FORM 10-Q | |
SECURITIES AND EXCHANGE COMMISSION | |
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |
OR | |
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |
| Commission File Number 0-20979 | |
INDUSTRIAL SERVICES OF AMERICA, INC. | |
Florida | 59-0712746 |
(State or other jurisdiction of | (IRS Employer |
Incorporation or Organization) | Identification No.) |
7100 Grade Lane, PO Box 32428 | |
(502) 368-1661 | |
| 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 by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act). Yes No X | |
| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 2003: 1,601,900. | |
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES | ||
INDEX | ||
Page No. | ||
| Part I | Financial Information | |
| Condensed Consolidated Balance Sheets | ||
| September 30, 2003 and December 31, 2002 | 3 | |
| Condensed Consolidated Statements of | ||
| Operations Three Months Ended | ||
| September 30, 2003 and 2002 | 5 | |
| Condensed Consolidated Statements of | ||
| Operations Nine Months Ended | ||
| September 30, 2003 and 2002 | 6 | |
| Condensed Consolidated Statements of | ||
| Cash Flows Nine Months Ended | ||
| September 30, 2003 and 2002 | 7 | |
| Notes to Condensed Consolidated | ||
| Financial Statements | 8 | |
| Management's Discussion and Analysis | ||
| of Financial Condition and Results | ||
| of Operations | 13 | |
| Part II | Other Information | 16 |
Part I – FINANCIAL INFORMATION |
ITEM 1: Condensed CONSOLIDATED FINANCIAL STATEMENTS. |
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(UNAUDITED) |
ASSETS |
September 30, | December 31, | ||
| Current assets | |||
| Cash and cash equivalents | $ 574,402 | $ 1,630,028 | |
| Accounts receivable - trade (after allowance for doubtful accounts of $60,000 in 2003 and $50,000 in 2002) | 9,885,395 | 6,803,856 | |
| Income tax refund receivable | - | 79,593 | |
| Net investment in sales-type leases | 105,277 | 142,218 | |
| Inventories | 1,343,007 | 1,883,162 | |
| Deferred income taxes | 383,200 | 317,600 | |
| Other | 51,605 | 141,446 | |
| Total current assets | 12,342,886 | 10,997,903 | |
| Net property and equipment | 7,742,681 | 6,805,295 | |
| Other Assets | |||
| Non-compete agreements, net | - | 51,180 | |
| Goodwill | 560,005 | 560,005 | |
| Net investment in sales-type leases | 117,897 | 263,921 | |
| Notes receivable | 31,493 | 37,735 | |
| Other assets | 108,267 | 196,740 | |
817,662 | 1,109,581 | ||
$ 20,903,229 | $ 18,912,779 | ||
| See accompanying notes to consolidated financial statements. | |||
3 | |||
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
CONTINUED |
(UNAUDITED) |
LIABILITIES AND STOCKHOLDERS' EQUITY |
September 30, | December 31, | ||
| Current liabilities | |||
| Senior revolving credit facility | $ - | $ 1,750,000 | |
| Current maturities of long-term debt | 836,254 | 623,363 | |
| Current maturities of capital lease obligation | 156,746 | 100,827 | |
| Accounts payable | 10,963,380 | 8,676,287 | |
| Income tax payable | 100,885 | - | |
| Other current liabilities | 749,352 | 353,920 | |
| Total current liabilities | 12,806,617 | 11,504,397 | |
| Long-term liabilities | |||
| Long-term debt, less current maturities | 3,133,022 | 3,014,225 | |
| Capital lease obligation, less current obligation | 871,525 | 733,971 | |
| Deferred income taxes | 340,177 | 271,277 | |
4,344,724 | 4,019,473 | ||
| Stockholders' equity | |||
| Common stock, $.01 par value, 10,000,000 shares authorized, 1,957,500 shares issued and 1,601,900 and 1,614,800 shares outstanding in 2003 and 2002 | 19,575 | 19,575 | |
| Additional paid-in capital | 1,925,321 | 1,925,321 | |
| Retained earnings | 2,520,450 | 2,132,761 | |
| Treasury stock, 355,600 and 342,700 shares at cost in | |||
| 2003 and 2002 | (713,458) | (688,748) | |
3,751,888 | 3,388,909 | ||
$ 20,903,229 | $ 18,912,779 | ||
| See accompanying notes to consolidated financial statements. | |||
4 | |||
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 |
(UNAUDITED) |
2003 | 2002 | ||
| Revenue | $ 30,636,541 | $ 27,417,677 | |
| Cost of goods sold | 29,004,802 | 25,723,328 | |
| Selling, general and administrative expenses | 1,365,037 | 1,582,965 | |
| Income before other expense | 266,702 | 111,384 | |
| Other expense | (77,227) | (39,904) | |
| Income before income taxes | 189,475 | 71,480 | |
| Provision for income taxes | 75,790 | 28,331 | |
| Net income | $ 113,685 | $ 43,149 | |
| Basic earnings per share | $0.07 | $0.03 | |
| Diluted earnings per share | $0.07 | $0.03 | |
| Weighted shares outstanding: | |||
| Basic | 1,602,065 | 1,629,760 | |
| Diluted | 1,647,121 | 1,645,179 | |
| See accompanying notes to consolidated financial statements. | |||
5 | |||
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 |
(UNAUDITED) |
2003 | 2002 | ||
| Revenue | $ 87,380,504 | $ 76,857,641 | |
| Cost of goods sold | 82,113,116 | 71,626,286 | |
| Selling, general and administrative expenses | 4,246,570 | 4,624,820 | |
| Income before other expense | 1,020,818 | 606,535 | |
| Other expense | (374,670) | (55,742) | |
| Income before income taxes | 646,148 | 550,793 | |
| Provision for income taxes | 258,459 | 220,056 | |
| Net income | $ 387,689 | $ 330,737 | |
| Basic earnings per share | $0.24 | $0.20 | |
| Diluted earnings per share | $0.24 | $0.20 | |
| Weighted shares outstanding: | |||
| Basic | 1,609,093 | 1,648,097 | |
| Diluted | 1,610,544 | 1,662,498 | |
| See accompanying notes to consolidated financial statements. | |||
6 | |||
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES | |||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 | |||
(UNAUDITED) | |||
2003 | 2002 | ||
| Cash flows from operating activities | |||
| Net income | $ 387,689 | $ 330,737 | |
| Adjustments to reconcile net income to net cash from operating activities: | |||
| Depreciation and amortization | 1,332,214 | 1,306,717 | |
| Deferred income tax | 3,300 | - | |
| (Gain) loss on sale of property and equipment | (575) | 1,489 | |
| Change in assets and liabilities | |||
| Receivables | (3,075,297) | (1,922,006) | |
| Inventories | 540,155 | 36,141 | |
| Other assets | 257,907 | (393,159) | |
| Accounts payable | 2,287,093 | 2,052,464 | |
| Other current liabilities | 496,313 | 107,960 | |
| Net cash from operating activities | 2,228,799 | 1,520,343 | |
| Cash flows from investing activities | |||
| Proceeds from equipment under sales-type leases | 107,770 | 83,253 | |
| Purchases or transfers of equipment under sales-type leases | 75,196 | (133,873) | |
| Proceeds from sale of property and equipment | 599,600 | 82,955 | |
| Purchases of property and equipment | (2,532,444) | (894,661) | |
| Net cash from investing activities | (1,749,878) | (862,326) | |
| Cash flows from financing activities | |||
| Net borrowings (payments) on senior revolving credit facility | (1,750,000) | 500,000 | |
| Purchase of common stock | (24,710) | (103,123) | |
| Payments on capital lease obligation | (91,527) | (27,264) | |
| Proceeds from long-term debt | 1,515,779 | - | |
| Payments on long-term debt | (1,184,089) | (496,530) | |
| Net cash from financing activities | (1,534,547) | (126,917) | |
| Net increase (decrease) in cash | (1,055,626) | 531,100 | |
| Cash at beginning of period | 1,630,028 | 776,745 | |
| Cash at end of period | $ 574,402 | $ 1,307,845 | |
| See accompanying notes to consolidated financial statements. | |||
7 | |||
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| NOTE 1 – BASIS OF PRESENTATION |
| The accompanying unaudited condensed 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 September 30, 2003 and the results of its operations and changes in cash flow for the periods ended September 30, 2003 and 2002. Results of operations for the period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the entire year. Additional information, including the audited December 31, 2002 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, 2002 on file with the Securities and Exchange Commission. |
| NOTE 2 – ESTIMATES |
| In preparing the condensed consolidated financial statements in conformity with generally accepted accounting principles, management must make estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues and expenses, as well as affecting the disclosures provided. Future results could differ from the current estimates. |
| NOTE 3 – RECLASSIFICATIONS |
| Certain prior year amounts have been reclassified to conform to the current year presentation. |
| NOTE 4 – LONG TERM DEBT AND NOTES PAYABLE TO BANK |
| The terms of the Company’s bank debt place certain operational and financial position requirements on the Company. As of, and for the quarter ended September 30, 2003, the Company was in compliance with these requirements. |
8 |
| NOTE 5 – RECENTLY ENACTED ACCOUNTING STANDARDS |
| In November 2002, the Financial Accounting Standards Board (FASB) issued FASB interpretation FIN 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others", effective in the quarter beginning January 1, 2003. This interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation assumed under a guarantee. Adoption of the standard did not have a material impact on the Company’s operating results or financial condition. |
| In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 46, "Consolidation of Variable Interest Entities." The objective of this interpretation is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, non-controlling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements, effective in the quarter beginning October 1, 2003. A company that holds variable interests in an entity will need to consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The Company has not yet fully evaluated the impact of adopting the standard. |
| In addition, the Financial Accounting Standard Board (FASB) recently issued two new accounting standards, Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, and Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities, both of which became effective in the quarter beginning July 1, 2003. Because the Company does not have these instruments, the new accounting standards will not materially affect the Company’s operating results or financial condition. |
| NOTE 6 – 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 segments are determined by the products and services that each offers. The recycling segment generates its revenues based on buying and selling of ferrous, non-ferrous and fiber scrap; CWS’s revenues consist of charges to customers for waste disposal services; and WESSCO sales and lease income comprise the primary source of revenue for this segment. |
| The Company evaluates segment performance based on gross profit or loss and the evaluation process for each segment includes only direct expenses and selling, general and administrative costs, omitting any other income and expense and income taxes. |
9 |
| NOTE 6 – SEGMENT INFORMATION (Continued) |
| ISA | Computerized | Waste | Corporate | Segment | ||||
| Recycling revenues | $20,115,769 | $ - | $ - | $ - | $20,115,769 | ||||
| Equipment sales, service | |||||||||
| And leasing revenues | - | - | 1,740,494 | - | 1,740,494 | ||||
| Management fees | - | 65,524,241 | - | - | 65,524,241 | ||||
| Cost of goods sold | (19,097,502) | (62,140,199) | (875,415) | - | (82,113,116) | ||||
| Selling, general and | |||||||||
| administrative expenses | (974,786) | (1,469,709) | (452,052) | (1,350,023) | (4,246,570) | ||||
| Segment profit (loss) | $ 43,481 | $ 1,914,333 | $ 413,027 | $(1,350,023) | $ 1,020,818 | ||||
| Segment assets | $ 8,955,683 | $ 6,853,609 | $ 1,978,861 | $ 3,115,076 | $20,903,229 | ||||
| ISA | Computerized | Waste | Corporate | Segment | ||||
| Recycling revenues | $16,703,920 | $ - | $ - | $ - | $ 16,703,920 | ||||
| Equipment sales, service | |||||||||
| And leasing revenues | - | - | 1,667,443 | - | 1,667,443 | ||||
| Management fees | - | 58,486,278 | - | - | 58,486,278 | ||||
| Cost of goods sold | (15,136,239) | (55,635,318) | (854,729) | - | (71,626,286) | ||||
| Selling, general and | |||||||||
| administrative expenses | (1,137,341) | (1,600,359) | (446,543) | (1,440,577) | (4,624,820) | ||||
| Segment profit (loss) | $ 430,340 | $ 1,250,601 | $ 366,171 | $(1,440,577) | $ 606,535 | ||||
| Segment assets | $ 10,129,555 | $ 7,308,839 | $ 1,945,636 | $ 737,970 | $20,122,000 |
10 |
| NOTE 7 - Stock Option Information |
| Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has elected to account for its employee stock options under APB No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for employee options. Had compensation cost for employee options been determined based on the fair value at the grant date consistent with SFAS No. 123, the Company’s net income (loss) per share for the three months and nine months ended September 30 would have been as follows: |
Three Months | Nine Months | ||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||
| Net income (loss): | |||||||||||||
| As reported | $ | 113,685 | $ | 43,149 | $ | 387,689 | $ | 330,737 | |||||
| Pro forma | $ | 90,855 | $ | 43,149 | $ | 364,859 | $ | 330,737 | |||||
| Basic and diluted income (loss) per common share: | |||||||||||||
| Basic, As reported | $0.07 | $0.03 | $0.24 | $0.20 | |||||||||
| Diluted, As reported | $0.07 | $0.03 | $0.24 | $0.20 | |||||||||
| Basic, Pro forma | $0.07 | $0.03 | $0.24 | $0.20 | |||||||||
| Diluted, Pro forma | $0.06 | $0.03 | $0.23 | $0.20 | |||||||||
| The fair value of each option grant to employees was estimated on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions: |
2003 | 2002 | |
| Interest rate | 3.6 | 4.25 |
| Dividends | - | - |
| Expected volatility | 1.25 | 1.09 |
| Expected life in years | 5 | 5 |
| NOTE 8 - Income (Loss) per Share |
| Income (loss) per common share is calculated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The Company calculates basic earnings per common share using the weighted average number of shares outstanding for the period. Outstanding shares for purposes of determining diluted earnings per common share includes the weighted average number of shares outstanding for basic earnings per share, plus the diluted effect of any common share equivalents such as options in the calculation. The average fair market stock price for the Company exceeded the strike price, therefore a portion of common share equivalents outstanding would be dilutive. Accordingly, basic and diluted earnings per share amounts are different. |
11 |
| NOTE 8 - Income (Loss) per Share (continued) |
| A reconciliation of basic to diluted share amounts used in computing the per share amounts for the three and nine months ended September 30, 2002 and 2003 is as follows: |
Three Months | ||||
Ended September 30, | ||||
2003 | 2002 | |||
| Basic – weighted average shares outstanding | 1,602,065 | 1,629,760 | ||
| Dilutive effect of stock options | 45,056 | 15,419 | ||
| Diluted – weighted average shares outstanding and assumed conversions | 1,647,121 | 1,645,179 | ||
Nine Months | ||||
Ended September 30, | ||||
2003 | 2002 | |||
| Basic – weighted average shares outstanding | 1,609,093 | 1,648,097 | ||
| Dilutive effect of stock options | 1,451 | 14,401 | ||
| Diluted – weighted average shares outstanding and assumed conversions | 1,610,544 | 1,662,498 | ||
12 |
| ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
| Liquidity and Capital Resources |
| As of September 30, 2003 the Registrant held cash and cash equivalents of $574,402. |
| The Registrant derives its revenues from several sources, including management services, equipment sales and leasing and from its recycling operations. Management services comprised approximately 75.0% and 76.1% of the Registrant's total revenues for the quarters ended September 30, 2003 and 2002, respectively. |
| The Registrant currently maintains a $4.3 million senior revolving credit facility with a bank. Outstanding principal under this credit facility bears interest at the Bank's prime rate and the line matures in June 2004. At September 30, 2003 there was no draw 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: |
Nine months ended September 30, | ||||
2003 | 2002 | |||
| Statements of Operations Data: | ||||
| Total Revenue .................................................................................. | 100.0% | 100.0% | ||
| Cost of goods sold............................................................................ | 94.0% | 93.2% | ||
| Selling, general and administrative expenses .................................. | 4.8% | 6.0% | ||
| Income before other expenses........................................................... | 1.2% | 0.8% | ||
| Nine months ended September 30, 2003 compared to nine months ended September 30, 2002 |
| Total revenue increased $10,522,863 or 13.7% to $87,380,504 in 2003 compared to $76,857,641 in 2002. Recycling revenue increased $3,411,849 or 20.4% to $20,115,769 in 2003 compared to $16,703,920 in 2002. This is due to an increase in the volume of shipments as well as an increase in the price of the commodities. Management services revenue increased $7,037,963 or 12.0% to $65,524,241 in 2003 compared to $58,486,278 in 2002. This is due to an increase in revenues per the customer locations while maintaining a consistent customer base. Equipment sales, service and leasing revenue increased $73,051 or 4.4% to $1,740,494 in 2003 compared to $1,667,443 in 2002. In the continued effort to lease equipment for the long-term benefit of revenue streams and customer retention in lieu of equipment sales, leasing income increased approximately $228,000 as equipment sales decreased approximately $158,000 compared to the prior period. |
13 |
| Total cost of goods sold increased $10,486,830 or 14.6% to $82,113,116 in 2003 compared to $71,626,286 in 2002. As a percentage of revenue, cost of goods sold was 94.0% in 2003 compared to 93.2% in 2002. Recycling cost of goods sold increased $3,961,263 or 26.2% to $19,097,502 in 2003 compared to $15,136,239 in 2002. This is due to an increase in the volume of purchases as well as an increase in commodity purchase prices in the recycling market. As a percentage of recycling revenue, recycling cost of goods sold was 94.9% in 2003 compared to 90.6% in 2002. Management services cost of goods sold increased $6,504,881 or 11.7% to $62,140,199 in 2003 compared to $55,635,318 in 2002. This is due to increases in vendor service fees. As a percentage of management services revenue, management services cost of goods sold was 94.8% in 2003 compared to 95.1% in 2002. Equipment, service and leasing cost of goods sold increased $20,686 or 2.4% to $875,415 in 2003 compared to $854,729 in 2002. As a percentage of equipment, service and leasing revenue, equipment, service and leasing cost of goods sold was 50.3% in 2003 compared to 51.3% in 2002. |
| Selling, general and administrative expenses decreased $378,250 or 8.2% to $4,246,570 in 2003 compared to $4,624,820 in 2002. This decrease is due to a reduction of compensation expenses, consulting expenses, insurance expenses, amortization expenses and rent expenses. The Company anticipates a consistent reduction of these expenses through the remainder of the year. As a percentage of revenue, selling, general and administrative expenses were 4.8% in 2003 compared to 6.0% in 2002. |
| Other expense increased $318,928 to $374,670 in 2003 compared to $55,742 in 2002. This increase was primarily due to payments of $156,000 for terminating a property lease agreement and $28,000 for property repair in the recycling division in 2003, and a bad debt recovery of $73,861 in the management services segment in 2002. |
| Three months ended September 30, 2003 compared to three months ended September 30, 2002 |
| Total revenue increased $3,218,864 or 11.7% to $30,636,541 in 2003 compared to $27,417,677 in 2002. Recycling revenue increased $783,293 or 12.7% to $6,943,549 in 2003 compared to $6,160,256 in 2002. This is due to an increase in the volume of shipments as well as an increase in the price of the commodities. Management services revenue increased $2,376,202 or 11.5% to $23,074,606 in 2003 compared to $20,698,404 in 2002. This is due to an increase in revenues per the customer locations while maintaining a consistent customer base. Equipment sales, service and leasing revenue increased $59,369 or 10.6% to $618,386 in 2003 compared to $559,017 in 2002. In the continued effort to lease equipment for the long-term benefit of revenue streams and customer retention in lieu of equipment sales, leasing income increased approximately $88,000 as equipment sales decreased approximately $38,000 compared to the prior period. |
| Total cost of goods sold increased $3,281,474 or 12.8% to $29,004,802 in 2003 compared to $25,723,328 in 2002. As a percentage of revenue, cost of goods sold was 94.7% in 2003 compared to 93.8% in 2002. Recycling cost of goods sold increased $686,736 or 12.0% to $6,405,745 in 2003 compared to $5,719,009 in 2002. This is due to higher commodity purchase prices in the recycling market. As a percentage of recycling revenue, recycling cost of goods sold was 92.3% in 2003 compared to 92.8% in 2002. Management services cost of goods sold increased $2,577,019 or 13.1% to $22,291,424 in 2003 compared to $19,714,405 in 2002. This is due to increases in vendor service fees. As a percentage of management services revenue, management services cost of goods sold was 96.6% in 2003 compared to 95.2% in 2002. |
14 |
| Equipment, service and leasing cost of goods sold increased $17,719 or 6.1% to 307,633 in 2003 compared to $289,914 in 2002. As a percentage of equipment, service and leasing revenue, equipment, service and leasing cost of goods sold was 49.7% in 2003 compared to 51.9% in 2002. |
| Selling, general and administrative expenses decreased $217,928 or 13.8% to $1,365,037 in 2003 compared to $1,582,965 in 2002. This decrease is due to a reduction of compensation expenses, insurance expenses, amortization expenses and rent expenses. The Company anticipates a consistent reduction of these expenses through the remainder of the year. As a percentage of revenue, selling, general and administrative expenses were 4.5% in 2003 compared to 5.8% in 2002. |
| Other expense increased $37,323 to $77,227 in 2003 compared to $39,904 in 2002. This increase was primarily due to a payment of $28,000 for property repair due to terminating a property lease agreement in the recycling division in 2003. |
| Financial condition at September 30, 2003 compared to December 31, 2002 |
| Cash and cash equivalents decreased $1,055,626 to $574,402 as of September 30, 2003 compared to $1,630,028 as of December 31, 2002. This is primarily due to the payment in full of the senior revolving credit facility as it decreased from $1,750,000 as of December 31, 2002 to $0 as of September 30, 2003. Net cash from operating activities increased $708,456 to $2,228,799 as of September 30, 2003 compared to $1,520,343 as of September 30, 2002. This is primarily due to an increase in deposits of approximately $350,000 of recycling commodity sales collected from vendors during the last part of the quarter that will be distributed to customers after September 30, 2003. |
| Accounts receivable trade increased $3,081,539 or 45.3% to $9,885,395 as of September 30, 2003 compared to $6,803,856 as of December 31, 2002. This is due to an increase in revenues per the customer locations while maintaining a consistent customer base in the Management Services segment as well as an increase in the volume of shipments in the Recycling segment. |
| Inventories decreased $540,155 or 28.7% to $1,343,007 as of September 30, 2003 compared to $1,883,162 as of December 31, 2002. This decrease is due to a higher volume of shipments in the Recycling segment for the first nine months of 2003 compared to the same period of 2002. It is offset slightly by higher commodity purchase prices. Commodity purchase prices increased approximately 23% for the ferrous division and 5% for the nonferrous division in the third quarter compared to the same period in 2002. This has increased the inventory carrying cost per unit as of September 30, 2003. Volume of shipments in the ferrous division have increased approximately 18% in the first nine months compared to the same period in 2002. Volume of shipments in the nonferrous division have remained the same for the first nine months compared to the same period in 2002. |
| Accounts payable trade increased $2,287,093 or 26.4% to $10,963,380 as of September 30, 2003 compared to $8,676,287 as of December 31, 2002. Accounts payable trade increased due to an increase in expenses per the customer locations while maintaining a consistent customer base in the Management Services segment as well as an increase in the volume of commodity purchases in the Recycling segment. |
15 |
| Long-term debt increased $331,688 to $3,969,276 as of September 30, 2003 compared to $3,637,588 as of December 31, 2002. Long-term debt increased $1,515,779 due to the purchase of the 7110 Grade Lane property and a vehicle. During the third quarter, four Mack trucks, several trailers and one portable hydraulic shear were sold. From these transactions, $600,000 was used to pay down long-term debt. Long-term debt decreased $584,091 due to monthly principal payments. |
| Working capital increased $42,763 to a deficit of $463,731 as of September 30, 2003 compared to a deficit of $506,494 as of December 31, 2002. These deficits are due to the use of working capital to finance the purchase of property and equipment rather than using long-term debt in 2003 and 2002. |
| Item 3: Quantitative and Qualitative Disclosures About Market Risk. |
| There is market risk in our recycling segment, since it is driven by fluctuating commodity prices. Management mitigates this risk by selling our product on a monthly contract basis, insulating the Registrant from large fluctuations in the commodity prices. |
| ITEM 4: CONTROLS AND PROCEDURES |
| (a) Evaluation of disclosure controls and procedures. |
| Based on the evaluation of the Chief Executive Officer and the Chief Financial Officer of the Registrant of its disclosure controls and procedures as of September 30, 2003, it has been concluded that the disclosure controls and procedures are effective for the purposes contemplated by Rule 13a-14 (e) promulgated by the Securities and Exchange Commission. |
| (b) Changes in internal controls. |
| There have been no significant changes to the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to September 30, 2003. |
16 |
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 filed with, or incorporated by reference herein, this report are identified in the Index to Exhibits appearing in this report. | ||
17 | |||
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: November 10, 2003 | /s/ Harry Kletter |
| Chairman and Chief Executive Officer | |
| DATE: November 10, 2003 | /s/ Alan L. Schroering |
| Chief Financial Officer | |
INDEX TO EXHIBITS | ||
| Exhibit Number |
| |
| 31.3 | Rule 13a-14(a) Certification of Harry Kletter for the Form 10-Q for the quarter ended September 30, 2003. | |
| 31.4 | Rule 13a-14(a) Certification of Alan Schroering for the Form 10-Q for the quarter ended September 30, 2003. | |
| 32.2 | Section 1350 Certification of Harry Kletter and Alan Schroering for the Form 10-Q for the quarter ended September 30, 2003 | |
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