Item 1. Business.
General
Industrial Services of America, Inc. (the "Registrant") is a management services company specializing in solid waste management, as well as ferrous, non-ferrous and fiber recycling. The management division of the Registrant is engaged in the business of commercial, retail and industrial waste management and waste handling. The Registrant also has an operating division engaged in equipment sales and leasing activities. The ferrous division's major products include recycling of steel and iron products, whereas the non-ferrous division recycles copper, aluminum and brass. The fiber recycling consists mainly of high-grade papers and corrugated cardboard. The Registrant is able to offer a "total package" concept to commercial, retail and industrial clients to cover their waste management needs. Combining waste reduction, waste materials diversion and waste equipment technology, the Registrant creates waste programs tailored to each client's individual needs. The Registrant believes that it offers a more complete line of products and services than its competitors and is better able to coordinate these services on a regional and nationwide basis. By offering competitively priced waste handling equipment from a number of different manufacturers, the Registrant is able to tailor equipment packages for individual client needs. The waste management services offered by the Registrant include locating and contracting with a hauling company at a reasonable cost at each participating location for the retail chain customers of the Registrant that are a part of the management program offered by the Registrant. Because the Registrant is not a "waste transporter," it is able to maintain a neutral position with the customers and the hauling companies. The Registrant has designed and developed proprietary computer software that provides the Registrant's personnel with relevant information on each of the client's locations, as well as pertinent information on disposal rates and costs of equipment, including installation and shipping. This software has allowed the Registrant to build a database for serving customers nationwide as well as Canada and Puerto Rico. The Registrant is able to estimate cost savings to potential customers by reviewing their current waste hauling invoices either regionally or nationwide. The Registrant is also capable of generating customized billing statements to accommodate customer needs.
The Registrant plans to grow by expanding its marketing base and by seeking future joint ventures and acquisitions of companies in the management services portion of the business. The Registrant continues to target retail and industrial customers throughout North America for the purpose of increasing its clientele in this sector. Although the number of locations for each industrial customer will generally be less than that of large retail chains, solid waste output for each location of industrial clients is generally greater than that of retail clients. The Registrant believes that the corresponding greater need for appropriate equipment results in the increased possibility of large equipment orders. Further, the Registrant believes it can provide savings for each industrial location.
The Registrant believes that opportunities for its continued growth are enhanced by the increasingly stringent regulatory and political constraints being placed on the waste hauling and disposal industries. These more stringent federal, state and local regulations drive prices higher throughout the industry. With ever-increasing costs, solid waste disposal is becoming one of the larger expense items for retail and industrial customers, and perhaps one of the most difficult to control. The Registrant believes these increased costs will enhance the value of its services. Through the retention of the Registrant's services, customers can "outsource" their in-house waste needs to an experienced independent entity capable of lowering and containing waste disposal costs. The Registrant is able to provide customized reports detailing clients' recycling revenues as well as waste disposal expense.
Registrant Background
The Registrant was incorporated in October 1953 in Florida under the name Alson Manufacturing, Inc. ("Alson"). From the date of incorporation through January 5, 1975, the Registrant was involved in the design and manufacture of various forms of electrical products. In 1979, the Board of Directors and the shareholders of the Registrant commenced liquidation of all the tangible assets of Alson. On October 27, 1983, Harry Kletter, the Chairman of the Board and Chief Executive Officer of the Registrant, acquired 419,500 shares of Common Stock of the Registrant. The existing directors resigned and five new directors were elected.
On July 1, 1984, the Registrant began a solid waste handling and disposal equipment sales organization under the name Waste Equipment Sales and Services Company ("WESSCO"). On January 1, 1985, the Registrant merged with Computerized Waste Systems, Inc. ("CWS"), a Massachusetts corporation. CWS was a corporation specializing in offering solid waste management consultations for large multi-location companies involved in the retail, restaurant and industrial sectors. At the time of the merger, CWS was concentrating on large retail chains, but has changed its emphasis to include commercial and industrial clients. This strategy created an additional target market for the Registrant. Subsequent to the merger with CWS, the Registrant moved the CWS headquarters from Springfield, Massachusetts to Louisville, Kentucky. At the time of the merger, much of the client base and marketing efforts were concentrated in the Northeast. With the move to Louisville, the Registrant began to expand its marketing efforts, which are now both nationwide and in Canada.
The Registrant's divisions operate closely with each other in terms of present customer care and proposals for new customers. WESSCO has expanded its product line and presently offers a variety of equipment, which would be necessary for an efficient waste handling and/or recycling system for an individual user. The prices WESSCO can offer are competitive with most dealers since it purchases equipment at dealer cost without paying dealer overhead. The WESSCO program is attractive to customers planning expansion programs. Some of these customers have designated WESSCO as their exclusive waste equipment supplier and consultant. By working with the customer from the time the initial building plans are developed, WESSCO has input into the design, development and implementation of the waste handling system.
CWS has developed a network of over 2,300 vendors throughout the United States and Canada, which include hauling companies, recycling companies and equipment manufacturing and maintenance companies. Through this network, the Registrant is able to provide pricing estimates for potential customers in a timely fashion. CWS customer representatives have access to this information through the computer software designed and developed to accommodate the daily needs of the Registrant. Through this information retrieval system, customer representatives can review the accuracy of customer concerns from recent billings to hauling rates to the average monthly cost of service.
The Registrant also processes, sells and brokers a broad range of materials for recycling. These materials include ferrous and non-ferrous metals, corrugated containers, high-grade paper and plastic. The Registrant offers document destruction and transport of recyclable materials to the Registrant's facility for regional clients. This division also brokers recycled commodities for CWS customers.
The Registrant derives a significant portion of its revenues from two primary customers (Home Depot and Office Depot) accounting for approximately 48%, 64% and 63% of 2000, 1999 and 1998 total revenues, respectively. The Registrant is taking affirmative action to counter its dependence on any one customer. The potential negative effect of losing any single customer has been reduced by the Registrant's expansion of its customer base. However, the loss of all or a substantial portion of the business from these two primary customers could have a material adverse effect on the Registrant.
In addition to its other services, the Registrant provides management services relating to recycling and waste stream analysis. The main advantage to offering these types of management services is that the individual projects are priced on a substantial prepaid individual basis. This method of pricing allows the Registrant to collect an up-front fee with the opportunity to "sell" the customer traditional services after the evaluation and/or any subsequent implementation is complete. By offering management and evaluation services, the Registrant is able to pursue additional customers.
Industry Background
The Registrant is involved in the management of non-hazardous solid waste and recyclables for retail, commercial and industrial customers. As such, the industry is actually driven by the multi-billion dollar solid waste collection and disposal industry. The size of this industry has increased for the past several years and should continue to increase, as landfill space becomes scarcer. Although society (and industry) has developed an increased awareness of the environmental issues and recycling has increased, waste production also continues to increase. Because of environmental concerns, new regulations and cost factors, it has become difficult to obtain the necessary permits to build any new landfills. Management of the Registrant believes that with the consolidation taking place in the waste industry, it will become increasingly difficult for a customer to receive a fair price. The Registrant should therefore be in a position to be called upon to represent the best interest of that customer; this fact can only enhance the Registrant's business.
The rising costs associated with solid waste disposal have created additional opportunities for the Registrant. Because waste disposal has begun to be an increasingly larger percentage of the total monthly expenditures incurred by commercial establishments, the Registrant believes that the services offered by the Registrant will be in greater demand. Many commercial establishments that have paid little attention to the costs associated with waste disposal in the past are now looking for ways to reduce expenses in this area. The Registrant offers commercial establishments its expertise to lower waste disposal bills and initiate recycling programs to generate additional revenues and/or reduce costs and materials bound for ultimate disposal.
In addition to increasing landfill costs, regulatory measures and more stringent control of material bound for disposal ("flow control") are making the management of solid waste an increasingly difficult problem. The United States Environmental Protection Agency (the "EPA") is expected to continue the present trend of restricting the amount of "potentially" recyclable material bound for landfills. Many states have passed, or are contemplating measures, which would require commercial establishments to recycle a minimum percentage of their waste stream and would restrict the percentage of recyclable materials in any commercial load of solid waste material. Many states have already passed restrictive regulations requiring a plan for the reduction of waste or the segregation of recyclable materials from the waste stream at the source. Management of the Registrant believes that these restrictions may create additional marketing opportunities as waste disposal needs within commercial establishments become more specialized. Some large commercial establishments have hired in-house staff to handle the solid waste management and recycling responsibilities, but have found that without adequate resources and staff support, in-house handling of these responsibilities may not be an effective alternative. The Registrant offers these establishments a possible solution to this increasing burden.
Technology Solutions
On March 8, 2000 the Registrant announced that it had engaged a third party provider of technology solutions. This consulting firm helps its clients plan, build and manage application software solutions. Working with the staff of the Registrant, this consulting firm developed a plan to rewrite the internal software programs.
On May 11, 2000 the Registrant announced the formation of a new operating division named iR2 to capitalize on business opportunities and deliver information technology solutions to the waste and recycling industry. The objective of this internal systems development group is to enhance the internally used software to streamline transaction processing in its business segments and increase capacity to handle new business opportunities. The Registrant hired eight individuals with varying technological skills to accomplish this mission. The iR2 division redesigned the CWS transaction processing computer system into an enhanced Microsoft Sequel formatted software, adding an interactive voice response telephony system, upgraded servers, designed an online bidding program, updated the website and increased the invoicing and billing capabilities. This division began to generate revenue in the fourth quarter of 2001 by offering software and hardware consulting services in several markets but focusing within the waste and recycling industry.
On March 10, 2000 the Registrant announced that it would sell waste management products and services through Ariba network commerce services. This integration provides the opportunity for joint Ariba and Registrant customers to gain cost savings, efficiency and convenience in purchasing waste management products and services. The Registrant has qualified for the Ariba ReadyTM Program, a new Ariba initiative for ensuring the quality and integrity of transactions between buyers, market makers, and suppliers accessing the Ariba Commerce Services NetworkTM . This status allows the Registrant to use the Ariba ReadyTM logo in marketing materials and participate in Ariba business programs and other related opportunities.
K&R Lease; K&R Consulting Agreement
On February 16, 1998 the Registrant's Board of Directors ratified and formalized an existing relationship in connection with (i) the leasing by the Registrant of its facilities from K&R and (ii) the provision of consulting services from K&R to the Registrant. K&R is an affiliate of the Registrant.
Lease Agreement. The Lease Agreement (the "K&R Lease"), effective as of January 1, 1998, between K&R, as landlord, and the Registrant, as lessee, covers approximately 20.5 acres of land and the improvements thereon, which are located at 7100 Grade Lane in Louisville, Kentucky (the "Leased Premises"). The principal improvements consist of an approximately 22,750 square foot building used as the Corporate Office, an approximately 8,286 square foot building used for CWS offices, an approximately 13,995 square foot used as the paper recycling plant, an approximately 12,000 square foot building used for metals recycling plant, and an approximately 51,760 square foot building used as the recycling offices and warehouse space, with the remaining 15,575 square feet of space contained in five (5) buildings ranging in size from approximately 8,000 to 256 square feet. The initial term of the K&R Lease is for ten years with two five-year option periods (the "Option Periods") available thereafter. The base rent for the first five years is $450,000 per annum, payable at the beginning of each month in an amount equal to $37,500 (the "Fixed Minimum Rent"). The Fixed Minimum Rent adjusts each five years, including each of the Option Periods, in accordance with the Consumer Price Index. The Fixed Minimum Rent also increases to $750,000 per annum, in an amount equal to $62,500 per month in the event of a change in control of the Registrant. The Registrant is also required to pay, as additional rent, all real estate taxes, insurance, utilities, maintenance and repairs, replacements (including replacement of roofs if necessary) and other expenses. The K&R Lease provides for indemnification of K&R by the Registrant for all damages arising out of the Registrant's use or condition of the Leased Premises excepting therefrom K&R's negligence.
K&R Consulting Agreement. The K&R Consulting Agreement remains in effect until December 31, 2007, with automatic annual renewals thereafter unless one party provides written notice to the other party of its intent not to renew at least six months in advance of the next renewal date. K&R shall provide strategic planning and mergers and acquisitions (the "K&R Consulting Activities"). The Registrant shall be responsible for all of K&R's expenses and pay services to K&R $240,000 in equal monthly installments of $20,000 in connection with the K&R Consulting Activities.
The K&R Consulting Agreement terminates upon a non-defaulting party providing written notice to the other party of its intent to terminate. The recipient of the notice has 10 days to cure monetary defaults and 30 days to cure non-monetary defaults. Upon termination, K&R agrees not to engage, directly or indirectly, in the business conducted by, or hire employees from, the Registrant for a period of five years and within 100 miles of any operation of the Registrant. The Registrant's principal shareholder and Chief Executive Officer is compensated through consulting fees pursuant to the K&R Consulting Agreement.
Fitzpatrick Purchase Agreement; Lease Agreement
Effective June 1, 1998 but executed as of July 31, 1998, ISA Indiana, Inc. (the "Subsidiary"), an Indiana corporation and wholly-owned subsidiary of the Registrant; R. J. Fitzpatrick Smelters, Inc. (the "Seller"); and R. J. Fitzpatrick and Cheryl Fitzpatrick (collectively the "Guarantors"); entered into an Asset Purchase Agreement (the "Fitzpatrick Purchase Agreement") whereby the Subsidiary acquired all of the business, property, rights and assets of the Seller and assumed certain of the liabilities of the Seller as set forth in the Fitzpatrick Purchase Agreement. Under the Fitzpatrick Purchase Agreement, the Subsidiary entered into a real property Lease Agreement (the "Fitzpatrick Lease"), effective June 1, 1998, from the Guarantors and the Seller for ten successive terms of ten years each at a rental of $13,000 per month during the original term (as adjusted in accordance with the Consumer Price Index for each renewal term) with an option to purchase for $1,600,000 the real property (including an adjoining 20 acre tract less 3 acres to be retained by the Seller and Guarantors). The location of the business is on an approximate 14-acre tract at U.S. 50 and Jennings County Road 900 West, North Vernon, Jennings County, Indiana, approximately 65 miles north of Louisville, Kentucky. The business of the Seller is a metal salvage and metal handling operation and is comprised of five buildings, the total square footage of which is approximately 71,400 feet. The principal improvement is a one-story concrete warehouse/foundry/office approximating 25,500 square feet. The remaining buildings are steel-framed buildings constituting warehouses, garages and office space. The Fitzpatrick Lease provides for the right of the Subsidiary to terminate at any time after May 31, 2003, for a termination payment of $156,000.
Consulting Agreements; Lassak Agreement and JCA/Lassak Agreement
On June 2, 1998, the Registrant entered into an agreement (the "Lassak Agreement") with Andrew M. Lassak ("Lassak") to perform financial advisory services for the Registrant for a period of up to five years. The Company grants to Lassak and/or his designee for the financial advisory services rendered under the Lassak Agreement options to purchase from 25,000 up to a maximum of 250,000 shares of the Company's Common Stock (the "Common Stock") on the basis of 25,000 shares for each $10,000,000 in additional capitalization of the Company measured from June 2, 1998 that vests upon maintenance for three (3) consecutive months after achieving the increase in each $10,000,000 in capitalization for which each 25,000 shares of Common Stock subject to options are granted. During 2000, the Registrant did not issue any options to purchase Common Stock to Lassak under the Lassak Agreement. The Registrant mailed a notice in March 2001 to Lassak terminating the Lassak Agreement effective June 2, 2001.
On June 2, 1998, the Registrant entered into an agreement (the "JCA/Lassak Agreement") with Joseph Charles & Associates, Inc. ("JCA") and Lassak. The term of the JCA/Lassak Agreement is for a period of up to five (5) years. The Registrant agrees to grant to JCA and Lassak options to purchase the Registrant's Common Stock on the basis of 65% of the shares of Common Stock subject to options being granted to Lassak and 35% to JCA, at (a) $6.00 per share for the first 150,000 shares that vest, and (b) $8.00 per share for the remaining 35,000 shares that vest. The number of shares of the Common Stock that vest is determined based upon a five year schedule. The Registrant mailed a notice in March 2001 to Lassak and JCA terminating the JCA/Lassak Agreement effective June 2, 2001.
Competition
On a commercial/industrial waste management level, the Registrant has competition from a variety of sources. Much of it is from companies that concentrate their efforts on a regional level. Management of the Registrant believes that with the proprietary database of regional and national pricing, the Registrant will maintain its edge on a national basis.
There has been increased competition from national hauling companies. The large national hauling companies often attempt to handle an entire chain of locations for a "national chain" client. This scenario poses a potential conflict of interest since these hauling companies can attain greater profitability from increases in hauling and disposal revenues. In addition to having an interest in higher hauling and disposal rates, the national hauling companies do not have operations in every community and do not, to the knowledge of management, have some of the billing and computer capabilities which the Registrant is able to offer. Additionally, management has encountered evidence of some reluctance from independent hauling companies to work with national hauling companies.
There is also competition from some equipment manufacturers. These companies have their primary interest in selling or leasing equipment and offer management services in order to secure these sales or leases. There is a cost involved in "using" the equipment and the money saved must justify the amount spent on this equipment.
The metal recycling business is highly competitive and is subject to significant changes in economic and market conditions. Certain of the Registrant's competitors have greater financial, marketing and other resources. There can be no assurance that the Registrant will be able to obtain its desired market share based on the competitive nature of this industry.
An important difference between the Registrant and the majority of its competition is the Registrant's management "process". The systematic approach attempts to provide consistent results for the customer. At the implementation stage, the Registrant actively "bids out" every location that a new customer requests. The Registrant repeats this bidding process at any time that a client receives notice of an undocumented price increase or at regular intervals as indicated in the contractual relationship. At subsequent stages, the Registrant will evaluate a customer's solid waste program and give suggested alternatives for improvement.
The Registrant has developed a network of maintenance and hauling companies throughout the country and due to the volume of business awarded to them by the Registrant, often these companies will offer discounted hauling and maintenance rates to the Registrant. However, the Registrant is not "affiliated" with any particular company or vendor in the hauling and/or maintenance industries, but rather deals with those companies and vendors that can supply quality service at a favorable price. In addition to the volume of business handled by some of these "vendors", the vendors understand that as long as the accounts are well serviced, they will be invited to bid on future accounts.
Few, if any, of the Registrant's competitors have a national network of vendors similar to the one the Registrant has developed over its years of operation. The major hauling companies are limited in the scope of services, which they can provide to commercial/industrial accounts. Although the major hauling companies have operating companies in most major and intermediate-sized cities, they do not have nationwide geographic coverage. Therefore, for large commercial/industrial clients, they must obtain bids from local hauling companies that may perceive them to be future competitors. The Registrant has positioned itself to negotiate with the haulers, while servicing its clients on a nationwide basis.
Most of the direct competition is from small regional companies that bid on regional accounts or national accounts on a regional basis. Few of the Registrant's competitors appear to be equipped to handle large national accounts nor do they seem to have the inclination to expand their geographic coverage. There are numerous national companies in closely related businesses, including national hauling companies that have substantially greater financial resources than does the Registrant. Should any of these companies decide to compete directly with the Registrant, it could have a material adverse effect on the business of the Registrant.
Employees
The Registrant has approximately one hundred fifty-five (155) full-time employees as follows: Recycling 98, Management Services 35, Sales/Leasing 8 and Administration/Information Technology 14. No employee is a member of a union with a contract with the Registrant.
Effect of State and Federal Environmental Regulations
Any environmental regulatory liability relating to the Registrant's operations is generally borne by the customers with whom the Registrant contracts and the third party vendors in their capacity as transporters. As a matter of Registrant's policy, the Registrant uses its best efforts to secure indemnification for environmental liability from its customers and third party vendors. Although management of the Registrant believes that for the most part its business does not subject it to potential environmental liability, the Registrant continues to use best efforts to be in compliance with federal, state and local environmental laws, including but not limited to its Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Clean Air Act, as amended, and the Clean Water Act. Such compliance in 2000 or 1999 did not constitute a material expense to the Registrant.
The collection and disposal of solid waste and rendering of related environmental services are subject to federal, state and local requirements which regulate health, safety, the environment, zoning and land-use. Federal, state and local regulations vary, but generally govern disposal activities and the location and use of facilities and also impose restrictions to prohibit or minimize air and water pollution. In addition, governmental authorities have the power to enforce compliance with these regulations and to obtain injunctions or impose fines in the case of violations, including criminal penalties. These regulations are administered by the EPA and various other federal, state and local environmental, health and safety agencies and authorities, including the Occupational Safety and Health Administration of the U.S. Department of Labor.
The Registrant strives to conduct its operations in compliance with applicable laws and regulations. While such amounts expended in the past or anticipated to be expended in the future have not had and are not expected to have a material adverse effect on the Registrant's financial condition or operations, the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or other factors could materially alter this expectation.
Each state in which the Registrant operates has its own laws and regulations governing solid waste disposal, water and air pollution and, in most cases, releases and cleanup of hazardous substances and liability for such matters. Several states have enacted laws that will require counties to adopt comprehensive plans to reduce, through waste planning, composting, recycling, or other programs, the volume of solid waste landfills. These laws have recently been promulgated in several states. Legislative and regulatory measures to mandate or encourage waste reduction at the source and waste recycling, also are under consideration by Congress and the EPA.
Finally, various states have enacted, or are considering enacting, laws that restrict the disposal within the state of solid or hazardous wastes generated outside the state. While laws that overtly discriminate against out of state waste have been found to be unconstitutional, some laws that are less overtly discriminatory have been upheld in court. Challenges to other such laws are pending. The outcome of pending litigation and the likelihood that other such laws will be passed and will survive constitutional challenge are uncertain. In addition, Congress is currently considering legislation authorizing states to adopt such restrictions.
Item 2.
Item 2. Properties.
The Registrant leases its corporate offices and processing property and buildings in Louisville, Kentucky for $37,500 per month from K&R pursuant to the K&R Lease. See ITEM 1. BUSINESS. "K&R Lease; K&R Consulting Agreement."
The Subsidiary has entered into the Fitzpatrick Lease effective June 1, 1998, for ten successive terms of ten years each at a rental of $13,000 per month during the original term (as adjusted in accordance with the Consumer Price Index for each renewal term) with an option to purchase for $1,600,000. See ITEM 1. BUSINESS. "Fitzpatrick Purchase Agreement; Lease Agreement."
Item 3.
Item 3. Legal Proceedings.
There are no material proceedings pending by, or against the Registrant or affecting any of its properties.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 4a. Executive Officers of the Registrant.
Name
Served as an
Executive
Officer Since
Age
Position with the
Registrant and Other
Principal Occupations
Harry Kletter
Chairman of the Board and Chief Executive Officer of the Registrant from May 2, 2000 to present. Chairman of the Board and Chief Visionary Officer of the Registrant from February 3, 2000 to May 2, 2000. Mr. Kletter has served as Chairman of the Board and Chief Executive Officer from July 31, 1992 to February 3, 2000, President of the Registrant from July 31, 1992 to December 1997, from January 1990 to July 1991, and from October 1983 to January 1988; Mr. Kletter is also Chairman and sole shareholder of K&R Corporation.
Timothy W. Myers
Vice President of Operations and Chief Operating Officer of the Registrant from May 2000 to present. Vice President of Operations from July 1998 to May 2000; Senior Vice President and Chief Operating Officer of the Registrant from 1996 until July 1998; President of K&R from 1996 to July 1998. Mr. Myers has served in various operational capacities with the Registrant and K&R since 1973.
John O. Tietjen
Senior Vice President and Chief Financial Officer of the Registrant since March 1, 1999; from September 1993 to February 1999, Vice President of Finance at Greater Louisville, Inc. (and its predecessor). Mr. Tietjen served previously as Corporate Controller for OpenConnect Systems, Inc. and for 15 years prior to his employment with OpenConnect Systems, Inc., he served in various positions with Glidden Paint Company; Mr. Tietjen holds a B.A. in Business Administration/Economics from Muskingum College and an M.B.A. from Baldwin-Wallace College.
Charles J. Hulsman
Vice-President of CWS since May 2000; from December 1991 to May 2000, Manager of CWS, and a sales representative of WESSCO, a division of the Registrant, prior to that date.
Sean M. Garber 1996 to 2000
Served as President, Treasurer and Director of the Registrant from February 1998 to May 2000; Interim President from December 1997 to February 1998; Chief Operating Officer and Director of the Registrant from November 1997 to May 2000; Vice President of Recycling of the Registrant from November 1996 to December 1997.
Mr. Garber had determined that it was in his best interest to leave the employment of the Registrant in order to pursue other business interests but is available to consult with the Registrant on an as-needed basis and at mutually agreed times and dates. Mr. Garber's employment with the Registrant terminated on May 1, 2000.
None of the above officers is related to one another. With respect to certain arrangements with certain officers of the Registrant relating to executive compensation, see section entitled "Executive Compensation - Certain Transactions" in the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders as incorporated herein by reference at Item 11.
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Effective August 29, 1996, the $.01 par value common stock of the Registrant became listed on the Small Cap Market (the "Small Cap Market") of the Nasdaq Stock Market under the symbol "IDSA". Prior to August 29, 1996, the Registrant's common stock traded on the Over the Counter Bulletin Board ("OTCBB") operated by the National Association of Securities Dealers, Inc. ("NASD").
There were approximately 397 shareholders of record as of March 13, 2001.
The Registrant has never declared a cash dividend on its Common Stock. Until August 8, 2000 the Registrant had always had a policy intending that the retention of earnings would be used to help finance the Registrant's expansion programs. On August 8, 2000 the Board of Directors of the Registrant approved a change in the dividend policy whereby dividends can be declared subject to Board approval. The Board of Directors has the discretionary power to declare dividends within the constraints of its loan agreement with the Bank of Louisville, which at December 31, 2000 limits the amount of the dividends that can be declared to approximately $380,000.
On August 8, 2000, the Board of Directors of the Registrant also approved the repurchase of shares of its common stock. The stock repurchase program allows for the purchase of up to 200,000 shares of common stock at current market prices. In the fiscal year 2000, the Registrant repurchased 66,300 shares at an average share price of $2.31.
Item 6.
Item 6. Selected Financial Data.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.
The following discussion and analysis should be read in conjunction with the information set forth under Item 6, "Selected Financial Data" and the consolidated financial statements of the Registrant and the accompanying notes thereto included elsewhere in this report.
The following discussion and analysis contains certain financial predictions, forecasts and projections which constitute "forward-looking statements" within the meaning of the federal securities laws. Actual results could differ materially from those financial predictions, forecasts and projections and there can be no assurance that such financial predictions, forecasts and projections will be achieved. Factors that could affect financial predictions, forecasts and projections include the fluctuations in the commodity price index and any conditions internal to the major customers of the Registrant, including loss of their accounts.
General
The Registrant continued to pursue a growth strategy in the waste management services arena servicing over 5,600 customer locations throughout the United States and Canada and building a base of approximately 2,300 vendors. This strategy will allow for diversity of business opportunities so that the Registrant is not as dependent upon the operating results of the recycling division. This diversity has helped to stabilize revenues and gross profit during a period of time when commodity prices fluctuate and affect the ferrous and non-ferrous markets. Much of management's focus and attention now and in the future is directed towards the growth of the management services business segment through expansion in the existing markets and through an acquisition strategy. The Registrant is also focused on technology enhancements that can be provided to the new and existing customer base to further solidify customer relationships. Additionally, the Registrant is exploring strategic alliances and relationships that will enable it to effectively execute its growth and acquisition strategy.
It is management's plan to expand in the management services segment in 2001. At the same time, the Registrant will be seeking more operational cost control, increased efficiency in the information technology area and emphasize sales and marketing efforts.
Management continues to maintain and grow the recycling business within its existing structure and is not actively seeking any further acquisitions or mergers. It is the plan of management to maximize profits through the reduction of surplus inventory and fixed assets.
Liquidity and Capital Resources
As of December 31, 2000, the Registrant held cash and cash equivalents of $1,395,882.
The Registrant currently maintains a working capital line of credit with Bank of Louisville (BOL) in the amount of $3,000,000. Indebtedness under this credit facility accrues interest at BOL's prime rate as promulgated from time to time. The maturity date under this agreement is June 30, 2002. The Credit Line is collateralized by eligible accounts receivable of the Registrant. As of December 31, 2000, $2,750,000 was borrowed against the line of credit compared to no borrowings against the line at December 31, 1999.
During 2000, the Registrant committed approximately $1,392,592 in fixed asset additions. In the recycling segment approximately $650,000 was committed for the down payments of a portable shear/baler and hydraulic crane, purchase of a new roll-off truck, purchase of several forklift trucks, and the rebuild of the main scale, a crane and the conveyor on the cardboard line. In the equipment sales, leasing and service segment, approximately $334,000 was capitalized as rental equipment to be located at customer sites. In the technology area, the Registrant capitalized the cost of internal personnel in the amount of $165,000 used to develop software to rewrite internal programs and the Registrant expended $239,000 to upgrade hubs, routers, servers, workstations and the telephone system.
Existing cash flow from operations and available credit under the existing credit line are sufficient to meet the Registrant's cash needs in 2001, but will not enable the Registrant to pursue its acquisition strategy. The Registrant is currently exploring alternatives to generate cash to execute its growth and acquisition strategy.
Results of Operations
The following table presents, for the years indicated, the percentage relationship which certain captioned items in the Registrant's Consolidated Statements of Operations bear to total revenues and other pertinent data:
Year ended December 31,
Statements of Operations Data:
Total Revenue .......................................................
100.0%
100.0%
100.0%
Cost of Goods Sold ...............................................
92.1%
91.7%
94.2%
Selling, General and Administrative
Expenses .............................................................
6.9%
7.2%
6.6%
Income (Loss) from Operations ............................
1.0%
1.1%
(0.8)%
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The revenue in 2000 was $89,241,473 representing an increase of $11,743,654 or 15.2% compared to 1999. The management services business grew 16.9% to $63,751,872 by increasing the same account and new account business serviced to over 4,200 accounts nationwide. Recycling revenues grew 14.4% to $22,903,751. The major products include the recycling of copper, aluminum and brass, referred to herein as non-ferrous scrap. Non-ferrous scrap revenue increased 30.9% from 1999 to 2000 on 18.9% more pounds shipped. The ferrous recycling business increased its revenues by 3.2% while tons shipped decreased by 8.5%. Revenue in the sales, service and leasing segment declined 12.5% or $368,525 from 1999 to 2000 due to two large equipment sales agreements in the fourth quarter of 1999 that were not replicated in the year 2000.
The 2000 cost of goods sold was $82,188,059 increasing $11,098,128 or 15.6% compared to 1999 on revenue growth of 15.2%. The cost of goods sold in the recycling segment increased 22.6% from 1999 to 2000 on revenue growth of 14.4% due to increased shipments and purchase prices. Cost of goods sold in the management services segment increased 15.4% or $7,648,283 compared to a revenue increase of $9,225,560 or 16.9% from 1999 to 2000. Cost of sales in the equipment sales, leasing and service segment declined 24.6% compared to the sales decrease of 12.5% from 1999 to 2000. The mix of rental equipment versus sales of equipment increased during 2000 causing the actual cost of sales as a percentage to sales to decrease from 74.2% to 63.9% compared to 1999.
The gross margin was $7,053,414 in 2000 representing an increase of $645,526 over 1999, or as a percentage of revenue, a 0.4% decrease. A slight increase in the gross margin as a percentage of revenue from 5.9% to 7.5% was realized in the management services area comparing 2000 to 1999. The recycling division experienced a decrease in gross margins as a percentage to sales from 12.0% in 1999 to 5.7% in 2000 due to product mix and commodity price fluctuations. Management is continually trying to improve gross margins by reducing the costs of its purchases and increasing the prices of its services and products. As a percentage of sales, margins in the equipment sales, service and leasing segment increased from 25.8% in 1999 to 36.1% in 2000. The gross margin contribution from this business segment increased $171,051 in 2000 compared to 1999 on reduced revenue, $2,585,850 in 2000 versus $2,954,375 in 1999.
The selling, general and administrative expenses increased $594,836 from 1999 or 10.7%. As a percentage to revenue, expenses decreased from 7.2% in 1999 to 6.9% in 2000. Approximately one-half, or $300,000 of this increase was due to the one-time and non-recurring charges incurred in the second quarter of 2000 for separation agreements, restructuring charges and associated professional/legal fees. Without these charges, selling, general and administrative expenses would have been 6.6% as a percentage to revenue in 2000 or a 5.3% increase over 1999. During 2000 the Registrant incurred approximately $162,000 in personnel costs and start-up costs for the iR2 division. The Registrant could not capitalize these costs in connection with the redesign and rewrite of the software systems. The Registrant also incurred additional personnel costs for a partial year to hire a salesperson in the equipment sales, leasing and service segment. Personnel costs in the management services segment increased by $130,000 in 2000 compared to 1999 with the addition of a controller for a partial year and increased staffing due to volume increases. Management believes that its staffing in the management services segment combined with the redesigned system positions the Registrant to handle sizeable volumes of new business.
Net profit after taxes increased from $321,335 in 1999 to $505,847 in 2000, which represents a 57.4% increase. Earnings per share, assuming dilution, increased from $.16 in 1999 to $.26 in 2000.
Financial Condition at December 31, 2000 Compared to December 31, 1999
Trade accounts receivable decreased $8,690 to $8,739,174 at December 31, 2000 from December 31, 1999. Average days outstanding in 2000 were 35.9 days versus 41.2 days in 1999. This decrease reflects management's focus on improving working capital through the collection of accounts receivable.
Inventory increased $5,168 from $2,185,994 to $2,191,162 representing a 0.2% increase. Inventory levels both ferrous and non-ferrous at Indiana, Inc. remained relatively the same in 2000 as compared to 1999. Ferrous inventory at December 31, 2000 was $278,582 higher than December 31, 1999. Management decided to limit shipments of ferrous items during the fourth quarter of 2000 due to the decline in the price index and not being able to obtain the desired gross margin levels. Non-ferrous inventory was $263,806 lower at December 31, 2000 versus December 31, 1999 as management focused on turning inventory faster.
Accounts payable trade decreased $3,596,525 from December 31, 1999 to $10,126,353 as of December 31, 2000. This decrease is a direct reflection of the system enhancements that were implemented in the management services segment of the business. The Registrant now has the ability to process vendor payments on a more timely basis which has also enhanced customer service and customer goodwill.
As of December 31, 2000, the Registrant had a working capital deficit of $711,774, which represents an increase of $49,748 from 1999. The working capital deficit at December 31, 1999 was $761,522. Total current assets decreased $573,002 due primarily to the decrease in cash of $992,929. Total current liabilities decreased $875,710 from December 31, 1999 to December 31, 2000 due to an increase in borrowings of $2,750,000 against the Registrant's line of credit and a decrease in trade accounts payable by $3,596,525.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The revenue in 1999 was $77,497,819 representing an increase of $12,292,839 or 18.9% compared to 1998. The management services business grew 23.6% to $54,526,312 by increasing the same account and new account business serviced to over 4,200 accounts nationwide. Recycling revenues grew 4.4% to $20,017,132. The major products include recycling of copper, aluminum and brass, referred to herein as non-ferrous scrap. The ferrous recycling business increased its revenues by 6.6% through an increase in direct sales to mills and more aggressive purchasing practices.
The 1999 total cost of goods sold was $71,089,931 increasing $9,632,041 or 15.7% compared to 1998. The cost of goods sold in management services increased by 22.5% versus a decrease in recycling cost of goods sold of 3.3%. The increase in management services cost of sales mirrored the sales increase within one (1) percentage point. The cost of goods sold in the recycling operation decreased 3.3% on a revenue increase of 4.4%. Commodity prices stabilized in 1999 after a severe decline in the fourth quarter of 1998. Cost of goods sold in the equipment sales/leasing business increased 58.6% on revenue growth of 53.0%
The gross margin was $6,407,888 representing an increase of $2,660,798 or, as a percentage to revenue, a 2.5% increase. A slight increase in gross margin as a percentage to revenue from 5.1% to 5.9% was realized in the management services segment. The recycling division experienced an increase in gross margin as a percentage to revenue of 7.0%. At the end of 1998 the Registrant suffered a significant devaluation adjustment to inventory due to decreases in commodity market values. Prices stabilized throughout 1999 and the Registrant was able to widen the margins with its pricing structure and the ability to sell to new accounts.
The selling, general and administrative expenses increased $1,290,137 from 1998 or as a percentage to revenue from 6.7% in 1998 to 7.2% in 1999. Bad debt expense increased approximately $212,000 or as a percentage to revenue from 1.5% to 4.0% due mainly to a clean up of the accounts receivable files and the write-off of two hedging accounts. Depreciation and amortization expenses increased approximately $211,000 from 1998 due mainly to the full year of expenses in 1999 versus one-half year expenses in 1998 from the Fitzpatrick acquisition, which closed in mid 1998. Insurance expenses increased by approximately $87,000 due to increases in premiums, especially Director and Officer, medical and liability. Insurance premiums based upon revenue levels increased due to the 18.9% increase in revenue levels. Fuel costs increased $63,000 due primarily to the full year of shipments from the Fitzpatrick location, as well as, increased movement of inventory between ISA Indiana, Inc. and ISA, Inc. in Louisville.
An additional expense of $140,880 had an adverse impact on operating results in 1999 due to a transaction between the Registrant and K&R that was later rescinded. The Registrant on behalf of K&R, paid $290,880 to satisfy a note payable that is secured by property owned by K&R. The audit discovered a miscommunication related to the transaction between the Registrant and K&R, which was presented to the Audit Committee. Upon further investigation, the Audit Committee recommended to the full Board a rescission of the transaction. In place of the rescinded transaction, the Registrant Board and K&R approved the setoff of a $150,000 obligation owed by the Registrant to K&R for the purchase of equipment against the $290,880 transaction funded by the Registrant on behalf of K&R. The net result was that K&R repaid the Registrant in May, 2000 the $140,880 (adjusted for interest) which was treated as additional paid-in-capital to complete the rescission of the payment made by the Registrant on behalf of K&R. The Registrant recorded the $140,880 as management consulting expense in 1999.
Financial Condition at December 31, 1999 Compared to December 31, 1998
Trade accounts receivable increased $1,276,201 to $8,750,674 at December 31, 1999. This represents a 17.1% increase while overall revenue increased 18.9%. Average days outstanding in 1999 were 41.2 days versus 41.8 days in 1998. This slight decrease reflects management focus on improving working capital through the collection of accounts receivable.
Inventory decreased $329,358 from $2,515,352 to $2,185,994 representing a 13.1% decrease. The equipment and parts inventory decreased from $761,780 to $86,647 or an 88.6% decrease. This decrease was due to the capitalization of the 1000 Ton shear taken out of inventory and reclassed as a fixed asset to support increased activity in 1999 in the recycling area. Non-ferrous materials inventory increased 44.3 % as new supplier accounts have materialized and the ferrous materials inventory increased 6.2% or $69,823 as the Registrant continues to ship increasing numbers of truckloads of ferrous products to a major foundry.
Accounts payable trade increased $3,976,342 from December 31, 1998 to $13,722,878 as of December 31, 1999. This increase was due to higher volumes in operations including increases to same account and new account business.
As of December 31, 1999, the Registrant's working capital was a deficit of $761,522, which represents a $101,525 increase from 1998. The total current assets increased $2,125,884 due to the $1,276,201 increase in accounts receivable, and the increase in cash of $1,374,743 was offset by the decrease in inventory of $329,358. The total current liabilities increased $2,227,409 affected primarily by total accounts payable increases of $3,976,342 and the reduction of short-term bank borrowings of $1,850,000.
Inflation and Prevailing Economic Conditions
To date, inflation has not and is not expected to have a significant impact on the Registrant's operation in the near term. The Registrant has no long-term fixed-price contracts and the Registrant believes it will be able to pass through most cost increases resulting from inflation to its customers. The Registrant is susceptible to the cyclical nature of the commodity business. In response to these economic conditions, the Registrant has focused on the management consulting area of the business and is working to liquidate inventories while efforts are made to enhance gross margins.
Impact of Recently Issued Accounting Standards
The FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," in June 1998. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair value. If certain conditions are met, a derivative may be designed specifically as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment referred to as a fair value hedge, (b) a hedge of the exposure to variability in cash flows of a forecasted transaction (a cash flow hedge), or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a forecasted transaction. The statement is not expected to have an impact on the Registrant's financial position or results of operations.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data.
The consolidated financial statements of the Registrant required to be included in this Item 8 are set forth in Item 14 of this report. The quarterly results of operations are included in the Notes to Consolidated Financial Statements under Item 14.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not Applicable
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant. *
The information in Item 4a. in this report is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation *
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. *
Item 13.
Item 13. Certain Relationships and Related Transactions. *
_____________________
* The information required by Items 10, 11, 12 and 13 is or will be set forth in the definitive proxy statement relating to the 2001 Annual Meeting of Shareholders of the Registrant which is to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Such definitive proxy statement relates to an annual meeting of shareholders and the portions therefrom required to be set forth in this Form 10-K by Items 10, 11, 12 and 13 are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.
PART IV
Item 14.
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) The following consolidated financial statements of Industrial Services of America, Inc. are filed as a part of this report:
Page
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(a)(2) Consolidated Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts for the
Year ended December 31, 2000
(a)(3) List of Exhibits.
Exhibits filed with, or incorporated by reference herein, this report are identified in the Index to Exhibits appearing in this report. The Management Agreement and the Consulting Agreement required to be filed as exhibits to this Form 10-K pursuant to Item 14(c) are noted by an asterisk (*) in the Index to Exhibits.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
The exhibits listed on the Index to Exhibits are filed as a part of this report.
(d) Consolidated Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts for the year ended December 31, 2000 is incorporated by reference at page of the Consolidated Financial Statements of the Registrant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 30, 2001
By : /s/ Harry Kletter
Harry Kletter, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Harry Kletter
Chairman of the Board and Chief March 30, 2001
Harry Kletter
Executive Officer (Principal Executive
Officer)
/s/ Timothy W. Myers
President of Recycling and Chief March 30, 2001
Timothy W. Myers
Operating Officer
/s/ John O. Tietjen
Chief Financial Officer March 30, 2001
John O. Tietjen
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Jerrold R. Perchik
Director March 30, 2001
Jerrold R. Perchik
/s/ Ted L. Cox
Director March 30, 2001
Ted L. Cox
/s/ David W. Lester
Director March 30, 2001
David W. Lester
/s/ Bruce A. Cannon
Director March 30, 2001
Bruce A. Cannon
/s/ Alan Schroering
Director March 30, 2001
Alan Schroering
/s/ Robert A. Otis
Director March 30, 2001
Robert A. Otis
INDEX TO EXHIBITS
Exhibit
Number
Description of Exhibits
3.1 ** Certificate of Incorporation of the Registrant is incorporated by reference to Exhibit 3.1 of the Registrant's report of Form 10-KSB for the year ended December 31, 1995.
3.2 ** Bylaws of the Registrant are incorporated by reference to Exhibit 3.2 of the Registrant's report on Form 10-KSB for the year ended December 31, 1995.
10.1 ** Independent Consulting Services Agreement -- Maxwell, dated as of March 31, 1995, and executed on June 25, 1996, by and between the Registrant and Douglas I. Maxwell, III ("Maxwell"), is incorporated by reference to Exhibit 4(a) of Registration Statement on Form S-8 of the Registration, filed on June 26, 1996 (File No. 333-06915).
10.2 ** Confidential Information and Non-Competition Agreement Independent Contractor -- Maxwell, dated as of March 31, 1995, and executed on June 26, 1996, by and between the Registrant and Maxwell, is incorporated by reference to Exhibit 10.1 of Registration Statement on Form S-8 of the Registrant, filed on June 26, 1996 (File No. 333-06915).
10.3 ** Stock Option Agreement -- Maxwell, dated as of March 31, 1995, and executed on June 26, 1996, by and between the Registrant and Maxwell, is incorporated by reference to Exhibit 4(b) of Registration Statement on Form S-8 of the Registrant, filed on June 26, 1996 (File No. 333-06915).
10.4 ** Independent Consulting Services Agreement -- Sullivan, dated as of March 31, 1995, and executed on June 26, 1996, by and between the Registrant and Neil C. Sullivan ("Sullivan"), is incorporated by reference to Exhibit 4(a) of Registration Statement on Form S-8 of the Registrant, filed on June 26, 1996 (File No. 333-06909).
10.5 ** Confidential Information and Non-Competition Agreement Independent Contractor -- Sullivan, dated as of March 31, 1995, and executed on June 26, 1996, by and between the Registrant and Sullivan, is incorporated by reference to Exhibit 10.1 of Registration Statement on Form S-8 of the Registrant, filed on June 26, 1996 (File No. 333-06909).
10.6 ** Stock Option Agreement -- Sullivan dated as of March 31, 1995, and executed on June 26, 1996, by and between the Registrant and Sullivan, is incorporated by reference to Exhibit 4(b) of Registration Statement on Form S-8 of the Registrant, filed on June 26, 1996 (File No. 333-06909).
10.7 ** Acquisition of Assets Agreement -- TMG known as "The Metal Center" dated as of July 1, 1997, by and between the Registrant and The Metal Center set forth in an Asset Purchase Agreement, is incorporated by reference, as the sole Exhibit on Form 8-K of the Registrant, filed July 15, 1997 (File No. 0-20979).
10.8 ** Assignment of Contracts -- MGM Assignment dated September 4, 1997, by and between the Registrant and MGM Services, Inc. is incorporated by reference to Exhibit 10.11 of the Registrant's report on Form 10-K for the year ended December 31, 1997.
10.9 ** Employment Agreement -- Garber dated as of October 15, 1997, by and between the Registrant and Garber is incorporated by reference to Exhibit 10.12 of the Registrant's report on Form 10-K for the year ended December 31, 1997.
10.10 ** Lease Agreement -- K&R Lease dated January 1, 1998, by and between the Registrant and K&R, is incorporated by reference herein, to Exhibit 10.10 on Form 8-K of the Registrant, filed March 3, 1998 (File No. 0-20979).*
10.11 ** Consulting Agreement -- K&R Consulting Agreement dated as of January 2, 1998, by and between the Registrant and K&R, is incorporated by reference herein, to Exhibit 10.11 on Form 8-K of the Registrant, filed March 3, 1998 (File No. 0-20979).*
10.12 ** Amendment to Employment Agreement -- Garber dated as of February 5, 1998, by and between the Registrant and Garber, amending original agreement dated October 15, 1997 is incorporated by reference to Exhibit 10.15 of the Registrant's report on Form 10-K for the year ended December 31, 1997.
10.13 ** Stock Option Agreement, effective as of October 31, 1997, by and between the Registrant and Glenn Bierman is incorporated by reference herein to Exhibit 10.13 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.14 ** Stock Option Agreement, effective as of October 27, 1997, by and between the Registrant and Sean Garber is incorporated by reference herein to Exhibit 10.14 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.15 ** Stock Option Agreement, effective as of October 31, 1997, by and between the Registrant and Sean Garber is incorporated by reference herein to Exhibit 10.15 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.16 ** Amendment No. 1 to Option Agreement, effective as of February 5, 1998, by and between the Registrant and Sean Garber is incorporated by reference herein to Exhibit 10.16 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.17 ** Stock Option Agreement, effective as of February 16, 1998, by and between the Registrant and Harry Kletter is incorporated by reference herein to Exhibit 10.17 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.18 ** Consulting Agreement - Lassak, dated as of June 2, 1998, by and between the Registrant and Andrew M. Lassak is incorporated by reference herein to Exhibit 10.18 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.19 ** Consulting Agreement -- JCA/AML, dated as of June 2, 1998, by and among the Registrant, Joseph Charles & Associates, Inc. and Andrew M. Lassak is incorporated by reference herein to Exhibit 10.19 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.20 ** Asset Purchase Agreement, effective as of June 1, 1998, by and among the Registrant, ISA Indiana, Inc., R.J. Fitzpatrick Smelters, Inc., and R.K. Fitzpatrick and Cheryl Fitzpatrick is incorporated by reference herein to Exhibit 10.20 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.21 ** Lease Agreement, effective June 1, 1998, by and between R.K. Fitzpatrick and Cheryl Fitzpatrick, R.J. Fitzpatrick Smelters, Inc., and ISA Indiana, Inc. is incorporated by reference herein to Exhibit 10.21 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.22 ** Environmental Indemnity Agreement, effective as of June 1, 1998, by and between R.K. Fitzpatrick and Cheryl Fitzpatrick, R.J. Fitzpatrick Smelters, Inc., and ISA Indiana, Inc. is incorporated by reference herein to Exhibit 10.22 of the Registrant's report on Form 10-K for the year ended December 31, 1999, as filed on April 14, 1999.
10.23
Promissory Note dated May 8, 1997, from Registrant to Bank of Louisville in the original principal amount of $2,000,000.00.
10.24
Loan Agreement dated November 30, 2000, by and between the Registrant and Bank of Louisville.
10.25
Change in Terms Agreement dated November 30, 2000, by and between the Registrant and Bank of Louisville.
10.26
Change in Terms Agreement dated March 26, 2001, by and between the Registrant and Bank of Louisville.
Statement of Computation of Earnings Per Share (See Note 11 to Notes to Consolidated Financial Statements).
*Denotes a management contract of the Registrant required to be filed as an exhibit pursuant to Item 601(10)(iii) of Regulation S-K under the Securities Act of 1933, as amended.
**Previously filed.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
Louisville, Kentucky
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
CONTENTS
REPORT OF INDEPENDENT AUDITORS ..........................................................................................
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS ......................................................................................
CONSOLIDATED STATEMENTS OF OPERATIONS .............................................................
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ......................................
CONSOLIDATED STATEMENTS OF CASH FLOWS ............................................................
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .................................................
SUPPLEMENTARY INFORMATION
VALUATION AND QUALIFYING ACCOUNTS .....................................................................
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Industrial Services of America, Inc. and Subsidiary
Louisville, Kentucky
We have audited the accompanying consolidated balance sheets of Industrial Services of America, Inc. and Subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 2000, 1999 and 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with general accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Industrial Services of America, Inc. and Subsidiary at December 31, 2000 and 1999, and the results of its operations and its cash flows for the years ended December 31, 2000, 1999 and 1998 in conformity with generally accepted accounting principles.
Our audit of the foregoing consolidated financial statements also included the schedule listed under item 14(a)(2). In our opinion, such schedule presents fairly the information required to be set forth therein.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
February 9, 200
1.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
See accompanying notes to consolidated financial statements.
2.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
See accompanying notes to consolidated financial statements.
3.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998
See accompanying notes to consolidated financial statements.
4.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
See accompanying notes to consolidated financial statements.
5.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Industrial Services of America, Inc. (the Company) provides products and services to meet the waste management needs of its customers related to ferrous, non-ferrous and corrugated scrap recycling, management services and waste equipment sales and rental. Management services represent contracts with retail, commercial and industrial businesses to handle their waste disposal needs, primarily by subcontracting with commercial waste hauling and disposal companies. The Company's customers are located throughout the United States and Canada. The Company's wholly-owned subsidiary, ISA Indiana, Inc., provides services related to ferrous, non-ferrous and fiber scrap recycling.
Revenue Recognition: The Company records revenue for its recycling and equipment sales divisions upon delivery of the related materials and equipment to the customer.
The Company's management services segment provides its customers evaluation, management, monitoring, auditing and cost reduction of its customer's non-hazardous solid waste removal activities. The Company recognizes revenue related to the management aspects of these services as the services are delivered. The segment also manages the specific waste hauling needs of its customers which includes subcontracting with waste haulers throughout the United States and Canada. Revenue related to this activity is recorded on a gross basis because the Company is ultimately responsible for service delivery, has discretion over the selection of the specific service provided and the amounts to be charged, and is directly obligated to the subcontractor for the services provided.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, ISA Indiana, Inc. Upon consolidation, all intercompany accounts, transactions and profits have been eliminated.
Common Control: The Company conducts significant levels of business (see Note 6) with K&R Corporation, Inc. (K&R) which is owned by the Company's principal shareholder. Because these entities are under common control, operating results or financial position of the Company may be materially different from those that would have been obtained if the entities were autonomous.
Estimates: In preparing the 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.
(Continued)
6.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories: Inventories consist principally of waste equipment machinery and parts, and scrap materials held for resale and are stated at the lower of cost (first-in, first-out method) or market. Inventories as of December 31, 2000 and 1999 consist of the following:
Equipment and parts
$ 77,039
$ 86,647
Ferrous materials
1,479,450
1,200,868
Non-ferrous materials
634,673
898,479
$2,191,162
$2,185,994
Property and Equipment: Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the related property.
Property and equipment as of December 31, 2000 and 1999 consist of the following:
Life
Equipment and vehicles 3-10 years
$6,410,382
$6,528,354
Office equipment 3-5 years
657,325
553,709
Rental equipment 5 years
1,727,070
1,462,805
Leasehold improvements 10-20 years
409,811
392,051
Construction in progress
742,814
126,287
9,947,402
9,063,206
Accumulated depreciation and
amortization
4,402,543
3,654,160
$5,544,859
$5,409,046
Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was $1,183,458, $1,161,511 and $968,937.
Intangible Assets: The excess of cost over fair value of assets acquired is being amortized over a period of 15 years using the straight-line method. Non-compete agreements are being amortized using the straight-line method over the benefit period of 5 years.
(Continued)
7.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: The Company records income tax expense based on the amount of taxes due on its tax returns plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, using enacted tax rates. A valuation allowance is recorded, if necessary, to reduce deferred tax assets to the amount considered more likely than not to be realized.
Statement of Cash Flows: The statement of cash flows has been prepared using a definition of cash that includes deposits with original maturities of three months or less.
Earnings Per Share: Amounts reported as Earnings Per Share for each of the three years ended December 31, 2000 reflect the earnings available to common shareholders for the year divided by the weighted average number of common shares outstanding during the year. The weighted average common shares outstanding for the year ended December 31, 2000, was 1,917,633 and for each of the years ended December 1999 and 1998 were 1,929,600.
Stock-Based Compensation and Transactions: Expense for employee compensation under stock option plans is reported only if options are granted below the market price at the grant date. Pro forma disclosures of net income and earnings per share are provided as if the fair value method of Financial Accounting Standard No. 123 was used for stock-based compensation.
Fair Values of Financial Instruments: Fair value of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, prepayments and other factors. Changes in assumptions or market conditions could significantly affect the estimates. As of December 31, 2000 and 1999, the estimated fair value of financial instruments approximated book value.
NOTE 2 - NOTE PAYABLE TO BANK
At December 31, 2000 and 1999, the Company had a $3,000,000 operating line of credit collateralized by all Company assets. Interest is payable monthly on the outstanding principal balance at the Bank's prime rate (9.5% at December 31, 2000). The note matures in June 2002.
(Continued)
8.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 3 - LONG-TERM DEBT
Long-term debt as of December 31, 2000 and 1999 consists of the following:
Note payable to a bank in monthly installments of $20,017 including interest at 8.58% through July 2003; secured by virtually all company assets and a personal guarantee of the principal shareholder.
$1,312,413
$1,432,385
Note payable to a bank in monthly installments of $18,520 including interest at bank's prime interest rate (9.5% at December 31, 2000) through August 2003; secured by virtually all company assets and a personal guarantee of the principal shareholder.
520,527
689,750
Note payable to R.J. Fitzpatrick for covenant not to compete payable in monthly installments of $10,500 including interest at 8.5% through June 2003; secured by virtually all company assets, which is subordinate to the bank's security agreement disclosed above.
282,883
380,296
2,115,823
2,502,431
Current maturities
421,330
397,502
$1,694,493
$2,104,929
The long-term debt requires annual principal payments as follows:
$ 421,330
459,170
1,235,323
(Continued)
9.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 4 - INCOME TAXES
The provision for income taxes consists of the following for the years ended December 31, 2000, 1999 and 1998:
A reconciliation of income taxes at the statutory rate to the Company's effective rate is as follows:
Federal income tax (benefit) at statutory rate $277,041
$196,846
$(236,792)
State and local income taxes, net of
federal income tax affect
32,267
34,738
5,700
Valuation allowance -
(7,900)
7,900
Other differences, net (330)
33,941
33,765
$308,978
$257,625
$(189,427)
(Continued)
10.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 4 - INCOME TAXES (Continued)
Significant components of the Company's deferred tax liabilities and assets as of December 31, 2000 and 1999 are as follows:
NOTE 5 - SALES-TYPE LEASES
The Company is the lessor of equipment under sales-type lease agreements having terms of three to five years, with the lessees having the option to acquire the equipment at the termination of the leases. All costs associated with this equipment are the responsibility of the lessees.
Future lease payments receivable under sales-type leases at December 31, 2000 are as follows:
$168,621
156,921
126,938
89,238
29,746
Minimum lease payments receivable 571,464
Less unearned income (118,630)
Net investment in sales-type leases 452,834
Less current portion 99,937
$352,897
(Continued)
11.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company enters into various transactions with related parties including the Company's principal shareholder and an affiliated company wholly-owned by the Company's principal shareholder (K&R). A summary of these transactions is as follows:
The Company's Chairman is compensated through consulting fees shown above, under a consulting agreement with K&R.
In January 1998, the Company entered into an agreement with K&R for consulting services related to the scrap metal and paper recycling operations and related equipment sales and services. The agreement is for a 10-year period and requires payments of $240,000 annually. During 1999, the Company advanced K&R approximately $140,000 which has been recorded by the Company as additional consulting fees. During 2000, this advance was repaid to the Company and has been recorded as a capital contribution.
NOTE 7 - EMPLOYEE RETIREMENT PLAN
The Company maintains a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code which covers substantially all employees. Eligible employees may contribute a maximum of 15% of their annual salary. Under the plan, the Company matches 10% of each employee's voluntary contributions. The Company's contributions to the plan for 2000, 1999 and 1998 were $15,440, $6,296 and $11,126.
(Continued)
12.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 8 - ACQUISITIONS
On June 1, 1998, the Company entered an agreement with R.J. Fitzpatrick's Smelters (RJF) to purchase the business operations of RJF for $900,000, which approximated fair market value. Non-compete agreements of $511,782 represent the portion of the purchase price allocated to the agreement whereby the principal of RJF agreed not to compete with the Company for a period of five years. The cost is being amortized on the straight-line method over the term of the arrangement. The amount charged to expense in 2000, 1999 and 1998 was $202,356, $202,356, and $51,178. The results of operations are included in the statement of operations from the date of acquisition. The pro forma disclosures required by APB No. 16 are not material.
NOTE 9 - STOCK OPTION PLANS
During the years ended December 31, 2000, 1999 and 1998 the Company extended options to purchase shares of the Company's common stock to several of the Company's Officers and Outside Directors. The Company applies APB Opinion 25 in accounting for its employees' stock option agreements. Compensation costs are not recognized unless the exercise price of the options is below of the market value on the date of grant. As a result, compensation cost charged to operations in 1999, and 1998 totaled $56,901, and $71,875. There was no compensation charged to operations in 2000 related to these options.
The Company has an employee stock option plan under which the Company may grant options for up to 400,000 shares of common stock, which are reserved by the board of directors. The exercise price of each option is equal to the market price of the Company's stock on the date of grant. The maximum term of the option is five years.
Had compensation costs been recorded on the employee stock options on the basis of fair market value pursuant to FASB Statement No. 123, net income and earnings per share would have been reduced as follows:
(Continued)
13.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 9 - STOCK OPTION PLANS (Continued)
The above pro forma information is based on an estimated fair value of these stock options as of the date of grant using a Black-Scholes option pricing method with the following weighted average assumptions for 2000, 1999 and 1998: risk free interest rate ranging from 6.0% to 4.0%, dividend yield of 0%, volatility factor of the expected market price of the Company's common stock ranging from .48 to .68, and a weighted average expected life of the options ranging from 3 to 4 years.
Following is a summary of stock option activity and number of shares reserved for outstanding options for the years ended December 31, 2000, 1999 and 1998:
(Continued)
14.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 9 - STOCK OPTION PLANS (Continued)
As of December 31, 2000, the 485,000 options outstanding have exercise prices between $1.00 to $8.00 and a weighted-average remaining contractual life of 3.9 years.
NOTE 10 - LEASE COMMITMENTS
The Company leases its Louisville, Kentucky facility from a related party (see Note 6) under an operating lease expiring December 2007. This agreement provides for monthly payments of $37,500 through December 2007.
The Company leases real estate in Seymour, Indiana under an operating lease expiring June 2008. This agreement provides for monthly payments of $13,000.
Future minimum lease payments for operating leases as of December 31, 2000 are as follows:
Total rent expense for the years ending December 31, 2000, 1999 and 1998 was $740,017, $700,598 and $605,021.
(Continued)
15.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 11 - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
The following noncash investing and financing activities occurred during the years ended December 31, 2000, 1999 and 1998.
Acquisition of equipment from K&R by issuing
note payable
$
-
$
-
$
250,000
Acquisition of RJ Fitzpatrick Smelters by issuing
note payable
-
-
511,782
NOTE 12 - PER SHARE DATA
The following illustrates the computation for earnings per share and earnings per share assuming dilution.
(Continued)
16.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 13 - 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, 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 accounting policies of the three segments are the same as those described in the summary of significant accounting policies (Note 1). The Company evaluates segment performance based on gross profit or loss and the evaluation process for each segment includes only direct expenses omitting any selling, general and administrative costs and income taxes.
Revenue from two CWS customers in 2000, 1999 and 1998 represents approximately 48%, 64% and 65% of CWS revenues. At December 31, 2000 and 1999, amounts due from these customers included in CWS accounts receivable were $4,414,142 and $3,999,495.
ISA Recycling
Computerized
Waste
Systems
Waste
Equipment
Sales &
Services
Other
Segment
Totals
Recycling revenues
$22,903,751
$ -
$ -
$ -
$22,903,751
Equipment sales, services
and leasing revenues
-
-
2,585,850
-
2,585,850
Management fees
-
63,751,872
-
-
63,751,872
Cost of goods sold
(21,597,047)
(58,939,875)
(1,651,137)
-
(82,188,059)
Segment profit
$1,306,704
$ 4,811,997
$ 934,713
$ -
$7,053,414
(Continued)
17.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 13 - SEGMENT INFORMATION (Continued)
ISA Recycling
Computerized
Waste
Systems
Waste
Equipment
Sales &
Services
Other
Segment
Totals
Cash
$ 283,400
$ 730,262
$ -
$382,220
$1,395,882
Accounts receivable
3,709,496
4,969,754
-
59,924
8,739,174
Inventory
2,114,123
-
77,039
-
2,191,162
Net property and
equipment
4,930,998
-
613,861
-
5,544,859
Non-compete
agreements, net
405,892
-
-
-
405,892
Intangibles
613,337
-
-
-
613,337
Other assets
2,037
46,110
-
866,715
914,862
Segment assets
$12,059,283
$5,746,126
$690,900
$1,308,859
$19,805,168
Recycling revenues
$20,017,132
$ -
$ -
$ -
$20,017,132
Equipment sales, services
and leasing revenues
-
-
2,954,375
-
2,954,375
Management fees
-
54,526,312
-
-
54,526,312
Cost of goods sold
(17,607,626)
(51,291,592)
(2,190,713)
-
(71,089,931)
Segment profit
$2,409,506
$3,234,720
$ 763,662
$ -
$ 6,407,888
Cash
$242,511
$329,277
$ -
$1,817,023
$ 2,388,811
Accounts receivable
4,017,325
4,641,590
-
88,949
8,747,864
Inventory
2,099,347
-
86,647
-
2,185,994
Net property and
equipment
4,929,310
16,667
463,069
-
5,409,046
Non-compete
agreements, net
608,248
-
-
-
608,248
Intangibles
666,668
-
-
-
666,668
Other assets
4,584
39,275
-
465,005
508,864
Segment assets
$12,567,993
$ 5,026,809
$ 549,716
$2,370,977
$20,515,495
(Continued)
18.
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 13 - SEGMENT INFORMATION (Continued)
ISA Recycling
Computerized
Waste
Systems
Waste
Equipment
Sales &
Services
Other
Segment
Totals
Recycling revenues
$19,167,893
$ -
$ -
$ -
$19,167,893
Equipment sales, services
and leasing revenues
-
-
1,930,869
-
1,930,869
Management fees
-
44,106,218
-
-
44,106,218
Cost of goods sold
(18,204,999)
(41,871,945)
(1,380,946)
-
(61,457,890)
Segment profit
$ 962,894
$ 2,234,273
$ 549,923
$ -
$ 3,747,090
19.
SUPPLEMENTARY INFORMATION
INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2000 and 1999
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged
to Other
Accounts
Deductions
Balance
at End
of Year
Description
Allowance for doubtful
accounts 2000 (deducted
from accounts receivable)
$190,000
$132,867
$47,546
$(270,413)
$100,000
Allowance for doubtful
accounts 1999 (deducted
from accounts receivable)
$116,000
$312,872
$27,327
$(266,199)
$190,000
20.