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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2002

Commission File No. 000-22687

JLM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter.)

8675 Hidden River Parkway, Tampa, FL 33637
(Address of principal executive office)

(813) 632-3300
(Registrant’s telephone number, including area code)

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 o

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JLM INDUSTRIES, INC.

INDEX

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands)

1.      Description of Business

         JLM Industries, Inc. and subsidiaries (“JLM” or the “Company”) is a leading marketer and distributor of certain commodity chemicals, principally acetone and phenol. The Company believes that it is one of the largest chemical distributors in North America. JLM is also a global distributor of olefins, principally propylene, as well as a variety of other commodity, inorganic and specialty chemicals. In order to provide stable and reliable sources of supply for its products, the Company (i) maintains established supplier relationships with major chemical companies, (ii) manufactures phenol and acetone at its plant in Blue Island, Illinois and (iii) sources acetone from its joint venture manufacturing operation. The Company’s principal products, acetone, phenol and propylene, are used in the production of adhesives, coatings, forest product resins, paints, pharmaceuticals, plastics, solvents and synthetic rubbers. The Company sells its products worldwide to over 1,000 customers.

2.      Summary of Significant Accounting Policies

         The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2001 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2002.

         In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) considered necessary to present fairly the financial position of the Company as of September 30, 2002 and the results of its operations and its cash flows for the respective three and nine months ended September 30, 2002 and 2001. Interim results for the three and nine months ended September 30, 2002 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2002.

         Other Comprehensive Income (Loss) includes foreign currency translation adjustments. Current assets and liabilities of foreign subsidiaries are translated at exchange rates in effect at the respective balance sheet dates. Non-current assets and liabilities are translated at their respective historical rates. Results of operations are translated at weighted average rates for the three and nine months ended September 30, 2002 and 2001, respectively. The effects of exchange rate changes in translating foreign financial statements are reported in accumulated other comprehensive income, a separate component of stockholders’ equity.

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands)

2.      Summary of Significant Accounting Policies - Continued

         Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS No. 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS No. 133 effective January 1, 2001. The Company uses derivatives and financial instruments in managing certain risks. The Company records the derivatives as assets or liabilities and reflects changes in the market value in the statement of operations. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. Managed risk includes the risk associated with changes in fair value of transactions denominated in currencies other than the Company’s various local currencies.

         Effective January 1, 2002, the Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets”. SFAS No. 142 requires the Company to test goodwill and indefinite-lived intangible assets for impairment rather than amortize them. As of June 30, 2002, the Company has completed Step 1 of the impairment analysis of goodwill, which shows indications of potential impairment as it relates to the marketing segment. The Company is currently unable to reasonably estimate the amount of any impairment loss, and will complete Step 2 of the analysis by the end of 2002, and record an impairment adjustment at that time, if necessary.

         Pro forma results for the three and nine months ended September 30, 2001, assuming the discontinuation of amortization of goodwill on January 1, 2001, are as follows (in thousands except per share amounts):

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – Continued
(In thousands)

2.      Summary of Significant Accounting Policies - Continued

         Issued in October 2001, SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” The accounting model for long-lived assets to be disposed of by sales applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting Results of Operations – Reporting the Effects of Disposal of a Segment of a Business”, for the disposal of segments of a business. SFAS No. 144 requires that those long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting for discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company adopted the provisions of SFAS No. 144 on January 1, 2002. The adoption did not have a material effect on the results of operations, financial position or cash flows of the Company.

3.      Segment Data

         JLM’s business consists of a marketing and a manufacturing segment. JLM’s manufacturing segment consists of JLM Chemicals, Inc. JLM’s marketing segment includes its distribution, storage and terminalling operations and all other sourcing operations. Marketing segment revenues include an assumed selling commission determined in accordance with industry standards for the sale of products manufactured at JLM Chemicals, Inc. The following schedule presents information about JLM’s operating segments and geographic locations for the three and nine months ended September 30:

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – Continued
(In thousands)

3.      Segment Data - continued

4.      Net loss per share

         Basic loss per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilutive effect of securities (which can consist of stock options, warrants, and restricted stocks) that could share in earnings of the Company, unless the inclusion of these potential dilutive effects results in antidilution. The average market price of the Company’s common stock was less than the exercise price of the options throughout the majority of the three and nine months ended September 30, 2002 and 2001. During the three and nine months ended September 30, 2002 the effect of these securities was antidilutive.

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – Continued
(In thousands)

5.      Other investments

         Included in other investments, is the Company’s 49% interest in Quimicos La Barraca, C.A. (“Quibarca”), which is accounted for using the equity method. The Company’s equity in earnings (losses) during the three and nine months ended September 30, 2002 was approximately $(403,000) and $313,000, respectively. The Company’s equity in earnings during the three and nine months ended September 30, 2001 was approximately $56,000 and $155,000, respectively. The Company’s investment in Quibarca totaled approximately $4,045,000 at September 30, 2002 and $3,732,000 at December 31, 2001.

         The following summarizes the assets, liabilities and partners’ capital of Quibarca at:

         The following summarizes revenues, cost of revenues, and net income of Quibarca for the following periods:

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JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – Continued
(In thousands)

6.      Debt

         On August 26, 2002, two of the Company’s subsidiaries, JLM Realty, Inc. (“JLM Realty”) and JLM Industries (South Africa) (Proprietary) Limited (“JLM SA”), entered into a $2.0 million secured loan (the “Secured Loan”) with The Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the “Trust”) which matures on December 31, 2002. Philip S. Sassower is a director of the Company and a co-trustee of the Trust. The Secured Loan bears interest at a rate per annum equal to the interest rate applicable to the amounts due by the Company under the Term Debt Facility with GATX Capital Corporation, and shall be adjusted from time to time in the same manner as the interest rate under the Term Debt Facility. The Company ’s subsidiary JLM Chemicals, Inc. (“JLM Chemicals”) has guaranteed the payment and performance by JLM Realty and JLM SA of the Secured Loan and related indebtedness. The guaranty of JLM Chemicals is not effective unless any consents of senior lenders of the Company, JLM Chemicals, JLM Realty or JLM SA that are required in order for JLM Chemicals to make the guaranty without breach of any Company or Company subsidiary obligations to such lenders are obtained. As of September 30, 2002, The Trust had elected not to require JLM Chemicals to seek such senior lender consents, and the guaranty was not effective. As collateral for indebtedness under the Secured Loan: (i) JLM SA granted the Trust a first priority security interest and lien on all of its tangible and intangible property, including but not limited to, equipment, receivables, general intangibles, personal property and records; and (ii) JLM Realty granted the Trust a first lien on certain undeveloped real property located in New Hanover County, North Carolina. If and when the JLM Chemicals guaranty becomes effective, it is secured by a subordinate security interest in and lien on JLM Chemicals’ equipment, inventory, fixtures, vehicles, consumer goods and improvements located at the Company’s Blue Island, Illinois manufacturing facility.

         The obligations of JLM Realty and JLM SA under the Secured Loan are joint and several and the principal balance due under the Secured Loan may be prepaid in whole or in part at any time without penalty. As of September 30, 2002, the outstanding principal balance due under the Secured Loan was $2.0 million.

         In connection with the Secured Loan, the Company issued warrants to the Trust to purchase up to 1,666,666 shares of the Company’s common stock (the “Trust Warrants”) at an exercise price of $1.20 per share, subject to adjustment for certain dilutive events. If the Secured Loan and accrued interest are not repaid in full at maturity the Trust Warrants will become exercisable at the rate of 208.333 shares of the Company’s common stock for every $1,000 of the principal balance of the Secured Loan outstanding on the following dates: (i) December 31, 2002, (ii) April 30, 2003, (iii) August 31, 2003 and (iv) December 31, 2003. The Trust Warrants will expire on December 31, 2007. If the Secured Loan and accrued interest are repaid in full on or prior to maturity, the Trust Warrants will terminate and expire prior to becoming exercisable. The Company also granted certain registration rights with respect to the shares underlying the Trust Warrants. As of September 30, 2002, none of the Trust Warrants had become exercisable.

         The terms of the Secured Loan also provide that in the event that the Secured Loan and accrued interest are not repaid in full on or prior to December 31, 2003, the Trust has the option to convert all or any portion of the outstanding principal balance of the Secured Loan into shares of the Company’s common stock at a conversion price equal to $1.20 per share, subject to adjustment for certain dilutive events.

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         As of September 30, 2002, the Company did not meet a net worth debt covenant as required by its revolving credit agreement. The Company has obtained a waiver of this covenant requirement. The Company believes that it will be able to comply with the covenant for a period of not less than twelve months, and accordingly, has classified maturities beyond twelve months as long-term.

           As of September 30, 2002, the Company did not meet a debt covenant as required by its term loan agreement. The Company has obtained a waiver of this covenant requirement, and has successfully negotiated a revision of the covenant requirements in the term loan agreement. The Company believes that it will be able to comply with the revised covenants for a period of not less than twelve months, and accordingly, has classified maturities beyond twelve months as long-term.

Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
              FINANCIAL CONDITION

Forward Looking Information

         This report contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. The potential risks and uncertainties that could cause actual results to differ materially include: the cyclical nature of the worldwide chemical market; the possibility of excess capacity; fluctuations in the cost and availability of raw materials; the potential and economic uncertainties associated with international operations; fluctuations of foreign exchange; the risks associated with potential acquisitions, and the ability to implement other features of the Company’s business strategy.

         An investment in the Company’s common stock involves a high degree of risk. Stockholders and prospective purchasers should carefully consider the risk factors in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed with the Securities and Exchange Commission on April 1, 2002, as well as other information contained in the Company’s other periodic filings with the Commission. If any of the risks described therein actually occur, the Company’s business could be materially harmed.

Critical Accounting Policies

         The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. The Company’s audited consolidated financial statements, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2002, describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventory valuation adjustments, investment impairments, goodwill impairments, loss contingencies, and income taxes. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the unaudited condensed consolidated financial statements.

         The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. The Company utilizes credit insurance to minimize the risk of loss from non-payment of U.S. customer receivables. If there is a deterioration of a major customer’s credit worthiness, and if balances exceed insured limits, the Company’s estimates of the recoverability of amounts due to us could be adversely affected. The allowance for doubtful accounts is determined primarily on the basis of management’s best estimate of probable losses, including specific allowances for known troubled accounts.

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            Inventory purchases and commitments are based upon future demand forecasts. If there is a sudden and significant decrease in demand for its products, the Company may be required to record adjustments in order to reflect the inventory at the lower of cost or market, and the gross margin could be adversely affected.

         Other investments are primarily investments in partnerships. JLM accounts for the majority of its investments in partnerships on the equity basis and, accordingly, records its respective share of profits and losses that are allocated in accordance with the partnership agreements. Changes in market conditions could result in investment impairment.

         The carrying values of long-lived assets, including property and equipment, goodwill and other intangibles, and investments, are reviewed for impairment whenever events or changes in circumstances indicate that the recorded value cannot be recovered from undiscounted future cash flows. In response to changes in industry and market conditions, the Company may strategically realign resources and consider restructuring or disposing of businesses, which could result in an impairment of goodwill. When the book value of an intangible asset exceeds associated expected future operating cash flows, it is considered to be impaired and is written down to fair value, which is determined based on either future cash flows or appraised values.

         JLM is subject to the possibility of various loss contingencies arising in the ordinary course of business. JLM considers the likelihood of the loss or impairment of an asset, or the incurrence of a liability as well as JLM’s ability to reasonably estimate the amount of the loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired, and the amount of loss can be reasonably estimated. JLM regularly evaluates information currently available to the Company to determine whether such losses should be recorded. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about potential actions by third parties such as regulators.

         JLM accounts for U.S. income taxes and accrues for U.S. income tax liabilities based on its consolidated U.S. earnings. The Company’s foreign subsidiaries file tax returns in the countries where incorporated. To the extent these subsidiaries are profitable, taxes are paid based on each country’s prevailing tax rate. Upon repatriation of non-U.S. earnings, the U.S. allows a foreign tax credit, subject to certain limitations, to be applied against the Company’s U.S. consolidated return for the foreign taxes paid by the Company’s foreign subsidiaries. If losses are incurred, countries in which the Company’s foreign subsidiaries are incorporated generally allow the losses to be carried forward and applied against income earned in subsequent years. The Company’s future effective tax rates and realization of carry forward losses could be adversely affected if earnings are lower than anticipated in countries where there are lower statutory rates or by unfavorable changes in tax laws or regulations.

General

         JLM is a leading marketer and distributor of certain commodity chemicals, principally acetone and phenol. The Company believes it is one of the largest chemical distributors in North America. JLM is also a global distributor of olefins, principally propylene, as well as a variety of other commodity and specialty chemicals. In order to provide stable and reliable sources of supply for its products, the Company (i) maintains established supplier relationships with several major chemical companies, (ii) manufactures phenol and acetone and (iii) sources acetone from its joint venture manufacturing operation.

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         The Company’s business consists of manufacturing and marketing segments. The Company’s manufacturing segment includes the operations of the Blue Island Plant. The Company’s marketing segment includes its distribution, storage and terminaling operations and all other sourcing operations.

         A majority of the Company’s revenue is derived from the sale of commodity chemicals, which have prices that are subject to cyclical fluctuations. The Company endeavors to enter into supply contracts that provide a fixed percentage profit per unit of product sold. Raw material pricing declined in 2001, leading to some recovery of the Company’s operating margins. Gross margins were negatively impacted during the first nine months of 2002 due to rising raw material costs.

         During the third quarter of 2001, the Company sold substantially all of the assets of JLM Terminals, Inc. (“JLM Terminals”) and all of the outstanding stock of JLM Asia Pte, Ltd. (“JLM Asia”). During the second quarter of 2001, the Company also sold a portion of JLM Marketing’s solvents distribution business in the United States. As a result of these transactions, the Company expects the trend of lower revenues, gross profits, and expenses to continue.

         Set forth below, for the periods indicated, is certain unaudited information regarding the contributions by the marketing and manufacturing segments to the Company’s revenues, gross profit, operating income, gross margin and operating margin. Results for any one or more periods are not necessarily indicative of annual results or continuing trends.

Marketing Segment

         The marketing segment revenues are influenced largely by the volume of new and existing products sold by the Company. The volume of products sold depends on a number of factors, including strength in the homebuilding and automobile industries and the overall economic environment. The Company’s supply agreements, primarily relating to acetone, frequently contain a term providing for a fixed percentage profit per unit of product sold. In addition, the Company’s supplier and customer contracts have a provision permitting the Company to purchase or sell additional product at the Company’s option, typically plus or minus 5.0% of the contractual volume amount. As a result, during a period of pricing volatility, the Company has the opportunity to improve its profitability by exercising the appropriate option to either build inventory in a rising price environment or to sell product for future delivery in a declining price environment.

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Manufacturing Segment

         The results of operations of the Company’s manufacturing segment are influenced by a number of factors, including economic conditions, competition and the cost of raw materials, principally propylene and benzene. The Company’s ability to pass along raw material price increases to its customers is limited because the commodity nature of the chemicals manufactured at the Blue Island Plant restricts the Company’s ability to increase prices.

         The development of financial instruments to hedge against changes in the prices of propylene and benzene has occurred in the past few years. The Company may seek periodically in the future, to the extent available, to enter into financial hedging contracts for the purchase of propylene and benzene in an effort to manage its raw material purchase costs. There can be no assurance that the Company will utilize such financial hedging contracts or that the use of such instruments by the Company will be successful. The Company can be exposed to losses in connection with such contracts equal to the amount by which the fixed hedge price on the contract is above the market price for such chemicals at the time of purchase. The Company did not enter into any material financial hedging contracts in 2001 or in the first nine months of 2002.

         Since its acquisition in 1995, the Blue Island Plant has operated at or near full capacity and, in order to economically expand its production capacity, the Company would be required to incur significant costs. As a result, the Company has no plans to expand the capacity of the Blue Island Plant.

Results of Operations

Three months ended September 30, 2002 compared to the three months ended September 30, 2001

         Revenues. Revenues decreased $19.8 million, or 23.8%, to $63.2 million for the three months ended September 30, 2002 from $83.0 million for the comparable prior year period. Revenues for the marketing segment decreased $22.3 million, or 29.1%, to $54.5 million for the quarter ended September 30, 2002 from $76.8 million for the comparable prior year period. The Company sold its Singapore subsidiary and JLM Terminals in 2001, which accounted for $38.4 million in revenues during the quarter ended September 30, 2001. The Company also experienced higher revenues from its marketing activities in the United States in the third quarter of 2002, primarily due to increases in volume. European marketing revenues increased $4.4 million due to an increase in volume, while export revenues from the United States increased $6.7 million due to a strong demand for product.

         Revenues for the manufacturing segment increased $2.6 million, or 41.9%, to $8.7 million for the third quarter 2002 from $6.1 million for the comparable prior year period. The increase in manufacturing segment revenues was primarily due to volume increases.

         Gross Profit. Gross profit decreased approximately $1.2 million, or 37.4%, to $2.0 million for the three months ended September 30, 2002 from $3.2 million for the comparable prior year period.Gross profit from the marketing segment decreased $0.3 million to $1.8 million for the third quarter 2002 from $2.1 million for the comparable prior year quarter, a decrease of 13.5%. The sale of the Singapore subsidiary and JLM Terminals accounted for $0.4 million of the decrease.

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         Gross profit from the manufacturing segment decreased $0.9 million, or 85.4%, to $0.1 million for the third quarter of 2002 from a gross profit of $1.0 million reported for the comparable prior year period. The decrease in manufacturing gross profit was the result of increases in raw material costs during the third quarter of 2002.

         Selling, General and Administrative Expenses (SG&A). SG&A decreased $1.3 million, or 22.8%, to $4.4 million for the three months ended September 30, 2002 from $5.7 million for the comparable prior year period. The sale of the Singapore subsidiary and JLM Terminals accounted for $0.4 million of the decrease. The remainder of the decrease, $0.9 million, was primarily the result of reductions in personnel, office closings, and other cost savings initiatives implemented by management. As a percentage of revenues, SG&A increased to 7.0% of revenues for the third quarter of 2002 from 6.9% of revenues for the third quarter of 2001.

         Operating Loss. Operating loss decreased $0.1 million to $2.4 million for the three months ended September 30, 2002 from $2.5 million for the comparable prior year period.

         Interest Expense – Net. Interest expense, net of interest income, increased $0.1 million to $0.5 million for the three months ended September 30, 2002 from $0.4 million for the comparable prior year period, primarily due to additional borrowings in 2002.

         Other Income (Expense) – Net. Other income (expense) decreased $2.1 million to other expense of $(0.5) million for the three months ended September 30, 2002 from other income of $1.6 million for the comparable prior year period. In the third quarter of 2001, other income (expense) consisted primarily of a gain from the settlement of a lawsuit and the loss on the sale of the Singapore subsidiary.

         Foreign Currency Exchange Gain (Loss). During the quarter ended September 30, 2002, the Company experienced a slight strengthening in the currencies of certain of its foreign subsidiaries compared to the U.S. dollar resulting in a loss on foreign currency exchange of $27 thousand as compared to a loss of $63 thousand for the comparable prior year period.

         Income Tax Provision (Benefit). The Company’s income tax provision (benefit) was the same at $0.2 million for the three months ended September 30, 2002 and the comparable prior year period. The effective income tax rates differ from period to period and from statutory rates due in part to the income tax effects of the sale of the Singapore subsidiary in 2001 and the creation of a valuation allowance on a portion of the net operating losses generated in 2002.

         Net loss. Net loss increased by $2.1 million to net loss of $3.2 million for the three months ended September 30, 2002 from a net loss of $1.1 million in the comparable prior year period.

Nine months ended September 30, 2002 compared to the nine months ended September 30, 2001

         Revenues. Revenues decreased $132.7 million, or 43.6%, to $172.0 million for the nine months ended September 30, 2002 from $304.7 million for the comparable prior year period. Revenues for the marketing segment decreased $135.8 million, or 47.5%, to $150.2 million for the nine months ended September 30, 2002 from $286.0 million for the comparable prior year period. The Company sold its Singapore subsidiary and JLM Terminals in 2001, which accounted for $132.5 million in revenues during the nine months ended September 30, 2001. The Company also experienced lower revenues from its marketing activities in the United States during the first nine months of 2002, primarily due to the sale in 2001 of a portion of its solvents distribution business.

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European marketing revenues decreased $16.4 million due to a decrease in volume, while export revenues from the United States increased $13.4 million due to a strong demand for product.

         Revenues for the manufacturing segment increased $3.1 million, or 16.3%, to $21.8 million for the nine months ended September 30, 2002 from $18.7 million for the comparable prior year period. The increase in manufacturing segment revenues was primarily due to volume increases.

         Gross Profit. Gross profit decreased approximately $6.6 million, or 44.9%, to $8.1 million for the nine months ended September 30, 2002 from $14.7 million for the comparable prior year period.Gross profit from the marketing segment decreased $4.0 million to $7.7 million for the nine months ended September 30, 2002 from $11.7 million for the comparable prior year quarter, a decrease of 34.5%. The sale of the Singapore subsidiary and JLM Terminals accounted for $3.4 million of the decrease.

         Gross profit from the manufacturing segment decreased $2.6 million, or 85.7%, to $0.4 million for the nine months ended September 30, 2002 from $3.0 million reported for the comparable prior year period. The decrease in manufacturing gross profit was the result of increases in raw material costs during the nine months ended September 30, 2002.

         Selling, General and Administrative Expenses (SG&A). SG&A decreased $3.8 million, or 22.3%, to $13.2 million for the nine months ended September 30, 2002 from $17.0 million for the comparable prior year period. The sale of the Singapore subsidiary and JLM Terminals accounted for $2.2 million of the decrease. The remainder of the decrease, $1.6 million, was primarily the result of reductions in personnel, office closings, and other cost savings initiatives implemented by management. As a percentage of revenues, SG&A increased to 7.7% of revenues for the nine months ended September 30, 2002 from 5.6% of revenues for the nine months ended September 30, 2001.

         Operating Loss. Operating loss increased $2.8 million to an operating loss of $5.1 million for the nine months ended September 30, 2002 from an operating loss of $2.2 million for the nine months ended September 30, 2001.

         Interest Expense – Net. Interest expense, net of interest income, decreased $0.7 million to $1.3 million for the nine months ended September 30, 2002 from $2.0 million for the comparable prior year period, primarily due to lower interest rates as a result of debt refinancings in June 2001.

         Other Income (Expense) – Net. Other income (expense) decreased $4.0 million to $0.4 million for the nine months ended September 30, 2002 from $4.4 million for the comparable prior year period. In the first nine months of 2001, other income (expense) consisted primarily of gains on the sale of a portion of the solvents distribution business, gains from a lawsuit settlement, and the loss on the sale of the Singapore subsidiary.

         Foreign Currency Exchange Gain (Loss). During the nine months ended September 30, 2002, the Company experienced a slight strengthening in the currencies of certain of its foreign subsidiaries compared to the U.S. dollar resulting in a loss on foreign currency exchange of $22 thousand as compared to a loss of $0.3 million for the comparable prior year period.

         Income Tax Provision (Benefit). The Company’s income tax provision (benefit) increased $1.3 million to a benefit of $1.1 million for the nine months ended September 30, 2002 from a provision of $0.2 million for the comparable prior year period. The increase in the benefit for income taxes was primarily due to the increase in the operating loss, and taxes incurred on the sale of the

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         Net loss. Net loss increased by $4.5 million to a net loss of $4.8 million for the nine months ended September 30, 2002 from a net loss of $0.3 million in the comparable prior year period.

Liquidity and Capital Resources

Cash Flows

         Operating activities used approximately $2.4 million of cash during the nine months ended September 30, 2002. Net loss adjusted for non-cash items such as depreciation, amortization, and other non-cash charges incurred used $4.0 million of cash. Changes in assets and liabilities provided approximately $1.6 million of cash. Investing activities utilized approximately $0.8 million of cash, primarily consisting of capital expenditures. Financing activities provided approximately $2.9 million of cash primarily related the proceeds of the secured loan and to borrowings on the revolving line of credit.

         The Company has in the past funded its working capital and capital expenditure requirements through a combination of cash flow from operations, borrowings, and (in 2001) an equity private placement. For information about these transactions in 2001, including the terms of the Company’s existing revolving credit facility, term debt facility, and mortgage loan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

         The Company believes its liquidity and capital resources, including its ability to borrow additional amounts under its credit agreements, are sufficient to meet its currently anticipated needs through the foreseeable future and to permit it to continue to implement its business strategy. The Company is also considering selling non-core assets.

Credit Facilities

         On August 26, 2002, two of the Company’s subsidiaries, JLM Realty, Inc. (“JLM Realty”) and JLM Industries (South Africa) (Proprietary) Limited (“JLM SA”), entered into a $2.0 million secured loan (the “Secured Loan”) with The Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the “Trust”) which matures on December 31, 2002. Philip S. Sassower is a director of the Company and a co-trustee of the Trust. The Secured Loan bears interest at a rate per annum equal to the interest rate applicable to the amounts due by the Company under the Term Debt Facility with GATX Capital Corporation, and shall be adjusted from time to time in the same manner as the interest rate under the Term Debt Facility. The Company’s subsidiary JLM Chemicals, Inc. (“ JLM Chemicals”) has guaranteed the payment and performance by JLM Realty and JLM SA of the Secured Loan and related indebtedness. The guaranty of JLM Chemicals is not effective unless any consents of senior lenders of the Company, JLM Chemicals, JLM Realty or JLM SA that are required in order for JLM Chemicals to make the guaranty without breach of any Company or Company subsidiary obligations to such lenders are obtained. As of September 30, 2002, The Trust had elected not to require JLM Chemicals to seeksuch senior lender consents, and the guaranty was not effective. As collateral for indebtedness under the Secured Loan: (i) JLM SA granted the Trust a first priority security interest and lien on all of its tangible and intangible property, including but not limited to, equipment, receivables, general intangibles, personal property and records; and (ii) JLM Realty granted the Trust a first lien on certain undeveloped real property located in New

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Hanover County, North Carolina. If and when the JLM Chemicals guaranty becomes effective, it is secured by a subordinate security interest in and lien on JLM Chemicals’ equipment, inventory, fixtures, vehicles, consumer goods and improvements located at the Company’s Blue Island, Illinois manufacturing facility.

         The obligations of JLM Realty and JLM SA under the Secured Loan are joint and several and the principal balance due under the Secured Loan may be prepaid in whole or in part at any time without penalty. As of September 30, 2002, the outstanding principal balance due under the Secured Loan was $2.0 million.

         In connection with the Secured Loan, the Company issued warrants to the Trust to purchase up to 1,666,666 shares of the Company’s common stock (the “Trust Warrants”) at an exercise price of $1.20 per share, subject to adjustment for certain dilutive events. If the Secured Loan and accrued interest are not repaid in full at maturity the Trust Warrants will become exercisable at the rate of 208.333 shares of the Company’s common stock for every $1,000 of the principal balance of the Secured Loan outstanding on the following dates: (i) December 31, 2002, (ii) April 30, 2003, (iii) August 31, 2003 and (iv) December 31, 2003. The Trust Warrants will expire on December 31, 2007. If the Secured Loan and accrued interest are repaid in full on or prior to maturity, the Trust Warrants will terminate and expire prior to becoming exercisable. The Company also granted certain registration rights with respect to the shares underlying the Trust Warrants. As of September 30, 2002, none of the Trust Warrants had become exercisable.

         The terms of the Secured Loan also provide that in the event that the Secured Loan and accrued interest are not repaid in full on or prior to December 31, 2003, the Trust has the option to convert all or any portion of the outstanding principal balance of the Secured Loan into shares of the Company’s common stock at a conversion price equal to $1.20 per share, subject to adjustment for certain dilutive events.

         As of September 30, 2002, the Company did not meet a net worth debt covenant as required by its revolving credit agreement. The Company has obtained a waiver of this covenant requirement. The Company believes that it will be able to comply with the covenant for a period of not less than twelve months, and accordingly, has classified maturities beyond twelve months as long-term.

           As of September 30, 2002, the Company did not meet a debt covenant as required by its term loan agreement. The Company has obtained a waiver of this covenant requirement, and has successfully negotiated a revision of the covenant requirements in the term loan agreement. The Company believes that it will be able to comply with the revised covenants for a period of not less than twelve months, and accordingly, has classified maturities beyond twelve months as long-term.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

         There have been no material changes in market risk from the information provided in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

Item 4 – Controls and Procedures

         An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures within 90 days before the filing date of this quarterly report. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.

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PART II
OTHER INFORMATION

Item 1 - Legal Proceedings

         The Company is not a party to any legal proceedings, other than ordinary routine litigation incidental to the Company’s business. The Company does not believe that such claims and lawsuits, individually or in the aggregate, will have a material adverse effect on its business.

Item 6 - Exhibits and Reports on Form 8-K

A.       Exhibits

B.       Reports on Form 8-K

         The Company did not file any reports on Form 8-K during the three months ended September 30, 2002.

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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.

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Certification

I, John L. Macdonald, certify that:

1. I have reviewed this quarterly report on Form 10-Q of JLM Industries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly, report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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Certification

I, Michael Molina, certify that:

1. I have reviewed this quarterly report on Form 10-Q of JLM Industries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly, report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.