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          June 29, 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 August 13, 2002, is as follows:


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














	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   6-12


   Item 2 - Management's Discussion and Analysis of Financial
              Condition and Results of Operations ............    13-19

   Item 3 - Quantitative and Qualitative Disclosure About
	        Market Risk ....................................       19

PART II.    OTHER INFORMATION

   Item 6 - Exhibits and Reports on Form 8-K .................       20


            SIGNATURES  ......................................       21
























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

                                                   June 29,   Sep. 29,
                                                     2002       2001
                       ASSETS
   CURRENT ASSETS
     Cash and cash equivalents                    $    196   $  7,505
     Accounts receivable, less allowance for
       doubtful accounts and claims of $610
       at June 29, 2002 and $695 at September
       29, 2001                                     11,053      8,600
     Insurance claim receivable                      2,575       -
     Inventories                                    17,125     16,962
     Operating supplies and other current assets     5,110      5,128

       Total current assets                         36,059     38,195

   PROPERTY, PLANT AND EQUIPMENT
     Land and buildings                              5,881      5,881
     Machinery and equipment                        35,422     35,252
     Construction in progress                          481        162
     Less - accumulated depreciation               (22,104)   (19,936)

          Net property, plant and equipment         19,680     21,359

   DEFERRED FINANCING FEES                             682         82

   OTHER ASSETS                                        339        378

          Total assets                            $ 56,760   $ 60,014

        LIABILITIES AND SHAREHOLDERS' EQUITY
  CURRENT LIABILITIES
     Advances on line of credit                   $ 14,622   $ 12,141
     Accounts payable                                8,594      6,303
     Accrued liabilities                             3,357      3,691
     Current maturities of long-term debt            1,625        125

          Total current liabilities                 28,198     22,260

   LONG-TERM DEBT                                   15,167     16,667

   DEFERRED GAIN FROM SALE-LEASEBACK                   616        704

          Total liabilities                         43,981     39,631

   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 and 5,051,566
       shares issued, respectively                      51         51
     Additional paid-in capital                     15,817     15,817
     Less treasury stock - 951,281
       shares at cost, respectively                 (4,309)    (4,309)
     Retained earnings                               1,220      8,824

          Total shareholders' equity                12,779     20,383

          Total liabilities and shareholders'
            equity                                $ 56,760   $ 60,014



See notes to condensed consolidated financial statements


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


                            Three Months Ended      Nine Months Ended
                            June 29,   June 30,    June 29,   June 30,
                              2002       2001        2002       2001


NET SALES                 $  22,983   $  19,442   $ 58,209   $ 59,458
COST OF GOODS SOLD           21,933      19,408     58,916     58,661

  Gross profit (loss)         1,050          34       (707)       797

SELLING AND ADMINISTRATIVE
  EXPENSES                    1,918       1,789      5,396      6,127
WORKFORCE REDUCTION CHARGES    -           -          -           300

  Operating loss               (868)     (1,755)    (6,103)    (5,630)

INTEREST INCOME AND OTHER        38         123        139        800
INTEREST EXPENSE               (592)       (523)    (1,640)    (1,543)

  Loss before income taxes   (1,422)     (2,155)    (7,604)    (6,373)

CREDIT FOR INCOME TAXES        -           (809)      -        (2,396)

  Net loss                 $ (1,422)   $ (1,346)  $ (7,604)  $ (3,977)

NET LOSS PER COMMON SHARE
  - BASIC AND DILUTED      $   (.35)   $   (.33)  $  (1.85)  $   (.98)

WEIGHTED AVERAGE SHARES
  OUTSTANDING - BASIC
  AND DILUTED             4,100,285   4,085,150  4,100,285  4,078,057



See notes to condensed consolidated financial statements


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


                                                Nine Months Ended
                                               June 29,     June 30,
                                                 2002         2001

Cash Flows From Operating Activities:
  Net loss                                     $ (7,604)    $ (3,977)
  Adjustments to reconcile net loss
    to net cash flows from operating activities:
      Depreciation and amortization               2,178        2,088
      Change in deferred taxes                     -          (2,303)
      Change in other assets                         39           97
      Change in current assets and current
        liabilities:
          Accounts receivable                    (2,453)       2,805
          Insurance claim receivable             (2,575)        -
          Inventories                              (163)       5,361
          Operating supplies and other
            current assets                           18         (206)
          Refundable income taxes                   -             80
          Deferred tax assets                       -            (94)
          Accounts payable                        2,291       (2,892)
          Accrued liabilities                      (334)        (243)

          Net cash flows from
            operating activities                 (8,603)         716

Cash Flows From Investing Activities:
  Capital expenditures                             (489)        (365)

          Net cash flows from
            investing activities                   (489)        (365)

Cash Flows From Financing Activities:
  Net advances on line of credit                  2,481        2,579
  Deferred financing fees                          (698)         (49)
  Repayment of long-term debt                      -          (3,333)
  Issuance of common stock                         -              25

          Net cash flows from
            financing activities                  1,783         (778)

          Net decrease in cash
            and cash equivalents                 (7,309)        (427)

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

Cash and Cash Equivalents at End of Period     $    196     $  8,261

Interest Paid                                  $  2,023     $  1,927

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 nine-month periods ended June 30, 2001 reflect
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 of America 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 nine-month periods ended June 29, 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

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 and domestic
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 of
America 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 when risk and title
passes to the customer, which generally occurs 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.



SFAS No. 145  "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections"
     In April 2002, the Financial Accounting Standards Board issued
Statement No. 145 (SFAS 145) "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 rescinds FASB Statement No. 4, Reporting
Gains and Losses from Extinguishment of Debt, and an amendment of
that Statement, FASB Statement No. 64, Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements.  This Statement also rescinds
FASB Statement No. 44, Accounting for Intangible Assets of Motor
Carriers. This Statement amends FASB Statement No. 13, Accounting
for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions.  This
Statement also amends other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions.  This
standard is required to be adopted for fiscal years beginning after
May 15, 2002 and certain transactions after May 15, 2002.  As such,
the Company is not required to adopt this standard until the fiscal
year beginning September 29, 2002 and has not entered into any
certain transactions since May 15, 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. 146 "Accounting for Costs Associated with Exit or Disposal
Activities"
      In July 2002, the Financial Accounting Standards Board issued
Statement No. 146 (SFAS 146), "Accounting for Costs Associated with
Exit or Disposal Activities".  SFAS 146 required companies to
recognize costs associated with exit or disposal activities when they
are incurred rather than at the date of a commitment to an exit or
disposal plan.  Examples of costs covered by the standard include
lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity.  Statement 146 is to be
applied prospectively to exit or disposal activities initiated after
December 31, 2002.


(4)  Inventories

	Inventories at June 29, 2002 and September 29, 2001 consist
of the following ($000's):
                                          June 29,   Sept. 29,
                                            2002       2001
    Raw materials                        $  3,355    $  2,113
    Semi-finished and finished goods       13,770      14,849
           Total inventories             $ 17,125    $ 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
                                  June 29, 2002               June 30, 2001
                             Net                Per      Net                Per
                            Loss               Share    Loss               Share
                          (000's)    Shares    Amount  (000's)    Shares   Amount

                       <c>        <c>       <c>     <c>        <c>      <c>

Amounts for Basic
 Earnings Per Share       $(1,422) 4,100,285   $(.35)  $(1,346)  4,085,150 $(.33)

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

Amounts for Diluted
 Earnings Per Share       $(1,422) 4,100,285   $(.35)  $(1,346)  4,085,150 $(.33)

    </table>
    <table>
                                  For the Nine                For the Nine
                                  Months Ended                Months Ended
                                  June 29, 2002               June 30, 2001
                             Net                Per      Net               Per
                            Loss               Share    Loss              Share
                          (000's)    Shares    Amount  (000's)   Shares   Amount

                       <c>        <c>       <c>     <c>       <c>      <c>

Amounts for Basic
 Earnings Per Share       $(7,604) 4,100,285  $(1.85)  $(3,977) 4,078,057  $(.98)

Effect of Dilutive
 Securities - Options        -                   -        -         -         -

Amounts for Diluted
 Earnings Per Share       $(7,604) 4,100,285  $(1.85)  $(3,977) 4,078,057  $(.98)
</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:

                           June 29, 2002    June 30, 2001
Transition stock options       23,233           42,160
Employee stock options        660,900          616,244
                              684,133          658,404





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

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

                                      June 29,   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 obtained 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 June 29, 2002, approximately $14.6
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 until April 1 and rolling mill
until April 5.  The Company currently estimates that the total cost
to clean, repair, and replace its damaged equipment and facilities
to be approximately $4.0 million.  The Company maintains flood
insurance, including business interruption coverage, and expects
substantially all such costs to be covered by insurance except for
the $125,000 deductible. Through  June 29, 2002, the Company had
incurred cleanup and other costs of approximately $3,320,000.  The
accompanying statements of operations for the quarter and nine
months ended June 29, 2002 include a credit of  $880,000 for the
currently estimated and agreed upon reimbursement for business
interruption claims with the insurance carrier, which is included
in the calculation of cost of goods sold.  The accompanying
statement of operations for the nine months ended June 29, 2002
also includes the Company's deductible for this claim of $125,000.
As of June 29, 2002, the Company had a net receivable of
$2,575,000; the insurance carrier had advanced the Company $1.5
million on this claim as of June 29, 2002.  Subsequent to June 29,
2002 the insurance carrier advanced the Company an additional $1.5
million on this claim.  The Company expects to complete all
remaining repairs and finalize the settlement with the insurance
company during the fourth quarter of fiscal 2002 and does not
anticipate a material effect on fourth quarter operating results.


	(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.














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 increased $3.6 million (18.2%) in the
third quarter of fiscal 2002 to $23.0 million, as compared to $19.4
million for the third quarter of fiscal 2001.  The increase in
sales for the third quarter of fiscal 2002 as compared to the third
quarter of fiscal 2001 is attributed to an increase in finished
goods shipments offset somewhat by a decrease in average selling
price.  Finished goods tons shipped increased 24.8% in the third
quarter of fiscal 2002 as compared to the third quarter of fiscal
2001.  The average selling price for finished goods shipped was
down 6.4% in the third quarter of fiscal 2002 from the comparable
period of fiscal 2001.  The decrease in average selling price is
attributed to market price reductions and changes in product mix.

Net sales for the nine months ended June 29, 2002 decreased
$1.3 million (2.1%) to $58.2 million as compared to $59.5 million
for the nine months ended June 30, 2001.  The decrease in sales for
the nine months ended June 29, 2002 as compared to the nine months
ended June 30, 2001 is primarily due to a decrease in average
selling price offset slightly by an increase in finished goods tons
shipped.  The average selling price per ton for finished goods
shipped was down 5.3% for the nine months ended June 29, 2002 as
compared to the nine months ended June 30, 2001.  The decrease in
average selling price is attributed to market price reductions and
changes in product mix.  Finished goods tons shipped increased 2.0%
for the nine months ended June 29, 2002 as compared to the nine
months ended June 30, 2001.

Cost of Goods Sold.  Cost of goods sold increased $2.5 million
(13.0%) in the third quarter of fiscal 2002 to $21.9 million, as
compared to $19.4 million for the third quarter of fiscal 2001. As
a percentage of net sales, cost of goods sold decreased from 99.8%
for the third quarter of fiscal 2001 to 95.4% for the third quarter
of fiscal 2002.  The increase in cost of goods sold for the third
quarter of fiscal 2002 as compared to the third quarter of fiscal
2001 is primarily due to the increase in finished goods and billet
shipments (as discussed above) partially offset by a decrease in
per ton manufacturing costs.  The decrease in per ton manufacturing
costs reflects significantly higher production levels, the
inclusion of $880,000 from business interruption reimbursement and
a charge of $200,000 related to a four-year sales and property tax
audit  in the calculation of cost of goods sold.  Also, per ton
manufacturing costs reflects the benefits of the workforce
restructuring implemented in 2001 complimented by a decrease in
self-insured health and workers compensation costs.  These
decreases to per ton manufacturing costs were partially offset by
higher scrap costs due to an increase in purchase price of scrap.
The decrease in cost of goods sold as a percentage of net sales for
the third quarter of fiscal 2002 as compared to the third quarter
of fiscal 2001 is primarily due to the decrease in per ton
manufacturing costs (as discussed above) partially offset by the
decrease in average selling price (as discussed above).


Cost of goods sold for the nine months ended June 29, 2002
increased $.2 million (.4%) to $58.9 million as compared to $58.7
million for the nine months ended June 30, 2001.  As a percentage
of net sales, cost of goods sold increased from 98.7% for the nine
months ended June 30, 2001 to 101.2% for the nine months ended June
29, 2002.  The slight increase in cost of goods sold for the nine
months ended June 29, 2002 as compared to the nine months ended
June 30, 2001 is due to the increase in finished goods shipments
(as discussed above) and billet shipments partially offset by a
decrease in per ton manufacturing cost of tons shipped.  The
decrease in per ton manufacturing costs reflects significantly
higher production levels, the inclusion of $880,000 from business
interruption reimbursement and a charge of $200,000 related to a
four-year sales and property tax audit in the calculation of cost
of goods sold.  Also, per ton manufacturing costs reflects the
benefits of the workforce restructuring implemented in 2001
complimented by a decrease in self-insured health and workers
compensation costs.  The increase in cost of goods sold as a
percentage of net sales for the nine months ended June 29, 2002 as
compared to the nine months ended June 30, 2001 is attributed to
lower selling prices (as discussed above) partially offset by
decreases in per ton manufacturing costs (as discussed above).

The Company experienced a flood on March 20, 2002 which shut
down operations in the melt shop until April 1 and rolling mill
until April 5.  The Company currently estimates that the total cost
to clean, repair, and replace its damaged equipment and facilities
to be approximately $4.0 million.  The Company maintains flood
insurance, including business interruption coverage, and expects
substantially all such costs to be covered by insurance except for
the $125,000 deductible.  Through June 29, 2002, the Company had
incurred cleanup and other costs of approximately $3,320,000. The
accompanying statements of operations for the quarter and nine
months ended June 29, 2002 include a credit of  $880,000 for the
currently estimated and agreed upon reimbursement for business
interruption claims with the insurance carrier, which is included
in the calculation of cost of goods sold.  The accompanying
statement of operations for the nine months ended June 29, 2002
also include the Company's deductible for this claim of $125,000.
As of June 29, 2002, the Company had a net receivable of
$2,575,000; the insurance carrier had advanced the Company $1.5
million on this claim as of June 29, 2002.  Subsequent to June 29,
2002 the insurance carrier advanced the Company an additional $1.5
million on this claim.  The Company expects to complete all
remaining repairs and finalize the settlement with the insurance
company during the fourth quarter of fiscal 2002 and does not
anticipate a material effect on fourth quarter operating results.

Gross Profit (Loss).  As a result of the above, the third
quarter of fiscal 2002 reflected a gross profit of $1,050,000 as
compared to a gross profit of $34,000 for the third quarter of
fiscal 2001. As a percentage of net sales, gross profit increased
from .2% in the third quarter of fiscal 2001 to 4.6% for the third
quarter of fiscal 2002.

The nine months ended June 29, 2002 reflected a gross profit
(loss) of ($.7) million as compared to a gross profit of $.8
million for the nine months ended June 30, 2001.  As a percentage
of net sales, gross profit decreased from 1.3% for the nine months
ended June 30, 2001 to (1.2%) for the nine months ended June 29,
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 increased by $.1 million for the third quarter of fiscal
2002 as compared to the same period in fiscal 2001.  As a
percentage of net sales, such expenses decreased from 9.2% for the
third quarter of fiscal 2001 to 8.3% for the third quarter of
fiscal 2002.  The increase in selling and administrative expenses
in the third quarter of fiscal 2002 as compared to the third
quarter of fiscal 2001 is primarily due to an increase in bad debt
expense of $200,000 and a $46,000 increase in the amortization of
deferred financing fees partially offset by a decrease in legal
fees of $109,000. The increase in bad debt expense is due to the
bankruptcy of a customer in the third quarter of fiscal 2002.

Selling and administrative expenses decreased by $.7 million
for the nine months ended June 29, 2002 as compared to the same
period for fiscal 2001.  As a percentage of net sales, such
expenses decreased from 10.3% for the nine months ended June 30,
2001 to 9.3% for the nine months ended June 29, 2002.  The decrease
in selling and administrative expenses for the nine months ended
June 29, 2002 as compared to the nine months ended June 30, 2001
is primarily due to a decrease in bad debt expense of $363,000 and
a decrease in self-insured health and workers compensation costs
of $254,000.  Bad debt expense in fiscal 2001 was unusually high
due to the bankruptcy of a large customer in fiscal 2001.

Workforce Reduction Changes.  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 and accrued  severance pay and
related costs of approximately $300,000 which is reflected in the
financial statements for the nine months ended June 30, 2001.

Operating Income (Loss). For the reasons described above, the
third quarter of fiscal 2002 reflected an operating loss of $(.9)
million as compared to an operating loss of $(1.8) million for the
third quarter of fiscal 2001.  As a percentage of net sales,
operating loss decreased from (9.0%) in the third quarter of 2001
to (3.8%) in the third quarter of 2002.

The nine months ended June 29, 2002 reflected an operating
loss of $(6.1) million as compared to operating loss of $(5.6)
million for the nine months ended June 30, 2001.  As a percentage
of net sales, operating loss increased from (9.5%) for the nine
months ended June 30, 2001 to (10.5%) for the nine months ended
June 29, 2002.

Interest Income and Other.  Interest and other income
decreased by $85,000  from $123,000 for the third quarter of fiscal
2001 to $38,000 for the third quarter of fiscal 2002.  Interest and
other income decreased by $661,000 for the nine months ended June
29, 2002 from $800,000 for the nine months ended June 30, 2001 to
$139,000 for the nine months ended June 29, 2002.  The first nine
months of fiscal 2001 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 third quarter
and nine months ended June 30, 2001 due to the investment of the
proceeds from the sale and leaseback transaction completed in
September 2000.


Interest Expense.  Interest expense increased by $69,000 for
the three months ended June 29, 2002 from $523,000 for the third
quarter of fiscal 2001 to $592,000 for the third quarter of fiscal
2002.  Interest expense increased by $0.l million for the nine
months ended June 29, 2002 from $1.5 million for the nine months
ended June 30, 2001 to $1.6 million for the nine months ended June
29, 2002.  The increase in interest expense for the third quarter
and first nine months of fiscal 2002 is primarily due to an
increase in interest rates on the Company's long-term debt and line
of credit.

Provision (Credit) for Income Taxes. Due to the loss incurred
in fiscal 2001 and the first nine 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 $.5 million
during the third quarter of fiscal 2002 and $2.8 million for the
nine months ended June 29, 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 Income (Loss). As a result of the above, the third quarter
of fiscal 2002 reflected a net loss of $(1.4) million as compared
to a net loss of $(1.3) million for the third quarter of fiscal
2001.

	   The nine months ended June 29, 2002 reflected a net loss of
$(7.6) million as compared to a net loss of $(4.0) million for the
nine months ended June 30, 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 $8.6 million for
the nine months ended June 29, 2002 as compared to cash flows
provided by operating activities of $.7 million for the nine months
ended June 30, 2001.  The nine months ended June 29, 2002 reflect
the net loss of $7.6 million, $2.2 million in depreciation and
amortization, an increase in accounts receivable of $2.5 million,
an insurance claim receivable of $2.6 million, an increase in
accounts payable of $2.3 million, and a decrease in accrued
liabilities of $.3 million.  The increase in accounts receivable
is due to the increase in net sales.  The insurance claim
receivable of $2.5 million represents the estimated reimbursement
receivable from the insurance carrier for the cost to repair and
replace flood damaged equipment and business interruption as of
June 29, 2002.  Subsequent to June 29, 2002 the insurance carrier
advanced the Company $1.5 million on this claim.  The increase in
accounts payable is due to the increase in operating levels and
accounts payable related to the repairs covered by the insurance
claim.  The first nine months of fiscal 2001 cash flows reflect a
net loss of $4.0 million, $2.1 million in depreciation and
amortization, an increase in deferred tax assets of $2.4 million,
a decrease in accounts receivable of $2.8 million, a decrease in
inventories of $5.4 million, an increase in operating supplies and
other current assets of $.2 million, a decrease in accounts payable
of $2.9 million, and a decrease in accrued liabilities of $.2
million.

	   The cash flows used in investing activities were $.5 million
for the first nine months of fiscal 2002 as compared to $.4 million
for the first nine months of fiscal 2001. The cash flows used in
investing activities for the first nine months of fiscal 2002 and
fiscal 2001 were used for capital expenditures.

	   Cash flows provided by financing activities were $1.8 million
for the first nine months of fiscal 2002 as compared to cash flows
used by financing activities of $.8 million for the first nine
months of fiscal 2001.  The cash flows provided by financing
activities for the first nine months of fiscal 2002 reflect
financing charges of $.7 million related to the Company's debt
restructuring and $2.5 million in advances on the Company's line
of credit.  The cash flows used by financing activities for the
first nine months of fiscal 2001 reflect net advances of $2.6
million on the Company's line of credit and the repayment of $3.3
million in long-term debt.

	  Working capital at June 29, 2002 was $7.9 million as compared
to $15.9  million at September 29, 2001, and the current ratio was
1.3 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 restructured 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 August 13, 2002, approximately $15.0
million was outstanding under the Company's line of credit,
approximately $1.1 million was utilized to collateralize various
letters of credit and $1.9 million was available for additional
borrowings.  The Company anticipates that the amount available
under the line of credit will increase as payments are received
from the business interruption portion of the insurance claim
receivable.

	   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 nine
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 cash requirements and compliance with the new
debt covenants will be met if the Company continues to incur
significant financial losses.


Critical Accounting Policies and Estimates

       The preparation of consolidated financial statements
requires the Company to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities.  On
an on-going basis, the Company evaluates its estimates, including
those related to allowance for bad debts, inventories, long-lived
assets, income taxes, customer claims, product liability,
restructuring liabilities, environmental contingencies and
litigation.  The Company bases its estimates on historical
experience and on various other assumptions that management
believes are reasonable under the circumstances.  Actual results
may differ from these estimates under different assumptions or
conditions.  The critical accounting policies management believes
affect the Company's more significant judgments and estimates used
in the preparation of the consolidated financial statements are
included in Item 7. "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and the notes to
the consolidated financial statements of the Company's Form 10-K
for the year ended September 29, 2001.


Outlook

	    Demand and pricing for the Company's products improved during
the third quarter of fiscal 2002 as compared to the first half of
2002.  Management believes that both demand and pricing should
continue to improve in the coming months.  If the Company's
business does continue to improve, management anticipates that
additional financing will be needed to accommodate any associated
growth in accounts receivable and inventory levels.  Management
will continue working with the Company's lenders to attempt to
insure that adequate financing is available to meet any such
increased working capital needs, as well as to make the scheduled
$1,500,000 principal payment due on November 1, 2002 under existing
debt obligations.


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;
intense foreign and domestic competition; management's estimate of
niche market data; the cyclical and capital intensive nature of the
industry; the cost of compliance with environmental regulations;
and the ability to secure long-term financing. These risks and
uncertainties could cause actual results of the Company to differ
materially from those projected or implied by such forward-looking
statements.


Quantitative and Qualitative 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.













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 Statements on
Form S-1 (No. 33-67140), 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:  August 13, 2002          KENTUCKY ELECTRIC STEEL, INC.
                                           (Registrant)


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