SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission File Number 0-20979
INDUSTRIAL SERVICES OF AMERICA, INC.
------------------------------------
(Exact Name of Registrant as specified in its Charter)
Florida 59-0712746
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7100 Grade Lane, P.O. Box 32428
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Louisville, Kentucky 40232
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(Address of principal executive offices)
(502) 368-1661
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(Issuer's Telephone Number)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all Reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act after the distribution of securities
under a plan confirmed by court. YES X NO
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APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Common Stock ($.01) par value) - 1,957,500 as of November 11, 1996.
--------------------
Transitional Small Business Disclosure Format (check one):
YES NO X
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
SEPT 30 JANUARY 1
1996 1996
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<S> <C> <C>
CURRENT ASSETS
- --------------
Cash $1,521,865 $ 507,889
Receivables:
Trade, net of allowance for
doubtful accounts of $16,000 2,772,777 3,241,290
Other 122,468 -0-
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2,895,245 3,241,290
Net investment in sales-type leases 3,789 29,273
Inventories 269,454 138,503
Deferred tax assets 6,400 6,400
Other 19,957 168,773
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Total current assets 4,716,710 4,092,128
Property and equipment, net 2,595,872 1,961,381
Other assets 176,006 155,852
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Total assets $7,488,588 $6,209,361
========== ==========
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPT 30 JANUARY 1
1996 1996
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<S> <C> <C>
Current liabilities
Accounts payable $4,229,238 $3,600,857
Income taxes payable 52,188 184,126
Current maturities of
long-term debt 5,185 19,797
Other current liabilities 71,032 202,555
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Total current liabilities 4,357,643 4,007,335
Long-Term Debt 465,875 367,431
Deferred tax liability 66,600 66,600
Stockholders' equity
Common stock, $.01 par value,
10,000,000 shares authorized;
1,957,500 shares issued 19,575 17,575
Additional paid-in capital 275,000 27,000
Retained earnings 2,311,895 1,731,420
Treasury stock, at cost,
27,900 shares (8,000) (8,000)
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Total stockholders' equity 2,598,470 1,767,995
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Total liabilities and stockholders'
equity $7,488,588 $6,209,361
========== ==========
</TABLE>
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Revenue
Net sales $9,184,714 $8,213,186
Rental income 102,194 65,713
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Total revenue 9,286,908 8,278,899
Cost and expenses
Cost of sales 7,885,364 6,380,229
Direct expenses applicable to
rental income 28,454 20,901
Selling, general and administrative
expenses 1,087,705 1,517,675
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Total cost and expenses 9,001,523 7,918,805
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Income from operations 285,385 360,094
Other income, net 41,614 21,416
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Income before provision for
income taxes 326,999 381,510
Provision for income taxes 137,000 195,000
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Net income $ 189,999 $ 186,510
========== ==========
Earnings per common share $ 0.10 $ 0.10
</TABLE>
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Revenue
Net sales $25,795,837 $22,491,628
Rental income 283,682 176,346
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Total revenue 26,079,519 22,667,974
Cost and expenses
Cost of sales 21,696,810 17,898,394
Direct expenses applicable to
rental income 78,104 66,837
Selling, general and administrative
expenses 3,399,151 3,779,454
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Total cost and expenses 25,174,065 21,744,685
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Income from operations 905,454 923,289
Other income, net 69,991 61,192
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Income before provision for
income taxes 975,445 984,481
Provision for income taxes 395,000 435,000
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Net income $ 580,445 $ 549,481
=========== ===========
Earnings per common share $ 0.32 $ 0.30
</TABLE>
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Operating activities
Net income $ 580,445 $ 549,481
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 353,558 231,108
Gain on sale of property
and equipment (25,053) -0-
Increase (decrease) in cash
resulting from changes in:
Receivables 468,513 (905,303)
Inventories (130,951) (52,953)
Prepaid expenses 120,824 94,753
Accounts payable 628,381 1,128,618
Deferred revenue -0- 45,000
Income taxes payable (131,938) (72,659)
Other current liabilities (131,523) 169,496
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Net cash provided by operating
activities 1,732,256 1,187,541
Investing activities
Purchase of restricted investment -0- (100,000)
Advances to related parties (14,968) -0-
Proceeds from sale of property
and equipment 56,423 -0-
Payments/Deposits for property
and equipment (1,019,419) (1,131,547)
Additions to notes receivables (107,500) -0-
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Net cash used in investing
activities (1,085,464) (1,231,547)
Financing activities
Payments on long-term debt (16,168) (5,826)
Proceeds from issuance of
notes payable to bank 100,000 300,000
Proceeds from issuance of
long-term debt -0- 21,976
Investment in sales-type leases (2,463) (15,412)
Proceeds from sales-type leases 35,815 -0-
Proceeds from issuance of
stock options 250,000 -0-
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Net cash provided by financing
activities 367,184 300,738
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Net increase (decrease) in cash 1,013,976 256,732
Cash at beginning of period 507,889 354,884
Cash at end of period $1,521,865 $ 611,616
========== ==========
</TABLE>
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
---------
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial reporting. They do not include
all information and footnotes required by generally accepted
accounting principles for complete financial statements. The
information furnished includes all adjustments which are, in the
opinion of management, necessary to present fairly the
Registrant's financial position as of September 30, 1996 and the
results of its operations and changes in cash flows for the
periods ended September 30, 1996 and 1995. Results of operations
for the period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the entire
year.
2. Additional information
----------------------
Additional information, including the audited 1995 Financial
Statements and the Summary of Significant Accounting Policies, is
included in the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1995 on file with the Securities and
Exchange Commission.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of
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Operation
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1. Liquidity and Capital Resources
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As of September 30, 1996, the Registrant held cash and cash
equivalents of $1,521,865.
The Registrant derives its revenues from a variety of
sources, including customer services, equipment sales, consulting
fees, and from its recycling operations. The recycling
operations comprised approximately 30% and 60% of the
Registrant's income before provision for income taxes for the
years ended December 31, 1994 and 1995, respectively. In the
event the Registrant were to operate without revenue derived from
its recycling operations, the Registrant's liquidity would be
significantly decreased but would not materially impair the
Registrant's ability to continue its operations and business.
2. Results of Operations
---------------------
The Registrant currently manages the recycling operations of
K&R Corporation. The Registrant reports gross sales derived from
its recycling operations within its computation of total revenue.
The cost of purchasing recyclable materials is reported as a Cost
of Sales of the Registrant. Effective January 1, 1996, the
Registrant is charging K&R Corporation a management fee of 80% of
income before provision for income taxes from the recycling
operations. The remaining 20% of income before provision for
income taxes is remitted to K&R Corporation and is reported in
the Registrant's financial statements as a Selling Expense. Prior to
January 1, 1996, the Registrant was charging K&R Corporation a
management fee of 60% of income before provision for income taxes
from the recycling operations.
Income before provisions for income taxes for the nine
months ended September 30, 1996 was $975,445, as compared to
$984,481 for the comparable period of 1995.
Revenues for the nine months ended September 30, 1996 was
$26,079,519, as compared to $22,667,974 for the comparable period
of 1995.
Costs and expenses for the nine months ended September 30,
1996 were $25,174,065 as compared to $21,744,685 for the
comparable period of 1995.
Income from operations for the nine months ended
September 30, 1996 was $905,454, as compared to $923,289 for the
comparable period of 1995.
Increases in net income of 6% and revenues of 15% of the
Registrant are attributable to an increase in the volume of the
recyclable processing operations and an increase in the leasing
of waste disposal and recycling equipment. The percentage of
costs and expenses increased slightly above the percentage of
revenues due to a depressed market for recycling materials.
<PAGE>
The Registrant does not believe that the impact of inflation
on operations has been material. The Registrant believes that
any cost increase resulting from periods of high inflation can be
passed through to its customers without negative reactions.
The Registrant currently maintains a working capital line of
credit with The Mid-America Bank of Louisville and Trust Company
(the "Bank") in the amount of $750,000. Indebtedness under this
credit facility earns interest at the Bank's prime rate as
promulgated from time to time. The maturity date under this
credit facility is June 30, 1997. As of September 30, 1996
approximately $450,000 was outstanding under this credit
facility.
The Registrant provides waste management consulting services
to its customers. Prior to 1994, the Registrant's service and
consulting revenue was derived principally from management fees
paid by its customers. The Registrant collected funds from its
customers for services rendered, retained its management fee, and
remitted the remaining funds to third party vendors who performed
the waste removal and maintenance services. In 1994, because of
certain market dynamics, changes in the industry and changes
related to the Registrant's operations, management re-evaluated
the Registrant's manner of conducting business. Based on this
re-evaluation, the Registrant's pricing process was modified. As
a result, the majority of the Registrant's current customers pay
a negotiated fee for their waste service needs, and in turn the
Registrant subcontracts the necessary work to third party vendors
and pays those vendors for their services.
3. Other Information
-----------------
The Registrant entered into a Management Agreement (the
"Management Agreement"), dated as of July 3, 1996, with
Earthwatch Waste Systems, Inc. ("EWS"), a Delaware corporation
headquartered in Buffalo, New York. EWS is in the business of
arranging for the disposal of municipal solid waste primarily in
the Northeastern United States. The Registrant has agreed to
provide management consulting services to EWS in exchange for a
quarterly management fee equal to 60% of the net income of EWS
for each fiscal quarter as adjusted for losses in prior quarters.
The initial term of the Management Agreement was to commence
effective July 1, 1996 and expires on September 30, 1997 unless
sooner terminated by either party under the terms of the
Management Agreement. The Management Agreement automatically
renews on an annual basis. To date, EWS has not paid any fees
because the Management Agreement has not been implemented by
agreement of the parties. If the Management Agreement had been
implemented, to date, EWS would not have been required to pay
any such fees under its terms. As a result, the Management
Agreement has not had a material effect on the income
of the Registrant.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ---------------------------
None
Item 2. Changes in Securities
- -------------------------------
None
Item 3. Defaults upon Senior Securities
- -----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
None
Item 5. Other Information
- ---------------------------
On July 8, 1996, the Registrant filed a Form 8-A with
the Securities and Exchange Commission (the "Commission")
registering the $.01 par value common stock of the Registrant
under Section 12(g) of the Securities Exchange Act of 1934, as
amended. The Commission declared the Form 8-A effective on July
17, 1996.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) The following exhibits are filed as part of this
report:
27 -- Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INDUSTRIAL SERVICES OF AMERICA, INC.
DATE: 11/14/96 /s/ Harry Kletter
---------------- -------------------------------------
President and Principal Accounting
and Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000004187
<NAME> INDUSTRIAL SERVICES OF AMERICA, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,521,865
<SECURITIES> 0
<RECEIVABLES> 2,772,777
<ALLOWANCES> 0
<INVENTORY> 269,454
<CURRENT-ASSETS> 4,716,710
<PP&E> 3,778,370
<DEPRECIATION> 1,182,498
<TOTAL-ASSETS> 7,488,588
<CURRENT-LIABILITIES> 4,357,643
<BONDS> 465,875
0
0
<COMMON> 19,575
<OTHER-SE> 2,578,895
<TOTAL-LIABILITY-AND-EQUITY> 7,488,588
<SALES> 25,795,837
<TOTAL-REVENUES> 26,079,519
<CGS> 21,696,810
<TOTAL-COSTS> 25,174,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 975,445
<INCOME-TAX> 395,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 580,445
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
