FORM 10-Q


	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C.  20549


(Mark One)
  X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the quarterly period ended           December 29, 2001

	OR

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to_____________________.


	Commission File No.  0-22416

	KENTUCKY ELECTRIC STEEL, INC.
	(Exact name of Registrant as specified in its charter)

          Delaware                                      61-1244541
(State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                       Identification
                                                           Number)

	   P. O. Box 3500, Ashland, Kentucky 41105-3500
	(Address of principal executive office, Zip Code)

	                (606) 929-1222


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

The number of shares outstanding of each of the issuer's classes of
common stock, as of February 11, 2002, is as follows:

4,100,285 shares of voting common stock, par value $.01 per share.





<PAGE>









	KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY


	TABLE OF CONTENTS



    											Page

PART I.  FINANCIAL INFORMATION

   Item 1 - Financial Statements

 	      Condensed Consolidated Balance Sheets .............     3

            Condensed Consolidated Statements of Operations ...     4

            Condensed Consolidated Statements of Cash Flows ...     5

            Notes to Condensed Consolidated Financial
        Statements  .....................................  6-10

   Item 2 - Management's Discussion and Analysis of Financial
              Condition and Results of Operations ............. 11-14


   Item 3 - Qualitative and Quantitative Disclosures about
        Market Risk .....................................    14


PART II.    OTHER INFORMATION

   Item 6 - Exhibits and Reports on Form 8-K ..................    15


            SIGNATURES  .......................................    16




















<PAGE>


KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

                                                 Dec. 29,    Sept. 29,
                      ASSETS                       2001         2001
CURRENT ASSETS
    Cash and cash equivalents                    $  2,761    $  7,505
    Accounts receivable, less allowance for
      doubtful accounts and claims of $635
      at December 29, 2001 and $695 at
      September 29, 2001                            6,823       8,600
    Inventories                                    17,725      16,962
    Operating supplies and other current assets     5,491       5,128

        Total current assets                       32,800      38,195

PROPERTY, PLANT AND EQUIPMENT
    Land and buildings                              5,881       5,881
    Machinery and equipment                        35,252      35,252
    Construction in progress                          172         162
    Less - accumulated depreciation               (20,621)    (19,936)
        Net property, plant and equipment          20,684      21,359

OTHER ASSETS                                          442         460

        Total assets                             $ 53,926    $ 60,014

         LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Advances on line of credit                   $ 12,115    $ 12,141
    Accounts payable                                4,627       6,303
    Accrued liabilities                             2,537       3,691
    Current portion of long-term debt               1,625         125



        Total current liabilities                  20,904      22,260



LONG-TERM DEBT                                     15,167      16,667

DEFERRED GAIN FROM SALE-LEASEBACK                     675         704

        Total liabilities                          36,746      39,631

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
   Preferred stock, $.01 par value, 1,000,000
     shares authorized, no shares issued             -           -
   Common stock, $.01 par value, 15,000,000
     shares authorized, 5,051,566
     shares issued                                     51          51
   Additional paid-in capital                      15,817      15,817
   Less treasury stock - 951,281
     shares at cost                                (4,309)     (4,309)
   Retained earnings                                5,621       8,824

        Total shareholders' equity                 17,180      20,383

        Total liabilities and shareholders'
            equity                               $ 53,926    $ 60,014


See notes to condensed consolidated financial statements


KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)


                                              Three Months Ended
                                           Dec. 29,        Dec. 30,
                                             2001            2000


NET SALES                                 $  16,029       $  17,279
COST OF GOODS SOLD                           16,945          17,006

       Gross profit (loss)                     (916)            273

SELLING AND ADMINISTRATIVE EXPENSES           1,824           1,857

       Operating loss                        (2,740)         (1,584)

INTEREST INCOME AND OTHER                        58             137
INTEREST EXPENSE                               (521)           (516)


       Loss before income taxes              (3,203)         (1,963)

CREDIT FOR INCOME TAXES                        -               (739)

       Net loss                            $ (3,203)       $ (1,224)

NET LOSS PER COMMON SHARE -
  BASIC AND DILUTED                        $   (.78)       $   (.30)

WEIGHTED AVERAGE SHARES OUTSTANDING -
  BASIC                                   4,100,285       4,072,476

WEIGHTED AVERAGE SHARES OUTSTANDING -
  DILUTED                                 4,100,285       4,072,476

























See notes to condensed consolidated financial statements

KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)


                                               Three Months Ended
                                             Dec. 29,      Dec. 30,
                                               2001          2000

Cash Flows From Operating Activities:
  Net loss                                   $ (3,203)     $ (1,224)
  Adjustments to reconcile net
    loss to net cash flows from
    operating activities:
      Depreciation and amortization               661           671
      Change in deferred taxes                   -             (824)
      Change in other assets                       13            13
      Change in current assets and current
        liabilities:
          Accounts receivable                   1,777         3,179
          Inventories                            (763)          366
          Operating supplies and other
            current assets                       (363)         (670)
          Deferred tax assets                    -               84
          Accounts payable                     (1,676)       (3,268)
          Accrued liabilities                  (1,154)       (1,311)
          Net cash flows from operating
            activities                         (4,708)       (2,984)

Cash Flows Used By Investing Activities:
  Capital expenditures                            (10)         (185)

          Net cash flows from investing
            activities                            (10)         (185)

Cash Flows Used By Financing Activities:
  Net advances on line of credit                  (26)        1,972
  Repayments on long-term debt                   -           (3,334)
  Issuance of common stock                       -                3

          Net cash flows from financing
            activities                            (26)       (1,359)

          Net decrease in cash
            and cash equivalents               (4,744)       (4,528)

Cash and Cash Equivalents at Beginning
  of period                                     7,505         8,688

Cash and Cash Equivalents at End of Period   $  2,761      $  4,160

Interest Paid                                $    792      $    920

Income Taxes Paid                            $   -         $   -







See notes to condensed consolidated financial statements
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)  Basis of Presentation

	The accompanying unaudited condensed consolidated financial
statements include the accounts of Kentucky Electric Steel, Inc. and its
wholly-owned subsidiary, KESI Finance Company, which was formed in
October 1996 to finance the ladle metallurgy facility. On September 28,
2001, the Company dissolved KESI Finance Company as a separate legal
entity.  As such, the financial statements for the quarter ending
December 30, 2000 reflects the activity for KESI Finance Company.  All
significant intercompany accounts and transactions have been eliminated.
These statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and the instructions to Form 10-Q and Article 10 of
Regulation S-X.  Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements.  In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
Operating results for the three month period ended December 29, 2001 are
not necessarily indicative of the results that may be expected for the
year ending September 28, 2002.  For further information, refer to the
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended September 29, 2001.

(2)  Nature of Operations	Nature of Operations

	Kentucky Electric Steel, Inc. (KESI or the Company), a Delaware
corporation, owns and operates a steel mini-mill near Ashland, Kentucky.
The Company manufactures special bar quality alloy and carbon steel bar
flats to precise customer specifications for sale in a variety of niche
markets.

During the past three years, market conditions within the domestic
steel industry have experienced significant downward economic pressure
largely due to market price and shipment volume declines.  These market
conditions are a result of a number of factors including a decline in the
general economy of the United States, a decline in the industries of the
Company's customers, the increased cost of production due to high
electricity and natural gas costs and an increase in competition from
foreign steel companies. These forces have driven market prices to levels
below the cost of production for certain domestic producers, and as a
result, many steel manufacturers have curtailed production or ceased
operations, and a number of steel industry producers have sought
protection under the United States Bankruptcy Code.


(3)	Accounting Principles

		Accounting Estimates
	The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period.  Actual
results could differ from those estimates.

     	Reclassifications
	Certain reclassifications of previously reported amounts have been
made to conform with current classifications.




	Cash and Cash Equivalents
	Cash includes currency on-hand and deposits with financial
institutions.  Cash equivalents consist of investments with original
maturities of three months or less.  Amounts are stated at cost, which
approximates market value.

	Inventories
	Inventory costs include material, labor and manufacturing overhead.
Inventories are valued at the lower of average cost or market.

	Property, Plant and Equipment and Depreciation
	Property, plant and equipment is recorded at cost, less accumulated
depreciation. For financial reporting purposes, depreciation is provided
on the straight-line method over the estimated useful lives of the
assets, generally 3 to 12 years for machinery and equipment and 15 to 30
years for buildings and improvements.  Depreciation for income tax
purposes is computed using accelerated methods.  Expenditures for
maintenance and repairs are charged to expense as incurred.  Expenditures
for equipment renewals, which extend the useful life of any asset, are
capitalized.  The Company assesses its long-lived assets for impairment
when events and circumstances indicate the assets may be impaired and the
undiscounted cash flows estimated to be generated by those assets are
less than their carrying amounts.

	Revenue Recognition
	The Company recognizes revenue from sales at the time of shipment.

	Income Taxes
	The Company accounts for income taxes pursuant to the asset and
liability method. Deferred tax assets and liabilities are recognized
based upon the estimated increase or decrease in taxes payable or
refundable in future years expected to result from reversal of temporary
differences and utilization of carryforwards which exist at the end of
the current year.  Temporary differences represent the differences
between the financial statement carrying amount of assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates scheduled to apply to taxable income in
the years in which the temporary differences are expected to be settled,
and are adjusted in the period of enactment for the effect of a change
in tax law or rates.  Valuation allowances are provided against deferred
tax assets for which it is "more likely than not" the assets will not
be realized.

	The realization of deferred tax assets is dependent in part upon
generation of sufficient future taxable income.  Management has
considered the levels of currently anticipated pre-tax income in
assessing the required level of the deferred tax asset valuation
allowance.  After taking into consideration historical pre-tax income
levels, the results of operations from fiscal 1999, 2000 and 2001, the
potential limitation of net operating losses under Section 382 of the
Internal Revenue Code and other available objective evidence, the
realization of the deferred tax asset is no longer more likely than not.
Therefore, the Company's valuation allowance fully reserves for the net
deferred tax asset.

Also, realization of deferred tax assets may be limited by Section
382 of the Internal Revenue Code.  Section 382 of the Internal Revenue
Code contains rules designed to discourage persons from buying and
selling the net operating losses of companies.  These rules generally
operate by focusing on ownership changes among stockholders owning
directly or indirectly 5% or more of the common stock of a company or any
change in ownership arising from a new issuance of stock by a company.
In general, Section 382 rules limit the ability of a company to utilize
net operating losses after a change of ownership of more than 50% of its
common stock over a three-year period.  Purchases of our common stock in
amounts greater than specified levels could inadvertently create a
limitation on our ability to utilize our net operating losses for tax
purposes in the future.

	Fiscal Year End
	The Company's fiscal year ends on the last Saturday of September.

	Segment Information
	Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the decision-making group in deciding how to allocate
resources.  The Company has one business unit.


New Accounting Pronouncements

	SFAS No. 142 "Goodwill and Other Intangible Assets"
	In July 2001, the Financial Accounting Standards Board issued
Statement No. 142 (SFAS 142) "Goodwill and Other Intangible Assets". SFAS
142 establishes accounting and reporting standards for acquired goodwill
and other intangible assets.  It requires that an entity cease
amortization of goodwill and certain intangible assets and establishes
an annual requirement to test these assets for impairment.  This standard
is required to be adopted for fiscal years beginning after December 15,
2001.  As such, the Company is not required to adopt this standard until
the fiscal year beginning September 29, 2002. Early application of this
standard is permitted for entities with fiscal years beginning after
March 15, 2001.  The Company did not early adopt this standard.
Management does not believe that the adoption of this standard will have
a material impact on the financial position or results of operations of
the Company.

	SFAS No. 143 "Accounting for Asset Retirement Obligations"
	In August 2001, the Financial Accounting Standards Board issued
Statement No. 143 (SFAS 143) "Accounting for Asset Retirement
Obligations".  SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs.  This standard is required to
be adopted for fiscal years beginning after June 15, 2002. As such, the
Company is not required to adopt this standard until the fiscal year
beginning September 29, 2002.  Management does not believe that the
adoption of this standard will have a material impact on the financial
position or results of operations of the Company.

	SFAS No. 144 "Accounting for the Impairment or Disposal of Long-
Lived Assets
	In October 2001, the Financial Accounting Standards Board issued
Statement No. 144 (SFAS 144) "Accounting for the Impairment or Disposal
of Long-Lived Assets".  SFAS 144 addresses financial accounting
impairment or disposal of long-lived assets and requires that one
accounting model be used for long-lived assets to be disposed of by sale
and broadens the presentation of discontinued operations to include more
disposal transactions. This standard is required to be adopted for fiscal
years beginning after December 15, 2001.  As such, the Company is not
required to adopt this standard until the fiscal year beginning September
29, 2002.  Management does not believe that the adoption of this standard
will have a material impact on the financial position or results of
operations of the Company.

(4)  Inventories

	Inventories at December 29, 2001 and September 29, 2001 consist of
the following ($000's):

                                         Dec. 29,        Sept. 29,
                                      2001            2001
   Raw materials                         $  1,686        $  2,113
   Semi-finished and finished goods        16,039          14,849
   Total inventories                     $ 17,725        $ 16,962


(5)  Earnings Per Share

	The following is the reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations.
<table>
                                   For the Three               For the Three
                                   Months Ended                Months Ended
                                December 29, 2001            December 30, 2001
                                                 Per                          Per
                              Net               Share       Net              Share
                            (Loss)     Shares   Amount    (Loss)    Shares   Amount
   <S>                      <C>        <C>      <C>       <C>       <C>      <C>
   Amounts for Basic
     Earnings Per Share    $(3,203)  4,100,285  $(.78)   $(1,224)  4,072,476 $(.30)

   Effective of Dilutive
     Securities Options        -          -        -        -           -       -

   Amounts for Diluted
     Earnings Per Share    $(3,203)  4,100,285  $(.78)   $(1,224)  4,072,476 $(.30)
</table>

	The following options were not included in the computation of
diluted loss per share because to do so would have been antidilutive for
the applicable period:

                                   Dec. 29, 2001      Dec. 30, 2000
	Transition stock options        26,633               49,590
	Employee stock options         601,744              561,052
	                               628,377              610,642


(6)  Advances on Line of Credit and Long-Term Debt

	Long-term debt of the Company at December 29, 2001 and September
29, 2001, as restructured, consists of the following ($000's):

                                             Dec. 29,  Sept. 29,
                                               2001       2001
      Secured senior notes, due in annual
        installments from November 2002
        through 2005, interest at 9.00%      $ 16,667   $ 16,667
      Other                                       125        125
                                               16,792     16,792
      Less - Current portion                   (1,625)      (125)
                                             $ 15,167   $ 16,667

	At December 29, 2001, before the debt restructuring, the Company
had outstanding borrowings of $16.7 million on the unsecured senior
notes. These notes bore interest at a fixed rate of 7.66% per annum, with
interest paid semi-annually.

	Additionally, the Company had a $24.5 million unsecured bank credit
facility which expired on January 31, 2002.  Borrowings were limited to
defined percentages of eligible inventory and accounts receivable.
Interest on borrowings accrued at the rate of LIBOR plus 1.35% or the
prime rate minus 1/2%.  As of December 29, 2001, approximately $12.1
million was outstanding under the old bank credit facility, and
approximately $1.1 million was utilized to collateralize various letters
of credit.

	The senior notes and the bank credit facility contained restrictive
covenants, which include, among other restrictions, a maximum ratio of
total funded debt to total capitalization, a minimum fixed charge
coverage ratio, a minimum net worth requirement and restrictions on the
payment of dividends.

	Since March 31, 2001, the Company failed to meet the fixed charge
coverage ratio covenant which required the Company to maintain a fixed
charge coverage ratio of 2:1 for each rolling four quarter period. In
addition to the default of the fixed charge coverage ratio covenant, the
Company failed to make the scheduled principal payment on its senior
notes of $3,333,333 due on November 1, 2001.  These covenant violations
were waived in connection with the debt restructuring as discussed below.

	On January 14, 2002, the Company was successful in obtaining
restructured financing of its existing debt obligations.  As a result of
this restructured financing, the Company deferred its November 1, 2001
principal payment and a portion of the scheduled November 1, 2002
principal payment under the senior notes until November 1, 2005.  Annual
maturities of the senior notes under the restructured financing are
$1,500,000 due on November 1, 2002, $3,333,333 due on September 30, 2003,
$3,333,333 due on November 1, 2004 and $8,500,000 due on November 1,
2005.  These notes bear interest at the fixed rate of 9.00% per annum,
with interest paid monthly.

	The restructured financing also includes an $18 million secured
bank credit facility which expires on November 1, 2005. Borrowings are
limited to defined percentages of eligible inventory and accounts
receivable. Interest on borrowings accrues at the rate of prime plus
2.5%. As of January 14, 2002, approximately $12.1 million was outstanding
under the Company's line of credit, and approximately $1.1 million was
utilized to collateralize various letters of credit. In addition, the
Company had approximately $3.7 million in cash.

	Under the terms of the restructured financing, both the senior
notes and the borrowings on the line of credit are secured by all current
and future assets of the Company, including, but not limited to, accounts
receivable, inventory, and all real property, plant and equipment.

	The senior notes and bank credit facility in the restructured
financing contain restrictive covenants, which include, among other
requirements, the maintenance of minimum shareholders' equity; minimum
earnings before interest, taxes, depreciation, and amortization (EBITDA);
minimum interest coverage ratio; minimum debt service coverage ratio;
capital expenditure restrictions; and prohibition on the payment of
dividends.


(7)  Commitments and Contingencies

	The Company has various commitments for the purchase of materials,
supplies and energy arising in the ordinary course of business.

	The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of business
with respect to commercial, product liability, environmental and other
matters, which seek remedies or damages. Costs to be incurred in
connection with environmental matters are accrued  when the prospect of
incurring costs for testing or remedial action is deemed probable and
such amounts can be estimated.  The Company maintains reserves which it
believes are adequate related to testing, consulting fees and minor
remediation. However, new information or developments with respect to
known matters or unknown conditions could result in the recording of
accruals in the periods in which they become known.  The Company believes
that any liability that may ultimately be determined with respect to
commercial, product liability, environmental or other matters will not
have a material effect on its financial condition or results of
operations.




KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     	General.  The Company manufactures special bar quality alloy and
carbon steel bar flats to precise customer specifications for sale in a
variety of niche markets.  Its primary markets are manufacturers of leaf-
spring suspensions and flat bed truck trailers, cold drawn bar converters
and steel service centers.

     	Net Sales. Net sales decreased $1.3 million (7.2%) in the first
quarter of fiscal 2002 to $16.0 million, as compared to $17.3 million for
the first quarter of fiscal 2001.  The decrease in net sales is
attributed to a 4.5% decrease in finished goods tons shipped and a 3.8%
decrease in the average selling price. The decrease in finished goods
tons shipped reflects market conditions throughout the steel industry.
The decrease in average selling price is attributed to market price
reductions and changes in product mix.

     	Cost of Goods Sold. Cost of goods sold decreased $.1 million (.4%)
in the first quarter of fiscal 2002 to $16.9 million, as compared to
$17.0 million for the first quarter of fiscal 2001.  As a percentage of
net sales, cost of goods sold increased from 98.4% for the first quarter
of fiscal 2001 to 105.7% for the first quarter of fiscal 2002. The
decrease in cost of goods sold for the first quarter of fiscal 2002 from
the comparable period in fiscal 2001 is due to the decrease in shipments
(as discussed above) offset by an increase in per ton manufacturing
costs.  The increase in per ton manufacturing costs reflects higher
repairs and maintenance costs and other conversion costs offset somewhat
by lower raw material costs.  The increase in cost of goods sold as a
percentage of net sales for the first quarter of fiscal 2002 as compared
to the first quarter of fiscal 2001 is due to the decrease in average
selling price (as discussed above) and to the increase in per ton
manufacturing costs.

Gross Profit (Loss).  As a result of the above, the first quarter
of fiscal 2002 reflected gross profit (loss) of $(.9) million as compared
to gross profit of $.3 million for the first quarter of fiscal 2001.  As
a percentage of net sales, gross profit decreased from 1.6% for the first
quarter of fiscal 2001 to (5.7%) for the first quarter of fiscal 2002.

	Selling and Administrative Expenses.  Selling and administrative
expenses include salaries and benefits, corporate overhead, insurance,
sales commissions and other expenses incurred in the executive, sales and
marketing, shipping, personnel, and other administrative departments.
Selling and administrative expenses decreased $33,000 for the first
quarter of fiscal 2002 as compared to the same period in fiscal 2001. As
a percentage of net sales, such expenses increased to 11.4% for the first
quarter of fiscal 2002 from 10.7% for the first quarter of fiscal 2001.
The increase in selling and administrative expenses as a percentage of
net sales is attributed to the decrease in net sales in the first quarter
of fiscal 2002.

Operating Loss. For the reasons described above, operating loss
increased by $1.2 million from an operating loss of $1.6 million in the
first quarter of fiscal 2001 to an operating loss of $2.8 million in the
first quarter of fiscal 2002. As a percentage of net sales, operating
loss increased from (9.2%) in the first quarter of fiscal 2001 to (17.1%)
in the first quarter of fiscal 2002.





	Interest Expense.  Interest expense increased by $5,000 for the
three months ended December 29, 2001 from $516,000 for the first quarter
of fiscal 2001 to $521,000 for the first quarter of fiscal 2002. The
slight increase in interest expense is due to an increase in the average
amount outstanding on the Company's line of credit offset by a decrease
in interest rates.

	Provision (Credit) for Income Taxes.  Due to the loss incurred in
fiscal 2001 and the first quarter of fiscal 2002, related debt
restructurings, the potential limitation of utilizing net operating
losses under Section 382 of the Internal Revenue Code (as discussed
below) and management's current belief that the available objective
evidence creates sufficient uncertainty regarding the realizability of
previously recognized deferred tax assets, the Company recorded a
valuation allowance of approximately $1.2 million during the first
quarter of fiscal 2002 which fully offsets recognized deferred tax
assets.  The Financial Accounting Standards Board Statement No. 109 (SFAS
109) "Accounting for Income Taxes", requires that the Company record a
valuation allowance when it is "more likely than not that some portion
or all of the deferred tax asset will not be realized." The Company will
continue to provide a 100% valuation allowance for the deferred tax asset
in the future until the Company returns to an appropriate level of
profitability.  The ultimate realization of a future tax benefit related
to net operating loss carryforwards depends on the Company's ability to
generate sufficient taxable income in the future.  If the Company is able
to generate sufficient taxable income in the future, the Company will
reduce the valuation allowance through a reduction of income tax expense
(and a corresponding increase in shareholders' equity).

	The realization of a benefit from net operating loss carryforwards
which can, and previously did, generate deferred tax assets, may also be
limited by Section 382 of the Internal Revenue Code.  Section 382 of the
Internal Revenue Code contains rules designed to discourage persons from
buying and selling the net operating losses of companies.  These rules
generally operate by focusing on ownership changes among stockholders
owning directly or indirectly 5% or more of the common stock of a company
or any change in ownership arising from a new issuance of stock by a
company.  In general, Section 382 rules limit the ability of a company
to utilize net operating losses after a change of ownership of more than
50% of its common stock over a three-year period.  Purchases of the
Company's common stock in amounts greater than specified levels could
inadvertently create a limitation on the Company's ability to utilize its
net operating losses for tax purposes in the future.

Net Loss.  As a result of the above, net loss increased by $2.0
million for the three months ended December 29, 2001 from a net loss of
$1.2 million for the first quarter of fiscal 2001 to a net loss of $3.2
million for the first quarter of fiscal 2002.


Liquidity and Capital Resources.

	The Company considers its level of cash, availability under its line
of credit, and its current ratio and working capital to be its most
important measures of short-term liquidity.  In terms of long-term
liquidity indicators, the Company believes its historical levels of cash
generated from operations and required debt repayment to be the most
important measures.

     Cash flows used by operating activities were $4.7 million for the
first quarter of fiscal 2002 as compared to $3.0 million for the first
quarter of fiscal 2001. First quarter of fiscal 2002 cash flows reflect
the net loss of $3.2 million, $.7 million in depreciation and
amortization, a decrease in accounts receivable of $1.8 million, an
increase in inventories of $.8 million, a reduction of $1.7 million in
accounts payable, and a reduction of $1.2 million in accrued liabilities.
The decrease in accounts receivable is due to the decrease in shipments
for the quarter as well as the decrease in average selling price of
finished goods tons shipped for the quarter.  The increase in inventories
reflects the increase in finished goods inventory offset somewhat by a
decrease in raw materials inventory. The decrease in accounts payable
reflects the lower operating levels. The decrease in accrued liabilities
is attributed to the payment of interest on long-term debt and the annual
deposit of profit sharing and 401K matching funds with the trustee.  The
first quarter of fiscal 2001 cash flows reflect a net loss of $1.2
million, $.7 million in depreciation and amortization, a decrease in
accounts receivable of $3.2 million, a reduction of $3.3 million in
accounts payable, and a $1.3  million reduction in accrued liabilities.

	Cash flows used by investing activities were $10,000 for the first
quarter of fiscal 2002 as compared to $185,000 for the first quarter of
fiscal 2001.  The cash flows used by investing activities for the first
quarter of fiscal 2002 and fiscal 2001 were used for capital
expenditures.

Cash flows used by financing activities were $26,000 for the first
quarter of fiscal 2002 as compared to $1.4 million for the first quarter
of fiscal 2001. The cash flows used by financing activities for the first
quarter of fiscal 2002 reflect net repayments of $26,000 on the Company's
line of credit.  The cash flows used by financing activities for the
first quarter of fiscal 2001 reflect repayments on long-term debt of $3.3
million offset by net advances of $2.0 million on the Company's line of
credit.

     	Working capital at December 29, 2001 was $11.9  million as compared
to $15.9  million at September 29, 2001, and the current ratio was 1.6
to 1.0 as compared to 1.7 to 1.0.

	The Company's primary ongoing cash requirements are for current
capital expenditures and ongoing working capital.  Since March 31, 2001,
the Company has failed to meet the fixed charge coverage ratio covenant
which required the Company to maintain a fixed charge coverage ratio of
2:1 for each rolling four quarter period.  In addition to the default of
the fixed charge coverage ratio covenant, the Company failed to make a
scheduled principal payment on the unsecured senior notes of $3,333,333
due on November 1, 2001.  These covenant violations were waived in
connection with the debt restructuring as discussed below.

	On January 14, 2002, the Company was successful in restructuring
its existing debt obligations.  As a result of this restructured
financing, the Company deferred its November 1, 2001 principal payment
and a portion of the scheduled November 1, 2002 principal payment under
the senior notes until November 1, 2005.  Annual maturities of the senior
notes under the restructured financing are $1,500,000 due on November 1,
2002, $3,333,333 due on September 30, 2003, $3,333,333 due on November
1, 2004 and $8,500,000 due on November 1, 2005.  These notes bear
interest at the fixed rate of 9.00% per annum, with interest paid
monthly.

	The restructured financing also includes an $18 million secured
bank credit facility which expires on November 1, 2005.  Borrowings are
limited to defined percentages of eligible inventory and accounts
receivable.  Interest on borrowings accrue at the rate of prime plus
2.5%.  As of February 11, 2002, approximately $9.5 million was
outstanding under the Company's line of credit, approximately $1.1
million was utilized to collateralize various letters of credit and $4.7
million was available for additional borrowings.

	Under the terms of the restructured financing, both the senior
notes and the borrowings on the line of credit are secured by all current
and future assets of the Company, including but not limited to, accounts
receivable, inventory, and all real property, plant and equipment.

	The senior notes and bank credit facility in the restructured
financing contain restrictive covenants, which include, among other
requirements, the maintenance of minimum shareholders' equity; minimum
earnings before interest, taxes, depreciation, and amortization (EBITDA);
minimum interest coverage ratio; minimum debt service coverage ratio;
capital expenditure restrictions; and prohibition on the payment of
dividends.

	Though the Company will continue its aggressive working capital
management and cost reduction initiatives, continued losses similar to
those incurred in fiscal 2001 will severely limit the Company's ability
to provide future liquidity from operations and remain in compliance with
the new covenants of the restructured financing.  There can be no
assurances that long-term cash requirements and compliance the new debt
covenants will be met if the Company continues to incur significant
financial losses for an extended period of time.

Outlook

	Management believes that the sluggish economy will continue during
fiscal 2002.  As a result, shipping levels, pricing, and margins will
likely remain under pressure.  The Company believes improvements in the
overall economy combined with the Bush Administration's Section 201
initiatives related to imports should have a positive impact on the
domestic steel industry and the demand for our products.

Qualitative and Quantitative Disclosure About Market Risk

     	The Company is exposed to certain market risks that are inherent
in financial instruments arising from transactions that are entered into
in the normal course of business.  The Company does not enter into
derivative financial instrument transactions to manage or reduce market
risk or for speculative purposes but is subject to interest rate risk on
its fixed interest rate secured senior notes.  The bank credit facility
has a variable interest rate which reduces the potential exposure of
interest rate risk from a cash flow perspective.  The fair value of debt
with a fixed interest rate generally will increase as interest rates fall
given consistency in all other factors.  Conversely, the fair value of
fixed rate debt will decrease an interest rates rise.

	The Company is also subject to increases in the cost of energy,
supplies and steel scrap due to inflation and market conditions.

Forward-Looking Statements

The matters discussed or incorporated by reference in this Report
on Form 10-Q that are forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995) involve risks and
uncertainities. These risks and uncertainities include, but are not
limited to: reliance on the truck and utility vehicle industry; excess
industry capacity; product demand and industry pricing; volatility of raw
material costs, especially steel scrap; intense foreign and domestic
competition; management's estimate of niche market data; the cyclical and
capital intensive nature of the industry; and cost of compliance with
environmental regulations.  These risks and uncertainities could cause
actual results of the Company to differ materially from those projected
or implied by such forward-looking statements.


PART II. - OTHER INFORMATION



ITEM 6.	Exhibits and Reports on Form 8-K

		A)	Exhibits

		3.1  -	Certificate of Incorporation of Kentucky Electric
Steel, Inc., filed as Exhibit 3.1 to Registrant's
Registration Statement on Form S-1 (No. 33-67410),
and incorporated by reference herein.

		3.2  -	By-Laws of Kentucky Electric Steel, Inc., filed as
Exhibit 3.2 to Registrant's Registration Statement
on Form S-1 (No. 33-67140), and incorporated by
reference herein.


	   B)  Reports on Form 8-K - None












































SIGNATURES



     	Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.




DATED:  February 11, 2002         KENTUCKY ELECTRIC STEEL, INC.
                                           (Registrant)

                                  \s\  William J. Jessie
                                William J. Jessie, Vice President,
                                  Secretary, Treasurer, and
                                  Principal Financial Officer