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, 2000
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, 2000: 1,929,600.
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
INDEX
Page No.
Part I Financial Information
Report of Independent Accountants 3
Condensed Consolidated Balance Sheet
March 31, 2000 and December 31, 1999 4
Condensed Consolidated Statement of
Operations Three months ended
March 31, 2000 and 1999 6
Condensed Consolidated Statement of
Cash Flows Three months ended
March 31, 2000 and 1999 7
Notes to Condensed Consolidated
Financial Statements 8
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Part II Other Information
Item 5 12
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Industrial Services of America, Inc. and Subsidiary
Louisville, Kentucky
We have reviewed the condensed consolidated balance sheet of
Industrial Services of America, Inc. as of March 31, 2000, and
the related condensed consolidated statements of income and cash
flows for the quarter ended March 31, 2000 and 1999. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established
by the AICPA. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
April 27, 2000
3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,398,332 $ 2,388,811
Accounts receivable - trade (after
allowance for doubtful accounts of
$212,650 in 2000 and $190,000 in 1999) 8,451,664 8,750,674
Accounts receivable - related parties - 11,028
Net investment in sales-type leases 90,962 96,864
Inventories 2,580,878 2,185,994
Deferred income taxes 155,800 89,300
Other 184,252 143,327
----------- -----------
Total current assets 12,861,888 13,665,998
Net property and equipment 5,197,073 5,409,046
Other Assets
Non-compete agreements, net 557,657 608,248
Intangibles (net of accumulated
amortization of $146,664 and
$133,333 in 2000 and 1999, respectively) 653,336 666,668
Net investment in sales-type leases 114,230 121,676
Other Assets 61,053 43,859
----------- -----------
1,386,276 1,440,451
$19,445,237 $20,515,495
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
CONTINUED
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
2000 1999
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt 391,156 397,502
Accounts payable 12,471,341 13,722,878
Income tax payable 98,868 131,867
Other current liabilities 319,495 175,273
----------- -----------
Total current liabilities 13,280,860 14,427,520
Long-term liabilities
Long-term debt 2,017,457 2,104,929
Deferred income taxes 164,200 157,800
----------- -----------
2,181,657 2,262,729
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
10,000,000 shares authorized
1,957,500 shares issued as of
March 31, 2000 19,575 19,575
Additional paid-in capital 1,690,166 1,669,963
Retained earnings 2,280,979 2,143,708
Treasury stock, at cost, 27,900 shares (8,000) (8,000)
----------- -----------
Total stockholders' equity 3,982,720 3,825,246
----------- -----------
$19,445,237 $20,515,495
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUE
Recycling $ 6,383,069 $ 4,315,662
Equipment sales, service and leasing 614,805 529,855
Management services 12,829,899 12,221,215
----------- -----------
Total revenue 19,827,773 17,066,732
Cost of goods sold
Recycling 5,638,378 3,637,684
Equipment sales, service and leasing 435,117 358,195
Management services 12,125,154 11,426,181
----------- -----------
Total cost of sales 18,198,649 15,422,060
----------- -----------
GROSS MARGIN 1,629,124 1,644,672
Selling, general and administrative 1,417,353 1,344,468
----------- -----------
INCOME FROM OPERATIONS 211,771 300,204
Other expenses (17,599) (58,985)
----------- -----------
Income before income taxes 194,172 241,219
Provision for income taxes 56,901 106,300
----------- -----------
NET INCOME $ 137,271 $ 134,919
=========== ===========
Earnings per share $0.07 $0.07
===== =====
Earnings per share, assuming dilution $0.07 $0.07
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 137,271 $ 134,919
Adjustments to reconcile net income to
net cash from operating activities:
Provision for Doubtful Accounts 60,000 30,000
Deferred Income Tax (60,100) 106,300
Depreciation and amortization 371,171 339,709
Stock Options Granted for Services 20,203 20,202
Change in assets and liabilities
Receivables 250,038 (467,256)
Inventories (394,884) 123,729
Other assets (58,119) 36,017
Accounts payable (1,284,536) 456,377
Other current liabilities 144,222 84,201
----------- -----------
Net cash from operating activities (814,734) 864,198
INVESTING ACTIVITIES
Proceeds from sales-type leases 13,348 -
Payments/deposits for property and
equipment (95,275) (188,908)
----------- -----------
Net cash from investing activities (81,927) (188,908)
FINANCING ACTIVITIES
Payments on note payable to bank - (1,100,000)
Payments on long-term debt (93,818) (108,556)
----------- -----------
Net cash from financing activities (93,818) (1,208,556)
Net decrease in cash (990,479) (533,266)
Cash beginning of period 2,388,811 1,014,068
----------- -----------
CASH AT END OF PERIOD $ 1,398,332 $ 480,802
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
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 and reviewed by our
independent accounting firm. 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 that are, in the
opinion of management, necessary to present fairly the
Registrant's financial position as of March 31, 2000 and the
results of its operations and changes in cash flows for the
periods ended March 31, 2000 and 1999. Results of operations for
the period ended March 31, 2000 are not necessarily indicative of
the results that may be expected for the entire year. Additional
information, including the audited 1999 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, 1999 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.
<PAGE>
<TABLE>
<CAPTION>
WASTE
COMPUTERIZED EQUIPMENT
ISA WASTE SALES & SEGMENT
MARCH 31, 2000 RECYCLING SYSTEMS SERVICES TOTALS
-------------- --------- ------- -------- ------
<S> <C> <C> <C> <C>
Recycling revenues $ 6,383,069 $ - $ - $ 6,383,069
Equipment sales, service
and leasing revenues - 614,805 614,805
Management fees - 12,829,899 - 12,829,899
Cost of goods sold (5,638,378) (12,125,154) (435,117) (18,198,649)
----------- ----------- -------- -----------
SEGMENT PROFIT $ 744,691 $ 704,745 $179,688 $ 1,629,124
=========== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
WASTE
COMPUTERIZED EQUIPMENT
ISA WASTE SALES & SEGMENT
MARCH 31, 2000 RECYCLING SYSTEMS SERVICES TOTALS
-------------- --------- ------- -------- ------
<S> <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
=========== =========== ======== ===========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Equipment and parts $ 66,724 $ 86,647
Ferrous materials 1,324,660 1,200,868
Non-ferrous materials 1,189,494 898,479
---------- ----------
Total inventories $2,580,878 $2,185,994
========== ==========
</TABLE>
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000 the Registrant held cash and cash
equivalents of $1,398,332.
The Registrant derives its revenues from several sources,
including management services, equipment sales and leasing and
from its recycling operations. Management services comprised
approximately 64.7% and 71.6% of the Registrant's total revenues
for the quarters ended March 31, 2000 and 1999, 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. At March 31, 2000 there
was nothing drawn 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:
<TABLE>
Quarter ended March 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
Statements of Operations Data:
Total Revenue ..................... 100.0% 100.0%
Cost of goods sold ................ 91.8% 90.4%
Selling, general and
administrative expenses ......... 7.1% 7.9%
Income from operations ............ 1.1% 1.7%
</TABLE>
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31,
1999
Total revenue increased 16.2% from $17,066,732 in 1999 to
$19,827,773 in 2000. CWS sales increased 5.0% from $12,221,215
in 1999 to $12,829,899 in 2000. Commodity prices have rebounded
since the first quarter of 1999 and ferrous shipments and non-
ferrous shipments have increased 6.4% and 21.7% respectively,
causing an increase in recycling revenues of 47.9% from
$4,315,662 in 1999 to $6,383,069 in 2000. Revenue in the
equipment sales and leasing segment increased $84,950 or 16% from
first quarter this year compared to the first quarter last year.
The 2000 total cost of sales was $18,198,649 increasing
$2,776,589 or 18.0% compared to 1999. The cost of goods sold in
management services increased 6.1% which reflects the revenue
increase of 5.0% combined with fixed fee contracts with major
chain stores where costs incurred increased at a faster rate than
revenue. Cost of sales in the equipment sales and leasing
segment increased 21.5% as the mix of equipment sales versus
rentals increased over last year.
10
<PAGE>
The gross margin was $1,629,124 representing a decrease of
$15,548 or a 0.9% decrease from 1999. The gross margin was 8.2%
of revenue, which was 1.4% lower than 1999. The gross margin in
management services was 5.5% in the first quarter of 2000 versus
6.5% in 1999. Gross profit in the recycling segment was 11.7% in
the first quarter of 2000 versus 15.7% in the first quarter of
1999. In this segment the three main products that are recycled
include ferrous, non-ferrous and fiber. Gross margins fluctuate
depending upon the revenue mix. Revenues increased in the ferrous
and non-ferrous markets 37.1% and 46.7% respectively from the
first quarter of 1999 to the first quarter of 2000. The gross
margin of ferrous items is higher than non-ferrous items causing
total gross margin as a percentage to decrease, as the lower
gross margin products comprised more of the revenue growth.
Selling, general and administrative expenses increased 5.4%
from $1,344,468 in 1999 to $1,417,353 in 2000, and as a
percentage to sales, decreased from 7.8% to 7.1%. Expenses
remain well controlled as a percentage of revenue; however
certain costs have increased such as insurance premiums based
upon revenue, especially Director and Officer, medical and
liability insurance. Audit and legal costs also increased from
the first quarter of 1999 to the first quarter of 2000.
FINANCIAL CONDITION AT MARCH 31, 2000 COMPARED TO DECEMBER 31,
1999
Accounts receivable-trade before allowances for bad debt
decreased 3.1% or $276,360 during the first quarter of 2000.
This decrease was primarily due to Registrant's focus on
collections of past due receivables and current outstanding
accounts.
Accounts payable-trade decreased $1,251,537 or 9.1% as a
result of the Registrant's efforts to turn vendor invoices at a
faster rate.
From December 31, 1999 to March 31, 2000, the Registrant's
working capital increased by $342,550 to a deficit of $418,972
from the deficit of $761,522. The primary reason for the increase
is due to the decrease in accounts payable which more than offset
the decrease in accounts receivable. The Registrant's management
will be focused on working capital during the remainder of the
fiscal year. Surplus inventories will be shipped to take
advantage of the stable commodity prices. The Registrant intends
to examine its purchases carefully to ensure a program of
inventory reduction by year-end. The Registrant continues to
improve upon all expense controls to provide the highest possible
levels of operational efficiencies and customer service.
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) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on
February 4, 2000 relating to the appointment of
Harry Kletter as Chief Visionary Officer of the
Registrant. The Registrant reported this information
under Item 5. Other Events under 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: May 12, 2000 /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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,398,332
<SECURITIES> 0
<RECEIVABLES> 8,664,314
<ALLOWANCES> 212,650
<INVENTORY> 2,580,878
<CURRENT-ASSETS> 12,861,888
<PP&E> 9,158,480
<DEPRECIATION> 3,961,407
<TOTAL-ASSETS> 19,445,237
<CURRENT-LIABILITIES> 13,280,860
<BONDS> 0
0
0
<COMMON> 19,575
<OTHER-SE> 3,982,720
<TOTAL-LIABILITY-AND-EQUITY> 19,445,237
<SALES> 19,827,773
<TOTAL-REVENUES> 19,827,773
<CGS> 18,198,649
<TOTAL-COSTS> 18,198,649
<OTHER-EXPENSES> 1,399,599
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 15,353
<INCOME-PRETAX> 194,172
<INCOME-TAX> 56,901
<INCOME-CONTINUING> 137,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,271
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
