NOTE 2 – INVENTORIES

The Company's inventories primarily consist of ferrous and non-ferrous scrap metals, and are valued at the lower of average purchased cost or market based on the specific scrap commodity. Quantities of inventories are determined based on our inventory systems and are subject to periodic physical verification using estimation techniques including observation, weighing and other industry methods. The Company recognizes inventory impairment and related adjustments when the market value, based upon current market pricing, falls below recorded value or when the estimated volume is less than the recorded volume of the inventory. The Company records the loss in cost of sales in the period during which the loss is identified.

Management spent much of 2014 and early 2015 working to assess the Company's automobile shredder residue ("ASR") process. Significant process and strategy changes associated with the ASR process were made. These changes, combined with the significant metals market reduction in market demand and prices experienced in late 2014 and through 2015, caused management to perform a lower of cost-or-market assessment, which resulted in inventory write-downs during the nine months ended September 30, 2015 in the amount of $1.1 million charged to cost of sales as a result of impairment associated primarily with ferrous market price decreases. The Company did not have a lower of cost-or-market inventory write-down in the nine month period ended September 30, 2016.

Some commodities are in saleable condition at acquisition. The Company purchases these commodities in small amounts until it has a truckload of material available for shipment. Some commodities are not in saleable condition at acquisition. These commodities must be shredded, torched or baled. ISA does not have work-in-process inventory that needs to be manufactured to become finished goods. The Company includes processing costs in inventory for all commodities by weight.

Inventories as of September 30, 2016 and December 31, 2015 consist of the following:


	September 30, 2016 (unaudited)								December 31, 2015
	Raw Materials		Finished Goods		Processing Costs		Total		Raw Materials		Finished Goods		Processing Costs		Total
	(in thousands)
Ferrous and non-ferrous materials	$	1,864	$	614	$	422	$	2,900	$	1,354	$	649	$	404	$	2,407
Other	—		—		—		—		—		3		—		3
Total inventories for sale	$	1,864	$	614	$	422	$	2,900	$	1,354	$	652	$	404	$	2,410