| **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, 2002                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 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 Exchange Act). YES        ___   NO    X                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate the number of        shares outstanding of each of the issuer's classes of        common stock, as of September 30, 2002: 1,616,500.                                                                                                                                                                                                                                                                                                              |

 

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| INDUSTRIAL        SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |   |   |
|                                                         | INDEX |   |
|                                                         |   |   |
|                                                         |   | **Page No.** |
| Part I                                                       | Financial Information |   |
|                                                         |   |   |
|                                                         | Report of Independent        Accountants | 3 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Balance Sheets |   |
|                                                         |    September        30, 2002 and December 31, 2001 | 4 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Income        Three Months Ended |   |
|                                                         |    September        30, 2002 and 2001 | 6 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Income        Nine Months Ended |   |
|                                                         |    September        30, 2002 and 2001 | 7 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Cash Flows        Nine Months Ended |   |
|                                                         |    September        30, 2002 and 2001 | 8 |
|                                                         |   |   |
|                                                         | Notes to Condensed        Consolidated |   |
|                                                         |    Financial        Statements | 9 |
|                                                         |   |   |
|                                                         | Management's Discussion and        Analysis |   |
|                                                         |    of        Financial Condition and Results |   |
|                                                         |    of        Operations | 11 |
|                                                         |   |   |
|                                                         |   |   |
| Part II                                                      | Other Information | 15 |
|                                                         |   |   |
|                                                         |   |   |

 

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| REPORT OF        INDEPENDENT ACCOUNTANTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Board of Directors and        Shareholders        Industrial Services of America, Inc. and Subsidiaries        Louisville, Kentucky                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| We have reviewed the        condensed consolidated balance sheets of Industrial        Services of America, Inc. and Subsidiaries as of        September 30, 2002, and the related condensed        consolidated statements of income for the three and nine        months periods ended September 30, 2002 and 2001, and the        condensed consolidated statements of cash flows for the        nine month period ended September 30, 2002 and 2001.        These financial statements are the responsibility of the        Company's management.                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| We conducted our reviews in        accordance with standards established by the American        Institute of Certified Public Accountants. A review of        interim financial information consists principally of        applying analytical procedures to financial data and        making inquiries of persons responsible for financial and        accounting matters. It is substantially less in scope        than an audit conducted in accordance with generally        accepted auditing standards, the objective of which is        the expression of an opinion regarding the financial        statements taken as a whole. Accordingly, we do not        express such an opinion. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Based on our reviews, we are        not aware of any material modifications that should be        made to the accompanying condensed consolidated financial        statements for them to be in conformity with generally        accepted accounting principles.                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Crowe, Chizek and Company        LLP |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| Indianapolis, Indiana        October 14, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
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| 3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

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

|                                                                                                                              | **September 30,        2002**                     |   | **December 31,        2001**                            |
|-----------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------|--------|---------------------------------------------------------|
| Current assets                                                                                                                    |                                              |   |                                                    |
|   Cash and cash        equivalents                                                                                      | $    1,307,845                |   | $     776,745                  |
|   Accounts        receivable - trade (after allowance             for doubtful accounts of $50,000) | 8,651,501                                         |   | 6,669,782                                               |
|   Accounts        receivable - related party                                                                            | -                                                 |   | 59,714                                                  |
|   Net investment        in sales-type leases                                                                            | 149,878                                           |   | 109,586                                                 |
|   Inventories                                                                                                           | 1,913,625                                         |   | 1,949,766                                               |
|   Deferred income        taxes                                                                                          | 181,800                                           |   | 181,800                                                 |
|   Other current        assets                                                                                           |        233,817 |   |        201,300       |
|         Total        current assets                                                       | 12,438,466                                        |   | 9,948,693                                               |
|                                                                                                                              |                                              |   |                                                    |
| Net property and equipment                                                                                                        | 6,226,786                                         |   | 6,150,018                                               |
|                                                                                                                              |                                              |   |                                                    |
| Other Assets                                                                                                                      |                                              |   |                                                    |
|   Non-compete        agreements, net                                                                                    | 76,769                                            |   | 203,536                                                 |
|   Net investment        in sales-type leases                                                                            | 292,856                                           |   | 282,528                                                 |
|   Other assets                                                                                                          |     1,087,123                 |   |         726,483 |
|                                                                                                                              |     1,456,748                 |   |     1,212,547                       |
|                                                                                                                              |                                              |   |                                                    |
|                                                                                                                              | $        20,122,000                               |   | $        17,311,258                                     |
|                                                                                                                              |                                              |   |                                                    |
| See accompanying notes to        consolidated financial statements.                                                               |
|                                                                                                                              |
| 4                                                                                                                                 |

 

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

|                                                                                                                                                                                                                                            | **September 30,        2002**                     |   | **December 31,        2001**                      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------|--------|---------------------------------------------------|
| Current liabilities                                                                                                                                                                                                                             |                                              |   |                                              |
|   Senior revolving        credit facility                                                                                                                                                                                             | $   1,500,000                 |   | $   1,000,000                 |
|   Current        maturities of long-term debt                                                                                                                                                                                         | 744,767                                      |   | 734,899                                      |
|   Current        maturities of capital lease obligation                                                                                                                                                                               | 47,885                                       |   | 31,403                                       |
|   Accounts payable                                                                                                                                                                                                                    | 11,215,255                                   |   | 9,162,791                                    |
|   Other current        liabilities                                                                                                                                                                                                    |       473,879  |   |       365,920  |
|        Total        current liabilities                                                                                                                                                                      | 13,981,786                                   |   | 11,295,013                                   |
|                                                                                                                                                                                                                                            |                                              |   |                                              |
| Long-term liabilities                                                                                                                                                                                                                           |                                              |   |                                              |
|   Long-term debt                                                                                                                                                                                                                      | 1,727,777                                    |   | 2,234,175                                    |
|   Capital lease        obligation                                                                                                                                                                                                     | 512,185                                      |   | 109,432                                      |
|   Deferred income        taxes                                                                                                                                                                                                        |       13,400   |   |       13,400   |
|                                                                                                                                                                                                                                            | 2,253,362                                    |   | 2,357,007                                    |
|                                                                                                                                                                                                                                            |                                              |   |                                              |
| Stockholders' equity                                                                                                                                                                                                                            |                                              |   |                                              |
|   Common        stock, $.01 par value,            10,000,000 shares authorized,        1,957,500 shares issued,            1,616,500 and 1,660,400 shares        outstanding in 2002 and 2001 | 19,575                                       |   | 19,575                                       |
|   Additional        paid-in capital                                                                                                                                                                                                   | 1,925,321                                    |   | 1,925,321                                    |
|   Retained        earnings                                                                                                                                                                                                            | 2,627,202                                    |   | 2,296,465                                    |
|   Treasury        stock, 341,000 and 297,100 shares at cost             in 2002 and 2001                                                                                                                          |     (685,246)                 |   |      (582,123)           |
|                                                                                                                                                                                                                                            |    3,886,852                  |   |     3,659,238            |
|                                                                                                                                                                                                                                            | $        20,122,000                          |   | $        17,311,258                          |
|                                                                                                                                                                                                                                            |                                              |   |                                              |
| See accompanying notes to        consolidated financial statements.                                                                                                                                                                             |
|                                                                                                                                                                                                                                            |
| 5                                                                                                                                                                                                                                               |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
| CONDENSED CONSOLIDATED        STATEMENTS OF INCOME           |
| THREE MONTHS ENDED        SEPTEMBER 30, 2002 AND 2001        |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                | **2002**                                                     |   | **2001**                                             |
|---------------------------------------------------------------------|--------------------------------------------------------------|--------|------------------------------------------------------|
|                                                                |                                                         |   |                                                 |
| Revenue                                                             | $        27,410,393                                     |   | $        22,905,207                             |
|                                                                |                                                         |   |                                                 |
| Cost of goods sold                                                  |   25,688,481                                  |   |  21,475,592                                |
|                                                                |                                                         |   |                                                 |
| Selling, general and        administrative expenses                 |     1,603,627                       |   |            1,681,590             |
|                                                                |                                                         |   |                                                 |
| **Income (loss) before        other expenses**                      | 118,285                                                 |   | (251,975)                                       |
|                                                                |                                                         |   |                                                 |
| Other expenses, net                                                 |              (46,805)          |   |               (44,755) |
|                                                                |                                                         |   |                                                 |
| **Income before income        taxes**                               | 71,480                                                  |   | (296,730)                                       |
|                                                                |                                                         |   |                                                 |
| Provision (benefit) for        income taxes                         |         28,331  |   |      (119,132)         |
|                                                                |                                                         |   |                                                 |
| **Net income (loss)**                                               | $       43,149       |   | $    (177,598)              |
|                                                                |                                                         |   |                                                 |
| Earnings (loss) per share                                           | $0.03                                                   |   | $(0.10)                                         |
|                                                                |                                                         |   |                                                 |
| Earnings (loss) per share,        assuming dilution                 | $0.03                                                   |   | $(0.10)                                         |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 6                                                                   |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
| CONDENSED CONSOLIDATED        STATEMENTS OF INCOME           |
| NINE MONTHS ENDED        SEPTEMBER 30, 2002 AND 2001         |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                | **2002**                                                        |   | **2001**                                                     |
|---------------------------------------------------------------------|-----------------------------------------------------------------|--------|--------------------------------------------------------------|
|                                                                |                                                            |   |                                                         |
| Revenue                                                             | $        76,850,358                                        |   | $        71,977,603                                     |
|                                                                |                                                            |   |                                                         |
| Cost of goods sold                                                  |   71,670,291                                     |   |  66,625,805                                        |
|                                                                |                                                            |   |                                                         |
| Selling, general and        administrative expenses                 |     4,728,170                          |   |    5,032,071                             |
|                                                                |                                                            |   |                                                         |
| **Income before other        income (expenses)**                    | 451,897                                                    |   | 319,727                                                 |
|                                                                |                                                            |   |                                                         |
| Other income (expenses), net                                        |                 98,896  |   |             (174,492)                    |
|                                                                |                                                            |   |                                                         |
| **Income before income        taxes**                               | 550,793                                                    |   | 145,235                                                 |
|                                                                |                                                            |   |                                                         |
| Provision for income taxes                                          |        220,056          |   |         58,094  |
|                                                                |                                                            |   |                                                         |
| **Net income**                                                      | $     330,737                     |   | $             87,141           |
|                                                                |                                                            |   |                                                         |
| Earnings per share                                                  | $0.20                                                      |   | $0.05                                                   |
|                                                                |                                                            |   |                                                         |
| Earnings per share, assuming        dilution                        | $0.20                                                      |   | $0.05                                                   |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 7                                                                   |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
| CONDENSED CONSOLIDATED        STATEMENTS OF CASH FLOWS       |
| NINE MONTHS ENDED        SEPTEMBER 30, 2002 AND 2001         |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                                                                                | **2002**                                     |   | **2001**                                                     |
|-------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|--------|--------------------------------------------------------------|
| **Cash flows from operating        activities**                                                                                     |                                         |   |                                                         |
|   Net income                                                                                                              | $     330,737  |   | $    87,141                         |
|   Adjustments        to reconcile net income to            net cash from operating        activities: |                                         |   |                                                         |
|       Stock        options granted for services                                                       | -                                       |   | 33,670                                                  |
|       Depreciation        and amortization                                                            | 1,306,717                               |   | 1,232,573                                               |
|       Provision        for doubtful accounts                                                          | -                                       |   | 98,319                                                  |
|       Deferred        income tax                                                                      | -                                       |   | (69,339)                                                     |
|       Loss        on sale of property and equipment                                                   | 1,489                                   |   | 521                                                     |
|       Change        in assets and liabilities                                                         |                                         |   |                                                         |
|                 Receivables                                                                 | (1,922,006)                                  |   | 810,729                                                 |
|                 Inventories                                                                 | 36,141                                  |   | 106,597                                                 |
|                 Other assets                                                                | (393,159)                                    |   | 125,958                                                 |
|                 Accounts payable                                                            | 2,052,464                               |   | (834,481)                                               |
|                 Other current liabilities                                                   |      107,960   |   |       117,545             |
|             Net        cash from operating activities                   | 1,520,343                               |   | 1,709,233                                               |
|                                                                                                                                |                                         |   |                                                         |
|                                                                                                                                |                                         |   |                                                         |
| **Cash flows from investing        activities**                                                                                     |                                         |   |                                                         |
|   Proceeds        from sales-type leases                                                                                  | 83,253                                  |   | 35,094                                                  |
|   Purchases of        equipment under sales-type leases                                                                   | (133,873)                                    |   | -                                                       |
|   Proceeds from        sale of property and equipment                                                                     | 82,955                                  |   | 34,300                                                  |
|   Purchases of        property and equipment                                                                              |     (894,661)            |   |   (1,774,041)                                      |
|           Net        cash from investing activities                               | (862,326)                                    |   | (1,704,647)                                                  |
|                                                                                                                                |                                         |   |                                                         |
| **Cash flows from financing        activities**                                                                                     |                                         |   |                                                         |
|   Proceeds from        long-term debt                                                                                     |  -                                 |   | 1,670,000                                               |
|   Net borrowings        on senior revolving credit facility                                                               | 500,000                                 |   | (750,000)                                                    |
|   Purchase of        common stock                                                                                         | (103,123)                                    |   | (420,807)                                                    |
|   Payments on        capital lease obligation                                                                             | (27,264)                                     |   | -                                                       |
|   Payments on        long-term debt                                                                                       |     (496,530)            |   |      (417,732)                      |
|           Net        cash from financing activities                               |    (126,917)             |   |          81,461 |
|                                                                                                                                |                                         |   |                                                         |
| Net increase in cash                                                                                                                | 531,100                                 |   | 86,047                                                  |
|                                                                                                                                |                                         |   |                                                         |
| Cash at beginning of period                                                                                                         |      776,745   |   |    1,395,882                             |
|                                                                                                                                |                                         |   |                                                         |
| **Cash at end of period**                                                                                                           | $  1,307,845                  |   | $        1,481,929                                      |
|                                                                                                                                |
| During 2002, the Company        entered into a capital lease for property with a cost of        $471,500.                           |
|                                                                                                                                |
| See accompanying notes to        consolidated financial statements.                                                                 |
|                                                                                                                                |                                         |   |                                                         |
| 8                                                                                                                                   |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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| 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, 2002 and the results of its        operations and changes in cash flow for the periods ended        September 30, 2002 and 2001. Results of operations for        the period ended September 30, 2002 are not necessarily        indicative of the results that may be expected for the        entire year. Additional information, including the        audited December 31, 2001 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, 2001 on file        with the Securities and Exchange Commission. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **NOTE 2 – SEGMENT INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| The Company's operations include three        primary segments: ISA Recycling, Computerized Waste        Systems (CWS), and Waste Equipment Sales & Service        (WESSCO). In addition, the Company also includes        corporate selling, general and administrative costs        separately. ISA Recycling provides products and services        to meet the needs of its customers related to ferrous,        non-ferrous and fiber recycling at two locations in the        Midwest. CWS provides waste disposal services including        contract negotiations with vendors, centralized billing,        invoice auditing, and centralized dispatching. WESSCO        sells, leases, and services waste handling and recycling        equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| The Company's three reportable segments        are determined by the products and services that each        offers. The recycling segment generates its revenues        based on buying and selling of ferrous and non-ferrous        scrap. CWS's revenues consist of management fees charged        to customers at a percentage of the total service        provided. WESSCO's primary source of revenue is generated        through lease income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| The Company evaluates segment        performance based on profit or loss before income taxes        and the evaluation process for each segment includes only        direct expenses. Corporate level selling, general and        administrative costs have not been allocated to each        segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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| 9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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| ******For the        Nine Months Ending****September        30, 2001** | **ISA****Recycling**       |   | **Computerized         Waste****Systems**                                                                      |   | **Waste         Equipment        Sales &****Services**                                   |   | **Corporate**                                                                                            |   | **Segment****Totals**         |
|------------------------------------------------------------------------|----------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|--------|-------------------------------|
|                                                                   |                       |   |                                                                                                           |   |                                                                                         |   |                                                                                                     |   |                          |
| Recycling        revenues                                              | $        16,696,637   |   | $                 -  |   | $              -  |   | $                -  |   | $16,696,637              |
| Equipment sales, service                                               |                       |   |                                                                                                           |   |                                                                                         |   |                                                                                                     |   |                          |
|    and        leasing revenues                          | -                     |   | -                                                                                                         |   | 1,667,443                                                                               |   | -                                                                                                   |   | 1,667,443                |
| Management fees                                                        | -                     |   | 58,486,278                                                                                                |   | -                                                                                       |   | -                                                                                                   |   | 58,486,278               |
| Cost of goods sold                                                     | (15,394,415)               |   | (55,635,814)                                                                                                   |   |   (640,062)                                                                        |   | -                                                                                                   |   | (71,670,291)                  |
| Selling, general and                                                   |                       |   |                                                                                                           |   |                                                                                         |   |                                                                                                     |   |                          |
| administrative expenses                                                | (493,571)                  |   | (1,526,755)                                                                                                    |   | (727,439)                                                                                    |   | (1,980,405)                                                                                              |   | (4,728,170)                   |
|                                                                   |                       |   |                                                                                                           |   |                                                                                         |   |                                                                                                     |   |                          |
| Segment profit                                                         | $  808,651  |   | $         1,323,709                                                                                  |   | $        299,942                                                                        |   | $(1,980,405)                                                                                             |   | $          451,897  |
|                                                                   |                       |   |                                                                                                           |   |                                                                                         |   |                                                                                                     |   |                          |

 

| ******For        the         Nine Months ending****September 30, 2000** | **ISA****Recycling**                     |   | **Computerized         Waste****Systems**                                                                      |   | **Waste         Equipment        Sales &****Services**                             |   | **Corporate**                                                        |   | **Segment****Totals**        |
|-------------------------------------------------------------------------|------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|------------------------------|
|                                                                    |                                     |   |                                                                                                           |   |                                                                                   |   |                                                                 |   |                         |
| Recycling revenues                                                      | $        15,157,132                 |   | $                 -  |   | $             -  |   | $          -  |   | $15,157,132             |
| Equipment sales, service                                                |                                     |   |                                                                                                           |   |                                                                                   |   |                                                                 |   |                         |
|    and        leasing revenues                           | -                                   |   | -                                                                                                         |   | 1,736,776                                                                         |   | -                                                               |   | 1,736,776               |
| Management fees                                                         | -                                   |   | 55,083,695                                                                                                |   | -                                                                                 |   | -                                                               |   | 55,083,695              |
| Cost of goods sold                                                      | (13,826,907)                             |   | (52,044,758)                                                                                                   |   | (754,140)                                                                              |   | -                                                               |   | (66,625,805)                 |
| Selling, general and                                                    |                                     |   |                                                                                                           |   |                                                                                   |   |                                                                 |   |                         |
| administrative expenses                                                 | (437,683)                                |   | (1,512,548)                                                                                                    |   | (636,471)                                                                              |   | (2,445,369)                                                          |   | (5,032,071)                  |
|                                                                    |                                     |   |                                                                                                           |   |                                                                                   |   |                                                                 |   |                         |
| Segment profit                                                          | $           892,542  |   | $  1,526,389                                                                                    |   | $ 346,165                                                                    |   | $(2,445,369)                                                         |   | $         319,727  |

|                                         |
|----------------------------------------------|
| **NOTE 3 – INVENTORIES**                |
|                                         |
| Inventories consist of the        following: |
|                                         |
|                                         |   | **September 30,****2002** |   | **December 31,****2001** |
|                                         |   |   |   |   |
|                                         | Equipment and parts | $   111,705 |   | $    101,316 |
|                                         | Ferrous materials | 1,279,315 |   | 1,236,949 |
|                                         | Non-ferrous materials |     522,605 |   |      611,501 |
|                                         |   |   |   |   |
|                                         |    Total        inventories | $        1,913,625 |   | $        1,949,766 |
|                                         |   |   |   |   |
|                                         |
| 10                                           |

 

----

 

| ITEM 2: MANAGEMENT'S DISCUSSION AND        ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        OPERATIONS.                                                                                                                                                                                                                                                                                         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                 |
| Liquidity and Capital Resources                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                 |
|         As        of September 30, 2002 the Registrant held cash and cash        equivalents of $1,307,845.                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                 |
|         The        Registrant derives its revenues from several sources,        including management services, equipment sales and        leasing and from its recycling operations. Management        services comprised approximately 76.1% and 76.5% of the        Registrant's total revenues for the quarters ended        September 30, 2002 and 2001. |
|                                                                                                                                                                                                                                                                                                                                                                                                 |
|         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 2003.        At September 30, 2002 there was $1,500,000 drawn against        this credit facility. |
|                                                                                                                                                                                                                                                                                                                                                                                                 |
| Results of Operations                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                 |
|         The        following table presents, for the periods indicated, the        percentage relationship which certain captioned items in        the Registrant's Statements of Income bear to total        revenues and other pertinent data:                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                 |

|                                                                                                    | **Nine months ended        Sept 30,** |
|---------------------------------------------------------------------------------------------------------|---------------------------------------|
|                                                                                                    | **2002**                              |   | **2001** |
| Statements of        Operations Data:                                                                   |                                  |   |   |
| Total Revenue        .................................................................................. | 100.0%                                |   | 100.0% |
| Cost of goods        sold............................................................................   | 93.2%                                 |   | 92.6% |
| Selling, general        and administrative expenses        ..................................           | 6.2%                                  |   | 7.0% |
| Income before        other income (expenses)        ..........................................          | 0.6%                                  |   | 0.4% |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Nine months ended September 30, 2002        compared to nine months ended September 30, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Total        revenue increased $4,872,755 or 6.8% to $76,850,358 in        2002 compared to $71,977,603 in 2001. Recycling revenue        increased $1,539,505 or 10.2% to $16,696,637 in 2002        compared to $15,157,132 in 2001. This is due to an        increase in commodity prices in the ferrous, non-ferrous        and corrugated markets as well as higher volumes of        shipments in the ferrous market in the first nine months        of 2002 compared to the first nine months of 2001.        Management services revenue increased $3,402,583 or 6.2%        to $58,486,278 in 2002 compared to $55,083,695 in 2001.        This is due to an increase in revenues per the customer        locations while maintaining a consistent customer base.        Equipment, service and leasing revenue decreased $69,333        or 4.0% to $1,667,443 in 2002 compared to $1,736,776 in        2001. This decrease was primarily due to lower service        revenues related to the repair of recycling equipment. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 11                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

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|         Total        cost of goods sold increased $5,044,486 or 7.6% to        $71,670,291 in 2002 compared to $66,625,805 in 2001.        Recycling cost of goods sold increased $1,567,508 or        11.3% to $15,394,415 in 2002 compared to $13,826,907 in        2001. This is due to higher processing costs, higher        commodity purchase prices in the ferrous market and        repair costs related to primary equipment breakdown.        Management services cost of goods sold increased        $3,591,056 or 6.9% to $55,635,814 in 2002 compared to        $52,044,758 in 2001. This is due to internal increases in        vendor fees. Equipment, service and leasing cost of goods        sold decreased $114,078 or 15.1% to 640,062 in 2002        compared to $754,140 in 2001. This decrease is primarily        due to a reduction in equipment cost of goods sold.             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         Selling,        general and administrative expenses decreased $303,901 or        6.0% to $4,728,170 in 2002 compared to $5,032,071 in        2001. This decrease is due to a reduction of consulting        expenses, bad debt expenses and insurance expenses. As a        percentage of revenue, selling, general and        administrative expenses were 6.2% in 2002 compared to        7.0% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         Other        income (expenses), net increased $273,388 to other income        of $98,896 in 2002 compared to other expense of $174,492        in 2001. This increase is primarily due to the insurance        reimbursement for loss of business income in the        recycling segment of $161,428, because primary equipment        was out of service from mid-November 2001 through        mid-January 2002 and a bad debt recovery of $73,861 in        the management services segment. After provision for        income taxes, the sum of insurance proceeds of $161,428        and bad debt recoveries of $73,861 is approximately nine        cents per share for nine months ending September 30,        2002.                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Three months ended        September 30, 2002 compared to three months ended        September 30, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         Total        revenue increased $4,505,186 or 19.7% to $27,410,393 in        2002 compared to $22,905,207 in 2001. Recycling revenue        increased $1,430,077 or 30.3% to $6,152,972 in 2002        compared to $4,722,895 in 2001. This is due to an        increase of commodity prices in the ferrous, non-ferrous        and corrugated markets as well as higher volumes of        shipments in the ferrous market in the third quarter of        2002 compared to the third quarter of 2001. Management        services revenue increased $3,068,805 or 17.4% to        $20,698,404 in 2002 compared to $17,629,599 in 2001. This        is due to an increase in revenues per the customer        locations while maintaining a consistent customer base.        Equipment, service and leasing revenue increased $6,304        or 1.1% to $559,017 in 2002 compared to $552,713 in 2001. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         Total        cost of goods sold increased $4,212,889 or 19.6% to        $25,688,481 in 2002 compared to $21,475,592 in 2001.        Recycling cost of goods sold increased $1,359,055 or        30.9% to $5,759,607 in 2002 compared to $4,400,552 in        2001. Management services cost of goods sold increased        $2,901,879 or 17.3% to $19,714,901 in 2002 compared to        $16,813,022 in 2001. Equipment, service and leasing cost        of goods sold decreased $48,045 or 18.3% to 213,973 in        2002 compared to $262,018 in 2001. This decrease is        primarily due to a reduction in equipment cost of goods        sold.                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         Selling,        general and administrative expenses decreased $77,963 or        4.6% to $1,603,627 in 2002 compared to $1,681,590 in        2001. This decrease is due to a reduction of consulting        expenses and bad debt expenses. As a percentage of        revenue, selling, general and administrative expenses        were 5.9% in 2002 compared to 7.3% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         Other        expense increased $2,050 to $46,805 in 2002 compared to        $44,755 in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

----

 

| Financial condition at September 30,        2002 compared to December 31, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Accounts        receivable trade increased $1,981,719 or 29.7% to        $8,651,501 in 2002 compared to $6,669,782 in 2001. The        increase 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. Average days outstanding in 2002 were        26.9 days compared to 31.2 days in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Other        assets increased $360,640 or 49.6% to $1,087,123 in 2002        compared to $726,483 in 2001. This increase is primarily        due to deposits made for operating equipment of $155,757        and rental fleet equipment of $133,596.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Accounts        payable trade increased $2,052,464 or 22.4% to        $11,215,255 in 2002 compared to $9,162,791 in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Capital        lease obligation increased $402,753 to $512,185 in 2002        compared to $109,432 in 2001. This increase is due to the        lease purchase of approximately five acres of land in        Seymour, Indiana improved by an approximately 7,000        square foot maintenance and office building.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Working        capital decreased $197,000 to a deficit of $1,543,320 in        2002 compared to a deficit of $1,346,320 in 2001. 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 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Impact of Recently Issued Accounting        Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         In        July 2001, the Financial Accounting Standards Board        ("FASB") issued Statement No. 141, Business        Combinations and Statement No. 142, Goodwill and Other        Intangible Assets ("SFAS 142"). These        statements significantly affect the financial accounting        and the reporting for business combinations, goodwill and        intangible assets. SFAS 142 requires that goodwill be        allocated to reporting units and that goodwill and        intangibles assets with indefinite useful lives not be        amortized over their useful lives, but rather be tested        for impairment upon implementation of this standard and        at least annually thereafter. Amortizable intangible        assets will be subject to the impairment provisions of        Statement No. 144 Accounting for the Impairment or        Disposal of Long-Lived Assets ("SFAS 144").        Consequently, there is no transitional impairment test        for these assets. However, SFAS 142 requires that the        useful lives of these amortizable intangible assets be        reassessed. The transitional impairment test should be        completed in the first interim period (or in case of        goodwill in the first six months) of the fiscal year in        which SFAS 142 is adopted, and any resulting impairment        loss should be recognized as the effect of a change in        accounting principle in accordance with Accounting        Principles Board Opinion No. 20, Accounting Changes. Any        subsequent impairment losses resulting from events or        circumstances that occur after the first day of the        fiscal year in which SFAS 142 is adopted should be        reported as a component of income from continuing or        discontinued operations, as appropriate. These statements        apply to all business combinations that are initiated or        completed after June 30, 2001 and the effective date of        these pronouncements for the Registrant is January 1,        2002. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 13                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

----

 

|        Effective        January 1, 2002 the Company implemented SFAS 142 and as a        result Goodwill will no longer be amortized as the        economic life is indefinite. In connection with the SFAS        142 transition an impairment test has been performed on        Goodwill and determined that there is no impairment issue        and therefore a write-off of goodwill is not necessary at        this time. The impairment test was performed with        discounted estimated future cash flows as the criteria        for determining fair market value. The Goodwill has been        allocated to the recycling reporting unit. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item        3:    Quantitative and Qualitative        Disclosures About Market Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         Not        Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 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 internal        controls and procedures as of November 11, 2002, it has        been concluded that the disclosure controls and        procedures are effective for the purposes contemplated by        Rule 13a-14 (c) 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 as of November 11,        2002.                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 14                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

----

 

| 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 |
|                                    | None |
|                                    |   |
|                                    |
| 15                                      |

 

----

 

| **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 12, 2002                                                                                                                                                                                                                                              |     /s/  Harry        Kletter                                  |
|                                                                                                                                                                                                                                                                 | Chairman and Chief Executive        Officer |
|                                                                                                                                                                                                                                                                 | (Principal Executive and        Financial |
|                                                                                                                                                                                                                                                                 |   Officer) |
|                                                                                                                                                                                                                                                                 |   |
|                                                                                                                                                                                                                                                                 |
| 16                                                                                                                                                                                                                                                                   |

 

----

 

| **CERTIFICATIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|      I,        Harry Kletter, being the Chief Executive Officer, certify        that:                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|      1.     I        have reviewed this quarterly report on Form 10-Q of        Industrial Services of America, Inc.;                                                                                                                                                                                                                                                                                                                                  |
|      2.     Based        on my knowledge, this quarterly report does not contain        any untrue statement of a material fact or omit to state        a material fact necessary to make the statements made, in        light of the circumstances under which such statements        were made, not misleading with respect to the period        covered by this quarterly report;                                                                   |
|      3.     Based        on my knowledge, the financial statements, and other        financial information included in this quarterly report,        fairly present in all material respects the financial        condition, results of operations and cash flows of the        registrant as of, and for, the periods presented in this        quarterly report;                                                                                      |
|      4.     The        registrant's other certifying officers and I are        responsible for establishing and maintaining disclosure        controls and procedures (as defined in Exchange Act Rules        13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                                      |
|      a)     designed        such disclosure controls and procedures to ensure that        material information relating to the registrant,        including its consolidated subsidiaries, is made known to        us by others within those entities, particularly during        the period in which this quarterly report is being        prepared;                                                                                                  |
|      b)     evaluated        the effectiveness of the registrant's disclosure controls        and procedures as of a date within 90 days prior to the        filing date of this quarterly report (the        "Evaluation Date"); and                                                                                                                                                                                                        |
|      c)     presented        in this quarterly report our conclusions about the        effectiveness of the disclosure controls and procedures        based on our evaluation as of the Evaluation Date;                                                                                                                                                                                                                                               |
|      5.     The        registrant's other certifying officers and I have        disclosed, based on our most recent evaluation, to the        registrant's auditors and the audit committee of        registrant's board of directors (or persons performing        the equivalent function):                                                                                                                                                          |
|      a)     all        significant deficiencies in the design or operation of        internal controls which could adversely affect the        registrant's ability to record, process, summarize and        report financial data and have identified for the        registrant's auditors any material weaknesses in internal        controls; and                                                                                                   |
|      b)     any        fraud, whether or not material, that involves management        or other employees who have a significant role in the        registrant's internal control; and                                                                                                                                                                                                                                                                 |
|      6.     The        registrant's other certifying officers and I have        indicated in this quarterly report whether or not there        were significant changes in internal controls or in other        factors that could significantly affect internal controls        subsequent to the date of our most recent evaluation,        including any corrective actions with regard to        significant deficiencies and material weaknesses. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| November 13, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | /s/ Harry        Kletter                                     |
| Date                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Harry Kletter, Chief        Executive Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |

 

----

 

| **CERTIFICATIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|      I,        Alan Schroering, being the Chief Financial Officer,        certify that:                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|      1.     I        have reviewed this quarterly report on Form 10-Q of        Industrial Services of America, Inc.;                                                                                                                                                                                                                                                                                                                                  |
|      2.     Based        on my knowledge, this quarterly report does not contain        any untrue statement of a material fact or omit to state        a material fact necessary to make the statements made, in        light of the circumstances under which such statements        were made, not misleading with respect to the period        covered by this quarterly report;                                                                   |
|      3.     Based        on my knowledge, the financial statements, and other        financial information included in this quarterly report,        fairly present in all material respects the financial        condition, results of operations and cash flows of the        registrant as of, and for, the periods presented in this        quarterly report;                                                                                      |
|      4.     The        registrant's other certifying officers and I are        responsible for establishing and maintaining disclosure        controls and procedures (as defined in Exchange Act Rules        13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                                      |
|      a)     designed        such disclosure controls and procedures to ensure that        material information relating to the registrant,        including its consolidated subsidiaries, is made known to        us by others within those entities, particularly during        the period in which this quarterly report is being        prepared;                                                                                                  |
|      b)     evaluated        the effectiveness of the registrant's disclosure controls        and procedures as of a date within 90 days prior to the        filing date of this quarterly report (the        "Evaluation Date"); and                                                                                                                                                                                                        |
|      c)     presented        in this quarterly report our conclusions about the        effectiveness of the disclosure controls and procedures        based on our evaluation as of the Evaluation Date;                                                                                                                                                                                                                                               |
|      5.     The        registrant's other certifying officers and I have        disclosed, based on our most recent evaluation, to the        registrant's auditors and the audit committee of        registrant's board of directors (or persons performing        the equivalent function):                                                                                                                                                          |
|      a)     all        significant deficiencies in the design or operation of        internal controls which could adversely affect the        registrant's ability to record, process, summarize and        report financial data and have identified for the        registrant's auditors any material weaknesses in internal        controls; and                                                                                                   |
|      b)     any        fraud, whether or not material, that involves management        or other employees who have a significant role in the        registrant's internal control; and                                                                                                                                                                                                                                                                 |
|      6.     The        registrant's other certifying officers and I have        indicated in this quarterly report whether or not there        were significant changes in internal controls or in other        factors that could significantly affect internal controls        subsequent to the date of our most recent evaluation,        including any corrective actions with regard to        significant deficiencies and material weaknesses. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| November 13, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | /s/ Alan        Schroering                                   |
| Date                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Alan Schroering, Chief        Financial Officer |