10-Q 1 idsa-201506x30x10q.htm 10-Q - 06-30-15 10-Q
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _________ to ________
Commission File Number 0-20979
INDUSTRIAL SERVICES OF AMERICA, INC.
_______________________________________________________________________________________________________
(Exact Name of Registrant as specified in its Charter)
Florida
 
59-0712746
(State or other jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification No.)
7100 Grade Lane, PO Box 32428
Louisville, Kentucky 40232
(Address of principal executive offices)

(502) 368-1661
(Registrant’s Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o
Accelerated filer o
 
Non-accelerated filer o
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 14, 2015: 7,968,262.





INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
Page No.
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
Item 4.
Controls and Procedures
 
OTHER INFORMATION
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
Item 5.
Other Information
 
Item 6.
Exhibits
 





PART I – FINANCIAL INFORMATION
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
 
June 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
 
(in thousands)
Current assets
 

 
 

Cash and cash equivalents
$
591

 
$
1,059

Accounts receivable – trade (after allowance for doubtful accounts of $50.0 thousand and $100.0 thousand in 2015 and 2014, respectively)
5,023

 
10,019

Inventories
5,461

 
6,777

Prepaid expenses
480

 
567

Property available for sale

 
398

Total current assets
11,555

 
18,820

Net property and equipment
15,537

 
18,742

Other assets
 

 
 

Deferred income taxes
97

 
97

Other non-current assets
251

 
131

Total other assets
348

 
228

Total assets
$
27,440

 
$
37,790

 
 
 
 
























See accompanying notes to consolidated financial statements.
3




INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
CONTINUED

LIABILITIES AND SHAREHOLDERS’ EQUITY

 
June 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
 
(in thousands, except par value and share information)
Current liabilities
 

 
 

Current maturities of long-term debt
$
8,823

 
$
15,911

Bank overdrafts

 
79

Accounts payable
3,923

 
3,315

Income tax payable
22

 
27

Interest rate swap agreement liability
16

 
10

Payable to related parties
1,834

 
1,775

Other current liabilities
413

 
168

Total current liabilities
15,031

 
21,285

Long-term liabilities
 

 
 

Long-term debt, net of current maturities

 

Total long-term liabilities

 

Shareholders’ equity
 

 
 

Common stock, $0.0033 par value: 20.0 million shares authorized in 2015 and 2014; 8,049,622 shares issued in 2015 and 2014; 7,968,262 and 7,956,410 shares outstanding in 2015 and 2014, respectively
27

 
27

Additional paid-in capital
23,443

 
23,249

Stock warrants outstanding
1,025

 
1,025

Retained losses
(11,953
)
 
(7,652
)
Accumulated other comprehensive loss
(16
)
 
(10
)
Treasury stock at cost, 81,360 and 93,212 shares in 2015 and 2014, respectively
(117
)
 
(134
)
Total shareholders’ equity
12,409

 
16,505

Total liabilities and shareholders’ equity
$
27,440

 
$
37,790

 
 
 
 



See accompanying notes to consolidated financial statements.
4



INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

 
For the three months ended
 
For the six months ended
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
Revenue from services
$
1,433

 
$
1,319

 
$
2,788

 
$
2,436

Revenue from product sales
14,413

 
27,314

 
31,256

 
51,872

Total revenue
15,846

 
28,633

 
34,044

 
54,308

Cost of sales for services
1,364

 
1,223

 
2,627

 
2,221

Cost of sales for product sales
14,220

 
25,902

 
31,953

 
49,809

Inventory adjustment for lower of cost or market

 

 
791

 

Impairment loss, property and equipment

 

 
637

 

Total cost of sales
15,584

 
27,125

 
36,008

 
52,030

Selling, general and administrative expenses
1,229

 
1,928

 
2,377

 
3,137

Selling, general and administrative expenses
1,229

 
1,928

 
2,377

 
3,137

Income (loss) before other income (expense)
(967
)
 
(420
)
 
(4,341
)
 
(859
)
Other income (expense)
 

 
 

 
 
 
 
Interest expense, including loan fee amortization
(147
)
 
(248
)
 
(309
)
 
(485
)
Interest income

 

 

 
1

Gain (loss) on sale of assets
(101
)
 
47

 
330

 
106

Other income (expense), net
15

 
(3
)
 
27

 
(3
)
Total other income (expense)
(233
)
 
(204
)
 
48

 
(381
)
Income (loss) before income taxes
(1,200
)
 
(624
)
 
(4,293
)
 
(1,240
)
Income tax provision

 
18

 
8

 
46

Net income (loss)
$
(1,200
)
 
$
(642
)
 
$
(4,301
)
 
$
(1,286
)
Basic earnings (loss) per share
$
(0.15
)
 
$
(0.09
)
 
$
(0.54
)
 
$
(0.18
)
Diluted earnings (loss) per share
$
(0.15
)
 
$
(0.09
)
 
$
(0.54
)
 
$
(0.18
)
Weighted average shares outstanding:
 

 
 

 
 
 
 
Basic
7,968

 
7,240

 
7,968

 
7,155

Diluted
7,968

 
7,240

 
7,968

 
7,155

 
 
 
 
 
 
 
 


See accompanying notes to consolidated financial statements.
5




INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)

 
For the three months ended
 
For the six months ended
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 
(in thousands)
 
(in thousands)
Net income (loss)
$
(1,200
)
 
$
(642
)
 
$
(4,301
)
 
$
(1,286
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative instruments
4

 
8

 
(6
)
 
47

 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
(1,196
)
 
$
(634
)
 
$
(4,307
)
 
$
(1,239
)
 
 
 
 
 
 
 
 


See accompanying notes to consolidated financial statements.
6




INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
SIX MONTHS ENDED JUNE 30, 2015
(UNAUDITED)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional Paid-in Capital
 
Stock Warrants
 
Retained Losses
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total Shareholders’ Equity
 
Shares
 
Amount
 
 
Shares
 
Cost
 
(in thousands, except share information)
Balance as of December 31, 2014
8,049,622

 
$
27

 
$
23,249

 
$
1,025

 
$
(7,652
)
 
$
(10
)
 
(93,212
)
 
$
(134
)
 
$
16,505

Common Stock

 

 
(17
)
 

 

 

 
11,852

 
17

 

Unrealized loss on derivative instruments

 

 

 

 

 
(6
)
 

 

 
(6
)
Stock option compensation

 

 
211

 

 

 

 

 

 
211

Net loss

 

 

 

 
(4,301
)
 

 

 

 
(4,301
)
Balance as of June 30, 2015
8,049,622

 
$
27

 
$
23,443

 
$
1,025

 
$
(11,953
)
 
$
(16
)
 
(81,360
)
 
$
(117
)
 
$
12,409

 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 




See accompanying notes to consolidated financial statements.
7



INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)
 
2015
 
2014
 
(in thousands)
Cash flows from operating activities
 
Net loss
$
(4,301
)
 
$
(1,286
)
Adjustments to reconcile net loss to net cash from operating activities:
 

 
 

Depreciation
1,414

 
1,588

Inventory write-down
791

 

Impairment, property and equipment
637

 

Stock options
211

 
718

Gain on sale of property and equipment
(330
)
 
(106
)
Amortization of loan fees included in interest expense
30

 
43

Change in assets and liabilities
 
 
 
Receivables
4,995

 
1,385

Inventories
525

 
(3,288
)
Other assets
(63
)
 
(193
)
Accounts payable
671

 
(1,146
)
Other current liabilities
267

 
485

Net cash from (used in) operating activities
4,847

 
(1,800
)
Cash flows from investing activities
 

 
 

Proceeds from sale of property and equipment
2,188

 
123

Purchases of property and equipment
(336
)
 
(242
)
Net cash from (used in) investing activities
1,852

 
(119
)
Cash flows from financing activities
 

 
 

Loan fees capitalized

 
(245
)
Proceeds from the sale of common stock and warrants, net

 
3,023

Change in bank overdrafts
(79
)
 
(594
)
Payments on current debt
(7,178
)
 
(13,270
)
Proceeds from current debt
90

 
12,157

Net cash used in (from) financing activities
(7,167
)
 
1,071

Net decrease in cash
(468
)
 
(848
)
Cash and cash equivalents at beginning of year
1,059

 
1,589

Cash and cash equivalents at end of period
$
591

 
$
741

Supplemental disclosure of cash flow information:
 

 
 

Cash paid for interest
$
326

 
$
454

Supplemental disclosure of noncash investing and financing activities:
 

 
 

Increase (decrease) in equipment purchases accrual
$
(30
)
 
$

 
 
 
 


See accompanying notes to consolidated financial statements.
8



INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The Accounting Standards Codification ("ASC") as produced by the Financial Accounting Standards Board ("FASB") is the sole source of authoritative GAAP. The information furnished includes all adjustments, which are, in the opinion of management, necessary to present fairly our financial position as of June 30, 2015 and the results of our operations and changes in our cash flows for the periods ended June 30, 2015 and 2014. Results of operations for the period ended June 30, 2015 are not necessarily indicative of the results that may be expected for the entire year. Additional information, including the audited December 31, 2014 consolidated financial statements and the Summary of Significant Accounting Policies, is included in our Annual Report on Form 10-K for the year ended December 31, 2014, on file with the Securities and Exchange Commission.
Estimates
In preparing the consolidated financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, 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. Examples of estimates include the allowance for doubtful accounts, estimates of deferred income tax assets and liabilities, estimates of inventory balances, and estimates of stock option and initial warrant values. The Company also uses estimates when assessing fair values of assets and liabilities acquired in business acquisitions as well as any fair value and any related impairment charges related to the carrying value of inventory and machinery and equipment and other long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.
Reclassifications

We have reclassified certain segment assets included in Note 4 - Segment Information within the accompanying Statements and Notes to Condensed Consolidated Financial Statements for the prior year in order to be comparable with the current presentation. These reclassifications had no effect on previously reported net income (loss) or shareholders' equity.

Going Concern

The Company was in violation of a minimum EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) covenant measured at June 30, 2015 with Wells Fargo Bank, its primary lender. Management has been unable to obtain a waiver of covenant noncompliance from the bank at the date the June 30, 2015 consolidated financial statements were issued. The Wells Fargo covenant violation causes the Bank of Kentucky debt (see Note 3) to be in technical default as well due to cross default provisions. Being in violation of loan covenants constitutes an event of default under the agreements and allows the banks, if they choose, to call the debt due. Accordingly, under U.S. GAAP, this requires the debt to be classified as a current liability. If the Company is able to obtain a waiver of noncompliance from Wells Fargo, it will remedy the Bank of Kentucky debt violation as the Company was otherwise in compliance with those covenant measures.

We are currently in discussions with Wells Fargo regarding a resolution to the default, including amendments to the existing agreements, waivers of the default and a resetting of covenant measures to correspond to current forecasts for the remainder of 2015. If successful in these negotiations, the Company expects to amend the credit facility in the latter half of 2015. There can be no assurance that the requested relief will be granted on terms acceptable to us or at all. So long as one or more events of default are continuing under the loan agreements and no forbearance agreement exists, Wells Fargo and the Bank of Kentucky may exercise, subject to compliance with the terms and conditions of the loan agreements, as applicable, and applicable law, a number of remedies including acceleration of the debt and the sale of collateral. The exercise of certain remedies may have a material adverse effect on our liquidity, financial condition and results of operations, and could cause us to become bankrupt or insolvent.

Due to deteriorating market conditions for ferrous and certain non-ferrous products in late 2014 and continuing into 2015, the Company has experienced worse than expected operating results. Management has responded by reducing operating costs and during May 2015, the Company idled its shredder and downstream processing operations. Management believes these actions

9



will improve cash flows and operating results. While it is management’s expectation that a bank amendment will be completed in the latter half of 2015, there are no assurances this will occur. These conditions cause substantial doubt about the ability of the Company to continue as a going concern. The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Fair Value
We carry certain of our financial assets and liabilities at fair value on a recurring basis. These financial assets and liabilities are composed of cash and cash equivalents and derivative instruments. Long-term debt is carried at cost, and the fair value is disclosed herein. In addition, we measure certain assets, such as long-lived assets, at fair value on a non-recurring basis to evaluate those assets for potential impairment. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
In accordance with applicable accounting standards, we categorize our financial assets and liabilities into the following fair value hierarchy:
Level 1 – Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Examples of Level 1 financial instruments include active exchange-traded securities.
Level 2 – Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Examples of Level 2 financial instruments include various types of interest-rate and commodity-based derivative instruments, and various types of fixed-income investment securities. Pricing models are utilized to estimate fair value for certain financial assets and liabilities categorized in Level 2.
Level 3 – Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall fair value measurement. These inputs reflect management’s judgment about the assumptions that a market participant would use in pricing the asset or liability, and are based on the best available information, some of which is internally developed.
When determining the fair value measurements for financial assets and liabilities carried at fair value on a recurring basis, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, we look to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets, and we use alternative valuation techniques to derive fair value measurements.
We use the fair value methodology outlined in the related accounting standards to value the assets and liabilities for cash, debt and derivatives. All of our cash is defined as Level 1 and all our debt and derivative contracts are defined as Level 2. In accordance with this guidance, the following table represents our fair value hierarchy for Level 1 and Level 2 financial instruments at June 30, 2015 (in thousands):
 
 
Fair Value at Reporting Date Using
 
 
 
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
 
Assets:
 
Level 1
 
Level 2
 
Total
Cash and cash equivalents
 
$
591

 
$

 
$
591

Liabilities:
 
 

 
 
 
 

Current debt
 
$

 
$
(8,823
)
 
$
(8,823
)
Derivative contract - interest rate swap
 

 
(16
)
 
(16
)
We have had no transfers in or out of Levels 1 or 2 fair value measurements, and no activity in Level 3 (except for impairment of property and equipment discussed below) fair value measurements for the six month periods ended June 30, 2015 or 2014.





10



Idling of Shredder

On May 13, 2015, the Company announced the warm idle of the Company’s auto shredder. This action was in response to market conditions, primarily related to ferrous price volatility and lower ferrous volumes. Management will continue to monitor and analyze market conditions and to review the Company’s long-term options for its shredder and related downstream processing operation. Management does not anticipate the cash costs of idling, including severance costs, to exceed $100.0 thousand. The costs of idling were recognized in the second quarter 2015 financial statements.

As a result of the continued operating losses from the shredder operations, management reviewed the carrying cost of the shredder, including the downstream processing system. The Company recognized an asset impairment charge of approximately $636.6 thousand related to the shredder's downstream processing system. This charge is recorded in the first quarter of 2015 as an impairment charge to the property and equipment within the cost of sales section in the accompanying six months ended June 30, 2015 condensed consolidated statement of operations.

Stock Option Arrangements

We have an employee stock option plan under which we may grant options for up to 2.4 million shares of common stock, which are reserved by the board of directors for issuance of stock options. We provide compensation benefits by granting stock options to employees and directors. The exercise price of each option is equal to the market price of our stock on the date of grant. The maximum term of the option is five years. We account for this plan based on FASB’s authoritative guidance titled "ASC 718 - Compensation - Stock Compensation." We recognize share-based compensation expense for the fair value of the awards, on the date granted on a straight-line basis over their vesting term. Compensation expense is recognized only for share-based payments expected to vest. We estimate forfeitures at the date of grant based on our historical experience and future expectations. Subject to shareholder approval and restrictions on exercisability set forth in a Stock Option Agreement entered into on December 2, 2013 between the Company and Algar (the “Stock Option Agreement”), the Company granted Algar an option to purchase a total of 1.5 million shares of Company common stock at an exercise price per share of $5.00. The Algar stock options were not issued in connection with the employee stock option plan.

The Company uses the Modified Black-Scholes-Merton option-pricing model to value the Company's stock options for each employee stock option award. The Company uses the Lattice-Based model to value the Company's stock options for the Algar stock option awards due to market and performance conditions (see Note 8 - "Share Based Compensation"). Using these option pricing models, the fair value of each stock option award is estimated on the date of grant.

There are two significant inputs into the stock option pricing models: expected volatility and expected term. We estimate expected volatility based on traded volatility of the Company's stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company's stock option plans and represents the period of time that stock option awards granted are expected to be outstanding.

As of January 2, 2015, we awarded options to purchase 20,000 shares of our common stock to our CFO, Todd Phillips. These options vest over a three-year period, with 1/3 vesting on the first anniversary of the grant date and 1/6 vesting every six months thereafter until the three year anniversary of the grant date. The exercise price per share of the options is $5.71, the fair value as of the grant date.

On December 31, 2014, the Company entered into a Securities Purchase Agreement with an officer whereby the Company issued 8,196 shares of Common Stock to the officer for an aggregate offering price of $40.0 thousand in the first quarter of 2015. This agreement was in connection with this officer accepting employment with the Company.
Subsequent Events
We have evaluated the period from June 30, 2015 through the date the financial statements herein were issued for subsequent events requiring recognition or disclosure in the financial statements and we identified the following:
On August 5, 2015, the Company entered into a Stock Purchase Agreement with Algar, whereby the Company issued 50.7 thousand shares of its common stock to Algar for aggregate consideration equal to $189.0 thousand. The consideration was payable in the form of a reduction of the Company’s $378.0 thousand accrued but unpaid bonus compensation due to Algar pursuant to the Management Services Agreement between the Company and Algar, dated as of December 1, 2013, leaving a remainder of $189.0 thousand in the accrued but unpaid bonus compensation. See Note 7 - “Related Party Transactions” to the Condensed Consolidated Financial Statements.


11



Impact of Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We have not yet assessed the impact of the adoption of ASU 2014-09 on our Condensed Consolidated Financial Statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40). The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The amendments are effective for annual periods ending after December 15, 2016, including interim periods within that reporting period. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued.  We have not yet assessed the impact of the adoption of ASU 2014-15 on our Condensed Consolidated Financial Statements.

12




NOTE 2 – INVENTORIES
Our inventories primarily consist of ferrous and non-ferrous scrap metals, and are valued at the lower of average purchased cost or market based on the specific scrap commodity. Quantities of inventories are determined based on our inventory systems and are subject to periodic physical verification using estimation techniques including observation, weighing and other industry methods. We recognize inventory impairment and related adjustments when the market value, based upon current market pricing, falls below recorded value or when the estimated volume is less than the recorded volume of the inventory. We record the loss in cost of sales in the period during which we identified the loss. During the first quarter of 2015, we charged $0.8 million to cost of sales as a result of impairment associated with ferrous market price decreases.
Some commodities are in saleable condition at acquisition. We purchase these commodities in small amounts until we have a truckload of material available for shipment. Some commodities are not in saleable condition at acquisition. These commodities must be shredded, torched, or baled. We do not have work-in-process inventory that needs to be manufactured to become finished goods. We include processing costs in inventory for all commodities.
Inventory also includes all types of industrial waste handling equipment and machinery held for resale such as compactors, balers, and containers, which are valued based on cost. Replacement parts for internal equipment is included in inventory and depreciated over a one-year life when placed in service. These parts are generally used by us within this one-year period as these parts wear out quickly due to the high-volume and intensity of the shredder function. Other inventory includes fuel and baling wire.
Inventories as of June 30, 2015 and December 31, 2014 consist of the following:

June 30, 2015

December 31, 2014

Raw
Materials

Finished
Goods

Processing
Costs

Total
(unaudited)

Raw
Materials

Finished
Goods

Processing
Costs

Total
 
(in thousands)
Ferrous and non-ferrous materials
$
2,521


$
1,191


$
490


$
4,202


$
3,827


$
1,043


$
477


$
5,347

Waste equipment machinery


60




60




46




46

Other


22




22




13




13

Total inventories for sale
2,521


1,273


490


4,284


3,827


1,102


477


5,406

Replacement parts
1,177






1,177


1,371






1,371

Total inventories
$
3,698


$
1,273


$
490


$
5,461


$
5,198


$
1,102


$
477


$
6,777


13




NOTE 3 – LONG TERM DEBT AND NOTES PAYABLE TO BANK

As of June 30, 2015 and December 31, 2014, the Company had credit facilities with each of The Bank of Kentucky, Inc. ("KY Bank") and Wells Fargo Bank, National Association ("the Bank"). As of June 30, 2015 and December 31, 2014, the Company was not in compliance with its financial covenant with the Bank. The Company is negotiating amendments with the Bank. Under GAAP, all of the Company’s debt is required to be classified in the accompanying balance sheets as of June 30, 2015 and December 31, 2014 as a current liability. The bank has not accelerated repayment of the indebtedness. For additional information, see Note 1 - Summary of Significant Accounting Policies - Going Concern.
On October 15, 2013, WESSCO, LLC ("WESSCO"), a wholly-owned subsidiary of the Company, signed two promissory notes (collectively, the "KY Bank Notes") in favor of KY Bank, one in the amount of $3.0 million (the "Term Note") and one in the amount of $1.0 million (the "Line of Credit Note"). The Company used the proceeds from the Term Note to pay $3.0 million against the Company’s previous loan from Fifth Third Bank. WESSCO used the Line of Credit Note to purchase additional equipment.  The Company is a guarantor of the KY Bank Notes.  The Company has also signed a $3.0 million demand promissory note (the “Company Note”) in favor of WESSCO in exchange for the proceeds of WESSCO’s Term Note.
 
During 2014, the draw period of the Line of Credit Note expired and the outstanding balance automatically converted into a term note ("Line of Credit Term Note") with a 5 year term. As of June 30, 2015, $0.5 million was outstanding on this Line of Credit Term Note.
On January 15, 2015, the Company signed a new line of credit ("2015 Line of Credit Note") in the amount of $1.0 million with KY Bank in order to purchase additional equipment. The draw period for the 2015 Line of Credit Note will expire on January 14, 2016, at which time the outstanding balance will be converted into a term note with a five year term. As of June 30, 2015, the outstanding principal balance on the Line of Credit Note was $0.3 million.
As security for the KY Bank Notes, WESSCO provided KY Bank a first priority security interest in all of its assets, including the Company Note, pursuant to a Security Agreement (the “Security Agreement”). The KY Bank Notes impose a Fixed Charge Coverage Ratio Covenant on WESSCO under which: (i) the sum of (a) WESSCO’s earnings before interest, taxes, depreciation, rent, and interest expense, less distributions and (b) unfunded capital expenditures, divided by (ii) the sum of (x) the current portion of long term debt due for the period, (y) interest expense and (z) rent expense is required to be at least 1.15 to 1 at all times.  KY Bank will test this ratio annually measured for periods starting January 1 and ending December 31. The Security Agreement also contains other customary covenants.

The interest rate on the KY Bank Notes and the Company Note is equal to the one month LIBOR plus three and one-half percent (3.50%) adjusted automatically on the first day of each month during the term of the KY Bank Notes, which have a final maturity date of October 14, 2019.  As of June 30, 2015, the interest rate was 3.67%. In the event of a default, the interest rate under the KY Bank Notes (but not the Company Note) will increase by five percent (5.00%).  Events of default under the KY Bank Notes include (a) the failure to pay (i) any installment of principal or interest payable pursuant to the Term Note or the Line of Credit Note on the date when due, or (ii) any other amount payable to KY Bank under the KY Bank Notes, the Security Agreement or any of the other Loan Documents within five (5) days after the date when any such payment is due in accordance with the terms thereof; (b) the occurrence of any default under the Wells Fargo security agreement; (c) the occurrence of any default under any of the documents evidencing or securing any other loan made to WESSCO or the Company (except that if there is an event of default under the documents evidencing the Wells Fargo Loan, it will not constitute an event of default under the KY Bank Notes if Wells Fargo Bank and the Company enter into a forbearance agreement within sixty (60) days of that event of default); and (d) the occurrence of any other “Event of Default” under the Security Agreement or any of the other Loan Documents. The only event of default under the Company Note is the failure of the Company to pay all funds due to WESSCO on demand.

The principal under the Term Note is payable in sixty (60) monthly installments as follows: $45.3 thousand for the first year, $47.5 thousand for the second year, $49.9 thousand for the third year, $52.4 thousand for the fourth year, and $54.4 thousand for the eleven months of the final year. Interest will be calculated as noted above and paid each month. The first payment commenced November 1, 2013, and the final unpaid principal amount of $60.0 thousand, together with  all accrued and unpaid interest, charges, fees, or other advances, if any, is to be paid on November 1, 2018. As of June 30, 2015, the outstanding principal balance on the Term Note was $2.1 million. With respect to the Line of Credit Note, WESSCO requested advances up to $1.0 million for twelve (12) months after the effective date of the Line of Credit Note (the "Draw Period").  Advances were limited to eighty percent (80%) of the purchase price for equipment.  Advances made to WESSCO that were repaid were re-borrowed during the Draw Period. During the Draw Period, interest-only payments in the amount of all accrued and unpaid interest on the principal balance of the Line of Credit Note were made monthly. The total of all advances, less any repayments, through the end of the Draw Period, were equal to the principal balance of the Line of Credit Note, and no further advances were made after the Draw Period.  At the

14



conclusion of the Draw Period, the principal and interest were payable in sixty (60) monthly installments that commenced on the first day of the month immediately following the end of the Draw Period. Any unpaid principal amount due, together with all accrued and unpaid interest, charges, fees, or other advances, if any, were paid.

WESSCO cannot make demand for payment of the Company Note before December 31, 2016.
On June 13, 2014, the Company entered into a senior, secured credit facility (the "Credit Agreement") with Wells Fargo Bank, National Association pursuant to which the Bank granted the Company a revolving line of credit of up to $15.0 million (the "Revolving Loan"), up to $1.0 million of which is available to the Company as a sub-facility for letters of credit. The Company may borrow up to 85% of the value of its eligible accounts receivable and 65% of the value of eligible inventory under the Revolving Loan. As of June 30, 2015, an availability block that limits borrowings under the revolver in the amount of $1.6 million is in place. If the Company demonstrates to the Bank that no default or event of default shall have occurred or be continuing and the fixed charge coverage ratio, determined on a trailing twelve month period, for each of the most recent three consecutive months then ending, is at least 1.25:1, the availability block shall reduce to $1.0 million. If we demonstrate to the Bank that no default or event of default shall have occurred or be continuing and the fixed charge coverage ratio, determined on a trailing twelve month period, for each of the most recent three consecutive months then ending, is at least 1.50:1, the availability block shall reduce to zero. These financial ratios were not met and accordingly this availability block remains in place.
The Credit Agreement also provided the Company with a secured equipment term loan of $2.8 million (the "Term Loan"). The Company used the proceeds from the Credit Agreement to repay in full its prior credit facility with Fifth Third Bank (the "Prior Credit Agreement").
The interest rate on the Revolving Loan is equal to daily three month LIBOR plus three percent (3.00%). The interest rate on the Term Loan is equal to daily three month LIBOR plus three and 25/100 percent (3.25%). If there is an Event of a Default (as defined in the Credit Agreement) under either the Revolving Loan or the Term Loan, the interest rate will increase by two percent (2.00%). Each of the Revolving Loan and the Term Loan has a maturity date of June 13, 2019. As of March 19, 2015, the lender decreased the borrowing base block for the Credit Agreement, thereby increasing the availability of capital under our revolving line of credit by $350,000. The lender charged us $5,000 per week for each week in which we used this additional $350,000. As of April 30, 2015, the borrowing base block reduction was canceled and no longer available to the Company.
The Company is subject to a prepayment fee of up to 2.00% of the maximum Revolving Loan and Term Loan amount in the event the Credit Agreement is terminated or prepaid prior to June 13, 2018.
Interest under the Revolving Loan is payable monthly in arrears. Principal and interest under the Term Loan is payable in sixty (60) monthly installments, with the first payment commencing July 1, 2014, and the final unpaid principal amount, together with all accrued and unpaid interest, charges, fees, or other advances, if any, to be paid on June 13, 2019.
The Credit Agreement contains customary covenants, including a minimum EBITDA covenant, a capital expenditure covenant, and a fixed charge coverage ratio covenant, measured monthly on a trailing twelve month basis at the end of each month, beginning with the month ending June 30, 2015 of not less than 1.25 to 1.00. As of June 30, 2015 and December 31, 2014, we were not in compliance with our bank financial covenants.
As of June 30, 2015, we have $404.7 thousand under our existing credit facilities that we can use.
The Company and each of its wholly-owned subsidiaries, other than WESSCO, LLC ("WESSCO"), granted the Bank a first priority security interest in all of their assets pursuant to a Security Agreement, and each of the Company's subsidiaries guaranteed the Company's obligations under the Credit Agreement pursuant to a Continuing Guaranty; provided that WESSCO's guarantee is subordinated to its obligations to the KY Bank (described above), pursuant to a subordination agreement among WESSCO, the Bank and the KY Bank. The Company paid fees in 2014 totaling $245.0 thousand related to the Credit Agreement.
Swap agreements

In October 2013, we entered into an interest rate swap agreement with KY Bank swapping a variable rate based on LIBOR for a fixed rate. This swap agreement covers approximately $2.1 million in debt, commenced October 17, 2013 and matures on October 1, 2018. The swap agreement fixes our interest rate at 4.74%. At June 30, 2015, we recorded the estimated fair value of the liability related to this swap at approximately $16.1 thousand. We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional amounts and forecasted amounts.     

15



Our long term debt as of June 30, 2015 and December 31, 2014 consisted of the following:
 
2015
 
2014

(Unaudited)
 
 
 
(in thousands)
Revolving credit facility of $15.0 million in 2014 with Wells Fargo Bank. See above description for additional details.
$
3,737

 
$
10,453

Note payable to Wells Fargo Bank in the original amount of $2.8 million secured by shredder system assets, and other Recycling equipment. See above description for additional details.
2,240

 
2,520

Note payable to the Bank of Kentucky, Inc. in the original amount of $3.0 million secured by all WESSCO assets. See above description for additional details.
2,076

 
2,361

Note payable to the Bank of Kentucky, Inc. in the original amount of $596.6 thousand secured by all WESSCO assets. See above description for additional details.
517

 
577

Revolving credit facility convertible to term loan of up to $1.0 million in 2014 with the Bank of Kentucky, Inc. See above description for additional details.
253

 

 
8,823

 
15,911

Less current maturities
8,823

 
15,911


$

 
$

The annual maturities of long term debt (in thousands) for the next five twelve-month periods and thereafter ending June 30 of each year are as follows:
2015
 
$
8,823

2016
 

2017
 

2018
 

2019
 

Total
 
$
8,823

NOTE 4 – SEGMENT INFORMATION
Our operations include two primary segments: Recycling and Waste Services.
The Company’s two reportable segments are determined by the products and services that each offers. The Recycling segment generates its revenues based on buying and selling of ferrous and non-ferrous, including stainless steel, scrap metals, automobile parts, and fiber scrap. Waste Services’ revenues consist of charges to customers for waste disposal services and equipment sales and lease income. The components of the column labeled “other” are selling, general and administrative expenses that are not directly related to the two primary segments.
We evaluate 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.
The majority of the assets listed under the column labeled "other" include land, buildings and deferred taxes that are used by multiple segments, which makes them not appropriate to allocate. We consider such assets corporate assets. Expenses related to these corporate assets, including property taxes, insurance and utilities, are allocated to each segment based on a formula.

16



FOR THE SIX MONTHS ENDED JUNE 30, 2015
 
RECYCLING
 
WASTE
SERVICES
 
OTHER
 
SEGMENT
TOTALS
 
 
(in thousands)
Recycling revenues
 
$
30,038

 
$

 
$

 
$
30,038

Equipment sales, service and leasing revenues
 

 
1,218

 

 
1,218

Management fees
 

 
2,788

 

 
2,788

Cost of sales
 
(31,572
)
 
(3,008
)
 

 
(34,580
)
Inventory adjustment for lower of cost or market
 
(791
)
 

 

 
(791
)
Impairment loss, fixed assets
 
(637
)
 

 

 
(637
)
Selling, general, and administrative expenses
 
(581
)
 
(362
)
 
(1,434
)
 
(2,377
)
Segment profit (loss)
 
$
(3,543
)
 
$
636

 
$
(1,434
)
 
$
(4,341
)
Segment assets
 
$
22,881

 
$
2,076

 
$
2,483

 
$
27,440

FOR THE SIX MONTHS ENDED JUNE 30, 2014
 
RECYCLING
 
WASTE
SERVICES
 
OTHER
 
SEGMENT TOTALS
 
 
(in thousands)
Recycling revenues
 
$
50,772

 
$

 
$

 
$
50,772

Equipment sales, service and leasing revenues
 

 
1,100

 

 
1,100

Management fees
 

 
2,436

 

 
2,436

Cost of sales
 
(49,522
)
 
(2,508
)
 

 
(52,030
)
Selling, general, and administrative expenses
 
(715
)
 
(450
)
 
(1,972
)
 
(3,137
)
Segment profit (loss)
 
$
535

 
$
578

 
$
(1,972
)
 
$
(859
)
Segment assets
 
$
38,967

 
$
2,090

 
$
3,055

 
$
44,112

 
 
 
 
 
 
 
 
 
FOR THE THREE MONTHS ENDED JUNE 30, 2015
 
RECYCLING
 
WASTE
SERVICES
 
OTHER
 
SEGMENT TOTALS
 
 
(in thousands)
Recycling revenues
 
$
13,773

 
$

 
$

 
$
13,773

Equipment sales, service and leasing revenues
 

 
640

 

 
640

Management fees
 

 
1,433

 

 
1,433

Cost of goods and services sold
 
(13,999
)
 
(1,585
)
 

 
(15,584
)
Selling, general, and administrative expenses
 
(258
)
 
(160
)
 
(811
)
 
(1,229
)
Segment profit (loss)
 
$
(484
)
 
$
328

 
$
(811
)
 
$
(967
)
Segment assets
 
$
22,881

 
$
2,076

 
$
2,483

 
$
27,440

 
 
 
 
 
 
 
 
 
FOR THE THREE MONTHS ENDED JUNE 30, 2014
 
RECYCLING
 
WASTE
SERVICES
 
OTHER
 
SEGMENT TOTALS
 
 
(in thousands)
Recycling revenues
 
$
26,770

 
$

 
$

 
$
26,770

Equipment sales, service and leasing revenues
 

 
544

 

 
544

Management fees
 

 
1,319

 

 
1,319

Cost of goods and services sold
 
(25,754
)
 
(1,371
)
 

 
(27,125
)
Selling, general, and administrative expenses
 
(338
)
 
(202
)
 
(1,388
)
 
(1,928
)
Segment profit (loss)
 
$
678

 
$
290

 
$
(1,388
)
 
$
(420
)
Segment assets
 
$
38,967

 
$
2,090

 
$
3,055

 
$
44,112


17



NOTE 5 - LEASE COMMITMENTS
Operating Leases:
We lease our Louisville, Kentucky facility from a related party under an operating lease expiring December 2017. As of December 31, 2012, the lease automatically renewed for a five-year option period under terms of the lease agreement. Effective January 1, 2013, the lease amount increased to $53.8 thousand per month based on the CPI index as stated in the lease agreement. In addition, we are responsible for real estate taxes, insurance, utilities and maintenance expense for the facility.
We lease equipment from a related party under operating leases expiring in November 2015 and May 2016 for a monthly payment totaling $10.5 thousand. See also Note 7 - Related Party Transactions for additional information relating to the related party rent and lease payments.
We leased office space in Dallas, Texas for which monthly payments of $1.0 thousand were due through April 2015.
We lease a lot in Louisville, Kentucky for a term that commenced in March 2012 and ends in February 2016. The monthly payment amount from March 2012 through February 2014 was $3.5 thousand. The monthly payment amount then increased to $3.8 thousand for the remaining term
On October 1, 2014, the Company executed a 60 month operating lease for processing equipment that will be used in our Recycling segment in the amount of $30.6 thousand per month.

The Company signed a lease, effective December 1, 2014, to lease a facility in the Seymour, Indiana area. This lease is for a period of three years. The company has the option to extend the lease for three (3) additional three (3) year periods. Rent is $8.0 thousand per month and increases each year by $0.2 thousand per month. In the event ISA exercises the option to renew the lease for a second three-year term, at the end of the second three-year term, ISA has the option to purchase the property.

On April 30, 2015, the Company entered into a lease agreement with LK Property Investments, LLC (See Note 7), for a portion of the 4.4 acre parcel of real estate located at 6709 Grade Lane, Louisville, KY in the amount of $3.0 thousand per month. The lease terminates on April 14, 2019, but the Company has the right to vacate the leased premises upon 90 days notice. The Company is required to reimburse the lessor for 40% of the property taxes on the parcel during the term.
Future minimum lease payments for operating leases for the next five twelve-month periods ending June 30 of each year, in thousands, as of June 30, 2015 are as follows:
2016
 
$
1,248

2017
 
1,148

2018
 
769

2019
 
397

2020
 
92

Future minimum lease payments
 
$
3,654

Total rent expense for the six months ended June 30, 2015 and 2014 was $674.7 thousand and $443.1 thousand, respectively.
NOTE 6 – PER SHARE DATA

The computation for basic and diluted earnings (loss) per share is as follows:
Six months ended June 30, 2015 compared to six months ended June 30, 2014:

18




2015

2014
 
(in thousands, except per share information)
Basic loss per share
 


 

Net loss
$
(4,301
)

$
(1,286
)
Weighted average shares outstanding
7,968


7,155

Basic loss per share
$
(0.54
)

$
(0.18
)
Diluted loss per share
 


 

Net loss
$
(4,301
)

$
(1,286
)
Weighted average shares outstanding
7,968


7,155

Add dilutive effect of assumed exercising of stock options




7,968


7,155

Diluted loss per share
$
(0.54
)

$
(0.18
)

Three months ended June 30, 2015 compared to three months ended June 30, 2014:
 
 
 
 
 
(in thousands, except per share information)
Basic earnings (loss) per share
 
 
 
Net income (loss)
$
(1,200
)
 
$
(642
)
Weighted average shares outstanding
7,968

 
7,240

Basic earnings (loss) per share
$
(0.15
)
 
$
(0.09
)
Diluted earnings (loss) per share
 
 
 
Net income (loss)
$
(1,200
)
 
$
(642
)
Weighted average shares outstanding
7,968

 
7,240

Add dilutive effect of assumed exercising of stock options and warrants

 

Diluted weighted average shares outstanding
7,968

 
7,240

Diluted earnings (loss) per share
$
(0.15
)
 
$
(0.09
)

Total weighted average anti-dilutive shares excluded from diluted net income (loss) per share are 1,162 thousand.


19



NOTE 7 - RELATED PARTY TRANSACTIONS

Property and equipment payments to K&R, LLC.:

During the six month period ended June 30, 2015, we were involved in various transactions with related parties, including an affiliated company, K&R, LLC ("K&R"), which is wholly-owned by Kletter Holdings LLC, the sole member of which was Harry Kletter, our founder and former Chief Executive Officer. After Mr. Kletter's passing in January 2014, our Chairman of the Board and interim Chief Executive Officer, Orson Oliver, assumed the role of executor of Mr. Kletter’s estate and President of Kletter Holdings LLC. As of June 30, 2015, Mr. Kletter’s estate, K&R and the Harry Kletter Family Limited Partnership collectively, beneficially own in excess of 20% of the Company's issued and outstanding shares. See Note 5 - Lease Commitments for additional information relating to the rent and lease agreements with K&R.

On September 13, 2013, K&R made a $500.0 thousand refundable, non-interest bearing deposit with the Company related to K&R's potential purchase of a piece of the Company's real property located at 1565 East 4th Street in Seymour, Indiana. The Company was permitted and has used the deposited funds for general corporate purposes. The Company was informed by K&R that K&R was no longer interested in acquiring the property, however the Company may repay K&R at a later date to be determined.

As of June 30, 2015 and December 31, 2014, we had $32.2 thousand for both periods in accounts receivable from K&R pertaining to payments made by ISA on their behalf.

Board of Directors' fees and consulting fees:

For the six month period ended June 30, 2015 and June 30, 2014, we had outstanding unpaid Board of Directors' fees of $160.0 thousand and $26.0 thousand. We expensed financial consulting fees of $25.0 thousand during 2015 to one of our directors.

Management services payments to Algar, Inc.:

On December 2, 2013, we entered into a Management Services Agreement (the "Management Agreement") with Algar, Inc. ("Algar").  Under the Management Agreement, Algar provides us with day-to-day senior executive level services. Algar will also provide business, financial, and organizational strategy and consulting services, as our board of directors may reasonably request from time to time.

On December 2, 2013, in connection with the Management Agreement, our board of directors appointed Sean Garber as President. Under the Management Agreement, we will reimburse Algar for the portion of Mr. Garber’s salary that is attributable to Algar’s services under the Management Agreement in an amount not to exceed $20.8 thousand per month, or $250.0 thousand per year plus other expenses. During the six month periods ended June 30, 2015 and June 30, 2014, we expensed for both periods, management fees of $125.0 thousand to Algar for the portion of Mr. Garber's salary. Other management fees expensed in regards to Algar in connection with the Management Agreement were $16.9 thousand and $65.1 thousand, respectively for the six month periods ended June 30, 2015 and June 30, 2014. As of June 30, 2015 and December 31, 2014, we had $26.7 thousand and $33.9 thousand in accounts payable for management fees to Algar.

Per the Management Agreement, Algar earned a bonus in an amount equal to 10.0% of any year-over-year increase in the Company’s adjusted pre-tax income for the year ending December 31, 2014 in the amount of $428.0 thousand. The unpaid amount is recorded as a current liability entitled "Payable to related party" in the amount of $378.0 thousand as of June 30, 2015.

Scrap material purchases from Algar, Inc:
During the six month period ended June 30, 2015 and June 30, 2014, we purchased scrap material in the amount of $520.0 thousand and $916.3 thousand from Algar. As of June 30, 2015 and December 31, 2014, we had $5.4 thousand and $88.4 thousand in accounts payable pertaining to scrap material purchases to Algar.

Scrap material sales to Algar, Inc:
During the six month period ended June 30, 2015 and June 30, 2014, we sold scrap material in the amount of $61.6 thousand and $269.3 thousand to Algar. As of June 30, 2015 and December 31, 2014, we had $58.1 thousand and $84.6 thousand in accounts receivable pertaining to scrap material sales from Algar.

20




Other sales to Algar, Inc:
During the six month period ended June 30, 2015, we provided logistical services of $22.4 thousand, IT services of $8.3 thousand and equipment sales of $2.7 thousand to Algar. As of June 30, 2015, we had $36.4 thousand in accounts receivable pertaining to other sales to Algar.
Scrap material sales to Metal X, LLC:
During the six month period ended June 30, 2015 and June 30, 2014, we sold scrap material in the amount of $1.5 million and $889.7 thousand to MetalX, LLC. As of June 30, 2015 and December 31, 2014, we had $327.1 thousand and $250.3 thousand in accounts receivable from MetalX, LLC. For additional information regarding MetalX, LLC, see Note 10 - "Financing and Related Matters" to the Condensed Consolidated Financial Statements.
Real estate sale to LK Property Investments, LLC.

On April 30, 2015, ISA Real Estate LLC, the wholly-owned subsidiary of the Company, agreed to sell to LK Property Investments, LLC, an entity principally owned by Daniel M. Rifkin, CEO of MetalX LLC, a scrap metal recycling company headquartered in Waterloo, Indiana, and the principal owner of Recycling Capital Partners, LLC, a 4.4 acre parcel of real estate, located at 6709 Grade Lane, Louisville, KY, for a purchase price of $1.0 million.  The Company used the proceeds from the sale primarily for debt reduction and working capital. The loss on sale of this asset was $102.0 thousand.

Real estate lease with LK Property Investments, LLC.

On April 30, 2015, the Company entered into a lease agreement with LK Property Investments, LLC, for a portion of the 4.4 acre parcel of real estate located at 6709 Grade Lane, Louisville, KY in the amount of $3.0 thousand per month. The lease terminates on April 14, 2019, but the Company has the right to vacate the leased premises upon 90 days notice. The Company is required to reimburse the lessor for 40% of the property taxes on the parcel during the term.

Real estate sale to SG&D Ventures, LLC.

On May 18, 2015, ISA Real Estate LLC, a wholly-owned subsidiary of the Company, agreed to sell to SG&D Ventures, LLC, an entity owned by shareholders of Algar, including Sean Garber, the Company’s Vice Chairman of the Board and President, and the President of Algar, approximately 1-acre parcel of non-essential real estate, located at 7017 Grade Lane, Louisville, KY, for an aggregate purchase price equal to independent third-party appraisal amount of $350.0 thousand.  The Company received an appraisal of the Parcel equal to $350.0 thousand from an independent third party before the sale.  The purchase consideration consisted of $300.0 thousand in cash from the Purchaser and a credit of $50.0 thousand against bonus compensation previously accrued but not paid to Algar as described below.  The Company expects to use the cash proceeds from the the sale of the real estate primarily for debt reduction and working capital. This transaction closed on May 19, 2015. The gain on sale of this asset was $1.1 thousand.


21



A summary of all the Company's related party transactions, in thousands, as of June 30, 2015 and December 31, 2014 and for the six months ended June 30, 2015 and June 30, 2014 is as follows:
 
 
2015
 
2014
Balance sheet accounts:
 
 
 
 
      Accounts receivable
 
$
453.8


$
367.1

      Deposits (included in other long-term assets)
 
$
42.1

 
$
42.1

      Accounts payable
 
$
192.1

 
$
148.2

      Deposit payable
 
$
500.0

 
$
500.0

      Bonus payable
 
$
378.0

 
$
428.0

      Accrued rent payable
 
$
763.6

 
$
577.7

 
 
 
 
 
 
 
 
 
 
Income statement activity (Six months ended):
 
 
 
 
      Revenue from product sales & services
 
$
1,595.1

 
$
1,195.4

      Scrap material purchases
 
$
520.0

 
$
916.3

      Management fee expense
 
$
141.9

 
$
190.1

      Management services bonus
 
$

 
$
340.0

      Director and consulting fee expense
 
$
115.0

 
$
115.0

      Rent expense (property)
 
$
323.0

 
$
323.0

      Lease expense (equipment)
 
$
63.0

 
$
63.0

      Gain (loss) on sale of assets
 
$
(100.9
)
 
$



22



NOTE 8 – SHARE-BASED COMPENSATION

The weighted average assumptions relating to the valuation of the Company's stock options awarded in January 2015 are shown below.

 
 
2015
Weighted average grant-date fair value of grants per option
 
$3.01
Volatility
 
60.1%
Risk-free interest rate
 
2.3%
Expected life
 
5 years
Expected dividend yield
 
0.0%

The following table presents a summary of the Company's stock option activity:

Options
 
Number of shares (in thousands)
 
Weighted Average Exercise Price per Share
 
Weighted Average Remaining Contractual Term
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2014
 
180

 
$
4.59

 
1.9 years

 
$
1.38

Granted
 
2,062

 
5.02

 

 
2.26

Exercised
 
(30
)
 
4.23

 

 
1.05

Expired
 
(60
)
 
4.23

 

 
1.05

Outstanding at December 31, 2014
 
2,152

 
$
5.02

 
2.7 years

 
$
2.23

Granted
 
20

 
5.71

 
4.5 years

 
3.01

Outstanding at June 30, 2015
 
2,172

 
$
5.02

 
2.2 years

 
2.24

Exercisable at June 30, 2015
 
1,162

 
$
4.88

 
2.2 years

 
$
2.24

Available for grant at June 30, 2015
 
1,603

 
 
 
 
 
 

As of January 2, 2015, we awarded options to purchase 20,000 shares of our common stock to an officer. These options vest over a three-year period, with 1/3 vesting on the first anniversary of the grant date and 1/6 vesting every six months thereafter until the three year anniversary of the grant date. The exercise price per share of the options is $5.71, the fair value as of the grant date.

NOTE 9 - LEGAL PROCEEDINGS
We have litigation from time to time, including employment-related claims, none of which we currently believe to be material.
Our operations are subject to various environmental statutes and regulations, including laws and regulations addressing materials used in the processing of our products. In addition, certain of our operations are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. Failure to maintain or achieve compliance with these laws and regulations or with the permits required for our operations could result in substantial operating costs and capital expenditures, in addition to fines and civil or criminal sanctions, third party claims for property damage or personal injury, cleanup costs or temporary or permanent discontinuance of operations. Certain of our facilities have been in operation for many years and, over time, we and other predecessor operators of these facilities have generated, used, handled and disposed of hazardous and other regulated wastes. Environmental liabilities could exist, including cleanup obligations at these facilities or at off-site locations where we disposed of materials from our operations, which could result in future expenditures that we cannot currently estimate and which could reduce our profits.
ISA records liabilities for remediation and restoration costs related to past activities when our obligation is probable and the costs can be reasonably estimated. Costs of future expenditures for environmental remediation are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Costs of ongoing compliance activities related to current operations are expensed as incurred. Such compliance has not historically

23



constituted a material expense to us.
NOTE 10 - FINANCING AND RELATED MATTERS

Securities Purchase Agreement
On June 13, 2014, Industrial Services of America, Inc. (the "Company") issued 857,143 shares of the Company's common stock pursuant to a Securities Purchase Agreement (the "Securities Purchase Agreement") to Recycling Capital Partners, LLC (the "Investor"), an investment entity principally owned by Daniel M. Rifkin, the founder and CEO of MetalX LLC, a scrap metal recycling company headquartered in Waterloo, Indiana, for an aggregate purchase price of $3.0 million. Pursuant to the Securities Purchase Agreement, the Company also issued to the Investor a five-year warrant to purchase 857,143 additional shares of the Company's common stock, exercisable 6 months after the date of the Securities Purchase Agreement for an exercise price of $5.00 per share and expiring June 13, 2019. The net proceeds were allocated between common stock and warrants based on the relative fair value of the common stock and the warrants. The fair value of the warrants was estimated using a pricing model similar to that used for stock options. The Securities Purchase Agreement provides the Investor with preemptive rights and a right of first refusal with respect to future securities offerings by the Company. Costs of $104.5 thousand related to the Securities Purchase Agreement have been netted against the proceeds in the statement of shareholders' equity.

Registration Rights Agreement
On June 13, 2014, in connection with the Securities Purchase Agreement, the Company and the Investor entered into a Registration Rights Agreement (the "Registration Rights Agreement"), under which the Company agreed to (a) prepare and file a registration statement no later than December 12, 2014 and (b) cause the registration statement to be declared effective by the Securities and Exchange Commission no later than February 1, 2015 for (i) resales of the common stock issued to the Investor under the Securities Purchase Agreement, and (ii) resales of any shares of common stock issuable upon exercise of the warrant.

The Registration Rights Agreement requires the Company to pay the Investor a loss of liquidity fee for certain periods after February 1, 2015 when the registration statement is not effective or its use is suspended. The Registration Rights Agreement contains customary representations, warranties and covenants, and customary provisions regarding rights of indemnification between the parties with respect to certain applicable securities law liabilities.

Director Designation Agreement
On June 13, 2014, in connection with the Securities Purchase Agreement, the Company and the Investor entered into a Director Designation Agreement (the "Director Designation Agreement") pursuant to which the Investor will have the right to designate, and require the Company's Board to appoint, up to two directors (each, a "Designated Director"). As of the date of this report, the Investor had the right to designate one director. A Designated Director will hold office until (i) his or her term expires and such Designated Director's successor designated by the Investor has been appointed or (ii) such Designated Director's earlier death, disability, disqualification, resignation or removal, and the Investor shall have the right to appoint any successor to such Designated Director. The Investor's designation rights terminate at such time that the Investor and its affiliates collectively hold less than 5% of the Company's outstanding common stock. Pursuant to the Director Designation Agreement, the Company and the Investor agreed that the designation and appointment of the Designated Director nominees will not violate applicable law and will not cause the Company to become delisted from any securities exchange or other trading market.

ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this report.
Cautionary Statement Regarding Forward-Looking Statements
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 we will achieve such financial predictions, forecasts and projections. Factors that could affect financial predictions, forecasts and projections include our ability to continue as a going concern, the fluctuations in the commodity price index and any conditions internal to our major customers, including loss of their accounts and other factors as listed in our Form 10-K/A for the year ended December 31, 2014, as filed with the Securities and Exchange Commission.

24



General
We are primarily focusing our attention now and in the future towards our recycling business. We sell processed ferrous and non-ferrous scrap material to end-users such as steel mini-mills, integrated steel makers, foundries and refineries. We deliver all scrap ourselves or through third parties via truck, rail car, and/or barge. Some customers choose to send their own delivery trucks, which are weighed and loaded at one of our sites based on the sales order. We purchase ferrous and non-ferrous scrap material primarily from industrial and commercial generators of steel, iron, aluminum, copper, stainless steel and other metals as well as from other scrap dealers who deliver these materials directly to our facilities. We process these materials by shredding, sorting, cutting and/or baling. We will also continue to pursue a growth strategy in our waste services business segment, which includes management services and waste and recycling equipment sales, service and leasing. Our auto parts business is currently a small part of our overall business, but remains an area of focused growth.
We continue to pursue a growth strategy in the waste management services arena by adding new locations of existing customers as well as marketing our services to potential customers. Currently, we service over 900 customer locations throughout the United States and we utilize an active database of over 7,000 vendors to provide timely, thorough and cost-effective service to our customers. Along with positioning ourselves to efficiently service our customers, our management services division methods of competition include striving to offer our clients competitive pricing, superior customer service and industry expertise.
Although our focus is on the recycling industry, our goal is to remain dedicated to the management services and equipment industries as well, while sustaining steady growth at an acceptable profit, adding to our net worth, and providing positive returns for stockholders. We intend to increase efficiencies and productivity in our core business while remaining alert for possible acquisitions, strategic partnerships, mergers and joint-ventures that would enhance our profitability.
On May 13, 2015, the Company announced the warm idle of the Company’s auto shredder. This action was in response to market conditions, primarily related to ferrous price volatility and lower ferrous volumes. Management will continue to monitor and analyze market conditions and to review the Company’s long-term options for its shredder and related downstream processing operation.
We have operating locations in Louisville, Kentucky and Seymour and New Albany, Indiana. We do not have operating locations outside the United States.
Liquidity and Capital Resources

Our cash requirements generally consist of working capital, capital expenditures and debt service. Our primary sources of liquidity are cash flows generated from operations and the various borrowing and factoring arrangements described below, including our revolving credit facility. We are also able to manage liquidity by deferring certain rent payments made to related parties. See Note 11 - "Related Party Transactions" in the Notes to Consolidated Financial Statements for additional information. We actively manage our working capital and associated cash requirements and continually seek more effective use of cash. As of June 30, 2015, we held cash and cash equivalents of $0.6 million.

The accompanying financial statements have been prepared assuming that we will continue as a going concern. Due to the events of default under our credit facility with Wells Fargo Bank, which are discussed in the credit facilities and notes payable section below, and the other factors discussed in Note 1 to our consolidated financial statements, our independent registered public accounting firm has included an explanatory paragraph in its report with respect to substantial doubt about our ability to continue as a going concern in its report on our consolidated financial statements at December 31, 2014 included in Form 10-K/A. While management is evaluating all options to cure the defaults, including refinancing, extending the indebtedness and exploring alternatives for other sources of capital for ongoing cash needs, there can be no assurance that we will be able to secure a resolution or refinance or extend the indebtedness and, accordingly, our liquidity and ability to operate could be adversely affected. We are currently in discussions with our lenders regarding a resolution to the defaults, and our ability to continue as a going concern is dependent upon us resolving the outstanding indebtedness. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.

As of June 30, 2015 and December 31, 2014, the Company had credit facilities with each of The Bank of Kentucky, Inc. ("KY Bank") and Wells Fargo Bank, National Association ("the Bank"). As of June 30, 2015 and December 31, 2014, the Company was not in compliance with its financial covenant with the Bank. The Company is reviewing the impact of this non-compliance with the Bank. Under GAAP, all of the Company’s debt is required to be classified in the accompanying balance sheet as of June 30, 2015 and December 31, 2014 as a current liability. The bank has not accelerated the indebtedness. For additional information, see Note 1 - Summary of Significant Accounting Policies - Going Concern.
On October 15, 2013, WESSCO, LLC ("WESSCO"), a wholly-owned subsidiary of the Company, signed 2 promissory notes (collectively, the "KY Bank Notes") in favor of KY Bank, 1 in the amount of $3.0 million (the "Term Note") and 1 in the amount

25



of $1.0 million (the "Line of Credit Note"). The Company used the proceeds from the Term Note to pay $3.0 million against the Company’s loan from Fifth Third Bank. WESSCO used the Line of Credit Note to purchase additional equipment.  The Company is a guarantor of the KY Bank Notes.  The Company has also signed a $3.0 million demand promissory note (the “Company Note”) in favor of WESSCO in exchange for the proceeds of WESSCO’s Term Note.

During 2014, the draw period of the Line of Credit Note expired and the outstanding balance automatically converted into a term note ("Line of Credit Term Note") with a 5 year term. As of June 30, 2015, $0.5 million was outstanding on this Line of Credit Term Note.

On January 15, 2015, the Company signed a new line of credit ("2015 Line of Credit Note") in the amount of $1.0 million with KY Bank in order to purchase additional equipment. The draw period for the 2015 Line of Credit Note will expire on January 14, 2016, at which time the outstanding balance will be converted into a term note with a five year term. As of June 30, 2015, the outstanding principal balance on the Line of Credit Note was $0.3 million.
As security for the KY Bank Notes, WESSCO provided KY Bank a first priority security interest in all of its assets, including the Company Note, pursuant to a Security Agreement (the “Security Agreement”). The KY Bank Notes impose a Fixed Charge Coverage Ratio Covenant on WESSCO under which: (i) the sum of (a) WESSCO’s earnings before interest, taxes, depreciation, rent, and interest expense, less distributions and (b) unfunded capital expenditures, divided by (ii) the sum of (x) the current portion of long term debt due for the period, (y) interest expense and (z) rent expense is required to be at least 1.15 to 1 at all times.  KY Bank will test this ratio annually measured for periods starting January 1 and ending December 31. The Security Agreement also contains other customary covenants.

The interest rate on the KY Bank Notes and the Company Note is equal to the one month LIBOR plus three and one-half percent (3.50%) adjusted automatically on the first day of each month during the term of the KY Bank Notes, which have a final maturity date of October 14, 2019.  As of June 30, 2015, the interest rate was 3.67%. In the event of a default, the interest rate under the KY Bank Notes (but not the Company Note) will increase by five percent (5.00%).  Events of default under the KY Bank Notes include (a) the failure to pay (i) any installment of principal or interest payable pursuant to the Term Note or the Line of Credit Note on the date when due, or (ii) any other amount payable to KY Bank under the KY Bank Notes, the Security Agreement or any of the other Loan Documents within five (5) days after the date when any such payment is due in accordance with the terms thereof; (b) the occurrence of any default under the Wells Fargo security agreement; (c) the occurrence of any default under any of the documents evidencing or securing any other loan made to WESSCO or the Company (except that if there is an event of default under the documents evidencing the Wells Fargo Loan, it will not constitute an event of default under the KY Bank Notes if Wells Fargo Bank and the Company enter into a forbearance agreement within sixty (60) days of that event of default); and (d) the occurrence of any other “Event of Default” under the Security Agreement or any of the other Loan Documents. The only event of default under the Company Note is the failure of the Company to pay all funds due to WESSCO on demand.

The principal under the Term Note is payable in sixty (60) monthly installments as follows: $45.3 thousand for the first year, $47.5 thousand for the second year, $49.9 thousand for the third year, $52.4 thousand for the fourth year, and $54.4 thousand for the eleven months of the final year. Interest will be calculated as noted above and paid each month. The first payment commenced November 1, 2013, and the final unpaid principal amount of $60.0 thousand, together with  all accrued and unpaid interest, charges, fees, or other advances, if any, is to be paid on November 1, 2018. As of June 30, 2015, the outstanding principal balance on the Term Note was $2.1 million. With respect to the Line of Credit Note, WESSCO requested advances up to $1.0 million for twelve (12) months after the effective date of the Line of Credit Note (the "Draw Period").  Advances were limited to eighty percent (80%) of the purchase price for equipment.  Advances made to WESSCO that were repaid were re-borrowed during the Draw Period. During the Draw Period, interest-only payments in the amount of all accrued and unpaid interest on the principal balance of the Line of Credit Note were made monthly. The total of all advances, less any repayments, through the end of the Draw Period, were equal to the principal balance of the Line of Credit Note, and no further advances were made after the Draw Period.  At the conclusion of the Draw Period, the principal and interest were payable in sixty (60) monthly installments that commenced on the first day of the month immediately following the end of the Draw Period. Any unpaid principal amount due, together with all accrued and unpaid interest, charges, fees, or other advances, if any, were paid.

WESSCO cannot make demand for payment of the Company Note before December 31, 2016.
On June 13, 2014, the Company entered into a senior, secured credit facility (the "Credit Agreement") with Wells Fargo Bank, National Association pursuant to which the Bank granted the Company a revolving line of credit of up to $15.0 million (the "Revolving Loan"), up to $1.0 million of which is available to the Company as a sub-facility for letters of credit. The Company may borrow up to 85% of the value of its eligible accounts receivable and 65% of the value of eligible inventory under the Revolving Loan. As of June 30, 2015, an availability block that limits borrowings under the revolver in the amount of $1.6 million is in place. If we demonstrate to the Bank that no default or event of default shall have occurred or be continuing and the fixed charge

26



coverage ratio, determined on a trailing twelve month period, for each of the most recent three consecutive months then ending, is at least 1.25:1, the availability block shall reduce to $1.0 million. If we demonstrate to the Bank that no default or event of default shall have occurred or be continuing and the fixed charge coverage ratio, determined on a trailing twelve month period, for each of the most recent three consecutive months then ending, is at least 1.50:1, the availability block shall reduce to zero. These financial ratios were not met and accordingly this availability block remains in place.
The Credit Agreement also provided the Company with a secured equipment term loan of $2.8 million (the "Term Loan"). The Company used the proceeds from the Credit Agreement to repay in full its prior credit facility with Fifth Third Bank (the "Prior Credit Agreement").
The interest rate on the Revolving Loan is equal to daily three month LIBOR plus three percent (3.00%). The interest rate on the Term Loan is equal to daily three month LIBOR plus three and 25/100 percent (3.25%). If there is an Event of a Default (as defined in the Credit Agreement) under either the Revolving Loan or the Term Loan, the interest rate will increase by two percent (2.00%). Each of the Revolving Loan and the Term Loan has a maturity date of June 13, 2019. As of March 19, 2015, the lender decreased the borrowing base block for the the Credit Agreement, thereby increasing the availability of capital under our revolving line of credit by $350,000. The lender charged us $5,000 per week for each week in which we used this additional $350,000. As of April 30, 2015, the borrowing base block reduction was canceled and no longer available to the Company.
The Company is subject to a prepayment fee of up to 2.00% of the maximum Revolving Loan and Term Loan amount in the event the Credit Agreement is terminated or prepaid prior to June 13, 2018.
Interest under the Revolving Loan is payable monthly in arrears. Principal and interest under the Term Loan is payable in sixty (60) monthly installments, with the first payment commencing July 1, 2014, and the final unpaid principal amount, together with all accrued and unpaid interest, charges, fees, or other advances, if any, to be paid on June 13, 2019.
The Credit Agreement contains customary covenants, including a minimum EBITDA covenant, a capital expenditure covenant, and a fixed charge coverage ratio covenant, measured monthly on a trailing twelve month basis at the end of each month, beginning with the month ending June 30, 2015 of not less than 1.25 to 1.00. As of June 30, 2015, we were not in compliance with our bank financial covenants.
As of June 30, 2015, we have $404.7 thousand under our existing credit facilities that we can use.
The Company and each of its wholly-owned subsidiaries, other than WESSCO, LLC ("WESSCO"), granted the Bank a first priority security interest in all of their assets pursuant to a Security Agreement, and each of the Company's subsidiaries guaranteed the Company's obligations under the Credit Agreement pursuant to a Continuing Guaranty; provided that WESSCO's guarantee is subordinated to its obligations to the KY Bank (described above), pursuant to a subordination agreement among Wessco, the Bank and the KY Bank. The Company paid fees in 2014 totaling $245.0 thousand related to the Credit Agreement.
Swap agreements

In October 2013, we entered into an interest rate swap agreement with KY Bank swapping a variable rate based on LIBOR for a fixed rate. This swap agreement covers approximately $2.1 million in debt, commenced October 17, 2013 and matures on October 1, 2018. The swap agreement fixes our interest rate at 4.74%. At June 30, 2015, we recorded the estimated fair value of the liability related to this swap at approximately $16.1 thousand. We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional amounts and forecasted amounts.     
We have long term debt, including current maturities thereof, comprised of the following:
 
June 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
 
(in thousands)
Revolving lines of credit
$
3,737

 
$
10,453

Notes payable
5,086

 
5,458

 
$
8,823

 
$
15,911



27



Results of Operations
The following table presents, for the periods indicated, the percentage relationship that certain captioned items in our Consolidated Statements of Operations bear to total revenue:
 
Six months ended
 
June 30,
 
2015
 
2014
Statements of Operations Data:
 
 
 
Total revenue
100.0
 %
 
100.0
 %
Total cost of sales
105.8
 %
 
95.8
 %
Selling, general and administrative expenses
7.0
 %
 
5.8
 %
Income (loss) before other expenses
(12.8
)%
 
(1.6
)%
Six months ended June 30, 2015 compared to six months ended June 30, 2014
Total revenue decreased $20.3 million or 37.3% to $34.0 million in the six month period ended June 30, 2015 as compared to $54.3 million in the same period in 2014. With respect to the Recycling segment, Recycling revenue decreased $20.7 million or 40.8% to $30.0 million in 2015 compared to $50.8 million in 2014. This decrease was due to a decrease in the volume of shipments of ferrous, nonferrous and stainless steel of 15,916 gross tons or 22.9%, primarily due to the warm idling of the Company's auto shredder as well as a decrease in the overall price for all commodities shipped for ferrous, nonferrous and stainless steel of $146 per gross ton, or 18.7%, primarily due to global demand in the first six months of 2015 as compared to the same period in 2014.
While some scrap buyers provide consistently competitive pricing from year to year, others may provide competitive pricing one year but not the next. This market-driven competition causes our preferred buyer base to fluctuate from year to year. In the six month period ended June 30, 2015, sales to repeat Recycling scrap buyers decreased by approximately $4.4 million, or 14.7%, compared to the same period in 2014. In the six month period ended June 30, 2015, 14.3% of the sales to all Recycling scrap buyers were to new and competitively priced, intermittent scrap buyers. In the same period in 2014, 25.0% of sales to Recycling scrap buyers were to new and competitively priced, intermittent scrap buyers. In the six month period ended June 30, 2014, the amount sold to non-recurring Recycling scrap buyers who did not purchase goods from the Company in 2015 was equal to 72.7% of the total sales to Recycling scrap buyers during the six month period ended June 30, 2015.
With respect to the Waste Services segment, Waste Services' revenue increased $0.5 million or 13.3% to $4.0 million in the six month period ended June 30, 2015 as compared to $3.5 million in 2014. During 2015, many customers grew and their business per location increased, which required higher volumes of service and increased management revenue by approximately $0.4 million in the six month period ended June 30, 2015 as compared to the same period in 2014. In general, the timing of services provided or equipment installed will cause fluctuations in Waste Services' revenue between periods.
Total cost of sales decreased $16.0 million or 30.8% to $36.0 million in the six month period ended June 30, 2015 as compared to $52.0 million for the same period in 2014. With respect to the Recycling segment, Recycling cost of sales decreased $16.5 million or 33.5% to $33.0 million in the six month period ended June 30, 2015 as compared to $49.5 million for the same period in 2014. This decrease was due to a decrease in the volume of shipments and the overall price for all commodities shipped for ferrous, nonferrous and stainless steel in the first six months of 2015 as compared to the same period in 2014 as noted above.









28



Other notable decreases in the Recycling segment's cost of sales include the following:

A decrease in labor, overtime and bonus expenses of $0.4 million;

A decrease in lease and rent building expenses of $0.2 million;

A decrease in fuel and lubricant expenses of $0.2 million;

A decrease in depreciation expenses of $0.1 million; offset by

A increase in lease and rent equipment expenses of $0.2 million.

With respect to the Waste Services segment, Waste Services' cost of sales increased $0.5 million or 19.7% to $3.0 million in the six month period ended June 30, 2015 as compared to $2.5 million in the same period in 2014 due to higher volumes of service as note above. In general, the timing of services provided or equipment installed will cause fluctuations in Waste Services' revenue between periods.
Selling, general and administrative expenses ("SG&A") decreased $0.8 million or 24.3% to $2.4 million in the six month period ended June 30, 2015 compared to $3.1 million in the same period in 2014. As a percentage of revenue, SG&A was 7.0% in the first six months of 2015 as compared to 5.8% in the same period in 2014.
SG&A expenses had the following:
A decrease in labor, overtime and bonus expense of $0.5 million;
A decrease in stock option expense and director fees of $0.4 million; offset by
An increase in license taxes and fees expense $0.1 million.
Overall, the average number of active employees per week decreased in the six month period ended June 30, 2015 to 90 employees as compared to 108 employees in the same period in 2014, thus decreasing labor expenses in both cost of sales and SG&A in 2015 as compared to 2014.
Other expense decreased $0.4 million to $0.0 million in the six month period ended June 30, 2015 as compared to $0.4 million in the same period in 2014. The decrease was primarily due to a decrease in interest expense of $0.2 million plus a gain on the sales of assets of $0.3 million in the first six months of 2015 from sale of properties of our 6709 Grade Lane property, our 7017 Grade Lane property, and our former Seymour, Indiana location, which we moved to a leased facility in the same general area.
The income tax benefit decreased $38.0 thousand to an income tax provision of $7.9 thousand in the six month period ended June 30, 2015 compared to a benefit of $45.9 thousand in the same period in 2014. The effective tax rates in 2015 and 2014 were (0.2)% and (3.7)%, respectively, based on federal and state statutory rates. Due to recurring operating losses being incurred, at December 31, 2013, we recorded a full valuation allowance, which is continuing through June 30, 2015. We also have several state and franchise taxes payable based on gross receipts, thus causing a negative effective tax rate in 2015 and 2014.

29





Three months ended June 30, 2015 compared to three months ended June 30, 2014
Total revenue decreased $12.8 million or 44.6% to $15.8 million in the second quarter of 2015 compared to $28.6 million in the same period in 2014. With respect to the Recycling segment, Recycling revenue decreased $13.0 million or 48.5% to $13.8 million in 2015 compared to $26.8 million in 2014. This decrease was due to a decrease in the volume of shipments of ferrous, nonferrous and stainless steel of 15,478 gross tons or 40.0%, primarily due to the warm idling of the Company's auto shredder as well as a decrease in the overall price for all commodities shipped for ferrous, nonferrous and stainless steel of $57 per gross ton, or 07.7%, primarily due to global demand in the second quarter of 2015 as compared to the same period in 2014.

While some scrap buyers provide consistently competitive prices from year to year, others may provide competitive pricing one year but not the next. This market-driven competition causes our preferred buyer base to fluctuate from year to year. In the three month period ended June 30, 2015, sales to repeat Recycling scrap buyers decreased by approximately $4.3 million, or 29.5% as compared to the same period in 2014. Within the amount sold to all Recycling scrap buyers in the three month period ended June 30, 2015, 24.1% of these sales were to new and competitively-priced, intermittent scrap buyers. In the same period of 2014, 26.3% of sales to all Recycling scrap buyers were to new and competitively-priced, intermittent scrap buyers. Sales during the three month period that ended June 30, 2014 to buyers that were non-recurring in 2015 totaled 88.0% of 2015 sales to all Recycling scrap buyers. Sales during the three month period that ended June 30, 2015 to non-recurring Recycling scrap buyers in 2014 totaled 65.4% of 2014 sales to all Recycling scrap buyers.

With respect to the Waste Services segment, Waste Services' revenue increased $0.2 million or 11.3% to $2.1 million in the second quarter of 2015 compared to $1.9 million in the same period in 2014 primarily due to higher volumes of service and increased management revenue by approximately $0.1 million in the three month period ending June 30, 2015 as compared to the same period in 2014. In general, the timing of services provided or equipment installed cause fluctuations in Waste Services's revenue between periods.

Total cost of sales decreased $11.5 million or 42.5% to $15.6 million in the second quarter of 2015 compared to $27.1 million for the same period in 2014. Recycling cost of sales decreased $11.8 million or 45.6% to $14.0 million in 2015 compared to $25.8 million for the same period in 2014. This decrease was due to a decrease in the volume of shipments and overall price for all commodities shipped for ferrous, nonferrous and stainless steel in the second quarter of 2015 as compared to the same period in 2014 as noted above.
 
Additional expenses in the Recycling segment's cost of sales were as follows:

A decrease in labor, overtime and bonus expenses of $0.2 million;

A decrease in building leases of $0.1 million;

A decrease in fuel and lubricant expenses of $0.1 million; offset by

An increase in equipment leases of $0.1 million.
Waste Services' cost of sales increased $0.2 million or 15.6% to $1.6 million in the second quarter of 2015 compared to $1.4 million in the same period in 2014 primarily due to higher volumes of service noted above. In general, the timing of services provided or equipment installed cause fluctuations in Waste Services's revenue between periods.
SG&A expenses decreased $0.7 million to $1.2 million in the second quarter of 2015 compared to $1.9 million in the same period in 2014. As a percentage of revenue, SG&A expenses were 7.8% in 2015 compared to 6.7% in 2014.
SG&A expenses had the following:
A decrease in stock option expense and director fees of $0.5 million;
A decrease in labor, overtime and bonus expense of $0.3 million; offset by
An increase in consulting expense of $0.1 million.


30



Other income/expense increased $29.5 thousand to other expense of $233.4 thousand in the second quarter of 2015 compared to other expense of $203.9 thousand in the same period in 2014, due to a loss on sale of assets of $100.5 thousand, which was primarily related to sale of our properties at 6709 Grade Lane and 7017 Grade Lane property compared to a gain of $47.0 thousand for the same period in 2014 as well as a decrease in interest expense of $101.2 thousand in the second quarter of 2015 compared to the second quarter of 2014.
The income tax provision decreased $17.7 thousand to $0.0 thousand in the second quarter of 2015 compared to a $17.7 thousand in the same period in 2014. The effective tax rates in 2015 and 2014 were 0.0% and 2.8%, respectively, based on federal and state statutory rates. Due to recurring operating losses being incurred, at December 31, 2013, we recorded a full valuation allowance, which is continuing through June 30, 2015. We also have several state and franchise taxes payable based on gross receipts.
Financial condition at June 30, 2015 compared to December 31, 2014
Cash and cash equivalents decreased $0.5 million to $0.6 million as of June 30, 2015 compared to $1.1 million as of December 31, 2014.
Net cash from operating activities was $4.8 million for the six month period ended June 30, 2015. The increase in net cash from operating activities is primarily due to a decrease in accounts receivable of $5.0 million, depreciation of $1.4 million, an inventory adjustment for lower of cost or market of $0.8 million, an impairment charge to property and equipment of $0.6 million, a decrease in inventories of $0.5 million and an increase in accounts payable/current liabilities of $1.0 million partially offset by a net loss of $4.3 million.
Net cash from investing activities was $1.9 million for the six month period ended June 30, 2015. In the first six months of 2015, we primarily purchased rental fleet equipment of $336.0 thousand. The rental fleet equipment consists of solid waste handling and recycling equipment such as compactors, balers, pre-crushers, and containers. We received $2.2 million from proceeds from sale of properties of our 6709 Grade Lane property, our 7017 Grade Lane property, and our former Seymour, Indiana location, which we moved to a leased facility in the same general area.
Net cash used in financing activities was $7.2 million for the six month period ended June 30, 2015. In the six month period ended June 30, 2015, we made payments on debt obligations of $7.2 million.
Accounts receivable trade decreased $5.0 million or 50.2% to $5.0 million as of June 30, 2015 compared to $10.0 million as of December 31, 2014 due to receipt of customer payments and a decrease in the volume of shipments of ferrous, nonferrous and stainless steel material in the first six months of 2015. In general, the accounts receivable balance fluctuates due to the timing of shipments and receipt of customer payments.
Inventories consist principally of ferrous and nonferrous scrap materials and waste equipment machinery held for resale. We value inventory at the lower of cost or market. Inventory decreased $1.3 million, or 19.5%, to $5.5 million as of June 30, 2015 compared to $6.8 million as of December 31, 2014. This decrease is primarily due to an inventory adjustment for lower of cost or market of $0.8 million as well as shipments over purchases of ferrous, nonferrous and stainless steel material in the first six months of 2015 compared to the first six months of 2014.

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Inventory aging for the period ended June 30, 2015 (Days Outstanding):
 
 
(in thousands)
Description
 
1 - 30
 
31 - 60
 
61 - 90
 
Over 90
 
Total
Ferrous and non-ferrous materials

$
3,074

 
$
251

 
$
76

 
$
801

 
$
4,202

Replacement parts
 
1,177

 

 

 

 
1,177

Waste equipment machinery
 

 
15

 

 
45

 
60

Other
 
22

 

 

 

 
22

Total
 
$
4,273

 
$
266

 
$
76

 
$
846

 
$
5,461

Inventory aging for the period ended December 31, 2014 (Days Outstanding):
 
 
(in thousands)
Description
 
1 - 30
 
31 - 60
 
61 - 90
 
Over 90
 
Total
Stainless steel, ferrous and non-ferrous materials
 
$
3,804

 
$
250

 
$
394

 
$
899

 
$
5,347

Replacement parts
 
1,371

 

 

 

 
1,371

Waste equipment machinery
 

 

 

 
46

 
46

Other
 
2

 

 
1

 
10

 
13

Total
 
$
5,177

 
$
250

 
$
395

 
$
955

 
$
6,777

Inventory in the "Over 90 days" category decreased by $0.1 million from December 31, 2014 to June 30, 2015. Inventory in the “Over 90 days” category as of June 30, 2015 includes $0.3 million in items we intend to process and sell and $0.5 million in low value items that can only be used in limited quantities. The inventory balance as of December 31, 2014 included $0.2 million in older automobile inventory held at the automobile scrap parts yard, $0.2 million in items we intend to process and sell, and $0.5 million in low value items that can only be used in limited quantities.
Accounts payable trade increased $0.6 million or 18.1% to $3.9 million as of June 30, 2015 compared to $3.3 million as of December 31, 2014. The accounts payable balance increased due to timing of purchases from and payments made to our vendors.
Working capital decreased $1.0 million to $(3.5) million as of June 30, 2015 compared to $(2.5) million as of December 31, 2014. The decrease was primarily due to payments on debt obligations of $7.1 million offset by accounts receivable collections of $5.0 million as well as an inventory adjustment for lower of cost or market of $0.8 million.
Contractual Obligations
The following table provides information with respect to our known contractual obligations for the quarter ended June 30, 2015.
 
Payments due by period (in thousands)
 
Total
 
Less than
1 year
 
1 - 3 years
 
3 - 5 years
 
More than
5 years
Obligation Description (2)
 
 
 
 

 
 
 
 
Long-term debt obligations
$
8,823

 
$
8,823

 
$

 
$

 
$

Operating lease obligations (1)
3,654

 
1,248

 
1,917

 
489

 

Deposit from related party
500

 
500

 

 

 

Total
$
12,977

 
$
10,571

 
$
1,917

 
$
489

 
$


(1)
We lease the Louisville, Kentucky facility from K&R, LLC ("K&R") under an operating lease expiring December 2017. K&R is wholly-owned by Kletter Holdings LLC, the sole member of which was Harry Kletter, our founder and former Chief Executive Officer. After Mr. Kletter's passing in January 2014, our Chairman of the Board and interim Chief Executive Officer, Orson Oliver, assumed the role of executor of Mr. Kletter’s estate and President of Kletter Holdings LLC.

We have monthly rental payments of $53.8 thousand through December 2017. In the event of a change of control of the Company, the monthly payments become $62.5 thousand.

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We also lease equipment from K&R for which monthly payments of $5.5 thousand are due through October 2015 and monthly payments of $5.0 thousand are due through April 2016.
We leased office space in Dallas, Texas for which monthly payments of $1.0 thousand were due through April 2015.
We lease a lot in Louisville, Kentucky for a term that commenced in March 2012 and ends in February 2016. The monthly payment amount from March 2012 through February 2014 was $3.5 thousand. The monthly payment amount then increased to $3.8 thousand for the remaining term.

The Company signed a lease, effective December 1, 2014, to lease a facility in the Seymour, Indiana area. This lease is for a period of three years. The company has the option to extend the lease for three (3) additional three (3) year periods. Rent is $8.0 thousand per month and increases each year by $0.2 thousand per month. In the event ISA exercises the option to renew the lease for a second three-year term, at the end of the second three-year term, ISA has the option to purchase the property.

On April 30, 2015, the Company entered into a lease agreement with LK Property Investments, LLC (See Note 7), for a portion of the 4.4 acre parcel of real estate located at 6709 Grade Lane, Louisville, KY in the amount of $3.0 thousand per month. The lease terminates on April 14, 2019, but the Company has the right to vacate the leased premises upon 90 days notice. The Company is required to reimburse the lessor for 40% of the property taxes on the parcel during the term.

(2)
All interest commitments under interest-bearing debt are included in this table, excluding the interest rate swaps, for which changes in value are accounted for in other comprehensive income.
Long-term debt, including the current portions thereof, decreased $7.1 million to $8.8 million as of June 30, 2015 compared to $15.9 million as of December 31, 2014 due to payments made on debt during the six month period ended June 30, 2015.
Impact of Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We have not yet assessed the impact of the adoption of ASU 2014-09 on our Condensed Consolidated Financial Statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40). The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The amendments are effective for annual periods ending after December 15, 2016, including interim periods within that reporting period. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued.  We have not yet assessed the impact of the adoption of ASU 2014-15 on our Condensed Consolidated Financial Statements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Fluctuating commodity prices affect market risk in our Recycling segment. We mitigate this risk by selling our product on a monthly contract basis. Each month we negotiate selling prices for all commodities. Based on these monthly agreements, we determine purchase prices based on a margin needed to cover processing and administrative expenses.
We are exposed to commodity price risk, mainly associated with variations in the market price for ferrous and nonferrous metal, and other commodities. The timing and magnitude of industry cycles are difficult to predict and are impacted by general economic conditions. We respond to changes in recycled metal selling prices by adjusting purchase prices on a timely basis and by turning rather than holding inventory in expectation of higher prices. However, financial results may be negatively impacted where selling prices fall more quickly than purchase price adjustments can be made or when levels of inventory have an anticipated net realizable value that is below average cost.
We are exposed to interest rate risk on our floating rate borrowings.

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Based on our average anticipated borrowings under our credit agreements in fiscal 2015, a hypothetical increase or decrease in the LIBOR rate by 1% would increase or decrease interest expense on our variable borrowings by 1% of the outstanding balance, excluding amounts covered under swap agreements as noted below, with a corresponding change in cash flows.
In October 2013, we entered into an interest rate swap agreement with KY Bank swapping a variable rate based on LIBOR for a fixed rate. This swap agreement covers approximately $2.1 million in debt, at June 30, 2015 and matures on October 1, 2018. The swap agreement fixes our interest rate at 4.74%. At June 30, 2015, we recorded the estimated fair value of the liability related to this swap at approximately $16.1 thousand.
We are exposed to market risk from changes in interest rates in the normal course of business. Our interest income and expense are most sensitive to changes in the general level of U.S. interest rates and the LIBOR rate. In order to manage this exposure, we use a combination of debt instruments, including the use of derivatives in the form of interest rate swap agreements. We do not enter into any derivatives for trading purposes. The use of the interest rate swap agreement is intended to convert the variable rate to a fixed rate.
ITEM 4: CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures.
ISA’s management, including ISA’s principal executive officer and principal financial officer, have evaluated the effectiveness of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934. Based upon their evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2015, ISA’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that ISA files under the Exchange Act with the Securities and Exchange Commission (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to ISA’s management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure.
(b) Changes to internal control over financial reporting
There were no changes in ISA’s internal control over financial reporting during the three months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect ISA’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.
We have litigation from time to time, including employment-related claims, none of which we currently believe to be material.
Our operations are subject to various environmental statutes and regulations, including laws and regulations addressing materials used in the processing of our products. In addition, certain of our operations are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. Failure to maintain or achieve compliance with these laws and regulations or with the permits required for our operations could result in substantial operating costs and capital expenditures, in addition to fines and civil or criminal sanctions, third party claims for property damage or personal injury, cleanup costs or temporary or permanent discontinuance of operations. Certain of our facilities have been in operation for many years and, over time, we and other predecessor operators of these facilities have generated, used, handled and disposed of hazardous and other regulated wastes. Environmental liabilities could exist, including cleanup obligations at these facilities or at off-site locations where we disposed of materials from our operations, which could result in future expenditures that we cannot currently quantify and which could reduce our profits. Any environmental regulatory liability relating to our operations is generally borne by the customers with whom we contract and the service providers in their capacity as transporters, disposers and recyclers. Our policy is to use our best efforts to secure indemnification for environmental liability from our customers and service providers. ISA records liabilities for remediation and restoration costs related to past activities when our obligation is probable and the costs can be reasonably estimated. Costs of future expenditures for environmental remediation are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Costs of ongoing compliance activities related to current operations are expensed as incurred. Such compliance has not historically constituted a material expense to us.
Item 1A. Risk Factors.

We have had no material changes from the risk factors reported in our Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on April 15, 2015, as amended by Form 10K/A, filed with the Commission on June 17, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.

Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.
See exhibit index.

35



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:
August 14, 2015
By /s/ Orson Oliver
 
 
Orson Oliver
 
 
Chairman of the Board and Interim Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
Date:
August 14, 2015
By /s/ Todd Phillips
 
 
Todd Phillips, Chief Financial Officer
 
 
(Principal Financial Officer)


36



INDEX TO EXHIBITS
Exhibit
Number
Description of Exhibits
10.1
Offer to Purchase Real Estate dated April 30, 2015 from LK Property Investments, LLC to ISA Real Estate LLC is incorporated by reference herein to Exhibit 10.1 of the Company's Report on Form 8-K, as filed on May 6, 2015 (File No. 0-20979).
10.2
Lease Agreement dated April 30, 2015 by and between Industrial Services of America, Inc. and LK Property Investments, LLC is incorporated by reference herein to Exhibit 10.2 of the Company's Report on Form 8-K, as filed on May 6, 2015 (File No. 0-20979).
10.3
Offer to Purchase Real Estate dated May 18, 2015 between SG&D Ventures, LLC to ISA Real Estate, LLC is incorporated by reference herein to Exhibit 10.1 of the Company's Report on Form 8-K, as filed on May 22, 2015 (File No. 0-20979).
10.4
Letter Agreement between Industrial Services of America, Inc. and Algar, Inc. dated May 19, 2015 is incorporated by reference herein to Exhibit 10.2 of the Company's Report on Form 8-K, as filed on May 22, 2015 (File No. 0-20979).
31.1
Rule 13a-14(a) Certification of Orson Oliver for the Form 10-Q for the quarter ended June 30, 2015.
31.2
Rule 13a-14(a) Certification of Todd Phillips for the Form 10-Q for the quarter ended June 30, 2015.
32.1
Section 1350 Certification of Orson Oliver and Todd Phillips for the Form 10-Q for the quarter ended June 30, 2015.
101.INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema Document*
101.CAL
XBRL Taxonomy Extension Calculation Document*
101.DEF
XBRL Taxonomy Extension Definitions Document*
101.LAB
XBRL Taxonomy Extension Labels Document*
101.PRE
XBRL Taxonomy Extension Presentation Document*

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.


37