senior Vice President and Chief Financial Officer, Eric W. Finlayson, to purchase 90,000 shares and 10,000 shares, respectively, of our common stock. The warrants were awarded as compensation in recognition of services performed on behalf of the Company and its subsidiaries. We also issued a total of 50,000 stock options to our Executive Vice President and General Counsel, Arnold S. Graber, upon his joining the Company in May of 2004. We have also granted options to our executive officers under our executive bonus plan for 2004.

     The following table sets forth information concerning the grants described above made to the Named Officers by the Company during 2004.

EMPLOYMENT CONTRACTS

     We have an employment agreement with our President and Chief Executive Officer, Carlos E. Agüero for a three-year term ending on December 31, 2006. The agreement automatically extends for additional one-year periods unless either we or Mr. Agüero terminate it upon thirty days written notice. The agreement provides for specified minimum annual compensation. In the event that we terminate Mr. Agüero’s employment without cause or there is a “Change of Control” as defined in the agreement, we will be required to pay him an amount equal to the greater of $870,000 or the total amount of base salary that would otherwise have been paid to him from the date of such termination or Change of Control until the last day of the initial three-year term of the agreement. The required payment would reduce dollar-for-dollar the principal amount of existing unsecured loans owed by the Company to Mr. Agüero. Mr. Agüero is also eligible to participate in our Executive Management Stock Option and Bonus Plan. The Company also provides Mr. Agüero with a $250,000 life insurance policy under the agreement.

     We also have an employment agreement with Michael J. Drury, our Executive Vice President and Secretary, for a three-year term ending on December 31, 2006. The agreement automatically extends for additional one-year periods unless either we or Mr. Drury terminate it upon thirty days written notice. The agreement provides for specified minimum annual compensation. In the event that we terminate Mr. Drury’s employment without cause or there is a “Change of Control” as defined in the agreement, we will be required to pay him an amount equal to his base salary for twelve months. Mr. Drury is also eligible to participate in our Executive Management Stock Option and Bonus Plan. The Company also provides Mr. Drury with a $250,000 life insurance policy under the agreement.

     We additionally have an employment agreement with Eric W. Finlayson, our Senior Vice President and Chief Financial Officer, for a three-year term ending on December 31, 2006. The agreement automatically extends for additional one-year periods unless either we or Mr. Finlayson terminate it upon thirty days written notice. The agreement provides for specified minimum annual compensation. In the event that we terminate Mr. Finlayson’s employment without cause or there is a “Change of Control” as defined in the agreement, we will be required to pay him an amount equal to his base salary for twelve months. Mr. Finlayson is eligible to participate in our Executive Management Stock Option and Bonus Plan. The Company also provides Mr. Finlayson with a $250,000 life insurance policy under the agreement.

     Effective as of May 3, 2004, the Company entered into an employment agreement with our Executive Vice President and General Counsel, Arnold S. Graber. The employment agreement

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provides for specified annual compensation for a term ending December 31, 2006 and automatically extends for additional one-year periods unless either we or Mr. Graber terminate it upon thirty days written notice. In the event that we terminate Mr. Graber’s employment without cause or there is a “Change of Control” as defined in the agreement, we will be required to pay him an amount equal to his base salary for twelve months. Mr. Graber is eligible to participate in our Executive Management Stock Option and Bonus Plan. The Company also provides Mr. Graber with a $250,000 life insurance policy under the agreement.

EXECUTIVE BONUS PLAN

     Our Board of Directors has approved an incentive compensation plan for our executive officers to be administered by the Board’s Compensation Committee. The Compensation Committee identified a series of corporate and individual goals for 2004. Each executive officer was allocated a measure of responsibility for particular goals. (In some cases more than one officer was assigned the same goal.) Individual incentive awards were based on the achievement of allocated goals and discretionary evaluations of the eligible employees. Awards included a cash payment and a grant of options on our common stock.

STOCK OPTION AND INCENTIVE PLAN

     The Company has adopted the 1997 Long-Term Incentive Plan. The option plan allows for a number of shares of our common stock equal to up to 10% of the total authorized amount of common shares to be issued upon the exercise of stock options to be granted to our officers, consultants and employees from time to time. The purpose of the option plan is to provide additional performance and retention incentives to officers and employees by facilitating their purchase of a stock interest in us. The plan is administered by the Compensation Committee of our Board of Directors. Options vest over a period determined by the Compensation Committee. Options are granted based upon several factors, including seniority, job duties and responsibilities, job performance, and our overall performance. Under the terms of the plan, officers, consultants and our employees may be granted options to purchase our common stock at values set on the date an option is granted as determined by our Board of Directors. Options generally vest in equal monthly installments over three years and may be exercised for up to five years from the date of grant. However, the 78,750 options granted as of December 31, 2002 vested in equal monthly installments on a three-year schedule with an acceleration of the last year on the second anniversary of the grant date, resulting in full vesting at the end of two years (that is, December 31, 2004).

     The Company receives no monetary consideration for the granting of stock options pursuant to the option plan. However, it receives the option price for each share issued to optionees upon the exercise of the options. Shares issued as a result of the exercise of options will be authorized but unissued shares. The exercise of options and payment for the shares received would contribute to the Company’s equity.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth the beneficial ownership of our common stock and our preferred stock as of March 30, 2005, by (i) each stockholder whom we know to own beneficially more than 5% of each class, if any, and (ii) each director and named executive officer and all directors and

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executive officers as a group. Shares of our preferred stock are convertible into shares of our common stock on a share for share basis at the option of the holder or upon the occurrence of certain events more fully described in our Certificate of Incorporation. Our convertible debt is described in Item 6 and Item 7 above, and in Paragraphs 8 and 9 of Item 13 below.

     A holder of our common stock has one vote per share at a meeting of our stockholders and a holder of preferred stock has one vote per share at a meeting of our stockholders.

     Except as indicated otherwise, each person named has sole voting and investment power over the shares that person beneficially owns, except to the extent that person shares that power with a spouse. Unless otherwise stated, the address of each person in the table is c/o Metalico, Inc., 186 North Avenue East, Cranford, New Jersey 07016.