| 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, 2002 |
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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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 59-0712746 |
| (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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|       Indicate        by check mark whether the registrant is an accelerated        filer (as defined in rule 12b-2 of the Act).         Yes        No   X                                                                                                                                                                                                                                                                                 |
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|       Aggregate        market value of the 698,796 shares of voting Common Stock        held by non-affiliates of the registrant at the closing        sales price on June 28, 2002: $1,607,231.                                                                                                                                                                                                                                                                                                            |
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|       Number        of shares of Common Stock outstanding as of the close of        business on March 28, 2003: 1,614,800.                                                                                                                                                                                                                                                                                                                                                                                  |
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| DOCUMENT INCORPORATED BY REFERENCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| Portions of        the registrant's definitive Proxy Statement for the 2003        Annual Meeting of Shareholders are incorporated by        reference into Item 10 through Item 13 of 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 recycling        division's major products include recycled steel, iron,        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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|       Opportunities        for 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. These increased costs enhance the value of the        Registrant’s 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 nationwide as well as Canada and        Puerto Rico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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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 56%, 54% and 44% of 2002,        2001 and 2000 total revenues. 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 decreases. Although        society (and industry) has developed an increased        awareness of 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        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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| **Related Parties        Agreement – K&R**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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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 Corporation (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 was $450,000 per annum. The rent for the second        five years, beginning January 1, 2003, is $505,272 per        annum, payable at the beginning of each month in an        amount equal to $42,106 (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|       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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| **Acquisition Agreement        and Related Lease – Fitzpatrick**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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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 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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| **Lease and Purchase        Agreement - Penske**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|       Effective        July 8, 2002, ISA Indiana, Inc. (the "Tenant"),        an Indiana corporation and wholly-owned subsidiary of the        Registrant and Penske Truck Leasing Co., L.P. (the        "Landlord") entered into an Lease and Purchase        Agreement whereby the Tenant agrees to pay Landlord        $3,000 per month for three years with an option to        purchase for $425,000. The location of the business is on        an approximate 5-acre tract at 1565 East 4th        Street, Seymour, Indiana, approximately 60 miles north of        Louisville, Kentucky. The land is improved by an        approximately 10,000 square foot maintenance and office        building.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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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 options to        purchase 75,000 shares of the Company's Common Stock (the        "Common Stock") at $6.00 per share. The options        to purchase 75,000 shares of the Company’s Common        Stock expire June 2, 2003. To date, Lassak has not        exercised any options. 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 granted to JCA and Lassak 40,000 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. The options to purchase 40,000 shares of the        Company’s Common Stock expire June 2, 2003. To date,        JCA and Lassak have not exercised any options. 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 twenty-three        (123) full-time employees as follows: Recycling 77,        Management Services 27, Sales/Leasing 8 and        Administration/Information Technology 11. 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**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       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 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 2002 or 2001 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|       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        $42,106 per month from K&R pursuant to the K&R        Lease. See ITEM 1. BUSINESS. "Related Parties        Agreement – K&R"                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|       The        Subsidiary of the Registrant 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. "Acquisition Agreement and Related        Lease - Fitzpatrick."                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|       The        Subsidiary of the Registrant has entered into the Penske        Lease and Purchase Agreement effective July 8, 2002, for        three years at a rental of $3,000 per month with an        option to purchase for $425,000. See ITEM 1. BUSINESS.        "Lease and Purchase Agreement Penske."                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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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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|       None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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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                                              | 76     | 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                                              | 38     | 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 has served 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                                              | 54     | 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                                              | 49     | 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.                                                                                                                                          |

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|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            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 2003 Annual Meeting of Shareholders as        incorporated herein by reference at Item 11.                         |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **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** |   | **2002** |    | **2001** |     | **2000** |
|--------------------------|--------|----------|---------|----------|----------|----------|
|                     |   | **High** | **Low** |     | **High** | **Low**  |   | **High** | **Low** |
| March 31                 |   | $2.50    | $2.07   |     | $2.45    | $1.94    |   | $4.06 | $1.75 |
| June 30                  |   | $2.50    | $2.01   |     | $2.55    | $2.00    |   | $2.50 | $1.50 |
| September 30             |   | $2.57    | $2.10   |     | $2.65    | $2.05    |   | $3.50 | $1.25 |
| December 31              |   | $2.19    | $1.98   |     | $2.50    | $2.05    |   | $3.00 | $2.06 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       There        were approximately 395 shareholders of record as of March        12, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       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 Branch Banking        and Trust Company (BB&T) formerly known as the Bank        of Louisville. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       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 2002, the Registrant repurchased 45,600        shares at an average share price of $2.34.                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Item        6.        Selected        Financial Data.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

| **Selected Financial Data**                      |                                  |
|--------------------------------------------------|---------------------------------------|
|                                             |                                  |   |   |   |   |   |   |   |   |
|                                             | 2002                                  |   | 2001 |   | 2000 |   | 1999 |   | 1998 |
| (Amounts in Thousands, Except Per Share Data)    |                                  |   |   |   |   |   |   |   |
|                                             |                                  |   |   |   |   |   |   |   |   |
| Year ended        December 31:                   |                                  |   |   |   |   |   |   |   |   |
|   Total        revenue                 | $  101,279             |   | $  93,771  |   | $  89,241 |   | $  77,498 |   | $  65,205  |
|                                             |                                  |   |   |   |   |   |   |   |   |
|   Net        income (loss)             | (164)                                 |   | (353) |   | 506 |   | 321 |   | (507) |
|                                             |                                  |   |   |   |   |   |   |   |   |
|   Earnings        (loss)               |                                  |   |   |   |   |   |   |   |   |
|     per        common share: |                                  |   |   |   |   |   |   |   |   |
|     Basic                    | $     (0.10) |   | $     (0.21) |   | $     0.26 |   | $     0.17 |   | $    (0.26) |
|                                             |                                  |   |   |   |   |   |   |   |   |
|     Assuming        dilution | $     (0.10) |   | $     (0.21) |   | $     0.26 |   | $     0.16 |   | $    (0.26) |
|                                             |                                  |   |   |   |   |   |   |   |   |
|   Cash        dividends declared       |                                  |   |   |   |   |   |   |   |   |
|     Per        common share  | -                           |   | -   |   | -  |   | -  |   | -  |
|                                             |                                  |   |   |   |   |   |   |   |   |
| At        year end:                              |                                  |   |   |   |   |   |   |   |   |
|   Total        assets                  | $  18,913              |   | $  17,311  |   | $  19,805 |   | $  20,515 |   | $  18,288  |
|                                             |                                  |   |   |   |   |   |   |   |   |
|   Long-term        Debt                | $    3,748   |   | $    2,344  |   | $    1,694 |   | $    2,105 |   | $    2,613  |
|                                             |                                  |   |   |   |   |   |   |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **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, Canada,        and Puerto Rico 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 2003. 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**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|       As        of December 31, 2002, the Registrant held cash and cash        equivalents of $1,630,028.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|       The        Registrant currently maintains a $3.8 million senior        revolving credit facility with the Branch Banking and        Trust Company (BB&T) formerly known as the Bank of        Louisville. Indebtedness under this credit facility        accrues interest at Bank’s prime rate. The maturity        date under this agreement is June 30, 2003. The Credit        Line is collateralized by all assets of the Registrant.        As of December 31, 2002, $1,750,000 was borrowed against        the line of credit compared to $1,000,000 as of December        31, 2001. In addition to the operating line of credit at        December 2002, the Registrant had another line of credit        with BB&T 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, 2002, there was no        outstanding balance.                                                                                                                                                                                                                                                                                          |
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|       During        2002, the Registrant committed approximately $1,558,000        in fixed asset additions. In the recycling segment        approximately $426,000 was committed for the purchase of        two new Mack trucks, three new forklifts and a Badger        L-100S-2-10/7 baler. In the equipment sales, leasing and        service segment, approximately $765,000 was capitalized        as rental equipment to be located at customer sites. Net        property and equipment has increased $655,277 to        $6,805,295 in 2002 from $6,150,018 in 2001. During 2002,        the Registrant borrowed $2,500,000 from the Branch        Banking and Trust Company (BB&T) formerly known as        the Bank of Louisville. The Registrant will make monthly        installments of $34,997 including interest at 6.75%        through December 2006, secured by operating equipment.        The Registrant also entered into capital leases for        property and equipment with a cost of $757,835.        Depreciation expense during 2002 was $1,579,392.                                                                                                                                                                                                                 |
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|       Existing        cash flow from operations and available credit under the        existing credit facilities are expected to be sufficient        to meet the Registrant's cash needs in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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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,**                                                        |   | **2002**   | **2001**   | **2000**   |
|-------------------------------------------------------------------------------------------|--------|----------------------|----------------------|----------------------|
|                                                                                      |   |                 |                 |                 |
| **Statements        of Operations Data:**                                                 |   |                 |                 |                 |
| Total        Revenue .......................................................         |   | 100.0%               | 100.0%               | 100.0%               |
| Cost of Goods        Sold ...............................................                 |   | 93.9%                | 93.0%                | 91.5%                |
| Selling,        General and Administrative                                                |   |                 |                 |                 |
|   Expenses        ............................................................. |   | 6.2%                 | 7.3%                 | 7.5%                 |
| Income (Loss)        before Other Income (Expense).....                                   |   | (0.1)%               | (0.3)%               | 1.0%                 |

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|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Year        Ended December 31, 2002 Compared to Year Ended December        31, 2001**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|       Total        revenue increased $7,507,973 or 8.0% to $101,279,239 in        2002 compared to $93,771,266 in 2001. Management services        revenue increased $3,990,395 or 5.5% to $76,755,209 in        2002 compared to $72,764,814 in 2001. 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 $3,549,722        or 5.0% to $75,234,451 in 2002 compared to $71,684,729 in        2001. Recycling revenue increased $3,655,671 or 19.6% to        $22,287,234 in 2002 compared to $18,631,563 in 2001. This        is due to the increase in commodity prices of        approximately 11.8% in the Ferrous market and 1.1% in the        Non-Ferrous market as well as an increase in the volume        of outbound shipments of approximately 11.7% in the        Ferrous market and 12.7% in the Non-Ferrous market for        the year 2002 compared to the year 2001. Equipment,        service and leasing revenue decreased $138,093 or 5.8% to        $2,236,796 in 2002 compared to $2,374,889 in 2001. This        decrease was due to the continued effort to lease        equipment for the long-term benefit of revenue streams        and customer retention in lieu of equipment sales.        Service and leasing revenues increased $78,159 or 5.6%        offset by a decrease in equipment sales of $216,252 or        21.9%.                                                                                                                      |
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|       Total        cost of goods sold increased $7,725,825 or 8.9% to        $94,952,533 in 2002 compared to $87,226,708 in 2001.        Management services cost of goods sold increased        $4,584,992 or 6.7% to $73,265,891 in 2002 compared to        $68,680,899 in 2001. Recycling cost of goods sold        increased $3,379,780 or 19.4% to $20,832,346 in 2002        compared to $17,452,566 in 2001. An insurance        reimbursement for loss of business income in the        recycling segment of $161,428, because primary equipment        was out of service from mid-November 2001 through        mid-January 2002 was received in the second quarter of        2002. Equipment, service and leasing cost of goods sold        decreased $238,947 or 21.9% to $854,296 in 2002 compared        to $1,093,243 in 2001. This decrease was primarily due to        the continued effort to lease equipment as noted above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|       Selling,        general and administrative expenses decreased $607,437 or        8.9% to $6,236,814 in 2002 compared to $6,844,251 in        2001. This is primarily due to a reduction of bad debt,        programming, amortization, legal, insurance and        accounting expense. As a percentage of total revenue,        selling, general and administrative expenses were 6.2% in        2002 compared to 7.3% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| Property tax        assessments were incurred during year 2002 for years 1998        through 2000 of $149,916. Without these property tax        assessments of $149,916 from years 1998 through 2000,        selling, general and administrative expenses would have        decreased $757,353 or 11.1% to $6,086,898 in 2002        compared to $6,844,251 in 2001 As a percentage of total        revenue, selling, general and administrative expenses        without these property tax assessments would have been        6.0% in 2002 compared to 7.3% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|       Other        expense decreased $177,342 to $92,203 in 2002 compared to        $269,545 in 2001. This is due to a decrease in interest        expenses due to lower interest rates on bank loans along        with a decrease in interest income due to lower rates of        interest on balances at the bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|       Income        tax (provision) benefit increased $377,541 to an income        tax provision of $161,393 in 2002 compared to an income        tax benefit of $216,148 in 2001. Without income tax        provisions for expired stock options of $151,702 and an        IRS refund and adjustment of $19,504, the income tax        provision of $161,393 in 2002 would decrease $171,206 to        an income tax benefit of $9,813.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| **Financial        Condition at December 31, 2002 compared to December 31,        2001**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|       Accounts        receivable trade after allowances for bad debt increased        $73,049 or 1.1% to $6,806,795 in 2002 compared to        $6,733,746 in 2001. Collections of accounts receivable        remains strong as only approximately $95,114 is over 60        days old.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|       Inventory        decreased $66,604 or 3.4% to $1,883,162 in 2002 compared        to $1,949,766 in 2001. Inventory investments in both        ferrous and non-ferrous remained relatively the same in        2002 as compared to 2001. Ferrous inventory at December        31, 2002 was $92,669 lower than December 31, 2001.        Non-ferrous inventory was $27,269 lower than December 31,        2002 versus December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|       Accounts        payable trade decreased $486,504 or 5.3% to $8,676,287 in        2002 compared to $9,162,791 in 2001. This is due to a        decrease in the billings of the CWS segment during        December 2002 due to a lower volume in our        customers’ industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|       Working        capital increased $839,826 to a deficit of $506,494 in        2002 compared to a deficit of $1,346,320 in 2001. The        increase of $839,826 is primarily due to the financing of        long-term debt of $2,500,000 which is related to        purchases of operating equipment. Long-term debt of        $1,091,381 related to the acquisitions of Metalcenter and        Fitzpatrick Smelters, Inc. were also refinanced under        this debt agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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| **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 $142,992 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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|       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        $2,051,005 or 23.3% to $6,733,746 in 2001 compared to        $8,784,751 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 remained strong        as only approximately $135,000 as of December 31, 2001was        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 lower volume in our customers’        industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|       Working        capital decreased $634,546 to a deficit of $1,346,320 in        2002 compared to a deficit of $711,774 in 2001. The        decrease of $634,546 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 $1,346,320 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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| **Inflation        and Prevailing Economic Conditions**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|       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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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| **Impact of        Recently Issued Accounting Standards**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|       In        2002, the FASB issued SFAS 145, Rescission of FASB        Statements No. 4, 44, and 64, Amendment of FASB Statement        No. 13, and Technical Corrections, SFAS 145 eliminates        the classification of debt extinguishments as        extraordinary items. We will adopt this statement        effective January 1, 2003. The adoption of this statement        will have no impact on our net results of operation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       In        2002, the FASB issued SFAS 146, Accounting for Costs        Associated with Exit or Disposal Activities. SFAS 146        requires that a liability for a cost associated with an        exit or disposal activity be recognized when the        liability is incurred. Severance pay under SFAS 146, in        many cases, would be recognized over the remaining        service period rather than at the time the plan is        communicated. The provisions of SFAS 146 are effective        for exit or disposal activities that are initiated after        December 31, 2002. We will adopt SFAS 146 for any actions        initiated after January 1, 2003, and any future exit        costs or disposal activities will be subject to this        statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|       In        2002, the FASB issued FASB interpretation (FIN) 45,        Guarantor’s Accounting and Disclosure Requirements        for Guarantees, including indirect Guarantees of        Indebtedness of Others. FIN 45 requires an issuer of a        guarantee to recognize an initial liability for the fair        value of the obligations covered by the guarantee. FIN 45        also addresses the disclosures required by a guarantor in        interim and annual financial statements regarding        obligations under guarantees. We will adopt the        requirement for recognition of the liability for the fair        value of guaranteed obligations prospectively for        guarantees entered into after January 1, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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| **Item        7A.        Quantitative        and Qualitative Disclosures About Market Risk.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|       There        is market risk in our recycling segment, sinceit is        driven by fluctuating commodity prices. Management        mitigates this risk by selling our product on a monthly        contract basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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| **Item        8.        Consolidated        Financial Statements and Supplementary Data.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|       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 annual results of operations        are included in the Notes to Consolidated Financial        Statements under Item 14.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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| **Item        9.        Changes        in and Disagreements with Accountants on Accounting and        Financial Disclosure.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|       None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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| **PART III**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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| **Item        10.        Directors        and Executive Officers of the Registrant.***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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|       The        information in Item 4a. in this report is incorporated        herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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| **Item        11.        Executive        Compensation** *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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| **Item        12.        Security        Ownership of Certain Beneficial Owners and Management.***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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| **Item        13.        Certain        Relationships and Related Transactions.***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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| **Item        14.        Controls        and Procedures**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (a)       Evaluation        of disclosure controls and procedures. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         Based        on the evaluation of the Chief Executive Officer and the        Chief Financial Officer of the Registrant of its internal        controls and procedures as of March 26, 2003, it has been        concluded that the disclosure controls and procedures are        effective for the purposes contemplated by Rule 13a-14        (c) promulgated by the Securities and Exchange        Commission. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (b)       Changes        in internal controls. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         There        have been no significant changes to the Registrant's        internal controls or in other factors that could        significantly affect these controls as of March 26, 2003. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
| *  The        information required by Items 10, 11, 12 and 13 is or        will be set forth in the definitive proxy statement        relating to the 2003 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| **PART IV**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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| **Item        15.        Exhibits,        Consolidated Financial Statement Schedules, and Reports        on Form 8-K.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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| (a)(1)              The following        consolidated financial statements of Industrial Services        of America, Inc. are filed as a part of this report:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|   |   |                                                                | Page   |
|--------|--------|---------------------------------------------------------------------|--------|
|   |   |                                                                |   |
|   |   | Report of        Independent Auditors                               | F-1    |
|   |   | Consolidated        Balance Sheets as of December 31, 2002 and 2001 | F-2    |
|   |   | Consolidated        Statements of Operations for the years          |   |
|   |   |   ended        December 31, 2002, 2001 and 2000           | F-3    |
|   |   | Consolidated        Statements of Shareholders' Equity for the      |   |
|   |   |   years        ended December 31, 2002, 2001 and 2000     | F-4    |
|   |   | Consolidated        Statements of Cash Flows for the years          |   |
|   |   |   ended        December 31, 2002, 2001 and 2000           | 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, 2002, 2001 and 2000     | F-23   |
|   |   |                                                                |   |

| (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, 2002, 2001 and 2000 is incorporated by        reference at page F-23 of the Consolidated Financial        Statements of the Registrant.                                                                                                                                     |

 

 

| **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 28, 2003                                                                                                                                                                                                                                                     |   | 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                                                                       |   | Chairman        of the Board and Chief | March 28, 2003 |
| Harry Kletter                                                                                                                                                                                                                                                                    |   | Executive        Officer (Principal Executive         Officer) |   |
|                                                                                                                                                                                                                                                                             |   |   |   |
|   /s/  Alan        L.        Schroering                                                                                                        |   | Chief        Financial Officer | March 28, 2003 |
| Alan L.        Schroering                                                                                                                                                                                                                                                        |   | (Principal        Financial Officer and |   |
|                                                                                                                                                                                                                                                                             |   | Principal        Accounting Officer) |   |
|                                                                                                                                                                                                                                                                             |   |   |   |
|   /s/  David        W.        Lester                                                                                       |   | Director | March 28, 2003 |
| David W.        Lester                                                                                                                                                                                                                                                           |   |   |   |
|                                                                                                                                                                                                                                                                             |   |   |   |
|   /s/  Jim        E.        Vining                                                                     |   | Director | March 28, 2003 |
| Jim E. Vining                                                                                                                                                                                                                                                                    |   |   |   |
|                                                                                                                                                                                                                                                                             |   |   |   |
|   /s/  Roman        Epelbaum                                                                                                                                  |   | Director | March 28, 2003 |
| Roman        Epelbaum                                                                                                                                                                                                                                                            |   |   |   |
|                                                                                                                                                                                                                                                                             |   |   |   |

**** 

 

**** 

| **CERTIFICATIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Harry Kletter        and Alan L. Schroering, being the Chief Executive Officer        and Chief Financial Officer, respectively, of Industrial        Services of America, Inc., hereby certify as of this 26th        day of March, 2003, that the Form 10-K for the Year ended        December 31, 2002, fully complies with the requirements        of Section 13(a) or 15(d) of the Securities Exchange Act        of 1934 and that the information contained in the Form        10-K fairly presents, in all material respects, the        financial condition and results of operations of        Industrial Services of America, Inc. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | /s/ Harry        Kletter                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Harry        Kletter, Chief Executive Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | /s/ Alan        L.        Schroering                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Alan L.        Schroering, Chief Financial Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

**** 

**** 

| CERTIFICATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|      I,        Harry Kletter, being the Chief Executive Officer, certify        that:                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|      1.     I        have reviewed this annual report on Form 10-K of        Industrial Services of America, Inc.;                                                                                                                                                                                                                                                                                                                                  |
|      2.     Based        on my knowledge, this annual report does not contain any        untrue statement of a material fact or omit to state a        material fact necessary to make the statements made, in        light of the circumstances under which such statements        were made, not misleading with respect to the period        covered by this annual report;                                                                      |
|      3.     Based        on my knowledge, the financial statements, and other        financial information included in this annual report,        fairly present in all material respects the financial        condition, results of operations and cash flows of the        registrant as of, and for, the periods presented in this        annual report;                                                                                         |
|      4.     The        registrant's other certifying officers and I are        responsible for establishing and maintaining disclosure        controls and procedures (as defined in Exchange Act Rules        13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                                   |
|      a)     designed        such disclosure controls and procedures to ensure that        material information relating to the registrant,        including its consolidated subsidiaries, is made known to        us by others within those entities, particularly during        the period in which this annual report is being prepared;                                                                                                         |
|      b)     evaluated        the effectiveness of the registrant's disclosure controls        and procedures as of a date within 90 days prior to the        filing date of this annual report (the "Evaluation        Date"); and                                                                                                                                                                                                        |
|      c)     presented        in this annual report our conclusions about the        effectiveness of the disclosure controls and procedures        based on our evaluation as of the Evaluation Date;                                                                                                                                                                                                                                               |
|      5.     The        registrant's other certifying officers and I have        disclosed, based on our most recent evaluation, to the        registrant's auditors and the audit committee of        registrant's board of directors:                                                                                                                                                                                                              |
|      a)     all        significant deficiencies in the design or operation of        internal controls which could adversely affect the        registrant's ability to record, process, summarize and        report financial data and have identified for the        registrant's auditors any material weaknesses in internal        controls; and                                                                                                |
|      b)     any        fraud, whether or not material, that involves management        or other employees who have a significant role in the        registrant's internal controls; and                                                                                                                                                                                                                                                             |
|      6.     The        registrant's other certifying officers and I have        indicated in this annual report whether or not there were        significant changes in internal controls or in other        factors that could significantly affect internal controls        subsequent to the date of our most recent evaluation,        including any corrective actions with regard to        significant deficiencies and material weaknesses. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| March 28,        2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | /s/ Harry        Kletter                                    |
| Date                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Harry        Kletter, Chief Executive Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |

 

 

| CERTIFICATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|      I,        Alan Schroering, being the Chief Financial Officer,        certify that:                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|      1.     I        have reviewed this annual report on Form 10-K of        Industrial Services of America, Inc.;                                                                                                                                                                                                                                                                                                                                  |
|      2.     Based        on my knowledge, this annual report does not contain any        untrue statement of a material fact or omit to state a        material fact necessary to make the statements made, in        light of the circumstances under which such statements        were made, not misleading with respect to the period        covered by this annual report;                                                                      |
|      3.     Based        on my knowledge, the financial statements, and other        financial information included in this annual report,        fairly present in all material respects the financial        condition, results of operations and cash flows of the        registrant as of, and for, the periods presented in this        annual report;                                                                                         |
|      4.     The        registrant's other certifying officers and I are        responsible for establishing and maintaining disclosure        controls and procedures (as defined in Exchange Act Rules        13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                                   |
|      a)     designed        such disclosure controls and procedures to ensure that        material information relating to the registrant,        including its consolidated subsidiaries, is made known to        us by others within those entities, particularly during        the period in which this annual report is being prepared;                                                                                                         |
|      b)     evaluated        the effectiveness of the registrant's disclosure controls        and procedures as of a date within 90 days prior to the        filing date of this annual report (the "Evaluation        Date"); and                                                                                                                                                                                                        |
|      c)     presented        in this annual report our conclusions about the        effectiveness of the disclosure controls and procedures        based on our evaluation as of the Evaluation Date;                                                                                                                                                                                                                                               |
|      5.     The        registrant's other certifying officers and I have        disclosed, based on our most recent evaluation, to the        registrant's auditors and the audit committee of        registrant's board of directors:                                                                                                                                                                                                              |
|      a)     all        significant deficiencies in the design or operation of        internal controls which could adversely affect the        registrant's ability to record, process, summarize and        report financial data and have identified for the        registrant's auditors any material weaknesses in internal        controls; and                                                                                                |
|      b)     any        fraud, whether or not material, that involves management        or other employees who have a significant role in the        registrant's internal controls; and                                                                                                                                                                                                                                                             |
|      6.     The        registrant's other certifying officers and I have        indicated in this annual report whether or not there were        significant changes in internal controls or in other        factors that could significantly affect internal controls        subsequent to the date of our most recent evaluation,        including any corrective actions with regard to        significant deficiencies and material weaknesses. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| March 28,        2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | /s/ Alan        L.        Schroering                             |
| Date                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Alan L.        Schroering, Chief Financial Officer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |

**** 

**** 

**** 

| **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. |
|                                                                                                                                                                                                          |   |   |
| 10.27                                                                                                                                                                                                         |   | Penske Lease        and Purchase Agreement effective July 8, 2002, for three        years at a rental of $3,000 per month with an option to        purchase for $425,000. |
|                                                                                                                                                                                                          |   |   |
| 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, 2002,        2001 and 2000         |
|                                            |

| INDUSTRIAL        SERVICES OF AMERICA, INC.                                                                               |
|---------------------------------------------------------------------------------------------------------------------------|
| AND        SUBSIDIARIES                                                                                                   |
| Louisville,        Kentucky                                                                                               |
|                                                                                                                      |
| CONSOLIDATED        FINANCIAL STATEMENTS                                                                                  |
| December        31, 2002, 2001 and 2000                                                                                   |
|                                                                                                                      |
|                                                                                                                      |
|                                                                                                                      |
| 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        ............................................................ | 23 |
|                                                                                                                      |   |   |

 

 

 

| 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, 2002 and 2001, and the related        consolidated statements of operations, shareholders’        equity and cash flows for the years ended December 31,        2002, 2001 and 2000. 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, 2002 and 2001, and the        results of its operations and its cash flows for the        years ended December 31, 2002, 2001 and 2000 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| January 31, 2003        except for                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   Notes 2        and 3, to which                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   the        date is March 25, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| ______________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                    |
|------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                               |
| CONSOLIDATED        BALANCE SHEETS                                                             |
| December 31, 2002        and 2001                                                              |
| ______________________________________________________________________________________________ |
|                                                                                           |

|                                                                                           | 2002                                                                                                                                               |                                              | 2001                              |
|------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------|-----------------------------------|
| **ASSETS**                                                                                     |                                                                                                                                               |                                              |                              |
| Current assets                                                                                 |                                                                                                                                               |                                              |                              |
|                                                                                           | Cash                                                                                                                                               | $ 1,630,028                             |                              | $    776,745  |
|                                                                                           |                                                                                                                                               |                                              |                              |   |
|                                                                                           | Accounts receivable        -- trade (after allowance for doubtful           accounts of $50,000 in 2002 and 2001) (Notes        2 and 3) | 6,806,795                                    |                              | 6,733,746  |
|                                                                                           | Income tax refund        receivable                                                                                                                | 79,593                                       |                              | 48,610  |
|                                                                                           | Net investment in        sales-type leases (Note 5)                                                                                                | 142,218                                      |                              | 109,586  |
|                                                                                           | Inventories (Notes        1, 2 and 3)                                                                                                              | 1,883,162                                    |                              | 1,949,766  |
|                                                                                           | Deferred income        taxes (Note 4)                                                                                                              | 317,600                                      |                              | 181,800  |
|                                                                                           | Other                                                                                                                                              |       138,507  |                              |       148,440  |
|                                                                                           |                                                                                                                                               | Total current        assets                       | 10,997,903                   |   | 9,948,693  |
|                                                                                           |                                                                                                                                               |                                              |                              |
| Net property and        equipment (Notes 1, 2 and 3)                                           | 6,805,295                                                                                                                                     |                                              | 6,150,018                    |
|                                                                                           |                                                                                                                                               |                                              |                              |
| Other assets                                                                                   |                                                                                                                                               |                                              |                              |
|                                                                                           | Non-compete        agreements, net (Note 9)                                                                                                        | 51,180                                       |                              | 203,536  |
|                                                                                           | Net investment in        sales-type leases (Note 5)                                                                                                | 263,921                                      |                              | 282,528  |
|                                                                                           | Notes receivable                                                                                                                                   | 37,735                                       |                              | 107,510  |
|                                                                                           | Goodwill (Note 10)                                                                                                                                 | 560,005                                      |                              | 560,005  |
|                                                                                           | Other assets                                                                                                                                       |       196,740  |                              |         58,968  |
|                                                                                           |    1,109,581                                                                                                                   |                                              |    1,212,547  |
|                                                                                           | $18,912,779                                                                                                                                   |                                              | $17,311,258                  |
|                                                                                           |                                                                                                                                               |                                              |                              |
| **LIABILITIES AND        SHAREHOLDERS’ EQUITY**                                           |                                                                                                                                               |                                              |                              |
| Current liabilities                                                                            |                                                                                                                                               |                                              |                              |
|                                                                                           | Note payable to        bank (Note 2)                                                                                                               | $ 1,750,000                             |                              | $ 1,000,000  |
|                                                                                           | Current maturities        of long-term debt (Note 3)                                                                                               | 623,363                                      |                              | 734,899  |
|                                                                                           | Current maturities        of capital lease obligation (Note 8)                                                                                     | 100,827                                      |                              | 31,403  |
|                                                                                           | Accounts payable                                                                                                                                   | 8,676,287                                    |                              | 9,162,791  |
|                                                                                           | Other current        liabilities                                                                                                                   |       353,920  |                              |       365,920  |
|                                                                                           |                                                                                                                                               | Total current        liabilities                  | 11,504,397                   |   | 11,295,013  |
|                                                                                           |                                                                                                                                               |                                              |                              |
| Long-term        liabilities                                                                   |                                                                                                                                               |                                              |                              |
|                                                                                           | Long-term debt        (Note 3)                                                                                                                     | 3,014,225                                    |                              | 2,234,175  |
|                                                                                           | Capital lease        obligation (Note 8)                                                                                                           | 733,971                                      |                              | 109,432  |
|                                                                                           | Deferred income        taxes (Note 4)                                                                                                              |       271,277  |                              |        13,400  |
|                                                                                           | 4,019,473                                                                                                                                     |                                              | 2,357,007                    |
|                                                                                           |                                                                                                                                               |                                              |                              |
| Shareholders’        equity                                                               |                                                                                                                                               |                                              |                              |
|                                                                                           | Common stock, $.01        par value: 10,000,000 shares                                                                                             |                                              |                              |   |
|                                                                                           |   authorized,        1,957,500 shares issued and 1,614,800                                                                               |                                              |                              |   |
|                                                                                           |   and        1,660,400 shares outstanding in 2002 and 2001                                                                               | 19,575                                       |                              | 19,575  |
|                                                                                           | Additional paid-in        capital                                                                                                                  | 1,925,321                                    |                              | 1,925,321  |
|                                                                                           | Retained earnings                                                                                                                                  | 2,132,761                                    |                              | 2,296,465  |
|                                                                                           | Treasury stock,        342,700 and 297,100 shares at cost                                                                                          |                                              |                              |   |
|                                                                                           |   in 2002        and 2001                                                                                                                |      (688,748)           |                              |      (582,123) |
|                                                                                           |    3,388,909                                                                                                                   |                                              |    3,659,238  |
|                                                                                           | $18,912,779                                                                                                                                   |                                              | $17,311,258                  |
|                                                                                           |
| ______________________________________________________________________________________________ |
|                                                                                           |
| See        accompanying notes to consolidated financial statements.                            |
|                                                                                           |
| 2.                                                                                             |
|                                                                                           |

 

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                    |
|------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                               |
| CONSOLIDATED        STATEMENTS OF OPERATIONS                                                   |
| Years ended        December 31, 2002, 2001 and 2000                                            |
| ______________________________________________________________________________________________ |
|                                                                                           |

|                                                                                           | 2002                                                                                   |                                                                     | 2001                                                                                                                |                                               | 2000                                                                                                                |
|------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|--------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| **Revenue**                                                                                    | $101,279,239                                                                      |                                                                     | $93,771,266                                                                                                    |                                               | $89,241,473                                                                                                    |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| Cost of goods sold                                                                             | 94,952,533                                                                        |                                                                     | 87,226,708                                                                                                     |                                               | 81,700,832                                                                                                     |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| Selling, general        and administrative                                                     | 6,086,898                                                                         |                                                                     | 6,844,251                                                                                                      |                                               | 6,662,568                                                                                                      |
| Property tax        assessment (Note 13)                                                       |         149,916                           |                                                                     |                  -   |                                               |                  -   |
|                                                                                           |      6,236,814                                           |                                                                     |    6,844,251                                                                                    |                                               |    6,662,568                                                                                    |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| **Income        (loss) before other income (expense)**                                         | 89,892                                                                            |                                                                     | (299,693)                                                                                                           |                                               | 878,073                                                                                                        |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| Other income        (expense)                                                                  |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
|                                                                                           | Interest expense                                                                       | (213,200)                                                                |                                                                                                                | (368,077)                                          |                                                                                                                | (242,701) |
|                                                                                           | Interest income                                                                        | 86,353                                                              |                                                                                                                | 129,169                                       |                                                                                                                | 189,010  |
|                                                                                           | Gain (loss) on sale        of assets                                                   | 6,562                                                               |                                                                                                                | 20,958                                        |                                                                                                                | (2,059) |
|                                                                                           | Other income        (expense)                                                          |           28,082  |                                                                                                                |        (51,595) |                                                                                                                |          (7,498) |
|                                                                                           |          (92,203)                         |                                                                     |      (269,545)                                                                             |                                               |        (63,248)                                                                  |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| **Income (loss)        before income taxes**                                                   | (2,311)                                                                                |                                                                     | (569,238)                                                                                                           |                                               | 814,825                                                                                                        |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| Income tax        (provision) benefit (Note 4)                                                 |        (161,393)                                    |                                                                     |       216,148                                                                    |                                               |      (308,978)                                                                             |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| **Net income        (loss)**                                                                   | $            (163,704)                                             |                                                                     | $          (353,090)                                                                                      |                                               | $    505,847                                                                               |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| Basic earnings        (loss) per share                                                         | $                    (.10) |                                                                     | $                  (.21)                                          |                                               | $            .26                                   |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| Diluted earnings        (loss) per share                                                       | $                    (.10) |                                                                     | $                  (.21)                                          |                                               | $            .26                                   |
|                                                                                           |                                                                                   |                                                                     |                                                                                                                |                                               |                                                                                                                |
| ______________________________________________________________________________________________ |
|                                                                                           |
| See        accompanying notes to consolidated financial statements.                            |
|                                                                                           |
| 3.                                                                                             |
|                                                                                           |
|                                                                                           |

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                                                                  |
|----------------------------------------------------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                                                                             |
| CONSOLIDATED        STATEMENTS OF SHAREHOLDERS’ EQUITY                                                                                  |
| Years ended        December 31, 2002, 2001 and 2000                                                                                          |
| ____________________________________________________________________________________________________________________________________________ |
|                                                                                                                                         |
|                                                                                                                                         |

|                                                                                                                                         |   |                                                                                  |   |                                                          |   | Additional                                                                                  |   |                                  |   |                                                                |   |                                                                                        |   |                                        |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|---------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|---------------------------------------------|
|                                                                                                                                         |   | Common Stock                                                                          |   | Paid-in                                                       |   | Retained                                                                                    |   | Treasury Stock                        |   |                                                                |
|                                                                                                                                         |   | Shares                                                                                |   | Amount                                                        |   | Capital                                                                                     |   | Earnings                              |   | Shares                                                              |   | Cost                                                                                        |   | Total                                       |
|                                                                                                                                         |   |                                                                                  |   |                                                          |   |                                                                                        |   |                                  |   |                                                                |   |                                                                                        |   |                                        |
| **Balance as of        January 1, 2000**                                                                                                     |   | 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                              |
|                                                                                                                                         |   |                                                                                  |   |                                                          |   |                                                                                        |   |                                  |   |                                                                |   |                                                                                        |   |                                        |
| Repurchase of        common stock                                                                                                            |   | -                                                                                     |   | -                                                             |   | -                                                                                           |   | -                                |   | 45,600                                                              |   | (106,625)                                                                                   |   | (106,625)                                   |
|                                                                                                                                         |   |                                                                                  |   |                                                          |   |                                                                                        |   |                                  |   |                                                                |   |                                                                                        |   |                                        |
| Net loss                                                                                                                                     |   |               - |   |           - |   |                - |   |    (163,704)           |   |            - |   |               -  |   |     (163,704)           |
|                                                                                                                                         |   |                                                                                  |   |                                                          |   |                                                                                        |   |                                  |   |                                                                |   |                                                                                        |   |                                        |
| **Balance as of        December 31, 2002**                                                                                                   |   | 1,957,500                                                                             |   | $19,575                                                       |   | $1,925,321                                                                                  |   | $2,132,761                       |   | 342,700                                                             |   | $        (688,748)                                                                          |   | $3,388,909                             |
|                                                                                                                                         |
| ____________________________________________________________________________________________________________________________________________ |
|                                                                                                                                         |
| See        accompanying notes to consolidated financial statements.                                                                          |
|                                                                                                                                         |
| 4.                                                                                                                                           |
|                                                                                                                                         |

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.                                                    |
|------------------------------------------------------------------------------------------------|
| AND SUBSIDIARIES                                                                               |
| CONSOLIDATED        STATEMENTS OF CASH FLOWS                                                   |
| Years ended        December 31, 2002, 2001 and 2000                                            |
| ______________________________________________________________________________________________ |
|                                                                                           |

|                                                                                            |                                                                                                                        | 2002                                                 |                             | 2001                                      |                                   | 2000                        |
|-------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|----------------------------------|-------------------------------------------|----------------------------------------|-----------------------------|
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
| **Cash flows from        operating activities**                                                 |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
|                                                                                            | Net income (loss)                                                                                                           |                                                 | $         (163,704)         |                                      | $         (353,090)               |                        | $   505,847  |
|                                                                                            | Adjustments to        reconcile net income (loss) to                                                                        |                                                 |                             |                                      |                                   |                        |   |
|                                                                                            |   net        cash from operating activities                                                                       |                                                 |                             |                                      |                                   |                        |   |
|                                                                                            |                                                                                                                        | Stock options        granted for services            |                             | -                                    |                                   | 33,670                 |   | 80,808  |
|                                                                                            |                                                                                                                        | Depreciation and        amortization                 |                             | 1,731,748                            |                                   | 1,680,349              |   | 1,439,145  |
|                                                                                            |                                                                                                                        | Provision for        doubtful accounts               |                             | 1,415                                |                                   | 222,964                |   | 180,413  |
|                                                                                            |                                                                                                                        | Deferred income        taxes                         |                             | 122,077                              |                                   | (275,400)                   |   | 38,500  |
|                                                                                            |                                                                                                                        | (Gain) loss on sale        of property and equipment |                             | (6,562)                                   |                                   | (20,958)                    |   | 2,059  |
|                                                                                            |                                                                                                                        | Change in assets        and liabilities              |                             |                                      |                                   |                        |   |   |
|                                                                                            |                                                                                                                        |                                                 | Receivables                      |                                      | (35,672)                               |                        | 1,726,221  |   | (257,762) |
|                                                                                            |                                                                                                                        |                                                 | Inventories                      |                                      | 66,604                            |                        | 241,396  |   | (5,168) |
|                                                                                            |                                                                                                                        |                                                 | Other assets                     |                                      | (127,839)                              |                        | 102,343  |   | (122,565) |
|                                                                                            |                                                                                                                        |                                                 | Accounts payable                 |                                      | (486,504)                              |                        | (963,562) |   | (3,728,392) |
|                                                                                            |                                                                                                                        |                                                 | Other current        liabilities |                                      |      (12,000) |                        |      111,793  |   |        78,854  |
|                                                                                            |                                                                                                                        |                                                 |                             | Net cash from        operating activities |                                   | 1,089,563              |   | 2,505,726  |   | (1,788,261) |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
| **Cash flows from        investing activities**                                                 |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
|                                                                                            | Proceeds from sale        of property and equipment                                                                         |                                                 | 91,255                      |                                      | 112,581                           |                        | 71,262  |
|                                                                                            | Proceeds from        equipment under sales-type leases                                                                      |                                                 | 119,848                     |                                      | 104,122                           |                        | 59,771  |
|                                                                                            | Purchases of        equipment under sales-type leases                                                                       |                                                 | (133,873)                        |                                      | (43,402)                               |                        | (294,065) |
|                                                                                            | Purchases of        property and equipment                                                                                  |                                                 |  (1,561,527)                |                                      |  (1,951,443)                      |                        |  (1,392,592) |
|                                                                                            |                                                                                                                        | Net cash from        investing activities            |                             | (1,484,297)                               |                                   | (1,778,142)                 |   | (1,555,624) |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
| **Cash flows from        financing activities**                                                 |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
|                                                                                            | Net borrowings        (payments) on note payable to bank                                                                    |                                                 | 750,000                     |                                      | (1,750,000)                            |                        | 2,750,000  |
|                                                                                            | Payments on capital        lease obligation                                                                                 |                                                 | (63,872)                         |                                      | (29,165)                               |                        | -  |
|                                                                                            | Proceeds from        long-term debt                                                                                         |                                                 | 1,415,865                   |                                      | 1,500,000                         |                        | -  |
|                                                                                            | Payments on        long-term debt                                                                                           |                                                 | (747,351)                        |                                      | (646,749)                              |                        | (386,608) |
|                                                                                            | Proceeds from        capital contribution                                                                                   |                                                 | -                           |                                      | -                                      |                        | 140,880  |
|                                                                                            | Purchase of common        stock                                                                                             |                                                 |    (106,625)      |                                      |     (420,807)      |                        |     (153,316) |
|                                                                                            |                                                                                                                        | Net cash from        financing activities            |                             |  1,248,017                      |                                   |  (1,346,721)           |   |   2,350,956  |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
| Net change in cash                                                                              |                                                                                                                        | 853,283                                         |                             | (619,137)                                 |                                   | (992,929)                   |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
| Cash at beginning        of year                                                                |                                                                                                                        |     776,745                 |                             |   1,395,882                |                                   |   2,388,811  |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
| **Cash at end of        year**                                                                  |                                                                                                                        | $1,630,028                                      |                             | $   776,745           |                                   | $ 1,395,882       |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
| Supplemental        disclosure of cash flow information                                         |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
|                                                                                            | Cash paid for        interest                                                                                               |                                                 | $   211,019  |                                      | $   368,077        |                        | $    242,147  |
|                                                                                            | Cash paid        (refunded) for taxes                                                                                       |                                                 | 97,462                      |                                      | 130,189                           |                        | (53,988) |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
| Supplemental        schedule of non-cash financial activities:                                  |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
|                                                                                            | During 2002, the        Company entered into capital    leases for        equipment with a cost of $757,835. |                                                 |                             |                                      |                                   |                        |   |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |
|                                                                                            | During 2002, the        Company refinanced certain loans            with an unpaid balance of $1,084,135.    |                                                 |                             |                                      |                                   |                        |   |
|                                                                                            |                                                                                                                        |                                                 |                             |                                      |                                   |                        |   |
| _______________________________________________________________________________________________ |
|                                                                                            |
| See        accompanying notes to consolidated financial statements.                             |
|                                                                                            |
| 5.                                                                                              |
|                                                                                            |

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **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 other 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.                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Accounts        Receivables: The Company sells to customers using        credit terms customary in its industry. Interest is not        normally charged on receivables. Management establishes        an allowance for losses on its accounts based on historic        loss experience and current economic conditions. Losses        are charged off to the allowance when management deems        further collection efforts will not produce additional        recoveries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Principles of        Consolidation: The consolidated financial statements        include the accounts of the Company and its wholly owned        subsidiaries, ISA Indiana, Inc. and ISA Recycling, LLC.        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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                                                                                                                                                                                                                                                                                                                         |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **NOTE 1 --        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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,        2002 and 2001 consist of the following:                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|   |                         | 2002                                  |   | 2001                                  |   |
|--------|------------------------------|---------------------------------------|--------|---------------------------------------|--------|
|   |                         |                                  |   |                                  |   |
|   | Equipment and parts          | $   100,112            |   | $   101,316            |   |
|   | Ferrous materials            | 1,144,280                             |   | 1,236,949                             |   |
|   | Non-ferrous        materials |      638,770 |   |      611,501 |   |
|   |                         |                                  |   |                                  |   |
|   |                         | $1,883,162                            |   | $1,949,766                            |   |

|                                                                                                                                                                                     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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, 2002 and 2001 consist of the        following:                                                                                          |
|                                                                                                                                                                                     |

|   |                            | Life       |   | 2002                                        |   | 2001                                                                                                          |
|--------|---------------------------------|------------|--------|---------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|
|   |                            |       |   |                                        |   |                                                                                                          |
|   | Land                            |       |   | $    281,000            |   | $                -            |
|   | Equipment and        vehicles   | 3-10 years |   | 7,930,235                                   |   | 7,221,285                                                                                                     |
|   | Office equipment                | 3-5 years  |   | 1,424,662                                   |   | 1,332,008                                                                                                     |
|   | Rental equipment                | 5 years    |   | 2,147,449                                   |   | 1,687,111                                                                                                     |
|   | Leasehold        improvements   | 6-20 years |   | 1,133,910                                   |   | 931,610                                                                                                       |
|   | Construction in        progress |       |   |       120,662 |   |                   - |
|   |                            |       |   | 13,037,918                                  |   | 11,172,014                                                                                                    |
|   | Accumulated        depreciation |       |   |                                        |   |                                                                                                          |
|   | and amortization                |       |   |    6,232,623                 |   |    5,021,996                                                                                   |
|   |                            |       |   | $ 6,805,295                            |   | $ 6,150,018                                                                                              |

|                                                                                                                               |
|------------------------------------------------------------------------------------------------------------------------------------|
| Depreciation        expense for the years ended December 31, 2002, 2001 and        2000 was $1,579,392, $1,424,661 and $1,183,458. |
|                                                                                                                               |
| ______________________________________________________________________________________________                                     |
|                                                                                                                               |
| (Continued)                                                                                                                        |
|                                                                                                                               |
| 7.                                                                                                                                 |
|                                                                                                                               |

 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **NOTE 1 --        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Goodwill and        Other Intangible Assets: The Company's adoption of        Statement of Financial Accounting Standards No. 142,*Goodwill and Other Intangible Assets*, effective        January 1, 2002 did not have a significant effect on 2002        net income. Under the new standard, goodwill and certain        intangible assets are no longer amortized but are        assessed at least annually for impairment with any such        impairment recognized in the period identified.                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Other intangible        asset consists of a non-compete agreement. Non-compete        agreements are being amortized using the straight-line        method over the benefit period of 5 years.                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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, 2002,        2001 and 2000 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, 2002, 2001 and 2000 were        1,650,602, 1,706,090 and 1,917,633.                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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.                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Stock Option        Plans: During the years ended December 31, 2002, 2001        and 2000 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.        There was no compensation charged to operations in 2002,        2001, and 2000 related to these options. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

**** 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                                                                                                                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                     |
| **NOTE 1 --        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                     |
| 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:                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                     |

|   |                                       |   | 2002                                                           |   | 2001                                                           |   | 2000                                                 |
|--------|--------------------------------------------|--------|----------------------------------------------------------------|--------|----------------------------------------------------------------|--------|------------------------------------------------------|
|   | Net income        (loss)                   |   |                                                           |   |                                                           |   |                                                 |
|   |                                       |   |                                                           |   |                                                           |   |                                                 |
|   |     As        reported |   | $        (163,704)                                             |   | $        (353,090)                                             |   | $505,847                                             |
|   |                                       |   |                                                           |   |                                                           |   |                                                 |
|   |     Pro        forma   |   | $        (228,391)                                             |   | $        (381,695)                                             |   | $407,792                                             |
|   |                                       |   |                                                           |   |                                                           |   |                                                 |
|   | Basic Earnings        Per Share            |   |                                                           |   |                                                           |   |                                                 |
|   |                                       |   |                                                           |   |                                                           |   |                                                 |
|   |     As        reported |   | $                (.10) |   | $                (.21) |   | $        .26 |
|   |                                       |   |                                                           |   |                                                           |   |                                                 |
|   |     Pro        forma   |   | $                (.14) |   | $                (.26) |   | $        .21 |
|   |                                       |   |                                                           |   |                                                           |   |                                                 |
|   | Diluted Earnings        Per Share          |   |                                                           |   |                                                           |   |                                                 |
|   |                                       |   |                                                           |   |                                                           |   |                                                 |
|   |     As        reported |   | $                (.10) |   | $                (.21) |   | $        .26 |
|   |                                       |   |                                                           |   |                                                           |   |                                                 |
|   |     Pro        forma   |   | $                (.14) |   | $                (.26) |   | $        .21 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 2002, 2001 and 2000:        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 .41 to .68, and a weighted average expected life of        the options ranging from 1 to 10 years. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 9.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                         |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                        |
|                                                                                                                                                                                  |
| **NOTE 1 --        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)                                                                                                            |
|                                                                                                                                                                                  |
| Following is a        summary of stock option activity and number of shares        reserved for outstanding options for the years ended        December 31, 2002, 2001 and 2000: |
|                                                                                                                                                                                  |

|                                       |   | Number ofShares |   | Weighted        Average        Exercise PricePer Share |   | Option        Price PerShare |   | Maximum        Term of        OptionsGranted |   | Weighted        Average        Grant Date        Fair Valueof Options |
|--------------------------------------------|--------|-----------------|--------|--------------------------------------------------------|--------|------------------------------|--------|----------------------------------------------|--------|-----------------------------------------------------------------------|
| **Balance as of        January 1, 2000**   |   | 385,000    |   | $4.35                                             |   | $1.00                        |   | 2 to 10                                      |   | $5.41                                                                 |
|                                       |   |            |   |                                                   |   | to $8.00                     |   | years                                        |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
|     Granted            |   | 100,000    |   | $2.50                                             |   | $2.50                        |   | 2 to 10                                      |   | $.68                                                                  |
|                                       |   |            |   |                                                   |   |                         |   | years                                        |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
| **Balance as of        December 31, 2000** |   | 485,000    |   | $4.00                                             |   | $1.00                        |   | 2 to 9                                       |   | $4.43                                                                 |
|                                       |   |            |   |                                                   |   | to $8.00                     |   | years                                        |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
|     Granted            |   | 50,000     |   | $2.50                                             |   | $2.50                        |   | 2 to 5                                       |   | $.97                                                                  |
|                                       |   |            |   |                                                   |   |                         |   | years                                        |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
|     Expired            |   | (205,000)       |   | $(4.51)                                                |   | $2.50                        |   | 1 to 8                                       |   | -                                                      |
|                                       |   |            |   |                                                   |   |                         |   | years                                        |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
| **Balance as of        December 31, 2001** |   | 330,000    |   | $3.61                                             |   | $1.00                        |   | 1 to 8                                       |   | $4.93                                                                 |
|                                       |   |            |   |                                                   |   | to $6.00                     |   | years                                        |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
|     Granted            |   | 40,000     |   | $2.50                                             |   | $2.50                        |   | 1 to 5                                       |   | $.95                                                                  |
|                                       |   |            |   |                                                   |   |                         |   | years                                        |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
|     Expired            |   | (145,000)       |   | $(2.24)                                                |   | $2.50                        |   | 1 to 5                                       |   | -                                                      |
|                                       |   |            |   |                                                   |   |                         |   | years                                        |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
|                                       |   |            |   |                                                   |   |                         |   |                                         |   |                                                                  |
| **Balance as of        December 31, 2002** |   | 225,000    |   | $4.29                                             |   |                         |   |                                         |   |                                                                  |

|                                                                                                                                                                                                   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| As of        December 31, 2002, the 225,000 options outstanding        have exercise prices between $2.50 to $6.00 and a        weighted-average remaining contractual life of 2.37        years. |
|                                                                                                                                                                                                   |
| ______________________________________________________________________________________________                                                                                                         |
|                                                                                                                                                                                                   |
| (Continued)                                                                                                                                                                                            |
|                                                                                                                                                                                                   |
| 10.                                                                                                                                                                                                    |
|                                                                                                                                                                                                   |
|                                                                                                                                                                                                   |

 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                                                                                                                                                                                                                                                                                                                          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **NOTE 1 --        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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 these estimates. As of December 31, 2002 and        2001, 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.                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **NOTE 2 -- NOTE        PAYABLE TO BANK**                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| At December 31,        2002 and 2001, the Company had a $3,800,000 operating        line of credit collateralized by all Company assets.        Interest is payable monthly on the outstanding principal        balance at the bank’s prime rate (4.25% at        December 31, 2002). The note matures in June 2003.        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 2002, 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, 2002, there was no outstanding        balance under this arrangement.                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

**** 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
| **NOTE 3 --        LONG-TERM DEBT**                                                                                                                           |
|                                                                                                                                                          |
| Long-term debt as        of December 31, 2002 and 2001 consists of the        following:                                                                 |
|                                                                                                                                                          |

|   |                                                                                                                                                                                                                                                                                                          |   | 2002                                             |   | 2001                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|---------------------------------------|
|   |                                                                                                                                                                                                                                                                                                          |   |                                             |   |                                  |
|   | 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.                                                                                                                                           |   | $1,036,756                                       |   | $1,352,207                            |
|   |                                                                                                                                                                                                                                                                                                          |   |                                             |   |                                  |
|   | Note payable to a        bank in monthly installments of $34,997 including        interest at 6.75% through December 2006; secured by        virtually all company assets.                                                                                                                                    |   | 2,500,000                                        |   | -                                     |
|   |                                                                                                                                                                                                                                                                                                          |   |                                             |   |                                  |
|   | Note payable to a        bank in monthly installments of $20,017 including        interest at 8.58% through July 2003; refinanced in        December 2002.                                                                                                                                                    |   | -                                                |   | 1,103,920                             |
|   |                                                                                                                                                                                                                                                                                                          |   |                                             |   |                                  |
|   | Note payable to a        bank in monthly installments of $18,520 including        interest at bank’s prime interest rate (4.25% at        December 31, 2002). Refinanced in December 2002.                                                                                                          |   | -                                                |   | 336,086                               |
|   |                                                                                                                                                                                                                                                                                                          |   |                                             |   |                                  |
|   | Note payable to a        bank in monthly installments of $818 including interest        at 6.00% through August 2006; secured by vehicle.                                                                                                                                                                     |   | 32,239                                           |   | -                                     |
|   |                                                                                                                                                                                                                                                                                                          |   |                                             |   |                                  |
|   | Note payable to a        bank in monthly installments of $2,375 with an interest        rate of 0.00% through March 2003; secured by forklift.                                                                                                                                                                |   | 7,125                                            |   | -                                     |
|   |                                                                                                                                                                                                                                                                                                          |   |                                             |   |                                  |
|   | 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. |   |        61,468 |   |      176,861 |
|   |                                                                                                                                                                                                                                                                                                          |   | 3,637,588                                        |   | 2,969,074                             |
|   | Current maturities                                                                                                                                                                                                                                                                                            |   |      623,363            |   |      734,899 |
|   |                                                                                                                                                                                                                                                                                                          |   | $3,014,225                                       |   | $2,234,175                            |

|                                                                                           |
|------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________ |
|                                                                                           |
| (Continued)                                                                                    |
|                                                                                           |
| 12.                                                                                            |
|                                                                                           |

 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
| **NOTE 3 --        LONG-TERM DEBT**(Continued)                                                                                                                |
|                                                                                                                                                          |
| The long-term debt        requires annual principal payments as follows:                                                                                      |
|                                                                                                                                                          |

|   | 2003   | $   623,363 |   |
|--------|--------|----------------------------|--------|
|   | 2004   | 591,165                    |   |
|   | 2005   | 624,877                    |   |
|   | 2006   |   1,798,183      |   |
|   |   | $3,637,588                 |   |

|                                                                                                                                                                                                                                                                                                                                              |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The terms of the        loan agreements place certain restrictive covenants on        the Company, including maintenance of a specified        tangible net worth, debt to net worth and EBITDA ratio.        At December 31, 2002, 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, 2002, 2001 and 2000:                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                              |

|   |    | 2002                           |                           | 2001                             |                                                                                              | 2000                |
|--------|---------|--------------------------------|--------------------------------|----------------------------------|---------------------------------------------------------------------------------------------------|---------------------|
|   | Federal |                           |                           |                             |                                                                                              |                |
|   |    | Current                        | $  19,504            |                             | $   19,522                                                                    |                | $159,349 |
|   |    | Deferred                       | 11,100                         |                             | (218,600)                                                                                         |                | 32,725 |
|   |    | Valuation                      |     52,261 |                             |                -  |                |               - |
|   |    | 82,865                         |                           | (199,078)                        |                                                                                              | 192,074             |
|   | State   |                           |                           |                             |                                                                                              |                |
|   |    | Current                        | 19,812                         |                             | 39,730                                                                                       |                | 111,129 |
|   |    | Deferred                       | 47,100                         |                             | (56,800)                                                                                          |                | 5,775 |
|   |    | Valuation                      |     11,616 |                             |                -  |                |               - |
|   |    |     78,528 |                           |     (17,070) |                                                                                              |   116,904 |
|   |    | $161,393                       |                           | $(216,148)                       |                                                                                              | $308,978            |

|                                                                                                                     |
|--------------------------------------------------------------------------------------------------------------------------|
| A reconciliation of        income taxes at the statutory rate to the Company’s        effective rate is as follows: |
|                                                                                                                     |

|   |                                                  | 2002                                       |           | 2001                                             |       | 2000                                            |
|--------|-------------------------------------------------------|--------------------------------------------|----------------|--------------------------------------------------|------------|-------------------------------------------------|
|   |                                                  |                                       |           |                                             |       |                                            |
|   | Federal income tax        (benefit) at statutory rate | $      (786) |           | $(193,541)                                       |       | $277,041                                   |
|   | State and local        income taxes (benefit), net of |                                       |           |                                             |       |                                            |
|   |   federal        income tax affect          | (179)                                      |           | (44,116)                                         |       | 32,267                                     |
|   | Change in valuation        allowance                  | 63,877                                |           | -                                           |       | -                                          |
|   | Expired stock        options                          | 87,825                                |           | -                                           |       | -                                          |
|   | IRS refund and        adjustment                      | 19,504                                |           | -                                           |       | -                                          |
|   | Other differences,        net                         |     (8,848)            |           |       21,509  |       |        (330) |
|   |                                                  |                                       | $161,393  |                                             | $(216,148) |                                            | $308,978 |

|                                                                                           |
|------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________ |
|                                                                                           |
| (Continued)                                                                                    |
|                                                                                           |
| 13.                                                                                            |
|                                                                                           |

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
| **NOTE 4 -- INCOME        TAXES**(Continued)                                                                                                                  |
|                                                                                                                                                          |
| Significant        components of the Company’s deferred tax liabilities        and assets as of December 31, 2002 and 2001 are as        follows:   |
|                                                                                                                                                          |

|   |                            | 2002                                                |                                  | 2001           |
|--------|---------------------------------|-----------------------------------------------------|---------------------------------------|----------------|
|   | Deferred tax        liabilities |                                                |                                  |           |
|   |                            | Tax depreciation in        excess of book           | $542,726                         |           | $537,200 |
|   |                            | Tax amortization in        excess of book           | 18,133                           |           | - |
|   |                            | State deferred        liabilities                   |  109,141                    |           |    92,333 |
|   |                            |                                                | Gross deferred tax        liabilities | 670,000   |   | 629,533 |
|   |                            |                                                |                                  |           |
|   | Deferred tax assets             |                                                |                                  |           |
|   |                            | Property taxes                                      | 44,218                           |           | 16,600 |
|   |                            | Accrued bonuses                                     | -                                |           | 8,300 |
|   |                            | Allowance for        doubtful accounts              | 17,000                           |           | 26,800 |
|   |                            | Book amortization        in excess of tax           | 212,070                          |           | 224,900 |
|   |                            | Stock options                                       | 52,661                           |           | 158,400 |
|   |                            | Net operating loss        carryforward              | 247,038                          |           | 128,933 |
|   |                            | Alternative minimum        tax credit carryforwards | 101,326                          |           | 105,800 |
|   |                            | Contribution        carryforward                    | 4,954                            |           | - |
|   |                            | Inventory        capitalization                     | 5,944                            |           | 7,600 |
|   |                            | State income taxes                                  |   94,989               |           |   120,600 |
|   |                            |                                                | Gross deferred tax        assets      | 780,200   |   | 797,933 |
|   |                            |                                                | Less valuation        allowance       |  (63,877) |   |               - |
|   |                            |                                                |                                  | 716,323   |   |   797,933 |
|   |                            |                                                | Net deferred tax        assets        | $46,323   |   | $168,400 |

|                                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------|
| As of        December 31, 2002, the Company has net operating        loss carryforwards which expire as follows: |
|                                                                                                                  |

|   | 2021 | $128,933 |   |
|--------|------|----------|--------|
|   | 2022 | 247,038  |   |

**** 

| **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. |
|                                                                                                                                                                                                                                                                                                                           |
| ______________________________________________________________________________________________                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                           |
| (Continued)                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                           |
| 14.                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                           |

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
| **NOTE 5 --        SALES-TYPE LEASES** (Continued)                                                                                                            |
|                                                                                                                                                          |
| Future lease        payments receivable under sales-type leases at December        31, 2002 are as follows:                                                   |
|                                                                                                                                                          |

|   | 2003   | $198,047                              |            |
|--------|--------|--------------------------------------------|-----------------|
|   | 2004   | 163,757                               |            |
|   | 2005   | 104,265                               |            |
|   | 2006   |     46,289        |            |
|   |   | Minimum lease        payments receivable   | 512,358    |   |
|   |   | Less unearned        income                |  (106,219) |   |
|   |   | Net investment in        sales-type leases | 406,139    |   |
|   |   | Less current        portion                |  (142,218) |   |
|   |   |                                       | $263,921   |   |
|   |   |                                       |            |   |

|                                                                                                                                                                                                                                                                                          |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **NOTE 6 --        RELATED PARTY TRANSACTIONS**                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                          |
| The Company enters        into various transactions with related parties including        the Company’s principal shareholder and an        affiliated company owned by the Company’s principal        shareholder (K&R). A summary of these transactions is        as follows: |
|                                                                                                                                                                                                                                                                                          |

|                              | 2002                |     | 2001   |     | 2000   |
|-----------------------------------|---------------------|----------|--------|----------|--------|
| Balance sheet        accounts:    |                |     |   |     |   |
|                              |                |     |   |     |   |   |
|                              | Accounts receivable | $26,399  |   | $59,714  |   |   |
|                              |                |     |   |     |   |
| Income statement        activity: |                |     |   |     |   |
|                              |                |     |   |     |   |   |
|                              | Rent expense        | $450,000 |   | $450,000 |   | $450,000 |
|                              |                |     |   |     |   |   |
|                              | Consulting fees     | $240,000 |   | $240,000 |   | $240,000 |

|                                                                                                                                                                                                                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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        expires on December 31, 2007 and requires payments        of $240,000 annually. |
|                                                                                                                                                                                                                                                                                                          |
| ______________________________________________________________________________________________                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                          |
| (Continued)                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                          |
| 15.                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                          |

 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                                                                                                                                                                                                                                                                                                                                                              |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **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 2002,        2001 and 2000 were $33,681, $38,805 and $15,440. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **NOTE 8 -- 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        $42,106 through December 2007.                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 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,        2002 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|   | 2003                              | $661,272                                         |   |
|--------|-----------------------------------|--------------------------------------------------|--------|
|   | 2004                              | 661,272                                          |   |
|   | 2005                              | 661,272                                          |   |
|   | 2006                              | 661,272                                          |   |
|   | 2007                              | 661,272                                          |   |
|   | Thereafter                        |        78,000 |   |
|   |                              |                                             |   |
|   | Net minimum lease        payments | $3,384,360                                       |   |

|                                                                                                                             |
|----------------------------------------------------------------------------------------------------------------------------------|
| Total rent expense        for the years ending December 31, 2002, 2001 and        2000 was $638,895, $868,712 and $740,017. |
|                                                                                                                             |
| ______________________________________________________________________________________________                                   |
|                                                                                                                             |
| (Continued)                                                                                                                      |
|                                                                                                                             |
| 16.                                                                                                                              |
|                                                                                                                             |
|                                                                                                                             |

 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                                                                                                                                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                            |
| **NOTE 8 -- LEASE        COMMITMENTS**(Continued)                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                            |
| Capital Leases:                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                            |
| During 2002, the        Company entered into a lease contract for real estate and        a building in Seymour, Indiana which qualifies as a        capital lease. This lease requires monthly payments of        $3,000 through June 2005, when the Company intends to        exercise a purchase option to own the property outright        and unencumbered. |
|                                                                                                                                                                                                                                                                                                                                                            |
| The Company also        leases various pieces of equipment, which qualify as        capital leases. These lease arrangements require monthly        lease payments expiring at various dates through December        2007.                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                            |
| The following is a        summary of property held under capital lease:                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                            |

|   |                            |   | 2002           |   | 2001                                                                       |   |
|--------|---------------------------------|--------|----------------|--------|----------------------------------------------------------------------------|--------|
|   | Real estate                     |   | $471,500  |   | $           -  |   |
|   | Equipment                       |   | 456,335   |   | 170,000                                                               |   |
|   | Accumulated        depreciation |   | (34,000)       |   | (17,000)                                                                   |   |
|   |                            |   |           |   |                                                                       |   |
|   |                            |   | $893,835  |   | $153,000                                                              |   |

|                                                                                                                                                                                                                          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The following is a        schedule of future annual minimum lease payments under        the capitalized lease arrangements, together with the        present value of net minimum lease payments at December        31, 2002. |

|   | 2003                                        | $141,887                 |   |
|--------|---------------------------------------------|--------------------------|--------|
|   | 2004                                        | 141,887                  |   |
|   | 2005                                        | 523,887                  |   |
|   | 2006                                        | 65,087                   |   |
|   | 2007                                        |    65,087 |   |
|   |                                        |                     |   |
|   |                                        |                     |   |
|   | Total minimum lease        payments         | 937,835                  |   |
|   | Less****amount        representing interest | (103,037)                |   |
|   |                                        |                     |   |
|   | Present value of        net minimum         |                     |   |
|   |   lease        payments           | $834,798                 |   |

|                                                                                           |
|------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________ |
|                                                                                           |
| (Continued)                                                                                    |
|                                                                                           |
| 17.                                                                                            |
|                                                                                           |

**** 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
| **NOTE 9 --        INTANGIBLES**                                                                                                                              |
|                                                                                                                                                          |
| The components of        intangibles as of December 31, 2002 and 2001 are as        follows:                                                                  |
|                                                                                                                                                          |

|   |                                                 | Gross        Carrying Amount |   | Accumulated        Amortization |
|--------|------------------------------------------------------|------------------------------|--------|---------------------------------|
|   | 2002                                                 |                         |   |                            |
|   | Amortized        intangibles:                        |                         |   |                            |
|   |     Non-compete        agreement | $1,011,785                   |   | $        (960,605)              |
|   |                                                 |                         |   |                            |
|   | 2001                                                 |                         |   |                            |
|   | Amortized        intangibles:                        |                         |   |                            |
|   |     Non-compete        agreement | $1,011,785                   |   | $        (808,249)              |

|                                                                                                                                                                                                                                                                                                                                             |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Non-compete        agreements are being amortized using the straight-line        method over the five-year term of the agreements. The        weighted-average amortization period for all amortized        intangibles acquired is one year, with amortization        expense aggregating $152,356 for the year ended December        31, 2002. |
|                                                                                                                                                                                                                                                                                                                                             |
| Estimated aggregate        annual amortization expense remaining under the        non-competes is $51,180 in 2003.                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                             |
| **NOTE 10 --        GOODWILL**                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                             |
| Goodwill is no        longer amortized in 2002 (see Note 1). The effect on net        income and earnings per share, reported as if        amortization expense had not been recognized, is as        follows:                                                                                                                                   |

|                                   | 2002                                       |                                                                                              | 2001   |                                                                        | 2000   |
|----------------------------------------|--------------------------------------------|---------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|
| **Net income**:                        |                                       |                                                                                              |   |                                                                        |   |
|                                   | Reported net income        (loss)          | $(163,704)                                                                                        |   | $(353,090)                                                                  |   | $ 505,847 |
|                                   | Add back: goodwill        amortization     |                -  |   |      53,333                                   |   |     53,333 |
|                                   | Adjusted net income        (loss)          | $(163,704)                                                                                        |   | $(299,757)                                                                  |   | $559,180 |
|                                   |                                       |                                                                                              |   |                                                                        |   |
| **Basic        earnings per share**:   |                                       |                                                                                              |   |                                                                        |   |
|                                   | Reported basic        earnings per share   | $               (.10)                                          |   | $               (.21)                    |   | $        .26 |
|                                   | Goodwill        amortization               |                -  |   |            .03  |   |           .03 |
|                                   | Adjusted basic        earnings per share   | $               (.10)                                          |   | $               (.18)                    |   | $        .29 |
|                                   |                                       |                                                                                              |   |                                                                        |   |
| **Diluted        earnings per share**: |                                       |                                                                                              |   |                                                                        |   |
|                                   | Reported diluted        earnings per share | $               (.10)                                          |   | $               (.21)                    |   | $        .26 |
|                                   | Goodwill        amortization               |                -  |   |            .03  |   |           .03 |
|                                   | Adjusted diluted        earnings per share | $               (.10)                                          |   | $               (.18)                    |   | $        .29 |

|                                                                                           |
|------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________ |
|                                                                                           |
| (Continued)                                                                                    |
|                                                                                           |
| 18.                                                                                            |
|                                                                                           |

**** 

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
| **NOTE 11 -- PER        SHARE DATA**                                                                                                                          |
|                                                                                                                                                          |
| The following        illustrates the computation for earnings per share and        earnings per share assuming dilution.                                      |
|                                                                                                                                                          |

|                                            |                                             | 2002                                        |                                                                                                    | 2001                                                               |                                                                                              | 2000                                                         |
|-------------------------------------------------|--------------------------------------------------|---------------------------------------------|---------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|--------------------------------------------------------------|
|                                            |                                             |                                        |                                                                                                    |                                                               |                                                                                              |                                                         |
| **Earnings per        share**                   |                                             |                                        |                                                                                                    |                                                               |                                                                                              |                                                         |
|                                            | Net income (loss)                                |                                        | $   (163,704)                                                                            |                                                               | $         (353,090)                                                                          |                                                         | $    505,847 |
|                                            | Weighted average        shares outstanding       |                                        |    1,650,602                                                                        |                                                               |   1,706,090                                                                        |                                                         |    1,917,633 |
|                                            |                                             |                                        |                                                                                                    |                                                               |                                                                                              |                                                         |
|                                            |                                             | Basic earnings per        share             |                                                                                                    | $          (.10) |                                                                                              | $         (.21) |   | $           .26 |
|                                            |                                             |                                        |                                                                                                    |                                                               |                                                                                              |                                                         |
| **Earnings per        share assuming dilution** |                                             |                                        |                                                                                                    |                                                               |                                                                                              |                                                         |
|                                            | Net income (loss)                                |                                        | $          (163,704)                                                                          |                                                               | $  (353,090)                                                                            |                                                         | $   505,847 |
|                                            | Weighted average        shares outstanding       |                                        | 1,650,602                                                                                          |                                                               | 1,706,090                                                                                    |                                                         | 1,917,633 |
|                                            | Add dilutive effect        of assumed exercising |                                        |                                                                                                    |                                                               |                                                                                              |                                                         |   |
|                                            |   of        stock options              |                                        |                 -  |                                                               |                -  |                                                         |        15,465 |
|                                            | Diluted average        shares outstanding        |                                        |    1,650,602                                                                        |                                                               |   1,706,090                                                                        |                                                         |   1,933,098 |
|                                            |                                             |                                        |                                                                                                    |                                                               |                                                                                              |                                                         |   |
|                                            |                                             | Earnings per share        assuming dilution |                                                                                                    | $          (.10) |                                                                                              | $         (.21) |   | $          .26 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **NOTE 12 --        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.                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 19.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000                                                                                                                                                                                                                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **NOTE 12 --        SEGMENT INFORMATION**(Continued)                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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 and selling, general and administrative costs,        omitting any other income and expense and income taxes. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Revenue from two        CWS customers in 2002, 2001 and 2000 represents        approximately 74%, 70% and 63% of CWS revenues. At        December 31, 2002 and 2001, amounts due from these        customers included in CWS accounts receivable were        $3,886,506 and $3,364,650.                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|   | ISA        Recycling                       |                                        | Computerized                Waste        Systems |                                                                                               | Waste         EquipmentSales &        Services |                                                                                   | Other  |                                                                                         | Segment        Totals |
|--------|--------------------------------------------|---------------------------------------------|--------------------------------------------------|----------------------------------------------------------------------------------------------------|----------------------------------------------------|----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|-----------------------|
|   |                                       |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |
| 2002   |                                       |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |
|   | Recycling revenues                         | $22,287,234                            |                                             | $               -  |                                               | $             -  |   | $              -  |                  | $22,287,234  |
|   | Equipment sales,        services           |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |   |
|   |   and        leasing revenues    | -                                      |                                             | -                                                                                             |                                               | 2,236,796                                                                         |   | -                                                                                       |                  | 2,236,796  |
|   | Management fees                            | -                                      |                                             | 76,755,209                                                                                    |                                               | -                                                                                 |   | -                                                                                       |                  | 76,755,209  |
|   | Cost of goods sold                         | (20,832,346)                                |                                             | (73,265,891)                                                                                       |                                               | (854,296)                                                                              |   | -                                                                                       |                  | (94,952,533) |
|   | Selling, general        and                |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |   |
|   |   administrative        expenses | (1,710,203)                                 |                                             |    (1,903,405)                                                                      |                                               |    (990,318)                                                            |   |  (1,632,888)                                                                            |                  |   (6,236,814) |
|   |                                       |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |
|   | Segment profit        (loss)               | $           (255,315)        |                                             | $  1,585,913                                                                        |                                               | $   392,182                                                        |   | $(1,632,888)                                                                                 |                  | $      89,892  |
|   |                                       |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |
|   | ISA        Recycling                       |                                        | Computerized                Waste        Systems |                                                                                               | Waste         EquipmentSales & Services        |                                                                                   | Other  |                                                                                         | Segment        Totals |
|   |                                       |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |
| 2002   |                                       |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |
|   | Cash                                       | $   355,867             |                                             | $   261,700                                                                    |                                               | $             -  |   | $1,012,461                                                                              |                  | $  1,630,028  |
|   | Accounts receivable                        | 1,958,579                              |                                             | 4,637,136                                                                                     |                                               | 201,742                                                                           |   | 9,338                                                                                   |                  | 6,806,795  |
|   | Inventory                                  | 1,783,050                              |                                             | -                                                                                             |                                               | 100,112                                                                           |   | -                                                                                       |                  | 1,883,162  |
|   | Net property and                           |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |   |
|   |   equipment                      | 4,493,851                              |                                             | 828,312                                                                                       |                                               | 1,375,257                                                                         |   | 107,875                                                                                 |                  | 6,805,295  |
|   | Non-compete                                |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |   |
|   |   agreements,        net         | 51,180                                 |                                             | -                                                                                             |                                               | -                                                                                 |   | -                                                                                       |                  | 51,180  |
|   | Intangibles                                | 560,005                                |                                             | -                                                                                             |                                               | -                                                                                 |   | -                                                                                       |                  | 560,005  |
|   | Other assets                               |      488,041  |                                             |      332,722                                                         |                                               |       11,551                                        |   |      344,000                                                   |                  |    1,176,314  |
|   |                                       |                                        |                                             |                                                                                               |                                               |                                                                                   |   |                                                                                         |                  |
|   | Segment assets                             | $9,690,573                             |                                             | $6,059,870                                                                                    |                                               | $1,688,662                                                                        |   | $1,473,674                                                                              |                  | $18,912,779  |

 

|                                                                                           |
|------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________ |
|                                                                                           |
| (Continued)                                                                                    |
|                                                                                           |
| 20.                                                                                            |
|                                                                                           |

**** 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
| **NOTE 12 --        SEGMENT INFORMATION**(Continued)                                                                                                          |
|                                                                                                                                                          |

|   |                                       | ISA        Recycling |                                                    | Computerized                WasteSystems         |                                                                                                     | Waste         EquipmentSales &        Services |                                                                                   | Other  |                                                                                               | Segment        Totals |
|--------|--------------------------------------------|----------------------|---------------------------------------------------------|--------------------------------------------------|----------------------------------------------------------------------------------------------------------|----------------------------------------------------|----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|-----------------------|
| 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) |
|   | Selling, general        and                |                 |                                                    |                                             |                                                                                                     |                                               |                                                                                   |   |                                                                                               |                  |   |
|   |   administrative        expenses |                 |    (1,743,233)                           |                                             |     (2,360,871)                                                                      |                                               |    (875,971)                                                            |   |   (1,864,176)                                                                            |                  |   (6,844,251) |
|   |                                       |                 |                                                    |                                             |                                                                                                     |                                               |                                                                                   |   |                                                                                               |                  |   |
|   | Segment profit        (loss)               |                 | $           (564,236)                    |                                             | $   1,723,044                                                                        |                                               | $   405,675                                                        |   | $(1,864,176)                                                                                       |                  | $          (299,693) |
|   |                                       |                 |                                                    |                                             |                                                                                                     |                                               |                                                                                   |   |                                                                                               |                  |
|   |                                       | 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                                                                           |   | 63,964                                                                                        |                  | 6,733,746  |
|   | Inventories                                |                 | 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                                                   |   |       248,171                                                   |                  |       937,442  |
|   |                                       |                 |                                                    |                                             |                                                                                                     |                                               |                                                                                   |   |                                                                                               |                  |   |
|   | Segment assets                             |                 | $  8,290,021                             |                                             | $   6,240,176                                                                        |                                               | $1,795,251                                                                        |   | $    985,810                                                              |                  | $17,311,258  |
|   |                                       |                 |                                                    |                                             |                                                                                                     |                                               |                                                                                   |   |                                                                                               |                  |
|   |                                       | ISA        Recycling |                                                    | Computerized                Waste        Systems |                                                                                                     | Waste         EquipmentSales &Services         |                                                                                   | Other  |                                                                                               | Segment        Totals |
| 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) |
|   | Selling, general        and                |                 |                                                    |                                             |                                                                                                     |                                               |                                                                                   |   |                                                                                               |                  |   |
|   | administrative        expenses             |                 |    (1,754,277)                           |                                             |     (2,051,936)                                                                      |                                               |    (790,969)                                                            |   |  (2,065,386)                                                                                  |                  |   (6,662,568) |
|   |                                       |                 |                                                    |                                             |                                                                                                     |                                               |                                                                                   |   |                                                                                               |                  |   |
|   | Segment profit        (loss)               |                 | $     207,899             |                                             | $   2,507,082                                                                        |                                               | $   228,478                                                        |   | $(2,065,386)                                                                                       |                  | $    878,073  |

|                                                                                           |
|------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________ |
|                                                                                           |
| (Continued)                                                                                    |
|                                                                                           |
| 21.                                                                                            |
|                                                                                           |

 

| INDUSTRIAL SERVICES        OF AMERICA, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2002, 2001 and 2000 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
| **NOTE 13 --        PROPERTY TAX ASSESSMENT**                                                                                                                 |
|                                                                                                                                                          |
| Property tax        assessments were incurred during year 2002 for years 1998        through 2000 of $149,916.                                                |
|                                                                                                                                                          |
|                                                                                                                                                          |
|                                                                                                                                                          |
| ______________________________________________________________________________________________                                                                |
|                                                                                                                                                          |
|                                                                                                                                                          |
| 22.                                                                                                                                                           |
|                                                                                                                                                          |
|                                                                                                                                                          |

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

 

| VALUATION        AND QUALIFYING ACCOUNTS                                                                              |
|-----------------------------------------------------------------------------------------------------------------------|
| Years        ended December 31, 2002 and 2001                                                                         |
| _________________________________________________________________________________________________                     |
|                                                                                                                  |
|                                                                                                                  |   | Balance at        Beginningof Year |   | Charged to        Costs and        Expenses |   | Recoveries                of Cost andExpenses |   | Deductions |   | Balance atEnd of Year |
|                                                                                                                  |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Description                                                                                                           |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Allowance for        doubtful          accounts 2002 (deducted          from accounts receivable) |   | $  50,000 |   | $    1,415 |   | $(73,861) |   | $           (1,415) |   | $  50,000 |
|                                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| 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 |