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| **FORM        10-Q**                                                                                                                                                                               |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                               |
| SECURITIES        AND EXCHANGE COMMISSION        WASHINGTON, DC 20549                                                                                                                              |
|                                                                                                                                                                                               |
| [X]   QUARTERLY        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE        SECURITIES EXCHANGE ACT OF 1934        For the quarterly period ended March 31, 2002                    |
| OR                                                                                                                                                                                                 |
| [  ]   TRANSITION        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE        SECURITIES EXCHANGE ACT OF 1934        For the Transition Period From _________ to ________ |
|                                                                                                                                                                                               |
| Commission File Number        0-20979                                                                                                                                                              |
|                                                                                                                                                                                               |
| INDUSTRIAL        SERVICES OF AMERICA, INC.        (Exact Name of Registrant as specified in its Charter)                                                                                          |

| Florida                                | 59-0712746                 |
|----------------------------------------|----------------------------|
| (State or        other jurisdiction of | (IRS        Employer       |
| Incorporation        or Organization)  | Identification        No.) |

| 7100 Grade Lane, PO        Box 32428        Louisville, Kentucky 40232        (Address of principal executive offices)                                                                                                                                                                                                                                                                                                                                     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (502) 368-1661        (Registrant's Telephone Number, Including Area Code)                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Check whether the registrant (1) has        filed all Reports required to be filed by Section 13 or        15(d) of the Securities Exchange Act of 1934 during the        preceding 12 months (or for such shorter period that the        registrant was required to file such reports), and (2)        has been subject to such filing requirements for the past        90 days. YES    X      NO        ___ |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Indicate the number of shares        outstanding of each of the issuer's classes of common        stock, as of March 31, 2002: 1,660,400.                                                                                                                                                                                                                                                                                                                  |

 

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| INDUSTRIAL        SERVICES OF AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |   |   |
|                                                         | INDEX |   |
|                                                         |   |   |
|                                                         |   | **Page No.** |
| Part I                                                       | Financial Information |   |
|                                                         |   |   |
|                                                         | Report of Independent        Accountants | 3 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Balance Sheets |   |
|                                                         |    March 31,        2002 and December 31, 2001 | 4 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Operations        Three Months Ended |   |
|                                                         |    March 31,        2002 and 2001 | 6 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Cash Flows        Three Months Ended |   |
|                                                         |    March 31,        2002 and 2001 | 7 |
|                                                         |   |   |
|                                                         | Notes to Condensed        Consolidated |   |
|                                                         |    Financial        Statements | 8 |
|                                                         |   |   |
|                                                         | Management's Discussion and        Analysis |   |
|                                                         |    of        Financial Condition and Results |   |
|                                                         |    of        Operations | 10 |
|                                                         |   |   |
|                                                         |   |   |
| Part II                                                      | Other Information | 12 |
|                                                         |   |   |
|                                                         |   |   |

 

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| REPORT OF        INDEPENDENT ACCOUNTANTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Board of Directors and        Shareholders        Industrial Services of America, Inc. and Subsidiaries
Louisville,        Kentucky                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| We have reviewed the        condensed consolidated balance sheet of Industrial        Services of America, Inc. as of March 31, 2002, and the        related condensed consolidated statements of income and        cash flows for the quarters ended March 31, 2002 and        2001. These financial statements are the responsibility        of the Company's management.                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| We conducted our reviews in        accordance with standards established by the AICPA. A        review of interim financial information consists        principally of applying analytical procedures to        financial data and making inquiries of persons        responsible for financial and accounting matters. It is        substantially less in scope than an audit conducted in        accordance with generally accepted auditing standards,        the objective of which is the expression of an opinion        regarding the financial statements taken as a whole.        Accordingly, we do not express such an opinion. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Based on our reviews, we are        not aware of any material modifications that should be        made to the accompanying condensed consolidated financial        statements for them to be in conformity with generally        accepted accounting principles.                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Crowe, Chizek and Company        LLP |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| Indianapolis, Indiana        April 16, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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

|                                                                                                                              | **March 31,        2002**                               |   | **December 31,        2001**                            |
|-----------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------|--------|---------------------------------------------------------|
| Current assets                                                                                                                    |                                                    |   |                                                    |
|   Cash and cash        equivalents                                                                                      | $    683,803                        |   | $     776,745                  |
|   Accounts        receivable - trade (after allowance             for doubtful accounts of $50,000) | 8,485,266                                               |   | 6,669,782                                               |
|   Accounts        receivable - related party                                                                            | -                                                       |   | 59,714                                                  |
|   Net investment        in sales-type leases                                                                            | 115,696                                                 |   | 109,586                                                 |
|   Inventories                                                                                                           | 1,765,208                                               |   | 1,949,766                                               |
|   Deferred income        taxes                                                                                          | 181,800                                                 |   | 181,800                                                 |
|   Other                                                                                                                 |        146,663       |   |        201,300       |
|                                                                                                                              |                                                    |   |                                                    |
|         Total        current assets                                                       | 11,378,436                                              |   | 9,948,693                                               |
|                                                                                                                              |                                                    |   |                                                    |
| Net property and equipment                                                                                                        | 6,075,716                                               |   | 6,150,018                                               |
|                                                                                                                              |                                                    |   |                                                    |
| Other Assets                                                                                                                      |                                                    |   |                                                    |
|   Non-compete        agreements, net                                                                                    | 152,947                                                 |   | 203,536                                                 |
|   Goodwill                                                                                                              | 560,005                                                 |   | 560,005                                                 |
|   Net        investment in sales-type leases                                                                            | 250,527                                                 |   | 282,528                                                 |
|   Other assets                                                                                                          |         165,978 |   |         166,478 |
|                                                                                                                              |     1,129,457                       |   |     1,212,547                       |
|                                                                                                                              |                                                    |   |                                                    |
|                                                                                                                              | $        18,583,609                                     |   | $        17,311,258                                     |
|                                                                                                                              |                                                    |   |                                                    |
| See accompanying notes to        consolidated financial statements.                                                               |
|                                                                                                                              |
| 4                                                                                                                                 |

 

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

|                                                                                                                                                                                                      | **March 31,        2002**                         |   | **December 31,        2001**                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------|--------|---------------------------------------------------|
| Current liabilities                                                                                                                                                                                       |                                              |   |                                              |
|   Note payable to        bank                                                                                                                                                                   | $   2,500,000                 |   | $   1,000,000                 |
|   Current        maturities of long-term debt                                                                                                                                                   | 757,753                                      |   | 734,899                                      |
|   Current        maturities of capital lease obligation                                                                                                                                         | 31,990                                       |   | 31,403                                       |
|   Accounts payable                                                                                                                                                                              | 9,048,131                                    |   | 9,162,791                                    |
|   Other current        liabilities                                                                                                                                                              |       345,938  |   |       365,920  |
|        Total        current liabilities                                                                                                                                | 12,683,812                                   |   | 11,295,013                                   |
|                                                                                                                                                                                                      |                                              |   |                                              |
| Long-term liabilities                                                                                                                                                                                     |                                              |   |                                              |
|   Long-term debt                                                                                                                                                                                | 2,071,033                                    |   | 2,234,175                                    |
|   Capital lease        obligation                                                                                                                                                               | 101,211                                           |   | 109,432                                           |
|   Deferred income        taxes                                                                                                                                                                  |       13,400   |   |       13,400   |
|                                                                                                                                                                                                      | 2,185,644                                    |   | 2,357,007                                    |
|                                                                                                                                                                                                      |                                              |   |                                              |
| Stockholders' equity                                                                                                                                                                                      |                                              |   |                                              |
|   Common        stock, $.01 par value,            10,000,000 shares authorized,        1,957,500 shares issued,            1,660,400 shares outstanding | 19,575                                       |   | 19,575                                       |
|   Additional        paid-in capital                                                                                                                                                             | 1,925,321                                    |   | 1,925,321                                    |
|   Retained        earnings                                                                                                                                                                      | 2,351,380                                    |   | 2,296,465                                    |
|   Treasury stock,        297,100 shares at cost                                                                                                                                                 |     (582,123)                 |   |      (582,123)           |
|                                                                                                                                                                                                      |    3,714,153                  |   |     3,659,238            |
|                                                                                                                                                                                                      | $        18,583,609                          |   | $        17,311,258                          |
|                                                                                                                                                                                                      |                                              |   |                                              |
| See accompanying notes to        consolidated financial statements.                                                                                                                                       |
|                                                                                                                                                                                                      |
| 5                                                                                                                                                                                                         |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES |
|--------------------------------------------------------------|
|                                                         |
| CONDENSED CONSOLIDATED        STATEMENTS OF OPERATIONS       |
| THREE MONTHS ENDED        MARCH 31, 2002 AND 2001            |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                | **2002**                                                           |   | **2001**                                                           |
|---------------------------------------------------------------------|--------------------------------------------------------------------|--------|--------------------------------------------------------------------|
|                                                                |                                                               |   |                                                               |
| Revenue                                                             | $        22,966,963                                           |   | $        23,251,853                                           |
|                                                                |                                                               |   |                                                               |
| Cost of goods sold                                                  |   21,219,594                                        |   |  21,259,698                                              |
|                                                                |                                                               |   |                                                               |
| **Gross profit**                                                    | 1,747,369                                                     |   | 1,992,155                                                     |
|                                                                |                                                               |   |                                                               |
| Selling, general and        administrative                          |     1,581,457                             |   |    1,736,129                                   |
|                                                                |                                                               |   |                                                               |
| **Income before other        expenses**                             | 165,912                                                       |   | 256,026                                                       |
|                                                                |                                                               |   |                                                               |
| Other expenses, net                                                 |        (74,387)                 |   |        (68,343)                 |
|                                                                |                                                               |   |                                                               |
| **Income before income        taxes**                               | 91,525                                                        |   | 187,683                                                       |
|                                                                |                                                               |   |                                                               |
| Provision for income taxes                                          |          36,610  |   |          51,436  |
|                                                                |                                                               |   |                                                               |
| **Net income**                                                      | $     54,915                         |   | $     136,247                        |
|                                                                |                                                               |   |                                                               |
| Earnings per share                                                  | $0.03                                                         |   | $0.08                                                         |
|                                                                |                                                               |   |                                                               |
| Earnings per share, assuming        dilution                        | $0.03                                                         |   | $0.08                                                         |
|                                                                |
| 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       |
| THREE MONTHS ENDED        MARCH 31, 2002 AND 2001            |
| (UNAUDITED)                                                  |
|                                                         |

|                                                                                                                                | **2002**                                           |   | **2001**                                         |
|-------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|--------|--------------------------------------------------|
| **Cash flows from operating        activities**                                                                                     |                                               |   |                                             |
|   Net income                                                                                                              | $      54,915   |   | $    136,247            |
|   Adjustments        to reconcile net income to            net cash from operating        activities: |                                               |   |                                             |
|       Stock        options granted for services                                                       | -                                             |   | 20,202                                      |
|       Depreciation        and amortization                                                            | 436,555                                       |   | 401,793                                     |
|       Provision        for doubtful accounts                                                          | -                                             |   | 47,523                                      |
|       Deferred        income tax                                                                      | -                                             |   | (69,339)                                         |
|       (Gain)        loss on sale of property and equipment                                            | 12,298                                        |   | (2,122)                                     |
|       Change        in assets and liabilities                                                         |                                               |   |                                             |
|         Receivables                                                                         | (1,707,139)                                        |   | (492,614)                                   |
|         Inventories                                                                         | 184,558                                       |   | (25,555)                                         |
|         Other        assets                                                                 | 6,506                                         |   | 19,531                                      |
|         Accounts        payable                                                             | (114,660)                                     |   | 181,800                                     |
|         Other        current liabilities                                                    |       (19,982)  |   |       88,053  |
|             Net        cash from operating activities                   | (1,146,949)                                   |   | 305,519                                     |
|                                                                                                                                |                                               |   |                                             |
|                                                                                                                                |                                               |   |                                             |
| **Cash flows from investing        activities**                                                                                     |                                               |   |                                             |
|   Proceeds from        sales-type leases                                                                                  | 25,891                                        |   | 23,601                                      |
|   Proceeds from        sale of property and equipment                                                                     | -                                             |   | 6,500                                       |
|   Purchases of        property and equipment                                                                              |    (278,647)                        |   |      (360,117)          |
|           Net        cash from investing activities                               | (252,756)                                          |   | (330,016)                                        |
|                                                                                                                                |                                               |   |                                             |
| **Cash flows from financing        activities**                                                                                     |                                               |   |                                             |
|   Net borrowings        on note payable to bank                                                                           | 1,500,000                                     |   | -                                           |
|   Purchase of        common stock                                                                                         | -                                             |   | (288,563)                                        |
|   Payments on        capital lease obligation                                                                             | (7,635)                                            |   | -                                           |
|   Payments on        long-term debt                                                                                       |    (185,602)                        |   |      (102,162)          |
|           Net        cash from financing activities                               |   1,306,763                         |   |      (390,725)          |
|                                                                                                                                |                                               |   |                                             |
| Net decrease in cash                                                                                                                | (92,942)                                           |   | (415,222)                                        |
|                                                                                                                                |                                               |   |                                             |
| Cash at beginning of period                                                                                                         |   776,745                           |   |    1,395,882                 |
|                                                                                                                                |                                               |   |                                             |
| **Cash at end of period**                                                                                                           | $   683,803                    |   | $         980,660                      |
|                                                                                                                                |
| 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 March 31, 2002 and the results of its        operations and changes in cash flow for the periods ended        March 31, 2002 and 2001. Results of operations for the        period ended March 31, 2002 are not necessarily        indicative of the results that may be expected for the        entire year. Additional information, including the        audited December 31, 2001 consolidated financial        statements and the Summary of Significant Accounting        Policies, is included in the Registrant's Annual Report        on Form 10-K for the year ended December 31, 2001 on file        with the Securities and Exchange Commission. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **NOTE 2 – SEGMENT INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| The Company's operations include three        primary segments: ISA Recycling, Computerized Waste        Systems (CWS), and Waste Equipment Sales & Service        (WESSCO). ISA Recycling provides products and services to        meet the needs of its customers related to ferrous,        non-ferrous and fiber recycling at two locations in the        Midwest. CWS provides waste disposal services including        contract negotiations with vendors, centralized billing,        invoice auditing, and centralized dispatching. WESSCO        sells, leases, and services waste handling and recycling        equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| The Company's three reportable segments        are determined by the products and services that each        offers. The recycling segment generates its revenues        based on buying and selling of ferrous and non-ferrous        scrap. CWS's revenues consist of management fees charged        to customers at a percentage of the total service        provided. WESSCO’s primary source of revenue is        generated through lease income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| The Company evaluates segment        performance based on profit or loss before income taxes        and the evaluation process for each segment includes only        direct expenses omitting any selling, general and        administrative costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 8                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

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| **March 31, 2002**                            | **ISA****Recycling**                |   | **Computerized         Waste****Systems**                                                                      |   | **Waste         Equipment        Sales &****Services**                                   |   | **Segment****Totals**          |
|-----------------------------------------------|-------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|--------|--------------------------------|
|                                          |                                |   |                                                                                                           |   |                                                                                         |   |                           |
| Recycling revenues                            | $        4,510,776             |   | $                 -  |   | $              -  |   | $         4,510,776  |
| Equipment sales, service                      |                                |   |                                                                                                           |   |                                                                                         |   |                           |
|    and        leasing revenues |                                |   | -                                                                                                         |   | 472,575                                                                                 |   | 472,575                   |
| Management fees                               | -                              |   | 17,983,612                                                                                                |   | -                                                                                       |   | 17,983,612                |
| Cost of goods sold                            | (4,258,017)                         |   | (16,808,622)                                                                                                   |   |   (152,955)                                                                        |   | (21,219,594)                   |
|                                          |                                |   |                                                                                                           |   |                                                                                         |   |                           |
| Segment profit                                | $           252,759  |   | $         1,174,990                                                                                  |   | $ 319,620                                                                          |   | $         1,747,369  |
|                                          |                                |   |                                                                                                           |   |                                                                                         |   |                           |

| **March 31, 2001**                        | **ISA****Recycling**                   |   | **Computerized         Waste****Systems**                                                                      |   | **Waste         Equipment        Sales &****Services**       |   | **Segment****Totals**          |
|-------------------------------------------|----------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|--------------------------------|
|                                      |                                   |   |                                                                                                           |   |                                                             |   |                           |
| Recycling revenues                        | $        5,097,184                |   | $                 -  |   | $                -  |   | $        5,097,184        |
| Equipment sales, service and              |                                   |   |                                                                                                           |   |                                                             |   |                           |
|    leasing        revenues | -                                 |   |                                                                                                           |   | 607,019                                                     |   | 607,019                   |
| Management fees                           | -                                 |   | 17,547,650                                                                                                |   | -                                                           |   | 17,547,650                |
| Cost of goods sold                        | (4,542,723)                            |   | (16,466,890)                                                                                                   |   | (250,085)                                                        |   | (21,259,698)                   |
|                                      |                                   |   |                                                                                                           |   |                                                             |   |                           |
| Segment profit                            | $    554,461  |   | $  1,080,760                                                                                    |   | $  356,934                                        |   | $         1,992,155  |

|                                         |
|----------------------------------------------|
|                                         |
| **NOTE 3 – INVENTORIES**                |
|                                         |
| Inventories consist of the        following: |
|                                         |
|                                         |   | **March 31,****2002** |   | **December 31,****2001** |
|                                         |   |   |   |   |
|                                         | Equipment and parts | $    80,610 |   | $      101,316 |
|                                         | Ferrous materials | 1,202,922 |   | 1,236,949 |
|                                         | Non-ferrous materials |     481,676 |   |      611,501 |
|                                         |   |   |   |   |
|                                         |    Total        inventories | $        1,765,208 |   | $        1,949,766 |
|                                         |   |   |   |   |
|                                         |
| 9                                            |

 

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| ITEM 2: MANAGEMENT'S DISCUSSION AND        ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        OPERATIONS.                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Liquidity and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         As        of March 31, 2002 the Registrant held cash and cash        equivalents of $683,803.                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         The        Registrant derives its revenues from several sources,        including management services, equipment sales and        leasing and from its recycling operations. Management        services comprised approximately 78.3% and 75.5% of the        Registrant's total revenues for the quarters ended March        31, 2002 and 2001, respectively.                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         The        Registrant currently maintains a working capital line of        credit with the Mid-America Bank of Louisville and Trust        Company (the "Bank") in the amount of        $3,000,000. Outstanding principal under this credit        facility bears interest at the Bank's prime rate and the        line matures in June 2002. At March 31, 2002 there was        $2,500,000 drawn 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:                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|                                                                                                     | **Quarter ended March        31,** |
|----------------------------------------------------------------------------------------------------------|------------------------------------|
|                                                                                                     | **2002**                           |   | **2001** |
| Statements of        Operations Data:                                                                    |                               |   |   |
| Total Revenue        ..................................................................................  | 100.0%                             |   | 100.0% |
| Cost of goods        sold............................................................................    | 92.4%                              |   | 91.4% |
| Selling, general        and administrative expenses        ..................................            | 6.9%                               |   | 7.5% |
| Income from        operations        ................................................................... | 0.7%                               |   | 1.1% |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Quarter ended March 31, 2002 compared        to quarter ended March 31, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         Total        revenue decreased $284,890 or 1.2% to $22,966,963 in 2002        compared to $23,251,853 in 2001. Recycling revenue        decreased $586,408 or 11.5% to $4,510,776 in 2002        compared to $5,097,184 in 2001. This is due to a decline        of commodity prices in the ferrous, non-ferrous and        corrugated markets as well as lower volumes of shipments        in the ferrous and corrugated markets in the first        quarter of 2002 compared to the first quarter of 2001.        Management services revenue increased $435,962 or 2.5% to        $17,983,612 in 2002 compared to $17,547,650 in 2001. This        is due to an increase in revenues per the customer        locations while maintaining a consistent customer base.        Equipment, service and leasing revenue decreased $134,444        or 22.1% to $472,575 in 2002 compared to $607,019 in        2001. This decrease was due to the continued effort to        lease equipment for the long-term benefit of revenue        streams and customer retention. Leasing revenues        increased $47,398 or 29.8% offset by a decrease in        service and equipment sales of $181,842 or 40.6%. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|         Total        gross profit decreased $244,786 or 12.3% to $1,747,369 in        2002 compared to $1,992,155 in 2001. Recycling gross        profit decreased $301,702 or 54.4% to $252,759 in 2002        compared to $554,461 in 2001. This is due to higher        processing costs and higher commodity purchase prices in        the ferrous market. Management services gross profit        increased $94,230 or 8.7% to $1,174,990 in 2002 compared        to $1,080,760 in 2001. This is due to the increased        operating efficiencies generated from the new building        facilities and the continued application of the        customized software. Equipment, service and leasing gross        profit decreased $37,314 or 10.5% to 319,620 in 2002        compared to $356,934 in 2001. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         Selling,        general and administrative expenses decreased $154,672 or        8.9% to $1,581,457 in 2002 compared to $1,736,129 in        2001. This decrease is due to a reduction of payroll        expenses, bad debt expenses, insurance expenses and        programming expenses. As a percentage of revenue,        selling, general and administrative expenses were 6.9% in        2002 compared to 7.5% in 2001.                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Financial condition at March 31, 2002        compared to December 31, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         Accounts        receivable trade increased $1,815,484 or 27.2% to        $8,485,266 in 2002 compared to $6,669,782 in 2001. The        increase of $1,815,484 is due to an increase in (i)        revenues per customer location while maintaining a        consistent customer base in the Management Services        segment and (ii) the volume of shipments in the Recycling        segment. Average days outstanding in 2002 were 29.7 days        compared to 34.7 days in 2001.                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         Accounts        payable trade decreased $114,660 or 1.3% to $9,048,131 in        2002 compared to $9,162,791 in 2001. Accounts payable        trade did not increase as accounts receivable trade due        to the increased operating efficiencies generated from        the new building facilities and the continued application        of the customized software.                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         Working        capital increased $40,944 to a deficit of $1,305,376 in        2002 compared to a deficit of $1,346,320 in 2001. These        deficits are due to the use of working capital to finance        the purchase of property and equipment rather than using        long-term debt in 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Impact of Recently Issued Accounting        Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         The        FASB issued Statement of Financial Accounting Standards        No. 142 ("SFAS 142"), "Goodwill and Other        Intangible Assets," which was effective as of        January 1, 2002. SFAS 142 establishes new accounting        guidance for goodwill. Goodwill will no longer be        amortized as the economic life is indefinite. Rather, the        goodwill balance will be tested for impairment at least        annually with any deemed impairment recorded as a charge        to operations.                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Item        3:    Quantitative and Qualitative        Disclosures About Market Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         Not        Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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| 11                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

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| PART II        – OTHER INFORMATION |
|-----------------------------------------|
|                                    |   |
|                                    |   |
| Item 1.                                 | Legal Proceedings |
|                                    | None |
|                                    |   |
| Item 2.                                 | Changes in Securities and        Use of Proceeds |
|                                    | None |
|                                    |   |
| Item 3.                                 | Defaults upon Senior        Securities |
|                                    | None |
|                                    |   |
| Item 4.                                 | Submission of Matters to        a Vote of Security Holders |
|                                    | None |
|                                    |   |
| Item 5.                                 | Other Information |
|                                    | None |
|                                    |   |
| Item 6.                                 | Exhibits and Reports on        Form 8-K |
|                                    |   |
|                                    | None |
|                                    |
| 12                                      |

 

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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: May 8, 2002                                                                                                                                                                                             |     /s/  Harry        Kletter                                  |
|                                                                                                                                                                                                          | Chairman and Chief Executive        Officer |
|                                                                                                                                                                                                          | (Principal Executive and        Financial |
|                                                                                                                                                                                                          |   Officer) |
|                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                          |
| 13                                                                                                                                                                                                            |