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 March 31, 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 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 May 13, 1998: 1,929,600.
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INDUSTRIAL SERVICES OF AMERICA, INC.
INDEX
Page No.
Part I Financial Information
Condensed Balanced Sheet
March 31, 1998 and December 31, 1997 3
Condensed Statement of Operations
three months ended March 31, 1998 5
and 1997
Condensed Statement of Cash Flows-
three months ended March 31, 1998
and 1997 6
Notes to Condensed Consolidated
financial statements 7
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II Other Information
Item 5 10
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Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, December 31,
1998 1997
Current assets
Cash and cash equivalents $ 617,487 $ 495,834
Accounts receivables - trade (after
allowance 5,468,112 5,028,769
for doubtful accounts of $16,000 in 1998
and 1997)
Accounts receivable - related parties 34,667 34,667
Income taxes refund receivable 69,123 164,737
Net investment in sales-type leases 39,748 40,154
Inventories 2,321,101 2,511,826
Deferred income taxes 18,200 18,200
Other 227,434 195,993
------- -------
Total current assets 8,795,872 8,490,180
Net property and equipment 3,904,211 3,642,712
Other Assets
Non-compete agreements, net 425,000 450,000
Intangibles (net of accumulated amortization of 759,995 773,333
$40,005 and $26,667 in 1998 and 1997,
respectfully)
Net investment in sales type leases 182,472 192,154
Other assets 382,375 344,645
------- -------
1,749,842 1,760,132
$14,449,925 $13,893,024
See accompanying notes to financial
statements.
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INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED BALANCE SHEETS
CONTINUED
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1998 1997
Current liabilities
Notes payable to bank $ $ 1,800,000
2,000,000
Notes payable 800,000 800,000
Current maturities of long-term debt 57,851 45,479
Accounts payable 6,387,945 6,176,433
Affiliated companies payable 22,000 23,000
Other current liabilities 136,180 140,818
------- -------
Total current liabilities 9,403,976 8,985,730
Long-term liabilities
Long-term debt 745,926 759,877
Deferred income taxes 257,700 257,700
------- -------
1,003,626 1,017,577
Stockholders' equity
Common stock, $.01 par value,
10,000,000 shares authorized;
1,957,500 shares issued as of March
31, 1998 19,575 19,575
Additional paid-in capital 1,548,750 1,548,750
Retained earnings 2,481,998 2,329,392
Treasury stock, at cost, 27,900 shares (8,000) (8,000)
------ ------
Total stockholders' equity 4,042,323 3,889,717
--------- ---------
$14,449,925 $13,893,024
See accompanying notes to financial statements.
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INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
Revenue
Recycling $ 4,868,193 $ 1,593,553
Equipment sales, service and leasing 423,852 358,854
Management services 8,867,079 7,164,937
--------- ---------
Total revenue 14,159,124 9,117,344
Cost of goods sold
Recycling 4,445,230 1,234,514
Equipment sales, service and leasing 228,692 164,852
Management services 8,377,508 6,729,602
--------- ---------
Total cost of sales 13,051,430 8,128,968
---------- ---------
Gross margin 1,107,694 988,376
Selling, general and administrative 880,210 851,681
------- -------
Income from operations 227,484 136,695
Other income (expenses) 19,122 36,275
------ ------
Income before income taxes 246,606 172,970
Provision for income taxes 94,000 65,000
------ ------
Net income $ 152,606 $ 107,970
=========== ===========
Earnings per share $0.08 $0.06
===== =====
Earnings per share, assuming dilution $0.08 $0.05
===== =====
See accompanying notes to financial statements.
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INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
Operating activities
Net Income $ 152,606 $ 107,968
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 223,863 137,723
Change in assets and liabilities
Receivables (343,729) (565,942)
Inventories 190,725 (112,758)
Other assets (69,171) 5,698
Accounts payable 211,512 (646,674)
Income taxes payable - 65,000
Other current liabilities (5,638) 81,716
------ ------
Net cash from operating activities 360,168 (927,269)
Investing activities
Payments/deposits for property and equipment (447,024) (368,127)
Net cash from investing activities (447,024) (368,127)
Financing activities
Net borrowings from note payable to bank 200,000 -
Payments on long-term debt (1,579) (3,536)
Proceeds from sales-type leases 10,088 1,933
------ -----
Net cash from financing activities 208,509 (1,603)
------- -------
Net change in cash 121,653 (1,296,999)
Cash beginning of period 495,834 1,371,435
------- ---------
Cash at end of period $ 617,487 $ 74,436
=========== ===========
See accompanying notes to financial statements.
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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 March 31, 1998 and the results of
its operations and changes in cash flows for the periods ended March 31,
1998 and 1997. Results of operations for the period ended March 31, 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:
March 31, December 31,
1998 1997
Equipment and parts $ 699,164 $ 752,099
Ferrous materials 923,756 756,940
Non-ferrous materials 698,181 1,002,787
----------- -----------
Total inventories $ 2,321,101 $ 2,511,826
=========== ===========
3. Subsequent Event
Subsequent to March 31, 1998, the Registrant refinanced certain debt. Under
the refinance agreement this debt matures in April, 2003. Therefore, as of
March 31, 1998, debt related to the refinance agreement is classified as
long-term.
4. Reclassifications
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 financial statement presentation. These
reclassifications had no effect on 1997 retained earnings or net income.
<PAGE>
ITEM 2. MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity and Capital Resources
As of March 31, 1998 the Registrant held cash and cash equivalents of
$617,487.
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 34.4% and 17.5% of the Registrant's revenues for the
quarters ended March 31, 1998 and 1997, respectively.
The Registrant maintains a working capital line of credit with 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
at prime rate. The maturity date under this credit facility is June 30,
1998. As of March 31, 1998, $2,000,000 was outstanding under this credit
facility.
The Registrant also maintains an acquisition line of credit with the
Bank in the amount of $800,000 Outstanding principal under this credit
facility bears interest at the Bank's prime rate and the line matures in
July, 1998. As of March 31, 1998, the Registrant had not drawn any funds
against this line of credit.
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:
Quarter ended March 31,
1998 1997
Statements of Operations Data:
Total Revenue...................... 100.0% 100.0%
Cost of Goods Sold................. 92.2% 89.2%
Selling, general and administrative
expenses........................... 6.2% 9.3%
Income from operations............. 1.6% 1.5%
Quarter ended March 31, 1998 compared to quarter ended March 31, 1997
Total revenue increased 55.3% from $9,117,334 in 1997 to $14,159,124
in 1998. This increase in total revenue is the result of (i) CWS sales
increasing 24% from $7,164,937 in 1997 to $8,867,079 in 1998 and (ii) an
increase of 205% related to the recycling operations of $4,868,193 in 1998
as compared to $1,593,553 in 1997 primarily due to the acquisition of The
Metal Center in the third quarter of 1997.
The 1998 total cost of sales was $13,051,430 increasing $4,922,462 or
61% compared to 1997. The cost of goods sold in management services
increased 24% versus an increase in recycling costs of goods sold of 260%.
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 $1,107,694 representing an increase of $119,308
in 1998 or 12% from 1997. The gross margin was 7.8% of revenue, which was
3.0% lower than 1997. A reduced gross margin percentage of 0.6% 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.
Selling, general and administrative expenses increased 3.3% from
$851,681 in 1997 to $880,210 in 1998. However, as a percentage of total
revenue, selling, general and administrative expenses decreased from 10.8%
in 1997 to 7.8% in 1998.
Financial Condition at March 31, 1998 Compared to December 31, 1997
Accounts receivable-trade increased 6.8% or $343,729 from $5,028,769
at December 31, 1997 to $5,468,112 at March 31, 1998. The increase in
accounts receivable-trade was primarily due to higher volumes related to
the recycling operations.
Accounts payable-trade increased 3.4% or $211,514 from $6,176,433 at
December 31, 1997 to $6,387,945 at March 31, 1998. The increase resulted
from additional expenses to generate higher revenue volumes as noted above.
From December 31, 1997 to March 31, 1998, the Registrant's working
capital decreased by $112,554 to a deficit of $608,104. The increase in
accounts receivable and payable as noted above, coupled with additional
working capital draws on the line of credit, were major contributors to the
working capital deficit.
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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 March 3, 1998 with
respect to the earliest event reported on February 16,
1998. This filing reports "Item 5- Other Events" from
the Form 8-K.
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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: May 15, 1998 /s/ Harry Kletter
Chairman and Chief Executive Officer
(Principal Executive and Financial Officer)
