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| **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 March 31, 2003                                                                                                                                                                                                                                                                            |
| OR                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| [  ]   TRANSITION        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE        SECURITIES EXCHANGE ACT OF 1934        For the Transition Period From _________ to ________                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Commission File Number        0-20979                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| INDUSTRIAL        SERVICES OF AMERICA, INC.(Exact Name of Registrant as specified in its        Charter)                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Florida                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 59-0712746 |
| (State or        other jurisdiction of                                                                                                                                                                                                                                                                                                                                                                                                                     | (IRS        Employer |
| Incorporation        or Organization)                                                                                                                                                                                                                                                                                                                                                                                                                      | Identification        No.) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 7100 Grade        Lane, PO Box 32428        Louisville, Kentucky 40232        (Address of principal executive offices)                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (502)        368-1661        (Registrant's Telephone Number, Including Area Code)                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Check whether the registrant        (1) has filed all Reports required to be filed by Section        13 or 15(d) of the Securities Exchange Act of 1934 during        the preceding 12 months (or for such shorter period that        the registrant was required to file such reports), and        (2) has been subject to such filing requirements for the        past 90 days. YES    X      NO        ___ |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate by check mark        whether the registrant is an accelerated filer (as        defined in rule 12b-2 of the Act). Yes       No   X                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate the number of        shares outstanding of each of the issuer's classes of        common stock, as of March 31, 2003: 1,614,800.                                                                                                                                                                                                                                                                                                                  |

 

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| INDUSTRIAL        SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |   |   |
|                                                         | INDEX |   |
|                                                         |   |   |
|                                                         |   | **Page No.** |
| Part I                                                       | Financial Information |   |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Balance Sheets |   |
|                                                         |    March 31,        2003 and December 31, 2002 | 3 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Operations        Three Months Ended |   |
|                                                         |    March 31,        2003 and 2002 | 5 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Cash Flows        Three Months Ended |   |
|                                                         |    March 31,        2003 and 2002 | 6 |
|                                                         |   |   |
|                                                         | Notes to Condensed        Consolidated |   |
|                                                         |    Financial        Statements | 7 |
|                                                         |   |   |
|                                                         | Management's Discussion and        Analysis |   |
|                                                         |    of        Financial Condition and Results |   |
|                                                         |    of        Operations | 9 |
|                                                         |   |   |
|                                                         |   |   |
| Part II                                                      | Other Information | 11 |
|                                                         |   |   |
|                                                         |   |   |

 

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

|                                                                                                                                                                                                | **March 31,        2003**                               |   | **December 31,        2002**                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------|--------|---------------------------------------------------------|
| Current assets                                                                                                                                                                                      |                                                    |   |                                                    |
|   Cash and cash        equivalents                                                                                                                                                        | $    1,316,001                      |   | $   1,630,028                            |
|   Accounts        receivable - trade (after allowance             for doubtful accounts of $45,000        in 2003            and $50,000 in 2002) | 9,572,798                                               |   | 6,803,856                                               |
|   Income tax        refund receivable                                                                                                                                                     | 79,593                                                  |   | 79,593                                                  |
|   Net investment        in sales-type leases                                                                                                                                              | 134,510                                                 |   | 142,218                                                 |
|   Inventories                                                                                                                                                                             | 1,701,546                                               |   | 1,883,162                                               |
|   Deferred income        taxes                                                                                                                                                            | 507,688                                                 |   | 317,600                                                 |
|   Other                                                                                                                                                                                   |        160,911       |   |        141,446       |
|                                                                                                                                                                                                |                                                    |   |                                                    |
|         Total        current assets                                                                                                                         | 13,473,047                                              |   | 10,997,903                                              |
|                                                                                                                                                                                                |                                                    |   |                                                    |
| Net property and equipment                                                                                                                                                                          | 6,521,354                                               |   | 6,805,295                                               |
|                                                                                                                                                                                                |                                                    |   |                                                    |
| Other Assets                                                                                                                                                                                        |                                                    |   |                                                    |
|   Non-compete        agreements, net                                                                                                                                                      | 25,591                                                  |   | 51,180                                                  |
|   Goodwill                                                                                                                                                                                | 560,005                                                 |   | 560,005                                                 |
|   Net investment        in sales-type leases                                                                                                                                              | 233,777                                                 |   | 263,921                                                 |
|   Notes receivable                                                                                                                                                                        | 40,192                                                  |   | 37,735                                                  |
|   Other assets                                                                                                                                                                            |         320,932 |   |         196,740 |
|                                                                                                                                                                                                |     1,180,497                       |   |     1,109,581                       |
|                                                                                                                                                                                                |                                                    |   |                                                    |
|                                                                                                                                                                                                | $        21,174,898                                     |   | $        18,912,779                                     |
|                                                                                                                                                                                                |                                                    |   |                                                    |
| See accompanying notes to        consolidated financial statements.                                                                                                                                 |
|                                                                                                                                                                                                |
| 3                                                                                                                                                                                                   |

 

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

|                                                                                                                                                                                                      | **March 31,        2003**                         |   | **December 31,        2002**                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------|--------|---------------------------------------------------|
| Current liabilities                                                                                                                                                                                       |                                              |   |                                              |
|   Note payable to        bank                                                                                                                                                                   | $   2,000,000                 |   | $   1,750,000                 |
|   Current        maturities of long-term debt                                                                                                                                                   | 3,433,161                                    |   | 623,363                                      |
|   Current        maturities of capital lease obligation                                                                                                                                         | 102,309                                      |   | 100,827                                      |
|   Accounts payable                                                                                                                                                                              | 10,886,117                                   |   | 8,676,287                                    |
|   Other current        liabilities                                                                                                                                                              |       476,984  |   |       353,920  |
|        Total        current liabilities                                                                                                                                | 16,898,571                                   |   | 11,504,397                                   |
|                                                                                                                                                                                                      |                                              |   |                                              |
| Long-term liabilities                                                                                                                                                                                     |                                              |   |                                              |
|   Long-term debt                                                                                                                                                                                | 22,033                                       |   | 3,014,225                                    |
|   Capital lease        obligation                                                                                                                                                               | 707,831                                      |   | 733,971                                      |
|   Deferred income        taxes                                                                                                                                                                  |       340,177  |   |      271,277        |
|                                                                                                                                                                                                      | 1,070,041                                    |   | 4,019,473                                    |
|                                                                                                                                                                                                      |                                              |   |                                              |
| Stockholders' equity                                                                                                                                                                                      |                                              |   |                                              |
|   Common        stock, $.01 par value,            10,000,000 shares authorized,        1,957,500 shares issued,            1,614,800 shares outstanding | 19,575                                       |   | 19,575                                       |
|   Additional        paid-in capital                                                                                                                                                             | 1,925,321                                    |   | 1,925,321                                    |
|   Retained        earnings                                                                                                                                                                      | 1,950,138                                    |   | 2,132,761                                    |
|   Treasury stock,        342,700 shares at cost                                                                                                                                                 |     (688,748)                 |   |      (688,748)           |
|                                                                                                                                                                                                      |    3,206,286                  |   |     3,388,909            |
|                                                                                                                                                                                                      | $        21,174,898                          |   | $        18,912,779                          |
|                                                                                                                                                                                                      |                                              |   |                                              |
| See accompanying notes to        consolidated financial statements.                                                                                                                                       |
|                                                                                                                                                                                                      |
| 4                                                                                                                                                                                                         |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |
| CONDENSED CONSOLIDATED        STATEMENTS OF OPERATIONS       |
| THREE MONTHS ENDED        MARCH 31, 2003 AND 2002            |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                | **2003**                                           |   | **2002**                                                           |
|---------------------------------------------------------------------|----------------------------------------------------|--------|--------------------------------------------------------------------|
|                                                                |                                               |   |                                                               |
| Revenue                                                             | $        25,841,082                           |   | $        22,966,963                                           |
|                                                                |                                               |   |                                                               |
| Cost of goods sold                                                  |   24,701,260                        |   |  21,287,569                                              |
|                                                                |                                               |   |                                                               |
| Selling, general and        administrative                          |     1,380,314             |   |    1,513,482                                   |
|                                                                |                                               |   |                                                               |
| **Income (loss) before        other expenses**                      | (240,492)                                          |   | 165,912                                                       |
|                                                                |                                               |   |                                                               |
| Other expenses, net                                                 |        (63,880) |   |        (74,387)                 |
|                                                                |                                               |   |                                                               |
| **Income (loss) before        income taxes**                        | (304,372)                                          |   | 91,525                                                        |
|                                                                |                                               |   |                                                               |
| Provision (benefit) for        income taxes                         |     (121,749)                  |   |          36,610  |
|                                                                |                                               |   |                                                               |
| **Net income (loss)**                                               | $  (182,623)                             |   | $             54,915                 |
|                                                                |                                               |   |                                                               |
| Basic earnings (loss) per        share                              | $(0.11)                                            |   | $0.03                                                         |
|                                                                |                                               |   |                                                               |
| Diluted earnings (loss) per        share                            | $(0.11)                                            |   | $0.03                                                         |
|                                                                |                                               |   |                                                               |
| Weighted shares outstanding:                                        |                                               |   |                                                               |
|    Basic                                             | 1,614,800                                     |   | 1,660,400                                                     |
|                                                                |                                               |   |                                                               |
|    Diluted                                           | 1,614,800                                     |   | 1,674,289                                                     |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 5                                                                   |

 

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| INDUSTRIAL        SERVICES OF AMERICA, INC. AND SUBSIDIARIES                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                       |
| CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                     |
| THREE        MONTHS ENDED MARCH 31, 2003 AND 2002                                                                                          |
| (UNAUDITED)                                                                                                                                |
|                                                                                                                                       |
|                                                                                                                                       | **2003** |   | **2002** |
| **Cash flows from operating        activities**                                                                                            |   |   |   |
|   Net income        (loss)                                                                                                       | $  (182,623)  |   | $    54,915  |
|   Adjustments to        reconcile net income (loss) to            net cash from operating        activities: |   |   |   |
|       Depreciation        and amortization                                                                   | 446,569  |   | 436,555  |
|       Deferred        income tax                                                                             | (121,188) |   | -    |
|       Loss        on sale of property and equipment                                                          | 15,602  |   | 12,298  |
|       Change        in assets and liabilities                                                                |   |   |   |
|         Receivables                                                                                | (2,771,399) |   | (1,707,139)  |
|         Inventories                                                                                | 181,616  |   | 184,558  |
|         Other        assets                                                                        | (143,657)  |   | 6,506  |
|         Accounts        payable                                                                    | 2,209,830  |   | (114,660)  |
|         Other        current liabilities                                                           |       123,064  |   |      (19,982)  |
|             Net        cash from operating activities                          | (242,186)  |   | (1,146,949)  |
|                                                                                                                                       |   |   |   |
|                                                                                                                                       |   |   |   |
| **Cash flows from investing        activities**                                                                                            |   |   |   |
|   Proceeds from        equipment under sales-type leases                                                                         | 37,852  |   | 25,891  |
|   Proceeds from        sale of property and equipment                                                                            | 10,100  |   | -  |
|   Purchases of        property and equipment                                                                                     |    (162,741) |   |      (278,647) |
|           Net        cash from investing activities                                      | (114,789) |   | (252,756) |
|                                                                                                                                       |   |   |   |
| **Cash flows from financing        activities**                                                                                            |   |   |   |
|   Net borrowings        on note payable to bank                                                                                  | 250,000  |   | 1,500,000  |
|   Payments on        capital lease obligation                                                                                    | (24,658) |   | (7,635)  |
|   Payments on        long-term debt                                                                                              |    (182,394) |   |      (185,602) |
|           Net        cash from financing activities                                      |        42,948  |   |     1,306,763 |
|                                                                                                                                       |   |   |   |
| Net decrease in cash                                                                                                                       | (314,027) |   | (92,942) |
|                                                                                                                                       |   |   |   |
| Cash at beginning of period                                                                                                                |   1,630,028  |   |      776,745  |
|                                                                                                                                       |   |   |   |
| **Cash at end of period**                                                                                                                  | $ 1,316,001  |   | $         683,803  |
|                                                                                                                                       |
| See accompanying notes to        consolidated financial statements.                                                                        |
|                                                                                                                                       |
| 6                                                                                                                                          |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| NOTES TO CONDENSED        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **NOTE 1 – BASIS OF PRESENTATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| The accompanying unaudited condensed        consolidated financial statements have been prepared in        accordance with generally accepted accounting principles        for interim financial reporting. They do not include all        information and footnotes required by generally accepted        accounting principles for complete consolidated financial        statements. The information furnished includes all        adjustments which are, in the opinion of management,        necessary to present fairly the Registrant's financial        position as of March 31, 2003 and the results of its        operations and changes in cash flow for the periods ended        March 31, 2003 and 2002. Results of operations for the        period ended March 31, 2003 are not necessarily        indicative of the results that may be expected for the        entire year. Additional information, including the        audited December 31, 2002 consolidated financial        statements and the Summary of Significant Accounting        Policies, is included in the Registrant's Annual Report        on Form 10-K for the year ended December 31, 2002 on file        with the Securities and Exchange Commission. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **NOTE 2 – ESTIMATES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| In preparing the condensed consolidated        financial statements in conformity with generally        accepted accounting principles, management must make        estimates and assumptions. These estimates and        assumptions affect the amounts reported for assets,        liabilities, revenues and expenses, as well as affecting        the disclosures provided. Future results could differ        from the current estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **NOTE 3 – RECENTLY ENACTED        ACCOUNTING PRINCIPLES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| During January of 2003 the Company        adopted several new accounting principles, none of which        have had an impact on the Company’s consolidated        financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **NOTE 4 – LONG TERM DEBT AND        NOTES PAYABLE TO BANK**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| The terms of the Company’s bank        debt place certain operational and financial position        requirements on the Company. As of, and for the quarter        ended, March 31, 2003, the Company was not in compliance        with these loan covenants. The Company has received a        waiver of compliance from the bank for this period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| The loan covenants are measured        quarterly. If the Company does not meet the covenant        requirements the bank has the right to accelerate payment        of the debt. Based on the Company’s recent        operations it is likely that one or more of the covenants        may not be met at June 30, 2003, the next measurement        date. As a result, all of the Company’s bank debt        has been reflected as short term, even though $2,807,463        does not mature until after March 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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| The Company is currently working with        the bank on its overall debt structure and to develop        appropriate covenants based on the nature of the        Company’s operations and financing needs. The recent        property acquisition (see note 8) was financed with the        Company’s operating line, and management intends to        convert that debt to term debt, which matches the cash        flows derived from the financed asset.                                                                                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Management believes that the Company's        debt agreements will be modified by June 30, 2003 in a        manner such that it will be likely that the Company will        be able to meet the requirements of the performance        covenants.                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **NOTE 5 – RECLASSIFICATIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Certain prior year amounts have been        reclassified to conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **NOTE 6 – SEGMENT INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| The Company's operations include three        primary segments: ISA Recycling, Computerized Waste        Systems (CWS), and Waste Equipment Sales & Service        (WESSCO). ISA recycling provides products and services to        meet the needs of its customers related to ferrous,        non-ferrous and fiber recycling at two locations in the        Midwest. CWS provides waste disposal services including        contract negotiations with vendors, centralized billing,        invoice auditing, and centralized dispatching. WESSCO        sells, leases, and services waste handling and recycling        equipment. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| The Company's three segments are        determined by the products and services that each offers.        The recycling segment generates its revenues based on        buying and selling of ferrous, non-ferrous and fiber        scrap; CWS's revenues consist of charges to customers for        waste disposal services; and WESSCO sales and lease        income comprise the primary source of revenue for this        segment.                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| The Company evaluates segment        performance based on gross profit or loss and the        evaluation process for each segment includes only direct        expenses and selling, general and administrative costs,        omitting any other income and expense and income taxes.                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

| ******For the        three months ended****March****31, 2003** | **ISA****Recycling**           |   | **Computerized         Waste****Systems**                                                                              |   | **Waste         Equipment        Sales &****Services**                                           |   | **Corporate**                                                                                      |   | **Segment****Totals**          |
|----------------------------------------------------------------|--------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|--------------------------------|
|                                                           |                           |   |                                                                                                                   |   |                                                                                                 |   |                                                                                               |   |                           |
| Recycling        revenues                                      | $        6,417,769        |   | $                         -  |   | $                      -  |   | $               -  |   | $        6,417,769        |
| Equipment sales, service                                       |                           |   |                                                                                                                   |   |                                                                                                 |   |                                                                                               |   |                           |
|    and        leasing revenues                  | -                         |   | -                                                                                                                 |   | 550,446                                                                                         |   | -                                                                                             |   | 550,446                   |
| Management fees                                                | -                         |   | 18,872,867                                                                                                        |   | -                                                                                               |   | -                                                                                             |   | 18,872,867                |
| Cost of goods sold                                             | (6,359,970)                    |   | (18,062,570)                                                                                                           |   |   (278,720)                                                                                |   | -                                                                                             |   | (24,701,260)                   |
| Selling, general and                                           |                           |   |                                                                                                                   |   |                                                                                                 |   |                                                                                               |   |                           |
|    administrative        expenses               | (288,454)                      |   |      (478,307)                                                                                |   |   (175,029)                                                                                |   |   (438,524)                                                                              |   |   (1,380,314)        |
|                                                           |                           |   |                                                                                                                   |   |                                                                                                 |   |                                                                                               |   |                           |
| Segment profit (loss)                                          | $         (230,655)  |   | $     331,990                                                                            |   | $      96,697                                                     |   | $  (438,524)                                                                             |   | $         (240,492)  |
|                                                           |                           |   |                                                                                                                   |   |                                                                                                 |   |                                                                                               |   |                           |
| Segment assets                                                 | $ 9,888,831          |   | $         7,576,768                                                                                          |   | $        1,921,661                                                                              |   | $  1,787,638                                                                             |   | $21,174,898               |

|   |
|--------|
| 8      |
|   |

 

----

 

| ******For        the         three months ended****March****31,        2002** | **ISA****Recycling**                      |   | **Computerized         Waste****Systems**                                                                      |   | **Waste         Equipment        Sales &****Services**                                         |   | **Corporate**                                                                                      |   | **Segment****Totals**                        |
|-------------------------------------------------------------------------------|-------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                                          |                                      |   |                                                                                                           |   |                                                                                               |   |                                                                                               |   |                                         |
| Recycling revenues                                                            | $  4,510,776               |   | $                 -  |   | $               -  |   | $               -  |   | $   4,510,776            |
| Equipment sales, service                                                      |                                      |   |                                                                                                           |   |                                                                                               |   |                                                                                               |   |                                         |
|    and        leasing revenues                                 | -                                    |   | -                                                                                                         |   | 472,575                                                                                       |   | -                                                                                             |   | 472,575                                 |
| Management fees                                                               | -                                    |   | 17,983,612                                                                                                |   | -                                                                                             |   | -                                                                                             |   | 17,983,612                              |
| Cost of goods sold                                                            | (4,258,513)                               |   | (16,808,126)                                                                                                   |   | (220,930)                                                                                          |   | -                                                                                             |   | (21,287,569)                                 |
| Selling, general and                                                          |                                      |   |                                                                                                           |   |                                                                                               |   |                                                                                               |   |                                         |
|    administrative        expenses                              |      (334,956)   |   |    (552,454)                                                                                    |   |    (124,602)                                                                        |   |   (501,470)                                                                              |   |   (1,513,482)                      |
|                                                                          |                                      |   |                                                                                                           |   |                                                                                               |   |                                                                                               |   |                                         |
| Segment profit (loss)                                                         | $           (82,693)  |   | $      623,032                                                              |   | $    127,043                                                              |   | $  (501,470)                                                                             |   | $     165,912  |
|                                                                          |                                      |   |                                                                                                           |   |                                                                                               |   |                                                                                               |   |                                         |
| Segment assets                                                                | $  8,598,274               |   | $          7,643,305                                                                            |   | $        1,619,274                                                                            |   | $    722,756                                                              |   | $18,583,609                             |

|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **NOTE 7 – INVENTORIES**                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Inventories consist of the        following:                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | **March 31,****2003** |   | **December 31,****2002** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           | Equipment and parts | $   114,323 |   | $    100,112 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           | Ferrous materials | 900,183 |   | 1,144,280 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           | Non-ferrous materials |     687,040 |   |      638,770 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |    Total        inventories | $        1,701,546 |   | $        1,883,162 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **NOTE 8 – SUBSEQUENT        EVENT**                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| On May 1, 2003, the        Registrant purchased 10.723 acres at 7110 Grade Lane for        $1,500,000. It includes a 146,627 square foot commercial        warehouse building. The property is adjacent to the        Registrant’s headquarters. The Registrant financed        the property with its revolving credit facility. On May        29, 2003, the Registrant will finance the property with        long-term debt with a bank. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |
| ITEM 2: MANAGEMENT'S        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND        RESULTS OF OPERATIONS.                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Liquidity and Capital        Resources                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         As        of March 31, 2003 the Registrant held cash and cash        equivalents of $1,316,001.                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         The        Registrant derives its revenues from several sources,        including management services, equipment sales and        leasing and from its recycling operations. Management        services comprised approximately 73.0% and 78.3% of the        Registrant's total revenues for the quarters ended March        31, 2003 and 2002, respectively.                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 9                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

----

 

|         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 March 31, 2003 there was $2,000,000 drawn against this        line of credit.                                                                                                                                                                                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         The        terms of the Company’s bank debt place certain        operational and financial position requirements on the        Company. As of, and for the quarter ended, March 31,        2003, the Company was not in compliance with these loan        covenants. The Company has received a waiver of        compliance from the bank for this period.                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         The        loan covenants are measured quarterly. If the Company        does not meet the covenant requirements the bank has the        right to accelerate payment of the debt. Based on the        Company’s recent operations it is likely that one or        more of the covenants may not be met at June 30, 2003,        the next measurement date. As a result, all of the        Company’s bank debt has been reflected as short        term, even though $2,807,463 does not mature until after        March 31, 2004. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         The        Company is currently working with the bank on its overall        debt structure and to develop appropriate covenants based        on the nature of the Company’s operations and        financing needs. The recent property acquisition (see        note 8) was financed with the Company’s operating        line, and management intends to convert that debt to term        debt, which matches the cash flows derived from the        financed asset.                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         Management        believes that the Company’s debt agreements will be        modified by June 30, 2003 in a manner such that it will        be likely that the Company will be able to meet the        requirements of the performance covenants                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         The        following table presents, for the periods indicated, the        percentage relationship which certain captioned items in        the Registrant's Statements of Operations bear to total        revenues and other pertinent data:                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

|                                                                                                    | **Quarter ended March        31,** |
|---------------------------------------------------------------------------------------------------------|------------------------------------|
|                                                                                                    | **2003**                           |   | **2002** |
| Statements of        Operations Data:                                                                   |                               |   |   |
| Total Revenue        .................................................................................. | 100.0%                             |   | 100.0% |
| Cost of goods        sold............................................................................   | 95.6%                              |   | 92.7% |
| Selling, general        and administrative expenses        ..................................           | 5.3%                               |   | 6.6% |
| Income (loss)        before other        expenses..................................................     | (0.9)%                             |   | 0.7% |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Quarter ended March 31, 2003 compared        to quarter ended March 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Total        revenue increased $2,874,119 or 12.5% to $25,841,082 in        2003 compared to $22,966,963 in 2002. Recycling revenue        increased $1,906,993 or 42.3% to $6,417,769 in 2003        compared to $4,510,776 in 2002. This is due to an        increase in the volume of shipments as well as an        increase in the price of the commodities. Management        services revenue increased $889,255 or 4.9% to        $18,872,867 in 2003 compared to $17,983,612 in 2002. This        is due to an increase in revenues per the customer        locations while maintaining a consistent customer base.        Equipment, service and leasing revenue increased $77,871        or 16.5% to $550,446 in 2003 compared to $472,575 in        2002. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

----

 

|         Total        cost of goods sold increased $3,413,691 or 16.0% to        $24,701,260 in 2003 compared to $21,287,569 in 2002.        Recycling cost of goods sold increased $2,101,457 or        49.3% to $6,359,970 in 2003 compared to $4,258,513 in        2002. This is due to higher commodity purchase prices in        the recycling market. Management services cost of goods        sold increased $1,254,444 or 7.5% to $18,062,570 in 2003        compared to $16,808,126 in 2002. This is due to increases        in vendor service fees. Equipment, service and leasing        cost of goods sold increased $57,790 or 26.2% to 278,720        in 2003 compared to $220,930 in 2002. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         Selling,        general and administrative expenses decreased $133,168 or        8.8% to $1,380,314 in 2003 compared to $1,513,482 in        2002. This decrease is due to a reduction of payroll        expenses, consulting expenses, insurance expenses and        marketing expenses. As a percentage of revenue, selling,        general and administrative expenses were 5.3% in 2003        compared to 6.6% in 2002.                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Financial condition at March 31, 2003        compared to December 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         Accounts        receivable trade increased $2,768,942 or 40.6% to        $9,572,798 as of March 31, 2003 compared to $6,803,856 as        of December 31, 2002. This is due to an increase in        revenues per the customer locations while maintaining a        consistent customer base in the Management Services        segment as well as an increase in the volume of shipments        in the Recycling segment.                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         Accounts        payable trade increased $2,209,830 or 25.5% to        $10,886,117 as of March 31, 2003 compared to $8,676,287        as of December 31, 2002. Accounts payable trade increased        due to an increase in expenses per the customer locations        while maintaining a consistent customer base in the        Management Services segment as well as an increase in the        volume of commodity purchases in the Recycling segment.                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         Working        capital decreased $2,919,030 to a deficit of $3,425,524        as of March 31, 2003 compared to a deficit of $506,494 as        of December 31, 2002. This deficit is primarily due to        the reclassification of long-term debt f $2,807,463 as        current maturities of long-term debt (See note 4).                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 11                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

----

 

| Item        3:    Quantitative and Qualitative        Disclosures About Market Risk.                                                                                                                                                                                                                                                                                                                                                        |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         There        is market risk in our recycling segment, since it is        driven by fluctuating commodity prices. Management        mitigates this risk by selling our product on a monthly        contract basis, insulating the company from large        fluctuations in the commodity prices.                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ITEM 4:    CONTROLS        AND PROCEDURES                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (a)       Evaluation        of disclosure controls and procedures.                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         Based        on the evaluation of the Chief Executive Officer and the        Chief Financial Officer of the Registrant of its internal        controls and procedures as of March 25, 2003, 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 March 25, 2003.                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 12                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

----

 

| PART II        – OTHER INFORMATION |
|-----------------------------------------|
|                                    |   |
|                                    |   |
| Item 1.                                 | Legal        Proceedings |
|                                    | None |
|                                    |   |
| Item 2.                                 | Changes in        Securities and Use of Proceeds |
|                                    | None |
|                                    |   |
| Item 3.                                 | Defaults upon        Senior Securities |
|                                    | None |
|                                    |   |
| Item 4.                                 | Submission of        Matters to a Vote of Security Holders |
|                                    | None |
|                                    |   |
| Item 5.                                 | Other        Information |
|                                    | None |
|                                    |   |
| Item 6.                                 | Exhibits and        Reports on Form 8-K |
|                                    |   |
|                                    | (a) | Exhibits filed        with, or incorporated by reference herein, this report        are identified in the Index to Exhibits appearing in this        report. |
|                                    |
| 13                                      |

 

----

 

| **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: May 20, 2003                                                                                                                                                                                            |     /s/  Harry        Kletter                                  |
|                                                                                                                                                                                                          | Chairman and Chief Executive        Officer |
|                                                                                                                                                                                                          | (Principal Executive and        Financial |
|                                                                                                                                                                                                          |   Officer) |
|                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                          |
| 14                                                                                                                                                                                                            |

 

----

 

| **CERTIFICATIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Harry Kletter and Alan L.        Schroering, being the Chief Executive Officer and Chief        Financial Officer, respectively, of Industrial Services        of America, Inc., hereby certify as of this 20th day of        May, 2003, that the Form 10-Q for the Quarter ended March        31, 2003, fully complies with the requirements of Section        13(a) or 15(d) of the Securities Exchange Act of 1934 and        that the information contained in the Form 10-Q fairly        presents, in all material respects, the financial        condition and results of operations of Industrial        Services of America, Inc. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | /s/ Harry        Kletter                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Harry Kletter, Chief        Executive Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | /s/ Alan L.        Schroering                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Alan L. Schroering, Chief        Financial Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

----

 

| **INDEX        TO EXHIBITS** |
|------------------------------|
|                         |   |   |
| **Exhibit****Number**        |   | **Description of Exhibits** |
|                         |   |   |
| 99.3                         |   | Section 906 Certification of        Harry Kletter for the Form 10-Q for the quarter ended        March 31, 2003. |
| 99.4                         |   | Section 906 Certification of        Alan Schroering for the Form 10-Q for the quarter ended        March 31, 2003. |