| **FORM        10-Q**                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| SECURITIES        AND EXCHANGE COMMISSION        WASHINGTON, DC 20549                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| [X]   QUARTERLY        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE        SECURITIES EXCHANGE ACT OF 1934        For the quarterly period ended September 30, 2003                                                                                                                                                                                                                                                                        |
| OR                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| [  ]   TRANSITION        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE        SECURITIES EXCHANGE ACT OF 1934        For the Transition Period From _________ to ________                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Commission File Number        0-20979                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| INDUSTRIAL        SERVICES OF AMERICA, INC.(Exact Name of Registrant as specified in its        Charter)                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Florida                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 59-0712746 |
| (State or        other jurisdiction of                                                                                                                                                                                                                                                                                                                                                                                                                     | (IRS        Employer |
| Incorporation        or Organization)                                                                                                                                                                                                                                                                                                                                                                                                                      | Identification        No.) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 7100 Grade        Lane, PO Box 32428        Louisville, Kentucky 40232        (Address of principal executive offices)                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (502)        368-1661        (Registrant's Telephone Number, Including Area Code)                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Check whether the registrant        (1) has filed all Reports required to be filed by Section        13 or 15(d) of the Securities Exchange Act of 1934 during        the preceding 12 months (or for such shorter period that        the registrant was required to file such reports), and        (2) has been subject to such filing requirements for the        past 90 days. YES    X      NO        ___ |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate by check mark        whether the registrant is an accelerated filer (as        defined in rule 12b-2 of the Act). Yes       No   X                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate the number of        shares outstanding of each of the issuer's classes of        common stock, as of September 30, 2003: 1,601,900.                                                                                                                                                                                                                                                                                                              |

 

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| INDUSTRIAL        SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |   |   |
|                                                         | INDEX |   |
|                                                         |   |   |
|                                                         |   | **Page No.** |
| Part I                                                       | Financial Information |   |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Balance Sheets |   |
|                                                         |    September        30, 2003 and December 31, 2002 | 3 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Operations        Three Months Ended |   |
|                                                         |    September        30, 2003 and 2002 | 5 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Operations        Nine Months Ended |   |
|                                                         |    September        30, 2003 and 2002 | 6 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Cash Flows        Nine Months Ended |   |
|                                                         |    September        30, 2003 and 2002 | 7 |
|                                                         |   |   |
|                                                         | Notes to Condensed        Consolidated |   |
|                                                         |    Financial        Statements | 8 |
|                                                         |   |   |
|                                                         | Management's Discussion and        Analysis |   |
|                                                         |    of        Financial Condition and Results |   |
|                                                         |    of        Operations | 13 |
|                                                         |   |   |
|                                                         |   |   |
| Part II                                                      | Other Information | 16 |
|                                                         |   |   |

 

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| Part I –        FINANCIAL INFORMATION                   |
|--------------------------------------------------------------|
|                                                         |
| ITEM 1: Condensed        CONSOLIDATED FINANCIAL STATEMENTS.  |
|                                                         |
| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|                                                         |
| CONDENSED CONSOLIDATED        BALANCE SHEETS                 |
| (UNAUDITED)                                                  |
|                                                         |
| ASSETS                                                       |
|                                                         |

|                                                                                                                                                                                                | **September 30,        2003**                            |   | **December 31,        2002**                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|--------|---------------------------------------------------------|
| Current assets                                                                                                                                                                                      |                                                     |   |                                                    |
|   Cash and cash        equivalents                                                                                                                                                        | $    574,402                         |   | $   1,630,028                            |
|   Accounts        receivable - trade (after allowance             for doubtful accounts of $60,000        in 2003            and $50,000 in 2002) | 9,885,395                                                |   | 6,803,856                                               |
|   Income tax        refund receivable                                                                                                                                                     | -                                                        |   | 79,593                                                  |
|   Net investment        in sales-type leases                                                                                                                                              | 105,277                                                  |   | 142,218                                                 |
|   Inventories                                                                                                                                                                             | 1,343,007                                                |   | 1,883,162                                               |
|   Deferred income        taxes                                                                                                                                                            | 383,200                                                  |   | 317,600                                                 |
|   Other                                                                                                                                                                                   |                51,605 |   |        141,446       |
|                                                                                                                                                                                                |                                                     |   |                                                    |
|         Total        current assets                                                                                                                         | 12,342,886                                               |   | 10,997,903                                              |
|                                                                                                                                                                                                |                                                     |   |                                                    |
| Net property and equipment                                                                                                                                                                          | 7,742,681                                                |   | 6,805,295                                               |
|                                                                                                                                                                                                |                                                     |   |                                                    |
| Other Assets                                                                                                                                                                                        |                                                     |   |                                                    |
|   Non-compete        agreements, net                                                                                                                                                      | -                                                        |   | 51,180                                                  |
|   Goodwill                                                                                                                                                                                | 560,005                                                  |   | 560,005                                                 |
|   Net investment        in sales-type leases                                                                                                                                              | 117,897                                                  |   | 263,921                                                 |
|   Notes receivable                                                                                                                                                                        | 31,493                                                   |   | 37,735                                                  |
|   Other assets                                                                                                                                                                            |         108,267  |   |         196,740 |
|                                                                                                                                                                                                |               817,662      |   |    ** ** 1,109,581             |
|                                                                                                                                                                                                |                                                     |   |                                                    |
|                                                                                                                                                                                                | $        20,903,229                                      |   | $        18,912,779                                     |
|                                                                                                                                                                                                |                                                     |   |                                                    |
| See accompanying notes to        consolidated financial statements.                                                                                                                                 |
|                                                                                                                                                                                                |
| 3                                                                                                                                                                                                   |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |
| CONDENSED CONSOLIDATED        BALANCE SHEETS                 |
| CONTINUED                                                    |
| (UNAUDITED)                                                  |
|                                                         |
| LIABILITIES AND        STOCKHOLDERS' EQUITY                  |
|                                                         |

|                                                                                                                                                                                                                                                             | **September 30,        2003**                                                                              |   | **December 31,        2002**                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|
| Current liabilities                                                                                                                                                                                                                                              |                                                                                                       |   |                                              |
|   Senior revolving        credit facility                                                                                                                                                                                                              | $                       -  |   | $   1,750,000                 |
|   Current        maturities of long-term debt                                                                                                                                                                                                          | 836,254                                                                                               |   | 623,363                                      |
|   Current        maturities of capital lease obligation                                                                                                                                                                                                | 156,746                                                                                               |   | 100,827                                      |
|   Accounts payable                                                                                                                                                                                                                                     | 10,963,380                                                                                            |   | 8,676,287                                    |
|   Income tax        payable                                                                                                                                                                                                                            | 100,885                                                                                                    |   | -                                                 |
|   Other current        liabilities                                                                                                                                                                                                                     |       749,352                                                           |   |       353,920  |
|        Total        current liabilities                                                                                                                                                                                       | 12,806,617                                                                                            |   | 11,504,397                                   |
|                                                                                                                                                                                                                                                             |                                                                                                       |   |                                              |
| Long-term liabilities                                                                                                                                                                                                                                            |                                                                                                       |   |                                              |
|   Long-term debt,        less current maturities                                                                                                                                                                                                       | 3,133,022                                                                                             |   | 3,014,225                                    |
|   Capital lease        obligation, less current obligation                                                                                                                                                                                             | 871,525                                                                                               |   | 733,971                                      |
|   Deferred income        taxes                                                                                                                                                                                                                         |       340,177                                                           |   |      271,277        |
|                                                                                                                                                                                                                                                             | 4,344,724                                                                                             |   | 4,019,473                                    |
|                                                                                                                                                                                                                                                             |                                                                                                       |   |                                              |
| Stockholders' equity                                                                                                                                                                                                                                             |                                                                                                       |   |                                              |
|   Common        stock, $.01 par value, 10,000,000 shares authorized,              1,957,500 shares issued and        1,601,900 and              1,614,800 shares        outstanding in 2003 and 2002 | 19,575                                                                                                |   | 19,575                                       |
|   Additional        paid-in capital                                                                                                                                                                                                                    | 1,925,321                                                                                             |   | 1,925,321                                    |
|   Retained        earnings                                                                                                                                                                                                                             | 2,520,450                                                                                             |   | 2,132,761                                    |
|   Treasury stock,        355,600 and 342,700 shares at cost in                                                                                                                                                                                         |                                                                                                       |   |                                              |
|      2003        and 2002                                                                                                                                                                                                               |     (713,458)                                                                          |   |      (688,748)           |
|                                                                                                                                                                                                                                                             |    3,751,888                                                                           |   |     3,388,909            |
|                                                                                                                                                                                                                                                             | $        20,903,229                                                                                   |   | $        18,912,779                          |
|                                                                                                                                                                                                                                                             |                                                                                                       |   |                                              |
| See accompanying notes to        consolidated financial statements.                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                             |
| 4                                                                                                                                                                                                                                                                |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |
| CONDENSED CONSOLIDATED        STATEMENTS OF OPERATIONS       |
| THREE MONTHS ENDED        SEPTEMBER 30, 2003 AND 2002        |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                | **2003**                                                           |   | **2002**                                                       |
|---------------------------------------------------------------------|--------------------------------------------------------------------|--------|----------------------------------------------------------------|
|                                                                |                                                               |   |                                                           |
| Revenue                                                             | $        30,636,541                                           |   | $        27,417,677                                       |
|                                                                |                                                               |   |                                                           |
| Cost of goods sold                                                  |   29,004,802                                        |   |  25,723,328                                          |
|                                                                |                                                               |   |                                                           |
| Selling, general and        administrative expenses                 |     1,365,037                             |   |    1,582,965                               |
|                                                                |                                                               |   |                                                           |
| **Income before other        expense**                              | 266,702                                                       |   | 111,384                                                   |
|                                                                |                                                               |   |                                                           |
| Other expense                                                       |        (77,227)                 |   |               (39,904)           |
|                                                                |                                                               |   |                                                           |
| **Income before income        taxes**                               | 189,475                                                       |   | 71,480                                                    |
|                                                                |                                                               |   |                                                           |
| Provision for income taxes                                          |          75,790  |   |                28,331  |
|                                                                |                                                               |   |                                                           |
| **Net income**                                                      | $      113,685                  |   | $              43,149            |
|                                                                |                                                               |   |                                                           |
| Basic earnings per share                                            | $0.07                                                         |   | $0.03                                                     |
|                                                                |                                                               |   |                                                           |
| Diluted earnings per share                                          | $0.07                                                         |   | $0.03                                                     |
|                                                                |                                                               |   |                                                           |
| Weighted shares outstanding:                                        |                                                               |   |                                                           |
|    Basic                                             | 1,602,065                                                     |   | 1,629,760                                                 |
|                                                                |                                                               |   |                                                           |
|    Diluted                                           | 1,647,121                                                     |   | 1,645,179                                                 |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 5                                                                   |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |
| CONDENSED CONSOLIDATED        STATEMENTS OF OPERATIONS       |
| NINE MONTHS ENDED        SEPTEMBER 30, 2003 AND 2002         |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                | **2003**                                                |   | **2002**                                                |
|---------------------------------------------------------------------|---------------------------------------------------------|--------|---------------------------------------------------------|
|                                                                |                                                    |   |                                                    |
| Revenue                                                             | $        87,380,504                                |   | $        76,857,641                                |
|                                                                |                                                    |   |                                                    |
| Cost of goods sold                                                  |   82,113,116                             |   |  71,626,286                                   |
|                                                                |                                                    |   |                                                    |
| Selling, general and        administrative expenses                 |     4,246,570                  |   |    4,624,820                        |
|                                                                |                                                    |   |                                                    |
| **Income before other        expense**                              | 1,020,818                                          |   | 606,535                                            |
|                                                                |                                                    |   |                                                    |
| Other expense                                                       |      (374,670)                 |   |        (55,742)      |
|                                                                |                                                    |   |                                                    |
| **Income before income        taxes**                               | 646,148                                            |   | 550,793                                            |
|                                                                |                                                    |   |                                                    |
| Provision for income taxes                                          |        258,459  |   |        220,056  |
|                                                                |                                                    |   |                                                    |
| **Net income**                                                      | $      387,689       |   | $     330,737             |
|                                                                |                                                    |   |                                                    |
| Basic earnings per share                                            | $0.24                                              |   | $0.20                                              |
|                                                                |                                                    |   |                                                    |
| Diluted earnings per share                                          | $0.24                                              |   | $0.20                                              |
|                                                                |                                                    |   |                                                    |
| Weighted shares outstanding:                                        |                                                    |   |                                                    |
|    Basic                                             | 1,609,093                                          |   | 1,648,097                                          |
|                                                                |                                                    |   |                                                    |
|    Diluted                                           | 1,610,544                                          |   | 1,662,498                                          |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 6                                                                   |

 

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| INDUSTRIAL        SERVICES OF AMERICA, INC. AND SUBSIDIARIES                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                |
| CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                              |
| NINE        MONTHS ENDED SEPTEMBER 30, 2003 AND 2002                                                                                |
| (UNAUDITED)                                                                                                                         |
|                                                                                                                                |
|                                                                                                                                | **2003** |   | **2002** |
| **Cash flows from operating        activities**                                                                                     |   |   |   |
|   Net income                                                                                                              | $  387,689  |   | $           330,737  |
|   Adjustments to        reconcile net income to            net cash from operating        activities: |   |   |   |
|       Depreciation        and amortization                                                            | 1,332,214   |   | 1,306,717  |
|       Deferred        income tax                                                                      | 3,300  |   | -    |
|       (Gain)        loss on sale of property and equipment                                            | (575) |   | 1,489  |
|       Change        in assets and liabilities                                                         |   |   |   |
|         Receivables                                                                         | (3,075,297) |   | (1,922,006) |
|         Inventories                                                                         | 540,155  |   | 36,141  |
|         Other        assets                                                                 | 257,907  |   | (393,159) |
|         Accounts        payable                                                             | 2,287,093  |   | 2,052,464  |
|         Other        current liabilities                                                    |       496,313  |   |      107,960  |
|             Net        cash from operating activities                   | 2,228,799  |   | 1,520,343  |
|                                                                                                                                |   |   |   |
|                                                                                                                                |   |   |   |
| **Cash flows from investing        activities**                                                                                     |   |   |   |
|   Proceeds from        equipment under sales-type leases                                                                  | 107,770  |   | 83,253  |
|   Purchases or        transfers of equipment under sales-type leases                                                      | 75,196  |   | (133,873) |
|   Proceeds from        sale of property and equipment                                                                     | 599,600  |   | 82,955  |
|   Purchases of        property and equipment                                                                              |   (2,532,444) |   |      (894,661) |
|           Net        cash from investing activities                               | (1,749,878) |   | (862,326) |
|                                                                                                                                |   |   |   |
| **Cash flows from financing        activities**                                                                                     |   |   |   |
|   Net borrowings        (payments) on senior revolving credit facility                                                    | (1,750,000) |   | 500,000  |
|   Purchase of        common stock                                                                                         | (24,710) |   | (103,123) |
|   Payments on        capital lease obligation                                                                             | (91,527) |   | (27,264) |
|   Proceeds from        long-term debt                                                                                     | 1,515,779  |   | -    |
|   Payments on        long-term debt                                                                                       |   (1,184,089) |   |             (496,530) |
|           Net        cash from financing activities                               |   (1,534,547)  |   |      (126,917) |
|                                                                                                                                |   |   |   |
| Net increase (decrease) in        cash                                                                                              | (1,055,626) |   | 531,100  |
|                                                                                                                                |   |   |   |
| Cash at beginning of period                                                                                                         |   1,630,028  |   |      776,745  |
|                                                                                                                                |   |   |   |
| **Cash at end of period**                                                                                                           | $    574,402  |   | $ 1,307,845  |
|                                                                                                                                |
| See accompanying notes to        consolidated financial statements.                                                                 |
|                                                                                                                                |
| 7                                                                                                                                   |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| NOTES TO CONDENSED        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **NOTE 1 – BASIS OF PRESENTATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| The accompanying unaudited condensed        consolidated financial statements have been prepared in        accordance with generally accepted accounting principles        for interim financial reporting. They do not include all        information and footnotes required by generally accepted        accounting principles for complete consolidated financial        statements. The information furnished includes all        adjustments which are, in the opinion of management,        necessary to present fairly the Registrant's financial        position as of September 30, 2003 and the results of its        operations and changes in cash flow for the periods ended        September 30, 2003 and 2002. Results of operations for        the period ended September 30, 2003 are not necessarily        indicative of the results that may be expected for the        entire year. Additional information, including the        audited December 31, 2002 consolidated financial        statements and the Summary of Significant Accounting        Policies, is included in the Registrant's Annual Report        on Form 10-K for the year ended December 31, 2002 on file        with the Securities and Exchange Commission. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **NOTE 2 – ESTIMATES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| In preparing the condensed consolidated        financial statements in conformity with generally        accepted accounting principles, management must make        estimates and assumptions. These estimates and        assumptions affect the amounts reported for assets,        liabilities, revenues and expenses, as well as affecting        the disclosures provided. Future results could differ        from the current estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **NOTE 3 – RECLASSIFICATIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Certain prior year amounts have been        reclassified to conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **NOTE 4        – LONG TERM DEBT AND NOTES PAYABLE TO BANK**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| The terms of the Company’s bank        debt place certain operational and financial position        requirements on the Company. As of, and for the quarter        ended September 30, 2003, the Company was in compliance        with these requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 8                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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| **NOTE 5 – RECENTLY ENACTED        ACCOUNTING STANDARDS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| In November 2002, the Financial        Accounting Standards Board (FASB) issued FASB        interpretation FIN 45, "Guarantor’s Accounting        and Disclosure Requirements for Guarantees, including        Indirect Guarantees of Indebtedness of Others",        effective in the quarter beginning January 1, 2003. This        interpretation expands the disclosures to be made by a        guarantor in its financial statements about its        obligations under certain guarantees and requires the        guarantor to recognize a liability for the fair value of        an obligation assumed under a guarantee. Adoption of the        standard did not have a material impact on the        Company’s operating results or financial condition.                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| In January 2003, the Financial        Accounting Standards Board (FASB) issued FASB        Interpretation No. (FIN) 46, "Consolidation of        Variable Interest Entities." The objective of this        interpretation is to provide guidance on how to identify        a variable interest entity (VIE) and determine when the        assets, liabilities, non-controlling interests, and        results of operations of a VIE need to be included in a        company’s consolidated financial statements,        effective in the quarter beginning October 1, 2003. A        company that holds variable interests in an entity will        need to consolidate the entity if the company’s        interest in the VIE is such that the company will absorb        a majority of the VIE’s expected losses and/or        receive a majority of the entity’s expected residual        returns, if they occur. FIN 46 also requires additional        disclosures by primary beneficiaries and other        significant variable interest holders. The Company has        not yet fully evaluated the impact of adopting the        standard. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| In addition, the Financial Accounting        Standard Board (FASB) recently issued two new accounting        standards, Statement 149, Amendment of Statement 133 on        Derivative Instruments and Hedging Activities, and        Statement 150, Accounting for Certain Financial        Instruments with Characteristics of both Liabilities and        Equities, both of which became effective in the quarter        beginning July 1, 2003. Because the Company does not have        these instruments, the new accounting standards will not        materially affect the Company’s operating results or        financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **NOTE 6 – SEGMENT INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| The Company’s operations include        three primary segments: ISA Recycling, Computerized Waste        Systems (CWS), and Waste Equipment Sales & Service        (WESSCO). ISA recycling provides products and services to        meet the needs of its customers related to ferrous,        non-ferrous and fiber recycling at two locations in the        Midwest. CWS provides waste disposal services including        contract negotiations with vendors, centralized billing,        invoice auditing, and centralized dispatching. WESSCO        sells, leases, and services waste handling and recycling        equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| The Company’s three segments are        determined by the products and services that each offers.        The recycling segment generates its revenues based on        buying and selling of ferrous, non-ferrous and fiber        scrap; CWS’s revenues consist of charges to        customers for waste disposal services; and WESSCO sales        and lease income comprise the primary source of revenue        for this segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| The Company evaluates segment        performance based on gross profit or loss and the        evaluation process for each segment includes only direct        expenses and selling, general and administrative costs,        omitting any other income and expense and income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

----

 

| **NOTE 6 – SEGMENT INFORMATION        (Continued)** |
|----------------------------------------------------------|
|                                                     |

| ******For the        NINE months ended****SEPTEMBER****30,        2003** | **ISA****Recycling**                                    |   | **Computerized         Waste****Systems**                                                                         |   | **Waste         Equipment        Sales &****Services**                                                   |   | **Corporate**                                                                                      |   | **Segment****Totals**        |
|--------------------------------------------------------------------------|---------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|------------------------------|
|                                                                     |                                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                         |
| Recycling        revenues                                                | $20,115,769                                        |   | $                         -  |   | $                              -  |   | $               -  |   | $20,115,769             |
| Equipment sales, service                                                 |                                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                         |
|    And        leasing revenues                            | -                                                  |   | -                                                                                                            |   | 1,740,494                                                                                               |   | -                                                                                             |   | 1,740,494               |
| Management fees                                                          | -                                                  |   | 65,524,241                                                                                                   |   | -                                                                                                       |   | -                                                                                             |   | 65,524,241              |
| Cost of goods sold                                                       | (19,097,502)                                            |   | (62,140,199)                                                                                                      |   |   (875,415)                                                                                        |   | -                                                                                             |   | (82,113,116)                 |
| Selling, general and                                                     |                                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                         |
|    administrative        expenses                         | (974,786)                                               |   |              (1,469,709)                                                                 |   |           (452,052)                                                                                |   |   (1,350,023)                                                                            |   |   (4,246,570)      |
|                                                                     |                                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                         |
| Segment profit (loss)                                                    | $       43,481  |   | $    1,914,333                                                                           |   | $    413,027                                                                        |   | $(1,350,023)                                                                                       |   | $  1,020,818  |
|                                                                     |                                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                         |
| Segment assets                                                           | $  8,955,683                             |   | $    6,853,609                                                                           |   | $  1,978,861                                                                                  |   | $  3,115,076                                                                        |   | $20,903,229             |
|                                                                     |                                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                         |

| ******For the         NINE months ended****sEPTEMBER****30, 2002** | **ISA****Recycling**                      |   | **Computerized         Waste****Systems**                                                                              |   | **Waste         Equipment        Sales &****Services**                                                 |   | **Corporate**                                                                                      |   | **Segment****Totals**                        |
|--------------------------------------------------------------------|-------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                               |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
| Recycling revenues                                                 | $16,703,920                          |   | $                         -  |   | $                       -  |   | $               -  |   | $ 16,703,920                       |
| Equipment sales, service                                           |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
|    And        leasing revenues                      | -                                    |   | -                                                                                                                 |   | 1,667,443                                                                                             |   | -                                                                                             |   | 1,667,443                               |
| Management fees                                                    | -                                    |   | 58,486,278                                                                                                        |   | -                                                                                                     |   | -                                                                                             |   | 58,486,278                              |
| Cost of goods sold                                                 | (15,136,239)                              |   | (55,635,318)                                                                                                           |   | (854,729)                                                                                                  |   | -                                                                                             |   | (71,626,286)                                 |
| Selling, general and                                               |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
|    administrative        expenses                   |   (1,137,341)                   |   |    (1,600,359)                                                                                          |   |    (446,543)                                                                                |   |   (1,440,577)                                                                            |   |   (4,624,820)                      |
|                                                               |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
| Segment profit (loss)                                              | $            430,340  |   | $   1,250,601                                                                                      |   | $    366,171                                                                      |   | $(1,440,577)                                                                                       |   | $     606,535  |
|                                                               |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
| Segment assets                                                     | $ 10,129,555                    |   | $          7,308,839                                                                                    |   | $ 1,945,636                                                                                      |   | $    737,970                                                              |   | $20,122,000                             |

|   |
|--------|
| 10     |

 

----

 

| NOTE 7 -        Stock Option Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Pursuant to SFAS No. 123,        "Accounting for Stock-Based Compensation," the        Company has elected to account for its employee stock        options under APB No. 25, "Accounting for Stock        Issued to Employees." Accordingly, no compensation        cost has been recognized for employee options. Had        compensation cost for employee options been determined        based on the fair value at the grant date consistent with        SFAS No. 123, the Company’s net income (loss) per        share for the three months and nine months ended        September 30 would have been as follows: |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

|                                                                        |   | **Three        Months****Ended September 30,** | **Nine        Months****Ended September 30,** |
|-----------------------------------------------------------------------------|--------|------------------------------------------------|-----------------------------------------------|
|                                                                        |   |                                           | **2003**                                      |   |   | **2002** |   |   | **2003** |   |   | **2002** |
| Net income (loss):                                                          |   |                                           |                                          |   |   |   |   |   |   |   |   |   |
|   As reported                                                     |   | $                                              | 113,685                                       |   | $ | 43,149 |   | $ | 387,689 |   | $ | 330,737 |
|   Pro forma                                                       |   | $                                              | 90,855                                        |   | $ | 43,149 |   | $ | 364,859 |   | $ | 330,737 |
| Basic and diluted income        (loss) per          common share: |   |                                           |                                          |   |   |   |   |   |   |   |   |   |
|   Basic, As        reported                                       |   |                                           | $0.07                                         |   |   | $0.03 |   |   | $0.24 |   |   | $0.20 |
|   Diluted, As        reported                                     |   |                                           | $0.07                                         |   |   | $0.03 |   |   | $0.24 |   |   | $0.20 |
|   Basic, Pro forma                                                |   |                                           | $0.07                                         |   |   | $0.03 |   |   | $0.24 |   |   | $0.20 |
|   Diluted, Pro        forma                                       |   |                                           | $0.06                                         |   |   | $0.03 |   |   | $0.23 |   |   | $0.20 |

|                                                                                                                                                                                                   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The fair value of each option grant to        employees was estimated on the date of grant using the        Black Scholes option-pricing model with the following        weighted average assumptions: |
|                                                                                                                                                                                                   |

|                   | 2003 | 2002 |
|------------------------|------|------|
| Interest rate          | 3.6  | 4.25 |
| Dividends              | -    | -    |
| Expected volatility    | 1.25 | 1.09 |
| Expected life in years | 5    | 5    |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| NOTE **8 -****Income        (Loss) per Share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Income (loss) per common share is        calculated in accordance with Statement of Financial        Accounting Standards ("SFAS") No. 128,        "Earnings Per Share." The Company calculates        basic earnings per common share using the weighted        average number of shares outstanding for the period.        Outstanding shares for purposes of determining diluted        earnings per common share includes the weighted average        number of shares outstanding for basic earnings per        share, plus the diluted effect of any common share        equivalents such as options in the calculation. The        average fair market stock price for the Company exceeded        the strike price, therefore a portion of common share        equivalents outstanding would be dilutive. Accordingly,        basic and diluted earnings per share amounts are        different. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 11                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

----

 

| **NOTE 8 - Income (Loss) per Share (****continued)**                                                                                                                                           |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                           |
| A reconciliation of basic to diluted        share amounts used in computing the per share amounts for        the three and nine months ended September 30, 2002 and        2003 is as follows: |
|                                                                                                                                                                                           |

|                                                                              |   | Three Months                         |
|-----------------------------------------------------------------------------------|--------|--------------------------------------|
| Ended September 30,                                                               |
|                                                                              |   | 2003                                 |   | 2002 |
| Basic – weighted        average shares outstanding                           |   | 1,602,065                            |   | 1,629,760 |
| Dilutive effect of stock        options                                           |   |      45,056 |   |      15,419 |
| Diluted – weighted        average shares outstanding and assumed conversions |   | 1,647,121                            |   | 1,645,179 |

|                                                                              |   |                                            |   |                                 |
|-----------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|--------------------------------------|
|                                                                              |   | Nine Months                                     |
|                                                                              |   | Ended September 30,                             |
|                                                                              |   | 2003                                            |   | 2002                                 |
| Basic – weighted        average shares outstanding                           |   | 1,609,093                                       |   | 1,648,097                            |
| Dilutive effect of stock        options                                           |   |        1,451 |   |      14,401 |
| Diluted – weighted        average shares outstanding and assumed conversions |   | 1,610,544                                       |   | 1,662,498                            |
|                                                                              |   |                                            |   |                                 |

| 12     |
|--------|
|   |

 

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| ITEM 2: MANAGEMENT'S DISCUSSION AND        ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        OPERATIONS.                                                                                                                                                                                                                                                                                                       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                               |
| Liquidity and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                               |
|         As        of September 30, 2003 the Registrant held cash and cash        equivalents of $574,402.                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                               |
|         The        Registrant derives its revenues from several sources,        including management services, equipment sales and        leasing and from its recycling operations. Management        services comprised approximately 75.0% and 76.1% of the        Registrant's total revenues for the quarters ended        September 30, 2003 and 2002, respectively. |
|                                                                                                                                                                                                                                                                                                                                                                                                               |
|         The        Registrant currently maintains a $4.3 million senior        revolving credit facility with a bank. Outstanding        principal under this credit facility bears interest at        the Bank's prime rate and the line matures in June 2004.        At September 30, 2003 there was no draw against this line        of credit.                         |
|                                                                                                                                                                                                                                                                                                                                                                                                               |
| Results of Operations                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                               |
|         The        following table presents, for the periods indicated, the        percentage relationship which certain captioned items in        the Registrant's Statements of Operations bear to total        revenues and other pertinent data:                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                               |

|                                                                                                    | **Nine months ended        September 30,** |
|---------------------------------------------------------------------------------------------------------|--------------------------------------------|
|                                                                                                    | **2003**                                   |   | **2002** |
| Statements of        Operations Data:                                                                   |                                       |   |   |
| Total Revenue        .................................................................................. | 100.0%                                     |   | 100.0% |
| Cost of goods        sold............................................................................   | 94.0%                                      |   | 93.2% |
| Selling, general        and administrative expenses        ..................................           | 4.8%                                       |   | 6.0% |
| Income before        other        expenses...........................................................   | 1.2%                                       |   | 0.8% |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Nine months ended September 30, 2003        compared to nine months ended September 30, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         Total        revenue increased $10,522,863 or 13.7% to $87,380,504 in        2003 compared to $76,857,641 in 2002. Recycling revenue        increased $3,411,849 or 20.4% to $20,115,769 in 2003        compared to $16,703,920 in 2002. This is due to an        increase in the volume of shipments as well as an        increase in the price of the commodities. Management        services revenue increased $7,037,963 or 12.0% to        $65,524,241 in 2003 compared to $58,486,278 in 2002. This        is due to an increase in revenues per the customer        locations while maintaining a consistent customer base.        Equipment sales, service and leasing revenue increased        $73,051 or 4.4% to $1,740,494 in 2003 compared to        $1,667,443 in 2002. In the continued effort to lease        equipment for the long-term benefit of revenue streams        and customer retention in lieu of equipment sales,        leasing income increased approximately $228,000 as        equipment sales decreased approximately $158,000 compared        to the prior period. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 13                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

----

 

|         Total        cost of goods sold increased $10,486,830 or 14.6% to        $82,113,116 in 2003 compared to $71,626,286 in 2002. As a        percentage of revenue, cost of goods sold was 94.0% in        2003 compared to 93.2% in 2002. Recycling cost of goods        sold increased $3,961,263 or 26.2% to $19,097,502 in 2003        compared to $15,136,239 in 2002. This is due to an        increase in the volume of purchases as well as an        increase in commodity purchase prices in the recycling        market. As a percentage of recycling revenue, recycling        cost of goods sold was 94.9% in 2003 compared to 90.6% in        2002. Management services cost of goods sold increased        $6,504,881 or 11.7% to $62,140,199 in 2003 compared to        $55,635,318 in 2002. This is due to increases in vendor        service fees. As a percentage of management services        revenue, management services cost of goods sold was 94.8%        in 2003 compared to 95.1% in 2002. Equipment, service and        leasing cost of goods sold increased $20,686 or 2.4% to        $875,415 in 2003 compared to $854,729 in 2002. As a        percentage of equipment, service and leasing revenue,        equipment, service and leasing cost of goods sold was        50.3% in 2003 compared to 51.3% in 2002. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         Selling,        general and administrative expenses decreased $378,250 or        8.2% to $4,246,570 in 2003 compared to $4,624,820 in        2002. This decrease is due to a reduction of compensation        expenses, consulting expenses, insurance expenses,        amortization expenses and rent expenses. The Company        anticipates a consistent reduction of these expenses        through the remainder of the year. As a percentage of        revenue, selling, general and administrative expenses        were 4.8% in 2003 compared to 6.0% in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         Other        expense increased $318,928 to $374,670 in 2003 compared        to $55,742 in 2002. This increase was primarily due to        payments of $156,000 for terminating a property lease        agreement and $28,000 for property repair in the        recycling division in 2003, and a bad debt recovery of        $73,861 in the management services segment in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Three months ended September 30, 2003        compared to three months ended September 30, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         Total        revenue increased $3,218,864 or 11.7% to $30,636,541 in        2003 compared to $27,417,677 in 2002. Recycling revenue        increased $783,293 or 12.7% to $6,943,549 in 2003        compared to $6,160,256 in 2002. This is due to an        increase in the volume of shipments as well as an        increase in the price of the commodities. Management        services revenue increased $2,376,202 or 11.5% to        $23,074,606 in 2003 compared to $20,698,404 in 2002. This        is due to an increase in revenues per the customer        locations while maintaining a consistent customer base.        Equipment sales, service and leasing revenue increased        $59,369 or 10.6% to $618,386 in 2003 compared to $559,017        in 2002. In the continued effort to lease equipment for        the long-term benefit of revenue streams and customer        retention in lieu of equipment sales, leasing income        increased approximately $88,000 as equipment sales        decreased approximately $38,000 compared to the prior        period.                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         Total        cost of goods sold increased $3,281,474 or 12.8% to        $29,004,802 in 2003 compared to $25,723,328 in 2002. As a        percentage of revenue, cost of goods sold was 94.7% in        2003 compared to 93.8% in 2002. Recycling cost of goods        sold increased $686,736 or 12.0% to $6,405,745 in 2003        compared to $5,719,009 in 2002. This is due to higher        commodity purchase prices in the recycling market. As a        percentage of recycling revenue, recycling cost of goods        sold was 92.3% in 2003 compared to 92.8% in 2002.        Management services cost of goods sold increased        $2,577,019 or 13.1% to $22,291,424 in 2003 compared to        $19,714,405 in 2002. This is due to increases in vendor        service fees. As a percentage of management services        revenue, management services cost of goods sold was 96.6%        in 2003 compared to 95.2% in 2002.                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 14                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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| Equipment, service and leasing cost of        goods sold increased $17,719 or 6.1% to 307,633 in 2003        compared to $289,914 in 2002. As a percentage of        equipment, service and leasing revenue, equipment,        service and leasing cost of goods sold was 49.7% in 2003        compared to 51.9% in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         Selling,        general and administrative expenses decreased $217,928 or        13.8% to $1,365,037 in 2003 compared to $1,582,965 in        2002. This decrease is due to a reduction of compensation        expenses, insurance expenses, amortization expenses and        rent expenses. The Company anticipates a consistent        reduction of these expenses through the remainder of the        year. As a percentage of revenue, selling, general and        administrative expenses were 4.5% in 2003 compared to        5.8% in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         Other        expense increased $37,323 to $77,227 in 2003 compared to        $39,904 in 2002. This increase was primarily due to a        payment of $28,000 for property repair due to terminating        a property lease agreement in the recycling division in        2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Financial condition at September 30,        2003 compared to December 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         Cash        and cash equivalents decreased $1,055,626 to $574,402 as        of September 30, 2003 compared to $1,630,028 as of        December 31, 2002. This is primarily due to the payment        in full of the senior revolving credit facility as it        decreased from $1,750,000 as of December 31, 2002 to $0        as of September 30, 2003. Net cash from operating        activities increased $708,456 to $2,228,799 as of        September 30, 2003 compared to $1,520,343 as of September        30, 2002. This is primarily due to an increase in        deposits of approximately $350,000 of recycling commodity        sales collected from vendors during the last part of the        quarter that will be distributed to customers after        September 30, 2003.                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         Accounts        receivable trade increased $3,081,539 or 45.3% to        $9,885,395 as of September 30, 2003 compared to        $6,803,856 as of December 31, 2002. This is due to an        increase in revenues per the customer locations while        maintaining a consistent customer base in the Management        Services segment as well as an increase in the volume of        shipments in the Recycling segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         Inventories        decreased $540,155 or 28.7% to $1,343,007 as of September        30, 2003 compared to $1,883,162 as of December 31, 2002.        This decrease is due to a higher volume of shipments in        the Recycling segment for the first nine months of 2003        compared to the same period of 2002. It is offset        slightly by higher commodity purchase prices. Commodity        purchase prices increased approximately 23% for the        ferrous division and 5% for the nonferrous division in        the third quarter compared to the same period in 2002.        This has increased the inventory carrying cost per unit        as of September 30, 2003. Volume of shipments in the        ferrous division have increased approximately 18% in the        first nine months compared to the same period in 2002.        Volume of shipments in the nonferrous division have        remained the same for the first nine months compared to        the same period in 2002. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         Accounts        payable trade increased $2,287,093 or 26.4% to        $10,963,380 as of September 30, 2003 compared to        $8,676,287 as of December 31, 2002. Accounts payable        trade increased due to an increase in expenses per the        customer locations while maintaining a consistent        customer base in the Management Services segment as well        as an increase in the volume of commodity purchases in        the Recycling segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 15                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

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|         Long-term        debt increased $331,688 to $3,969,276 as of September 30,        2003 compared to $3,637,588 as of December 31, 2002.        Long-term debt increased $1,515,779 due to the purchase        of the 7110 Grade Lane property and a vehicle. During the        third quarter, four Mack trucks, several trailers and one        portable hydraulic shear were sold. From these        transactions, $600,000 was used to pay down long-term        debt. Long-term debt decreased $584,091 due to monthly        principal payments. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|         Working        capital increased $42,763 to a deficit of $463,731 as of        September 30, 2003 compared to a deficit of $506,494 as        of December 31, 2002. These deficits are due to the use        of working capital to finance the purchase of property        and equipment rather than using long-term debt in 2003        and 2002.                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Item        3:    Quantitative and Qualitative        Disclosures About Market Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|         There        is market risk in our recycling segment, since it is        driven by fluctuating commodity prices. Management        mitigates this risk by selling our product on a monthly        contract basis, insulating the Registrant from large        fluctuations in the commodity prices.                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ITEM 4:    CONTROLS        AND PROCEDURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (a)       Evaluation        of disclosure controls and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|         Based        on the evaluation of the Chief Executive Officer and the        Chief Financial Officer of the Registrant of its        disclosure controls and procedures as of September 30,        2003, it has been concluded that the disclosure controls        and procedures are effective for the purposes        contemplated by Rule 13a-14 (e) promulgated by the        Securities and Exchange Commission.                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (b)       Changes        in internal controls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|         There        have been no significant changes to the Registrant's        internal controls or in other factors that could        significantly affect these controls subsequent to        September 30, 2003.                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 16                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

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| PART II        – OTHER INFORMATION |
|-----------------------------------------|
|                                    |   |
|                                    |   |
| Item 1.                                 | Legal        Proceedings |
|                                    | None |
|                                    |   |
| Item 2.                                 | Changes in        Securities and Use of Proceeds |
|                                    | None |
|                                    |   |
| Item 3.                                 | Defaults upon        Senior Securities |
|                                    | None |
|                                    |   |
| Item 4.                                 | Submission of        Matters to a Vote of Security Holders |
|                                    | None |
|                                    |   |
| Item 5.                                 | Other        Information |
|                                    | None |
|                                    |   |
| Item 6.                                 | Exhibits and        Reports on Form 8-K |
|                                    |   |
|                                    | (a) | Exhibits filed        with, or incorporated by reference herein, this report        are identified in the Index to Exhibits appearing in this        report. |
|                                    |   |
|                                    |   |
|                                    |
| 17                                      |

 

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| **SIGNATURES**                                                                                                                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                          |
| Pursuant to the requirements        of the Securities Exchange Act of 1934, the Registrant        has duly caused this report to be signed on its behalf by        the undersigned thereunto duly authorized. |
|                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                          | INDUSTRIAL SERVICES OF        AMERICA, INC. |
|                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                          |   |
| DATE: November 10, 2003                                                                                                                                                                                       |     /s/  Harry        Kletter                                  |
|                                                                                                                                                                                                          | Chairman and Chief Executive        Officer |
|                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                          |   |
| DATE: November 10, 2003                                                                                                                                                                                       |    /s/  Alan        L.        Schroering                          |
|                                                                                                                                                                                                          | Chief Financial Officer |

 

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| **INDEX        TO EXHIBITS** |
|------------------------------|
|                         |   |   |
| **Exhibit****Number**        |   | **Description of Exhibits** |
|                         |   |   |
| 31.3                         |   | Rule 13a-14(a) Certification        of Harry Kletter for the Form 10-Q for the quarter ended        September 30, 2003. |
|                         |   |   |
| 31.4                         |   | Rule 13a-14(a) Certification        of Alan Schroering for the Form 10-Q for the quarter        ended September 30, 2003. |
|                         |   |   |
| 32.2                         |   | Section 1350 Certification        of Harry Kletter and Alan Schroering for the Form 10-Q        for the quarter ended September 30, 2003 |

.

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