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, 1999
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 preceding 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 March 31, 1999:
1,929,600.
- ---------
INDUSTRIAL SERVICES OF AMERICA, INC.
INDEX
Page No.
Part I Financial Information
Condensed Consolidated Balance Sheet
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statement of
Operations Three months ended
March 31, 1999 and 1998 5
Condensed Consolidated Statement of
Cash Flows Three months ended
March 31, 1999 and 1998 6
Notes to Condensed Consolidated
Financial Statements 7
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II Other Information
Item 5 11
2
PART I - FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
<TABLE>
March 31, December 31,
--------- ------------
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 480,802 $ 1,014,068
Accounts receivable - trade (after
allowance for doubtful accounts of
$146,000 in 1999 and $116,000 in 1998) 7,911,729 7,474,473
Accounts receivable - related parties 26,259 26,259
Income tax refund receivable 113,000 113,000
Net investment in sales-type leases 30,048 35,270
Inventories 2,391,623 2,515,352
Deferred income taxes 55,900 52,000
Other 303,022 309,692
---------- ----------
Total current assets 11,312,383 11,540,114
Net property and equipment 4,975,418 5,063,576
Other Assets
Non-compete agreements, net 760,015 810,604
Intangibles (net of accumulated
amortization of $92,054 and
$80,000 in 1999 and 1998, respectively) 707,946 720,000
Deferred Income Taxes 252,100 359,800
Other Assets 129,314 153,439
---------- ----------
1,849,375 2,043,843
---------- ----------
$18,137,176 $18,647,533
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
CONTINUED
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
March 31, December 31,
--------- ------------
1999 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $ 750,000 $ 1,850,000
Current maturities of long-term debt 427,911 460,654
Accounts payable 10,224,913 9,746,536
Affiliated companies payable - 22,000
Other current liabilities 205,122 120,921
---------- ----------
Total current liabilities 11,607,946 12,200,111
Long-term liabilities
Long-term debt 2,536,706 2,612,519
Deferred income taxes 414,300 411,800
---------- ----------
2,951,006 3,024,319
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
10,000,000 shares authorized
1,957,500 shares issued as of
March 31, 1999 19,575 19,575
Additional paid-in capital 1,609,357 1,589,155
Retained earnings 1,957,292 1,822,373
Treasury stock, at cost, 27,900 shares (8,000) (8,000)
---------- ----------
Total stockholders' equity 3,578,224 3,423,103
---------- ----------
$18,137,176 $18,647,533
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
1999 1998
---- ----
<S> <C> <C>
REVENUE
Recycling $ 4,315,662 $ 4,868,193
Equipment sales, service and leasing 529,855 423,852
Management services 12,221,215 8,867,079
---------- ----------
Total revenue 17,066,732 14,159,124
Cost of goods sold
Recycling 3,637,684 4,445,230
Equipment sales, service and leasing 358,195 228,692
Management services 11,426,181 8,377,508
---------- ----------
Total cost of sales 15,422,060 13,051,430
---------- ----------
GROSS MARGIN 1,644,672 1,107,694
Selling, general and administrative 1,344,468 880,210
---------- ----------
INCOME FROM OPERATIONS 300,204 227,484
Other income (expenses) (58,985) 19,122
---------- ----------
Income before income taxes 241,219 246,606
Provision for income taxes 106,300 94,000
---------- ----------
NET INCOME $ 134,919 $ 152,606
========== ==========
Earnings per share $0.07 $0.08
===== =====
Earnings per share, assuming dilution $0.07 $0.08
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
5
INDUSTRIAL SERVICES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 134,919 $ 152,606
Adjustments to reconcile net income to
net cash from operating activities:
Provision for Doubtful Accounts 30,000 -
Deferred Income Tax 106,300 -
Depreciation and amortization 339,709 223,863
Stock Options Granted for Services 20,202
Change in assets and liabilities
Receivables (467,256) (343,729)
Inventories 123,729 190,725
Other assets 36,017 (59,083)
Accounts payable 456,377 211,512
Other current liabilities 84,201 (5,638)
---------- ----------
Net cash from operating activities 864,198 370,256
INVESTING ACTIVITIES
Payments/deposits for property and equipment (188,908) (447,024)
---------- ----------
Net cash from investing activities (188,908) (447,024)
FINANCING ACTIVITIES
Payments on note payable to bank (1,100,000) 200,000
Payments on long-term debt (108,556) (1,579)
---------- ----------
Net cash from financing activities (1,208,556) 198,421
Net change in cash (533,266) 121,653
Cash beginning of period 1,014,068 495,834
---------- ----------
CASH AT END OF PERIOD $ 480,802 $ 617,487
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
INDUSTRIAL SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated 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 consolidated 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, 1999
and the results of its operations and changes in cash flows for
the periods ended March 31, 1999 and 1998. Results of operations
for the period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the entire
year. Additional information, including the audited 1998
Consolidated 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, 1998 on file
with the Securities and Exchange Commission.
2. Segment Information
-------------------
The Company's operations include three primary segments: ISA
Recycling, Computerized Waste Systems (CWS), and Waste Equipment
Sales & Service (WESSCO). ISA recycling provides products and
services to meet the needs of its customers related to ferrous,
non-ferrous and fiber recycling at two locations in the Midwest.
CWS provides waste disposal services including contract
negotiations with vendors, centralized billing, invoice auditing,
and centralized dispatching. WESSCO sells, leases, and services
waste handling and recycling equipment.
The Company's three reportable segments are determined by the
products and services that each offers. The recycling segment
generates its revenues based on buying and selling of ferrous and
non-ferrous scrap, CWS's revenues consist of management fees
charged to customers at a percentage of the total service
provided, and WESSCO sales and lease income comprise the primary
source of revenue for this segment.
The Company evaluates segment performance based on profit or loss
before income taxes and the evaluation process for each segment
includes only direct expenses omitting any selling, general and
administrative costs.
7
<TABLE>
WASTE
COMPUTERIZED EQUIPMENT
ISA WASTE SALES & SEGMENT
MARCH 31, 1999 RECYCLING SYSTEMS SERVICES OTHER TOTALS
-------------- --------- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C>
Recycling revenues $ 4,315,662 $ - $ - $ - $ 4,315,662
Equipment sales,
service and
leasing revenues - 529,855 - 529,855
Management fees - 12,221,215 - - 12,221,215
Cost of goods sold (3,637,684) (11,426,181) (358,195) - (15,422,060)
---------- ---------- ---------- ------- ----------
SEGMENT PROFIT $ 677,978 $ 795,034 $ 171,660 $ - $ 1,644,672
========== ========== ========== ======= ==========
WASTE
COMPUTERIZED EQUIPMENT
ISA WASTE SALES & SEGMENT
MARCH 31, 1999 RECYCLING SYSTEMS SERVICES OTHER TOTALS
-------------- --------- ------- -------- ----- ------
Recycling revenues $ 4,868,193 $ - $ - $ - $ 4,868,193
Equipment sales,
service and
leasing revenues - 423,852 - 423,852
Management fees - 8,867,079 - - 8,867,079
Cost of goods sold (4,445,230) (8,377,508) (228,692) - (13,051,430)
---------- ---------- ---------- ------- ----------
SEGMENT PROFIT $ 422,963 $ 489,571 $ 195,160 $ - $ 1,107,694
</TABLE>
3. Inventories
-----------
Inventories consist of the following:
March 31, December 31,
1999 1998
---- ----
Equipment and parts $ 872,334 $ 761,780
Ferrous materials 994,914 1,131,045
Non-ferrous materials 524,375 622,527
---------- ----------
Total inventories $ 2,391,623 $ 2,515,352
========== ==========
4. Subsequent Event
----------------
Subsequent to March 31, 1999, the Registrant signed a Letter of
Intent to acquire 100% of the capital stock of two waste
management services companies. The combined annual revenues of
the target companies are approximately $48,000,000. The
Registrant anticipates financing the purchase using an
undisclosed amount of stock and cash. The Letter of Intent is
subject to the completion of due diligence, signing of a
definitive agreement, shareholder approval, the receipt of all
regulatory approvals and the expiration of all statutory waiting
periods.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1999 the Registrant held cash and cash
equivalents of $480,802.
The Registrant derives its revenues from several sources,
including management services, equipment sales and leasing and
from its recycling operations. Management services comprised
approximately 71.6% and 62.6% of the Registrant's total revenues
for the quarters ended March 31, 1999 and 1998, 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 at the Bank's prime
rate and the line matures in June 2000. As of March 31, 1999,
$750,000 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:
Quarter ended March 31,
-----------------------
1999 1998
---- ----
Statements of Operations Data:
Total Revenue .................... 100.0% 100.0%
Cost of goods sold ............... 90.4% 92.2%
Selling, general and administrative
expenses ......................... 7.9% 6.2%
Income from operations ........... 1.7% 1.6%
Quarter ended March 31, 1999 compared to quarter ended March 31,
- ----------------------------------------------------------------
1998
- ----
Total revenue increased 20.5% from $14,159,124 in 1998 to
$17,066,732 in 1999. This increase in total revenue is the
result of (i) CWS sales increasing 37.8% from $8,867,079 in 1998
to $12,221,215 in 1999 and (ii) offsetting the decrease in
recycling sales of 11.3% of $4,315,662 in 1999 as compared to
$4,868,193 in 1998. Commodity prices of the ferrous and non-
ferrous markets began to decline during the second half of 1998
and remained considerably lower in the first quarter of 1999. In
the ferrous market, gross tons shipped during the first quarter
were actually 24.5% higher than the first quarter of 1998, but
the revenue dollars only yielded a 2.7% increase due to the per
unit decrease in the selling price. Non-ferrous shipments in
tons were down from 1998 levels by 16%, and combined with a 14.3%
per unit price decrease, resulted in non-ferrous sales being 20%
lower than in 1998. Revenue in the equipment sales and leasing
segment
9
increased $106,003 or 25% from first quarter this year compared
to the first quarter last year.
The 1999 total cost of sales was $15,422,060 increasing
$2,370,630 or 18.2% compared to 1998. The cost of goods sold in
management services increased 36.4% which directly reflects the
revenue increase of 37.8%. Cost of sales in the equipment sales
and leasing segment increased from 54.0% to 67.6% as the mix of
equipment sales versus rentals increased over last year.
The gross margin was $1,644,672 representing an increase of
$536,978 or a 48.5% increase from 1998. The gross margin was
9.6% of revenue which was 1.8% higher than 1998. The gross
margin in management services was 6.5% in the first quarter of
1999 versus 5.5% in 1998. Gross profit in the recycling segment
climbed to 15.7% in the first quarter of 1999 versus 8.7% in the
first quarter of 1998. This is due mainly to the commodity price
stabilization in the first quarter of 1999 following a period of
declining ferrous and non-ferrous prices. The Registrant
estimates that inventory prices devalued by approximately
$370,000 in the second half of 1998 causing lower gross profits
during the last several months of 1998. Commodity prices leveled
during the first quarter of 1999 and selling prices had not
dropped in proportion to the inventory value causing a favorable
gross margin.
Selling, general and administrative expenses increased 52.7%
from $880,210 in 1998 to $1,344,468 in 1999, and as a percentage
to sales, increased from 6.2% to 7.8%. The primary reason is
that expenses were recorded in the first quarter of 1999 for ISA
Indiana, Inc., whereby ISA Indiana, Inc. had not been established
until after the first quarter of 1998. Accrual adjustments and
accounting reclassifications also had an impact on the first
quarter of 1999. The Registrant's comparable operating expenses
in the first quarter of 1999 were up 14.1% over the first quarter
of 1998.
Financial Condition at March 31, 1999 compared to December 31,
- --------------------------------------------------------------
1998
- ----
Accounts receivable-trade before allowances for bad debt
increased 6.2% or $467,256 during the first quarter of 1999.
This increase was primarily due to high sales levels in the
management services segment.
Accounts payable-trade increased $456,377 or 4.9% as a
result of additional expenses incurred to generate higher revenue
as noted above.
From December 31, 1998 to March 31, 1999, the Registrant's
working capital increased by $364,434 to a deficit of $295,563
from the deficit of $659,997. The primary reason for the
increase is due to the repayment of funds drawn against the line
of credit offset by increases in other working capital components
resulting from increases in first quarter 1999 operations.
10
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
- --------------------------------
Subsequent to March 31, 1999, the Registrant signed a
Letter of Intent to acquire 100% of the capital stock
of two waste management services companies. The
combined annual revenues of the target companies are
approximately $48,000,000. The Registrant anticipates
financing the purchasing using an undisclosed amount of
stock and cash. The Letter of Intent is subject to the
completion of due diligence, signing of a definitive
agreement, shareholder approval, the receipt of all
regulatory approvals and the expiration of all
statutory waiting periods.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------------
None
11
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 17, 1999 /s/ Harry Kletter
---------------------------------------
Chairman and Chief Executive Officer
(Principal Executive and Financial
Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000004187
<NAME> INDUSTRIAL SERVICES OF AMERICA, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 480,802
<SECURITIES> 0
<RECEIVABLES> 8,196,988
<ALLOWANCES> 146,000
<INVENTORY> 2,391,623
<CURRENT-ASSETS> 11,312,383
<PP&E> 7,830,338
<DEPRECIATION> 2,854,920
<TOTAL-ASSETS> 18,137,176
<CURRENT-LIABILITIES> 11,607,946
<BONDS> 0
0
0
<COMMON> 19,575
<OTHER-SE> 3,558,649
<TOTAL-LIABILITY-AND-EQUITY> 18,137,176
<SALES> 17,066,732
<TOTAL-REVENUES> 17,066,732
<CGS> 15,422,060
<TOTAL-COSTS> 15,422,060
<OTHER-EXPENSES> 1,302,424
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 71,029
<INCOME-PRETAX> 241,219
<INCOME-TAX> 106,300
<INCOME-CONTINUING> 134,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,919
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
