INDUSTRIAL SERVICES OF AMERICA INC /FL

In connection with the previously disclosed ongoing evaluation of strategic alternatives, on September 30, 2016, the Company and Algar, Inc. ("Algar") mutually agreed to terminate the Management Services Agreement between them dated as of December 1, 2013 (the "Management Agreement"), pursuant to the Agreement to Terminate Management Services among the Company, Algar, and Sean Garber dated as of September 30, 2016 (the "Termination Agreement").  See Note 6 - Related Party Transactions for further details.

As of the Termination Effective Date, the Company and Algar mutually terminated the Management Agreement.  The Termination Agreement provides that in satisfaction of all amounts owed to Algar under the Management Agreement, the Company will pay Algar: (i) $20,880 on the Termination Effective Date, (ii) an aggregate amount equal to $50,000, payable in three equal monthly installments on the last day of October, November and December 2016 (full amount accrued at September 30, 2016), and (iii) an amount equal to ten percent of the decrease, if any, in reported “Loss before income taxes” for the nine months ended September 30, 2016 as reported on the Condensed Consolidated Statements of Operations in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, (the “3Q 2016 Form 10-Q”) as filed with the U.S. Securities and Exchange Commission, over the Company’s reported “Loss before income taxes” for the nine months ended September 30, 2015 as reported in the 3Q 2016 Form 10-Q (the "Accrued Bonus Payment"). The Accrued Bonus Payment will be payable as follows:  subject to the availability of cash under applicable law and loan covenants, the Company will pay the Accrued Bonus Payment to Algar upon the first to occur of March 31, 2017, or the date of closing of a Change of Control Transaction, as defined.  The Company accrued $180.0 thousand in bonus expense to Algar for the nine months ended September 30, 2016 related to the Accrued Bonus Payment.  The Termination Agreement also provided for the cancellation of the Stock Option Agreement as of the Termination Effective Date.  Mr. Garber and Mr. Oliver have agreed to the termination of the Irrevocable Proxies that were received in connection with the Management Agreement as of the Termination Effective Date.  Mr. Garber has resigned all offices with the Company and his director position as of the Termination Effective Date.  

Under a retention agreement with the Company's CFO dated March 25, 2016, the Company will pay the CFO bonuses of $100.0 thousand and $125.0 thousand on each of December 31, 2016 and December 31, 2017, respectively, as long as he remains employed with the Company on those dates.  If the CFO's employment is terminated without cause (i) during 2016, the Company is required to pay him an amount equal to $100.0 thousand times the quotient of the number of full months he is employed during 2016 divided by 12, and (ii) during 2017, the Company is required to pay him an amount equal to $125.0 thousand times the quotient of the number of full months employed in 2017 divided by 12.

On September 30, 2016, the Company entered into retention agreements ("Retention Agreements") with certain management employees (individually "Staff Member").  Under the Retention Agreement, if the Staff Member remains continuously employed by the Company through and including the date which is the first to occur of: (a) the date of a change in control of the Company; (b) the date the Staff Member is terminated without cause; and (c) December 31, 2017, the Company will pay the Staff Member a bonus in an amount equal to 25% of the Staff Member's then-current annual base salary.  At September 30, 2016, the Company has estimated this liability to be $132.7 thousand.  The Company will evaluate the liability on an ongoing basis, and will expense the liability through December 31, 2017 unless determined otherwise.

Total revenue increased $0.3 million or 3.2% to $9.9 million in the third quarter of 2016 compared to $9.6 million in the same period in 2015. This increase was due primarily to increased ferrous volumes, partially offset by lower average selling prices (ASP) coupled with a related decrease in nonferrous volumes. Nonferrous material shipments decreased by 0.7 million pounds, or 8.1%, along with a decrease in the average selling price of nonferrous material of $0.05 per pound, or 5.6%, for the third quarter of 2016 compared to same period in 2015. For the third quarter of 2016 compared to same period in 2015, the Company experienced a decrease in the average selling price of ferrous material of $21 per gross ton, or 10.0%. In the third quarter of 2016 compared to the same period in 2015, the Company experienced an increase in ferrous material shipments of 4.8 thousand tons, or 31.0%. 

Other income (expense) was income of $108.0 thousand for the three month period ended September 30, 2016 compared to expense of $112.0 thousand for the three month period ended September 30, 2015. This $220.0 thousand change is a result of a $25.0 thousand increase in interest expense, which related to interest expense on a capital lease in the third quarter of 2016, and a $243.0 thousand increase in other income, which was primarily due to a gain on insurance proceeds.  We filed an insurance claim related to six roofs on certain of our buildings due to weather related damage.  In the third quarter of 2016 we received insurance proceeds in the amount of $571.4 thousand related to this claim. We recognized a gain of $233.3 thousand, net of $80.0 thousand impairment write-downs of the related roofs, consulting fees related to the claim, and amounts set aside in accrual for repairs on leased properties.