| **FORM 10-Q**                                                                                                                                                                                      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                               |
| SECURITIES AND        EXCHANGE COMMISSION        WASHINGTON, DC 20549                                                                                                                              |
|                                                                                                                                                                                               |
| [X]   QUARTERLY        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE        SECURITIES EXCHANGE ACT OF 1934        For the quarterly period ended June 30, 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 June 30, 2002: 1,648,200.                                                                                                                                                                                                                                                                                                                   |

 

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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 |   |
|                                                         |    June 30,        2002 and December 31, 2001 | 4 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Income        Three Months Ended |   |
|                                                         |    June 30,        2002 and 2001 | 6 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Income Six        Months Ended |   |
|                                                         |    June 30,        2002 and 2001 | 7 |
|                                                         |   |   |
|                                                         | Condensed Consolidated        Statements of |   |
|                                                         |    Cash Flows        Six Months Ended |   |
|                                                         |    June 30,        2002 and 2001 | 8 |
|                                                         |   |   |
|                                                         | Notes to Condensed        Consolidated |   |
|                                                         |    Financial        Statements | 9 |
|                                                         |   |   |
|                                                         | Management's Discussion and        Analysis |   |
|                                                         |    of        Financial Condition and Results |   |
|                                                         |    of        Operations | 11 |
|                                                         |   |   |
|                                                         |   |   |
| Part II                                                      | Other Information | 15 |
|                                                         |   |   |
|                                                         |   |   |

 

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| REPORT OF        INDEPENDENT ACCOUNTANTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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. and Subsidiaries as of June 30,        2002, and the related condensed consolidated statements        of income for the three and six month periods ended June        30, 2002 and 2001, and the condensed consolidated        statements of cash flows for the six month period ended        June 30, 2002. These financial statements are the        responsibility of the Company's management.                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| We conducted our reviews in        accordance with standards established by the American        Institute of Certified Public Accountants. A review of        interim financial information consists principally of        applying analytical procedures to financial data and        making inquiries of persons responsible for financial and        accounting matters. It is substantially less in scope        than an audit conducted in accordance with generally        accepted auditing standards, the objective of which is        the expression of an opinion regarding the financial        statements taken as a whole. Accordingly, we do not        express such an opinion. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Based on our reviews, we are        not aware of any material modifications that should be        made to the accompanying condensed consolidated financial        statements for them to be in conformity with generally        accepted accounting principles.                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Crowe, Chizek and Company        LLP |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| Indianapolis, Indiana        July 22, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

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

|                                                                                                                              | **June 30,        2002**                                |   | **December 31,        2001**                            |
|-----------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------|--------|---------------------------------------------------------|
| Current assets                                                                                                                    |                                                    |   |                                                    |
|   Cash and cash        equivalents                                                                                      | $    1,235,023                      |   | $     776,745                  |
|   Accounts        receivable - trade (after allowance             for doubtful accounts of $50,000) | 9,226,102                                               |   | 6,669,782                                               |
|   Accounts        receivable - related party                                                                            | -                                                       |   | 59,714                                                  |
|   Net investment        in sales-type leases                                                                            | 140,453                                                 |   | 109,586                                                 |
|   Inventories                                                                                                           | 1,886,860                                               |   | 1,949,766                                               |
|   Deferred income        taxes                                                                                          | 181,800                                                 |   | 181,800                                                 |
|   Other current        assets                                                                                           |        289,650       |   |        201,300       |
|                                                                                                                              |                                                    |   |                                                    |
|         Total        current assets                                                       | 12,959,888                                              |   | 9,948,693                                               |
|                                                                                                                              |                                                    |   |                                                    |
| Net property and equipment                                                                                                        | 5,874,141                                               |   | 6,150,018                                               |
|                                                                                                                              |                                                    |   |                                                    |
| Other Assets                                                                                                                      |                                                    |   |                                                    |
|   Non-compete        agreements, net                                                                                    | 102,358                                                 |   | 203,536                                                 |
|   Net investment        in sales-type leases                                                                            | 332,735                                                 |   | 282,528                                                 |
|   Other assets                                                                                                          |         766,843 |   |         726,483 |
|                                                                                                                              |     1,201,936                       |   |     1,212,547                       |
|                                                                                                                              |                                                    |   |                                                    |
|                                                                                                                              | $        20,035,965                                     |   | $        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                  |
|                                                         |

|                                                                                                                                                                                                                                            | **June 30,        2002**                          |   | **December 31,        2001**                      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------|--------|---------------------------------------------------|
| Current liabilities                                                                                                                                                                                                                             |                                              |   |                                              |
|   Note payable to        bank                                                                                                                                                                                                         | $   1,500,000                 |   | $   1,000,000                 |
|   Current        maturities of long-term debt                                                                                                                                                                                         | 794,750                                      |   | 734,899                                      |
|   Current        maturities of capital lease obligation                                                                                                                                                                               | 32,587                                       |   | 31,403                                       |
|   Accounts payable                                                                                                                                                                                                                    | 11,422,013                                   |   | 9,162,791                                    |
|   Other current        liabilities                                                                                                                                                                                                    |       388,310  |   |       365,920  |
|        Total        current liabilities                                                                                                                                                                      | 14,137,660                                   |   | 11,295,013                                   |
|                                                                                                                                                                                                                                            |                                              |   |                                              |
| Long-term liabilities                                                                                                                                                                                                                           |                                              |   |                                              |
|   Long-term debt                                                                                                                                                                                                                      | 1,871,858                                    |   | 2,234,175                                    |
|   Capital lease        obligation                                                                                                                                                                                                     | 92,837                                       |   | 109,432                                      |
|   Deferred income        taxes                                                                                                                                                                                                        |       13,400   |   |       13,400   |
|                                                                                                                                                                                                                                            | 1,978,095                                    |   | 2,357,007                                    |
|                                                                                                                                                                                                                                            |                                              |   |                                              |
| Stockholders' equity                                                                                                                                                                                                                            |                                              |   |                                              |
|   Common        stock, $.01 par value,            10,000,000 shares authorized,        1,957,500 shares issued,            1,648,200 and 1,660,400 shares        outstanding in 2001 and 2000 | 19,575                                       |   | 19,575                                       |
|   Additional        paid-in capital                                                                                                                                                                                                   | 1,925,321                                    |   | 1,925,321                                    |
|   Retained        earnings                                                                                                                                                                                                            | 2,584,050                                    |   | 2,296,465                                    |
|   Treasury        stock, 309,300 and 297,100 shares at cost             in 2001 and 2000                                                                                                                          |     (608,736)                 |   |      (582,123)           |
|                                                                                                                                                                                                                                            |    3,920,210                  |   |     3,659,238            |
|                                                                                                                                                                                                                                            | $        20,035,965                          |   | $        17,311,258                          |
|                                                                                                                                                                                                                                            |                                              |   |                                              |
| See accompanying notes to        consolidated financial statements.                                                                                                                                                                             |
|                                                                                                                                                                                                                                            |
| 5                                                                                                                                                                                                                                               |

 

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

|                                                                | **2002**                                                            |   | **2001**                                                            |
|---------------------------------------------------------------------|---------------------------------------------------------------------|--------|---------------------------------------------------------------------|
|                                                                |                                                                |   |                                                                |
| Revenue                                                             | $        26,473,002                                            |   | $        25,820,543                                            |
|                                                                |                                                                |   |                                                                |
| Cost of goods sold                                                  |   24,762,216                                         |   |  23,890,515                                               |
|                                                                |                                                                |   |                                                                |
| **Gross profit**                                                    | 1,710,786                                                      |   | 1,930,028                                                      |
|                                                                |                                                                |   |                                                                |
| Selling, general and        administrative expenses                 |     1,543,086                              |   |    1,614,352                                    |
|                                                                |                                                                |   |                                                                |
| **Income before other        income (expenses)**                    | 167,700                                                        |   | 315,676                                                        |
|                                                                |                                                                |   |                                                                |
| Other income (expenses), net                                        |      220,088                          |   |       (61,394)                        |
|                                                                |                                                                |   |                                                                |
| **Income before income        taxes**                               | 387,788                                                        |   | 254,282                                                        |
|                                                                |                                                                |   |                                                                |
| Provision for income taxes                                          |          155,115  |   |          125,790  |
|                                                                |                                                                |   |                                                                |
| **Net income**                                                      | $     232,673                         |   | $     128,492                         |
|                                                                |                                                                |   |                                                                |
| Earnings per share                                                  | $0.14                                                          |   | $0.07                                                          |
|                                                                |                                                                |   |                                                                |
| Earnings per share, assuming        dilution                        | $0.14                                                          |   | $0.07                                                          |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 6                                                                   |

 

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

|                                                                | **2002**                                                            |   | **2001**                                                            |
|---------------------------------------------------------------------|---------------------------------------------------------------------|--------|---------------------------------------------------------------------|
|                                                                |                                                                |   |                                                                |
| Revenue                                                             | $        49,439,965                                            |   | $        49,072,396                                            |
|                                                                |                                                                |   |                                                                |
| Cost of goods sold                                                  |   45,981,810                                         |   |  45,150,213                                               |
|                                                                |                                                                |   |                                                                |
| **Gross profit**                                                    | 3,458,155                                                      |   | 3,922,183                                                      |
|                                                                |                                                                |   |                                                                |
| Selling, general and        administrative expenses                 |     3,124,543                              |   |    3,350,481                                    |
|                                                                |                                                                |   |                                                                |
| **Income before other        income (expenses)**                    | 333,612                                                        |   | 571,702                                                        |
|                                                                |                                                                |   |                                                                |
| Other income (expenses), net                                        |        145,701              |   |               (129,737)               |
|                                                                |                                                                |   |                                                                |
| **Income before income        taxes**                               | 479,313                                                        |   | 441,965                                                        |
|                                                                |                                                                |   |                                                                |
| Provision for income taxes                                          |          191,725  |   |          177,226  |
|                                                                |                                                                |   |                                                                |
| **Net income**                                                      | $     287,588                         |   | $     264,739                         |
|                                                                |                                                                |   |                                                                |
| Earnings per share                                                  | $0.17                                                          |   | $0.15                                                          |
|                                                                |                                                                |   |                                                                |
| Earnings per share, assuming        dilution                        | $0.17                                                          |   | $0.15                                                          |
|                                                                |
| See accompanying notes to        consolidated financial statements. |
|                                                                |
| 7                                                                   |

 

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

|                                                                                                                                | **2002**                                     |   | **2001**                                          |
|-------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|--------|---------------------------------------------------|
| **Cash flows from operating        activities**                                                                                     |                                         |   |                                              |
|   Net income                                                                                                              | $     287,588  |   | $    264,739             |
|   Adjustments        to reconcile net income to            net cash from operating        activities: |                                         |   |                                              |
|       Stock        options granted for services                                                       | -                                       |   | 33,670                                       |
|       Depreciation        and amortization                                                            | 880,991                                 |   | 808,257                                      |
|       Provision        for doubtful accounts                                                          | -                                       |   | 73,914                                       |
|       Deferred        income tax                                                                      | -                                       |   | (69,339)                                          |
|       (Gain)        loss on sale of property and equipment                                            | (9,683)                                 |   | 2,987                                        |
|       Change        in assets and liabilities                                                         |                                         |   |                                              |
|                 Receivables                                                                 | (2,648,003)                                  |   | (1,166,060)                                       |
|                 Inventories                                                                 | 62,906                                  |   | 32,270                                       |
|                 Other assets                                                                | (55,444)                                     |   | 8,247                                        |
|                 Accounts payable                                                            | 2,259,222                               |   | 848,853                                      |
|                 Other current liabilities                                                   |     100,519         |   |       258,195  |
|             Net        cash from operating activities                   | 878,096                                 |   | 1,095,733                                    |
|                                                                                                                                |                                         |   |                                              |
|                                                                                                                                |                                         |   |                                              |
| **Cash flows from investing        activities**                                                                                     |                                         |   |                                              |
|   Proceeds        from sales-type leases                                                                                  | 52,799                                  |   | 48,097                                       |
|   Purchases of        equipment under sales-type leases                                                                   | (133,873)                                    |   | -                                            |
|   Proceeds from        sale of property and equipment                                                                     | 52,500                                  |   | 6,500                                        |
|   Purchases of        property and equipment                                                                              |    (546,753)                  |   |      (784,848)           |
|           Net        cash from investing activities                               | (575,327)                                    |   | (730,251)                                         |
|                                                                                                                                |                                         |   |                                              |
| **Cash flows from financing        activities**                                                                                     |                                         |   |                                              |
|   Proceeds from        long-term debt                                                                                     |  -                                 |   | 1,500,000                                    |
|   Net borrowings        on note payable to bank                                                                           | 500,000                                 |   | (1,250,000)                                       |
|   Purchase of        common stock                                                                                         | (26,613)                                     |   | (334,903)                                         |
|   Payments on        capital lease obligation                                                                             | (15,411)                                     |   | -                                            |
|   Payments on        long-term debt                                                                                       |    (302,467)                  |   |      (71,174)            |
|           Net        cash from financing activities                               |      155,509   |   |     (156,077)                 |
|                                                                                                                                |                                         |   |                                              |
| Net increase in cash                                                                                                                | 458,278                                 |   | 209,405                                      |
|                                                                                                                                |                                         |   |                                              |
| Cash at beginning of period                                                                                                         |      776,745   |   |    1,395,882                  |
|                                                                                                                                |                                         |   |                                              |
| **Cash at end of period**                                                                                                           | $  1,235,023                  |   | $        1,605,287                           |
|                                                                                                                                |
| See accompanying notes to        consolidated financial statements.                                                                 |
|                                                                                                                                |
| 8                                                                                                                                   |

 

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| INDUSTRIAL SERVICES OF        AMERICA, INC. AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| NOTES TO CONDENSED        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **NOTE 1 – BASIS OF PRESENTATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| The accompanying unaudited condensed        consolidated financial statements have been prepared in        accordance with generally accepted accounting principles        for interim financial reporting. They do not include all        information and footnotes required by generally accepted        accounting principles for complete consolidated financial        statements. The information furnished includes all        adjustments, which are, in the opinion of management,        necessary to present fairly the Registrant's financial        position as of June 30, 2002 and the results of its        operations and changes in cash flow for the periods ended        June 30, 2002 and 2001. Results of operations for the        period ended June 30, 2002 are not necessarily indicative        of the results that may be expected for the entire year.        Additional information, including the audited December        31, 2001 consolidated financial statements and the        Summary of Significant Accounting Policies, is included        in the Registrant's Annual Report on Form 10-K for the        year ended December 31, 2001 on file with the Securities        and Exchange Commission. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **NOTE 2 – SEGMENT INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| The Company's operations include three        primary segments: ISA Recycling, Computerized Waste        Systems (CWS), and Waste Equipment Sales & Service        (WESSCO). 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

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| **June 30, 2002**                             | **ISA****Recycling**                   |   | **Computerized         Waste****Systems**                                                                      |   | **Waste         Equipment        Sales &****Services**                                   |   | **Segment****Totals**          |
|-----------------------------------------------|----------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|--------|--------------------------------|
|                                          |                                   |   |                                                                                                           |   |                                                                                         |   |                           |
| Recycling        revenues                     | $        10,543,665               |   | $                 -  |   | $              -  |   | $10,543,665               |
| Equipment sales, service                      |                                   |   |                                                                                                           |   |                                                                                         |   |                           |
|    and        leasing revenues | -                                 |   | -                                                                                                         |   | 1,108,426                                                                               |   | 1,108,426                 |
| Management fees                               | -                                 |   | 37,787,874                                                                                                |   | -                                                                                       |   | 37,787,874                |
| Cost of goods sold                            | (9,634,808)                            |   | (35,920,913)                                                                                                   |   |   (426,089)                                                                        |   | (45,981,810)                   |
|                                          |                                   |   |                                                                                                           |   |                                                                                         |   |                           |
| Segment profit                                | $    908,857  |   | $         1,866,961                                                                                  |   | $         682,337                                                                  |   | $         3,458,155  |
|                                          |                                   |   |                                                                                                           |   |                                                                                         |   |                           |

| **JUNE 30, 2001**                         | **ISA****Recycling**               |   | **Computerized         Waste****Systems**                                                                      |   | **Waste         Equipment        Sales &****Services**                             |   | **Segment****Totals**          |
|-------------------------------------------|------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|--------------------------------|
|                                      |                               |   |                                                                                                           |   |                                                                                   |   |                           |
| Recycling revenues                        | $        10,434,237           |   | $                 -  |   | $             -  |   | $10,434,237               |
| Equipment sales, service and              |                               |   |                                                                                                           |   |                                                                                   |   |                           |
|    leasing        revenues | -                             |   | -                                                                                                         |   | 1,184,063                                                                         |   | 1,184,063                 |
| Management fees                           | -                             |   | 37,454,096                                                                                                |   | -                                                                                 |   | 37,454,096                |
| Cost of goods sold                        | (9,426,355)                        |   | (35,231,736)                                                                                                   |   | (492,122)                                                                              |   | (45,150,213)                   |
|                                      |                               |   |                                                                                                           |   |                                                                                   |   |                           |
| Segment profit                            | $   1,007,882  |   | $  2,222,360                                                                                    |   | $ 691,941                                                                    |   | $         3,922,183  |

|                                         |
|----------------------------------------------|
| **NOTE 3 – INVENTORIES**                |
|                                         |
| Inventories consist of the        following: |
|                                         |
|                                         |   | **June 30,****2002** |   | **December 31,****2001** |
|                                         |   |   |   |   |
|                                         | Equipment and parts | $            72,069 |   | $    101,316 |
|                                         | Ferrous materials | 1,173,473 |   | 1,236,949 |
|                                         | Non-ferrous materials |     641,318 |   |      611,501 |
|                                         |   |   |   |   |
|                                         |    Total        inventories | $        1,886,860 |   | $        1,949,766 |
|                                         |   |   |   |   |
|                                         |
| 10                                           |

 

----

 

| ITEM 2: MANAGEMENT'S DISCUSSION AND        ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        OPERATIONS.                                                                                                                                                                                                                                                                                                                                       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Liquidity and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         As        of June 30, 2002 the Registrant held cash and cash        equivalents of $1,235,023.                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         The        Registrant derives its revenues from several sources,        including management services, equipment sales and        leasing and from its recycling operations. Management        services comprised approximately 76.4% and 76.3% of the        Registrant's total revenues for the quarters ended June        30, 2002 and 2001.                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         The        Registrant currently maintains a working capital line of        credit with the Bank of Louisville (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 2003. At June 30, 2002        there was $1,500,000 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 Income bear to total        revenues and other pertinent data:                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |

|                                                                                                    | **Six months ended June        30,** |
|---------------------------------------------------------------------------------------------------------|--------------------------------------|
|                                                                                                    | **2002**                             |   | **2001** |
| Statements of        Operations Data:                                                                   |                                 |   |   |
| Total Revenue        .................................................................................. | 100.0%                               |   | 100.0% |
| Cost of goods        sold............................................................................   | 93.0%                                |   | 92.0% |
| Selling, general        and administrative expenses        ..................................           | 6.3%                                 |   | 6.8% |
| Income before        other income (expenses)        ..........................................          | 0.7%                                 |   | 1.2% |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Six months ended June 30, 2002        compared to six months ended June 30, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|         Total        revenue increased $367,569 or 0.7% to $49,439,965 in 2002        compared to $49,072,396 in 2001. Recycling revenue        increased $109,428 or 1.0% to $10,543,665 in 2002        compared to $10,434,237 in 2001. This is due to an        increase in commodity prices in the ferrous, non-ferrous        and corrugated markets as well as higher volumes of        shipments in the ferrous market in the first six months        of 2002 compared to the first six months of 2001.        Management services revenue increased $333,778 or 0.9% to        $37,787,874 in 2002 compared to $37,454,096 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 $75,637        or 6.4% to $1,108,426 in 2002 compared to $1,184,063 in        2001. This decrease was due to the continued effort to        lease equipment for the long-term benefit of revenue        streams and customer retention in lieu of equipment        sales. Leasing revenues increased $96,747 or 30.2% offset        by a decrease in service and equipment sales of $172,384        or 20.0%. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 11                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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|         Total        gross profit decreased $464,028 or 11.8% to $3,458,155 in        2002 compared to $3,922,183 in 2001. Recycling gross        profit decreased $99,025 or 9.8% to $908,857 in 2002        compared to $1,007,882 in 2001. This is due to higher        processing costs and higher commodity purchase prices in        the ferrous market. Management services gross profit        decreased $355,399 or 16.0% to $1,866,961 in 2002        compared to $2,222,360 in 2001. This is due to decreases        in management fees caused by economic conditions        experienced by customers and internal increases in vendor        fees. Equipment, service and leasing gross profit        decreased $9,604 or 1.4% to 682,337 in 2002 compared to        $691,941 in 2001.                                                                                                                                                                                                                                                           |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         Selling,        general and administrative expenses decreased $225,938 or        6.7% to $3,124,543 in 2002 compared to $3,350,481 in        2001. This decrease is due to a reduction of consulting        expenses, bad debt expenses, insurance expenses and        programming expenses. As a percentage of revenue,        selling, general and administrative expenses were 6.3% in        2002 compared to 6.8% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         Other        income (expenses), net increased $275,438 to other income        of $145,701 in 2002 compared to other expense of $129,737        in 2001. This increase is primarily due to the insurance        reimbursement for loss of business income in the        recycling segment of $161,428, because primary equipment        was out of service from mid-November 2001 through        mid-January 2002 and a bad debt recovery of $73,861 in        the management services segment. The recycling segment is        still recovering from the primary equipment breakdown as        processed inventory levels will not be back to normal for        approximately sixty days.                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Three months ended June        30, 2002 compared to three months ended June 30, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         Total        revenue increased $652,459 or 2.5% to $26,473,002 in 2002        compared to $25,820,543 in 2001. Recycling revenue        increased $695,836 or 13.0% to $6,032,889 in 2002        compared to $5,337,053 in 2001. This is due to an        increase of commodity prices in the ferrous, non-ferrous        and corrugated markets as well as higher volumes of        shipments in the ferrous market in the second quarter of        2002 compared to the second quarter of 2001. Management        services revenue decreased $102,184 or 0.5% to        $19,804,262 in 2002 compared to $19,906,446 in 2001. This        is due to a decrease in revenues per the customer        locations while maintaining a consistent customer base.        Equipment, service and leasing revenue increased $58,807        or 10.2% to $635,851 in 2002 compared to $577,044 in        2001. This increase is due to an increase of leasing        revenues of $49,349 or 30.7% and an increase in equipment        sales of $9,458 or 2.3%. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         Total        gross profit decreased $219,242 or 11.4% to $1,710,786 in        2002 compared to $1,930,028 in 2001. Recycling gross        profit increased $202,677 or 44.7% to $656,098 in 2002        compared to $453,421 in 2001. This is due to an increase        of commodity prices in the ferrous, non-ferrous and        corrugated markets as well as higher volumes of shipments        in the ferrous market. Management services gross profit        decreased $449,629 or 39.4% to $691,971 in 2002 compared        to $1,141,600 in 2001. This is due to decreases in        management fees caused by economic conditions experienced        by customers and internal increases in vendor fees.        Equipment, service and leasing gross profit increased        $27,710 or 8.3% to 362,717 in 2002 compared to $335,007        in 2001.                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         Selling,        general and administrative expenses decreased $71,266 or        4.4% to $1,543,086 in 2002 compared to $1,614,352 in        2001. This decrease is due to a reduction of consulting        expenses, bad debt expenses and programming expenses. As        a percentage of revenue, selling, general and        administrative expenses were 5.8% in 2002 compared to        6.3% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

----

 

|         Other        income (expenses), net increased $281,482 to other income        of $220,088 in 2002 compared to other expense of $61,394        in 2001. This increase is primarily due to the insurance        reimbursement for loss of business income in the        recycling segment of $161,428, because primary equipment        was out of service from mid-November 2001 through        mid-January 2002 and a bad debt recovery of $73,861 in        the management services segment. The recycling segment is        still recovering from the primary equipment breakdown as        processed inventory levels will not be back to normal for        approximately sixty days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Financial condition at June 30, 2002        compared to December 31, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Accounts        receivable trade increased $2,556,320 or 38.3% to        $9,226,102 in 2002 compared to $6,669,782 in 2001. The        increase is due to an increase in revenues per the        customer locations while maintaining a consistent        customer base in the Management Services segment as well        as an increase in the volume of shipments in the        Recycling segment. Average days outstanding in 2002 were        28.8 days compared to 34.2 days in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         Accounts        payable trade increased $2,259,222 or 24.7% to        $11,422,013 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 $168,548 to a deficit of $1,177,772 in        2002 compared to a deficit of $1,346,320 in 2001. These        deficits are due to the use of working capital to finance        the purchase of property and equipment rather than using        long-term debt in 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Impact of Recently Issued Accounting        Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         In        July 2001, the Financial Accounting Standards Board        ("FASB") issued Statement No. 141, Business        Combinations and Statement No. 142, Goodwill and Other        Intangible Assets ("SFAS 142"). These        statements significantly affect the financial accounting        and the reporting for business combinations, goodwill and        intangible assets. SFAS 142 requires that goodwill be        allocated to reporting units and that goodwill and        intangibles assets with indefinite useful lives not be        amortized over their useful lives, but rather be tested        for impairment upon implementation of this standard and        at least annually thereafter. Amortizable intangible        assets will be subject to the impairment provisions of        Statement No. 144 Accounting for the Impairment or        Disposal of Long-Lived Assets ("SFAS 144").        Consequently, there is no transitional impairment test        for these assets. However, SFAS 142 requires that the        useful lives of these amortizable intangible assets be        reassessed. The transitional impairment test should be        completed in the first interim period (or in case of        goodwill in the first six months) of the fiscal year in        which SFAS 142 is adopted, and any resulting impairment        loss should be recognized as the effect of a change in        accounting principle in accordance with Accounting        Principles Board Opinion No. 20, Accounting Changes. Any        subsequent impairment losses resulting from events or        circumstances that occur after the first day of the        fiscal year in which SFAS 142 is adopted should be        reported as a component of income from continuing or        discontinued operations, as appropriate. These statements        apply to all business combinations that are initiated or        completed after June 30, 2001 and the effective date of        these pronouncements for the Registrant is January 1,        2002. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 13                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

----

 

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

 

----

 

| PART II        – OTHER INFORMATION |
|-----------------------------------------|
|                                    |   |
|                                    |   |
| Item 1.                                 | Legal        Proceedings |
|                                    | None |
|                                    |   |
| Item 2.                                 | Changes in        Securities and Use of Proceeds |
|                                    | None |
|                                    |   |
| Item 3.                                 | Defaults upon        Senior Securities |
|                                    | None |
|                                    |   |
| Item 4.                                 | Submission of        Matters to a Vote of Security Holders |
|                                    |   |
|                                    | (a) | At the Annual Meeting of        Shareholders held on May 30, 2002, the following        proposals were adopted by the margins indicated: |
|                                    |   |   |
|                                    | (b) | PROPOSAL 1: Annual Election        of Directors. The nominees for election as directors were        Harry Kletter, Ted L. Cox, Roman Epelbaum, David W.        Lester, and James E. Vining. One additional nominee was        nominated from the floor: Bob Cuzzort. The five director        positions were filled based upon the five receiving the        most votes: |
|                                    |   |   |

|   |   |            | **For**                           | **Against**                                             | **Broker Non-        Votes And****Abstentions** |
|--------|--------|-----------------|-----------------------------------|---------------------------------------------------------|-------------------------------------------------|
|   |   |            |                              |                                                    |                                            |
|   |   | Harry Kletter   | 1,286,879     | 1,110                | -                                               |
|   |   | Ted L. Cox      | 206,775       | 110                  | -                                               |
|   |   | Roman Epelbaum  | 1,287,889     | 100                  | -                                               |
|   |   | David W. Lester | 1,287,889     | 100                  | -                                               |
|   |   | James E. Vining | 1,287,889     | 100                  | -                                               |
|   |   | Bob Cuzzort     | 1,081,104     | -          | -                                               |
|   |   |            |                              |                                                    |                                            |

|   |   |                                                                                                               |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|
|   | (c)    | PROPOSAL 2:        Confirmation of Crowe Chizek & Company LLP as the        Registrant's independent auditors. |
|   |   |                                                                                                               |   |   |
|   |   | **For**                                                                                                            | **Against** | **Broker Non-Votes****And Abstentions** |
|   |   |                                                                                                               |   |   |
|   |   | 1,287,889                                                                                                          | 100 | - |
|   |   |
|   |   |
| 15     |
|   |   |

 

----

 

| Item 5. | Other Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Effective July 1, 2002, ISA        Indiana, Inc., a wholly-owned scrap metal and recycling        subsidiary of the Registrant, successfully negotiated a        lease/purchase agreement with an unaffiliated third party        for approximately five acres of land in Seymour, Indiana        improved by an approximately 7,000 square foot        maintenance and office building. The lease portion of the        agreement is for three years at a monthly rental payment        of three thousand dollars ($3,000.00) per month, after        which the property will be purchased for four hundred        twenty-five thousand dollars ($425,000). The agreement        may be terminated for cause upon default. There are no        provisions for termination without cause. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Item 6. | Exhibits and Reports on        Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |
| 16      |

 

----

 

| SIGNATURES                                                                                                                                                                                                                                                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                 |
|         Pursuant        to the requirements of the Securities Exchange Act of        1934, the Registrant has duly caused this report to be        signed on its behalf by the undersigned thereunto duly        authorized. |
|                                                                                                                                                                                                                                                                 |   |
|                                                                                                                                                                                                                                                                 | INDUSTRIAL SERVICES OF        AMERICA, INC. |
|                                                                                                                                                                                                                                                                 |   |
|                                                                                                                                                                                                                                                                 |   |
| DATE: August 12, 2002                                                                                                                                                                                                                                                |     /s/  Harry        Kletter                                  |
|                                                                                                                                                                                                                                                                 | Chairman and Chief Executive        Officer |
|                                                                                                                                                                                                                                                                 | (Principal Executive and        Financial |
|                                                                                                                                                                                                                                                                 |   Officer) |
|                                                                                                                                                                                                                                                                 |   |
|                                                                                                                                                                                                                                                                 |
| 17                                                                                                                                                                                                                                                                   |

 

----

 

| Harry Kletter and Alan L.        Schroering, being the Chief Executive Officer and Chief        Financial Officer, respectively, of Industrial Services        of America, Inc., hereby certify as of this 8th day of        August, 2002, that the Form 10-Q for the Quarter ended        June 30, 2002, fully complies with the requirements of        Section 13(a) or 15(d) of the Securities Exchange Act of        1934 and that the information contained in the Form 10-Q        fairly presents, in all material respects, the financial        condition and results of operations of Industrial        Services of America, Inc. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | /s/ Harry        Kletter                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Harry Kletter, Chief        Executive Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | /s/ Alan L.        Schroering                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Alan L. Schroering, Chief        Financial Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |