| **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 June 30, 2003                                                                                                                                                                                                                                                                             |
| OR                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| [  ]   TRANSITION        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE        SECURITIES EXCHANGE ACT OF 1934        For the Transition Period From _________ to ________                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Commission File Number        0-20979                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| INDUSTRIAL        SERVICES OF AMERICA, INC.(Exact Name of Registrant as specified in its        Charter)                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Florida                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 59-0712746 |
| (State or        other jurisdiction of                                                                                                                                                                                                                                                                                                                                                                                                                     | (IRS        Employer |
| Incorporation        or Organization)                                                                                                                                                                                                                                                                                                                                                                                                                      | Identification        No.) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 7100 Grade        Lane, PO Box 32428        Louisville, Kentucky 40232        (Address of principal executive offices)                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (502)        368-1661        (Registrant's Telephone Number, Including Area Code)                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Check whether the registrant        (1) has filed all Reports required to be filed by Section        13 or 15(d) of the Securities Exchange Act of 1934 during        the preceding 12 months (or for such shorter period that        the registrant was required to file such reports), and        (2) has been subject to such filing requirements for the        past 90 days. YES    X      NO        ___ |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate by check mark        whether the registrant is an accelerated filer (as        defined in rule 12b-2 of the Act). Yes       No   X                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate the number of        shares outstanding of each of the issuer's classes of        common stock, as of June 30, 2003: 1,606,900.                                                                                                                                                                                                                                                                                                                   |

 

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| INDUSTRIAL        SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |   |   |
|                                                         | INDEX |   |
|                                                         |   |   |
|                                                         |   | **Page No.** |
| Part I                                                       | Financial Information |   |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Balance Sheets |   |
|                                                         |    June 30,        2003 and December 31, 2002 | 3 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Operations        Three Months Ended |   |
|                                                         |    June 30,        2003 and 2002 | 5 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Operations        Six Months Ended |   |
|                                                         |    June 30,        2003 and 2002 | 6 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Cash Flows        Six Months Ended |   |
|                                                         |    June 30,        2003 and 2002 | 7 |
|                                                         |   |   |
|                                                         | Notes to Condensed        Consolidated |   |
|                                                         |    Financial        Statements | 8 |
|                                                         |   |   |
|                                                         | Management's Discussion and        Analysis |   |
|                                                         |    of        Financial Condition and Results |   |
|                                                         |    of        Operations | 11 |
|                                                         |   |   |
|                                                         |   |   |
| Part II                                                      | Other Information | 14 |
|                                                         |   |   |
|                                                         |   |   |

 

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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                                                       |
|                                                         |

|                                                                                                                                                                                                | **June 30,        2003**                                |   | **December 31,        2002**                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------|--------|---------------------------------------------------------|
| Current assets                                                                                                                                                                                      |                                                    |   |                                                    |
|   Cash and cash        equivalents                                                                                                                                                        | $    346,490                        |   | $   1,630,028                            |
|   Accounts        receivable - trade (after allowance             for doubtful accounts of $60,000        in 2003            and $50,000 in 2002) | 9,279,481                                               |   | 6,803,856                                               |
|   Income tax        refund receivable                                                                                                                                                     | -                                                       |   | 79,593                                                  |
|   Net investment        in sales-type leases                                                                                                                                              | 110,209                                                 |   | 142,218                                                 |
|   Inventories                                                                                                                                                                             | 1,557,838                                               |   | 1,883,162                                               |
|   Deferred income        taxes                                                                                                                                                            | 383,200                                                 |   | 317,600                                                 |
|   Other                                                                                                                                                                                   |        147,179       |   |        141,446       |
|                                                                                                                                                                                                |                                                    |   |                                                    |
|         Total        current assets                                                                                                                         | 11,824,397                                              |   | 10,997,903                                              |
|                                                                                                                                                                                                |                                                    |   |                                                    |
| Net property and equipment                                                                                                                                                                          | 8,278,904                                               |   | 6,805,295                                               |
|                                                                                                                                                                                                |                                                    |   |                                                    |
| Other Assets                                                                                                                                                                                        |                                                    |   |                                                    |
|   Non-compete        agreements, net                                                                                                                                                      | -                                                       |   | 51,180                                                  |
|   Goodwill                                                                                                                                                                                | 560,005                                                 |   | 560,005                                                 |
|   Net investment        in sales-type leases                                                                                                                                              | 209,631                                                 |   | 263,921                                                 |
|   Notes receivable                                                                                                                                                                        | 35,887                                                  |   | 37,735                                                  |
|   Other assets                                                                                                                                                                            |         465,621 |   |         196,740 |
|                                                                                                                                                                                                |     1,271,144                       |   |     1,109,581                       |
|                                                                                                                                                                                                |                                                    |   |                                                    |
|                                                                                                                                                                                                | $        21,374,445                                     |   | $        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                  |
|                                                         |

|                                                                                                                                                                                                                                                 | **June 30,        2003**                                                               |   | **December 31,        2002**                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|--------|---------------------------------------------------|
| Current liabilities                                                                                                                                                                                                                                  |                                                                                   |   |                                              |
|   Note payable to        bank                                                                                                                                                                                                              | $             -  |   | $   1,750,000                 |
|   Current        maturities of long-term debt                                                                                                                                                                                              | 795,992                                                                           |   | 623,363                                      |
|   Current        maturities of capital lease obligation                                                                                                                                                                                    | 154,454                                                                           |   | 100,827                                      |
|   Accounts payable                                                                                                                                                                                                                         | 10,991,543                                                                        |   | 8,676,287                                    |
|   Income tax        payable                                                                                                                                                                                                                | 41,615                                                                            |   | -                                            |
|   Other current        liabilities                                                                                                                                                                                                         |       512,257                                       |   |       353,920  |
|        Total        current liabilities                                                                                                                                                                           | 12,495,861                                                                        |   | 11,504,397                                   |
|                                                                                                                                                                                                                                                 |                                                                                   |   |                                              |
| Long-term liabilities                                                                                                                                                                                                                                |                                                                                   |   |                                              |
|   Long-term debt,        less current maturities                                                                                                                                                                                           | 3,978,823                                                                         |   | 3,014,225                                    |
|   Capital lease        obligation, less current obligation                                                                                                                                                                                 | 911,581                                                                           |   | 733,971                                      |
|   Deferred income        taxes                                                                                                                                                                                                             |       340,177                                       |   |      271,277        |
|                                                                                                                                                                                                                                                 | 5,230,581                                                                         |   | 4,019,473                                    |
|                                                                                                                                                                                                                                                 |                                                                                   |   |                                              |
| Stockholders' equity                                                                                                                                                                                                                                 |                                                                                   |   |                                              |
|   Common        stock, $.01 par value, 10,000,000 shares authorized,             1,957,500 shares issued and        1,606,900 and             1,614,800 shares outstanding in        2003 and 2002 | 19,575                                                                            |   | 19,575                                       |
|   Additional        paid-in capital                                                                                                                                                                                                        | 1,925,321                                                                         |   | 1,925,321                                    |
|   Retained        earnings                                                                                                                                                                                                                 | 2,406,765                                                                         |   | 2,132,761                                    |
|   Treasury        stock, 350,600 and 342,700 shares at cost in            2003 and 2002                                                                                                                                |       (703,658)                                          |   |      (688,748)           |
|                                                                                                                                                                                                                                                 |     3,648,003                                                 |   |     3,388,909            |
|                                                                                                                                                                                                                                                 | $        21,374,445                                                               |   | $        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        JUNE 30, 2003 AND 2002             |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                | **2003**                                                |   | **2002**                                                           |
|---------------------------------------------------------------------|---------------------------------------------------------|--------|--------------------------------------------------------------------|
|                                                                |                                                    |   |                                                               |
| Revenue                                                             | $        30,860,180                                |   | $        26,473,002                                           |
|                                                                |                                                    |   |                                                               |
| Cost of goods sold                                                  |   28,611,559                             |   |  24,671,427                                              |
|                                                                |                                                    |   |                                                               |
| Selling, general and        administrative expenses                 |     1,254,013                  |   |    1,472,336                                   |
|                                                                |                                                    |   |                                                               |
| **Income before other        (expense) income**                     | 994,608                                            |   | 329,239                                                       |
|                                                                |                                                    |   |                                                               |
| Other (expense) income, net                                         |      (233,563)                 |   |          58,549  |
|                                                                |                                                    |   |                                                               |
| **Income before income        taxes**                               | 761,045                                            |   | 387,788                                                       |
|                                                                |                                                    |   |                                                               |
| Provision for income taxes                                          |        304,418  |   |        155,115             |
|                                                                |                                                    |   |                                                               |
| **Net income**                                                      | $      456,627       |   | $      232,673                  |
|                                                                |                                                    |   |                                                               |
| Basic earnings per share                                            | $0.28                                              |   | $0.14                                                         |
|                                                                |                                                    |   |                                                               |
| Diluted earnings per share                                          | $0.28                                              |   | $0.14                                                         |
|                                                                |                                                    |   |                                                               |
| Weighted shares outstanding:                                        |                                                    |   |                                                               |
|    Basic                                             | 1,610,476                                          |   | 1,657,316                                                     |
|                                                                |                                                    |   |                                                               |
|    Diluted                                           | 1,610,476                                          |   | 1,671,205                                                     |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 5                                                                   |

 

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

|                                                                | **2003**                                                |   | **2002**                                    |
|---------------------------------------------------------------------|---------------------------------------------------------|--------|---------------------------------------------|
|                                                                |                                                    |   |                                        |
| Revenue                                                             | $        56,701,262                                |   | $        49,439,965                    |
|                                                                |                                                    |   |                                        |
| Cost of goods sold                                                  |   53,312,819                             |   |  45,958,996                       |
|                                                                |                                                    |   |                                        |
| Selling, general and        administrative expenses                 |     2,634,327                  |   |    2,985,818            |
|                                                                |                                                    |   |                                        |
| **Income before other        expense**                              | 754,116                                            |   | 495,151                                |
|                                                                |                                                    |   |                                        |
| Other expense                                                       |      (297,443)                 |   |      (15,838)      |
|                                                                |                                                    |   |                                        |
| **Income before income        taxes**                               | 456,673                                            |   | 479,313                                |
|                                                                |                                                    |   |                                        |
| Provision for income taxes                                          |        182,669  |   |      191,725  |
|                                                                |                                                    |   |                                        |
| **Net income**                                                      | $     274,004             |   | $   287,588             |
|                                                                |                                                    |   |                                        |
| Basic earnings per share                                            | $0.17                                              |   | $0.17                                  |
|                                                                |                                                    |   |                                        |
| Diluted earnings per share                                          | $0.17                                              |   | $0.17                                  |
|                                                                |                                                    |   |                                        |
| Weighted shares outstanding:                                        |                                                    |   |                                        |
|    Basic                                             | 1,612,626                                          |   | 1,657,316                              |
|                                                                |                                                    |   |                                        |
|    Diluted                                           | 1,612,626                                          |   | 1,671,205                              |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 6                                                                   |

 

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| INDUSTRIAL        SERVICES OF AMERICA, INC. AND SUBSIDIARIES                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                |
| CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                              |
| SIX MONTHS        ENDED JUNE 30, 2003 AND 2002                                                                                      |
| (UNAUDITED)                                                                                                                         |
|                                                                                                                                |
|                                                                                                                                | **2003** |   | **2002** |
| **Cash flows from operating        activities**                                                                                     |   |   |   |
|   Net income                                                                                                              | $  274,004  |   | $           287,588  |
|   Adjustments to        reconcile net income to            net cash from operating        activities: |   |   |   |
|       Depreciation        and amortization                                                            | 905,454  |   | 880,991  |
|       Deferred        income tax                                                                      | 3,300  |   | -    |
|       (Gain)        loss on sale of property and equipment                                            | 12,743  |   | (9,683)  |
|       Change        in assets and liabilities                                                         |   |   |   |
|         Receivables                                                                         | (2,473,777) |   | (2,648,003) |
|         Inventories                                                                         | 325,324  |   | 62,906  |
|         Other        assets                                                                 | (195,022) |   | (55,444) |
|         Accounts        payable                                                             | 2,315,256  |   | 2,259,222  |
|         Other        current liabilities                                                    |       199,952  |   |      100,519  |
|             Net        cash from operating activities                   | 1,367,234  |   | 878,096  |
|                                                                                                                                |   |   |   |
|                                                                                                                                |   |   |   |
| **Cash flows from investing        activities**                                                                                     |   |   |   |
|   Proceeds from        equipment under sales-type leases                                                                  | 11,103  |   | 52,799  |
|   Purchases or        transfers of equipment under sales-type leases                                                      | 75,196  |   | (133,873)  |
|   Proceeds from        sale of property and equipment                                                                     | 13,600  |   | 52,500  |
|   Purchases of        property and equipment                                                                              |   (2,069,226) |   |      (546,753) |
|           Net        cash from investing activities                               | (1,969,327) |   | (575,327) |
|                                                                                                                                |   |   |   |
| **Cash flows from financing        activities**                                                                                     |   |   |   |
|   Net borrowings        (payments) on note payable to bank                                                                | (1,750,000) |   | 500,000  |
|   Purchase of        common stock                                                                                         | (14,910) |   | (26,613)  |
|   Payments on        capital lease obligation                                                                             | (53,762) |   | (15,411)  |
| Proceeds on long-term debt                                                                                                          | 1,500,000  |   |   |
|   Payments on        long-term debt                                                                                       |     (362,773) |   |     (302,467) |
|           Net        cash from financing activities                               |     (681,445) |   |      155,509  |
|                                                                                                                                |   |   |   |
| Net increase (decrease) in        cash                                                                                              | (1,283,538) |   | 458,278  |
|                                                                                                                                |   |   |   |
| Cash at beginning of period                                                                                                         |   1,630,028  |   |      776,745  |
|                                                                                                                                |   |   |   |
| **Cash at end of period**                                                                                                           | $    346,490  |   | $ 1,235,023  |
|                                                                                                                                |
| See accompanying notes to        consolidated financial statements.                                                                 |
|                                                                                                                                |
| 7                                                                                                                                   |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| NOTES TO CONDENSED        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **NOTE 1 – BASIS OF PRESENTATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| The accompanying unaudited condensed        consolidated financial statements have been prepared in        accordance with generally accepted accounting principles        for interim financial reporting. They do not include all        information and footnotes required by generally accepted        accounting principles for complete consolidated financial        statements. The information furnished includes all        adjustments which are, in the opinion of management,        necessary to present fairly the Registrant's financial        position as of June 30, 2003 and the results of its        operations and changes in cash flow for the periods ended        June 30, 2003 and 2002. Results of operations for the        period ended June 30, 2003 are not necessarily indicative        of the results that may be expected for the entire year.        Additional information, including the audited December        31, 2002 consolidated financial statements and the        Summary of Significant Accounting Policies, is included        in the Registrant's Annual Report on Form 10-K for the        year ended December 31, 2002 on file with the Securities        and Exchange Commission. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **NOTE 2 – ESTIMATES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| In preparing the condensed consolidated        financial statements in conformity with generally        accepted accounting principles, management must make        estimates and assumptions. These estimates and        assumptions affect the amounts reported for assets,        liabilities, revenues and expenses, as well as affecting        the disclosures provided. Future results could differ        from the current estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **NOTE 3 – RECLASSIFICATIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Certain prior year amounts have been        reclassified to conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **NOTE        4 – LONG TERM DEBT AND NOTES PAYABLE TO BANK**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| The terms of the Company’s bank        debt place certain operational and financial position        requirements on the Company. As of, and for the quarter        ended, June 30, 2003, the Company was in compliance with        these requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **NOTE 5 – PROPERTIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 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 long-term debt with a bank. The        Registrant has leased the property to an unrelated third        party for a term of two years ending April 30, 2005 with        a monthly amount of $21,350.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 8                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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| **NOTE 6 – RECENTLY ENACTED        ACCOUNTING STANDARDS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| In November 2002, the Financial        Accounting Standards Board (FASB) issued FASB        interpretation FIN 45, "Guarantor’s Accounting        and Disclosure Requirements for Guarantees, including        Indirect Guarantees of Indebtedness of Others." This        interpretation expands the disclosures to be made by a        guarantor in its financial statements about its        obligations under certain guarantees and requires the        guarantor to recognize a liability for the fair value of        an obligation assumed under a guarantee.                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| In January 2003, the Financial        Accounting Standards Board (FASB) issued FASB        Interpretation No. (FIN) 46, "Consolidation of        Variable Interest Entities." The objective of this        interpretation is to provide guidance on how to identify        a variable interest entity (VIE) and determine when the        assets, liabilities, non-controlling interests, and        results of operations of a VIE need to be included in a        company’s consolidated financial statements. A        company that holds variable interests in an entity will        need to consolidate the entity if the company’s        interest in the VIE is such that the company will absorb        a majority of the VIE’s expected losses and/or        receive a majority of the entity’s expected residual        returns, if they occur. FIN 46 also requires additional        disclosures by primary beneficiaries and other        significant variable interest holders. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| In addition, the Financial Accounting        Standard Board (FASB) recently issued two new accounting        standards, Statement 149, Amendment of Statement 133 on        Derivative Instruments and Hedging Activities, and        Statement 150, Accounting for Certain Financial        Instruments with Characteristics of both Liabilities and        Equities, both of which become effective in the quarter        beginning July 1, 2003. Because the company does not have        these instruments, the new accounting standards will not        materially affect the company’s operating results or        financial condition.                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **NOTE 7 – SEGMENT INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| The Company’s operations include        three primary segments: ISA Recycling, Computerized Waste        Systems (CWS), and Waste Equipment Sales & Service        (WESSCO). ISA recycling provides products and services to        meet the needs of its customers related to ferrous,        non-ferrous and fiber recycling at two locations in the        Midwest. CWS provides waste disposal services including        contract negotiations with vendors, centralized billing,        invoice auditing, and centralized dispatching. WESSCO        sells, leases, and services waste handling and recycling        equipment.                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| The Company’s three segments are        determined by the products and services that each offers.        The recycling segment generates its revenues based on        buying and selling of ferrous, non-ferrous and fiber        scrap; CWS’s revenues consist of charges to        customers for waste disposal services; and WESSCO sales        and lease income comprise the primary source of revenue        for this segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| The Company evaluates segment        performance based on gross profit or loss and the        evaluation process for each segment includes only direct        expenses and selling, general and administrative costs,        omitting any other income and expense and income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

----

 

| **NOTE 7 – SEGMENT INFORMATION        (Continued)** |
|----------------------------------------------------------|
|                                                     |

| ******For the        SIX months ended****JUNE****30, 2003** | **ISA****Recycling**                    |   | **Computerized         Waste****Systems**                                                                         |   | **Waste         Equipment        Sales &****Services**                                                   |   | **Corporate**                                                                                      |   | **Segment****Totals**                        |
|-------------------------------------------------------------|-----------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                        |                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                                         |
| Recycling        revenues                                   | $13,129,519                        |   | $                         -  |   | $                              -  |   | $               -  |   | $13,129,519                             |
| Equipment sales, service                                    |                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                                         |
|    and        leasing revenues               | -                                  |   | -                                                                                                            |   | 1,122,108                                                                                               |   | -                                                                                             |   | 1,122,108                               |
| Management fees                                             | -                                  |   | 42,449,635                                                                                                   |   | -                                                                                                       |   | -                                                                                             |   | 42,449,635                              |
| Cost of goods sold                                          | (12,896,262)                            |   | (39,848,775)                                                                                                      |   |   (567,782)                                                                                        |   | -                                                                                             |   | (53,312,819)                                 |
| Selling, general and                                        |                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                                         |
|    administrative        expenses            |      (516,761) |   |              (970,559)                                                                   |   |     (314,746)                                                                            |   |           (832,261)                                                                      |   |   (2,634,327)                      |
|                                                        |                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                                         |
| Segment profit (loss)                                       | $  (283,504)                  |   | $    1,630,301                                                                           |   | $    239,580                                                                        |   | $  (832,261)                                                                             |   | $     754,116  |
|                                                        |                                    |   |                                                                                                              |   |                                                                                                         |   |                                                                                               |   |                                         |
| Segment assets                                              | $         9,709,705           |   | $          6,403,538                                                                                    |   | $        2,148,201                                                                                      |   | $  3,113,001                                                                        |   | $21,374,445                             |

| ******For        the         SIX months ended****JUNE****30,        2002** | **ISA****Recycling**                      |   | **Computerized         Waste****Systems**                                                                              |   | **Waste         Equipment        Sales &****Services**                                                 |   | **Corporate**                                                                                      |   | **Segment****Totals**                        |
|----------------------------------------------------------------------------|-------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                                       |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
| Recycling revenues                                                         | $10,543,665                          |   | $                         -  |   | $                       -  |   | $               -  |   | $ 10,543,665                       |
| Equipment sales, service                                                   |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
|    and        leasing revenues                              | -                                    |   | -                                                                                                                 |   | 1,108,426                                                                                             |   | -                                                                                             |   | 1,108,426                               |
| Management fees                                                            | -                                    |   | 37,787,874                                                                                                        |   | -                                                                                                     |   | -                                                                                             |   | 37,787,874                              |
| Cost of goods sold                                                         | (9,473,269)                               |   | (35,920,913)                                                                                                           |   | (564,814)                                                                                                  |   | -                                                                                             |   | (45,958,996)                                 |
| Selling, general and                                                       |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
|    administrative        expenses                           |     (692,532)         |   |    (1,044,601)                                                                                          |   |    (277,206)                                                                                |   |   (971,479)                                                                              |   |   (2,985,818)                      |
|                                                                       |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
| Segment profit (loss)                                                      | $            377,864  |   | $      822,360                                                                      |   | $    266,406                                                                      |   | $  (971,479)                                                                             |   | $     495,151  |
|                                                                       |                                      |   |                                                                                                                   |   |                                                                                                       |   |                                                                                               |   |                                         |
| Segment assets                                                             | $  9,724,865               |   | $          7,540,960                                                                                    |   | $        1,849,926                                                                                    |   | $    920,214                                                              |   | $20,035,965                             |

 

| 10 |
|----|

 

----

 

| ITEM 2: MANAGEMENT'S        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND        RESULTS OF OPERATIONS.                                                                                                                                                                                                                                                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                          |
| Liquidity and Capital        Resources                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                          |
|         As        of June 30, 2003 the Registrant held cash and cash        equivalents of $346,490.                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                          |
|         The        Registrant derives its revenues from several sources,        including management services, equipment sales and        leasing and from its recycling operations. Management        services comprised approximately 74.9% and 76.4% of the        Registrant's total revenues for the quarters ended June        30, 2003 and 2002, respectively. |
|                                                                                                                                                                                                                                                                                                                                                                                                          |
|         The        Registrant currently maintains a $4.3 million senior        revolving credit facility with a bank. Outstanding        principal under this credit facility bears interest at        the Bank's prime rate and the line matures in June 2004.        At June 30, 2003 there was no draw against this line of        credit.                         |
|                                                                                                                                                                                                                                                                                                                                                                                                          |
| Results of Operations                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                          |
|         The        following table presents, for the periods indicated, the        percentage relationship which certain captioned items in        the Registrant's Statements of Operations bear to total        revenues and other pertinent data:                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          | **Six months ended June        30,** |
|                                                                                                                                                                                                                                                                                                                                                                                                          | **2003** |   | **2002** |
| Statements of        Operations Data:                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |
| Total Revenue        ..................................................................................                                                                                                                                                                                                                                                                                                       | 100.0% |   | 100.0% |
| Cost of goods        sold............................................................................                                                                                                                                                                                                                                                                                                         | 94.0% |   | 93.0% |
| Selling, general        and administrative expenses        ..................................                                                                                                                                                                                                                                                                                                                 | 4.7% |   | 6.0% |
| Income before        other        expenses..........................................................                                                                                                                                                                                                                                                                                                          | 1.3% |   | 1.0% |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Six months ended June 30, 2003        compared to six months ended June 30, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|         Total        revenue increased $7,261,297 or 14.7% to $56,701,262 in        2003 compared to $49,439,965 in 2002. Recycling revenue        increased $2,585,854 or 24.5% to $13,129,519 in 2003        compared to $10,543,665 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 $4,661,761 or 12.3% to        $42,449,635 in 2003 compared to $37,787,874 in 2002. This        is due to an increase in revenues per the customer        locations while maintaining a consistent customer base.        Equipment sales, service and leasing revenue increased        $13,682 or 1.2% to $1,122,108 in 2003 compared to        $1,108,426 in 2002. In the continued effort to lease        equipment for the long-term benefit of revenue streams        and customer retention in lieu of equipment sales,        leasing income increased approximately $123,000 as        equipment sales decreased approximately $120,000 compared        to the prior period. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 11                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

----

 

|         Total        cost of goods sold increased $7,353,823 or 16.0% to        $53,312,819 in 2003 compared to $45,958,996 in 2002.        Recycling cost of goods sold increased $3,422,993 or        36.1% to $12,896,262 in 2003 compared to $9,473,269 in        2002. This is due to higher commodity purchase prices in        the recycling market. Management services cost of goods        sold increased $3,927,862 or 10.9% to $39,848,775 in 2003        compared to $35,920,913 in 2002. This is due to increases        in vendor service fees. Equipment, service and leasing        cost of goods sold increased $2,968 or 0.5% to $567,782        in 2003 compared to $564,814 in 2002.                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         Selling,        general and administrative expenses decreased $351,491 or        11.8% to $2,634,327 in 2003 compared to $2,985,818 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 4.6% in 2003        compared to 6.0% in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         Other        expense increased $281,605 to $297,443 in 2003 compared        to $15,838 in 2002. This increase was primarily due to a        payment of $156,000 for terminating a property lease        agreement in the recycling division in 2003 and a bad        debt recovery of $73,861 in the management services        segment in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Three months ended June 30, 2003        compared to three months ended June 30, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         Total        revenue increased $4,387,178 or 16.6% to $30,860,180 in        2003 compared to $26,473,002 in 2002. Recycling revenue        increased $678,861 or 11.3% to $6,711,750 in 2003        compared to $6,032,889 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 $3,772,506 or 19.0% to        $23,576,768 in 2003 compared to $19,804,262 in 2002. This        is due to an increase in revenues per the customer        locations while maintaining a consistent customer base.        Equipment sales, service and leasing revenue decreased        $64,189 or 10.1% to $571,662 in 2003 compared to $635,851        in 2002. In the continued effort to lease equipment for        the long-term benefit of revenue streams and customer        retention in lieu of equipment sales, leasing income        increased approximately $70,000 as equipment sales        decreased approximately $120,000 compared to the prior        period. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         Total        cost of goods sold increased $3,940,132 or 16.0% to        $28,611,559 in 2003 compared to $24,671,427 in 2002.        Recycling cost of goods sold increased $1,321,536 or        25.3% to $6,536,292 in 2003 compared to $5,214,756 in        2002. This is due to higher commodity purchase prices in        the recycling market. Management services cost of goods        sold increased $2,673,418 or 14.0% to $21,786,205 in 2003        compared to $19,112,787 in 2002. This is due to increases        in vendor service fees. Equipment, service and leasing        cost of goods sold decreased $54,822 or 15.9% to 289,062        in 2003 compared to $343,884 in 2002.                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         Selling,        general and administrative expenses decreased $218,323 or        14.8% to $1,254,013 in 2003 compared to $1,472,336 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 4.1% in 2003        compared to 5.6% in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         Other        income (expense), net decreased $292,112 to other expense        of $233,563 in 2003 compared to other income of 58,549 in        2002. This decrease was primarily due to a payment of        $156,000 for terminating a property lease agreement in        the recycling division in 2003 and a bad debt recovery of        $73,861 in the management services segment in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

----

 

| Financial condition at June 30, 2003        compared to December 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         Accounts        receivable trade increased $2,475,625 or 36.4% to        $9,279,481 as of June 30, 2003 compared to $6,803,856 as        of December 31, 2002. This is due to an increase in        revenues per the customer locations while maintaining a        consistent customer base in the Management Services        segment as well as an increase in the volume of shipments        in the Recycling segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         Inventories        decreased $325,324 to $1,557,838 as of June 30, 2003        compared to $1,883,162 as of December 31, 2002. This        decrease is due to a higher volume of shipments in the        Recycling segment for the first six months of 2003        compared to the same period of 2002. It is offset        slightly by higher commodity purchase prices. Commodity        purchase prices increased approximately 11% in the second        quarter compared to the same period in 2002. This has        increased the inventory carrying cost per unit as of June        30, 2003. Volume of shipments in the ferrous division        have increased approximately 24% in the first six months        compared to the same period in 2002. Volume of shipments        in the nonferrous division have increased approximately        10% in the first six months compared to the same period        in 2002. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         Accounts        payable trade increased $2,315,256 or 26.7% to        $10,991,543 as of June 30, 2003 compared to $8,676,287 as        of December 31, 2002. Accounts payable trade increased        due to an increase in expenses per the customer locations        while maintaining a consistent customer base in the        Management Services segment as well as an increase in the        volume of commodity purchases in the Recycling segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         Working        capital increased $164,970 to a deficit of $671,464 as of        June 30, 2003 compared to a deficit of $506,494 as of        December 31, 2002. These deficits are due to the use of        working capital to finance the purchase of property and        equipment rather than using long-term debt in 2003 and        2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Item        3:    Quantitative and Qualitative        Disclosures About Market Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         There        is market risk in our recycling segment, since it is        driven by fluctuating commodity prices. Management        mitigates this risk by selling our product on a monthly        contract basis, insulating the 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        disclosure controls and procedures as of June 30, 2003,        it has been concluded that the disclosure controls and        procedures are effective for the purposes contemplated by        Rule 13a-14 (e) promulgated by the Securities and        Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (b)       Changes        in internal controls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         There        have been no significant changes to the Registrant's        internal controls or in other factors that could        significantly affect these controls subsequent to June        30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 13                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

----

 

| 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 |
|                                    |   |
|                                    | (a) | At the Annual        Meeting of Shareholders held on May 20, 2003, the        following proposals were adopted by the margins        indicated: |
|                                    |   |   |
|                                    | (b) | PROPOSAL 1:        Annual Election of Directors. The nominees for election        as directors were Harry Kletter, Bob Cuzzort, Roman        Epelbaum, David W. Lester, and James E. Vining. One        additional nominee was nominated from the floor: Michael        R. Adams. The six director positions were filled based        upon the six receiving the most votes: |
|                                    |   |   |
|                                    |   |   | **              ****For** | **Withhold** | **Broker Non-        Votes And****Abstentions** |
|                                    |   |   |   |   |   |
|                                    |   | Harry Kletter | 1,420,361 | 2,310 | - |
|                                    |   | Bob Cuzzort | 1,420,371 | 2,300 | - |
|                                    |   | Roman Epelbaum | 1,420,371 | 2,300 | - |
|                                    |   | David W. Lester | 1,420,371 | 2,300 | - |
|                                    |   | James E. Vining | 1,420,371 | 2,300 | - |
|                                    |   | Mike Adams | 988,304 | - | - |
|                                    |   |   |   |   |   |
|                                    | (c) | PROPOSAL 2:        Ratification of Crowe Chizek & Company LLP as the        Company's independent auditors. |
|                                    |   |   |   |   |
|                                    |   | **For** | **Against** | **Broker Non-Votes****And Abstentions** |
|                                    |   |   |   |   |
|                                    |   | 1,412,071 | 10,000 | 600 |
|                                    |
| Item 5.                                 | Other        Information |
|                                    |   |   |   |   |   |   |   |   |   |   |
|                                    | None |
|                                    |   |
|                                    | 14 |
|                                    |   |

 

----

 

| 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. |
|    |                                    |
|    | (b)                                     | Report on Form        8-K was filed on July 9, 2003 related to an event        occurring on May 20, 2003 and reported under Item 5Other Events and Regulation FD Disclosure in        connection with the resignation of Mike Adams from the        board of directors. In addition, the Registration        included as an exhibit to the Form 8-K a copy of the        press release related to the earnings for the first        quarter of 2003 under Item 7Financial        Statements and Exhibits. |
|    |
|    |

 

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| **SIGNATURES**                                                                                                                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                          |
| Pursuant to the requirements        of the Securities Exchange Act of 1934, the Registrant        has duly caused this report to be signed on its behalf by        the undersigned thereunto duly authorized. |
|                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                          | INDUSTRIAL SERVICES OF        AMERICA, INC. |
|                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                          |   |
| DATE: August 11, 2003                                                                                                                                                                                         |     /s/  Harry        Kletter                                  |
|                                                                                                                                                                                                          | Chairman and Chief Executive        Officer |
|                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                          |   |
| DATE: August 11, 2003                                                                                                                                                                                         |    /s/  Alan        L.        Schroering                         
Chief        Financial Officer |

 

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| **INDEX        TO EXHIBITS** |
|------------------------------|
|                         |   |   |
| **Exhibit****Number**        |   | **Description of Exhibits** |
|                         |   |   |
| 31.1                         |   | Rule 13a-14(a) Certification        of Harry Kletter for the Form 10-Q for the quarter ended        June 30, 2003. |
|                         |   |   |
| 31.2                         |   | Rule 13a-14(a) Certification        of Alan Schroering for the Form 10-Q for the quarter        ended June 30, 2003. |
|                         |   |   |
| 32.1                         |   | Section 1350 Certifications        of Harry Kletter and Alan Schroering for the Form 10-Q        for the quarter ended June 30, 2003 |

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