| UNITED        STATES SECURITIES AND EXCHANGE COMMISSION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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| Washington, DC 20549                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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| **FORM        10-K**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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| [ x ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ANNUAL REPORT PURSUANT TO        SECTION 13 OR 15(d) OF THE SECURITIES |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | EXCHANGE ACT OF 1934 |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | For Fiscal Year Ended        December 31, 2001 |
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| [   ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | TRANSITION REPORT PURSUANT        TO SECTION 13 OR 15(d) OF THE SECURITIES |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | EXCHANGE ACT OF 1934 |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | For the transition period        from __________ to __________ |
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| Commission File No.: 0-20979                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| _____________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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| **INDUSTRIAL SERVICES OF AMERICA, INC.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (Exact name of registrant as specified in its        charter)                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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| Florida                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 59-0172746 |
| (State or other        jurisdiction of        incorporation or organization)                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (I.R.S. Employer        Identification No.) |
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| 7100 Grade Lane        P.O. Box 32428        Louisville, Kentucky 40232        (502) 368-1661                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (Address, including zip code, and telephone        number,        including area code, or registrant's principal executive        offices)                                                                                                                                                                                                                                                                                                                                                                                                |
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| Securities registered pursuant to Section 12(b)        of the Act: None                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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| Securities registered pursuant to Section 12(g)        of the Act:                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| Common Stock, $.01 par value        (Title of class)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|       Indicate        by check mark 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         |
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|       Indicate        by check mark if disclosure of delinquent filers pursuant        to Item 405 of Regulation S-K is not contained herein,        and will not be contained, to the best of registrant's        knowledge, in definitive proxy or information statements        incorporated by reference in Part III of this Form 10-K        or any amendment to this Form 10-K.        X                         |
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|       Aggregate        market value of the 669,146 shares of voting Common Stock        held by non-affiliates of the registrant at the closing        sales price on March 11, 2002: $1,539,036.                                                                                                                                                                                                                                                                                                           |
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|       Number        of shares of Common Stock outstanding as of the close of        business on March 11, 2002: 1,660,400.                                                                                                                                                                                                                                                                                                                                                                                  |
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| _____________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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| DOCUMENT INCORPORATED BY REFERENCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| Portions of        the registrant's definitive Proxy Statement for the 2002        Annual Meeting of Shareholders are incorporated by        reference into Part III of this report.                                                                                                                                                                                                                                                                                                                                                      |

 

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| **PART        I**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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| **Item        1.       Business.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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| **General**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|       Industrial        Services of America, Inc. (the "Registrant") is        a management services company specializing in solid waste        management, as well as ferrous, non-ferrous and fiber        recycling. The management division of the Registrant is        engaged in the business of commercial, retail and        industrial waste management and waste handling. The        Registrant also has an operating division engaged in        equipment sales and leasing activities. The ferrous        division's major products include recycled steel and iron        products, whereas the non-ferrous division recycles        copper, aluminum and brass. The fiber recycling consists        mainly of high-grade papers and corrugated cardboard. The        Registrant is able to offer a "total package"        concept to commercial, retail and industrial clients to        cover their waste management needs. Combining waste        reduction, waste materials diversion and waste equipment        technology, the Registrant creates waste programs        tailored to each client's individual needs. The        Registrant believes that it offers a more complete line        of products and services than its competitors and is        better able to coordinate these services on a regional        and nationwide basis. By offering competitively priced        waste handling equipment from a number of different        manufacturers, the Registrant is able to tailor equipment        packages for individual client needs. The waste        management services offered by the Registrant include        locating and contracting with a hauling company at a        reasonable cost at each participating location for the        customers of the Registrant that are a part of the        management program offered by the Registrant. Because the        Registrant is not a "waste transporter," it is        able to maintain a neutral position with the customers        and the hauling companies. The Registrant has designed        and developed proprietary computer software that provides        the Registrant's personnel with relevant information on        each of the client's locations, as well as pertinent        information on disposal rates and costs of equipment,        including installation and shipping. This software has        allowed the Registrant to build a database for serving        customers nationwide as well as Canada and Puerto Rico.        The Registrant is able to estimate cost savings to        potential customers by reviewing their current waste        hauling invoices either regionally or nationwide. The        Registrant is also capable of generating customized        billing statements to accommodate customer needs. |
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|       The        Registrant plans to grow by expanding its marketing base        and by seeking future joint ventures and acquisitions of        companies in the management services portion of the        business. The Registrant continues to target retail and        industrial customers throughout North America for the        purpose of increasing its clientele in this sector.        Although the number of locations for each industrial        customer will generally be less than that of large retail        chains, solid waste output for each location of        industrial clients is generally greater than that of        retail clients. Since industrial clients generate greater        volumes of solid waste, the Registrant believes that        industrial clients offer more opportunities for large        equipment orders than retail clients. The Registrant        believes it can provide savings at industrial and retail        locations based on its neutral position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|       The        Registrant believes that opportunities for its continued        growth are enhanced by the increasingly stringent        regulatory and political constraints being placed on the        waste hauling and disposal industries. These more        stringent federal, state and local regulations drive        prices higher throughout the industry. With        ever-increasing costs, solid waste disposal is becoming        one of the larger expense items for retail and industrial        customers, and perhaps one of the most difficult to        control. The Registrant believes these increased costs        will enhance the value of its services. Through the        retention of the Registrant's services, customers can        "outsource" their in-house waste needs to an        experienced independent entity capable of lowering and        containing waste disposal costs. The Registrant is able        to provide customized reports detailing clients'        recycling revenues as well as waste disposal expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| **Registrant Background**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|       The        Registrant was incorporated in October 1953 in Florida        under the name Alson Manufacturing, Inc.        ("Alson"). From the date of incorporation        through January 5, 1975, the Registrant was involved in        the design and manufacture of various forms of electrical        products. In 1979, the Board of Directors and the        shareholders of the Registrant commenced liquidation of        all the tangible assets of Alson. On October 27, 1983,        Harry Kletter, the Chairman of the Board and Chief        Executive Officer of the Registrant, acquired 419,500        shares of Common Stock of the Registrant. The existing        directors resigned and five new directors were elected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|       On        July 1, 1984, the Registrant began a solid waste handling        and disposal equipment sales organization under the name        Waste Equipment Sales and Services Company        ("WESSCO"). On January 1, 1985, the Registrant        merged with Computerized Waste Systems, Inc.        ("CWS"), a Massachusetts corporation. CWS was a        corporation specializing in offering solid waste        management consultations for large multi-location        companies involved in the retail, restaurant and        industrial sectors. At the time of the merger, CWS was        concentrating on large retail chains, but has changed its        emphasis to include commercial and industrial clients.        This strategy created an additional target market for the        Registrant. Subsequent to the merger with CWS, the        Registrant moved the CWS headquarters from Springfield,        Massachusetts to Louisville, Kentucky. At the time of the        merger, much of the client base and marketing efforts        were concentrated in the Northeast. With the move to        Louisville, the Registrant began to expand its marketing        efforts, which are now both nationwide and in Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|       CWS        has developed a network of over 2,300 vendors throughout        the United States, Puerto Rico, and Canada, which include        hauling companies, recycling companies and equipment        manufacturing and maintenance companies. Through this        network, the Registrant is able to provide pricing        estimates for potential customers in a timely fashion.        CWS customer representatives have access to this        information through the computer software designed and        developed to accommodate the daily needs of the        Registrant. Through this information retrieval system,        customer representatives can review the accuracy of        customer concerns from recent billings to hauling rates        to the average monthly cost of service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|       The        Registrant also processes, sells and brokers a broad        range of materials for recycling. These materials include        ferrous and non-ferrous metals, corrugated containers,        high-grade paper and plastic. The Registrant offers        document destruction and transport of recyclable        materials to the Registrant's facility for regional        clients. This division also brokers recycled commodities        for CWS customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|       The        Registrant's divisions operate closely with each other in        terms of present customer care and proposals for new        customers. WESSCO has expanded its product line and        presently offers a variety of equipment, which would be        necessary for an efficient waste handling and/or        recycling system for an individual user. The prices        WESSCO can offer are competitive with most dealers since        it purchases equipment at dealer cost without paying        dealer overhead. The WESSCO program is attractive to        customers planning expansion programs. Some of these        customers have designated WESSCO as their exclusive waste        equipment supplier and consultant. By working with the        customer from the time the initial building plans are        developed, WESSCO has input into the design, development        and implementation of the waste handling system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|       The        Registrant derives a significant portion of its revenues        from two primary customers (Home Depot and Office Depot)        accounting for approximately 54%, 44% and 44% of 2001,        2000 and 1999 total revenues. The Registrant is taking        affirmative action to counter its dependence on any one        customer. The potential negative effect of losing any        single customer has been reduced by the Registrant's        expansion of its customer base. However, the loss of all        or a substantial portion of the business from these two        primary customers could have a material adverse effect on        the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|       In        addition to its other services, the Registrant provides        management services relating to recycling and waste        stream analysis. The main advantage to offering these        types of management services is that the individual        projects are priced on a substantial prepaid individual        basis. This method of pricing allows the Registrant to        collect an up-front fee with the opportunity to        "sell" the customer traditional services after        the evaluation and/or any subsequent implementation is        complete. By offering management and evaluation services,        the Registrant is able to pursue additional customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| **Industry Background**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|       The        Registrant is involved in the management of non-hazardous        solid waste and recyclables for retail, commercial and        industrial customers. As such, the industry is actually        driven by the multi-billion dollar solid waste collection        and disposal industry. The size of this industry has        increased for the past several years and should continue        to increase, as landfill space becomes scarcer. Although        society (and industry) has developed an increased        awareness of the environmental issues and recycling has        increased, waste production also continues to increase.        Because of environmental concerns, new regulations and        cost factors, it has become difficult to obtain the        necessary permits to build any new landfills. Management        of the Registrant believes that with the consolidation        taking place in the waste industry, it will become        increasingly difficult for a customer to receive a fair        price. The Registrant should therefore be in a position        to be called upon to represent the best interest of that        customer; this fact can only enhance the Registrant's        business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|       The        rising costs associated with solid waste disposal have        created additional opportunities for the Registrant.        Because waste disposal has begun to be an increasingly        larger percentage of the total monthly expenditures        incurred by commercial establishments, the Registrant        believes that the services offered by the Registrant will        be in greater demand. Many commercial establishments that        have paid little attention to the costs associated with        waste disposal in the past are now looking for ways to        reduce expenses in this area. The Registrant offers        commercial establishments its expertise to lower waste        disposal bills and initiate recycling programs to        generate additional revenues and/or reduce costs and        materials bound for ultimate disposal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|       In        addition to increasing landfill costs, regulatory        measures and more stringent control of material bound for        disposal ("flow control") are making the        management of solid waste an increasingly difficult        problem. The United States Environmental Protection        Agency (the "EPA") is expected to continue the        present trend of restricting the amount of        "potentially" recyclable material bound for        landfills. Many states have passed, or are contemplating        measures, which would require commercial establishments        to recycle a minimum percentage of their waste stream and        would restrict the percentage of recyclable materials in        any commercial load of solid waste material. Many states        have already passed restrictive regulations requiring a        plan for the reduction of waste or the segregation of        recyclable materials from the waste stream at the source.        Management of the Registrant believes that these        restrictions may create additional marketing        opportunities as waste disposal needs within commercial        establishments become more specialized. Some large        commercial establishments have hired in-house staff to        handle the solid waste management and recycling        responsibilities, but have found that without adequate        resources and staff support, in-house handling of these        responsibilities may not be an effective alternative. The        Registrant offers these establishments a possible        solution to this increasing burden.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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| **Technology Solutions**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|       On        September 17, 2001, the management of the Registrant        concluded that the iR2 division had successfully        accomplished its goal of building the internal software        program for the Computerized Waste Systems segment.        Through attrition, the iR2 division has been reduced to        four (4) employees. These employees are responsible for        the maintenance of the Registrant’s existing        hardware and software as well as the on-going development        of new programming solutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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| **K&R Lease; K&R        Consulting Agreement**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|       On        February 16, 1998 the Registrant's Board of Directors        ratified and formalized an existing relationship in        connection with (i) the leasing by the Registrant of its        facilities from K&R and (ii) the provision of        consulting services from K&R to the Registrant.        K&R is an affiliate of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|       *Lease        Agreement**.* The Lease Agreement (the        "K&R Lease"), effective as of January 1,        1998, between K&R, as landlord, and the Registrant,        as lessee, covers approximately 20.5 acres of land and        the improvements thereon, which are located at 7100 Grade        Lane in Louisville, Kentucky (the "Leased        Premises"). The principal improvements consist of an        approximately 22,750 square foot building used as the        corporate and CWS offices, an approximately 8,286 square        foot building used for sales/leasing and information        technology offices, an approximately 13,995 square foot        building used as the paper recycling plant, an        approximately 12,000 square foot building used for the        metals recycling plant, and an approximately 51,760        square foot building used as the recycling offices and        warehouse space, with the remaining 15,575 square feet of        space contained in five (5) buildings ranging in size        from approximately 256 to 8,000 square feet. The initial        term of the K&R Lease is for ten years with two        five-year option periods (the "Option Periods")        available thereafter. The base rent for the first five        years is $450,000 per annum, payable at the beginning of        each month in an amount equal to $37,500 (the "Fixed        Minimum Rent"). The Fixed Minimum Rent adjusts each        five years, including each of the Option Periods, in        accordance with the Consumer Price Index. The Fixed        Minimum Rent also increases to $750,000 per annum, in an        amount equal to $62,500 per month in the event of a        change in control of the Registrant. The Registrant is        also required to pay, as additional rent, all real estate        taxes, insurance, utilities, maintenance and repairs,        replacements (including replacement of roofs if        necessary) and other expenses. The K&R Lease provides        for indemnification of K&R by the Registrant for all        damages arising out of the Registrant's use or condition        of the Leased Premises excepting therefrom K&R's        negligence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|       *K&R        Consulting Agreement**.*The K&R        Consulting Agreement remains in effect until December 31,        2007, with automatic annual renewals thereafter unless        one party provides written notice to the other party of        its intent not to renew at least six months in advance of        the next renewal date. K&R shall provide strategic        planning for mergers and acquisitions (the "K&R        Consulting Activities"). The Registrant shall be        responsible for all of K&R's expenses and pay        services to K&R of $240,000 in equal monthly        installments of $20,000 in connection with the K&R        Consulting Activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|       The        K&R Consulting Agreement terminates upon a        non-defaulting party providing written notice to the        other party of its intent to terminate. The recipient of        the notice has 10 days to cure monetary defaults and 30        days to cure non-monetary defaults. Upon termination,        K&R agrees not to engage, directly or indirectly, in        the business conducted by, or hire employees from, the        Registrant for a period of five years and within 100        miles of any operation of the Registrant. The        Registrant's principal shareholder and Chief Executive        Officer is compensated through consulting fees pursuant        to the K&R Consulting Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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| **Fitzpatrick Purchase        Agreement; Lease Agreement**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|       Effective        June 1, 1998 but executed as of July 31, 1998, ISA        Indiana, Inc. (the "Subsidiary"), an Indiana        corporation and wholly-owned subsidiary of the        Registrant; R. J. Fitzpatrick Smelters, Inc. (the        "Seller"); and R. J. Fitzpatrick and Cheryl        Fitzpatrick (collectively the "Guarantors");        entered into an Asset Purchase Agreement (the        "Fitzpatrick Purchase Agreement") whereby the        Subsidiary acquired all of the business, property, rights        and assets of the Seller and assumed certain of the        liabilities of the Seller as set forth in the Fitzpatrick        Purchase Agreement. Under the Fitzpatrick Purchase        Agreement, the Subsidiary entered into a real property        Lease Agreement (the "Fitzpatrick Lease"),        effective June 1, 1998, from the Guarantors and the        Seller for ten successive terms of ten years each at a        rental of $13,000 per month during the original term (as        adjusted in accordance with the Consumer Price Index for        each renewal term) with an option to purchase for        $1,600,000 the real property (including an adjoining 20        acre tract less 3 acres to be retained by the Seller and        Guarantors). The location of the business is on an        approximate 14-acre tract at U.S. 50 and Jennings County        Road 900 West, North Vernon, Jennings County, Indiana,        approximately 65 miles north of Louisville, Kentucky. The        business of the Seller is a metal salvage and metal        handling operation and is comprised of five buildings,        the total square footage of which is approximately 71,400        feet. The principal improvement is a one-story concrete        warehouse/foundry/office approximating 25,500 square        feet. The remaining buildings are steel-framed buildings        constituting warehouses, garages and office space. The        Fitzpatrick Lease provides for the right of the        Subsidiary to terminate at any time after May 31, 2003,        for a termination payment of $156,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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| **Consulting Agreements;        Lassak Agreement and JCA/Lassak Agreement**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|       On        June 2, 1998, the Registrant entered into an agreement        (the "Lassak Agreement") with Andrew M. Lassak        ("Lassak") to perform financial advisory        services for the Registrant for a period of up to five        years. The Company granted to Lassak and/or his designee        for the financial advisory services rendered under the        Lassak Agreement options to purchase from 25,000 up to a        maximum of 250,000 shares of the Company's Common Stock        (the "Common Stock"). During 2001, the        Registrant did not issue any options to purchase Common        Stock to Lassak under the Lassak Agreement. The        Registrant terminated the Lassak Agreement effective June        2, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|       On        June 2, 1998, the Registrant entered into an agreement        (the "JCA/Lassak Agreement") with Joseph        Charles & Associates, Inc. ("JCA") and        Lassak for a period of up to five (5) years. The        Registrant agreed to grant to JCA and Lassak options to        purchase the Registrant's Common Stock on the basis of        65% of the shares of Common Stock subject to options        being granted to Lassak and 35% to JCA, at (a) $6.00 per        share for the first 150,000 shares that vest, and (b)        $8.00 per share for the remaining 35,000 shares that        vest. The Registrant terminated the JCA/Lassak Agreement        effective June 2, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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| **Competition**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|       On        a commercial/industrial waste management level, the        Registrant has competition from a variety of sources.        Much of it is from companies that concentrate their        efforts on a regional level. Management of the Registrant        believes that with the proprietary database of regional        and national pricing, the Registrant will maintain its        edge on a national basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|       There        has been increased competition from national hauling        companies. The large national hauling companies often        attempt to handle an entire chain of locations for a        "national chain" client. This scenario poses a        potential conflict of interest since these hauling        companies can attain greater profitability from increases        in hauling and disposal revenues. In addition to having        an interest in higher hauling and disposal rates, the        national hauling companies do not have operations in        every community and do not, to the knowledge of        management, have some of the billing and computer        capabilities which the Registrant is able to offer.        Additionally, management has encountered evidence of some        reluctance from independent hauling companies to work        with national hauling companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|       There        is also competition from some equipment manufacturers.        These companies have their primary interest in selling or        leasing equipment and offer management services in order        to secure these sales or leases. There is a cost involved        in "using" the equipment and the money saved        must justify the amount spent on this equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|       The        metal recycling business is highly competitive and is        subject to significant changes in economic and market        conditions. Certain of the Registrant's competitors have        greater financial, marketing and other resources. There        can be no assurance that the Registrant will be able to        obtain its desired market share based on the competitive        nature of this industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|       An        important difference between the Registrant and the        majority of its competition is the Registrant's        management process. The systematic approach attempts to        provide consistent results for the customer. At the        implementation stage, the Registrant actively "bids        out" every location that a new customer requests.        The Registrant repeats this bidding process at any time        that a client receives notice of an undocumented price        increase or at regular intervals as indicated in the        contractual relationship. At subsequent stages, the        Registrant will evaluate a customer's solid waste program        and provide alternatives for improvement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|       The        Registrant has developed a network of maintenance and        hauling companies throughout the country and due to the        volume of business awarded to them by the Registrant,        often these companies will offer discounted hauling and        maintenance rates to the Registrant. However, the        Registrant is not "affiliated" with any        particular company or vendor in the hauling and/or        maintenance industries, but rather deals with those        companies and vendors that can supply quality service at        a favorable price. In addition to the volume of business        handled by some of these "vendors", the vendors        understand that as long as the accounts are well        serviced, they will be invited to bid on future accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|       Few,        if any, of the Registrant's competitors have a national        network of vendors similar to the one the Registrant has        developed over its years of operation. The major hauling        companies are limited in the scope of services, which        they can provide to commercial/industrial accounts.        Although the major hauling companies have operating        companies in most major and intermediate-sized cities,        they do not have nationwide geographic coverage.        Therefore, for large commercial/industrial clients, they        must obtain bids from local hauling companies that may        perceive them to be future competitors. The Registrant        has positioned itself to negotiate with the haulers,        while servicing its clients on a nationwide basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|       Most        of the direct competition is from small regional        companies that bid on regional accounts or national        accounts on a regional basis. Few of the Registrant's        competitors appear to be equipped to handle large        national accounts nor do they seem to have the        inclination to expand their geographic coverage. There        are numerous national companies in closely related        businesses, including national hauling companies that        have substantially greater financial resources than does        the Registrant. Should any of these companies decide to        compete directly with the Registrant, it could have a        material adverse effect on the business of the        Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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| **Employees**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|       The        Registrant has approximately one hundred thirty-five        (135) full-time employees as follows: Recycling 78,        Management Services 35, Sales/Leasing 9 and        Administration/Information Technology 13. No employee is        a member of a union with a contract with the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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| **Effect of State and        Federal Environmental Regulations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|       Any        environmental regulatory liability relating to the        Registrant's operations is generally borne by the        customers with whom the Registrant contracts and the        third party vendors in their capacity as transporters. As        a matter of Registrant's policy, the Registrant uses its        best efforts to secure indemnification for environmental        liability from its customers and third party vendors.        Although management of the Registrant believes that for        the most part its business does not subject it to        potential environmental liability, the Registrant        continues to use best efforts to be in compliance with        federal, state and local environmental laws, including        but not limited to the Comprehensive Environmental        Response, Compensation and Liability Act of 1980, as        amended, the Hazardous Materials Transportation Act, as        amended, the Resource Conservation and Recovery Act, as        amended, the Clean Air Act, as amended, and the Clean        Water Act. Such compliance in 2001 or 2000 did not        constitute a material expense to the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|       The        collection and disposal of solid waste and rendering of        related environmental services are subject to federal,        state and local requirements which regulate health,        safety, the environment, zoning and land-use. Federal,        state and local regulations vary, but generally govern        disposal activities and the location and use of        facilities and also impose restrictions to prohibit or        minimize air and water pollution. In addition,        governmental authorities have the power to enforce        compliance with these regulations and to obtain        injunctions or impose fines in the case of violations,        including criminal penalties. These regulations are        administered by the EPA and various other federal, state        and local environmental, health and safety agencies and        authorities, including the Occupational Safety and Health        Administration of the U.S. Department of Labor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|       The        Registrant strives to conduct its operations in        compliance with applicable laws and regulations. While        such amounts expended in the past or anticipated to be        expended in the future have not had and are not expected        to have a material adverse effect on the Registrant's        financial condition or operations, the possibility        remains that technological, regulatory or enforcement        developments, the results of environmental studies or        other factors could materially alter this expectation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|       Each        state in which the Registrant operates has its own laws        and regulations governing solid waste disposal, water and        air pollution and, in most cases, releases and cleanup of        hazardous substances and liability for such matters.        Several states have enacted laws that will require        counties to adopt comprehensive plans to reduce, through        waste planning, composting, recycling, or other programs,        the volume of solid waste landfills. These laws have        recently been promulgated in several states. Legislative        and regulatory measures to mandate or encourage waste        reduction at the source and waste recycling, also are        under consideration by Congress and the EPA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|       Finally,        various states have enacted, or are considering enacting,        laws that restrict the disposal within the state of solid        or hazardous wastes generated outside the state. While        laws that overtly discriminate against out of state waste        have been found to be unconstitutional, some laws that        are less overtly discriminatory have been upheld in        court. Challenges to other such laws are pending. The        outcome of pending litigation and the likelihood that        other such laws will be passed and will survive        constitutional challenge are uncertain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| **Item        2.        Properties.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|       The        Registrant leases its corporate offices and processing        property and buildings in Louisville, Kentucky for        $37,500 per month from K&R pursuant to the K&R        Lease. See ITEM 1. BUSINESS. "K&R Lease; K&R        Consulting Agreement."                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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|       The        Subsidiary has entered into the Fitzpatrick Lease        effective June 1, 1998, for ten successive terms of ten        years each at a rental of $13,000 per month during the        original term (as adjusted in accordance with the        Consumer Price Index for each renewal term) with an        option to purchase for $1,600,000. See ITEM 1. BUSINESS.        "Fitzpatrick Purchase Agreement; Lease        Agreement."                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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| **Item        3.        Legal        Proceedings.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|       There        are no material proceedings pending by, or against the        Registrant or affecting any of its properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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| **Item        4.        Submission        of Matters to a Vote of Security Holders.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|       Not        applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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| **Item        4a.        Executive        Officers of the Registrant.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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| Name                      | Served as an        Executive        Officer From | Age    | Position with the         Registrant and Other        Principal Occupations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|---------------------------|---------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Harry Kletter             | 1983                                              | 75     | Chairman of        the Board and Chief Executive Officer of the Registrant        from May 2, 2000 to present. Chairman of the Board and        Chief Visionary Officer of the Registrant from February        3, 2000 to May 2, 2000. Mr. Kletter has served as        Chairman of the Board and Chief Executive Officer from        July 31, 1992 to February 3, 2000, President of the        Registrant from July 31, 1992 to December 1997, from        January 1990 to July 1991, and from October 1983 to        January 1988; Mr. Kletter is also Chairman and sole        shareholder of K&R Corporation. |
|                      |                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Alan L.        Schroering | 2000                                              | 37     | Chief        Financial Officer of the Registrant since May, 2001. Mr.        Schroering served as a board member of the Registrant        from June 2000 to May 2001. Mr. Schroering serves as        Treasurer from October 2001 to present. Mr. Schroering        served in several accounting positions with National        Processing Company from April 1998 to May 2000. Mr        Schroering served previously in several accounting        positions with the Registrant from November 1984 to March        1998.                                                                                             |
|                      |                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Bob Cuzzort               | 2000                                              | 53     | Chief        Operating Officer of the Registrant from July 2001 to        present. Director of Human Resources from March 2001 to        present. He served previously in charge of special        projects for the Registrant from October 2000 to March        2001. Mr. Cuzzort served as general manager of Bassett        Furniture Direct from March 1998 to August 2000. He        served in several management positions with Haverty        Furniture Company, Inc. from January 1970 to February        1998.                                                                                                |
|                      |                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| V. David Lee              | 2001                                              | 48     | General        Counsel and Secretary of the Registrant from October,        2001 to present. Mr. Lee served as General Counsel for        ESA1, a national environmental consulting company from        1996 to 2001. Mr. Lee was engaged in the private practice        of law, both in and outside of the law firm setting, from        1991 to 1996. Prior to his legal practice, Mr. Lee worked        as an environmental regulator in Kentucky state        government.                                                                                                                                          |
|                      |                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Timothy W.        Myers   | 1998 to         July 2001                         | 50     | Vice        President of Operations and Chief Operating Officer of        the Registrant from May 2000 to July 2001. Vice President        of Operations from July 1998 to May 2000; Senior Vice        President and Chief Operating Officer of the Registrant        from 1996 until July 1998; President of K&R from 1996        to July 1998. Mr. Myers had served in various operational        capacities with the Registrant and K&R since 1973.                                                                                                                                                        |
|                      |                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| John O.        Tietjen    | 1999 to         August 2001                       | 53     | Senior Vice        President and Chief Financial Officer of the Registrant        from March 1, 1999 to August 2001; from September 1993 to        February 1999, Vice President of Finance at Greater        Louisville, Inc. (and its predecessor). Mr. Tietjen        served previously as Corporate Controller for OpenConnect        Systems, Inc. and for 15 years prior to his employment        with OpenConnect Systems, Inc., he served in various        positions with Glidden Paint Company.                                                                                                              |
|                      |                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Charles J.        Hulsman | 1995 to         October 2001                      | 44     | Vice-President        of CWS from May 2000 to October 2001; from December 1991        to May 2000, Manager of CWS, and a sales representative        of WESSCO, a division of the Registrant, prior to that        date. Chief Operating Officer of the Registrant from May        2001 to present.                                                                                                                                                                                                                                                                                                                    |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       Effective        July 2, 2001, Timothy W. Myers resigned from his position        as Chief Operating Officer with the Registrant. Effective        August 26, 2001, John O. Tietjen was no longer an        employee of the Registrant. Effective October 1, 2001,        Charles J. Hulsman assumed new duties as Manager of CWS.                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       None        of the above officers is related to any other. With        respect to certain arrangements with certain officers of        the Registrant relating to executive compensation, see        section entitled "Executive Compensation - Certain        Transactions" in the Registrant's Proxy Statement        for the 2001 Annual Meeting of Shareholders as        incorporated herein by reference at Item 11.                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **Item        5.        Market        for Registrant's Common Equity and Related Stockholder        Matters.**                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       Effective        August 29, 1996, the $.01 par value common stock of the        Registrant became listed on the Small Cap Market (the        "Small Cap Market") of the Nasdaq Stock Market        under the symbol "IDSA." Prior to August 29,        1996, the Registrant's common stock traded on the Over        the Counter Bulletin Board ("OTCBB") operated        by the National Association of Securities Dealers, Inc.        ("NASD"). |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| **Quarter        Ended** |   | **2001** |    | **2000** |     | **1999** |
|--------------------------|--------|----------|---------|----------|----------|----------|
|                     |   | **High** | **Low** |     | **High** | **Low**  |   | **High** | **Low** |
| March 31                 |   | $2.45    | $1.94   |     | $4.06    | $1.75    |   | $2.63 | $1.88 |
| June 30                  |   | $2.55    | $2.00   |     | $2.50    | $1.50    |   | $5.38 | $2.50 |
| September 30             |   | $2.65    | $2.05   |     | $3.50    | $1.25    |   | $4.19 | $2.00 |
| December 31              |   | $2.50    | $2.05   |     | $3.00    | $2.06    |   | $2.50 | $1.50 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       There        were approximately 397 shareholders of record as of March        11, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|       The        Registrant has never declared a cash dividend on its        Common Stock. Until August 8, 2000, the Registrant had        always had a policy intending that the retention of        earnings would be used to help finance the Registrant's        expansion programs. On August 8, 2000, the Board of        Directors of the Registrant approved a change in the        dividend policy whereby dividends can be declared subject        to Board approval. The Board of Directors has the        discretionary power to declare dividends within the        constraints of its loan agreement with the Bank of        Louisville, which at December 31, 2001 limits the amount        of the dividends that can be declared to approximately        $380,000. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|       On        August 8, 2000, the Board of Directors of the Registrant        also approved the repurchase of shares of its common        stock. The stock repurchase program allows for the        purchase of common stock at current market prices. In the        fiscal year 2001, the Registrant repurchased 202,900        shares at an average share price of $2.07.                                                                                                                                                                                                                                                                                                                                                                                                      |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **Item        6.        Selected        Financial Data.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|                                                        |                                  |
|-------------------------------------------------------------|---------------------------------------|
| **Selected        Financial Data**                          |                                  |   |   |   |   |   |   |   |   |
|                                                        | 2001                                  |   | 2000 |   | 1999 |   | 1998 |   | 1997 |
| (Amounts in Thousands, Except Per Share Data)               |                                  |   |   |   |   |   |   |   |
|                                                        |                                  |   |   |   |   |   |   |   |   |
| Year ended        December 31:                              |                                  |   |   |   |   |   |   |   |   |
|   Total        revenue                            | $  93,771              |   | $  89,241 |   | $  77,498 |   | $  65,205  |   | $  45,212 |
|                                                        |                                  |   |   |   |   |   |   |   |   |
|   Income        (loss) from continuing operations | (353)                                 |   | 506 |   | 321 |   | (507) |   | 137 |
|                                                        |                                  |   |   |   |   |   |   |   |   |
|   Earnings                                        |                                  |   |   |   |   |   |   |   |   |
|     per        common share:            |                                  |   |   |   |   |   |   |   |   |
|     Basic                               | $     (0.21) |   | $     0.26 |   | $     0.17 |   | $    (0.26) |   | $    0.07 |
|                                                        |                                  |   |   |   |   |   |   |   |   |
|     Assuming        dilution            | $     (0.21) |   | $     0.26 |   | $     0.16 |   | $    (0.26) |   | $    0.07 |
|                                                        |                                  |   |   |   |   |   |   |   |   |
|   Cash        dividends declared                  |                                  |   |   |   |   |   |   |   |   |
|     Per        common share             | -                           |   | -   |   | -  |   | -  |   | -  |
|                                                        |                                  |   |   |   |   |   |   |   |   |
| At year end:                                                |                                  |   |   |   |   |   |   |   |   |
|   Total        assets                             | $  17,311              |   | $  19,805 |   | $  20,515 |   | $  18,288  |   | $ 13,893 |
|                                                        |                                  |   |   |   |   |   |   |   |   |
|   Long-term        notes payable                  | $    2,234   |   | $    1,694 |   | $    2,105 |   | $    2,613  |   | $      760 |
|                                                        |                                  |   |   |   |   |   |   |   |   |

| **Item        7.        Management's        Discussion and Analysis of Financial Condition and        Results of Operation.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *The following        discussion and analysis should be read in conjunction        with the information set forth under Item 6,        "Selected Financial Data" and the consolidated        financial statements of the Registrant and the        accompanying notes thereto included elsewhere in this        report.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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| *The following        discussion and analysis contains certain financial        predictions, forecasts and projections which constitute        "forward-looking statements" within the meaning        of the federal securities laws. Actual results could        differ materially from those financial predictions,        forecasts and projections and there can be no assurance        that such financial predictions, forecasts and        projections will be achieved. Factors that could affect        financial predictions, forecasts and projections include        the fluctuations in the commodity price index and any        conditions internal to the major customers of the        Registrant, including loss of their accounts.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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| **General**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|       The        Registrant continued to pursue a growth strategy in the        waste management services arena servicing over 4,500        customer locations throughout the United States and        Canada and building a base of approximately 2,300        vendors. This strategy will allow for diversity of        business opportunities so that the Registrant is not as        dependent upon the operating results of the recycling        division. This diversity has helped to stabilize revenues        and gross profit during a period of time when commodity        prices fluctuate and affect the ferrous and non-ferrous        markets. Much of management's focus and attention now and        in the future is directed towards the growth of the        management services business segment through expansion in        the existing markets and through an acquisition strategy.        The Registrant is also focused on technology enhancements        that can be provided to the new and existing customer        base to further solidify customer relationships.        Additionally, the Registrant is exploring strategic        alliances and relationships that will enable it to        effectively execute its growth and acquisition strategy. |
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|       It        is management's plan to expand the management services        segment in 2002. At the same time, the Registrant will be        seeking more operational cost control, increased        efficiency in the information technology area and        emphasize sales and marketing efforts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|       Management        continues to maintain and grow the recycling business        within its existing structure and is not actively seeking        any further acquisitions or mergers. It is the plan of        management to maximize profits through the reduction of        surplus inventory and fixed assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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| **Liquidity and Capital        Resources**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       As        of December 31, 2001, the Registrant held cash and cash        equivalents of $776,745.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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|       The        Registrant currently maintains a working capital line of        credit with Bank of Louisville (BOL) in the amount of        $3,000,000. Indebtedness under this credit facility        accrues interest at BOL's prime rate as promulgated from        time to time. The maturity date under this agreement is        June 30, 2002. The Credit Line is collateralized by all        assets of the Registrant. As of December 31, 2001,        $1,000,000 was borrowed against the line of credit        compared to $2,750,000 as of December 31, 2000. In        addition to the operating line of credit at December        2001, the company had another line of credit for $500,000        collateralized by the rental fleet. Interest is payable        monthly on the outstanding principal balance at a fixed        rate of 7%. The note matures in May 2006. As of December        31, 2001, there was no outstanding balance.                                                                                                                                                                                                                                                                                                                            |
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|       During        2001, the Registrant committed approximately $1,951,443        in fixed asset additions. In the recycling segment        approximately $400,000 was committed for the final        payment of a portable shear/baler, as well as two cranes.        In the equipment sales, leasing and service segment,        approximately $750,000 was capitalized as rental        equipment to be located at customer sites. In the        technology area, the Registrant capitalized $150,000 used        to develop software to rewrite internal programs and the        Registrant expended approximately $650,000 in leasehold        improvements to create the CWS state-of-the-art facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|       Existing        cash flow from operations and available credit under the        existing credit line are expected to be sufficient to        meet the Registrant's cash needs in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| **Results of Operations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|       The        following table presents, for the years indicated, the        percentage relationship which certain captioned items in        the Registrant's Consolidated Statements of Operations        bear to total revenues and other pertinent data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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| **Year        ended December 31,**                                                                                                                               |   | **2001**   | **2000**   | **1999**   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|----------------------|----------------------|
| **Statements        of Operations Data:**                                                                                                                        |   |                 |                 |                 |
| Total        Revenue .......................................................                                                                                |   | 100.0%               | 100.0%               | 100.0%               |
| Cost of Goods        Sold ...............................................                                                                                        |   | 93.0%                | 91.5%                | 91.3%                |
|  Selling,        General and Administrative             Expenses        .......................................................... |   | 7.3%                 | 7.5%                 | 7.6%                 |
| Income (Loss)        from Operations ............................                                                                                                |   | (0.3)%               | 1.0%                 | 1.1%                 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Year Ended December        31, 2001 Compared to Year Ended December 31, 2000**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|       Total        revenue increased $4,529,793 or 5.1% to $93,771,266 in        2001 compared to $89,241,473 in 2000. Management services        revenue increased $9,297,710 or 14.6% to $72,764,814 in        2001 compared to $63,467,104 in 2000. This is primarily        due to an increase in the number of customer locations        managed as well as an increase in volume of solid waste        that is produced by each customer location. This portion        of the management services revenue increased $9,961,523        or 16.1% to $71,684,729 in 2001 compared to $61,723,206        in 2000. Commissions from the collection of baled        cardboard decreased $629,706 or 56.3% to $489,080 in 2001        compared to $1,118,786 in 2000. Recycling revenue        decreased $4,626,055 or 19.9% to $18,631,563 in 2001        compared to $23,257,618 in 2000. This is due to the        decline of commodity prices of approximately 21.3% in the        Ferrous market and 5.5% in the Non-Ferrous market as well        as a decline in the volume of outbound shipments of        approximately 12.8% in the Ferrous market and 6.2% in the        Non-Ferrous market for the year 2001 compared to the year        2000. Equipment, service and leasing revenue decreased        $141,862 or 5.6% to $2,374,889 in 2001 compared to        $2,516,751 in 2000. This decrease was due to the        continued effort to lease equipment for the long-term        benefit of revenue streams and customer retention.        Service and leasing revenues increased $142,993 or 11.5%        offset by a decrease in equipment sales of $284,854 or        22.4%. |
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|       Total        cost of goods sold increased $5,525,876 or 6.8% to        $87,226,708 in 2001 compared to $81,700,832 in 2000.        Management services cost of goods sold increased        $9,772,813 or 16.6% to $68,680,899 in 2001 compared to        $58,908,086 in 2000. Recycling cost of goods sold        decreased $3,842,876 or 18.0% to $17,452,566 in 2001        compared to $21,295,442 in 2000. Equipment, service and        leasing cost of goods sold decreased $404,061 or 27.0% to        $1,093,243 in 2001 compared to $1,497,304 in 2000. This        decrease was primarily due to the continued effort to        lease equipment as noted above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|       Total        gross profit decreased $996,083 or 13.2% to $6,544,558 in        2001 compared to $7,540,641 in 2000. Management services        gross profit decreased $475,103 or 10.4% to $4,083,915 in        2001 compared to $4,559,018 in 2000. This decrease was        primarily due to the decrease in commissions from the        collection of baled cardboard. Recycling gross profit        decreased $783,179 or 39.9% to $1,178,997 in 2001        compared to $1,962,176 in 2000. This is primarily due to        the decline of commodity prices in the recycling market.        Equipment, service and leasing gross profit increased        $262,199 or 25.7% to $1,281,646 in 2001 compared to        $1,019,447 in 2000. The gross profit from the leasing of        equipment increased $150,161 or 27.4% to $698,497 in 2001        compared to $548,336 in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|       Selling,        general and administrative expenses increased $181,683 or        2.7% to $6,844,251 in 2001 compared to $6,662,568 in        2000. One-time charges of $331,350 were taken in the        second quarter of 2000. Without this one-time charge,        selling, general and administrative expenses would have        increased $513,033 or 8.1% to $6,844,251 in 2001 compared        to $6,331,218 in 2000. This increase was primarily due to        the addition of an Information Technology department in        the second quarter of 2000 as well as increase in        depreciation expense of $223,307 associated with the        purchases of property and equipment of approximately        $5,070,813 over the last three years. As a percentage of        total revenue, selling, general and administrative        expenses were 7.3% in 2001 compared to 7.5% in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|       Other        expense increased $206,297 to $269,545 in 2001 compared        to $63,248 in 2000. This is due to an increase in        interest expenses associated with leasing equipment with        an original cost value of $1,687,111 offset by a decrease        in interest income due to a lower rate of interest on        balances at the bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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| **Financial Condition at        December 31, 2001 compared to December 31, 2000**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|       Accounts        receivable trade after allowances for bad debt decreased        $2,069,392 or 23.7% to $6,669,782 in 2001 compared to        $8,739,174 in 2000. This is due to a decrease in volume        of shipments associated with the ISA Recycling segment        during the fourth quarter of 2001 as well as a decrease        in the billings of the CWS segment during December 2001        due to seasonal volume in our customers’ industry.        Also, collections of accounts receivable remain strong as        only approximately $135,000 is over 60 days old.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|       Inventory        decreased $241,396 or 11.0% to $1,949,766 in 2001        compared to $2,191,162 in 2000. Inventory levels both        ferrous and non-ferrous remained relatively the same in        2001 as compared to 2000. Ferrous inventory at December        31, 2001 was $242,501 lower than December 31, 2000 due to        the decline of commodity prices in 2001. Non-ferrous        inventory was $23,172 lower at December 31, 2001 versus        December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|       Accounts        payable trade decreased $963,562 or 9.5% to $9,162,791 in        2001 compared to $10,126,353 in 2000. This is due to a        decrease in the billings of the CWS segment during        December 2001 due to seasonal volume in our        customers’ industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|       Working        capital decreased $446,796 to a deficit of $1,158,570 in        2001 compared to a deficit of $711,774 in 2000. The        decrease of $446,796 is primarily due to the increase in        current maturities of long-term debt of $313,569 which is        primarily related to the financing of current rental        fleet purchases. The overall deficit of $1,158,570 is due        to the purchase of property and equipment of        approximately $5,070,813 over the last three years while        the Registrant only borrowed $1,500,000 for rental fleet        purchases over the same period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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| **Year Ended December        31, 2000 Compared to Year Ended December 31, 1999**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|       The        revenue in 2000 was $89,241,473 representing an increase        of $11,743,654 or 15.2% compared to 1999. The management        services business grew 17.4% to $63,467,104 by increasing        the same account and new account business serviced to        over 4,200 accounts nationwide. Recycling revenues grew        14.2% to $23,257,618. The major products include the        recycling of copper, aluminum and brass, referred to        herein as non-ferrous scrap. Non-ferrous scrap revenue        increased 30.9% from 1999 to 2000 on 18.9% more pounds        shipped. The ferrous recycling business increased its        revenues by 3.2% while tons shipped decreased by 8.5%.        Revenue in the sales, service and leasing segment        declined 18.7% or $577,495 from 1999 to 2000 due to two        large equipment sales agreements in the fourth quarter of        1999 that were not replicated in the year 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|       The        2000 cost of goods sold was $81,700,832 increasing        $10,909,294 or 15.4% compared to 1999 on revenue growth        of 15.2%. The cost of goods sold in the recycling segment        increased 20.4% from 1999 to 2000 on revenue growth of        14.2% due to increased shipments and purchase prices.        Cost of goods sold in the management services segment        increased 15.4% or $7,860,620 compared to a revenue        increase of $9,426,843 or 17.4% from 1999 to 2000. Cost        of sales in the equipment sales, leasing and service        segment declined 27.3% compared to the sales decrease of        18.7% from 1999 to 2000. The mix of rental equipment        versus sales of equipment increased during 2000 causing        the actual cost of sales as a percentage to sales to        decrease from 66.5% to 59.5% compared to 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|       The        gross profit was $7,540,641 in 2000 representing an        increase of $834,360 over 1999. A slight increase in the        gross profit as a percentage of revenue from 5.5% to 7.2%        was realized in the management services area comparing        2000 to 1999. The recycling division experienced a        decrease in gross profit as a percentage to sales from        13.2% in 1999 to 8.4% in 2000 due to product mix and        commodity price fluctuations. Management is continually        trying to improve gross profit by reducing the costs of        its purchases and increasing the prices of its services        and products. As a percentage of sales, margins in the        equipment sales, service and leasing segment increased        from 33.5% in 1999 to 40.5% in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|       The        selling, general and administrative expenses increased        $594,836 from 1999 or 10.7%. As a percentage to revenue,        expenses decreased from 7.2% in 1999 to 6.9% in 2000.        Approximately one-half, or $300,000 of this increase was        due to the one-time and non-recurring charges incurred in        the second quarter of 2000 for separation agreements,        restructuring charges and associated professional/legal        fees. Without these charges, selling, general and        administrative expenses would have been 6.6% as a        percentage to revenue in 2000 or a 5.3% increase over        1999. During 2000 the Registrant incurred approximately        $162,000 in personnel costs and start-up costs for the        iR2 division. The Registrant could not capitalize these        costs in connection with the redesign and rewrite of the        software systems. The Registrant also incurred additional        personnel costs for a partial year to hire a salesperson        in the equipment sales, leasing and service segment.        Personnel costs in the management services segment        increased by $130,000 in 2000 compared to 1999 with the        addition of a controller for a partial year and increased        staffing due to volume increases. Management believes        that its staffing in the management services segment        combined with the redesigned system positions the        Registrant to handle sizeable volumes of new business.                                                                                                                                             |
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| **Financial Condition at        December 31, 2000 Compared to December 31, 1999**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|       Trade        accounts receivable decreased $8,690 to $8,739,174 at        December 31, 2000 from December 31, 1999. Average days        outstanding in 2000 were 35.9 days versus 41.2 days in        1999. This decrease reflects management's focus on        improving working capital through the collection of        accounts receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|       Inventory        increased $5,168 from $2,185,994 to $2,191,162        representing a 0.2% increase. Inventory levels both        ferrous and non-ferrous remained relatively the same in        2000 as compared to 1999. Ferrous inventory at December        31, 2000 was $278,582 higher than December 31, 1999.        Management decided to limit shipments of ferrous items        during the fourth quarter of 2000 due to the decline in        the price index and not being able to obtain the desired        gross margin levels. Non-ferrous inventory was $263,806        lower at December 31, 2000 versus December 31, 1999 as        management focused on turning inventory faster.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|       Accounts        payable trade decreased $3,596,525 from December 31, 1999        to $10,126,353 as of December 31, 2000. This decrease is        a direct reflection of the system enhancements that were        implemented in the management services segment of the        business. The Registrant now has the ability to process        vendor payments on a more timely basis which has also        enhanced customer service and customer goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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|       As        of December 31, 2000, the Registrant had a working        capital deficit of $711,774, which represents an increase        of $49,748 from 1999. The working capital deficit at        December 31, 1999 was $761,522. Total current assets        decreased $573,002 due primarily to the decrease in cash        of $992,929. Total current liabilities decreased $875,710        from December 31, 1999 to December 31, 2000 due to an        increase in borrowings of $2,750,000 against the        Registrant's line of credit and a decrease in trade        accounts payable by $3,596,525                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Inflation and        Prevailing Economic Conditions**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       To        date, inflation has not and is not expected to have a        significant impact on the Registrant's operation in the        near term. The Registrant has no long-term fixed-price        contracts and the Registrant believes it will be able to        pass through most cost increases resulting from inflation        to its customers. The Registrant is susceptible to the        cyclical nature of the commodity business. In response to        these economic conditions, the Registrant has focused on        the management consulting area of the business and is        working to liquidate inventories while efforts are made        to enhance gross margins.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Impact of Recently        Issued Accounting Standards**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       The        FASB issued Statement of Financial Accounting Standards        No. 142 ("SFAS 142"), "Goodwill and Other        Intangible Assets," on June 30, 2001. SFAS 142        establishes new accounting guidance for goodwill.        Goodwill will no longer be amortized as the economic life        is indefinite. Rather, the goodwill balance will be        tested for impairment at least annually with any deemed        impairment recorded as a charge to operations. It will        apply as of January 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Item        7A.        Quantitative        and Qualitative Disclosures About Market Risk.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       Not        Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Item        8.        Consolidated        Financial Statements and Supplementary Data.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       The        consolidated financial statements of the Registrant        required to be included in this Item 8 are set forth in        Item 14 of this report. The quarterly results of        operations are included in the Notes to Consolidated        Financial Statements under Item 14.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Item        9.        Changes        in and Disagreements with Accountants on Accounting and        Financial Disclosure.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       Not        Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

----

 

| **PART III**                                                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                       |
| **Item        10.        Directors        and Executive Officers of the Registrant.***             |
|                                                                                                                                       |
|       The        information in Item 4a. in this report is incorporated        herein by reference.          |
|                                                                                                                                       |
|                                                                                                                                       |
| **Item        11.        Executive        Compensation** *                                         |
|                                                                                                                                       |
|                                                                                                                                       |
| **Item        12.        Security        Ownership of Certain Beneficial Owners and Management.*** |
|                                                                                                                                       |
|                                                                                                                                       |
| **Item        13.        Certain        Relationships and Related Transactions.***                 |
| _____________________                                                                                                                      |
| *****                                                                                                                                      | The        information required by Items 10, 11, 12 and 13 is or        will be set forth in the definitive proxy statement        relating to the 2002 Annual Meeting of Shareholders of        the Registrant which is to be filed with the Securities        and Exchange Commission pursuant to Regulation 14A under        the Securities Exchange Act of 1934, as amended. Such        definitive proxy statement relates to an annual meeting        of shareholders and the portions therefrom required to be        set forth in this Form 10-K by Items 10, 11, 12 and 13        are incorporated herein by reference pursuant to General        Instruction G(3) to Form 10-K. |

 

----

 

| **PART IV**                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                         |
| **Item        14.        Exhibits,        Consolidated Financial Statement Schedules, and Reports        on Form 8-K.**                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                         |
| (a)(1)              The following        consolidated financial statements of Industrial Services        of America, Inc. are filed as a part of this report:                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | Page |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   | Report of        Independent Auditors | F-1 |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   | Consolidated        Balance Sheets as of December 31, 2001 and 2000 | F-2 |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   | Consolidated        Statements of Operations for the years          ended December 31, 2001, 2000 and 1999 | F-3 |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   | Consolidated        Statements of Shareholders' Equity for the          years ended December 31, 2001, 2000 and 1999 | F-4 |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   | Consolidated        Statements of Cash Flows for the years          ended December 31, 2001, 2000 and 1999 | F-5 |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   | Notes to        Consolidated Financial Statements | F-6 |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |
| (a)(2)                                                                                                                                                                                                                                                                                                                                                                                                       | Consolidated        Financial Statement Schedules. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   | Schedule        II--Valuation and Qualifying Accounts for the          Years ended December 31, 2001 and 2000 | F-20 |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |
| (a)(3)              List of Exhibits.                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                         |
|       Exhibits        filed with, or incorporated by reference herein, this        report are identified in the Index to Exhibits appearing        in this report. The Management Agreement and the        Consulting Agreement required to be filed as exhibits to        this Form 10-K pursuant to Item 14(c) are noted by an        asterisk (*) in the Index to Exhibits. |
|                                                                                                                                                                                                                                                                                                                                                                                                         |
| (b)              Reports on Form 8-K.                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                         |
|       None.                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                         |
| (c)              Exhibits.                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                         |
|       The        exhibits listed on the Index to Exhibits are filed as a        part of this report.                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                         |
| (d)              Consolidated        Financial Statement Schedules.                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                         |
|       Schedule        II--Valuation and Qualifying Accounts for the year ended        December 31, 2001 and 2000 is incorporated by reference        at page F-20 of the Consolidated Financial Statements of        the Registrant.                                                                                                                                           |

 

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| **SIGNATURES**                                                                                                                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                             |
|       Pursuant        to the requirements of Section 13 or 15(d) 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. |
|                                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                                             |   |   |
| Dated: March        26, 2002                                                                                                                                                                                                                                                     |   | By :  /s/        Harry        Kletter                                              |
|                                                                                                                                                                                                                                                                             |   |         Harry        Kletter, Chairman of the Board                     and        Chief Executive Officer |
|                                                                                                                                                                                                                                                                             |   |   |
|       Pursuant        to the requirements of the Securities Exchange Act of        1934, this report has been signed below by the following        persons on behalf of the Registrant and in the capacities        and on the dates indicated:    |
|                                                                                                                                                                                                                                                                             |   |   |

| Signature                                                                                                                                                                                                                                                                   |   | Title                                    | Date           |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|
|                                                                                                                                                                                                                                                                        |   |                                                                                                                                                        |           |
|   /s/  Harry        Kletter                               Harry Kletter                      |   | Chairman of        the Board and Chief          Executive Officer (Principal Executive          Officer)                                | March 26, 2002 |
|                                                                                                                                                                                                                                                                        |   |                                                                                                                                                        |           |
|   /s/  Alan        L.        Schroering                             Alan L. Schroering                                                         |   | Chief        Financial Officer            (Principal Financial Officer and            Principal Accounting Officer) | March 26, 2002 |
|                                                                                                                                                                                                                                                                        |   |                                                                                                                                                        |           |
|   /s/  Ted        L.        Cox                                         Ted L. Cox |   | Director                                                                                                                                                    | March 26, 2002 |
|                                                                                                                                                                                                                                                                        |   |                                                                                                                                                        |           |
|   /s/  Bruce        A.        Cannon                              Bruce A. Cannon                                                         |   | Director                                                                                                                                                    | March 26, 2002 |
|                                                                                                                                                                                                                                                                        |   |                                                                                                                                                        |           |
|   /s/  Jim        A.        Vining                              Jim A. Vining                                                             |   | Director                                                                                                                                                    | March 26, 2002 |
|                                                                                                                                                                                                                                                                        |   |                                                                                                                                                        |           |
|   /s/  David        W.        Lester                                David W. Lester                                             |   | Director                                                                                                                                                    | March 26, 2002 |
|                                                                                                                                                                                                                                                                        |   |                                                                                                                                                        |           |

 

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| **INDEX TO EXHIBITS**                                                                                                                                                                                         |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                          |   |   |
| **Exhibit****Number**                                                                                                                                                                                         |   | **Description of Exhibits** |
|                                                                                                                                                                                                          |   |   |
| 3.1                                                                                                                                                                                                           | ** | Certificate        of Incorporation of the Registrant is incorporated by        reference to Exhibit 3.1 of the Registrant's report of        Form 10-KSB for the year ended December 31, 1995. |
|                                                                                                                                                                                                          |   |   |
| 3.2                                                                                                                                                                                                           | ** | Bylaws of the        Registrant are incorporated by reference to Exhibit 3.2        of the Registrant's report on Form 10-KSB for the year        ended December 31, 1995. |
|                                                                                                                                                                                                          |   |   |
| 10.1                                                                                                                                                                                                          | ** | Independent        Consulting Services Agreement, dated as of March 31,        1995, and executed on June 25, 1996, by and between the        Registrant and Douglas I. Maxwell, III        ("Maxwell"), is incorporated by reference to        Exhibit 4(a) of Registration Statement on Form S-8 of the        Registration, filed on June 26, 1996 (File No.        333-06915). |
|                                                                                                                                                                                                          |   |   |
| 10.2                                                                                                                                                                                                          | ** | Confidential        Information and Non-Competition Agreement Independent        Contractor, dated as of March 31, 1995, and executed on        June 26, 1996, by and between the Registrant and Maxwell,        is incorporated by reference to Exhibit 10.1 of        Registration Statement on Form S-8 of the Registrant,        filed on June 26, 1996 (File No. 333-06915). |
|                                                                                                                                                                                                          |   |   |
| 10.3                                                                                                                                                                                                          | ** | Stock Option        Agreement, dated as of March 31, 1995, and executed on        June 26, 1996, by and between the Registrant and Maxwell,        is incorporated by reference to Exhibit 4(b) of        Registration Statement on Form S-8 of the Registrant,        filed on June 26, 1996 (File No. 333-06915). |
|                                                                                                                                                                                                          |   |   |
| 10.4                                                                                                                                                                                                          | ** | Independent        Consulting Services Agreement, dated as of March 31,        1995, and executed on June 26, 1996, by and between the        Registrant and Neil C. Sullivan ("Sullivan"),        is incorporated by reference to Exhibit 4(a) of        Registration Statement on Form S-8 of the Registrant,        filed on June 26, 1996 (File No. 333-06909). |
|                                                                                                                                                                                                          |   |   |
| 10.5                                                                                                                                                                                                          | ** | Confidential        Information and Non-Competition Agreement Independent        Contractor, dated as of March 31, 1995, and executed on        June 26, 1996, by and between the Registrant and        Sullivan, is incorporated by reference to Exhibit 10.1 of        Registration Statement on Form S-8 of the Registrant,        filed on June 26, 1996 (File No. 333-06909). |
|                                                                                                                                                                                                          |   |   |
| 10.6                                                                                                                                                                                                          | ** | Stock Option        Agreement, dated as of March 31, 1995, and executed on        June 26, 1996, by and between the Registrant and        Sullivan, is incorporated by reference to Exhibit 4(b) of        Registration Statement on Form S-8 of the Registrant,        filed on June 26, 1996 (File No. 333-06909). |
|                                                                                                                                                                                                          |   |   |
| 10.7                                                                                                                                                                                                          | ** | Acquisition        of Assets Agreement, dated as of July 1, 1997, by and        between the Registrant and The Metal Center set forth in        an Asset Purchase Agreement, is incorporated by        reference, as the sole Exhibit on Form 8-K of the        Registrant, filed July 15, 1997 (File No. 0-20979). |
|                                                                                                                                                                                                          |   |   |
| 10.8                                                                                                                                                                                                          | ** | Assignment of        Contracts, dated September 4, 1997, by and between the        Registrant and MGM Services, Inc. is incorporated by        reference to Exhibit 10.11 of the Registrant's report on        Form 10-K for the year ended December 31, 1997. |
|                                                                                                                                                                                                          |   |   |
| 10.9                                                                                                                                                                                                          | ** | Employment        Agreement, dated as of October 15, 1997, by and between        the Registrant and Garber is incorporated by reference to        Exhibit 10.12 of the Registrant's report on Form 10-K for        the year ended December 31, 1997. |
|                                                                                                                                                                                                          |   |   |
| 10.10                                                                                                                                                                                                         | ** | Lease        Agreement, dated January 1, 1998, by and between the        Registrant and K&R, is incorporated by reference        herein, to Exhibit 10.10 on Form 8-K of the Registrant,        filed March 3, 1998 (File No. 0-20979).* |
|                                                                                                                                                                                                          |   |   |
| 10.11                                                                                                                                                                                                         | ** | Consulting        Agreement, dated as of January 2, 1998, by and between        the Registrant and K&R, is incorporated by reference        herein, to Exhibit 10.11 on Form 8-K of the Registrant,        filed March 3, 1998 (File No. 0-20979).* |
|                                                                                                                                                                                                          |   |   |
| 10.12                                                                                                                                                                                                         | ** | Amendment to        Employment Agreement, dated as of February 5, 1998, by        and between the Registrant and Garber, amending original        agreement dated October 15, 1997 is incorporated by        reference to Exhibit 10.15 of the Registrant's report on        Form 10-K for the year ended December 31, 1997. |
|                                                                                                                                                                                                          |   |   |
| 10.13                                                                                                                                                                                                         | ** | Stock Option        Agreement, effective as of October 31, 1997, by and        between the Registrant and Glenn Bierman is incorporated        by reference herein to Exhibit 10.13 of the Registrant's        report on Form 10-K for the year ended December 31, 1999,        as filed on April 14, 2000. |
|                                                                                                                                                                                                          |   |   |
| 10.14                                                                                                                                                                                                         | ** | Stock Option        Agreement, effective as of October 27, 1997, by and        between the Registrant and Sean Garber is incorporated by        reference herein to Exhibit 10.14 of the Registrant's        report on Form 10-K for the year ended December 31, 1999,        as filed on April 14, 2000. |
|                                                                                                                                                                                                          |   |   |
| 10.15                                                                                                                                                                                                         | ** | Stock Option        Agreement, effective as of October 31, 1997, by and        between the Registrant and Sean Garber is incorporated by        reference herein to Exhibit 10.15 of the Registrant's        report on Form 10-K for the year ended December 31, 1999,        as filed on April 14, 2000. |
|                                                                                                                                                                                                          |   |   |
| 10.16                                                                                                                                                                                                         | ** | Amendment No.        1 to Option Agreement, effective as of February 5, 1998,        by and between the Registrant and Sean Garber is        incorporated by reference herein to Exhibit 10.16 of the        Registrant's report on Form 10-K for the year ended        December 31, 1999, as filed on April 14, 2000. |
|                                                                                                                                                                                                          |   |   |
| 10.17                                                                                                                                                                                                         | ** | Stock Option        Agreement, effective as of February 16, 1998, by and        between the Registrant and Harry Kletter is incorporated        by reference herein to Exhibit 10.17 of the Registrant's        report on Form 10-K for the year ended December 31, 1999,        as filed on April 14, 2000. |
|                                                                                                                                                                                                          |   |   |
| 10.18                                                                                                                                                                                                         | ** | Consulting        Agreement, dated as of June 2, 1998, by and between the        Registrant and Andrew M. Lassak is incorporated by        reference herein to Exhibit 10.18 of the Registrant's        report on Form 10-K for the year ended December 31, 1999,        as filed on April 14, 2000. |
|                                                                                                                                                                                                          |   |   |
| 10.19                                                                                                                                                                                                         | ** | Consulting        Agreement, dated as of June 2, 1998, by and among the        Registrant, Joseph Charles & Associates, Inc. and        Andrew M. Lassak is incorporated by reference herein to        Exhibit 10.19 of the Registrant's report on Form 10-K for        the year ended December 31, 1999, as filed on April 14,        2000. |
|                                                                                                                                                                                                          |   |   |
| 10.20                                                                                                                                                                                                         | ** | Asset        Purchase Agreement, effective as of June 1, 1998, by and        among the Registrant, ISA Indiana, Inc., R.J. Fitzpatrick        Smelters, Inc., and R.K. Fitzpatrick and Cheryl        Fitzpatrick is incorporated by reference herein to        Exhibit 10.20 of the Registrant's report on Form 10-K for        the year ended December 31, 1999, as filed on April 14,        2000. |
|                                                                                                                                                                                                          |   |   |
| 10.21                                                                                                                                                                                                         | ** | Lease        Agreement, effective June 1, 1998, by and between R.K.        Fitzpatrick and Cheryl Fitzpatrick, R.J. Fitzpatrick        Smelters, Inc., and ISA Indiana, Inc. is incorporated by        reference herein to Exhibit 10.21 of the Registrant's        report on Form 10-K for the year ended December 31, 1999,        as filed on April 14, 2000. |
|                                                                                                                                                                                                          |   |   |
| 10.22                                                                                                                                                                                                         | ** | Environmental        Indemnity Agreement, effective as of June 1, 1998, by and        between R.K. Fitzpatrick and Cheryl Fitzpatrick, R.J.        Fitzpatrick Smelters, Inc., and ISA Indiana, Inc. is        incorporated by reference herein to Exhibit 10.22 of the        Registrant's report on Form 10-K for the year ended        December 31, 1999, as filed on April 14, 2000. |
|                                                                                                                                                                                                          |   |   |
| 10.23                                                                                                                                                                                                         | ** | Promissory        Note dated May 8, 1997, from Registrant to Bank of        Louisville in the original principal amount of        $2,000,000.00 is incorporated by reference herein to        Exhibit 10.23 of the Registrant’s report on Form        10-K for the year ended December 31, 2000, as filed on        March 30, 2001. |
|                                                                                                                                                                                                          |   |   |
| 10.24                                                                                                                                                                                                         | ** | Loan        Agreement dated November 30, 2000, by and between the        Registrant and Bank of Louisville is incorporated by        reference herein to Exhibit 10.24 of the        Registrant’s report on Form 10-K for the year ended        December 31, 2000, as filed on March 30, 2001. |
|                                                                                                                                                                                                          |   |   |
| 10.25                                                                                                                                                                                                         | ** | Change in        Terms Agreement dated November 30, 2000, by and between        the Registrant and Bank of Louisville is incorporated by        reference herein to Exhibit 10.25 of the        Registrant’s report on Form 10-K for the year ended        December 31, 2000, as filed on March 30, 2001. |
|                                                                                                                                                                                                          |   |   |
| 10.26                                                                                                                                                                                                         | ** | Change in        Terms Agreement dated March 26, 2001, by and between the        Registrant and Bank of Louisville is incorporated by        reference herein to Exhibit 10.26 of the        Registrant’s report on Form 10-K for the year ended        December 31, 2000, as filed on March 30, 2001. |
|                                                                                                                                                                                                          |   |   |
| 11                                                                                                                                                                                                            |   | Statement of        Computation of Earnings Per Share (See Note 11 to Notes        to Consolidated Financial Statements). |
|                                                                                                                                                                                                          |   |   |
| *Denotes a        management contract of the Registrant required to be        filed as an exhibit pursuant to Item 601(10)(iii) of        Regulation S-K under the Securities Act of 1933, as        amended. |
|                                                                                                                                                                                                          |
| **Previously        filed.                                                                                                                                                                                    |

----

 

| **INDUSTRIAL        SERVICES OF AMERICA, INC.** |
|-------------------------------------------------|
| **AND SUBSIDIARIES**                            |
|                                            |
| **CONSOLIDATED        FINANCIAL STATEMENTS**    |
| December 31, 2001,        2000 and 1999         |

 

----

 

| INDUSTRIAL        SERVICES OF AMERICA, INC.                                                                             |
|-------------------------------------------------------------------------------------------------------------------------|
| AND        SUBSIDIARIES                                                                                                 |
| Louisville,        Kentucky                                                                                             |
|                                                                                                                    |
|                                                                                                                    |
| CONSOLIDATED        FINANCIAL STATEMENTS                                                                                |
| December        31, 2001, 2000 and 1999                                                                                 |
|                                                                                                                    |
|                                                                                                                    |
|                                                                                                                    |
| CONTENTS                                                                                                                |
|                                                                                                                    |   |
|                                                                                                                    |   |
| REPORT OF        INDEPENDENT AUDITORS        .......................................................................... | 1 |
|                                                                                                                    |   |
|                                                                                                                    |   |
| FINANCIAL        STATEMENTS                                                                                             |   |
|                                                                                                                    |   |   |
|                                                                                                                    | CONSOLIDATED        BALANCE SHEETS        .................................................................. | 2 |
|                                                                                                                    |   |   |
|                                                                                                                    | CONSOLIDATED        STATEMENTS OF OPERATIONS        .............................................. | 3 |
|                                                                                                                    |   |   |
|                                                                                                                    | CONSOLIDATED        STATEMENTS OF SHAREHOLDERS' EQUITY        .......................... | 4 |
|                                                                                                                    |   |   |
|                                                                                                                    | CONSOLIDATED        STATEMENTS OF CASH FLOWS        .............................................. | 5 |
|                                                                                                                    |   |   |
|                                                                                                                    | NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS        ...................................... | 6 |
|                                                                                                                    |   |
|                                                                                                                    |   |
| SUPPLEMENTARY        INFORMATION                                                                                        |   |
|                                                                                                                    |   |
|                                                                                                                    | VALUATION AND        QUALIFYING ACCOUNTS        ........................................................ | 20 |

 

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| REPORT OF        INDEPENDENT AUDITORS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Board of Directors        and Shareholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Industrial Services        of America, Inc. and Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Louisville,        Kentucky                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| We have audited the        accompanying consolidated balance sheets of Industrial        Services of America, Inc. and Subsidiaries as of        December 31, 2001 and 2000, and the related        consolidated statements of operations, shareholders'        equity and cash flows for the years ended December 31,        2001, 2000 and 1999. These consolidated financial        statements are the responsibility of the Company's        management. Our responsibility is to express an opinion        on these consolidated financial statements based on our        audits.                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| We conducted our        audits in accordance with auditing standards generally        accepted in the United States of America. Those standards        require that we plan and perform the audit to obtain        reasonable assurance about whether the consolidated        financial statements are free of material misstatement.        An audit includes examining, on a test basis, evidence        supporting the amounts and disclosures in the        consolidated financial statements. An audit also includes        assessing the accounting principles used and significant        estimates made by management, as well as evaluating the        overall consolidated financial statement presentation. We        believe that our audits provide a reasonable basis for        our opinion. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| In our opinion, the        consolidated financial statements referred to above        present fairly, in all material respects, the financial        position of Industrial Services of America, Inc. and        Subsidiaries at December 31, 2001 and 2000, and the        results of its operations and its cash flows for the        years ended December 31, 2001, 2000 and 1999 in        conformity with accounting principles generally accepted        in the United States of America.                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Our audit of the        foregoing consolidated financial statements also included        the schedule listed under item 14(a)(2). In our opinion,        such schedule presents fairly the information required to        be set forth therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Crowe, Chizek and        Company LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Indianapolis,        Indiana                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| February 1, 2002,        except for                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   Note 3,        as to which the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   date is        March 20, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| ______________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

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| INDUSTRIAL SERVICES        OF AMERICA, INC.                                            |
|----------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                       |
| *CONSOLIDATED        BALANCE SHEETS                                                    |
| December 31, 2001        and 2000                                                      |
| ______________________________________________________________________________________ |

|                                                                                                 |                                                                                                                                                                                                                       |                                                         |                              |                                                         |             |   |
|------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------|-----------------------------------|--------------------------------------------------------------|------------------|--------|
|                                                                                                 | 2001                                                                                                                                                                                                                       |                                                         | 2000                              |
| **ASSETS**                                                                                           |                                                                                                                                                                                                                       |                                                         |                              |
| Current assets                                                                                       |                                                                                                                                                                                                                       |                                                         |                              |
|                                                                                                 | Cash                                                                                                                                                                                                                       | $   776,745                              |                              | $ 1,395,882                                        |
|                                                                                                 | Accounts receivable        – trade (after allowance for doubtful           accounts of $50,000 and $100,000 in 2001        and 2000)           (Notes 2 and 3)                               | 6,669,782                                               |                              | 8,739,174                                               |
|                                                                                                 | Accounts receivable        - related party (Note 6)                                                                                                                                                                        | 59,714                                                  |                              | 15,000                                                  |
|                                                                                                 | Employee loans                                                                                                                                                                                                             | 4,250                                                   |                              | 30,577                                                  |
|                                                                                                 | Income tax refund        receivable                                                                                                                                                                                        | 48,610                                                  |                              | 54,300                                                  |
|                                                                                                 | Net investment in        sales-type leases (Note 5)                                                                                                                                                                        | 109,586                                                 |                              | 99,937                                                  |
|                                                                                                 | Inventories (Notes        1, 2 and 3)                                                                                                                                                                                      | 1,949,766                                               |                              | 2,191,162                                               |
|                                                                                                 | Deferred income        taxes (Note 4)                                                                                                                                                                                      | 181,800                                                 |                              | 52,400                                                  |
|                                                                                                 | Other                                                                                                                                                                                                                      |       148,440             |                              |       261,604             |
|                                                                                                 |                                                                                                                                                                                                                       | Total current        assets                                  | 9,948,693                    |                                                         | 12,840,036  |
|                                                                                                 |                                                                                                                                                                                                                       |                                                         |                              |
| Net property and        equipment (Notes 1, 2 and 3)                                                 | 6,150,018                                                                                                                                                                                                             |                                                         | 5,544,859                    |
|                                                                                                 |                                                                                                                                                                                                                       |                                                         |                              |
| Other assets                                                                                         |                                                                                                                                                                                                                       |                                                         |                              |
|                                                                                                 | Non-compete        agreements, net                                                                                                                                                                                         | 203,536                                                 |                              | 405,892                                                 |
|                                                                                                 | Intangibles (net of        accumulated amortization of $239,995          and $186,663 in 2001 and 2000)                                                                                                          | 560,005                                                 |                              | 613,337                                                 |
|                                                                                                 | Net investment in        sales-type leases (Note 5)                                                                                                                                                                        | 282,528                                                 |                              | 352,897                                                 |
|                                                                                                 | Notes Receivable                                                                                                                                                                                                           | 107,510                                                 |                              | -                                                       |
|                                                                                                 | Other assets                                                                                                                                                                                                               |         58,968  |                              |         48,147  |
|                                                                                                 |    1,212,547                                                                                                                                                                                           |                                                         |    1,420,273  |
|                                                                                                 | $17,311,258                                                                                                                                                                                                           |                                                         | $19,805,168                  |
| **LIABILITIES AND        SHAREHOLDERS' EQUITY**                                                      |                                                                                                                                                                                                                       |                                                         |                              |
| Current liabilities                                                                                  |                                                                                                                                                                                                                       |                                                         |                              |
|                                                                                                 | Note payable to        bank (Note 2)                                                                                                                                                                                       | $ 1,000,000                                        |                              | $ 2,750,000                                        |
|                                                                                                 | Current maturities        of long-term debt (Note 3)                                                                                                                                                                       | 734,899                                                 |                              | 421,330                                                 |
|                                                                                                 | Current maturities        of capital lease obligation (Note 9)                                                                                                                                                             | 31,403                                                  |                              | -                                                       |
|                                                                                                 | Accounts payable                                                                                                                                                                                                           | 9,162,791                                               |                              | 10,126,353                                              |
|                                                                                                 | Other current        liabilities                                                                                                                                                                                           |       365,920             |                              |       254,127             |
|                                                                                                 |                                                                                                                                                                                                                       | Total current        liabilities                             | 11,295,013                   |                                                         | 13,551,810  |
| Long-term        liabilities                                                                         |                                                                                                                                                                                                                       |                                                         |                              |
|                                                                                                 | Long-term debt        (Note 3)                                                                                                                                                                                             | 2,234,175                                               |                              | 1,694,493                                               |
|                                                                                                 | Capital lease        obligation (Note 9)                                                                                                                                                                                   | 109,432                                                 |                              | -                                                       |
|                                                                                                 | Deferred income        taxes (Note 4)                                                                                                                                                                                      |         13,400  |                              |       159,400             |
|                                                                                                 | 2,357,007                                                                                                                                                                                                             |                                                         | 1,853,893                    |
| Shareholders'        equity                                                                          |                                                                                                                                                                                                                       |                                                         |                              |
|                                                                                                 | Common stock, $.01        par value: 10,000,000 shares           authorized, 1,957,500 shares issued and        1,660,400           and 1,863,300 shares outstanding in 2001 and        2000 | 19,575                                                  |                              | 19,575                                                  |
|                                                                                                 | Additional paid-in        capital                                                                                                                                                                                          | 1,925,321                                               |                              | 1,891,651                                               |
|                                                                                                 | Retained earnings                                                                                                                                                                                                          | 2,296,465                                               |                              | 2,649,555                                               |
|                                                                                                 | Treasury stock,        297,100 and 94,200 shares at cost           in 2001 and 2000                                                                                                                              |       (582,123)                |                              |       (161,316)                |
|                                                                                                 |    3,659,238                                                                                                                                                                                           |                                                         |    4,399,465  |
|                                                                                                 |                                                                                                                                                                                                                       |                                                         |                              |
|                                                                                                 | $17,311,258                                                                                                                                                                                                           |                                                         | $19,805,168                  |
|                                                                                                 |                                                                                                                                                                                                                       |                                                         |                              |
| ____________________________________________________________________________________________________ |
|                                                                                                 |
| See        accompanying notes to consolidated financial statements.                                  |
|                                                                                                 |
| 2.                                                                                                   |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                            |
|----------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                       |
| CONSOLIDATED        STATEMENTS OF OPERATIONS                                           |
| Years ended        December 31, 2001, 2000 and 1999                                    |
| ______________________________________________________________________________________ |

|                                                                                  |                                 | 2001          |              | 2000          |              | 1999         |
|---------------------------------------------------------------------------------------|--------------------------------------|---------------|-------------------|---------------|-------------------|--------------|
|                                                                                  |                                 |          |              |          |              |         |
| **Revenue**                                                                           | $93,771,266                     |          | $89,241,473  |          | $77,497,819  |
|                                                                                  |                                 |          |              |          |
| Cost of goods sold                                                                    | 87,226,708                      |          | 81,700,832   |          | 70,791,538   |
|                                                                                  |                                 |          |              |          |              |
|                                                                                  |                                 |          |              |          |              |
| **Gross profit**                                                                      | 6,544,558                       |          | 7,540,641    |          | 6,706,281    |
|                                                                                  |                                 |          |              |          |              |
| Selling, general        and administrative                                            | 6,844,251                       |          | 6,662,568    |          | 5,878,898    |
|                                                                                  |                                 |          |              |          |              |
|                                                                                  |                                 |          |              |          |              |
| **Income (loss)        before other income (expense)**                                | (299,693)                            |          | 878,073      |          | 827,383      |
|                                                                                  |                                 |          |              |          |              |
| Other income        (expense)                                                         |                                 |          |              |          |              |
|                                                                                  | Interest expense                     | (368,077)     |              | (242,701)     |              | (257,147)    |
|                                                                                  | Interest income                      | 129,169  |              | 189,010  |              | 88,697  |
|                                                                                  | Gain (loss) on sale        of assets | 20,958   |              | (2,059)       |              | (6,359)      |
|                                                                                  | Other expense                        | (51,595)      |              | (7,498)       |              | (73,614)     |
|                                                                                  | (269,545)                            |          | (63,248)          |          | (248,423)         |
|                                                                                  |                                 |          |              |          |              |
|                                                                                  |                                 |          |              |          |              |
| **Income (loss)        before income taxes**                                          | (569,238)                            |          | 814,825      |          | 578,960      |
|                                                                                  |                                 |          |              |          |              |
| Income tax        (provision) benefit (Note 4)                                        | 216,148                         |          | (308,978)         |          | (257,625)         |
|                                                                                  |                                 |          |              |          |              |
|                                                                                  |                                 |          |              |          |              |
|                                                                                  |                                 |          |              |          |              |
| **Net income        (loss)**                                                          | $        (353,090)                   |          | $505,847     |          | $321,335     |
|                                                                                  |                                 |          |              |          |              |
|                                                                                  |                                 |          |              |          |              |
| Earnings (loss) per        share                                                      | $ (.21)                              |          | $.26         |          | $.17         |
|                                                                                  |                                 |          |              |          |              |
| Earnings (loss) per        share, assuming dilution                                   | $ (.21)                              |          | $.26         |          | $.16         |
|                                                                                  |                                 |          |              |          |              |
| _____________________________________________________________________________________ |
|                                                                                  |
| See        accompanying notes to consolidated financial statements.                   |
|                                                                                  |
| 3.                                                                                    |
|                                                                                  |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                             |
|-------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                        |
| CONSOLIDATED        STATEMENTS OF SHAREHOLDERS' EQUITY                                                                  |
| Years ended        December 31, 2001, 2000 and 1999                                                                     |
| _______________________________________________________________________________________________________________________ |

|                                                                                                                                              |   |                                                                                        |   |                                                                |   | Additional                                                                                        |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|---------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|---------------------------------------------|
|                                                                                                                                              |   | Common Stock                                                                                |   | Paid-in                                                             |   | Retained                                                                                          |   | Treasury Stock                        |   |                                                                      |
|                                                                                                                                              |   | Shares                                                                                      |   | Amount                                                              |   | Capital                                                                                           |   | Earnings                              |   | Shares                                                                    |   | Cost                                                                                              |   | Total                                       |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| **Balance as of        January 1, 1999**                                                                                                          |   | 1,957,500                                                                                   |   | $19,575                                                             |   | $1,589,155                                                                                        |   | $1,822,373                       |   | 27,900                                                                    |   | $ (8,000)                                                                                         |   | $3,423,103                             |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Fair value of stock        options issued for consulting          services provided to the Company                                      |   | -                                                                                      |   | -                                                              |   | 80,808                                                                                            |   | -                                |   | -                                                                    |   | -                                                                                            |   | 80,808                                 |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Net income                                                                                                                                        |   |              -        |   |         -              |   |                -  |   |     321,335  |   |            -  |   |              -              |   |      321,335  |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| **Balance as of        December 31, 1999**                                                                                                        |   | 1,957,500                                                                                   |   | 19,575                                                              |   | 1,669,963                                                                                         |   | 2,143,708                        |   | 27,900                                                                    |   | (8,000)                                                                                           |   | 3,825,246                              |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Repurchase of        common stock                                                                                                                 |   | -                                                                                      |   | -                                                              |   | -                                                                                            |   | -                                |   | 66,300                                                                    |   | (153,316)                                                                                         |   | (153,316)                                   |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Fair value of stock        options issued for consulting           services provided to the Company                                     |   | -                                                                                      |   | -                                                              |   | 80,808                                                                                            |   | -                                |   | -                                                                    |   | -                                                                                            |   | 80,808                                 |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Capital        contribution                                                                                                                       |   | -                                                                                      |   | -                                                              |   | 140,880                                                                                           |   | -                                |   | -                                                                    |   | -                                                                                            |   | 140,880                                |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Net income                                                                                                                                        |   |              -        |   |         -              |   |                -  |   |     505,847  |   |           -        |   |               -        |   |      505,847  |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| **Balance as of        December 31, 2000**                                                                                                        |   | 1,957,500                                                                                   |   | 19,575                                                              |   | 1,891,651                                                                                         |   | 2,649,555                        |   | 94,200                                                                    |   | (161,316)                                                                                         |   | 4,399,465                              |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Repurchase of        common stock                                                                                                                 |   | -                                                                                      |   | -                                                              |   | -                                                                                            |   | -                                |   | 202,900                                                                   |   | (420,807)                                                                                         |   | (420,807)                                   |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Fair value of stock        options issued for consulting           services provided to the Company                                     |   | -                                                                                      |   | -                                                              |   | 33,670                                                                                            |   | -                                |   | -                                                                    |   | -                                                                                            |   | 33,670                                 |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| Net loss                                                                                                                                          |   |               -  |   |           -  |   |                -  |   |    (353,090)           |   |           -        |   |                -  |   |     (353,090)           |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| **Balance as of        December 31, 2001**                                                                                                        |   | 1,957,500                                                                                   |   | $19,575                                                             |   | $1,925,321                                                                                        |   | $2,296,465                       |   | 297,100                                                                   |   | $        (582,123)                                                                                |   | $3,659,238                             |
|                                                                                                                                              |   |                                                                                        |   |                                                                |   |                                                                                              |   |                                  |   |                                                                      |   |                                                                                              |   |                                        |
| _________________________________________________________________________________________________________________________________________________ |
|                                                                                                                                              |
| See        accompanying notes to consolidated financial statements.                                                                               |
|                                                                                                                                              |
| 4.                                                                                                                                                |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                            |
|----------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                       |
| CONSOLIDATED        STATEMENTS OF CASH FLOWS                                           |
| Years ended        December 31, 2001, 2000 and 1999                                    |
| ______________________________________________________________________________________ |

|                                                                                                 | 2001                                                                                                                           |                                                 | 2000                             |                                      | 1999                  |
|------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|----------------------------------|-------------------------------------------|-----------------------|
| **Cash flows from        operating activities**                                                      |                                                                                                                           |                                                 |                             |                                      |                  |
|                                                                                                 | Net income (loss)                                                                                                              | $         (353,090)                             |                             | $   505,847           |                  | $   321,335  |
|                                                                                                 | Adjustments to        reconcile net income (loss) to             net cash from operating        activities |                                                 |                             |                                      |                  |   |
|                                                                                                 |                                                                                                                           | Stock options        granted for services            | 33,670                      |                                      | 80,808           |   | 137,709  |
|                                                                                                 |                                                                                                                           | Depreciation and        amortization                 | 1,680,349                   |                                      | 1,439,145        |   | 1,417,199  |
|                                                                                                 |                                                                                                                           | Provision for        doubtful accounts               | 222,964                     |                                      | 180,413          |   | 312,872  |
|                                                                                                 |                                                                                                                           | Deferred income        taxes                         | (275,400)                        |                                      | 38,500           |   | 68,500  |
|                                                                                                 |                                                                                                                           | (Gain) loss on sale        of property and equipment | (20,958)                         |                                      | 2,059            |   | 6,359  |
|                                                                                                 |                                                                                                                           | Change in assets        and liabilities              |                             |                                      |                  |   |   |
|                                                                                                 |                                                                                                                           |                                                 | Receivables                      | 1,726,221                            |                  | (257,762) |   | (1,460,842) |
|                                                                                                 |                                                                                                                           |                                                 | Inventories                      | 241,396                              |                  | (5,168) |   | 329,358  |
|                                                                                                 |                                                                                                                           |                                                 | Other current        assets      | 102,343                              |                  | (122,565) |   | 219,044  |
|                                                                                                 |                                                                                                                           |                                                 | Payables                         | (963,562)                                 |                  | (3,728,392) |   | 4,086,209  |
|                                                                                                 |                                                                                                                           |                                                 | Other current        liabilities |     111,793      |                  |       78,854  |   |       54,352  |
|                                                                                                 |                                                                                                                           |                                                 |                             | Net cash from        operating activities | 2,505,726        |   | (1,788,261) |   | 5,492,095  |
|                                                                                                 |                                                                                                                           |                                                 |                             |                                      |                  |   |   |   |   |
| **Cash flows from        investing activities**                                                      |                                                                                                                           |                                                 |                             |                                      |                  |
|                                                                                                 | Proceeds from sale        of property and equipment                                                                            | 112,581                                         |                             | 71,262                               |                  | 213,438  |
|                                                                                                 | Proceeds from        equipment under sales-type leases                                                                         | 104,122                                         |                             | 59,771                               |                  | 36,792  |
|                                                                                                 | Purchases of        equipment under sales-type leases                                                                          | (43,402)                                             |                             | (294,065)                                 |                  | (220,062) |
|                                                                                                 | Purchases of        property and equipment                                                                                     | (1,951,443)                                          |                             | (1,392,592)                               |                  | (1,726,778) |
|                                                                                                 |                                                                                                                           | Net cash from        investing activities            | (1,778,142)                      |                                      | (1,555,624)           |   | (1,696,610) |
|                                                                                                 |                                                                                                                           |                                                 |                             |                                      |                  |   |   |   |   |
| **Cash flows from        financing activities**                                                      |                                                                                                                           |                                                 |                             |                                      |                  |
|                                                                                                 | Net borrowings        (payments) on note payable to bank                                                                       | (1,750,000)                                          |                             | 2,750,000                            |                  | (1,850,000) |
|                                                                                                 | Payments on capital        lease obligation                                                                                    | (29,165)                                             |                             | -                                    |                  | -  |
|                                                                                                 | Proceeds from        capital contribution                                                                                      | -                                               |                             | 140,880                              |                  | -  |
|                                                                                                 | Proceeds from        long-term debt                                                                                            | 1,500,000                                       |                             | -                                    |                  | -  |
|                                                                                                 | Payments on        long-term debt                                                                                              | (646,749)                                            |                             | (386,608)                                 |                  | (570,742) |
|                                                                                                 | Purchase of common        stock                                                                                                |    (420,807)                          |                             |   (153,316)                     |                  |                -  |
|                                                                                                 |                                                                                                                           | Net cash from        financing activities            | (1,346,721)                      |                                      | 2,350,956        |   | (2,420,742) |
|                                                                                                 |                                                                                                                           |                                                 |                             |                                      |                  |
| Net change in cash                                                                                   | (619,137)                                                                                                                      |                                                 | (992,929)                        |                                      | 1,374,743        |
|                                                                                                 |                                                                                                                           |                                                 |                             |                                      |                  |
| Cash at beginning        of year                                                                     |  1,395,882                                                                                                           |                                                 |  2,388,811             |                                      |  1,014,068  |
|                                                                                                 |                                                                                                                           |                                                 |                             |                                      |                  |
| **Cash at end of        year**                                                                       | $   776,745                                                                                                |                                                 | $1,395,882                  |                                      | $2,388,811       |
|                                                                                                 |                                                                                                                           |                                                 |                             |                                      |                  |
| Supplemental        disclosure of cash flow information                                              |                                                                                                                           |                                                 |                             |                                      |                  |
|                                                                                                 | Cash paid for        interest                                                                                                  | $   368,077                      |                             | $   242,147           |                  | $   257,147  |
|                                                                                                 | Cash paid        (refunded) for taxes                                                                                          | 130,189                                         |                             | (53,988)                                  |                  | (65,726) |
|                                                                                                 |                                                                                                                           |                                                 |                             |                                      |                  |
| Supplemental        schedule of non-cash financial activities:                                       |                                                                                                                           |                                                 |                             |                                      |                  |
|                                                                                                 | During 2001, the        Company entered into capital leases            for equipment with a cost of $170,000.   |                                                 |                             |                                      |                  |   |
|                                                                                                 |
| ____________________________________________________________________________________________________ |
|                                                                                                 |
| See        accompanying notes to consolidated financial statements.                                  |
|                                                                                                 |
| 5.                                                                                                   |
|                                                                                                 |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| December 31, 2001,        2000 and 1999                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ______________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **NOTE 1 - SUMMARY        OF SIGNIFICANT ACCOUNTING POLICIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Nature of        Business: Industrial Services of America, Inc. (the        Company) and its subsidiaries provide products and        services to meet the waste management needs of its        customers related to ferrous, non-ferrous and corrugated        scrap recycling, management services and waste equipment        sales and rental. Management services represent contracts        with retail, commercial and industrial businesses to        handle their waste disposal needs, primarily by        subcontracting with commercial waste hauling and disposal        companies. The Company's customers are located throughout        the United States and Canada. The Company's wholly-owned        subsidiary, ISA Indiana, Inc., provides services related        to ferrous, non-ferrous and fiber scrap recycling in        southern Indiana. The Company's wholly-owned subsidiary,        ISA Recycling, LLC., provides services related to        ferrous, non-ferrous and fiber scrap recycling in        Louisville, KY. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Revenue        Recognition: The Company records revenue for its        recycling and equipment sales divisions upon delivery of        the related materials and equipment to the customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| The Company's        management services segment provides its customers        evaluation, management, monitoring, auditing and cost        reduction of its customer's non-hazardous solid waste        removal activities. The Company recognizes revenue        related to the management aspects of these services as        the services are delivered. The segment also manages the        specific waste hauling needs of its customers which        includes subcontracting with waste haulers throughout the        United States and Canada. Revenue related to this        activity is recorded on a gross basis because the Company        is ultimately responsible for service delivery, has        discretion over the selection of the specific service        provided and the amounts to be charged, and is directly        obligated to the subcontractor for the services provided.                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Principles of        Consolidation: The consolidated financial statements        include the accounts of the Company and its wholly owned        subsidiaries, ISA Indiana, Inc. and ISA Recycling, Inc.        Upon consolidation, all intercompany accounts,        transactions and profits have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Common Control:        The Company conducts significant levels of business (see        Note 6) with K&R Corporation, Inc. (K&R) which is        owned by the Company's principal shareholder. Because        these entities are under common control, operating        results or financial position of the Company may be        materially different from those that would have been        obtained if the entities were autonomous.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Estimates:        In preparing the consolidated financial statements in        conformity with accounting principles generally accepted        in the United States of America, management must make        estimates and assumptions. These estimates and        assumptions affect the amounts reported for assets,        liabilities, revenues and expenses, as well as affecting        the disclosures provided. Future results could differ        from the current estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| _______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                                                                                                                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                                                                                                                               |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                              |
| December 31, 2001,        2000 and 1999                                                                                                                                                                                                                                                                        |
| ______________________________________________________________________________________                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                           |
| **NOTE 1 - SUMMARY        OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                           |
| Inventories:        Inventories consist principally of waste equipment        machinery and parts, and scrap materials held for resale        and are stated at the lower of cost (first-in, first-out        method) or market. Inventories as of December 31, 2001        and 2000 consist of the following: |
|                                                                                                                                                                                                                                                                                                           |

|   |                         |   | 2001                                  |   | 2000                                  |
|--------|------------------------------|--------|---------------------------------------|--------|---------------------------------------|
|   |                         |   |                                  |   |                                  |
|   | Equipment and parts          |   | $   101,316            |   | $     77,039 |
|   | Ferrous materials            |   | 1,236,949                             |   | 1,479,450                             |
|   | Non-ferrous        materials |   |      611,501 |   |      634,673 |
|   |                         |   |                                  |   |                                  |
|   |                         |   | $1,949,766                            |   | $2,191,162                            |

|                                                                                                                                                                                     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Property and        Equipment: Property and equipment are stated at cost        and depreciated on a straight-line basis over the        estimated useful lives of the related property. |
|                                                                                                                                                                                     |
| Property and        equipment as of December 31, 2001 and 2000 consist of the        following:                                                                                          |
|                                                                                                                                                                                     |

|   |                                             | Life       |   | 2001                                                                                                    |   | 2000                                  |
|--------|--------------------------------------------------|------------|--------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------|
|   |                                             |       |   |                                                                                                    |   |                                  |
|   | Equipment and        vehicles                    | 3-10 years |   | $        7,221,285                                                                                      |   | $6,410,382                            |
|   | Office equipment                                 | 3-5 years  |   | 1,332,008                                                                                               |   | 657,325                               |
|   | Rental equipment                                 | 5 years    |   | 1,687,111                                                                                               |   | 1,727,070                             |
|   | Leasehold        improvements                    | 6-20 years |   | 931,610                                                                                                 |   | 409,811                               |
|   | Construction in        progress                  |       |   |                  - |   |      742,814 |
|   |                                             |       |   | 11,172,014                                                                                              |   | 9,947,402                             |
|   | Accumulated        depreciation and amortization |       |   |   5,021,996                                                                                   |   |   4,402,543                 |
|   |                                             |       |   | $        6,150,018                                                                                      |   | $5,544,859                            |

|                                                                                                                                                                                                                                                                                                   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Depreciation        expense for the years ended December 31, 2001, 2000 and        1999 was $1,424,661, $1,183,458 and $1,161,511.                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                   |
| Intangible        Assets: The excess of cost over fair value of assets        acquired is being amortized over a period of 15 years        using the straight-line method. Non-compete agreements        are being amortized using the straight-line method over        the benefit period of 5 years. |
|                                                                                                                                                                                                                                                                                                   |
| _______________________________________________________________________________________________                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                   |
| (Continued)                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                   |
| 7.                                                                                                                                                                                                                                                                                                     |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| December 31, 2001,        2000 and 1999                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ______________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **NOTE 1 - SUMMARY        OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Recently Enacted        Accounting Standards: New accounting guidance for        goodwill will apply January 1, 2002. Goodwill will no        longer be amortized as the economic life is indefinite.        Rather, the goodwill balance will be tested for        impairment at least annually with any deemed impairment        recorded as a charge to operations. The impact of        adoption of this new standard has not been determined;        however, amortization of goodwill which approximated        $255,700 in 2001 will no longer be required. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Income Taxes:        The Company records income tax expense based on the        amount of taxes due on its tax returns plus deferred        taxes computed based on the expected future tax        consequences of temporary differences between the        carrying amounts and tax basis of assets and liabilities,        using enacted tax rates. A valuation allowance is        recorded, if necessary, to reduce deferred tax assets to        the amount considered more likely than not to be        realized.                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Statement of        Cash Flows: The statement of cash flows has been        prepared using a definition of cash that includes        deposits with original maturities of three months or        less.                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Earnings Per        Share: Amounts reported as Earnings Per Share for        each of the three years ended December 31, 2001 reflect        the earnings available to common shareholders for the        year divided by the weighted average number of common        shares outstanding during the year. The weighted average        common shares outstanding for the years ended December        31, 2001, 2000 and 1999 were 1,706,090, 1,917,633 and        1,929,600.                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Stock-Based        Compensation and Transactions: Expense for employee        compensation under stock option plans is reported only if        options are granted below the market price at the grant        date. Pro forma disclosures of net income and earnings        per share are provided as if the fair value method of        Financial Accounting Standard No. 123 was used for        stock-based compensation.                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Fair Values of        Financial Instruments: Fair value of financial        instruments are estimated using relevant market        information and other assumptions. Fair value estimates        involve uncertainties and matters of significant judgment        regarding interest rates, prepayments and other factors.        Changes in assumptions or market conditions could        significantly affect the estimates. As of December 31,        2001 and 2000, the estimated fair value of financial        instruments approximated book value.         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Reclassifications:        Certain prior year amounts have been reclassified to        conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| _______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                            |
| December 31, 2001,        2000 and 1999                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ______________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **NOTE 2 –        NOTE PAYABLE TO BANK**                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| At December 31,        2001 and 2000, the Company had a $3,000,000 operating        line of credit collateralized by all Company assets.        Interest is payable monthly on the outstanding principal        balance at the bank's prime rate (4.75% at December 31,        2001). The note matures in June 2002. This line of credit        is subject to the same debt covenants and is        cross-collateralized with the long-term debt described in        Note 3. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| In addition to the        operating line of credit at December 2001, the Company        had a supplemental line of credit for $500,000        collateralized by the assets of the rental fleet.        Interest is payable monthly on the outstanding principal        balance at a fixed rate of 7.0%. The note matures in May        2006. As of December 31, 2001, there was no outstanding        balance.                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **NOTE 3 –        LONG-TERM DEBT**                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Long-term debt as        of December 31, 2001 and 2000 consists of the following:                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

|                                                                                                                                                                                                                                                                                                     |   | 2001                                  |   | 2000                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|----------------------------------------------------------------------------------------|
| Note payable to a        bank in monthly installments of $30,000 including        interest at 4.75% through May 2006; secured by assets of        the rental fleet.                                                                                                                                      |   | $1,352,207                            |   | $              - |
|                                                                                                                                                                                                                                                                                                     |   |                                  |   |                                                                                   |
| Note payable to a        bank in monthly installments of $20,017 including        interest at 8.58% through July 2003; secured by virtually        all company assets.                                                                                                                                   |   | 1,103,920                             |   | 1,312,413                                                                              |
|                                                                                                                                                                                                                                                                                                     |   |                                  |   |                                                                                   |
| Note payable to a        bank in monthly installments of $18,520 including        interest at bank's prime interest rate (4.75% at December        31, 2001) through August 2003; secured by virtually all        company assets.                                                                        |   | 336,086                               |   | 520,527                                                                                |
|                                                                                                                                                                                                                                                                                                     |   |                                  |   |                                                                                   |
| Note payable to        R.J. Fitzpatrick for covenant not to compete payable in        monthly installments of $10,500 including interest at        8.5% through June 2003; secured by virtually all company        assets, which is subordinate to the bank's security        agreement disclosed above. |   |      176,861 |   |      282,883                                                  |
|                                                                                                                                                                                                                                                                                                     |   | 2,969,074                             |   | 2,115,823                                                                              |
| Current maturities                                                                                                                                                                                                                                                                                       |   |      734,899 |   |      421,330                                                  |
|                                                                                                                                                                                                                                                                                                     |   | $2,234,175                            |   | $1,694,493                                                                             |
|                                                                                                                                                                                                                                                                                                     |   |                                  |   |                                                                                   |
| _______________________________________________________________________________________________                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                     |
| (Continued)                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                     |
| 9.                                                                                                                                                                                                                                                                                                       |

 

----

 

| INDUSTRIAL        SERVICES OF AMERICA, INC.                                                                                                                                                                                                                                                                                   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND        SUBSIDIARIES                                                                                                                                                                                                                                                                                                       |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                             |
| December        31, 2001, 2000 and 1999                                                                                                                                                                                                                                                                                       |
| ______________________________________________________________________________________                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                          |
| **NOTE 3 –        LONG-TERM DEBT**(Continued)                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                          |
| The long-term debt        requires annual principal payments as follows:                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                          |
| 2002                                                                                                                                                                                                                                                                                                                          | $  734,899 |   |
| 2003                                                                                                                                                                                                                                                                                                                          | 1,439,958 |   |
| 2004                                                                                                                                                                                                                                                                                                                          | 311,521 |   |
| 2005                                                                                                                                                                                                                                                                                                                          | 335,439 |   |
| 2006                                                                                                                                                                                                                                                                                                                          | 147,257 |   |
|                                                                                                                                                                                                                                                                                                                          |
| The terms of the        loan agreements place certain restrictive covenants on        the Company, including maintenance of a specified        tangible net worth and debt to net worth ratio. At        December 31, 2001, the Company was in compliance with or        has received a waiver for all restrictive covenants. |
|                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                          |
| **NOTE 4 –        INCOME TAXES**                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                          |
| The income tax        provision (benefit) consists of the following for the        years ended December 31, 2001, 2000 and 1999:                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                          |

|                                                                                                                |    | 2001                                   |                                        | 2000                      |                                            | 1999                                 |
|---------------------------------------------------------------------------------------------------------------------|---------|----------------------------------------|---------------------------------------------|---------------------------|-------------------------------------------------|--------------------------------------|
|                                                                                                                | Federal |                                   |                                        |                      |                                            |                                 |
|                                                                                                                |    | Current                                | $     19,522  |                      | $159,349                                   |                                 | $212,485  |
|                                                                                                                |    | Deferred                               |    (218,600)                 |                      |     32,725             |                                 | 29,300  |
|                                                                                                                |    | (199,078)                              |                                        | 192,074              |                                            | 241,785                         |
|                                                                                                                |    |                                   |                                        |                      |                                            |                                 |
|                                                                                                                | State   |                                   |                                        |                      |                                            |                                 |
|                                                                                                                |    | Current                                | 39,730                                 |                      | 111,129                                    |                                 | (23,360) |
|                                                                                                                |    | Deferred                               |      (56,800)      |                      |       5,775  |                                 |     39,200  |
|                                                                                                                |    |      (17,070) |                                        |   116,904  |                                            |     15,840  |
|                                                                                                                |    |                                   |                                        |                      |                                            |                                 |
|                                                                                                                |    | $        (216,148)                     |                                        | $308,978             |                                            | $257,625                        |
|                                                                                                                |    |                                   |                                        |                      |                                            |                                 |
| A reconciliation of        income taxes at the statutory rate to the Company's        effective rate is as follows: |
|                                                                                                                |    |                                   |                                        |                      |                                            |                                 |   |

|                                                                                             |                                                                                            | 2001                                       |   | 2000                                            |   | 1999                                 |
|--------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|--------------------------------------------|--------|-------------------------------------------------|--------|--------------------------------------|
|                                                                                             | Federal income tax        (benefit) at            statutory rate                 | $        (193,541)                         |   | $277,041                                   |   | $196,846                        |
|                                                                                             | State and local        income taxes, net of            federal income tax affect | (44,116)                                   |   | 32,267                                     |   | 34,738                          |
|                                                                                             | Valuation allowance                                                                             | -                                     |   | -                                          |   | (7,900)                              |
|                                                                                             | Other differences,        net                                                                   |      21,509  |   |        (330) |   |     33,941  |
|                                                                                             |                                                                                            |                                       |   |                                            |   |                                 |
|                                                                                             |                                                                                            | $(216,148)                                 |   | $308,978                                   |   | $257,625                        |
|                                                                                             |                                                                                            |                                       |   |                                            |   |                                 |
| ________________________________________________________________________________________________ |
|                                                                                             |
| (Continued)                                                                                      |
|                                                                                             |
| 10.                                                                                              |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                |
|--------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                           |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                          |
| December 31, 2001,        2000 and 1999                                                                                                    |
| ______________________________________________________________________________________                                                     |
|                                                                                                                                       |
| **NOTE 4 –        INCOME TAXES**(Continued)                                                                                           |
|                                                                                                                                       |
| Significant        components of the Company's deferred tax liabilities and        assets as of December 31, 2001 and 2000 are as follows: |
|                                                                                                                                       |

|   | 2001                            |                                      | 2000                                         |
|--------|---------------------------------|-------------------------------------------|----------------------------------------------|
|   | Deferred tax        liabilities |                                      |                                         |   |
|   |                            | Tax depreciation in        excess of book | $537,200                                     |   | $553,100  |
|   |                            |                                      |                                         |   |
|   | Deferred tax assets             |                                      |                                         |   |
|   |                            | Property taxes                            | 16,600                                       |   | 2,700  |
|   |                            | Accrued bonuses                           | 8,300                                        |   | - |
|   |                            | Allowance for        doubtful accounts    | 26,800                                       |   | 41,700  |
|   |                            | Book amortization        in excess of tax | 224,900                                      |   | 168,600  |
|   |                            | Stock options                             | 158,400                                      |   | 144,400  |
|   |                            | Net operating loss        carryforward    | 128,933                                      |   | -  |
|   |                            | Alternative minimum        tax credits    | 105,800                                      |   | 46,400  |
|   |                            | Inventory        capitalization           | 7,600                                        |   | 8,500  |
|   |                            | State income taxes                        |     28,267               |   |      33,800  |
|   |                            |   705,600                       |                                         |    446,100  |
|   |                            |                                      |                                         |   |   |   |
|   |                            |                                      | Net deferred tax        assets (liabilities) | $168,400 |   | $(107,000) |

|                                                                                                                                                                                                                                                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| As of December 31,        2001, net operating loss carry forward listed above        expires in 2021.                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                           |
| **NOTE 5 –        SALES-TYPE LEASES**                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                           |
| The Company is the        lessor of equipment under sales-type lease agreements        having terms of three to five years, with the lessees        having the option to acquire the equipment at the        termination of the leases. All costs associated with this        equipment are the responsibility of the lessees. |
|                                                                                                                                                                                                                                                                                                                           |
| Future lease        payments receivable under sales-type leases at December        31, 2001 are as follows:                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                           |

|                                                                                            | 2002                                                                           | $180,589                        |   |
|-------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|--------------------------------------|--------|
|                                                                                            | 2003                                                                           | 161,928                         |   |
|                                                                                            | 2004                                                                           | 127,638                         |   |
|                                                                                            | 2005                                                                           | 68,149                          |   |
|                                                                                            | 2006                                                                           |     21,704  |   |
|                                                                                            |       Minimum        lease payments receivable   | 560,008                         |   |
|                                                                                            |       Less        unearned income                |  (167,894)                      |   |
|                                                                                            |       Net        investment in sales-type leases | 392,114                         |   |
|                                                                                            | Less current        portion                                                    |  (109,586)                      |   |
|                                                                                            |                                                                           | $282,528                        |   |
|                                                                                            |
| _______________________________________________________________________________________________ |
|                                                                                            |
| (Continued)                                                                                     |
|                                                                                            |
| 11.                                                                                             |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                                                                                                |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                                                                                                           |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                          |
| December 31, 2001,        2000 and 1999                                                                                                                                                                                                                                                    |
| ______________________________________________________________________________________                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                       |
| **NOTE 6 –        RELATED PARTY TRANSACTIONS**                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                       |
| The Company enters        into various transactions with related parties including        the Company's principal shareholder and an affiliated        company wholly-owned by the Company's principal        shareholder (K&R). A summary of these transactions is        as follows: |
|                                                                                                                                                                                                                                                                                       |

|                              | 2001                |          | 2000   |          | 1999   |
|-----------------------------------|---------------------|---------------|--------|---------------|--------|
| Balance sheet        accounts:    |                |          |   |          |   |
|                              |                |          |   |          |   |   |
|                              | Accounts receivable | $ 59,714 |   | $ 15,000 |   |   |
|                              |                |          |   |          |   |
| Income statement        activity: |                |          |   |          |   |
|                              |                |          |   |          |   |   |
|                              | Rent expense        | $450,000      |   | $450,000      |   | $450,000 |
|                              |                |          |   |          |   |   |
|                              | Consulting fees     | $240,000      |   | $240,000      |   | $380,880 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The Company's        Chairman is compensated through consulting fees shown        above, under a consulting agreement with K&R.                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| The Company entered        into an agreement with K&R for consulting services        related to the scrap metal and paper recycling operations        and related equipment sales and services. The agreement        is for a 10-year period and requires payments of $240,000        annually.                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| During 1999, the        Company advanced K&R approximately $140,000 which has        been recorded by the Company as additional consulting        fees. During 2000, this advance was repaid to the Company        and has been recorded as a capital contribution.                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **NOTE 7 –        EMPLOYEE RETIREMENT PLAN**                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| The Company        maintains a defined contribution retirement plan under        Section 401(k) of the Internal Revenue Code which covers        substantially all employees. Eligible employees may        contribute a maximum of 15% of their annual salary. Under        the plan, the Company matches 25% of each employee's        voluntary contribution up to 6% of their gross salary.        The Company's contributions to the plan for 2001, 2000        and 1999 were $38,805, $15,440 and $6,296. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| _______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 12.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| December 31, 2001,        2000 and 1999                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ______________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **NOTE 8 –        STOCK OPTION PLANS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| During the years        ended December 31, 2001, 2000 and 1999 the Company        extended options to purchase shares of the Company's        common stock to several of the Company's Officers and        Outside Directors. The Company applies APB Opinion 25 in        accounting for its employees' stock option agreements.        Compensation costs are not recognized unless the exercise        price of the options is below the market value on the        date of grant. As a result, compensation cost charged to        operations in 1999 totaled $56,901. There was no        compensation charged to operations in 2001 and 2000        related to these options. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| The Company has an        employee stock option plan under which the Company may        grant options for up to 400,000 shares of common stock,        which are reserved by the board of directors. The        exercise price of each option is equal to the market        price of the Company's stock on the date of grant. The        maximum term of the option is five years.                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Had compensation        costs been recorded on the employee stock options on the        basis of fair market value pursuant to FASB Statement No.        123, net income and earnings per share would have been        reduced as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|   |                              | 2001        |                                                   | 2000   |                                                 | 1999   |
|--------|-----------------------------------|-------------|--------------------------------------------------------|--------|------------------------------------------------------|--------|
|   | Net income        (loss)          |        |                                                   |   |                                                 |   |
|   |                              | As reported | $(353,090)                                             |   | $505,847                                             |   | $321,335 |
|   |                              | Pro forma   | $(381,695)                                             |   | $407,792                                             |   | $261,222 |
|   |                              |        |                                                   |   |                                                 |   |
|   | Basic Earnings        Per Share   |        |                                                   |   |                                                 |   |
|   |                              | As reported | $        (.21) |   | $        .26 |   | $        .17 |
|   |                              | Pro forma   | $        (.26) |   | $        .21 |   | $        .14 |
|   |                              |        |                                                   |   |                                                 |   |
|   | Diluted Earnings        Per Share |        |                                                   |   |                                                 |   |
|   |                              | As reported | $        (.21) |   | $        .26 |   | $        .16 |
|   |                              | Pro forma   | $        (.26) |   | $        .21 |   | $        .13 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The above pro forma        information is based on an estimated fair value of these        stock options as of the date of grant using a        Black-Scholes option pricing method with the following        weighted average assumptions for 2001, 2000 and 1999:        risk free interest rate ranging from 6.0% to 4.0%,        dividend yield of 0%, volatility factor of the expected        market price of the Company's common stock ranging from        .48 to .68, and a weighted average expected life of the        options ranging from 1 to 8 years. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| _______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                 |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                |
| December 31, 2001,        2000 and 1999                                                                                                                                          |
| ______________________________________________________________________________________                                                                                           |
|                                                                                                                                                                             |
| **NOTE 8 –        STOCK OPTION PLANS (Continued)**                                                                                                                          |
|                                                                                                                                                                             |
| Following is a        summary of stock option activity and number of shares        reserved for outstanding options for the years ended        December 31, 2001, 2000 and 1999: |
|                                                                                                                                                                             |

|                                       |    | Number         ofShares |          | Weighted        Average        Option PricePer Share |   | Option        Price PerShare |                  | Maximum        Term of        OptionsGranted |                 | Weighted        Average        Grant Date        Fair Valueof Options |
|--------------------------------------------|---------|-------------------------|---------------|------------------------------------------------------|--------|------------------------------|-----------------------|----------------------------------------------|----------------------|-----------------------------------------------------------------------|
|                                       |    |                    |          |                                                 |   |                         |                  |                                         |                 |
| **Balance as of        January 1, 1999**   |    | 430,000            |          | $5.36                                                |   | $1.00        to $8.00        |                  | 2 to 10        years                         |                 | $3.90                                                                 |
|                                       | Granted |                    | 75,000   |                                                 | $2.43  |                         | $2.25        to $2.50 |                                         | 10 years             |                                                                  | $2.25 |
|                                       | Expired |                    | (120,000)     |                                                 | $5.00  |                         | $5.00                 |                                         | 5 to 10        years |                                                                  | - |
|                                       |    |                    |          |                                                 |   |                         |                  |                                         |                 |                                                                  |   |
| **Balance as of        December 31, 1999** |    | 385,000            |          | $4.35                                                |   | $1.00        to $8.00        |                  | 2 to 10        years                         |                 | $5.41                                                                 |
|                                       | Granted |                    | 100,000  |                                                 | $2.50  |                         | $2.50                 |                                         | 2 to 10        years |                                                                  | $ .68 |
|                                       |    |                    |          |                                                 |   |                         |                  |                                         |                 |                                                                  |   |
| **Balance as of        December 31, 2000** |    | 485,000            |          | $4.00                                                |   | $1.00        to $8.00        |                  | 2 to 9        years                          |                 | $4.43                                                                 |
|                                       | Granted |                    | 50,000   |                                                 | $2.50  |                         | $2.50                 |                                         | 2 to 5        years  |                                                                  | $.97 |
|                                       | Expired |                    | (205,000)     |                                                 | $4.51  |                         | $2.50                 |                                         | 1 to 8        years  |                                                                  | - |
|                                       |    |                    |          |                                                 |   |                         |                  |                                         |                 |                                                                  |   |
| **Balance as of        December 31, 2001** |    | 330,000            |          |                                                 |   |                         |                  |                                         |                 |                                                                  |

|                                                                                                                                                                                       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| As of December 31,        2001, the 330,000 options outstanding have exercise        prices between $1.00 to $6.00 and a weighted-average        remaining contractual life of 2.25 years. |
|                                                                                                                                                                                       |
| _______________________________________________________________________________________________                                                                                            |
|                                                                                                                                                                                       |
| (Continued)                                                                                                                                                                                |
|                                                                                                                                                                                       |
| 14.                                                                                                                                                                                        |
|                                                                                                                                                                                       |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                                                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                                                                  |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                 |
| December 31, 2001,        2000 and 1999                                                                                                                                                                                                           |
| ______________________________________________________________________________________                                                                                                                                                            |
|                                                                                                                                                                                                                                              |
| **NOTE 9 –        LEASE COMMITMENTS**                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                              |
| Operating        Leases:                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                              |
| The Company leases        its Louisville, Kentucky facility from a related party        (see Note 6) under an operating lease expiring December        2007. This agreement provides for monthly payments of        $37,500 through December2007. |
|                                                                                                                                                                                                                                              |
| The Company leases        real estate in Seymour, Indiana under an operating lease        expiring June 2008. This agreement provides for monthly        payments of $13,000.                                                                     |
|                                                                                                                                                                                                                                              |
| Future minimum        lease payments for operating leases as of December 31,        2001 are as follows:                                                                                                                                          |
|                                                                                                                                                                                                                                              |

|   | 2002                                                            |       | $   606,000            |   |   |
|--------|-----------------------------------------------------------------|------------|---------------------------------------|--------|--------|
|   | 2003                                                            |       | 606,000                               |   |   |
|   | 2004                                                            |       | 606,000                               |   |   |
|   | 2005                                                            |       | 606,000                               |   |   |
|   | 2006                                                            |       | 606,000                               |   |   |
|   | Thereafter                                                      |       |      762,000 |   |   |
|   |                                                            |       |                                  |   |
|   |      Net        minimum lease payments | $3,792,000 |                                  |   |

|                                                                                                                                                                                   |                            |                 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|----------------------|--------|
| Total rent expense        for the years ending December 31, 2001, 2000 and 1999 was        $868,712, $740,017 and $700,598.                                                            |
|                                                                                                                                                                                   |
| Capital Lease:                                                                                                                                                                         |
|                                                                                                                                                                                   |
| In 2001, the        Company leased equipment which qualified as a capital        lease. This lease arrangement requires monthly lease        payments of $3,400 through December 2005. |
|                                                                                                                                                                                   |
| The following is a        summary of property held under capital lease:                                                                                                                |
|                                                                                                                                                                                   |
|                                                                                                                                                                                   | Equipment                       | $170,000             |   |
|                                                                                                                                                                                   | Accumulated        depreciation |   (17,000) |   |
|                                                                                                                                                                                   |                            |                 |   |
|                                                                                                                                                                                   |                            | $153,000             |   |
|                                                                                                                                                                                   |
| ______________________________________________________________________________________                                                                                                 |
|                                                                                                                                                                                   |
| (Continued)                                                                                                                                                                            |
|                                                                                                                                                                                   |
| 15.                                                                                                                                                                                    |
|                                                                                                                                                                                   |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                           |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                          |
| December 31, 2001,        2000 and 1999                                                                                                                                                                    |
| ______________________________________________________________________________________                                                                                                                     |
|                                                                                                                                                                                                       |
| **NOTE 9 –        LEASE COMMITMENTS**(Continued)                                                                                                                                                      |
|                                                                                                                                                                                                       |
| The following is a        schedule by year of future minimum lease payments under        the capitalized lease, together with the present value of        net minimum lease payments at December 31, 2001. |
|                                                                                                                                                                                                       |

|   | 2002                                                                         | $  40,800      |   |
|--------|------------------------------------------------------------------------------|--------------------------|--------|
|   | 2003                                                                         | 40,800                   |   |
|   | 2004                                                                         | 40,800                   |   |
|   | 2005                                                                         |    40,800 |   |
|   |                                                                         |                     |   |
|   | Total minimum lease        payments                                          | 163,200                  |   |
|   | Less****amount        representing interest                                  |    22,365 |   |
|   |                                                                         |                     |   |
|   | Present value of        net minimum            lease payments | $140,835                 |   |

|                                                                                                                     |
|--------------------------------------------------------------------------------------------------------------------------|
| **NOTE 10 –        PER SHARE DATA**                                                                                 |
|                                                                                                                     |
| The following        illustrates the computation for earnings per share and        earnings per share assuming dilution. |
|                                                                                                                     |

|                                            | 2001                                                                                        |                                                                                        | 2000                                                     |                                 | 1999                                                       |
|-------------------------------------------------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|----------------------------------------------------------|--------------------------------------|------------------------------------------------------------|
|                                            |                                                                                        |                                                                                        |                                                     |                                 |                                                       |
| **Earnings per        share**                   |                                                                                        |                                                                                        |                                                     |                                 |                                                       |
|                                            | Net income        (loss)                                                                    | $        (353,090)                                                                          |                                                     | $  505,847                 |                                                       | $   321,335 |
|                                            | Weighted        average shares outstanding                                                  |  1,706,090                                                                        |                                                     |  1,917,633                      |                                                       |  1,929,600 |
|                                            |                                                                                        |                                                                                        |                                                     |                                 |                                                       |
|                                            |                                                                                        | Basic earnings per        share                                                             | $               (.21) |                                 | $         .26 |   | $          .17 |
|                                            |                                                                                        |                                                                                        |                                                     |                                 |                                                       |
| **Earnings        per share assuming dilution** |                                                                                        |                                                                                        |                                                     |                                 |                                                       |
|                                            | Net income        (loss)                                                                    | $        (353,090)                                                                          |                                                     | $  505,847                 |                                                       | $   321,335 |
|                                            | Weighted        average shares outstanding                                                  | 1,706,090                                                                              |                                                     | 1,917,633                            |                                                       | 1,929,600 |
|                                            | Add        dilutive effect of assumed exercising            of stock options |               -  |                                                     |      15,465 |                                                       |       28,697 |
|                                            | Diluted        average shares outstanding                                                   |  1,706,090                                                                        |                                                     | 1,933,098                            |                                                       |  1,958,297 |
|                                            |                                                                                        |                                                                                        |                                                     |                                 |                                                       |
|                                            |                                                                                        | Earnings per share        assuming dilution                                                 | $               (.21) |                                 | $         .26 |   | $          .16 |

| ______________________________________________________________________________________ |
|----------------------------------------------------------------------------------------|
|                                                                                   |
| (Continued)                                                                            |
|                                                                                   |
| 16.                                                                                    |
|                                                                                   |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| December 31, 2001,        2000 and 1999                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ______________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **NOTE 11 –        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, non-ferrous and fiber scrap; CWS's revenues        consist of charges to customers for waste disposal        services; and WESSCO sales and lease income comprise the        primary source of revenue for this segment.                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| The accounting        policies of the three segments are the same as those        described in the summary of significant accounting        policies (Note 1). The Company evaluates segment        performance based on gross profit or loss and the        evaluation process for each segment includes only direct        expenses omitting any selling, general and administrative        costs and income taxes.                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Revenue from two        CWS customers in 2001, 2000 and 1999 represents        approximately 70%, 63% and 64% of CWS revenues. At        December 31, 2001 and 2000, amounts due from these        customers included in CWS accounts receivable were        $3,364,650 and $4,414,142.                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|                                                                     |   | ISA Recycling                |   | Computerized        WasteSystems                                                                   |   | Waste        Equipment        Sales &        Services                                          |   | Other                                                               |   | SegmentTotals          |
|--------------------------------------------------------------------------|--------|------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|------------------------|
|                                                                     |   |                         |   |                                                                                               |   |                                                                                               |   |                                                                |   |                   |
| 2001                                                                     |   |                         |   |                                                                                               |   |                                                                                               |   |                                                                |   |                   |
| Recycling revenues                                                       |   | $18,631,563             |   | $               -  |   | $               -  |   | $         -       |   | $18,631,563       |
| Equipment sales,        services          and leasing revenues |   | -                       |   | -                                                                                             |   | 2,374,889                                                                                     |   | -                                                              |   | 2,374,889         |
| Management fees                                                          |   | -                       |   | 72,764,814                                                                                    |   | -                                                                                             |   | -                                                              |   | 72,764,814        |
| Cost of goods sold                                                       |   | (17,452,566)                 |   | (68,680,899)                                                                                       |   | (1,093,243)                                                                                        |   |           -  |   | (87,226,708)           |
|                                                                     |   |                         |   |                                                                                               |   |                                                                                               |   |                                                                |   |                   |
| Segment profit                                                           |   | $  1,178,997  |   | $ 4,083,915                                                                              |   | $1,281,646                                                                                    |   | $         -       |   | $ 6,544,558  |

| _______________________________________________________________________________________________ |
|-------------------------------------------------------------------------------------------------|
|                                                                                            |
| (Continued)                                                                                     |
|                                                                                            |
| 17.                                                                                             |
|                                                                                            |

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                            |
|----------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                       |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                      |
| December 31, 2001,        2000 and 1999                                                |
| ______________________________________________________________________________________ |
|                                                                                   |
| **NOTE 11 –        SEGMENT INFORMATION** (Continued)                              |
|                                                                                   |

|                                                                      |   | ISA        Recycling                                                          |   | Computerized        Waste        Systems                                                                       |   | Waste         EquipmentSales & Services                                                        |   | Other                                                                                                   |   | Segment        Totals                                   |
|---------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|
| 2001                                                                      |   |                                                                          |   |                                                                                                           |   |                                                                                               |   |                                                                                                    |   |                                                    |
| Cash                                                                      |   | $       84,891                        |   | $     171,162                                                                    |   | $              -        |   | $   520,692                                                                              |   | $     776,745             |
| Accounts receivable                                                       |   | 1,334,562                                                                |   | 5,067,027                                                                                                 |   | 268,193                                                                                       |   | -                                                                                                       |   | 6,669,782                                          |
| Inventory                                                                 |   | 1,848,450                                                                |   | -                                                                                                         |   | 101,316                                                                                       |   | -                                                                                                       |   | 1,949,766                                          |
| Net property and          equipment                             |   | 4,004,769                                                                |   | 976,685                                                                                                   |   | 1,015,581                                                                                     |   | 152,983                                                                                                 |   | 6,150,018                                          |
| Non-compete        agreements,          net                     |   | 203,536                                                                  |   | -                                                                                                         |   | -                                                                                             |   | -                                                                                                       |   | 203,536                                            |
| Intangibles                                                               |   | 560,005                                                                  |   | -                                                                                                         |   | -                                                                                             |   | -                                                                                                       |   | 560,005                                            |
| Other assets                                                              |   |        253,808                        |   |         25,302                                                    |   |     410,161                                                               |   |     312,135                                                                         |   |    1,001,406                        |
|                                                                      |   |                                                                          |   |                                                                                                           |   |                                                                                               |   |                                                                                                    |   |                                                    |
| Segment assets                                                            |   | $  8,290,021                                                   |   | $  6,240,176                                                                                    |   | $1,795,251                                                                                    |   | $   985,810                                                                              |   | $17,311,258                                        |
|                                                                      |   |                                                                          |   |                                                                                                           |   |                                                                                               |   |                                                                                                    |   |                                                    |
| 2000                                                                      |   |                                                                          |   |                                                                                                           |   |                                                                                               |   |                                                                                                    |   |                                                    |
| Recycling revenues                                                        |   | $23,257,618                                                              |   | $                 -  |   | $              -        |   | $               -            |   | $23,257,618                                        |
| Equipment sales,        services           and leasing revenues |   | -                                                                        |   | -                                                                                                         |   | 2,516,751                                                                                     |   | -                                                                                                       |   | 2,516,751                                          |
| Management fees                                                           |   | -                                                                        |   | 63,467,104                                                                                                |   | -                                                                                             |   | -                                                                                                       |   | 63,467,104                                         |
| Cost of goods sold                                                        |   |  (21,295,442)                                                            |   | (58,908,086)                                                                                                   |   | (1,497,304)                                                                                        |   |                  - |   | (81,700,832)                                            |
|                                                                      |   |                                                                          |   |                                                                                                           |   |                                                                                               |   |                                                                                                    |   |                                                    |
| Segment profit                                                            |   | $  1,962,176                                                   |   | $  4,559,018                                                                                    |   | $1,019,447                                                                                    |   | $               -            |   | $  7,540,641                             |
|                                                                      |   |                                                                          |   |                                                                                                           |   |                                                                                               |   |                                                                                                    |   |                                                    |
| Cash                                                                      |   | $     283,400                                   |   | $     730,262                                                                    |   | $               -  |   | $   382,220                                                                              |   | $  1,395,882                             |
| Accounts receivable                                                       |   | 3,709,496                                                                |   | 4,969,754                                                                                                 |   | -                                                                                             |   | 59,924                                                                                                  |   | 8,739,174                                          |
| Inventory                                                                 |   | 2,114,123                                                                |   | -                                                                                                         |   | 77,039                                                                                        |   | -                                                                                                       |   | 2,191,162                                          |
| Net property and          equipment                             |   | 4,930,998                                                                |   | -                                                                                                         |   | 613,861                                                                                       |   | -                                                                                                       |   | 5,544,859                                          |
| Non-compete        agreements,           net                    |   | 405,892                                                                  |   | -                                                                                                         |   | -                                                                                             |   | -                                                                                                       |   | 405,892                                            |
| Intangibles                                                               |   | 613,337                                                                  |   | -                                                                                                         |   | -                                                                                             |   | -                                                                                                       |   | 613,337                                            |
| Other assets                                                              |   |            2,037  |   |          46,110                                              |   |                -   |   |      866,715                                                                   |   |        914,862  |
|                                                                      |   |                                                                          |   |                                                                                                           |   |                                                                                               |   |                                                                                                    |   |                                                    |
| Segment assets                                                            |   | $12,059,283                                                              |   | $  5,746,126                                                                                    |   | $   690,900                                                                    |   | $1,308,859                                                                                              |   | $19,805,168                                        |

| _______________________________________________________________________________________________ |
|-------------------------------------------------------------------------------------------------|
|                                                                                            |
| (Continued)                                                                                     |
|                                                                                            |
| 18.                                                                                             |
|                                                                                            |
|                                                                                                 |

|                                                                                   |
|----------------------------------------------------------------------------------------|
|                                                                                   |
| INDUSTRIAL SERVICES        OF AMERICA, INC.                                            |
| AND SUBSIDIARIES                                                                       |
| NOTES TO        CONSOLIDATED FINANCIAL STATEMENTS                                      |
| December 31, 2001,        2000 and 1999                                                |
| ______________________________________________________________________________________ |
|                                                                                   |
| **NOTE 11 –        SEGMENT INFORMATION** (Continued)                              |
|                                                                                   |

|                                                                     |   | ISA Recycling                |   | Computerized        WasteSystems                                                                               |   | Waste        Equipment        Sales &         Services                                         |   | Other                                                    |   | SegmentTotals          |
|--------------------------------------------------------------------------|--------|------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|------------------------|
|                                                                     |   |                         |   |                                                                                                           |   |                                                                                               |   |                                                     |   |                   |
| 1999                                                                     |   |                         |   |                                                                                                           |   |                                                                                               |   |                                                     |   |                   |
| Recycling revenues                                                       |   | $20,363,312             |   | $                 -  |   | $               -  |   | $         - |   | $20,363,312       |
| Equipment sales,        services          and leasing revenues |   | -                       |   | -                                                                                                         |   | 3,094,246                                                                                     |   | -                                                        |   | 3,094,246         |
| Management fees                                                          |   | -                       |   | 54,040,261                                                                                                     |   | -                                                                                             |   | -                                                        |   | 54,040,261        |
| Cost of goods sold                                                       |   | (17,685,305)                 |   | (51,047,466)                                                                                                   |   | (2,058,767)                                                                                        |   | -                                                        |   | (70,791,538)           |
|                                                                     |   |                         |   |                                                                                                           |   |                                                                                               |   |                                                     |   |                   |
| Segment profit                                                           |   | $  2,678,007  |   | $  2,992,795                                                                                    |   | $1,035,479                                                                                    |   | $         - |   | $ 6,706,281  |

| _______________________________________________________________________________________________ |
|-------------------------------------------------------------------------------------------------|
|                                                                                            |
|                                                                                            |
| 19.                                                                                             |
|                                                                                            |

 

----

 

| **SUPPLEMENTARY        INFORMATION** |
|--------------------------------------|

 

----

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                            |
|----------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                       |
| VALUATION AND        QUALIFYING ACCOUNTS                                               |
| Years ended        December 31, 2001 and 2000                                          |
| ______________________________________________________________________________________ |
|                                                                                   |

|                                                                                                                  |   | Balance at        Beginningof Year |   | Charged to        Costs andExpenses |   | Charged         to OtherAccounts                               |   | Deductions         |   | Balance        at Endof Year |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|-------------------------------------|--------|----------------------------------------------------------------|--------|--------------------|--------|------------------------------|
| Description                                                                                                           |   |                               |   |                                |   |                                                           |   |               |   |                         |
|                                                                                                                  |   |                               |   |                                |   |                                                           |   |               |   |                         |
| Allowance for        doubtful          accounts 2001 (deducted          from accounts receivable) |   | $100,000                           |   | $222,964                            |   | $          - |   | $        (272,964) |   | $50,000                      |
|                                                                                                                  |   |                               |   |                                |   |                                                           |   |               |   |                         |
| Allowance for        doubtful          accounts 2000 (deducted          from accounts receivable) |   | $190,000                           |   | $132,867                            |   | $47,546                                                        |   | $        (270,413) |   | $100,000                     |
|                                                                                                                  |   |                               |   |                                |   |                                                           |   |               |   |                         |
| _______________________________________________________________________________________________                       |
|                                                                                                                  |
| 20.                                                                                                                   |

 

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