EMPIRE RESOURCES INC /NEW/
BUSINESS    Overview            We are engaged in the purchase, sale and distribution of principally aluminum semi-finished products to a diverse customer base located throughout the United States and Canada, Europe, Australia and New Zealand. We sell our products through our own marketing and sales personnel and our independent sales agents who are located in North America and in Europe and who receive commissions on sales. We purchase our products from suppliers located throughout the world. One supplier, Hulett Aluminium Ltd., furnished approximately 54% of our products in 2005. We do not typically purchase inventory for stock. Instead, we place orders with our suppliers based upon orders that we have received from our customers.  Growth Strategy            Our strategy for growth consists of the following key elements:            Provide Customers with a High Level of Service and Cost Effective, Quality Products. We work closely with our customers to understand their specific requirements. This enables us to provide each customer with cost-effective, quality materials matching the customer’s particular needs. We also provide various ancillary services to our customers, such as              •   arranging   for products to be stored in warehouse facilities for release to them on a   just-in-time delivery basis,               •   providing   them with timely information about market trends and product development, and               •   upon their   request, arranging for subsequent metal processing or finishing services.              Expand Volumes and Product Breadth with Existing Suppliers and Customers. We continually seek to build on our market knowledge. We try to maintain a current understanding of our suppliers’ production capabilities and of our customers’ needs and markets. This enables us to recognize opportunities to introduce new product lines to our customers and to increase volume from our suppliers.            Strengthen and Expand Our Supplier Relationships. We endeavor to continue building our supply sources, both by expanding our relationships with existing suppliers and by adding new suppliers. In cultivating supplier relationships, we emphasize our combination of market knowledge and customer base, which we believe makes us an effective marketing channel for our suppliers. Conversely, we believe that our supplier relationships position us to offer our customers greater quantities and a wider range of products.            Provide Increasingly Efficient and Cost-Competitive Handling and Delivery Services. We utilize our own warehouse and distribution facility in Baltimore that serves the dual purpose of: (1) providing depot/warehousing capacity for just-in-time delivery and (2) providing handling capability and inventory control at the Baltimore port of entry, our most active import location. This arrangement reduces freight and handling expenses while increasing efficiency. It also 4  enables us to monitor deliveries and serve customers more effectively. At the end of 2004, we purchased a distribution and warehouse facility at 6900 Quad Avenue, Baltimore, Maryland. This building was upgraded and put into service in the fourth quarter of 2005.           Provide Additional Products & Value Added Services. In the fall of 2004, we purchased a used aluminum extrusion press. We have installed and are completing the modernization of this press in our warehouse/distribution facility in Baltimore, Maryland. We expect to begin the regular manufacturing of aluminum extrusions in the new facility during the second quarter of 2006 and believe that some of our current customers are potential customers for our extrusions production. We may also add capability to provide our customers with additional value-added services (such as processing, manufacturing, finishing, and or distribution services) through establishing joint venture arrangements with existing service providers or by selectively making acquisitions.  The Industry            The industry in which we operate is the sale and distribution of semi-finished aluminum products. These products are manufactured worldwide by rolling and extrusion facilities, many of which are owned by large integrated companies and others by independent producers. The products we purchase are in turn sold to varied metal working industries including automotive, housing, packaging, as well as distributors.            Although demand for aluminum products in the United States has been cyclical, over the longer-term demand has continued to increase. We believe that this growth reflects (1) general population and economic growth and (2) the advantages of aluminum products, including light weight, high degree of formability, resistance to corrosion and recyclability. According to CRU Monitor, an industry publication, shipments in North America for mill aluminum products during 2005 increased approximately 8% from shipments in 2004.  Our Products            During the last three fiscal years, we have derived substantially all of our revenues from the sale of semi-finished aluminum products. Semi-finished aluminum products are produced by processing primary aluminum and/or aluminum scrap. A product is considered “semi-finished” if it has not yet been converted into a final end-product. Semi-finished aluminum products include aluminum sheet, plate and foil, rod, bar and wire, extruded and cast products. We offer most of these forms of semi-finished aluminum products to our customers. Demand for our products is not seasonal.  Sales, Marketing and Services            We endeavor to build our distribution within the aluminum industry by providing customers with quality products, access to alternative sources of supply, and customer service. We offer customers a range of services, including:               •   sourcing   aluminum products from the appropriate supplier in order to meet pricing and   delivery requirements;    5               •   handling   foreign exchange transactions for sales in local currency;                •   assuming responsibility   for the shipment and timely delivery of the product to the customer;               •   assisting   customers in identifying materials and matching their particular needs;               •   where   necessary, arranging for subsequent metal processing and/or finishing   services which may be required by the customer;               •   arranging   for materials that have been ordered by a customer (and are subject to a firm   purchase commitment) be stored at an appropriate warehouse for release to the   customers on a just-in-time delivery basis; and               •   providing   customers with information concerning market trends and product development.               We carefully monitor the timing and processing of orders to meet customers’ needs and commit to deliver orders within a time-period mutually agreed with the customer, generally within a 30-day window. We maintain constant and ongoing communication with our suppliers in order to ensure that these delivery dates are met and that customers are apprised of the delivery status of their orders.            We sell our products primarily through our own marketing and sales personnel. In addition, we sell our products through independent sales agents located in North America and Europe who receive a commission on sales. Our inventory generally represents material that has been ordered by customers and is in transit or is being held pending delivery to such customers.  Backlog           As of December 31, 2005, the Company had a backlog of firm orders aggregating approximately $88 million (as compared to $80 million as of December 31, 2004), which represents orders received from customers and placed into production with the Company’s suppliers. The Company expects to fill and invoice substantially all of the orders backlogged as of December 31, 2005 by June 30, 2006.  Suppliers           We enjoy exclusive representation arrangements with several foreign mills. One supplier, Hulett Aluminium Ltd, furnished approximately 54% of our products in 2005. See Item 7 beginning on page 16 for information about our relationship with Hulett.            We strive to maintain long-term relationships with our suppliers and to be a significant distributor for them. As a result, we are often able to obtain competitive pricing and to influence quality standards and delivery practices.            We continuously work with our existing suppliers and explore other sources to strengthen our position in the market. To this end, our services include:               •   serving as   an integrated marketing, distribution, and service channel for export volume;               •   purchasing   manufacturing capacity from suppliers in bulk;     6               •   assuming   responsibility for transporting the products that it purchases;               •   eliminating   foreign currency risks for suppliers; and               •   ensuring   prompt payment to suppliers for materials purchased.     Customers           We serve more than 200 customers in diverse industries, such as transportation, automobile, housing, appliances and packaging. In 2005, our top ten customers represented approximately 44% of our total revenues, with one customer, Ryerson Tull, accounting for 14% of total revenues. These customers included seven full-service distribution centers (i.e., distributors that have the capacity to provide additional processing services), as well as producers of various consumer and industrial products.            Our customers are located throughout the United States and Canada and, to a lesser extent, Australia, New Zealand and Europe. Our U.S. customer base is not regional.            The following table summarizes our revenues for the past three years by geographic region.                                               Net Revenues (In thousands)                                  2005       2004       2003                                        United   States       299,875       175,836       148,108         Pacific Rim, Canada & Europe       58,601       36,714       36,308                                                                          Total       358,476       212,550       184,416                                                 We insure our accounts receivable against credit risk by purchasing credit insurance. This insurance is generally subject to a 10% co-insurance provision with respect to each claim, and there are limits on the amount of credit that our insurance carrier will underwrite with respect to each customer. We may decide in particular instances to exceed the limits granted by the credit insurance provider.  Transportation            We arrange for transportation and delivery of the products purchased by each customer. When we purchase products from an overseas supplier, we accept delivery either at the port in the supplier’s home country or at the port of destination. If we take delivery at a foreign port, we will generally arrange for transportation to the port of destination on regularly scheduled port-to-port, sea-going transportation. Upon delivery of the products at the destination port, we use trucking and rail services to deliver the products to our customers.  Competition            Our principal competitors are North American aluminum producers, including Alcoa Inc., who dominates the aluminum industry in North America. These companies are significantly larger, have significantly greater financial resources, and are active in significantly more areas of the aluminum products business than are we, including mining, refining, smelting  7  and recycling. These companies also have access to foreign material imported from their own subsidiaries, which compete with us. We also compete with other importers and agents that act for or purchase from foreign aluminum producers. Our principal means of competition is customer service, and the ability to offer competitive terms and product quality, including providing value-added services to our customers and providing a range of product offerings. We believe that agents of foreign mills are generally less capable of providing the same value-added services to North American customers because these agents are generally captive to a single foreign source and often lack the flexibility and range of product offerings that we offer our customers. We also believe that by offering our customers a full range of products from independent sources we enable our customers to avoid dependency in an increasingly concentrated domestic supply chain.  Employees           As of December 31, 2005, we had approximately 50 employees, all of whom were full-time employees. We also had independent sales representatives located in the United States and in Europe. None of our employees are represented under a collective bargaining agreement.  History            The Company was incorporated in the State of Delaware in 1990 under the name Integrated Technology USA, Inc. Until September 17, 1999, the Company was in the business of designing, developing and marketing products for emerging computer related markets.            On September 17, 1999, the Company merged with Empire Resources, Inc. (“Empire”), a distributor of value added, semi-finished aluminum products. Since the merger, the Company has continued the aluminum business of Empire under the name of Empire Resources, Inc.            In conjunction with the merger, Empire Resources Pacific Ltd. (“Empire-Pacific”), then an affiliate of Empire operating in Australia, became a wholly owned subsidiary of the Company. Empire-Pacific acts as our sales agent in Australia and New Zealand.  Available Information            We maintain a website at www.empireresources.com. We make copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed with or furnished to the Securities and Exchange Commission (“SEC”) available to investors on or through our website free of charge as soon as reasonably practicable after we have electronically filed them with or furnished them to the SEC. Our code of business conduct and ethics is available on our website. The contents of our website do not constitute a portion of this report.            The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room, located at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at which reports, proxy and information statements and other information regarding issuers that file electronically with the SEC are available. This website may be accessed at http://www.sec.gov.  8
RISK FACTORS    We are Highly Dependent on a Few Suppliers.            We purchased approximately 54% of our products from one supplier in 2005 and approximately 80% from our three largest suppliers. Accordingly, the termination or limitation by one or more of our largest suppliers of their relationship with us could have a material adverse effect on our business and results of operations. In addition, our loss of any one of our other suppliers (or material default by any of them in its obligations to us) due to bankruptcy, financial difficulties, expropriation, social unrest, destruction, sabotage, strikes, acquisition by a person or entity unwilling to provide products to us, or for any other reason, could have a material adverse effect on our business.  Consolidation of Suppliers May Materially Affect Our Operations.            During the last several years, consolidations have been taking place among aluminum suppliers. Although we have in the past successfully replaced suppliers lost as a result of industry consolidations, there can be no assurance that we would be able to replace the volume of production or the type of products supplied by any of our current vendors if they were acquired or their operations terminated or were interrupted.  We Are Highly Dependent on a Few Significant Customers.            Our sales are highly concentrated among a few customers. In 2005, 44% of our revenues were derived from sales to 10 customers. One major customer accounted for approximately 14% of our consolidated net sales for the year ended December 31, 2005. Over the last several years, there have been consolidations in the industry that may increase our sales concentration and the related risks. Any material reduction in sales to any of these customers could have a material adverse effect on our business. Our sales contracts tend to be short term in nature. We typically sell our products on monthly or quarterly customer commitments.  Rising Interest Rates May Increase Our Borrowing Costs.            Our borrowings are primarily short-term Libor or money market based loans. If interest rates rise, our cost of borrowing will increase and lower our profitability. Higher interest rates may also adversely affect some of the markets for our products, such as transportation, housing and commercial construction.  We Are Dependent on Our Executive Officers.            We are highly dependent on our executive officers, the loss of any of one of which could have a significant adverse impact on our business. We maintain key man life insurance on certain of our executives.  Our Supply Sources Are Subject to Substantial Risks.            We generally purchase aluminum products from foreign suppliers. Thus, our operations could be materially and adversely affected by changes in economic, political and social conditions in the countries where we currently purchase or may in the future purchase such  9  products. Among other things, changes in laws, regulations, or the interpretation thereof, or restrictions on currency conversions and exports, could negatively affect our business. Although the trend in the markets in which we operate for our sourcing has been towards open markets and trade policies and the fostering of private economic activity, no assurance can be given that the governments will continue to pursue these policies or that such policies may not be significantly altered, especially in the event of a change in the leadership, or as a result of social or political upheaval or unforeseen circumstances affecting economic, political or social life.  Changing Aluminum Prices Could Impact Our Profit Margins.            We rely on long-term relationships with our suppliers but generally have no long-term, fixed-price purchase contracts. Instead we purchase at prevailing market prices at the time orders are placed, typically with discounts for quantity purchases. The aluminum industry is highly cyclical, and the prices that we pay for aluminum and the prices we charge will be influenced by a variety of factors outside of our control, including general economic conditions (both domestic and international), competition, production levels, import duties and other trade restrictions, and currency fluctuations.  Risk of Counterparty Defaults            In order to minimize risk associated with fluctuations in foreign currency, and commodity prices, we use financial instruments to hedge metal pricing and foreign currency, as we deem appropriate for a portion of our purchase and sales contracts. The risk of a counterparty default exists in fulfilling the hedge contract. Should there be a counterparty default, we could be exposed to losses on the original hedged contract or be unable to recover anticipated gains from the transactions.  If Suppliers Fail to Provide Products of Sufficient Quality Customer Relationships and Prices Could be Negatively Affected.            Our relationships with our customers depend, in part, on our ability to deliver products of the quality specified by those customers. We obtain certifications from our suppliers as to the quality of the products being supplied. However, if the product is not of the quality certified or if a supplier fails to deliver products we have ordered, we may be forced to buy products of the specified quality from another source to fulfill the customer’s order. While we would then be left with a claim against the supplier for any loss sustained by us, we may not be able to bring these claims successfully, particularly in foreign jurisdictions.  We Are Exposed to Credit Risk from Our Customers.            We do not require collateral for customer receivables. We have significant balances owing from customers that operate in cyclical industries and under leveraged conditions, which may impair our collection of these receivables. We carry credit insurance with a 10% co-pay provision covering the majority of our customers, and we have set specific limits on each customer’s receivables. However, we sometimes elect to exceed these specific credit limits. Our failure to collect a significant portion of the amount due on our receivables directly from customers or through insurance claims (or other material default by customers) could have a material adverse effect on our financial condition and results of operations. In selected instances the co-pay may be increased. 10  Increased Tariffs Could Adversely Affect Our Financial Condition.            During 2005, approximately 69% of our sales were of aluminum products from countries that were considered developing countries whose exports were eligible for preferential tariff treatment upon import into the United States under the generalized system of preferences (GSP). There can be no assurance that any of our suppliers will continue to be eligible for such preferential tariff treatment or that the generalized system of preference will be renewed after it expires on December 31, 2006. If the preferential tariff treatment of any of our suppliers that are currently eligible for such treatment becomes unavailable, then imports from such supplier may be subjected to a tariff, instead of the duty-free treatment those imports now enjoy. To the extent these increased costs could not be passed on to our customers, our profit margins could be negatively affected. This could result in higher costs to us and have a material adverse effect on our business, financial condition and results of operations.  Antidumping and Other Duties Could be Imposed on Us, Our Suppliers and Our Products.            The imposition of an antidumping or other increased duty on any products that we import could have a material adverse effect on our financial condition. For example, under United States’ law, an antidumping duty may be imposed on any imports if two conditions are met. First, the Department of Commerce must decide that the imports are being sold in the United States at less than fair value. Second, the International Trade Commission (the “ITC”) must determine that the United States’ industry is materially injured or threatened with material injury by reason of the imports. The ITC’s determination of injury involves a two-prong inquiry: first, whether the industry is materially injured, and second, whether the dumping, not other factors, caused the injury. The ITC is required to analyze the volume of imports, the effect of imports on United States prices for like merchandise, and the effects the imports have on United States producers of like products, taking into account many factors, including lost sales, market share, profits, productivity, return on investment, and utilization of production capacity.  If We Fail to Deliver Products on a Timely Basis, We May Suffer Losses.            Interruption of shipping schedules upon which we rely for foreign purchases could result in untimely deliveries to our customers or force us to purchase the products in the United States at a higher cost in order to meet delivery schedules. Consequently, our profit margins could be reduced or we could suffer losses. We guarantee our customers that we will deliver products within the period specified in their purchase orders. Any interruption of the means of transportation used by us to transport products could cause delays in delivery of products, could force us to buy the products from domestic suppliers at a higher cost in order to fulfill our commitments, and also could result in the loss of customers.  We Compete with Companies with Captive Sources of Supply.            Many of our competitors are significantly larger than us, and many have captive sources of supply and significantly greater access to capital and other resources. Thus, if our sources of supply were interrupted, our competitors could be in a position to capture our customers.  11  We Are Exposed to Increased Energy Costs.            To the extent that we utilize both over-the-road and ocean transportation, the imposition of any additional fuel or bunker surcharges may adversely affect our results. Should we be unable to pass along any such changes to our customers, our results would be adversely affected.  An Act of War or Terrorism or Natural Catastrophes Could Disrupt Our Supply of Products.            We purchase our aluminum products primarily from foreign suppliers. An act of war or terrorism could disrupt international shipping schedules, cause additional delays in importing our Company’s products into the United States or increase the costs required to do so. Any natural disaster that disrupts the normal course of international or domestic shipping could also adversely affect our business.
DESCRIPTION OF PROPERTIES               Our corporate headquarters are located in Fort Lee, New Jersey, where we lease office space pursuant to a lease expiring in March 2015. The lease provides for a minimum annual rental payment of $274,000.            At the end of 2004, we purchased a distribution and warehouse facility at 6900 Quad Avenue, Baltimore, Maryland. This building was upgraded and put into service in the fourth quarter of 2005.            We believe that our facilities are adequate to meet our current and proposed needs.
LEGAL PROCEEDINGS               We are a party from time to time to certain legal proceedings and claims that arise in the ordinary course of our business. We do not believe that the disposition of any claims that are pending or have been asserted will have a material adverse effect on our results of operation or financial position.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS               No matters were submitted to shareholders during the fourth quarter for their approval. 12  PART II
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS     Market for Common Stock            Our common stock is listed and trades on the American Stock Exchange (“AMEX”) under the symbol ERS.            The table below sets forth the high and low sales per share prices for our common stock as reported by AMEX for the periods indicated and sets forth our dividend payments for the periods indicated.                                                                                                               Common Stock       Common Stock                                         2005       2004                                 Period       High       Low       Cash    Dividend       High       Low       Cash    Dividend                                                            1st Quarter       $   4.65       $   3.75           $   0.04           $   4.550       $   3.000           $   0.04             2nd Quarter       $   12.10       $   4.23           $   0.05           $   5.000       $   3.380           $   0.04             3rd Quarter       $   13.45       $   7.66           $   0.05           $   3.930       $   3.020           $   0.04             4th Quarter       $   10.89       $   6.47           $   0.21           $   4.930       $   3.250           $   0.10                      On March 17, 2006, the closing price of our common stock on the American Stock Exchange was $21.24, and there were 37 holders of record of our common stock and approximately 1,660 beneficial holders of our common stock.            We did not sell any unregistered equity securities in 2005.  Dividends            During 2005, our Board of Directors declared quarterly dividends on our common stock. The Board of Directors determined that we were able to return some of our cash to stockholders without impacting future revenue and earnings growth or restricting strategic opportunities. The Board of Directors declared a regular cash dividend of $0.04 per share on March 11, 2005. On June 21st and September 19th the Board of Directors declared a regular cash dividend of $0.05 per share. On December 8th, the Board of Directors declared a regular cash dividend of $0.05 per share and a special dividend of $0.16 per share. The Board of Directors intends to review our dividend policy on a quarterly basis and make a determination with respect to a dividend distribution, subject to profitability, free cash flow and the other requirements of the business. There can be no assurance that dividends will be paid in the future.  Share Repurchase            In November 1999, the Board of Directors authorized the repurchase up to 1.0 million shares of our common stock. In December 2000, the Board of Directors authorized an increase in the share repurchase program from 1.0 million shares to 1.5 million shares. On June 18, 2002, the Board of Directors authorized an additional increase in the share repurchase program of 1.0 million shares. This brought the total authorized number of shares available under the repurchase program to 2.5 million. As of December 31, 2005, we had repurchased a total of  13  2,267,400 shares for an aggregate cost of $2,731,049. We also had acquired 50,000 shares for a cost of $50,000 in connection with the reverse merger in September 1999.            We did not complete any repurchases of equity securities in the fourth quarter of fiscal 2005.  Equity Compensation Plan Information            The following table provides information as of December 31, 2005 regarding our only compensation plan, our 1996 Stock Option Plan (the “1996 Plan”), under which our common stock is authorized for issuance.                                                            Equity Compensation Plan Information                  Plan category       Number of securities to be   issued upon exercise of   outstanding options   Weighted Average   exercise price of   outstanding options   Number of securities   remaining available for   future issuance under   equity compensation   plans (excluding   securities reflected in   column (a))                               (a)   (b)   (c)     Equity compensation plans approved by security holders       359,000       1.65       559,000                                           Equity compensation plans not approved by security holders       —       —       —                                           Total       359,000       1.65       559,000        14
SELECTED FINANCIAL DATA               The following table sets forth for the periods indicated selected consolidated financial and operating data for the Company. The consolidated balance sheet data and consolidated statement of operations data as of and for the years ended December 31, 2005, 2004, 2003, 2002, and 2001 have been derived from our Consolidated Financial Statements. The following selected consolidated financial and operating data are qualified by and should be read in conjunction with our more detailed Consolidated Financial Statements and notes thereto and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Items 7 and 8 of this Form 10-K.                                                                                   Year Ended December 31,                                  2005       2004       2003       2002       2001                                                      Net sales       $   358,476           212,550       $   184,416       $   158,738       $   143,235         Cost of goods sold           330,602           196,266           171,222           147,714           133,862                                                                                                                                           Gross profit           27,874           16,284           13,194           11,024           9,373                                                                               Selling, general and administrative expenses           8,623           7,457           6,419           6,032           5,290                                                                                                                                           Operating income           19,251           8,827           6,775           4,992           4,083         Interest expense           3,945           1,140           1,013           1,046           2,032                                                                                                                                           Income before income taxes           15,306           7,687           5,762           3,946           2,051         Income taxes           5,762           2,877           2,218           1,576           755                                                                                                                                           Net income       $   9,544       $   4,810       $   3,544       $   2,370       $   1,296                                                                                                                                           Weighted average shares outstanding:                                                                     Basic           9,677           9,574           9,466           10,049           10,956                                                                                                                                           Diluted           9,958           9,913           9,702           10,189           11,091                                                                                                                                           Earnings per share:                                                                     Basic       $   .99       $   .50       $   .37       $   .24       $   .12                                                                                                                                           Diluted       $   .96       $   .49       $   .37       $   .23       $   .12                                                                                                                                              Balance Sheet Data:       As of December 31,                         2005       2004       2003       2002       2001                                              Total Assets       $   156,733       $   93,915       $   74,504       $   54,469       $   52,762         Long Term   Debt       $   2,287       $   2,406           —           —           —         Working   Capital       $   19,757       $   17,459       $   14,962       $   12,871       $   11,823         Stockholders’   Equity       $   24,233       $   17,948       $   15,119       $   12,922       $   11,944        15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND   RESULTS OF OPERATIONS    Overview           Introduction           The following discusses our results of operations and liquidity and capital resources. The discussion should be read in conjunction with the consolidated financial statements and related notes. Certain statements in this report under this caption and elsewhere relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements also include those containing such words as ‘“believe,” “expect,” “anticipate,” “intend,” estimate,” “assume,” “will,” “should,” and other expressions which predict or indicate future events or trends and which do not relate to historical matters. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be different from those expressed or implied in the forward-looking statements. For additional information on forward-looking statements, see Part I of this Form 10-K.            Our Business           We are engaged in the purchase, sale and distribution of principally nonferrous metals to a diverse customer base located throughout the United States and Canada, Australia, Europe, and New Zealand. We sell our products through our own marketing and sales personnel and our independent sales agents located in North America and Europe who receive commissions on sales. We purchase our products from suppliers located throughout the world. One supplier, Hulett Aluminium Ltd., furnished approximately 54% of our products in 2005. We do not typically purchase inventory for stock. Instead, we place orders with our suppliers based upon orders that we have received from our customers. Critical Accounting Policies and Estimates           The following 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 of America. Certain accounting policies have a significant impact on amounts reported in our financial statements. A summary of those significant accounting policies can be found in Note B to our financial statements. We have not adopted any significant new accounting policies during the period ended December 31, 2005.           Among the significant judgments made by management in the preparation of our financial statements are the determination of the allowance for doubtful accounts and accruals for inventory claims. 16            Allowance for Doubtful Accounts           As of December 31, 2005, we had $51,486,189 in trade receivables. Additionally, we had recorded an allowance for doubtful accounts of $191,000. We report accounts receivable, net of an allowance for doubtful accounts, to represent our estimate of the amount that ultimately will be realized in cash. We review the adequacy of our allowance for doubtful accounts on an ongoing basis, using historical collection trends, aging of receivables, as well as review of specific accounts, and makes adjustments in the allowance as we believe necessary. We maintain a credit insurance policy on the majority of our customers. In general, this policy has a 10% co-insurance; however there are some instances where the co-insurance may vary and instances where we may exceed the insured values. Changes in economic conditions could have an impact on the collection of existing receivable balances or future allowance considerations. In addition, changes in the credit insurance environment could affect the availability of credit insurance and our ability to secure the same.           Accruals for Inventory Claims           Generally, our exposure on claims for defective material is small as we refer all claims on defects back to the Mill supplying the material. In the event that we do not believe the Mill will honor a claim, we will record an allowance for inventory adjustments. Results of Operations           Comparison of Fiscal Years Ended December 31, 2005 and 2004 (in thousands)           Our success during 2005 was in part due to continued customer satisfaction, supplier and customer loyalty and the ability to manage the competitive economic environment through the expansion and upgrading of our service to our suppliers and customers. This includes the ability to ship material on a just in time basis from both private and public warehouses, and the use of proprietary on-line service modules for customers to track their shipments. This bolstered our commitment to service and customer satisfaction. We have also used our excellent customer relationships to leverage sales per employee by developing long term relationships with our customers and understanding their needs. In addition, due in part to our long-term customers, we have been able to build sales volume without a similar increase in selling, general and administrative expenses that would otherwise accompany customer turn-over. Our supply arrangements have also enabled us to benefit from the increased and steady availability of products from key suppliers. Our stable customer and supplier base has also enabled us to increase our purchases from our suppliers and to sell the majority of these quantities to our existing customer base. While this does expose us to concentration risks, it has provided the foundation of our growth and performance. Our substantial increase in sales during 2005 was due to higher aluminum pricing, and to an increase of approximately 35% in volumes shipped to our customers.           During 2005, our net sales increased by $145,926 to $358,476, or 69% above net sales in 2004. The increase in net sales was primarily due to increases in the prices of products and the steady availability of supply shipments from our existing supplier base. Our top ten customers represented 44% of the sales in 2005, compared to 46% in 2004. 17            Our sales volume has been, and will continue to be, a function of our ongoing ability to secure quality aluminum products from our suppliers. While we maintain long-term supply relationships with several foreign mills, one supplier accounted for approximately 54% of our purchases for the year ended December 31, 2005, and the three largest suppliers accounted for 80% of 2005 purchases. As a result, the termination or limitation by one or more of our largest suppliers of their relationship with us could have a material adverse effect on our business and results of operations.           Our inventory increased by $27,542 to $86,511 during 2005 as compared to inventory of $58,969 in 2004. This increase in inventory supported our increased sales and it allowed us to be increasingly sensitive to timely shipments to our customers. As a result of the increased inventory on hand, we were able to extend our customer service efforts by allowing additional time to stage material in our private or public warehouses to serve our customers’ needs.           Our net income grew during this same period by 98%. Net income for 2005 was $9,544 compared with net income for 2004 of $4,810. We did not have to increase selling, general and administrative expenses by the same percentage as our sales increased, in large part through the use of long term planning, customer relationships, and technology. In 2005, our selling, general and administrative expenses increased by $1,166 to $8,623, or 16% above selling, general and administrative expenses in 2004. Our strategy of maintaining long-term relationships with our customers, while allowing for sales growth, also exposes us to concentration risks.           In 2005, our interest expense increased by $2,805 to $3,945, or 246% above interest expense in 2004. This is a result of rising interest rates and loan balances that have doubled from 2004 to 2005 to support increased sales and required inventory. The increasing interest rates could adversely affect our profitability.           Comparison of Fiscal Years Ended December 31, 2004 and 2003 (in thousands)           Our success during 2004 was in part due to continued customer satisfaction, supplier and customer loyalty and the ability to manage the competitive economic environment through the expansion and upgrading of our service to our suppliers and customers. This includes the ability to ship material on a just in time basis from both private and public warehouses, and the use of proprietary on-line service modules for customers to track their shipments. This bolstered our commitment to service and customer satisfaction. We have also used our excellent customer relationships to leverage sales per employee by developing long term relationships with our customers and understanding their needs. In addition, due in part to our long-term customers, we have been able to build sales volume without a similar increase in selling, general and administrative expenses that would otherwise accompany customer turn-over. Our stable customer and supplier base has also enabled us to increase our purchases from our suppliers and to sell the majority of these quantities to our existing customer base. While this does expose us to concentration risks, it has provided the foundation of our growth and performance. Our success in 2004 was also due to higher aluminum pricing, and to an increase of approximately 10% in volumes shipped to our customers.           During 2004, our net sales increased by $28,134 to $212,550, or 15% above net sales in 2003. The increase in net sales was primarily due to increases in the prices of products and the 18  steady availability of supply shipments from our existing supplier base. Our top ten customers represented 45% of the sales in 2004, compared to 36% in 2003.           Our sales volume has been, and will continue to be, a function of our ongoing ability to secure quality aluminum products from our suppliers. While we maintain long-term supply relationships with several foreign mills, one supplier accounted for approximately 54% of our purchases for the year ended December 31, 2004, and the three largest suppliers accounted for 79% of 2004 purchases. As a result, the termination or limitation by one or more of our largest suppliers of their relationship with us could have a material adverse effect on our business and results of operations.           Our inventory increased by $16,921 to $58,969 during 2004 as compared to inventories of $42,048 in 2003. This increase in inventory supported our increased sales by allowing us to be increasingly sensitive to timely shipments to our customers. In addition, due to having inventory on hand, we were able to extend our customer service efforts by allowing additional time to stage material in our private or public warehouses to achieve timely customer deliveries. Some of our customers do not accept deliveries in the last two weeks of the fiscal year which also increased the inventory levels at year end.           Our net income grew during this same period by 36%. Net income for 2004 was $4,810 compared with net income for 2003 of $3,544. We did not have to increase selling, general and administrative expenses by the same percentage as our sales increased, in large part through the use of long term planning, customer relationships, and technology. In 2004, our selling, general and administrative expenses increased by $1,038 to $7,457, or 16% above selling, general and administrative expenses in 2003. Our strategy of maintaining long-term relationships with our customers, while allowing for sales growth, also exposes us to concentration risks.           In 2004, our interest expense increased by $127 to $1,140, or approximately 13% above interest expense in 2003. As a result of historically low interest rates, we have been able to minimize our interest expense and as a result our net income has increased. In the current changing interest rate environment, our profitability could be adversely affected if the interest rates increase. Liquidity and Capital Resources (in thousands)           Our cash balance increased by $1,273 in the year ended December 31, 2005. Net cash of $36,601 was used in operating activities, while $41,846 of net cash was provided by financing activities, specifically proceeds of loans from banks. Increases in accounts receivable and inventories at year end were the most significant contributor to the increased use of cash. Both of these increases support the increased volume of shipments.           We currently operate under a revolving line of credit, including a commitment to issue letters of credit, with four commercial banks. The maximum availability of this facility is $90,000. Borrowings under these lines of credit are collateralized by security interests in substantially all of our assets. Under these credit agreements, we are required to maintain working capital and net worth ratios. These facilities expire on June 30, 2006. As of December 31, 2005, the amount outstanding under our revolving lines of credit was $87,677 (including letters of credit of approximately $3,177). Management is in discussions to extend the maturity, 19  increase the value of the overall facility, and revise some of the covenants and terms of the Credit Facility. We expect to complete this transaction prior to the expiration of the current facility. Management believes that cash from operations, together with funds available under our credit facility, will be sufficient to fund the cash requirements relating to our existing operations. We may require additional debt or equity financing in connection with the future expansion of our operations.           The table below provides a summary of our commitments and contractual obligations arrangements as of December 31, 2005: Commitments and Contingencies (in thousands)                                                                                                  Total       Less than   1 Year       1-3 Years       4-5 Years       More than   5 Years                                                      Bank Debt       $   86,897           $   84,610           $   374       $   292           $   1,621             Operating Leases       $   2,577           $   274           $   822       $   558           $   923             Letters of Credit       $   3,177           $   3,177               —           —           $   —                                                                          Total       $   92,651           $   88,061           $   1,196       $   850           $   2,544                                                                                   We have contingent liabilities in the form of letters of credit to some of our suppliers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES   ABOUT MARKET RISK.              We use financial instruments designated as fair value hedges to manage our exposure to commodity price risk and foreign currency exchange risk inherent in our trading activities. It is our policy to hedge such risks, to the extent practicable. We enter into high-grade aluminum futures contracts to limit our gross margin exposure by hedging the metals content element of firmly committed purchase and sales commitments. In cases where we enter into fixed price contracts with our suppliers and variable priced sales with our customers, we will utilize the futures market to match the terms of the purchase and sale. We also enter into foreign exchange forward contracts to hedge our exposure related to commitments to purchase or sell non-ferrous metals denominated in international currencies. In situations where we enter into purchase or sales denominated in foreign currency, the foreign exchange market will be utilized to hedge foreign exchange risk exposure. We record “mark-to-market” adjustments on these futures and forward positions, and on the underlying firm purchase and sales commitments which they hedge, and reflect the net gains and losses currently in earnings.           At   December 31, 2005 and 2004, net unrealized gain on the Company’s foreign exchange   forward contracts amounted to approximately $192,000 and $543,000 respectively.   Net realized and unrealized losses on aluminum futures contracts at December   31, 2005 and 2004 amounted to approximately $11,744,000 and $803,000, respectively.   These amounts, which represent the fair value of the derivative contracts, were   offset by like amounts for the changes in the fair value of inventories and   commitments which were hedged. Such amounts are reflected in the accompanying   2005 balance sheet in inventory ($11,744,000) and derivative liabilities ($7,874,00).   In 2004 such amounts are reflected in other current assets ($543,000), inventory   ($803,000) and derivative liabilities ($1,346,000). 20
FINANCIAL STATEMENTS    Furnished at end of report commencing on page F-1.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND   FINANCIAL DISCLOSURE    None.
CONTROLS AND PROCEDURES              As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management conducted an evaluation with the participation of our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures, as of the end of the last fiscal year. In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the evaluation date, our disclosure controls and procedures are reasonably effective to ensure that material information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. We intend to continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and we may from time to time make changes to the disclosure controls and procedures to enhance their effectiveness and to ensure that our systems evolve with our business.            There was no change in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
OTHER INFORMATION    None. 21  PART III
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT              The   information required by this item is incorporated by reference from the material   responsive to such item in our definitive proxy statement relating to the 2006   Annual Meeting of Shareholders.
EXECUTIVE COMPENSATION              The information required by this item is incorporated by reference from the material responsive to such item in our definitive proxy statement relating to the 2006 Annual Meeting of Shareholders.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND   RELATED STOCKHOLDER MATTERS              The information required by this item is incorporated by reference from the material responsive to such item in our definitive proxy statement relating to the 2006 Annual Meeting of Shareholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS              The information required by this item is incorporated by reference from the material responsive to such item in our definitive proxy statement relating to the 2006 Annual Meeting of Shareholders.
PRINCIPAL ACCOUNTANT FEES AND SERVICES              The information required by this item is incorporated by reference from the material responsive to such item in our definitive proxy statement relating to the 2006 Annual Meeting of Shareholders. 22  PART IV
EXHIBITS, FINANCIAL STATEMENT SCHEDULES     (a) 1. Index to Financial Statements:  The consolidated financial statements of the Company and report of the Company’s independent public accountants incorporated herein are included in Item 8 of this Report, as follows:               Report of   Independent Certified Public Accountants   F-1     Consolidated   Balance Sheets   F-2     Consolidated   Statements of Income   F-3     Consolidated   Statements of Changes in Stockholders’ Equity   F-4     Consolidated   Statements of Cash Flows   F-5     Notes to   Consolidated Financial Statements   F-6    2. Financial Statement Schedules:  A statement regarding the computation of per share earnings is attached as Exhibit 11.1 Other schedules have been omitted because they are not applicable or are not required under the instructions contained in Regulation S-X or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto.  3. Exhibits:   2.1 Agreement and Plan of Merger among the Registrant, Empire Resources Inc., Empire Resource Pacific, Ltd., Nathan Kahn and Sandra Kahn, dated as of February 22, 1999 (incorporated by reference to Exhibit 2.1 to the Registrant’s Report on Form 8-K dated March 9, 1999)  3.1 Certificate of Merger of Empire Resources, Inc. into Integrated Technology USA, Inc. (incorporated by reference from the correspondingly numbered exhibit in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999).  3.2 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference from the correspondingly numbered exhibit in the Company’s Registration Statement on Form SB-2 (No. 333-9697).  3.3 Amendment No. 1 to the Amended and Restated Certificate of Incorporation (incorporated by reference from the correspondingly numbered exhibit in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).  3.4 Amended and Restated By-Laws of the Registrant (incorporated by reference from the correspondingly numbered exhibit in the Company’s Registration Statement on Form SB-2 (No. 333-9697).  3.5 Amendment No. 1 to Amended and Restated By-Laws of the Registrant (incorporated by reference to the correspondingly numbered exhibit in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002).  23  3.6 Amendment No. 2 to Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 11, 1997).  10.1 Employment Agreement dated September 15, 1999 entered into by Registrant with Nathan Kahn (incorporated by reference from the correspondingly numbered exhibit in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999).  10.2 Amendment No. 1 to Employment Agreement and Noncompetition Agreement entered into by Registrant with Nathan Kahn (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).  10.3 Employment Agreement dated September 15, 1999 entered into by Registrant with Sandra Kahn (incorporated by reference from the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999).  10.4 Employment Agreement dated September 15, 1999 entered into by Registrant with Harvey Wrubel (incorporated by reference from the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999).  10.5 Restricted Stock Agreement dated September 15, 1999 entered into by Registrant with Harvey Wrubel (incorporated by reference from the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999).  10.6 Third Modification and Extension of Lease for office space, dated as of the 17th of February, 2000, to the Lease between 400 Kelby Associates, as Landlord, and Registrant as Tenant (incorporated by reference from the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999).  10.7 Registrant’s 1996 Stock Option Plan (incorporated by reference from the Company’s Registration Statement on Form SB-2 (No. 333-9697).  10.8 Form of Indemnification Agreement entered into by the Registrant with executive officers and directors (incorporated by reference from the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).  10.9 Credit Facility dated December 21, 2000 between the Registrant and The Chase Manhattan Bank, as Lead Arranger and Administrative Agent (incorporated by reference from the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).  10.10 Amendment No. 1 to Credit Facility, dated July 16, 2002 between the Registrant and The Chase Manhattan Bank, as Lead Arranger and Administrative Agent (incorporated by reference to Exhibit 10.1 from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).  10.11 Amendment No. 2 to Credit Facility, dated May 8, 2003 between the Registrant and The Chase Manhattan Bank, as Lead Arranger and Administrative Agent (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).  24  10.12 Amendment No. 3 to Credit Facility, dated June 19, 2003 between the Registrant and The Chase Manhattan Bank, as Lead Arranger and Administrative Agent (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).  10.13 Agreement of Lease for warehouse facility dated September 27, 2000 between Townsend Properties, Inc. and Registrant (incorporated by reference from the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).  10.14 Amendment No. 4 to Credit Facility, dated December 13, 2004 between the Registrant and JP Morgan Chase Bank, N.A. as Lead Arranger and Administrative Agent.  10.15 Agreement of purchase and sale of 6900 Quad Avenue dated May 31, 2004 between Dale W. Brougher, Trustee and Registrant.  10.16 Loan Agreement dated December 27, 2004 between 6900 Quad Avenue a subsidiary of the Registrant and JP MORGAN CHASE BANK, N.A.  10.17 Agreement of purchase and sale of extrusion equipment dated November 4, 2004 between Werner Co., and Registrant.  10.18 Fourth Modification and Extension of Lease for office space, dated as of the 17th of November 2004, to the Lease between 400 Kelby Associates, as Landlord, and Registrant as Tenant  10.19 Amendment No. 5 to Credit Facility, dated February 23, 2005 between the Registrant and JP Morgan Chase Bank, N.A. as Lead Arranger and Administrative Agent.  10.20 Amendment No. 6 to Credit Facility, dated April 22, 2005 between the Registrant and JP Morgan Chase Bank, N.A. as Lead Arranger and Administrative Agent.  10.21 Amendment No. 7 to Credit Facility, dated October 3, 2005 between the Registrant and JP Morgan Chase Bank, N.A. as Lead Arranger and Administrative Agent.*  11.1 Statement regarding computation of per share earnings.*  21.1 List of subsidiaries of the Registrant.*  31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*  31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*  32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*  * Filed Herewith  25  SIGNATURES           In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  Empire Resources, Inc.                   By:   /s/ Nathan   Kahn                                 Nathan Kahn    Chief Executive Officer         March 30, 2006        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the Registrant and in the capacities and on the dates indicated.               /s/ Nathan   Kahn                             Nathan Kahn    Chief Executive Officer and Director (Principal Executive Officer)         March 30, 2006                   /s/ Sandra   Kahn                             Sandra Kahn,   Chief Financial Officer and Director(Principal Financial and Principal   Accounting Officer)          March 30, 2006                    /s/ William   Spier                             William   Spier, Director          March 30, 2006                    /s/ Jack   Bendheim                             Jack   Bendheim, Director          March 30, 2006                    /s/ Peter G.   Howard                             Peter G.   Howard, Director          March 30, 2006         26               /s/ Nathan   Mazurek                             Nathan   Mazurek, Director         March 30, 2006                    /s/ L. Rick   Milner                             L. Rick   Milner, Director          March 30, 2006                    /s/ Morris   J. Smith                             Morris J.   Smith, Director          March 30, 2006                    /s/ Harvey   Wrubel                             Harvey   Wrubel, Director          March 30, 2006         27  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Empire Resources, Inc. Fort Lee, New Jersey We have audited the accompanying consolidated balance sheets of Empire Resources, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Empire Resources, Inc. and subsidiaries as of December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Eisner LLP  New York, New YorkMarch 8, 2006 F-1  EMPIRE RESOURCES, INC. AND SUBSIDIARIES  Consolidated Balance Sheets (In thousands except share amounts)                                              December 31,                                  2005       2004                                                                  ASSETS                                 Current   assets:                                 Cash       $   1,560       $   287         Restricted cash           5,050           0         Trade accounts receivable (less allowance   for doubtful accounts of $191 and $191)           51,486           30,367         Inventories           90,381           58,969         Other current assets           1,493           1,397                                                                         Total current assets           149,970           91,020                                           Property and   Equipment, net           6,763           2,895                                                                                 $   156,733       $   93,915                                                                          LIABILITIES AND STOCKHOLDERS’ EQUITY                                 Current   liabilities:                                 Notes payable - banks       $   84,500       $   40,300         Current maturities of long-term debt           110           94         Trade accounts payable           30,513           25,411         Accrued         expenses and derivative liabilities           13,044           6,796         Dividends payable           2,046           960                                                                         Total current liabilities           130,213           73,561                                                                         Long-term   debt, net of current maturities           2,287           2,406                                           Commitments   and contingencies                                                                   Stockholders’   equity:                                 Common stock $.01 par value, 20,000,000   shares authorized and 11,749,651 shares issued at December 31, 2005 and 2004           117           117         Additional paid-in capital           10,690           10,827         Retained earnings           15,687           9,547         Accumulated other comprehensive income           92           14         Treasury stock (2,006,467 shares and   2,150,400 shares)           (2,353   )       (2,557   )                                                                     Total stockholders’ equity           24,233           17,948                                                                                 $   156,733       $   93,915                                        F-2  EMPIRE RESOURCES, INC. AND SUBSIDIARIES Consolidated Statements of Income(In thousands except per share amounts)                                                          Year Ended December 31,                                  2005       2004       2003                                      Net sales       $   358,476           212,550       $   184,416          Cost of   goods sold           330,602           196,266           171,222                                                                                                Gross profit           27,874           16,284           13,194          Selling,   general and administrative expenses           8,623           7,457           6,419                                                                                                Operating   income           19,251           8,827           6,775          Interest   expense           3,945           1,140           1,013                                                                                                Income   before income taxes           15,306           7,687           5,762          Income taxes           5,762           2,877           2,218                                                                                                Net income       $   9,544       $   4,810       $   3,544                                                                                                Weighted average shares outstanding:                                             Basic           9,677           9,574           9,466                                                                                               Diluted           9,958           9,913           9,702                                                                                               Earnings per share:                                             Basic       $   .99       $   .50       $   .37                                                                                               Diluted       $   .96       $   .49       $   .37                                                                                               F-3  EMPIRE RESOURCES, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity (In thousands)                                                                                                                      Common   Stock   Number of   Shares       Amount       Additional   Paid-in   Capital       Retained   Earnings       Acumulated   Other   Comprehensive   Income (Loss)       Treasury   Stock       Total   Stockholders’   Equity       Total   Comprehensive   Income                                                                   Balance at December 31, 2002           11,750       $   117       $   10,727       $   4,824       $   21       ($   2,767   )   $   12,922                                                                                                                               Purchase of treasury stock (10 shares)                                                                       (14   )       (14   )                 Stock options exercised                                   21                                   118           139                           Tax Benefit from exercise of options                                   55                                               55                                                                                                                               Net change in cumulative translation adjustment                                                           (7   )                   (7   )       (7   )     Dividends ($.16 per share)                                               (1,520   )                               (1,520   )                       Net income for 2003                                               3,544                                   3,544           3,544                                                                                                                                                                                                                      $   3,537                                                                                                   Balance at December 31, 2003           11,750       $   117       $   10,803       $   6,848       $   14       ($   2,663   )   $   15,119                                                                                                                               Stock options exercised                                   24                                   106           130                           Dividends ($.22 per share)                                               (2,111   )                               (2,111   )                       Net income for 2004                                               4,810                                   4,810           4,810                                                                                                                                                                                                                      $   4,810                                                                                                   Balance at December 31, 2004           11,750           117           10,827           9,547           14           (2,557   )       17,948                                                                                                                                                                                                                           Stock options exercised                                   (137   )                               204           67                           Net change in cumulative translation adjustment                                                           (22   )                   (22   )       (22   )     Increase in value         of interest rate swap derivative contract, net of taxes $63                                                           100                       100           100            Dividends ($.35 per share)                                               (3,404   )                               (3,404   )                       Net income for 2005                                               9,544                                   9,544           9,544                                                                                                                                                                                                                      $   9,622                                                                                                  Balance at December 31, 2005           11,750           117           10,690           15,687           92           (2,353   )       24,233                                                                                                                 F-4  EMPIRE RESOURCES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In Thousands)                                                          Year Ended December 31,                                  2005       2004       2003                                      Cash flows from operating   activities:                                             Net income       $   9,544       $   4,810       $   3,544          Adjustments to   reconcile net income to net cash used in operating activities:                                             Depreciation and   amortization           104           76           76          Deferred income   taxes           (754   )       (22   )       (27   )     Translation   adjustment           0           0           (7   )     Tax benefit from   stock options exercised           0           0           55          Changes in:                                             Restricted cash           (5,050   )       0           0          Trade accounts   receivable           (21,119   )       (4,644   )       (1,468   )     Inventories           (31,412   )       (16,921   )       (14,216   )     Other current assets           736           3,725           (3,814   )     Trade accounts payable           5,102           8,516           3,859          Accrued expenses           6,248           (532   )       4,417                                                  Net cash used in   operating activities           (36,601   )       (4,992   )       (7,581   )                                             Cash flows used in investing   activities:                                             Purchases of   property and equipment           (3,972   )       (2,815   )       (181   )                                            Cash flows from financing   activities:                                             Proceeds from   (repayments of) notes payable – banks           44,200           5,900           8,800          (Repayments)   Proceeds from mortgage payable           (103   )       2,500                     Dividends Paid           (2,318   )       (1,913   )       (758   )     Stock options   exercised           67           130           139          Purchase of   treasury stock           0           0           (14   )                                             Net cash   provided by financing activities           41,846           6,617           8,167                                                  Net increase (decrease) in cash           1,273           (1,190   )       405          Cash at beginning of period           287           1,477           1,072                                                  Cash at end of period       $   1,560       $   287       $   1,477                                                  Supplemental disclosures of cash   flow information:                                             Cash paid during   the period for:                                             Interest       $   3,622       $   1,066       $   1,024          Income taxes       $   7,031       $   3,106       $   2,233                                                        Non Cash Financing Activities:                                             Dividend   Declared but not yet paid       $   2,046       $   960       $   762         F-5  EMPIRE RESOURCES, INC. AND SUBSIDIARIES NOTE A - BUSINESS Empire Resources, Inc (“the Company”) is engaged principally   in the purchase, sale and distribution of value added semi finished aluminum   products to a diverse customer base located throughout North America, Europe   and Australia. The Company sells its products through its own marketing and   sales personnel and through its independent sales agents located in the U.S.   and Europe who receive commissions on sales. The Company purchases from several   suppliers located throughout the world. See B [12] NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES              [1]   Principles of consolidation:                   The consolidated financial statements include the   accounts of the Company and its wholly owned subsidiaries. All intercompany   balances have been eliminated in consolidation.               [2]   Revenue recognition:                   Revenue on product sales is recognized at the point   in time when the product has been shipped, title and risk of loss has been   transferred to the customer, and the following conditions are met: persuasive   evidence of an arrangement exists, the price is fixed and determinable, and   collectibility of the resulting receivable is reasonably assured.               [3]   Inventories:                   Inventories which consist of purchased semi-finished   aluminum products are stated at the lower of cost or market. Cost is   determined by the specific-identification method. Inventory has generally   been purchased for specific customer orders.               [4]   Property and equipment:                   Property and equipment are stated at cost and   depreciated by the straight-line method over their estimated useful lives.               [5]   Commodity futures and foreign   currency hedging activities:                   The Company uses derivative financial instruments   designated as fair value hedges to manage its exposure to commodity price   risk and foreign currency exchange risk inherent in its operations. It is the   Company’s policy to hedge such risks, to the extent practicable. The Company   enters into high-grade aluminum futures contracts to limit its gross margin   exposure by hedging the metals content element of firmly committed purchase   and sales commitments. The Company also enters into foreign exchange forward   contracts to hedge its exposure related to commitments to purchase or sell   non-ferrous metals denominated in international currencies. The Company   recognizes in the balance sheet derivative contracts at fair value, as well   as changes in the fair value of the related hedged firm purchase and sales   commitments attributable to the hedged risk and reflects any net gains and   losses currently in earnings (See Note D).    F-6  EMPIRE RESOURCES, INC. AND SUBSIDIARIES NOTE B – SUMMARY OF SIGNIFICANT   ACCOUNTING POLICIES (CONTINUED)            [6]  Foreign currency translation:               The functional currency of Empire Resources         Pacific Ltd., a wholly-owned subsidiary which acts as a sales agent in         Australia and New Zealand, is the Australian dollar. In 2005, the Company         organized a wholly owned subsidiary in Belgium which sells semi finished         aluminum products in Europe. The functional currency of this subsidiary         is the Euro. Cumulative translation adjustments, which are charged or         credited to accumulated other comprehensive income, arise from translation         of functional currency amounts into U.S. dollars.            [7]  Income taxes:               The Company follows the asset and liability         approach for deferred income taxes. This method provides that deferred         tax assets and liabilities are recorded, using currently enacted tax rates,         based upon the difference between the tax bases of assets and liabilities         and their carrying amounts for financial statement purposes.               Deferred tax asset valuation allowances are         recorded when management does not believe that it is more likely than         not that the related deferred tax assets will be realized.            [8]  Earnings per share:               Basic earnings per share is computed by dividing         net income by the weighted average number of common shares outstanding         during the year. Diluted earnings per share gives effect to all dilutive         potential common shares outstanding during the year, consisting of outstanding         stock options, using the treasury stock method.            [9]  Stock - based compensation:               At December 31, 2005 the Company had a stock         option plan which is described more fully in Note F. The Company accounts         for stock-based employee compensation under the recognition and measurement         principles of Accounting Principles Board (“APB”) Opinion No. 25,         “Accounting for Stock Issued to Employees”, and related interpretations.         No stock-based employee compensation cost is reflected in net income as         all options granted under the Plan had an exercise price equal to the         market value of the underlying common stock on the date of grant. The         Company has adopted the disclosure-only provisions of Statement of Financial         Accounting Standards (“SFAS”) No. 123, “Accounting         for Stock-Based Compensation.” The following table illustrates the         effect on net income and earnings per share if the fair value based method         had been applied to all awards.                                                                     Year Ended December 31, (In thousands)                                  2005       2004       2003                                        Reported net income       $   9,544       $   4,810       $   3,544         Stock-based employee compensation determined under   the fair value based method (net of tax)           (0   )       (18   )       (7   )                                                                                           Pro forma net income       $   9,544       $   4,792       $   3,537                                                                                               Earnings per share (basic and diluted):                                             As reported                                             Basic       $   .99       $   .50       $   .37         Diluted       $   .96       $   .49       $   .37                                                       Pro-forma                                             Basic       $   .99       $   .50       $   .37         Diluted       $   .96       $   .48       $   .37        F-7  EMPIRE RESOURCES, INC. AND SUBSIDIARIES NOTE B – SUMMARY OF SIGNIFICANT   ACCOUNTING POLICIES (CONTINUED) The fair value of each option grant on the date of grant is estimated using the Black-Scholes option-pricing model which included the following assumptions stated on a weighted average basis:                                      2004       2003                                                           Dividend yield       4%       4.78%         Volatility       .59       0.59         Risk free interest rate       4.24%       2.08%         Expected life in years       5       5        The weighted average fair values of options granted during the years ended December 31, 2004 and 2003 were $1.59, and $0.67, respectively. There were no options granted during 2005.              [10]   Recent accounting pronouncements                   In December 2004, the FASB issued SFAS No. 123 (Revised 2004)         “Share-Based Payment” (“SFAS No. 123R”) that prescribes         the accounting for share-based payment transactions in which a company         receives employee services in exchange for (a) equity instruments of the         company or (b) liabilities that are based on the fair value of the company’s         equity instruments. SFAS No. 123R addresses all forms of share-based payment         awards, including shares issued under employee stock purchase plans, stock         options, restricted stock and stock appreciation rights. SFAS No. 123R         eliminates the ability to account for share-based compensation transactions         using APB Opinion No. 25, “Accounting for Stock Issued to Employees,”         that was previously allowed under SFAS No. 123 as originally issued. Under         SFAS No. 123R, companies are required to record compensation expense for         all share based payment award transactions measured at fair value. This         statement is effective for us beginning January 1, 2006. As permitted         by Statement 123, the Company currently accounts for share-based payments         to employees using Opinion 25’s intrinsic value method and, as such         recognizes no compensation cost for employee stock options. Accordingly,         the adoption of SFAS No. 123(R)’s fair value method could have a         significant impact on the Company’s results of operations if we were         to grant additional options although it will have no impact on the Company’s         overall financial position. The impact of adoption of SFAS No. 123(R)         cannot be predicted at this time because it will depend on levels of share-based         payments granted in the future. However, had the Company adopted Statement         123(R) in prior periods, the impact of that standard would have approximated         the impact of Statement 123 as described in the disclosure of proforma         net income and earnings per share in (9) above.                   In December 2004, the FASB issued SFAS No. 153,   “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29” that   amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of   similar productive assets and replaces it with a general exception for    F-8  EMPIRE RESOURCES, INC. AND SUBSIDIARES  NOTE B – SUMMARY OF   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                   exchanges of nonmonetary assets that do not have commercial substance.         A nonmonetary exchange has commercial substance if the future cash flows         of the entity are expected to change significantly as a result of the         exchange. The provisions of this statement are effective for non-monetary         asset exchanges for the Company beginning July 1, 2005. The adoption of         SFAS 153 did not have an impact on our results of operations or financial         position.                   [11]   Use of estimates:                The   preparation of financial statements in accordance with accounting principles   generally accepted in the United States of America requires management to   make estimates and assumptions that affect the reported amounts of assets and   liabilities and disclosure of contingent assets and liabilities at the date   of the financial statements and the reported amounts of income and expenses   during the reporting period.  The   principle estimate made relates to the allowance for doubtful accounts.  Actual results could differ from these   estimates.                   [12]   Significant customers and concentration of suppliers:                One major   customer accounted for approximately 14%, 17%, and 14% of the Company’s consolidated   net sales for the years ended December 31, 2005, 2004, and 2003 respectively.                      The   Company’s purchase of nonferrous metal is from a limited number of suppliers   located throughout the world. One supplier, Hulett Aluminium Ltd., accounted   for 54%, 54% and 53% of total purchases during the years ended December 31,   2005, 2004 and 2003, respectively, and the top three suppliers accounted for   79.5%, 78.5%, and 72.3% respectively, of total purchases during such years.   The Company’s loss of any of its three largest suppliers or a material   default by any such supplier in its obligations to the Company would have at   least a short-term material adverse effect on the Company’s business.     NOTE C – FAIR VALUE OF FINANCIAL INSTRUMENTS  The carrying amounts of notes payable to the banks approximate fair value as of December 31, 2005 and 2004 because the interest rates on such debt approximate the market rate for the Company given the appropriate risk factors.  The carrying amount of the variable rate mortgage payable approximates fair value as of December 31, 2005 and 2004, exclusive of the impact of the interest rate swap.  Derivative financial instruments are carried at fair value. (See Note E)  NOTE D – PROPERTY AND EQUIPMENT Property and equipment are summarized as follows:  F-9  EMPIRE RESOURCES, INC. AND SUBSIDIARES                                                           December 31, 2005       December 31, 2004       Estimated Useful Life   (Years)                                              Land       $   1,180,000       $   375,000                     Buildings and improvements           2,810,000           2,125,000           40         Extrusion Equipment           2,626,000           255,000           15         Office equipment           723,000           612,000             3                                                                                                             7,339,000           3,367,000                     Less Accumulated   depreciation           576,000           472,000                                                                                                                     $   6,763,000       $   2,895,000                                                              Building and improvements consist of a facility purchased in December 2004, which has been upgraded and occupied in the third quarter of 2005, prior to the expiration of the Company’s lease for its previous warehouse.  A section of the facility houses an extrusion plant, which is being refurbished.  The Company expects to begin the regular manufacturing of aluminum extrusions in the new facility during the second quarter of 2006. Depreciation of property and equipment was $104,000, $76,000, and $49,000, for the years ended December 31, 2005, 2004, and 2003 respectively.     NOTE E – DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting   For Derivative Instruments and Hedging Activities”, issued by the Financial   Accounting Standards Board. requires the Company to recognize all derivatives   in the balance sheet at fair value. Derivatives that are not hedges must be   adjusted to fair value through earnings. If the derivative is a hedge, depending   upon the nature of the hedge, changes in the fair value of the derivative are   either offset against the change in fair value of the hedged assets, liabilities   or firm commitments through earnings (fair value hedge), or recognized in other   comprehensive income until the hedged item is recognized in earnings (cash flow   hedge). The ineffective portion of a derivative’s change in fair value,   if any, is immediately recognized in earnings. At December 31, 2005, approximately $5,050,000 was deposited with   various brokers for margin calls. Such deposits are classified as restricted   cash on the accompanying 2005 balance sheet.  At December 31, 2005 and 2004, net unrealized gain on the Company’s   foreign exchange forward contracts amounted to approximately $192,000 and $543,000   respectively. Net realized and unrealized losses on aluminum futures contracts   at December 31, 2005 and 2004 amounted to approximately $11,744,000 and $803,000,   respectively. These amounts, which represent the fair value of the derivative   contracts, were offset by like amounts for the changes in the fair value of   the inventories and commitments which were hedged. Such amounts are reflected   in the accompanying 2005 balance sheet in inventory ($11,744,000) and derivative   liabilities ($7,874,000). In 2004 such amounts are reflected in other current   assets ($543,000), inventory ($803,000) and derivative liabilities ($1,346,000).    For the years ended December 31, 2005, and 2004 and 2003, hedge ineffectiveness associated with derivatives designated as fair value hedges was insignificant, and no fair value hedges were derecognized.    As discussed in Note F, the Company has entered into an interest rate swap to convert a mortgage from a variable rate to a fixed rate obligation which has been designated as a cash flow hedge.  At December 31, 2005, the fair value of the interest rate swap amounted to $163,000 and is included in other current assets with a  corresponding credit in accumulated other comprehensive income in the accompanying balance sheet.  At December 31, 2004, the fair value of the swap was not significant to the accompanying balance sheet.  F-10  EMPIRE RESOURCES, INC. AND SUBSIDIARES  NOTE F – MORTGAGE PAYABLE In December 2004, the Company entered into a mortgage in connection with the purchase of a warehouse.  The mortgage, which requires monthly payments of approximately $21,000 including interest, bears interest at Libor + 1.75% and matures in December 2014.  In connection with the mortgage, the Company entered into an interest rate swap with a bank which has been designated as a cash flow hedge.  Effective 2004 through December 29, 2014 each month the Company will pay a fixed interest rate of 6.37% to the bank on a notional principal equal to the outstanding principal balance of the mortgage.  In return, the bank will pay to the Company a floating rate, namely, LIBOR, to reset monthly plus 1.75% on the same notional principal amount.  The following are the future maturities of the mortgage at December 31, 2005 (in thousands):                           Year   ending December 31,                                                                2006       $   110         2007           116         2008           124         2009           132         2010           141         Thereafter           1,774                                                               2,397                            NOTE G - NOTES PAYABLE - BANKS As of December 31, 2005, the Company operated under a $90,000,000 committed credit facility with four commercial banks.  This facility as amended, expires on June 30, 2006. Borrowings by the Company under this line of credit are collateralized by security interests in substantially all its assets.  The Company is required to maintain working capital and net worth ratios as defined by the loan agreement.  As of December 31, 2005 and 2004 respectively, the credit utilized under this facility amounted to $87.7 million and $57.3 million (including approximately $3.2 million and $17.0 million of outstanding letters of credit). Interest on borrowings is either (i) the federal funds rate, (ii) the prime rate of JP Morgan Chase or (iii) LIBOR, plus the applicable margins defined in the loan agreement.  At December 31, 2005 and 2004, the interest rate charged approximated 6.35% and 4.4%, respectively.     NOTE H - STOCK OPTIONS The Company’s 1996 Stock Option Plan (the “1996 Plan”), as amended, provides for the granting of options to purchase not more than an aggregate of 1,129,000 shares of common stock.  All officers, directors and employees of the Company and other persons who perform services for the Company are eligible to participate in the 1996 Plan. Some or all of the options may be “incentive stock options” within the meaning of the Internal Revenue Code of 1986, as amended.   The 1996 Plan provides that it is to be administered by the Board of Directors, or by a committee appointed by the Board, which will be responsible for determining, subject to the provisions of the 1996 Plan, to whom  F-11  EMPIRE RESOURCES, INC. AND SUBSIDIARES the options are granted, the number of shares of common stock subject to an option, whether an option shall be incentive or non-qualified, the exercise price of each option (which, other than in the case of incentive stock options, may be less than the fair market value of the shares on the date of grant), the period during which each option may be exercised and the other terms and conditions of each option. No options may be granted under the 1996 Plan after July 29, 2006.  The Company did not grant any options during 2005. The following is a summary of stock option activity for the years ended December 31, 2005, 2004 and 2003:                                                     Numberof shares       WeightedAverageExercisePrice                                       Options outstanding at December 31, 2002           683,933       $   1.33                                                 Options granted           18,000       $   1.87                                                 Options exercised           (96,000   )   $   1.44                                                 Options forfeited           (50,000   )   $   0.81                                                                                    Options outstanding at December 31, 2003           555,933       $   1.30                                                 Options granted           18,000       $   3.64                                                 Options exercised           (71,000   )   $   1.82                                                                                    Options outstanding at December 31, 2004           502,933   (a)   $   1.64                                                 Options granted           —           —                                                 Options exercised           (143,933   )   $   0.47                                                                                    Options outstanding at December 31, 2005           359,000       $   1.65                                                                                    Options available for grant under 1996 Plan at December 31, 2005           559,000                                                           (a) Restated from amount previously reported to correct for elimination of forfeitures of options during 2004 erroneously reported. The following table summarizes information about outstanding stock options under the Plan at December 31, 2005:                                                                         Options outstandingand exercisable                        ExercisePrice Range           NumberOutstanding       Weighted-AverageRemainingContractualLife (Years)       Weighted-AverageExercisePrice                                                .98 - 1.19               42,000               5.67               1.10             1.41 - 1.63               277,000               3.30               1.60             1.87 - 2.00               24,000               5.80               1.92             3.64               16,000               8.50               3.64                                                                                       359,000               4.00               1.65                                                                     F-12  EMPIRE RESOURCES, INC. AND SUBSIDIARES NOTE I - COMMON STOCK The Board of Directors has authorized the Company to repurchase up to 2,500,000 shares of its common stock at prices not to exceed $1.50 per share. As of December 31, 2005, the Company had repurchased a total of 2,267,400 shares under the repurchase program for an aggregate cost of $2,731,049.  NOTE J - ACCUMULATED OTHER COMPREHENSIVE INCOME Components of accumulated other comprehensive income included in the accompanying consolidated balance sheets are as follows (in thousands):                                             December 31,                                2005       2004                              Foreign currency translation adjustment       $   (8   )   $   14        Unrealized gain on interest-rate swap derivative contract, net         of tax of $63       $   100                                                        $   92       $   14                                   NOTE K - INCOME TAXES  Income tax expense (benefit) consists of the following (In Thousands):                                                        Year Ended December 31,                                                 2005         2004         2003                                                                                                                    Current         $    6,516         $    2,899         $    2,245               Deferred         $    (754    )    $    (22    )    $    (27    )                                                                                                                                  $    5,762         $    2,877         $    2,218                                                          The U.S. statutory rate of 35% (34% for the years ended December 31, 2004 and 2003) can be reconciled to the effective tax rate as follows (In Thousands):                                                                    Year Ended December 31,                                                 2005         2004         2003                                                                                                                    Provision for taxes at statutory rate         $    5,357         $    2,614         $    1,959               State and local taxes, net of federal tax benefit              386         $    220         $    265               Permanent differences and other              19              43              (6    )                                                                                                                                  $    5,762         $    2,877         $    2,218                                                          F-13  EMPIRE RESOURCES, INC. AND SUBSIDIARES Deferred tax assets and liabilities are composed of the following:                                          December 31,                                          2005     2004                                 Deferred tax assets                            Allowance         for doubtful accounts        74        74          Accrued         expenses        60        23          Derivative         contracts         3,007        520                                                3,141        617                                       Deferred tax liabilities                            Property         and equipment        0        (32  )       Inventories        (2,322  )     (520  )                                             (2,322  )     (552  )                                    Net         deferred tax assets          (included in other current assets)     $  819     $  65                                   NOTE L - EMPLOYEE RETIREMENT BENEFITS The Company has implemented a salary reduction employee benefit plan, a qualified plan adopted to conform to Internal Revenue Code Section 401(k). Employees may contribute up to 15% of their eligible compensation, and the Company will provide a matching contribution of 50% of employee contributions limited to 2% of employee compensation. The plan covers all employees who have attained age 18, and substantially all eligible employees have elected to participate.  Each employee’s pre-tax contributions are immediately vested upon participation in the plan. The employees’ vesting of the Company’s matching contribution is based upon length of service as follows:                                     Years of service           Vested%                                                                1           25   %            2           50   %            3           75   %            4           100   %       Employees who terminate prior to 100% vesting forfeit their non-vested portion of the Company’s matching contribution, and those funds are used to reduce future matching contributions. Employees in active service on the effective date of the plan were granted retroactive service credit for the purpose of determining their vested percentage. Company matching contributions amounted to $38,000 in 2005, $32,000 in 2004, and $28,000 in 2003.  F-14  EMPIRE RESOURCES, INC. AND SUBSIDIARES NOTE M –  EARNINGS PER SHARE The following is the reconciliation of the numerators and denominators of the basic and diluted earnings per share:                                                          Year Ended   December 31,                 (In   thousands except per share amounts)                                  2005       2004       2003                                               Numerator:                                             Net Income       $   9,544       $   4,810       $   3,544         Denominator:                                             Computation of basic earnings per share:                                             Weighted average shares outstanding – basic           9,677           9,574           9,466         Basic earnings per share       $   0.99       $   0.50       $   0.37                                                       Computation of diluted earnings per share:                                             Weighted average shares outstanding – basic           9,677           9,574           9,466         Potentially   dilutive shares:                                             Shares issuable upon exercise of dilutive   options           281           339           236                                                 Weighted average shares outstanding –   diluted           9,958           9,913           9,702         Diluted   earnings per share       $   0.96       $   0.49       $   0.37        NOTE N – BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company operates in one business segment-the purchase, sale   and distribution of non-ferrous metals.Sales are attributed to countries based   on location of customer. Sales to domestic and foreign customers were as follows:                                                                              Year Ended   December 31,                 (In   thousands)                                  2005       2004       2003                                               United States       $   299,875       $   175,836       $   148,108                           Pacific Rim,   Canada & Europe       $   58,601           36,714           36,308                                                                           $   358,476       $   212,550           184,416                                                F-15  EMPIRE RESOURCES, INC. AND SUBSIDIARES NOTE O – SUMMARY OF QUARTERLY RESULTS (UNAUDITED)                                                                       2005                                  March       June       September       December                 31       30       30       31                                                    (In thousands except per share amounts)                          Net sales       $    80,014         $    89,446         $    90,777         $    98,239           Gross profit            6,674              6,788              7,283              7,129           Operating income            4,118              4,899              5,036              5,198           Net income           2,224              2,522              2,388              2,410          Income per common share-                                                         Basic and diluted                                                         Basic       $    0.23         $    0.26         $    0.25         $    0.25           Diluted       $    0.23         $    0.25         $    0.24         $    0.24           Weighted average shares   outstanding                                                         Basic           9,599              9,618              9,743              9,677           Diluted           9,848              9,903              10,045              9,958                                                                                2004                                  March       June       September       December                 31       30       30       31                                                    (In thousands except per share amounts)                          Net sales       $    54,185         $    51,605         $    53,809         $    52,951           Gross profit            3,836              3,823              4,313              4,312           Operating income            2,145              1,994              2,568              2,120           Net income           1,135              1,064              1,415              1,196           Income per common share-                                                         Basic and diluted                                                         Basic        $    0.12         $    0.11         $    0.15         $    0.12           Diluted       $    0.11         $    0.11         $    0.14         $    0.12           Weighted average shares   outstanding                                                         Basic            9,530              9,553              9,553              9,599           Diluted           9,885              9,903              9,864              9,913          NOTE P - COMMITMENTS AND CONTINGENCIES              [1]   Lease:                    The Company leases office facilities under a lease expiring in         2015. The minimum non-cancelable scheduled rentals under such lease are         as follows (in thousands):                                     Year Ending                      December 31,                                                2006        $  274             2007           274             2008           274             2009           274             2010           274             Thereafter           1,207                                                $  2,577                                F-16  EMPIRE RESOURCES, INC. AND SUBSIDIARES                  Rent expense   for the years ended December 31, 2005, 2004, and 2003 was $492,000, $479,000,   and $452,000 respectively.                [2]   Letters of credit:                    Outstanding   letters of credit at December 31, 2005 amounted to $3.2 million all of which   expired February 15, 2006.                [3]   Employment agreements:                    The Company   has an employment agreement with one of its executive officers expiring in   December 2006. The agreement provides that the Company may terminate the   agreement upon the disability of the executive or for cause (as such terms   are defined in the agreement). Base salary under this agreement is $450,000   per annum. The amount may be increased, but not decreased, by the Board of   Directors.                    The Company   has an employment agreement with another officer, expiring in December 2006.   The minimum base salary is $220,000 and is subject to possible upward annual   adjustments based upon changes in a designated cost of living index.                [4]   Purchase commitments:                    Under the   terms of some of its supply contracts, the Company may be required to   purchase certain minimum tonnages over the term of the contracts.     NOTE Q–ALLOWANCE FOR DOUBTFUL ACCOUNTS                                                                                                                  In thousands                                      Additions                                  Balance at   Beginning of   Period       Charged to Costs   And   Expenses       Charged to   Other   Accounts       Deductions from   Reserves       Balance at End of   Period                                                      2004           $   191                                                                   $   191             2003           $   191                                                                   $   191             2002           $   189               $   2                                               $   191            EXHIBIT 21.1 List of subsidiaries                   Name of   subsidiary   Jurisdiction                       Empire Resources Pacific   Ltd.   Delaware         I.T.I. Innovative   Technology, Ltd.   Israel         CompuPrint Ltd.   Israel         6900 Quad Avenue LLC   Delaware         Empire Resources   Extrusions LLC   Delaware         Imbali   Belgium        F-17  EMPIRE RESOURCES, INC. AND SUBSIDIARES EXHIBIT 11.1 Statement re computation of per share earnings  Earnings per share – basic, are based upon the Company’s weighted average number of common shares outstanding.                                                           2005       2004       2003                 (In thousands – except per share data)         Net Income       $   9,544       $   4,810       $   3,544               Weighted average shares   outstanding – basic           9,677           9,574           9,466               Shares issuable upon   exercise of dilutive options           359           503           567               Less: shares assumed   repurchased           (78   )       (164   )       (331   )           Weighted average shares   outstanding – diluted           9,958           9,913           9,702               Earnings per share – basic       $   0.99       $   0.50       $   0.37               Earnings per   share – diluted       $   0.96       $   0.49       $   0.37        F-18       EX-10 2 ex10-21.htm EXHIBIT 10.21        Exhibit 10.21 AMENDMENT NO. 7 AMENDMENT NO. 7, dated as of October 3, 2005 (this “Amendment”), among EMPIRE RESOURCES, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the “Company”); each of the lenders that is a signatory hereto (individually, a “Bank” and, collectively, the “Banks”); and JPMORGAN CHASE BANK, N.A., as agent for the Banks (in such capacity, together with its successors in such capacity, the “Agent”). The Company, the Banks and the Agent are parties to a Credit Agreement, dated as of December 21, 2000 (as heretofore modified and supplemented and in effect on the date hereof, the “Credit Agreement”), providing, subject to the terms and conditions thereof, for extensions of credit to be made by said Banks to the Company.  The Company, the Banks and the Agent now wish to amend the Credit Agreement in certain respects and, accordingly, the parties hereto hereby agree as follows: Section 1.  Definitions.  Except as otherwise defined in this Amendment No. 7, terms defined in the Credit Agreement are used herein as defined therein. Section 2.  Amendment.  Subject to the occurrence of the Amendment Effective Date and effective on such date, the Credit Agreement shall be amended as follows: 2.01.      Section 1.01 of the Credit Agreement shall be amended by deleting the definition of “Loan Commitment Sub-limit”. 2.02.      The definition of “Commitment” in Section 1.01 of the Credit Agreement (Definitions) shall be amended by deleting the words “ provided that in no event shall the aggregate amount of the Commitments to make Loans exceed the Loan Commitment Sub-limit”. 2.03.      Clause (a) of Section 2.01 of the Credit Agreement shall be amended by deleting the words “lesser of the Loan Commitment Sub-limit and”. Section 3.  Representations and Warranties.  The Company represents and warrants to the Banks as of the Amendment Effective Date that (x) the representations and warranties set forth in Section 7 of the Credit Agreement and in Article III the Security Agreement are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Section 7 to “this Agreement” included reference to this Amendment No. 7, except (i) changes resulting from transactions contemplated by or permitted by the Credit Agreement, and (ii) those applicable to a specific date or period and (y) no Default has occurred and is continuing. Section 4.  Conditions Precedent.  As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of October 3, 2005 (the        “Amendment Effective Date”), upon (i) the execution of this Amendment No. 7 by the Company, each of the Banks and the Agent, (ii) the delivery by the Company of board of director resolutions approving this Amendment No. 7 and the transactions contemplated herein, in form and substance satisfactory to the Agent and (iii) the payment by the Company of all fees and expenses due and owing on such date. Section 5.  Miscellaneous.  Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect.  This Amendment No. 7 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 7 by signing any such counterpart.  This Amendment No. 7 shall be governed by, and construed in accordance with, the law of the State of New York.   -2-           IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 7 to be duly executed and delivered as of the day and year first above written. EMPIRE RESOURCES, INC. By /s/ Sandra R. Kahn Name:  Sandra R. Kahn Title:  Vice President JPMORGAN CHASE BANK, N.A.,  as Agent By   /s/ Thomas S. Drake Name:  Thomas S. Drake Title:  Vice President BROWN BROTHERS HARRIMAN & CO. By   /s/ Kathryn C. George Name:  Kathryn C. George Title:  Managing Director CITICORP USA, INC. By   /s/ Keith Pallmann Name: Keith Pallmann Title:  Vice President JPMORGAN CHASE BANK, N.A.  By   /s/ Thomas S. Drake Name:  Thomas S. Drake Title:  Vice President COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., “RABOBANK  INTERNATIONAL”, NEW YORK BRANCH  By   /s/ Rebecca O. Morrow Name: Rebecca O. Morrow Title:   Executive Director By   /s/ Eva Rushkevich Name: Eva Rushkevich Title:  Executive Director              EX-31 3 ex31-1.htm EXHIBIT 31.1     Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Nathan Kahn, certify that:              1.  I         have reviewed this annual report on Form 10-K of Empire Resources, Inc.;                  2.  Based         on my knowledge, this annual report does not contain any untrue statement         of a material fact or omit to state a material fact necessary to make         the statements made, in light of the circumstances under which such statements         were made, not misleading with respect to the period covered by this annual         report;                  3.  Based         on my knowledge, the financial statements, and other financial information         included in this annual report, fairly present in all material respects         the financial condition, results of operations and cash flows of the registrant         as of, and for, the periods presented in this annual report;                  4.  The         registrant’s other certifying officers and I are responsible for         establishing and maintaining disclosure controls and procedures (as defined         in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                  a)  designed         such disclosure controls and procedures, or caused such disclosure controls         and procedures to be designed under our supervision, to ensure that material         information relating to the registrant, including its consolidated subsidiaries,         is made known to us by others within those entities, particularly during         the period in which this annual report is being prepared;                        b)  evaluated         the effectiveness of the registrant’s disclosure controls and procedures         and presented in this report our conclusions about the effectiveness of         the disclosure controls and procedures, as of the end of the period covered         by this report based on such evaluation; and                        c)  disclosed         in this report any change in the registrant’s internal control over         financial reporting that occurred during the registrant’s most recent         fiscal quarter (the registrant’s fourth fiscal quarter in the case         of an annual report) that has materially affected, or is reasonably likely         to affect, the registrant’s internal control over financial reporting;         and                  5.  The         registrant’s other certifying officers and I have disclosed, based         on our most recent evaluation of internal control over financial reporting,         to the registrant’s auditors and the audit committee of registrant’s         board of directors (or persons performing the equivalent function):                        a)  all significant         deficiencies and material weaknesses in the design or operation of internal         control over financial reporting which are reasonably likely to adversely         affect the registrant’s ability to record, process, summarize and         report financial information; and                        b)  any fraud,         whether or not material, that involves management or other employees who         have a significant role in the registrant’s internal control over         financial reporting.                         Date: March 30, 2006                   By: /s/   Nathan Kahn                           Nathan Kahn              Chief   Executive Officer            EX-31 4 ex31-2.htm EXHIBIT 31.2     Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002              I,         Sandra Kahn, certify that:         1.  I         have reviewed this annual report on Form 10-K of Empire Resources, Inc.;            2.  Based         on my knowledge, this annual report does not contain any untrue statement         of a material fact or omit to state a material fact necessary to make         the statements made, in light of the circumstances under which such statements         were made, not misleading with respect to the period covered by this annual         report;            3.  Based         on my knowledge, the financial statements, and other financial information         included in this annual report, fairly present in all material respects         the financial condition, results of operations and cash flows of the registrant         as of, and for, the periods presented in this annual report;            4.  The         registrant’s other certifying officers and I are responsible for         establishing and maintaining disclosure controls and procedures (as defined         in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                  i.  designed         such disclosure controls and procedures, or caused such disclosure controls         and procedures to be designed under our supervision, to ensure that material         information relating to the registrant, including its consolidated subsidiaries,         is made known to us by others within those entities, particularly during         the period in which this annual report is being prepared;                        ii.  evaluated         the effectiveness of the registrant’s disclosure controls and procedures         and presented in this report our conclusions about the effectiveness of         the disclosure controls and procedures, as of the end of the period covered         by this report based on such evaluation; and                        iii.  disclosed         in this report any change in the registrant’s internal control over         financial reporting that occurred during the registrant’s most recent         fiscal quarter (the registrant’s fourth fiscal quarter in the case         of an annual report) that has materially affected, or is reasonably likely         to affect, the registrant’s internal control over financial reporting;         and                  5.  The         registrant’s other certifying officers and I have disclosed, based         on our most recent evaluation of internal control over financial reporting,         to the registrant’s auditors and the audit committee of registrant’s         board of directors (or persons performing the equivalent function):                  i.  all significant         deficiencies and material weaknesses in the design or operation of internal         control over financial reporting which are reasonably likely to adversely         affect the registrant’s ability to record, process, summarize and         report financial information; and                        ii.  any fraud         whether or not material, that involves management or other employees who         have a significant role in the registrant’s internal control over         financial reporting.                         Date: March 30, 2006                   By:  /s/   Sandra Kahn                          Sandra Kahn             Chief Financial Officer           EX-32 5 ex32.htm EXHIBIT 32     Exhibit 32 CERTIFICATIONS           The undersigned officer of Empire Resources, Inc. (the “Company”) hereby certifies that the Company’s annual report on Form 10-K for the period ended December 31, 2004 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed to be a part of the Report or “filed” for any purpose whatsoever.                      Date: March 30, 2006   By:   /s/   Nathan Kahn                              Nathan Kahn,             Chief Executive Officer and President              The undersigned officer of Empire Resources, Inc. (the “Company”) hereby certifies that the Company’s annual report on Form 10-K for the period ended December 31, 2003 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed to be a part of the Report or “filed” for any purpose whatsoever.                      Date: March 30, 2006    By:   /s/   Sandra Kahn                              Sandra Kahn,             Chief Financial   Officer           -----END PRIVACY-ENHANCED MESSAGE-----