SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The Accounting Standards Codification ("ASC") as produced by the Financial Accounting Standards Board ("FASB") is the sole source of authoritative GAAP for non-governmental entities. The information furnished includes all adjustments, which are, in the opinion of management, necessary to present fairly our financial position as of September 30, 2013 and the results of our operations and changes in our cash flows for the periods ended September 30, 2013 and 2012. Results of operations for the period ended September 30, 2013 are not necessarily indicative of the results that may be expected for the entire year. Additional information, including the audited December 31, 2012 consolidated financial statements and the Summary of Significant Accounting Policies, is included in our Annual Report on Form 10-K for the year ended December 31, 2012, on file with the Securities and Exchange Commission.

Liquidity and Going Concern

As discussed in Note 7 - "Long Term Debt and Notes Payable to Bank," the majority of the Company's debt is with Fifth Third Bank (the “Bank”) and virtually all of the debt with the Bank is scheduled to mature in April 2014, which requires current classification in the accompanying condensed consolidated balance sheet at September 30, 2013. Further, the Company is not in compliance with all of the debt covenants of this indebtedness as measured at September 30, 2013. This condition allows the Bank, if it chooses, to call the debt due immediately. In prior reporting periods, where relevant, the Company has obtained from the Bank a waiver of non-compliance with applicable loan covenants. For the June 30 and September 30, 2013 measurement periods, a waiver of non-compliance was not obtained as the Company has been in the active process of restructuring its debt. This debt restructuring process has included the Bank as well as other banks. Management expects any restructuring extending the maturity of the Company's revolving line of credit beyond 2014 and, if with the current lender, would include a waiver of past non-compliance with loan covenants.

It is management's plan to complete this debt restructuring as soon as practicable. However, there can be no assurance this debt restructuring can be completed to management's satisfaction, timely or at all. The inability to complete this debt restructuring in a satisfactory manner could have a material, adverse impact on the Company. Further, if the Bank were to call the debt due immediately, it would have a material, adverse impact on the Company.

The condensed consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company's continuation as a going concern is dependent upon its ability to satisfactorily restructure its debt. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of the carrying amounts of assets or the amount and classification of liabilities that might result if the Company is unable to continue as a going concern.

Estimates

In preparing the consolidated financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, management must make estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues and expenses, as well as affecting the disclosures provided. Examples of estimates include the allowance for doubtful accounts, estimates associated with annual intangible impairment tests, estimates of deferred income tax assets and liabilities, estimates of inventory balances, and estimates of stock option values. The Company also uses estimates when assessing fair values of assets and liabilities acquired in business acquisitions as well as any fair value and any related impairment charges related to the carrying value of inventory and machinery and equipment, and other long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.

Reclassifications

We have reclassified certain income statement items within the accompanying Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements for the prior year in order to be comparable with the current presentation. These reclassifications had no effect on previously reported income.

Fair Value

We carry certain of our financial assets and liabilities at fair value on a recurring basis. These financial assets and liabilities are composed of cash and cash equivalents and derivative instruments. Long-term debt is carried at cost, and the fair value is disclosed herein. In addition, we measure certain assets, such as intangibles and other long-lived assets, at fair value on a non-recurring basis to evaluate those assets for potential impairment. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In accordance with applicable accounting standards, we categorize our financial assets and liabilities into the following fair value hierarchy:

Level 1 – Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Examples of level 1 financial instruments include active exchange-traded securities.

Level 2 – Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Examples of level 2 financial instruments include commercial paper purchased from the State Street-administered asset-backed commercial paper conduits, various types of interest-rate and commodity-based derivative instruments, and various types of fixed-income investment securities. Pricing models are utilized to estimate fair value for certain financial assets and liabilities categorized in level 2.

Level 3 – Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall fair value measurement. These inputs reflect management’s judgment about the assumptions that a market participant would use in pricing the asset or liability, and are based on the best available information, some of which is internally developed. Examples of level 3 financial instruments include certain corporate debt with little or no market activity and a resulting lack of price transparency.

When determining the fair value measurements for financial assets and liabilities carried at fair value on a recurring basis, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, we look to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets, and we use alternative valuation techniques to derive fair value measurements.

We use the fair value methodology outlined in the related accounting standard to value the assets and liabilities for cash, debt and derivatives. All of our cash is defined as Level 1 and all our debt and derivative contracts are defined as Level 2. In accordance with this guidance, the following table represents our fair value hierarchy for Level 1 and Level 2 financial instruments at September 30, 2013 (in thousands):



	Fair Value at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs
Assets:	Level 1		Level 2			Total
Cash and cash equivalents	$	1,457	$	—		$	1,457
Liabilities:
Long-term debt	$	—	$	(22,302	)	$	(22,302	)
Derivative contract - interest rate swap	—		(89		)	(89		)

We have had no transfers in or out of Levels 1 or 2 fair value measurements, and no activity in Level 3 fair value measurements for the three and nine month periods ended September 30, 2013 or 2012.

Factoring fees and certain banking expenses

We have included factoring fees and certain banking expenses relating to our loans and loan restructuring within interest expense. The factoring fees totaled $106.0 thousand and $183.5 thousand for the periods ended September 30, 2013 and 2012, respectively. The loan fee amortization expense relating to our loans and loan restructuring totaled $365.8 thousand and $178.7 thousand for the periods ended September 30, 2013 and 2012, respectively.

Subsequent Events

We have evaluated the period from September 30, 2013 through the date the financial statements herein were issued for subsequent events requiring recognition or disclosure in the financial statements and we identified the following events:

Credit facilities with The Bank of Kentucky, Inc.:

On October 15, 2013, WESSCO, LLC ("WESSCO"), a wholly-owned subsidiary of the Company, signed two promissory notes (collectively, the "KY Bank Notes") in favor of The Bank of Kentucky, Inc. ("KY Bank"), one in the amount of $3.0 million (the "Term Note") and one in the amount of $1.0 million (the "Line of Credit Note"). The Company used the proceeds from the Term Note to pay Fifth Third Bank (the "Bank") $3.0 million against the Company’s loan from that bank (the “Fifth Third Loan”). WESSCO expects to use the Line of Credit Note to purchase additional equipment. The Company is a guarantor of the KY Bank Notes. The Company also signed a $3.0 million demand promissory note in favor of WESSCO in exchange for the proceeds of the Term Note. See Note 7 - "Long Term Debt and Notes Payable to Bank" for additional details relating to these notes.

Purchase of Company shares by Harry Kletter from Blue Equity, LLC and passing of Mr. Kletter:

On November 1, 2013, Harry Kletter, the founder and largest shareholder of the Company, purchased 125.0 thousand shares of the Company’s Common Stock from an affiliate of Blue Equity, LLC ("Blue Equity") in lieu of the Company’s redemption of the shares, as contemplated in the Management Services Agreement by and between the Company and Blue Equity entered into on April 1, 2013 (the "Management Agreement"). The purchase price was equal to $4.00 per share, or $500.0 thousand in the aggregate. See Note 2 - "Management Services Agreement with Blue Equity, LLC" for additional details relating to the Management Agreement and Mr. Kletter's purchase of Company shares.

On January 6, 2014, the Company announced Mr. Kletter's passing. Mr. Kletter was 86 years old.

Retirement of and Consulting Agreement with James K. Wiseman:

On October 29, 2013, James K. Wiseman notified the Company of his intent to retire as the Company’s Vice President and General Manager of Recycling and resign from all other positions he holds with the Company and its subsidiaries. Orson Oliver, Interim Chief Executive Officer, became responsible for the day-to-day operations of the Company. Because of Mr. Wiseman’s experience with the Company and in the scrap metal industry, on November 1, 2013, the Company and Mr. Wiseman entered into a Consulting Agreement (the “Consulting Agreement”) pursuant to which Mr. Wiseman will provide consulting services to the Company with respect to that industry. See Note 4 - "Related Party Transactions" for additional details relating to this agreement.

Management Services Agreement with Algar, Inc. and appointment of Sean Garber as President:

On December 2, 2013, the Company and Algar, Inc. (“Algar”) entered into a Management Services Agreement (the “Algar Management Agreement”). Under the Algar Management Agreement, Algar will provide the Company with day-to-day senior executive level services. Algar will also provide business, financial, and organizational strategy and consulting services, as the Company’s board of directors may reasonably request from time to time.

On December 2, 2013, in connection with the Algar Management Agreement, the Company’s board of directors appointed Sean Garber as President. Mr. Garber replaces Orson Oliver who had been serving as interim President. Mr. Oliver will continue to serve as the Company’s Chairman and interim Chief Executive Officer.

See Note 3 - "Management Services Agreement with Algar, Inc." for additional details relating to the Algar Management Agreement and Mr. Garber's appointment as President.

Management decision to discontinue blending stainless steel:

Due to the continued decline in market-dependent variables, including prices of stainless steel materials, management determined the Company would discontinue production of stainless steel blends, a subset of the stainless steel market, in the fourth quarter of 2013. With this change in strategy, the Company will record an impairment loss for the remaining value of the intangible assets related to the stainless steel blend business in that quarter of $3,489 thousand. See Note 6 - "Intangible Assets" for additional details relating to the discontinuation of blending stainless materials and the write off of the intangible assets.

Impact of Recently Issued Accounting Standards

As of September 30, 2013, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.

In February 2013, the FASB issued ASU 2013-2, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires that the effect of significant reclassifications out of accumulated other comprehensive income be reported on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety in the same reporting period to net income. For reclassifications involving other amounts, cross references would be required to other disclosures provided under generally accepted accounting principles on such items. This update is effective prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. No reclassification events occurred in the quarter or nine month period ended September 30, 2013. The effect on the Company would be immaterial due to insignificant amounts involved.

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists, an amendment to FASB ASC Topic 740, Income Taxes. This update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carry forward, a similar tax loss, or a tax credit carry forward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The Company will comply with the presentation requirements of this ASU for the quarter ending March 31, 2014. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows as we do not currently have any uncertain tax positions that were unrecognized.