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           March 30, 2002

	OR

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

For the transition period from ______________to_____________________.


	Commission File 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 May 10, 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 ............. 11-16


   Item 3 - Qualitative and Quantitative Disclosures about
        Market Risk .....................................    16


PART II.    OTHER INFORMATION

   Item 6 - Exhibits and Reports on Form 8-K ..................    17


            SIGNATURES  .......................................    18



<Page>



















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

                                                 Mar. 30,    Sept. 29,
                      ASSETS                       2002         2001
CURRENT ASSETS
    Cash and cash equivalents                    $    219    $  7,505
    Accounts receivable, less allowance for
      doubtful accounts and claims of $400
      at March 30, 2002 and $695 at
      September 29, 2001                            8,877       8,600
    Insurance claim receivable                      1,725        -
    Inventories                                    15,165      16,962
    Operating supplies and other current assets     5,472       5,128
        Total current assets                       31,458      38,195

PROPERTY, PLANT AND EQUIPMENT
    Land and buildings                              5,881       5,881
    Machinery and equipment                        35,386      35,252
    Construction in progress                          286         162
    Less - accumulated depreciation               (21,362)    (19,936)
        Net property, plant and equipment          20,191      21,359

DEFERRED FINANCING FEES                               733          82

OTHER ASSETS                                          352         378

        Total assets                             $ 52,734    $ 60,014

         LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Advances on line of credit                   $ 12,532    $ 12,141
    Accounts payable                                5,962       6,303
    Accrued liabilities                             2,601       3,691
    Current portion of long-term debt               1,625         125

        Total current liabilities                  22,720      22,260



LONG-TERM DEBT                                     15,167      16,667

DEFERRED GAIN FROM SALE-LEASEBACK                     646         704

        Total liabilities                          38,533      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                                2,642       8,824

        Total shareholders' equity                 14,201      20,383

        Total liabilities and shareholders'
            equity                               $ 52,734    $ 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     Six Months Ended
                             Mar. 30,  Mar. 31,    Mar. 30,  Mar. 31,
                               2002      2001        2002      2001

NET SALES                  $  19,197  $  22,737   $ 35,226   $ 40,016
COST OF GOODS SOLD            20,038     22,247     36,983     39,253

  Gross profit (loss)           (841)       490     (1,757)       763

SELLING AND ADMINISTRATIVE
  EXPENSES                     1,654      2,481      3,478      4,338
WORKFORCE REDUCTION CHARGES     -           300       -           300

  Operating loss              (2,495)    (2,291)    (5,235)    (3,875)

INTEREST INCOME AND OTHER         43        540        101        677
INTEREST EXPENSE                (527)      (504)    (1,048)    (1,020)

  Loss before income taxes    (2,979)    (2,255)    (6,182)    (4,218)

CREDIT FOR INCOME TAXES         -          (848)      -        (1,587)

  Net loss                  $ (2,979)  $ (1,407)  $ (6,182)  $ (2,631)

NET LOSS PER COMMON SHARE -
  BASIC AND DILUTED         $   (.73)  $   (.35)  $  (1.51)  $   (.65)

WEIGHTED AVERAGE SHARES
  OUTSTANDING - BASIC
  AND DILUTED              4,100,285  4,076,545  4,100,285  4,074,511























See notes to condensed consolidated financial statements

KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
                                                 Six Months Ended
                                             Mar. 30,      Mar. 31,
                                               2002          2001
Cash Flows From Operating Activities:
  Net loss                                   $ (6,182)     $ (2,631)
  Adjustments to reconcile net
    loss to net cash flows from
    operating activities:
      Depreciation and amortization             1,415         1,395
      Change in deferred taxes                   -           (1,431)
      Change in other assets                       26            26
      Change in current assets and current
        liabilities:
          Accounts receivable                    (277)          585
          Insurance claim receivable           (1,725)         -
          Inventories                           1,797         1,883
          Operating supplies and other
            current assets                       (344)         (435)
          Refundable income taxes                -               80
          Deferred tax assets                    -             (156)
          Accounts payable                       (341)       (1,513)
          Accrued liabilities                  (1,090)         (365)
          Net cash flows from operating
            activities                         (6,721)       (2,562)

Cash Flows From Investing Activities:
  Capital expenditures                           (258)         (200)

          Net cash flows from investing
            activities                           (258)         (200)

Cash Flows From Financing Activities:
  Net advances on line of credit                  391         3,042
  Deferred financing fees                        (698)         -
  Repayments on long-term debt                   -           (3,333)
  Issuance of common stock                       -               12

          Net cash flows from financing
            activities                           (307)         (279)

          Net decrease in cash
            and cash equivalents               (7,286)       (3,041)

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

Cash and Cash Equivalents at End of Period   $    219      $  5,647

Interest Paid                                $  1,440      $  1,146

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 three-month and six-
month periods ended March 31, 2001 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 and six-month periods
ended March 30, 2002 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 March 30, 2002 and September 29, 2001 consist of the
following ($000's):

                                         Mar. 30,        Sept. 29,
                                      2002            2001
   Raw materials                         $  2,006        $  2,113
   Semi-finished and finished goods        13,159          14,849
   Total inventories                     $ 15,165        $ 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
                                  March 30, 2002              March 31, 2001
                              Net                Per        Net               Per
                             Loss               Share       Loss             Share
                            (000's)    Shares   Amount    (000's)   Shares   Amount
   <S>                      <C>        <C>      <C>       <C>       <C>      <C>
   Amounts for Basic
     Earnings Per Share    $(2,979)  4,100,285  $(.73)   $(1,407)  4,076,545 $(.35)

   Effect of Dilutive
     Securities-Options       -           -        -        -           -       -

   Amounts for Diluted
     Earnings Per Share    $(2,979)  4,100,285  $(.73)   $(1,407)  4,076,545 $(.35)
</table>
<table>

                                    For the Six                 For the Six
                                   Months Ended                Months Ended
                                  March 30, 2002              March 31, 2001
                              Net                Per        Net               Per
                             Loss               Share      Loss              Share
                            (000's)    Shares   Amount    (000's)   Shares   Amount
   <S>                      <C>        <C>      <C>        <C>      <C>      <C>
   Amounts for Basic
     Earnings Per Share    $(6,182)  4,100,285  $(1.51)  $(2,631)  4,074,511 $(.65)

   Effect of Dilutive
     Securities-Options       -           -        -        -           -       -

   Amounts for Diluted
     Earnings Per Share    $(6,182)  4,100,285  $(1.51)  $(2,631)  4,074,511 $(.65)
   </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:

                                   Mar. 30, 2002      Mar. 31, 2001
	Transition stock options         24,806              46,622
	Employee stock options          660,900             638,744
	                                685,706             685,366


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

	Long-term debt of the Company at March 30, 2002 and September 29,
2001, as restructured, consists of the following ($000's):

                                             Mar. 30,   Sept. 29,
                                               2002       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

	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 March 30, 2002, approximately $12.5 million was outstanding
under the Company's line of credit, and approximately $1.1 million was
utilized to collateralize various letters of credit.

	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)  Insurance Claim Receivable

	The Company experienced a flood on March 20, 2002 which shut down
operations in the melt shop and rolling mill until April 1 and April 5,
respectively.  The Company currently estimates that the total cost to
clean, repair, and replace its damaged equipment and facilities to be
approximately $3.3 million.  The Company maintains flood insurance
including business interruption insurance and expects substantially all
such costs to be covered by insurance except for the $125,000 deductible.
As of March 30, 2002, the Company had incurred cleanup and other costs
of approximately $1,850,000 and reflected a receivable of $1,725,000 in
the March 30, 2002 financial statements.  Subsequent to March 30, 2002
the insurance carrier advanced the Company $1.5 million on this claim.
The Company expects to complete all repairs prior to or during the July
2002 major maintenance shutdown. The accompanying statements of
operations for the quarter and six months ended March 30, 2002 include
the Company's deductible for this claim of $125,000.  The financial
statements do not include an amount for business interruption recovery.
The Company and insurance carrier are currently evaluating the amount of
recovery for business interruption.


(8)  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.
<page>
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 $3.5 million (15.6%) in the second
quarter of fiscal 2002 to $19.2 million, as compared to $22.7 million for
the second quarter of fiscal 2001.  Net sales for the six months ended
March 30, 2002 decreased $4.8 million (12.0%) to $35.2 million, as
compared to $40.0 million for the six months ended March 31, 2001.  The
decrease in sales for both the second quarter and the first half of
fiscal 2002 is attributed to a decrease in finished goods shipments
combined with a decrease in average selling price.  Finished goods tons
shipped decreased 12.1% and 8.8% in the second quarter and first six
months of fiscal 2002, respectively, as compared to the second quarter
and first six months of 2001.  The decrease in finished goods tons
shipped reflects general market conditions in the steel industry combined
with weak demand in some of our niche markets.  Also, shipments were
impacted by the March 20, 2002 flood (as discussed below).  The average
selling price per ton shipped was down 5.7% and 4.9% for the second
quarter and the first six months, respectively.  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 $2.2 million
(9.9%) in the second quarter of fiscal 2002 to $20.0 million, as compared
to $22.2 million for the second quarter of fiscal 2001.  As a percentage
of net sales, cost of goods sold increased from 97.8% for the second
quarter of fiscal 2001 to 104.4% for the second quarter of fiscal 2002.
The decrease in cost of goods sold for the second quarter of fiscal 2002
as compared to the second quarter of fiscal 2001 is primarily due to the
decrease in finished goods shipments (as discussed above) partially
offset by an increase in billet tons shipped and a slight increase in per
ton manufacturing costs. The increase in per ton manufacturing costs
reflects lower production levels due primarily to the shutdown related
to the flood (as discussed below) partially offset by a decrease in
outside service costs due to lower shipments of products requiring
outside heat treating and lower energy costs.  The increase in cost of
goods sold as a percentage of net sales for the second quarter of fiscal
2002 as compared to the second quarter of fiscal 2001 is primarily due
to the decrease in average selling price (as discussed above).

	Cost of goods sold for the six months ended March 30, 2002
decreased $2.3 million (5.8%) to $37.0 million as compared to $39.3
million for the six months ended March 31, 2001.  As a percentage of net
sales, cost of goods sold increased from 98.1% for the six months ended
March 31, 2001 to 105.0% for the six months ended March 30, 2002. The
decrease in cost of goods sold for the first six months of fiscal 2002
as compared to the first six months of fiscal 2001 is primarily due to
the decrease in finished goods shipments (as discussed above) offset by
an increase in billet shipments and an increase in per ton manufacturing
cost of tons shipped.  The increase in per ton manufacturing costs
reflects lower production levels due primarily to the flood (as discussed
below) combined with higher repairs and maintenance costs and other
conversion costs offset by somewhat lower raw material and energy costs
combined with a decrease in outside service costs due to lower shipments
of products requiring outside heat treating. The increase in cost of
goods sold as a percentage of net sales for the first six months of
fiscal 2002 as compared to the first six months of fiscal 2001 is due to
the decrease in average selling price (as discussed above) and to the
increase in per ton manufacturing costs.

	 The Company experienced a flood on March 20, 2002 which shut down
operations in both the melt shop and rolling mill until April 1 and April
5, respectively.  The Company currently estimates that the total cost to
clean, repair, and replace its equipment and facilities to be
approximately $3.3 million.  The Company maintains flood insurance
including business interruption insurance and expects substantially all
such costs to be covered by insurance except for the $125,000 deductible.
As of March 30, 2002, the Company had incurred cleanup and other costs
of approximately $1,850,000 and reflected a receivable of $1,725,000 in
the March 30, 2002 financial statements.  Subsequent to March 30, 2002
the insurance carrier advanced the Company $1.5 million on this claim.
The cost of goods sold for the quarter and the six months ended March 30,
2002 includes the Company's deductible for this claim of $125,000.  The
Company expects to complete all repairs and replacements prior to or
during the July 2002 major maintenance shutdown and expects such costs
to be covered by insurance.  The Company and insurance carrier are
currently evaluating the amount of recovery for business interruption.
The financial statements for the six months ended March 30, 2002 do not
include any amount for business interruption.

Gross Profit (Loss).  As a result of the above, the second quarter
of fiscal 2002 reflected a gross profit (loss) of ($.9) million as
compared to a gross profit of $.5 million for the second quarter of
fiscal 2001.  As a percentage of net sales, gross profit decreased from
2.2% for the second quarter of fiscal 2001 to (4.4%) for the second
quarter of fiscal 2002.

	Similarly, the six months ended March 30, 2002 reflected a gross
profit (loss) of ($1.8) million as compared to a gross profit of $.8
million for the six months ended March 31, 2001.  As a percentage of net
sales, gross profit decreased from 1.9% for the first six months of
fiscal 2001 to (5.0%) for the first six months 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 by $.8 million for the
second quarter of fiscal 2002 as compared to the same period in fiscal
2001. As a percentage of net sales, such expenses decreased from 10.9%
for the second quarter of fiscal 2001 to 8.6% for the second quarter of
fiscal 2002. The decrease in selling and administrative expenses in the
second quarter of fiscal 2002 as compared to the second quarter of fiscal
2001 is primarily due to a decrease in bad debt expense ($573,000),
employee salaries and benefits ($150,000) and legal fees ($41,000). Bad
debt expense in the second quarter of fiscal 2001 was unusually high due
to the bankruptcy of a large customer in fiscal 2001.  The decrease in
employee salaries and benefits is primarily due to the restructuring of
the Company's workforce during fiscal 2001 (as discussed below).

	Selling and administrative expenses decreased by $.9 million for
the first six months of fiscal 2002 as compared to the same period in
fiscal 2001. As a percentage of net sales, such expenses decreased from
10.8% for the six months ended March 31, 2001 to 9.9% for the six months
ended March 30, 2002. The decrease in selling and administrative expenses
for the first six months of fiscal 2002 as compared to the first six
months of fiscal 2001 is primarily due to a decrease in bad debt expense

($548,000) and employee salaries and benefits ($325,000).  Bad debt
expense in fiscal 2001 was unusually high due to the bankruptcy of a
large customer in fiscal 2001.  The decrease in employee salaries and
benefits is primarily due to the restructuring of the Company's workforce
during fiscal 2001 (as discussed below).

	Workforce Reduction Charges.  Effective February 26, 2001 the
Company adopted a plan to restructure its workforce.  The restructuring
was substantially completed by the fourth quarter of fiscal 2001.  The
Company estimated that it would incur severance pay and related costs of
approximately $300,000 which is reflected in the financial statements for
the quarter and six months ended March 31, 2001.

Operating Income (Loss). For the reasons described above, the
second quarter of fiscal 2002 reflected operating loss of $2.5 million
as compared to an operating loss of $2.3 million for the second quarter
of fiscal 2001. As a percentage of net sales, operating loss increased
from 10.1% in the second quarter of 2001 to 13.0% in the second quarter
of 2002.

Similarly, the six months ended March 30, 2002 reflected an
operating loss of $5.2 million as compared to operating loss of $3.9
million for the six months ended March 31, 2001.  As a percentage of net
sales, operating loss increased from 9.7% for the six months ended March
31, 2001 to 14.9% for the six months ended March 30, 2002.

	Interest Income and Other.  Interest and other income decreased by
$497,000 for the three months ended March 30, 2002 from $540,000 for the
second quarter of fiscal 2001 to $43,000 for the second quarter of fiscal
2002. Interest and other income decreased by $576,000 for the six months
ended March 30, 2002 from $677,000 for the six months ended March 31,
2001 to $101,000 for the six months ended March 30, 2002.  The fiscal
2001 second quarter and six months periods includes other income of
$428,000 for a claim settlement pertaining to the Company's purchase of
electrodes during the years 1992 to 1997.  In addition, interest income
decreased due to interest income being higher in the second quarter and
six months ended March 31, 2001 due to the investment of the proceeds
from the sale and leaseback transaction completed in September 2000.

	Provision (Credit) for Income Taxes.  Due to the loss incurred in
fiscal 2001 and the first six months 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 $1.1 million during the second
quarter of fiscal 2002 and $2.3 million for the six months ended March
30, 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, the second quarter of fiscal
2002 reflected a net loss of $3.0 million as compared to a net loss of
$1.4 million for the second quarter of fiscal 2001.

Similarly, the six months ended March 30, 2002 reflected a net loss
of $6.2 million as compared to a net loss of $2.6 million for the six
months ended March 31, 2001.


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 $6.7 million for the
first six months of fiscal 2002 as compared to cash flows used by
operating activities of $2.6 million for the first six months of fiscal
2001.  The first six months of fiscal 2002 reflect the net loss of $6.2
million, $1.4 million in depreciation and amortization, an increase in
accounts receivable of $.3 million, an insurance claim receivable of $1.7
million, a decrease in inventories of $1.8 million, an increase in
operating supplies and other current assets of $.3 million, a decrease
in accounts payable of $.3 million, and a decrease in accrued liabilities
of $1.1 million.  The insurance claim receivable of $1.7 million
represents the estimated reimbursement receivable from the insurance
carrier for the cost to repair and replace flood damaged equipment as of
March 30, 2002.  Subsequent to March 30, 2002 the insurance carrier
advanced the Company $1.5 million on this claim.  The decrease in
inventories is primarily due to a decline in the tons of finished goods
inventory.  The decrease in accrued liabilities is due to a decrease in
accrued interest (due to monthly interest payments under restructured
agreement rather than semi-annual interest payments), a decrease in
workers compensation accrual, and the annual deposit of 401K matching
funds with the trustee.  The first six months of fiscal 2001 cash flows
reflect a net loss of $2.6 million, $1.4 million in depreciation and
amortization, an increase in deferred tax assets of $1.4 million, a
decrease in accounts receivable of $.6 million, a decrease in inventories
of $1.8 million, an increase in operating supplies and other current
assets of $.4 million, a decrease in accounts payable of $1.5 million,
and a decrease in accrued liabilities of $.4 million.




	Cash flows used by investing activities were $.3 million for the
first six months of fiscal 2002 as compared to $.2 million for the first
six months of fiscal 2001.  The cash flows used by investing activities
for the first six months of fiscal 2002 and fiscal 2001 were used for
capital expenditures.

Cash flows used by financing activities were $.3 million for the
first six months of fiscal 2002 as compared to cash flows used by
financing activities of $.3 million for the first six months of fiscal
2001.  The cash flows used by financing activities for the first six
months of fiscal 2002 reflect financing charges of $.7 million related
to the Company's debt restructuring and $.4 million in advances on the
Company's line of credit.  The cash flows used by financing activities
for the first six months of fiscal 2001 reflect net advances of $3.0
million on the Company's line of credit which, along with cash and cash
equivalents, were used primarily for the repayment of $3.3 in long-term
debt, capital expenditures, and working capital needs.

     	Working capital at March 30, 2002 was $8.7 million as compared to
$15.9  million at September 29, 2001, and the current ratio was 1.4 to
1.0 as compared to 1.7 to 1.0.  The decrease in working capital and
current ratio are primarily due to the lower amount of cash and cash
equivalents.

	The Company's primary ongoing cash requirements are for current
capital expenditures and ongoing working capital.

	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.  In addition, prior covenant violations were waived in
connection with the debt restructuring.

	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 May 9, 2002, approximately $10.5 million was outstanding
under the Company's line of credit, approximately $1.1 million was
utilized to collateralize various letters of credit and $4.1 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 and for the first six months of fiscal 2002
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 with 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 keep shipments,
pricing, and margins under pressure. The Company believes improvements
in the overall economy and the recently enacted Section 201 tariffs will
increase demand for our products during the second half of fiscal 2002.
However, management is unable to predict the pace or amount of such
improvements.


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 as 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
uncertainties. These risks and uncertainties 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; volatility of energy costs; 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
uncertainties could cause actual results of the Company to differ
materially from those projected or implied by such forward-looking
statements.

<page




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






<page>










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:  May 10, 2002              KENTUCKY ELECTRIC STEEL, INC.
                                           (Registrant)

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