<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to .
-------- ---------
Commission File Number 0-20979
INDUSTRIAL SERVICES OF AMERICA, INC
-----------------------------------
(Exact Name of Registrant as specified in its Charter)
Florida 59-0712746
------- ----------
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
7100 Grade Lane, PO Box 32428
-----------------------------
Louisville, Kentucky 40232
--------------------------
(Address of principal executive offices)
(502) 368-1661
--------------
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all Reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the 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
--- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of November 3, 1998: 1,929,600.
---------
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
INDEX
Page No.
Part I Financial Information
Condensed Balanced Sheet
September 30, 1998 and December 31, 1997 3
Condensed Statement of Operations
three months ended September 30, 1998 5
and 1997
Condensed Statement of Operations
nine months ended September 30, 1998 6
and 1997
Condensed Statement of Cash Flows-
nine months ended September 30, 1998 7
and 1997
Notes to Condensed Financial
Statements 8
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II Other Information
Item 5 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
<TABLE>
September 30, December 31,
------------- ------------
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 986,205 $ 495,834
Accounts receivables - trade
(after allowance for doubtful
accounts of $16,000 in 1998 and 1997) 7,759,991 5,028,769
Accounts receivable - related parties 48,259 34,667
Income taxes refund receivable 92,306 164,737
Net investment in sales-type leases 20,505 40,154
Inventories 2,763,372 2,511,826
Deferred income taxes 55,109 18,200
Other 141,218 195,993
---------- ----------
Total current assets 11,866,965 8,490,180
Net property and equipment 5,090,022 3,642,712
Other Assets
Non-compete agreements, net 861,193 450,000
Intangibles (net of accumulated
amortization of $66,667 and $26,667
in 1998 and 1997, respectfully) 733,331 773,333
Net investment in sales type leases 19,841 192,154
Other assets 299,302 344,645
---------- ----------
1,913,667 1,760,132
---------- ----------
$18,870,654 $13,893,024
========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED BALANCE SHEETS
CONTINUED
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
September 30, December 31,
------------- ------------
1998 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $ - $ 1,800,000
Notes payable - 800,000
Current maturities of long-term debt 407,341 45,479
Accounts payable 9,923,510 6,176,433
Affiliated companies payable - 23,000
Other current liabilities 394,028 140,818
---------- ----------
Total current liabilities 10,724,879 8,985,730
Long-term liabilities
Long-term debt 3,755,780 759,877
Deferred income taxes 171,029 257,700
---------- ---------
3,926,809 1,017,577
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
10,000,000 shares authorized;
1,957,500 shares issued as of
June 30, 1998 19,575 19,575
Additional paid-in capital 1,568,953 1,548,750
Retained earnings 2,638,438 2,329,392
Treasury stock, at cost, 27,900 shares (8,000) (8,000)
---------- ----------
Total stockholders' equity 4,218,966 3,889,717
---------- ----------
$18,870,654 $13,893,024
========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
1998 1997
---- ----
<S> <C> <C>
REVENUE
Recycling $ 4,949,650 $ 3,611,631
Equipment sales, service and leasing 531,661 392,619
Management services 12,064,941 8,201,415
---------- ---------
Total revenue 17,546,252 12,205,665
Cost of goods sold
Recycling 4,084,557 3,197,991
Equipment sales, service and leasing 364,395 180,217
Management services 11,495,482 7,715,959
---------- ----------
Total cost of sales 15,944,434 11,094,167
---------- ----------
GROSS MARGIN 1,601,818 1,111,498
Selling, general and administrative 1,588,389 1,040,283
---------- ----------
INCOME FROM OPERATIONS 13,429 71,215
Other income (expenses) (70,781) (1,677)
---------- ----------
Income (loss) before income taxes (57,352) 69,538
Provision (benefit) for income taxes (63,236) 26,000
---------- ----------
NET INCOME $ 5,884 $ 43,538
---------- ----------
Earnings per share $0.01 $0.02
===== =====
Earnings per share, assuming dilution $0.01 $0.02
===== =====
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
1998 1997
---- ----
<S> <C> <C>
REVENUE
Recycling $14,958,564 $ 6,886,207
Equipment sales, service and leasing 1,283,521 1,097,371
Management services 32,245,996 23,615,728
---------- ----------
Total revenue 48,488,081 31,599,306
Cost of goods sold
Recycling 13,189,205 5,806,636
Equipment sales, service and leasing 776,460 484,152
Management services 30,611,411 22,286,429
---------- ----------
Total cost of sales 44,577,076 28,577,217
---------- ----------
GROSS MARGIN 3,911,005 3,022,089
Selling, general and administrative 3,386,748 2,805,309
---------- ----------
INCOME FROM OPERATIONS 524,257 216,780
Other income (expenses) (93,447) 35,648
---------- ----------
Income before income taxes 430,810 252,428
Provision for income taxes 121,764 96,000
---------- ----------
NET INCOME $ 309,046 $ 156,428
---------- ----------
Earnings per share $0.16 $0.08
===== =====
Earnings per share, assuming dilution $0.15 $0.08
===== =====
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 309,046 $ 156,258
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 882,461 475,378
Bad debts 100,000 -
Deferred income taxes (123,580) -
Stock options issued for services 20,203 -
Change in assets and liabilities
Receivables (2,831,222) (1,246,070)
Inventories (251,546) (1,842,825)
Other assets 158,957 1,046,805
Accounts payable 3,747,077 432,419
Other current liabilities 230,210 112,600
---------- ----------
Net cash from operating activities 2,241,606 (865,265)
INVESTING ACTIVITIES
Advances from related parties - 43,143
Purchase of service contracts - (24,000)
Purchase of TMG Enterprises'assets - (1,600,000)
Purchases of property and equipment (2,022,865) (979,369)
Payments to affiliates - (35,857)
---------- ----------
Net cash from investing activities (2,022,865) (2,596,083)
FINANCING ACTIVITIES
Net borrowings from note payable to bank (800,000) 746,121
Proceeds from issuance of long-term debt 1,130,000 1,600,000
Payments on long-term debt (84,017) (5,356)
Proceeds from sales-type leases 25,647 8,435
---------- ----------
Net cash from financing activities 271,630 2,349,200
---------- ----------
Net change in cash 309,371 (1,112,148)
Cash beginning of period 495,834 1,371,435
---------- ----------
CASH AT END OF PERIOD $ 986,205 $ 259,287
========== ==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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, 1998 and the results of its
operations and changes in cash flows for the periods ended
September 30, 1998 and 1997. Results of operations for the
period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the
entire year. Additional information, including the audited
1997 Financial Statements and the Summary of Significant
Accounting Policies, is included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 on
file with the Securities and Exchange Commission.
2. Inventories
-----------
Inventories consist of the following:
<TABLE>
September 30, December 31,
------------- ------------
1998 1997
---- ----
<S> <C> <C>
Equipment and parts $ 698,153 $ 752,099
Ferrous materials 1,319,632 756,940
Non-ferrous materials 745,587 1,002,787
----------- -----------
Total inventories $ 2,763,372 $ 2,511,826
=========== ===========
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1998 the Registrant held cash and cash
equivalents of $986,205.
The Registrant derives its revenues from a variety of
sources, including management services, equipment sales and
leasing, consulting fees and from its recycling operations. The
recycling operations comprised approximately 30.8% and 21.8% of
the Registrant's revenues for the nine-month period ended
September 30, 1998 and 1997, respectively.
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 $2,000,000. Outstanding principal
under this credit facility bears interest based at prime rate
plus 1/2% The maturity date under this credit facility is June 30,
2000. As of September 30, 1998, $1,000,000 was outstanding under
this credit facility.
Results of Operations
- ---------------------
The following table presents, for the periods indicated, the
percentage relationship which certain captioned items in the
Registrant's Statements of Operations bear to total revenues and
other pertinent data:
<TABLE>
Nine-months ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Statements of Operations Data:
Total Revenue...................... 100.0% 100.0%
Cost of Goods Sold................. 90.9% 90.4%
Selling, general and administrative
expenses........................... 8.0% 8.9%
Income from operations............. 1.1% 0.7%
</TABLE>
Nine months ended September 30, 1998 compared to Nine months
- ------------------------------------------------------------
ended September 30, 1997
- ------------------------
Total revenue increased 53.4% from $31,599,306 in 1997 to
$48,488,081 in 1998. This increase in total revenue is the
result of (i) CWS sales increasing 36.5% from $23,615,728 in 1997
to $32,245,996 in 1998 and (ii) an increase of 117.2% related to
the recycling operations of $14,958,564 in 1998 as compared to
$6,886,207 in 1997 primarily due to the acquisition of The Metal
Center in the third quarter of 1997.
The 1998 total cost of sales was $44,577,076, increasing
$15,999,859 or 56% compared to 1997. The cost of goods sold in
management services increased 37.4% versus an increase in
recycling costs of goods sold of 127%. This deviation resulted
from a declining economy in the Asian market. Consequently,
commodity prices in the United States have decreased over the
past year, thereby tightening the gross margin.
The gross margin was $3,911,005 representing an increase of
$888,916 in 1998 or 29.4% from 1997. The gross margin was 9.1%
of revenue, which was .5% lower than 1997.
9
<PAGE>
A reduced gross margin percentage of 0.5% was experienced in
management services due to the addition of certain fixed fee
contracts which experienced store location growth during the
period along with the assimilation of the shared savings
contracts. The reduced gross margin of 3.9% in the recycling area
is attributable to declining commodity prices driving revenue
results versus higher costs assigned to the cost of sales due to
inventory valued on a FIFO basis.
Selling, general and administrative expenses increased 20.7%
from $2,805,309 in 1997 to $3,386,748 in 1998. The increase in
costs resulted from 1998 acquisitions and internal growth. As a
percentage of total revenue, however, selling, general and
administrative expenses decreased from 8.9% in 1997 to 7.0% in
1998.
Earnings per share in 1998 doubled from that at December 31,
1997. This is attributable to the Registrant's efforts
throughout 1998 to increase revenue by both acquisitions and
internal growth, while minimizing corresponding increases in
fixed costs. The Registrant has been successful in maintaining
margins relatively constant with the prior year during a period
of declining commodity prices.
Quarter ended September 30, 1998 compared to quarter ended
- ----------------------------------------------------------
September 30, 1997
- ------------------
Total revenue increased 43.8% from $12,205,665 in 1997 to
$17,546,252 in 1998. This increase in total revenue is the
result of (I) CWS sales increasing 47.1% from $8,201,415 in 1997
to $12,064,941 in 1998 and (ii) an increase of 37.0% related to
the recycling operations of $4,949,650 in 1998 as compared to
$3,611,631 in 1997 primarily due to the acquisitions in the third
quarter of 1997 and the second quarter of 1998.
The 1998 total cost of sales was $15,944,434 increasing
$4,850,267 or 43.7% compared to 1997. The cost of goods sold in
management services increased 49.0% versus an increase in
recycling costs of goods sold of 27.8.
The gross margin for management services was 1.2% lower in
1998 due to the addition of certain fixed fee contracts as noted
above. The gross margin for recycling increased by 6.1% due to
second quarter acquisitions and changes occasioned by an internal
Registrant review of prior year accounts and the resulting
adjustments to such accounts. Overall, the gross margin
was 9.1% of revenue for both 1998 and 1997.
Selling, general and administrative expenses increased
$1,056,036 in 1998 compared to 1997. As a percentage of total
revenue, selling, general and administrative expenses increased
from 8.5% in 1997 to 9.1% in 1998. The increase in costs reflects
changes due to an internal Registrant review of prior year accounts
and the resulting adjustments to such accounts.
Financial Condition at September 30, 1998 Compared to
- -----------------------------------------------------
December 31, 1997
- -----------------
Accounts receivable-trade increased 54.3% or $2,731,222 from
$5,028,769 as of December 31, 1997 to $7,759,991 at September 30,
1998. The increase in accounts receivable-trade was primarily due
to higher volumes related to the recycling and management
services operations.
10
<PAGE>
Accounts payable-trade increased 60.7% or $2,493,442 from
$6,176,433 as of December 31, 1997 to $9,923,510 at September 30,
1998. The increase was a result of additional expenses incurred
to generate higher revenue volumes as noted above.
From December 31, 1997 to September 30, 1998, the
Registrant's working capital increased by $1,637,636 to
$1,142,086. The increase in accounts receivable and payable as
noted above, coupled with the refinancing of short-term notes
payable into long term financing arrangements, were major
contributors to the working capital increase.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ----------------------------
None
Item 2. Changes in Securities and Use of Proceeds
- ----------------------------------------------------
None
Item 3. Defaults upon Senior Securities
- ------------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------
None
Item 5. Other Information
- ----------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
(a) None
(b) The Registrant filed a Form 8-K on August 3, 1998
with respect to the earliest event reported on July 31, 1998.
This filing reports "Item 5-Other Events" from the Form 8-K.
The Registrant filed a Form 8-K on October 30, 1998 with respect
to the earliest event reported on October 21, 1998. This filing
reports "Item 5-Other Events" from the Form 8-K.
12
<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: August 15, 1998 /s/ Harry Kletter
------------------------------------
Chairman and Chief Executive Officer
(Principal Executive and Financial
Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000004187
<NAME> INDUSTRIAL SERVICES OF AMERICA, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 986,205
<SECURITIES> 0
<RECEIVABLES> 7,875,991
<ALLOWANCES> 116,600
<INVENTORY> 2,763,372
<CURRENT-ASSETS> 11,866,965
<PP&E> 7,299,023
<DEPRECIATION> 2,209,001
<TOTAL-ASSETS> 18,870,705
<CURRENT-LIABILITIES> 10,143,042
<BONDS> 4,508,697
0
0
<COMMON> 19,575
<OTHER-SE> 1,568,953
<TOTAL-LIABILITY-AND-EQUITY> 18,870,654
<SALES> 14,958,564
<TOTAL-REVENUES> 48,488,081
<CGS> 13,189,205
<TOTAL-COSTS> 44,577,076
<OTHER-EXPENSES> 3,348,449
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,746
<INCOME-PRETAX> 0
<INCOME-TAX> 121,764
<INCOME-CONTINUING> 309,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 309,046
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
