FORM 10-Q



SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, DC  20549



[X]   QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009

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
Number 0-20979



INDUSTRIAL
SERVICES OF AMERICA, INC.(Exact Name of Registrant as specified in its Charter)



Florida
			59-0712746(State
			or other jurisdiction of
			(IRS
			EmployerIncorporation or Organization)
			Identification No.)




7100 Grade Lane,
PO Box 32428
Louisville, Kentucky  40232
(Address of principal executive offices)



(502) 368-1661
(Registrant's Telephone Number, Including Area Code)



Check 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 ___



Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).

Yes ____  No ____



Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.   See the definitions of
"large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act.

(Check one):   Large accelerated filer                   Accelerated
filer                            Non-accelerated filer                    Smaller
reporting company X



Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  Yes ___  No _X__



Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of June 30,
2009:  3,786,292.



---



INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIESINDEXPage No.Part I
			Financial InformationCondensed Consolidated Balance SheetsJune 30, 2009 (Unaudited) and December 31,
			2008
			3Condensed Consolidated Statements ofOperations - Three Months EndedJune 30, 2009 and 2008 (Unaudited)
			5Condensed Consolidated Statements ofOperations - Six Months EndedJune 30, 2009 and 2008 (Unaudited)
			6Condensed Consolidated Statements of
			Shareholders' EquityJune 30, 2009 (Unaudited) and December 31,
			2008
			7Condensed Consolidated Statements ofCash Flows - Six Months EndedJune 30, 2009 and 2008 (Unaudited)
			8Notes to Condensed ConsolidatedFinancial Statements (Unaudited)
			9Management's Discussion and Analysisof Financial Condition and Resultsof Operations
			20Part II
			Other Information
			31




---



PART I --
FINANCIAL INFORMATION



ITEM 1: CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.



INDUSTRIAL
SERVICES OF AMERICA, INC. AND SUBSIDIARIES



CONDENSED
CONSOLIDATED BALANCE SHEETS



ASSETS





June 30,
			2009
			(Unaudited)
			
			December 31,
			2008Current assetsCash and cash equivalents
			$     644,097
			
			$   1,103,842Income tax receivable
			36,016
			
			36,016Accounts receivable - trade (after allowance
			
			    for doubtful accounts of $100,000 in 2009
			    and $490,000 in 2008)
			21,623,727
			
			3,811,484Net investment in sales-type leases
			59,022
			
			54,629Inventories
			10,693,812
			
			4,371,348Deferred income taxes
			912,337
			
			912,337Other
			304,635
			
			126,902Total current assets
			34,273,646
			
			10,416,558Shredder system construction in progress
			9,948,874
			
			6,547,902Net property and equipment
			13,754,207
			
			10,895,477Total property and equipment
			23,703,081
			
			17,443,379Other AssetsGoodwill
			560,005
			
			560,005Net investment in sales-type leases
			40,565
			
			71,222Notes receivable -- related party
			148,601
			
			167,594Other assets
			121,476
			
			132,672870,647
			
			931,493$  58,847,374
			
			$  28,791,430




____________________



See accompanying notes to
consolidated financial statements.

3.



---



INDUSTRIAL SERVICES OF AMERICA,
INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE
SHEETS

CONTINUED



LIABILITIES AND STOCKHOLDERS' EQUITY



June 30,
			2009
			(Unaudited)
			
			December 31,
			2008Current liabilitiesCurrent maturities
			of long term debt  (Note 4)
			$  12,510,331
			
			$      857,863Current maturities
			of capital lease obligation
			60,844
			
			80,771Accounts payable
			9,720,395
			
			3,701,895Income tax
			payable
			1,012,166
			
			566,205Note payable to
			BB&T  (Note 4)
			5,000,000
			
			-Liability for
			legal settlements
			-
			
			1,037,165Interest rate
			swap agreement liability  (Note 4)
			579,811
			
			792,236Accrued bonuses
			880,800
			
			54,500Other current
			liabilities
			569,257
			
			337,231Total
			current liabilities
			30,333,604
			
			7,427,686Long-term
			liabilitiesLong-term debt  (Note 4)
			13,032,159
			
			8,510,014Capital
			lease obligation
			-
			
			20,798Deferred income
			taxes
			576,685
			
			491,71513,608,844
			
			9,022,527Stockholders' equityCommon
			stock, $.005 par value, 10,000,000 shares authorized,
			    4,295,000 shares issued in 2009 and 2008, 3,786,292 shares and
			    3,575,292 shares
			outstanding in 2009 and 2008, respectively
			21,475
			
			21,475Additional paid-in capital
			4,149,775
			
			3,742,373Retained
			earnings
			12,177,375
			
			10,601,102Accumulated other comprehensive loss
			(347,886)
			
			(475,342)Treasury
			stock, 508,708 and 719,708 shares at average costin
			2009 and 2008, respectively
			(1,095,813)
			
			(1,548,391)14,904,926
			
			12,341,217$  58,847,374
			
			$  28,791,430




____________________



See accompanying notes to
consolidated financial statements.

4.



---



INDUSTRIAL SERVICES OF AMERICA, INC. AND
SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

THREE MONTHS ENDED JUNE 30, 2009 AND 2008

(UNAUDITED)



2009
			
			2008Revenue from
			services
			$  1,522,134
			
			$  4,011,256Revenue from product sales
			37,602,180
			
			30,499,829Total Revenue
			39,124,314
			
			34,511,085Cost of goods
			sold for services
			1,153,059
			
			4,284,501Cost of goods
			sold for product sales
			33,820,184
			
			24,536,188Total Cost of goods sold
			34,973,243
			
			28,820,689Selling, general and administrative expense
			2,439,883
			
			2,876,234Income before other income (expense)
			1,711,188
			
			2,814,162Other income (expense)Interest
			expense
			(213,161)
			
			(135,003)Interest
			income
			6,917
			
			20,563Gain on sale
			of assets
			7,222
			
			21,623Other income
			24,851
			
			127,369(174,171)
			
			34,552Income before income taxes
			1,537,017
			
			2,848,714Income tax provision
			614,807
			
			1,186,082Net income
			$    922,210
			
			$  1,662,632Basic earnings per share
			$          0.26
			
			$          0.46Diluted earnings per share
			$          0.26
			
			$          0.46Weighted shares outstanding:Basic
			3,651,896
			
			3,596,368Diluted
			3,651,896
			
			3,596,368




____________________



See accompanying notes to
consolidated financial statements.

5.



---



INDUSTRIAL
SERVICES OF AMERICA, INC. AND SUBSIDIARIES



CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED
JUNE 30, 2009 AND 2008

(UNAUDITED)





2009
			
			2008Revenue from
			services
			$  4,167,702
			
			$  8,883,798Revenue from product sales
			59,206,535
			
			51,710,682Total Revenue
			63,374,237
			
			60,594,480Cost of goods
			sold for services
			3,415,987
			
			8,267,428Cost of goods
			sold for product sales
			51,822,374
			
			42,448,736Total Cost of goods sold
			55,238,361
			
			50,716,164Selling, general and administrative expense
			5,149,544
			
			5,179,259Income before other income (expense)
			2,986,332
			
			4,699,057Other income (expense)Interest
			expense
			(351,666)
			
			(228,569)Interest
			income
			22,160
			
			43,997Gain on sale
			of assets
			10,972
			
			16,481Other income (expense)
			(40,676)
			
			128,666(359,210)
			
			(39,425)Income before income taxes
			2,627,122
			
			4,659,632Income tax provision
			1,050,849
			
			1,910,449Net income
			$  1,576,273
			
			$  2,749,183Basic earnings per share
			$           0.44
			
			$           0.76Diluted earnings per share
			$           0.44
			
			$           0.76Weighted shares outstanding:Basic
			3,613,806
			
			3,607,120Diluted
			3,613,806
			
			3,607,120




____________________



See accompanying notes to consolidated financial statements.

6.



---



INDUSTRIAL
SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2009

(UNAUDITED)








AccumulatedCommon Stock
			
			Additional
			Paid-in
			
			Retained
			
			Other
			Comprehensive
			
			Treasury StockShares
			
			Amount
			
			Capital
			
			Earnings
			
			Loss
			
			Shares
			
			Cost
			
			TotalBalance as of December 31, 2008
			
			4,295,000
			
			$21,475
			
			$3,742,373
			
			$10,601,102
			
			$  (475,342)
			
			(719,708)
			
			$
			(1,548,391)
			
			$12,341,217Net unrealized loss on derivative instruments,
			net of tax
			
			-
			
			-
			
			-
			
			-
			
			127,456
			
			-
			
			-
			
			127,456Stock bonuses
			
			-
			
			-
			
			37,402
			
			-
			
			-
			
			11,000
			
			22,578
			
			59,980Purchase of real estate
			
			-
			
			-
			
			370,000
			
			-
			
			-
			
			200,000
			
			430,000
			
			800,000Net income
			
			-
			
			-
			
			-
			
			1,576,273
			
			-
			
			-
			
			-
			
			1,576,273Balance as of June 30, 2009
			
			4,295,000
			
			$21,475
			
			$4,149,775
			
			$12,177,375
			
			$  (347,886)
			
			(508,708)
			
			$
			(1,095,813)
			
			$14,904,926






____________________



See accompanying notes to consolidated financial statements.

7.



---



INDUSTRIAL
SERVICES OF AMERICA, INC. AND SUBSIDIARIES



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED
JUNE 30, 2009 AND 2008

(UNAUDITED)



2009
			
			2008Cash flows from operating
			activitiesNet income
			$    1,576,273
			
			$    2,749,183Adjustments to reconcile net income to
			    net cash from operating activities:Depreciation and amortization
			1,229,425
			
			1,041,000Stock
			distribution to employees
			59,980
			
			-Deferred
			income taxes
			212,426
			
			-Reduction in provision for doubtful accounts
			(390,000)
			
			-Gain on sale of property and equipment
			(10,972)
			
			(16,481)Change in assets and liabilitiesReceivables
			(17,422,243)
			
			(6,231,150)Net investment in sales-type leases
			26,264
			
			31,932Inventories
			2,786,595
			
			(346,707)Other assets
			(166,537)
			
			210,141Accounts payable
			6,018,500
			
			593,275Other current liabilities
			254,877
			
			2,270,582Net cash from operating activities
			(5,825,412)
			
			301,775Cash flows from investing
			activitiesProceeds from
			sale of property and equipment
			43,750
			
			55,189Purchases of
			property and equipment
			(1,822,048)
			
			(1,047,772)Payments for
			shredder system
			(3,400,972)
			
			(1,970,328)Acquisition from Venture Metals
			(10,607,944)
			
			-Payments from
			related party
			18,993
			
			17,979Net
			cash from investing activities
			(15,768,221)
			
			(2,944,932)Cash flows from financing
			activitiesPurchases of common stock
			-
			
			(276,103)Proceeds from note payable to BB&T
			5,000,000
			
			-Payments on capital lease obligation
			(40,725)
			
			(92,949)Proceeds from
			long-term debt
			18,042,330
			
			6,513,703Payments on
			long-term debt
			(1,867,717)
			
			(3,881,202)Net
			cash from financing activities
			21,133,888
			
			2,263,449Net decrease in
			cash
			(459,745)
			
			(379,708)Cash at
			beginning of period
			1,103,842
			
			1,501,685Cash at end of
			period
			$    644,097
			
			$    1,121,977Supplemental
			disclosure of cash flow informationCash paid
			for interest
			$     351,666
			
			$       228,569Cash paid
			for taxes
			652,310
			
			166,159Supplemental
			disclosure of noncash investing and financing activities:Common stock issued to acquire real estate
			800,000
			
			-Accrued
			dividends payable
			-
			
			359,129






____________________



See accompanying notes to consolidated financial statements.

8.



---



INDUSTRIAL
SERVICES OF AMERICA, INC. AND SUBSIDIARIES



NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS



(Unaudited)



NOTE 1 -- BASIS OF PRESENTATION



The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with U. S. generally
accepted accounting principles for interim financial information and with 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 U. S. generally
accepted accounting principles for complete consolidated financial statements. 
The information furnished includes all adjustments, which are, in the opinion of
management, necessary to present fairly our financial position as of June 30,
2009 and the results of our operations and changes in our cash flow for the
periods ended June 30, 2009 and 2008.  Results of operations for the period
ended June 30, 2009 are not necessarily indicative of the results that may be
expected for the entire year.  Additional information, including the audited
December 31, 2008 consolidated financial statements and the Summary of
Significant Accounting Policies, is included in our Annual Report on Form 10-K
for the year ended December 31, 2008 on file with the Securities and Exchange
Commission.



Effective January 1, 2008, we adopted SFAS No. 157, Fair
Value Measurements, for financial assets and liabilities.  We carry certain of
our financial assets and liabilities at fair value on a recurring basis. These
financial assets and liabilities are composed of trading account assets,
investment securities available for sale and various types of derivative
instruments. In addition, we measure certain assets, such as goodwill and other
long-lived assets, at fair value on a non-recurring basis to evaluate those
assets for potential impairment. Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.



In accordance with SFAS No. 157, Fair Value Measurements,
which we adopted effective January 1, 2008, we categorize our financial assets
and liabilities into the following fair value hierarchy:



Level 1 -- Financial assets and liabilities with values
based on unadjusted quoted prices for identical assets or liabilities in an
active market. Examples of level 1 financial instruments include active
exchange-traded equity securities and certain U.S. government securities.



Level 2 -- Financial assets and liabilities with values based on
quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the asset or liability. Examples of level 2
financial instruments include commercial paper purchased from the State
Street-administered asset-backed commercial paper conduits, various types of
interest-rate and foreign exchange derivative instruments, and various types of
fixed-income investment securities. Pricing models are utilized to estimate fair
value for certain financial assets and liabilities categorized in level 2.



Level 3 -- Financial assets and liabilities with values based on
prices or valuation techniques that require inputs that are both unobservable in
the market and significant to the overall fair value measurement. These inputs
reflect management's judgment about the assumptions that a market participant
would use in pricing the asset or liability, and are based on the best available
information, some of which is internally developed. Examples of level 3
financial instruments include certain corporate debt, asset- and mortgage-backed
securities and certain derivative instruments with little or no market activity
and a resulting lack of price transparency.



When determining the fair value measurements for financial assets
and liabilities carried at fair value on a recurring basis, we consider the
principal or most advantageous market in which we would transact and consider
assumptions that market participants would use when pricing the asset or
liability. When possible, we look to active and observable markets to price
identical assets or liabilities. When identical assets and liabilities are not
traded in active markets, we look to market observable data for similar assets
and liabilities. Nevertheless, certain assets and liabilities are not actively
traded in observable markets, and we use alternative valuation techniques to
derive fair value measurements.



We use the fair value methodology outlined in SFAS 157 to value
the assets and liabilities for cash, debt and derivatives. All of our cash is
defined as Level 1 and all our debt and derivative contracts are defined as
Level 2.  In accordance with SFAS 157, the following table represents our fair
value hierarchy for financial instruments at June 30, 2009:



Asset/Liability
			Level 1
			Level 2
			Level 3
			TotalCash and cash equivalents
			$    644,097
			-
			-
			$    644,097Long term debt
			-
			$ (30,542,490)
			-
			(30,542,490)Derivative Contract
			-
			(579,811)
			-
			(579,811)




NOTE 2 -- INCOME STATEMENT RECLASSIFICATIONS



We have
reclassified certain items in the accompanying Financial Statements and Notes to
the Financial Statements for the prior period in order to be comparable with the
current classifications.   These reclassifications had no effect on previously
reported net income. We have reclassified certain expenses in our income
statement to more accurately reflect segment performance and we have
reclassified cost of goods sold and selling, general and administrative expenses
for the quarter ended June 30, 2008 to be consistent with current presentation. 
These reclassifications had no effect on previously reported net income.



NOTE 3 -- ESTIMATES



In preparing the
condensed consolidated financial statements in accordance with U. S. generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X, management must make
estimates and assumptions.  These estimates and assumptions affect the amounts
reported for assets, liabilities, revenues and expenses, as well as affecting
the disclosures provided.  Future results could differ from the current
estimates.



NOTE 4 -- LONG TERM DEBT AND NOTES PAYABLE TO BANK



On June 30, 2009, we executed a promissory note, loan agreement and related
security documents with Branch Banking and Trust Company in the amount of
$5,000,000 to support our ongoing growth and as a first step in our planned and
forthcoming restructuring of our banking facilities.  Over the past seven years,
we have been acquiring real estate and have made substantial investments in our
real property infrastructure using operating cash.  We have acquired a valuable
portfolio of real estate and this is a first step in maximizing its value to
us.



Together with the loan agreement we executed a promissory note, maturing
September 28, 2009 at which time the principal plus accrued interest thereon is
to be paid in full.  The note payable is a non-revolving credit facility and
provides that we may borrow from time to time through the maturity date.  The
loan bears interest at the one month LIBOR plus 3.25% per annum, which shall be
adjusted monthly on the first day of each month for each LIBOR interest period. 
The minimum rate of interest is 4.5%, which was the interest rate as of June 30,
2009.  Accrued interest is payable monthly commencing July 30, 2009 with the
balance due at maturity on September 28, 2009.  We have secured the note payable
with mortgages, related assignments of leases and rents and environmental
certificates against our properties or those of our affiliates, ISA Real Estate,
LLC, ISA Indiana Real Estate, LLC and 7021 Grade Lane, LLC.    In addition we
have cross-collateralized this note with our other indebtedness owed to BB&T. 
As a result of this short term financing BB&T has reduced our available amount
under the BB&T Bankcard from $2.5 million to an amount not to exceed $500,000 so
long as this note is outstanding.  In addition to the cross-collateralization of
these other financings with this note, these loans are all cross-defaulted.  The
terms of the note payable agreement place certain restrictive covenants on us,
including maintenance of a specified tangible net worth, debt to net worth and
EBITA ratio.  Consequently, these covenants restrict our ability to incur as
much additional debt as we may desire for future growth.  At June 30, 2009, we
were in compliance with all restrictive covenants related to our indebtedness
owed to BB&T.  As of June 30, 2009, the outstanding balance on this note payable
was $5,000,000.



Last year, we entered into three interest rate swap agreements swapping variable
rates for fixed rates. The first swap agreement covers $6 million in debt and
commenced October 15, 2008 and matures on April 7, 2014. The second swap
agreement covers approximately $2.9 million in debt and commenced October 15,
2008 and matures on May 7, 2013.  The third swap agreement covers $606,027 in
debt and commenced October 22, 2008 and matures on October 22, 2013.  The three
swap agreements fix our interest rate at approximately 5.8%.  At June 30, 2009,
we recorded the estimated fair value of the three swaps at approximately
$580,000.  We entered into the swap agreements for the purpose of hedging the
interest rate market risk for the respective notional amounts.



Excluding the $5,000,000 short term credit facility, our long term debt as of
June 30, 2009 and December 31, 2008 consisted of the following:



2009
			
			2008(unaudited)Non-revolving line of credit with BB&T effective February 11, 2009
			in the amount of $12,000,000 with a maturity date of February 11,
			2010.  Interest is payable monthly starting March 11, 2009, and the
			note bears interest at the adjusted LIBOR rate of one month LIBOR
			plus 2.25% per annum with a floor of 4%.  As of June 30, 2009, the
			applicable interest rate was 4%.  All our assets (except rental
			fleet equipment) secure this note.
			
			$  11,517,440
			
			-Revolving credit facility of $10 million with BB&T secured by all
			assets except for rental fleet equipment with a variable interest
			rate of Libor plus 2.25% and no required monthly principal
			payments.  As of June 30, 2009, the applicable interest rate was
			4%.  The maturity date under this agreement is January 1, 2012.
			
			4,026,005
			
			-Note payable to BB&T in the amount of $3 million secured by our
			rental fleet equipment with a fixed interest rate of 5.65%.  The
			repayment terms are principal and interest paid monthly commencing
			on November 7, 2008 with one final payment of all remaining
			principal and accrued interest due at maturity on May 7, 2013.
			
			2,720,052
			
			2,838,094Note payable to BB&T in the amount of $6.0 million secured by our
			shredder system assets with a fixed interest rate of 5.89%. The
			repayment terms are principal and interest paid monthly commencing
			on November 7, 2008 with one final payment of all remaining
			principal and accrued interest due at maturity on April 7, 2014.
			
			5,887,092
			
			5,000,000Note payable to BB&T in the amount of $609,900 secured by a crane
			with a fixed interest rate of 5.89%.  The repayment terms are
			principal and interest paid monthly beginning December 1, 2008 with
			one final payment of all remaining principal and accrued interest
			due at maturity in December 2013.
			
			578,913
			
			602,153Note payable to Paccar Financial Corp. in the amount of $163,655
			secured by two Kenworth trucks. Payments are $3,395.36 per month
			with an effective interest rate of 6.5%. The maturity date under
			this agreement is September 2011.
			
			133,097
			
			153,469Note payable to ILS for various assets including tractor trailers,
			trucks and containers. The repayment terms are $20,000 per month for
			60 months at a seven percent (7%) interest rate.  The maturity date
			under this agreement is August 2012.
			
			679,891
			
			774,16125,542,490
			
			9,367,877Less current maturities
			
			12,510,331
			
			857,863$  13,032,159
			
			$  8,510,014




The annual maturities of long-term debt as of June 30, 2009
are as follows:



2009
			
			$12,510,3312010
			
			1,052,9482011
			
			5,153,6852012
			
			2,581,747Thereafter
			
			4,243,779Total
			
			$25,542,490




NOTE 5 -- SEGMENT INFORMATION



Our operations include two primary
segments:  Recycling and Waste Services.  In prior years, our three primary
reporting segments were ISA Recycling, CWS and WESSCO.  In the first quarter of
2009, we decided to consolidate CWS and WESSCO into one reporting segment
because CWS revenues have declined so that this segment is no longer material to
our total revenues.  We have named this combined segment Waste Services because
it more accurately reflects that business.  Waste Services provides waste
disposal services including contract negotiations with service providers,
centralized billing, invoice auditing, and centralized dispatching.  Waste
Services also sells, leases, and services waste handling and recycling
equipment.



In the first quarter of 2009, we
initially decided to report our stainless steel alloys business as a separate
segment.  However, as we gained more experience with the business and upon
further management review, we have determined that stainless steel alloys should
be reported as part of the Recycling segment.  As our alloys business developed,
we realized that it was more like recycling than a separate division. 
Furthermore, during the second quarter of 2009, we found that stainless steel
alloys shared resources with Recycling, including employees, equipment, and
corporate functions.  We also found that the chief decision maker of the
Recycling segment makes the decisions on allocation of
funds to the different division levels within recycling, including stainless
steel alloys.



The Recycling segment generates its
revenues based on buying and selling of ferrous, non-ferrous, including
stainless steel, and fiber scrap. Waste Services' revenues consist of charges to
customers for waste disposal services and equipment sales and lease income.  The
components of the column labeled "other" are selling, general and administrative
expenses that are not directly related to the three primary segments.



We evaluate segment performance
based on gross profit or loss and the evaluation process for each segment
includes only direct expenses and selling, general and administrative costs,
omitting any other income and expense and income taxes.



FOR THE
			SIX MONTHS ENDED
			JUNE 30, 2009
			RECYCLING
			
			WASTE SERVICES
			
			OTHER
			
			SEGMENTTOTALSRecycling revenues
			$ 58,151,892
			
			$                -
			
			$                -
			
			$ 58,151,892Equipment sales, serviceand leasing revenues
			-
			
			1,054,643
			
			-
			
			1,054,643Management fees
			-
			
			4,167,702
			
			-
			
			4,167.702Cost of goods sold
			(51,431,327)
			
			(3,807,034)
			
			-
			
			(55,238,361)Selling, general andadministrative expenses
			(2,911,051)
			
			(703,558)
			
			(1,534,935)
			
			(5,149,544)Segment profit (loss)
			$   3,809,514
			
			$     711,753
			
			$(1,534,935)
			
			$   2,986,332Segment assets
			$ 52,358,983
			
			$ 3,099,151
			
			$  3,389,240
			
			$ 58,847,374




FOR THE
			SIX MONTHS ENDED
			JUNE 30, 2008
			RECYCLING
			
			WASTE SERVICES
			
			OTHER
			
			SEGMENTTOTALSRecycling revenues
			$ 50,544,066
			
			$                -
			
			$                -
			
			$ 50,544,066Equipment sales, serviceand leasing revenues
			-
			
			1,166,616
			
			-
			
			1,166,616Management fees
			-
			
			8,883,798
			
			-
			
			8,883,798Cost of goods sold
			(42,023,935)
			
			(8,692,229)
			
			-
			
			(50,716,164)Selling, general andadministrative expenses
			(2,669,706)
			
			(729,043)
			
			(1,780,510)
			
			(5,179,259)Segment profit (loss)
			$   5,850,425
			
			$     629,142
			
			$(1,780,510)
			
			$   4,699,057Segment assets
			$ 26,735,859
			
			$  4,161,422
			
			$   3,263,729
			
			$ 34,161,010




FOR THE
			THREE MONTHS ENDED
			JUNE 30, 2009
			RECYCLING
			
			WASTE SERVICES
			
			OTHER
			
			SEGMENTTOTALSRecycling revenues
			$ 37,100,257
			
			$                 -
			
			$                -
			
			$ 37,100,257Equipment sales, serviceand leasing revenues
			-
			
			501,923
			
			-
			
			501,923Management fees
			-
			
			1,522,134
			
			-
			
			1,522,134Cost of goods sold
			(33,627,397)
			
			(1,345,846)
			
			-
			
			(34,973,243)Selling, general andadministrative expenses
			(1,184,538)
			
			(327,034)
			
			(928,311)
			
			(2,439,883)Segment profit (loss)
			$   2,288,322
			
			$     351,177
			
			$  (928,311)
			
			$  1,711,188FOR THE
			THREE MONTHS ENDED
			JUNE 30, 2008
			RECYCLING
			
			WASTE SERVICES
			
			OTHER
			
			SEGMENTTOTALSRecycling revenues
			$ 29,870,349
			
			$                 -
			
			$                -
			
			$ 29,870,349Equipment sales, serviceand leasing revenues
			-
			
			629,480
			
			-
			
			629,480Management fees
			-
			
			4,011,256
			
			-
			
			4,011,256Cost of goods sold
			(24,313,062)
			
			(4,507,627)
			
			-
			
			(28,820,689)Selling, general andadministrative expenses
			(1,393,185)
			
			(319,771)
			
			(1,163,278)
			
			(2,876,234)Segment profit (loss)
			$   4,164,102
			
			$   (186,662)
			
			$(1,163,278)
			
			$  2,814,162




NOTE 6 -- INVENTORIES



Our inventories primarily consist of ferrous and non-ferrous,
including stainless steel, scrap metals and are valued at the lower of average
purchased cost or market. 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. We would recognize inventory impairment 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.  We would record the
loss in cost of goods sold in the period during which we identified the loss.



Some commodities are in saleable
condition at acquisition.  We purchase these commodities in small amounts until
we have a truckload of material available for shipment.  Some commodities are
not in saleable condition at acquisition.  These commodities must be torched,
sheared or baled.  We do not have work-in-process inventory that needs to be
manufactured to become finished goods.  We include processing costs in inventory
for all commodities.



Ferrous inventory of $1,792,626
at June 30, 2009 was comprised of $1,134,521 in raw materials and $658,105 of
finished goods.  Non-ferrous inventory of $1,681,542 at June 30, 2009 was
comprised of $515,999 in raw materials and $1,165,543 of finished goods. 
Stainless steel inventory at June 30, 2009 was $7,046,670.  Ferrous inventory of
$2,162,149 at December 31, 2008 was comprised of $418,035 in raw materials and
$1,744,114 of finished goods.  Non-ferrous inventory of $2,033,154 at December
31, 2008 was comprised of $362,065 in raw materials and $1,671,089 of finished
goods.  We charged $1,861,393 in general and administrative processing costs to
cost of sales for the six months ended June 30, 2009 and $3,098,870 for the year
ended December 31, 2008.



Inventory also includes all
types of industrial waste handling equipment and machinery held for resale such
as compactors, balers, and containers.  Other inventory includes cardboard and
baling wire.  Inventories as of June 30, 2009 and December 31, 2008 consist of
the following:



June 30, 2009(unaudited)
			
			December 31,2008Stainless steel
			alloys
			$   7,046,670
			
			$                 -Ferrous materials
			1,792,626
			
			2,162,149Non-ferrous
			materials
			1,681,542
			
			2,033,154Waste equipment
			machinery
			100,487
			
			95,675Other
			72,487
			
			80,370Total
			inventories
			$ 10,693,812
			
			$   4,371,348




NOTE 7 - LEASE COMMITMENTS



Operating Leases:



We lease our Louisville, Kentucky facility from a related party under an
operating lease expiring December 2012.  The rent was adjusted in December 2007
per the agreement to monthly payments of $48,500 through December 2012.  In
addition, we are also responsible for real estate taxes, insurance, utilities
and maintenance expense.



We also lease a management services operations facility
and various pieces of equipment in Dallas, Texas for which monthly payments of
$969 are due through September 2009.



We also lease other machinery and equipment under operating leases
which expire through June 2010.



Future minimum lease payments for operating leases as of June 30, 2009 are as
follows:



2009
			
			$     655,1712010
			
			636,0002011
			
			636,0002012
			
			318,0002013
			
			-Future minimum lease payments
			
			$  2,245,171




Total rent expense for the six months ended June 30, 2009 and 2008 was $567,625
and $448,989, respectively.



Capital Leases:

We lease various pieces of
equipment which qualify as capital leases.  These lease arrangements require
monthly lease payments expiring at various dates through June 2010.



The following is a summary
of assets held under capital leases which are included in property and
equipment:



2009
			
			2008Equipment
			
			$  366,172
			
			$  771,567Less accumulated
			depreciation
			
			93,776
			
			221,779$  272,396
			
			$  549,788




The present value of future net minimum capital lease payments at June 30, 2009
is $60,844, all current.



NOTE 8 -- PER SHARE DATA



The computation for basic and diluted earnings per share is as
follows:



Six months ended June 30, 2009 compared to six months ended
June 30, 2008:



2009
			
			2008Basic
			earnings per shareNet income
			$  1,576,273
			
			$  2,749,183Weighted average
			shares outstanding
			3,613,806
			
			3,607,120Basic earnings
			per share
			$             .44
			
			$             .76Diluted
			earnings per shareNet income
			$  1,576,273
			
			$  2,749,183Weighted average
			shares outstanding
			3,613,806
			
			3,607,120Add dilutive
			effect of assumed exercising of stock options
			-
			
			-Diluted
			weighted average sharesoutstanding
			3,613,806
			
			3,607,120Diluted earnings
			per share
			$             .44
			
			$             .76




Three months ended June 30, 2009 compared to three
months ended June 30, 2008:



2009
			
			2008Basic
			earnings per shareNet income
			$    922,210
			
			$  1,662,632Weighted average
			shares outstanding
			3,651,896
			
			3,596,368Basic earnings
			per share
			$            .26
			
			$             .46Diluted
			earnings per shareNet income
			$    922,210
			
			$  1,662,632Weighted average
			shares outstanding
			3,596,368
			
			3,596,368Add dilutive
			effect of assumed exercising of stock options
			-
			
			-Diluted
			weighted average sharesoutstanding
			3,651,896
			
			3,596,368Diluted earnings
			per share
			$             .26
			
			$             .46




NOTE 9 -- PURCHASE OF
INVENTORY AND FIXED ASSETS  OF VENTURE METALS



On January 13, 2009 we entered
into an inventory purchase agreement with Venture Metals, LLC and its members,
Steve Jones, Jeff Valentine and Carlos Corona, under which we agreed to pay to
Venture Metals $8,846,794 for inventory comprised of stainless steel and high
temperature alloys, which we verified as to weight. We funded the purchase of
the inventory through our line of credit with BB&T.  We subsequently
paid an additional $262,265 for inventory after the final verification of
weight.



Under the agreement, we had the
right to retain the use of the property located at 3409 Camp Ground Road,
Louisville, Kentucky, the site of the Venture Metals business that Venture
Metals leases from Luca Investments, LLC, an affiliate of Venture Metals, owned
50% each by Messrs. Jones and Valentine.  We had the right to use the facilities
located on those premises for a period not to exceed two years from the date of
the agreement for a monthly rental of $15,000.   Messrs. Jones, Valentine and
Corona are our employees.



On April 13, 2009, we exercised
our option to purchase fixed assets under an installment purchase agreement with
Venture Metals, LLC, whereby Venture Metals sold all of its fixed assets,
located at 3409 Camp Ground Road, Louisville, Kentucky, to us by virtue of an
installment purchase agreement effective February 11, 2009.  Steve Jones, Jeff
Valentine and Carlos Corona are the sole members of Venture Metals and are
currently our employees with Steve Jones now serving as one of our officers. 
Under the notice of exercise of option to purchase fixed assets we agreed to
purchase the fixed assets on April 17, 2009 for the purchase price of $1,498,885
less the aggregate amount of all rent we paid to Venture Metals under the
previous agreement.  The installment payment we owed to Venture Metals was
$15,000 per month commencing March 1, 2009 with a pro-rata amount paid for the
period from February 11, 2009 through February 28, 2009.  A further description
of the installment purchase agreement and related transactions is contained in
Items 1.01 and 2.01 of Form 8-K for the event dated February 11, 2009, as filed
on February 18, 2009, with the Securities and Exchange Commission by us.



At the time of the consummation
of the option to purchase fixed assets, the installment purchase agreement
terminated.  In connection with the exercise of the option to purchase, Venture
Metals had to satisfy outstanding obligations with respect to the fixed assets
owed to a number of creditors.  The fixed assets include equipment such as
cranes, loaders, scales, forklifts, computers, including computer software,
furniture and certain leasehold improvements to the property at 3409 Camp Ground
Road, Louisville, Kentucky.



We completed the acquisition of
the real property at 3409 Camp Ground Road, Louisville, Kentucky, from Luca
Investments, LLC, an affiliate of Venture Metals, on April 2, 2009.  Under the
agreement, we purchased the property and improvements thereon consisting of 5.67
acres with a 7,875 square foot building located thereon.  We paid $2,067,041 for
the property, comprised of $1,267,041 in cash and 200,000 shares of ISA common
stock priced at the per share NASDAQ last sale price of $4.00, as quoted on
NASDAQ at 10:30 a.m. (EDT) on April 2, 2009.  We determined the purchase price
for the real estate based on internal analyses as to the value of the property. 
BB&T provided credit to us under our $10,000,000 line of credit with BB&T
funding the cash portion of the purchase price.



NOTE 10 -- LONG TERM
INCENTIVE PLAN



At our June 16, 2009 annual shareholders meeting,
shareholders approved ratification of a long term incentive plan and approved
the issuance of additional common shares of our stock.  The plan  proposes to
make available up to 800,000 shares of our common stock for performance-based
awards under the plan.  We may grant any of these types of awards: 
non-qualified and incentive stock options; stock appreciation rights; and other
stock awards including stock units, restricted stock units, performance shares,
performance units, and restricted stock.   The performance goals that we may use
for such awards will be based on any one or more of the following performance
measures: cash flow; earnings; earnings per share; market value added or
economic value added; profits; return on assets; return on equity; return on
investment; revenues; stock price; or total shareholder return.



The plan is administered by a committee selected by the
Board, initially our Compensation Committee, and consisting solely of two or
more outside members of the Board.  The Committee may grant one or more awards
to our employees, including our officers, our directors and consultants, and
will determine the specific employees who will receive awards under the plan and
the type and amount of any such awards.  A participant who receives shares of
stock awarded under the plan must hold those shares for six months before the
participant may dispose of such shares.  The Committee may settle an award under
the plan in cash rather than stock.



As of June 30, 2009,
we had not granted any awards under this plan.







NOTE 11 --
SUBSEQUENT EVENT



We reported on July 17, 2009 that we have entered into an
agreement to acquire two parcels of property adjacent to our facilities in
Louisville, Kentucky.  The acquisition of this real estate is important to us
due to its strategic location.  We recently completed the construction of our
new shredder system and part of the installation rests on the property.



We will acquire the property in exchange for 500,000
newly issued shares of our common stock, making the value of the transaction
$3,200,000 based on $6.40 per share as stated in the agreements.  The cost of
the transactions will change if the average stock price over the 30-day period
prior to the anticipated closing in August changes.  The property has been
appraised by an independent appraiser at a value of $3,200,000.  The
transactions are subject to the results of our due diligence investigation and
to the approval of holders of a majority of our outstanding shares of common
stock.





---



ITEM 2:  MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



The following discussion and
analysis should be read in conjunction with our unaudited condensed consolidated
financial statements and the accompanying notes thereto included elsewhere in
this report.



The following discussion and
analysis contains certain financial predictions, forecasts and projections which
constitute "forward-looking statements" within the meaning of the federal
securities laws.  Actual results could differ materially from those financial
predictions, forecasts and projections and there can be no assurance that we
will achieve such financial predictions, forecasts and projections.  Factors
that could affect financial predictions, forecasts and projections include the
fluctuations in the commodity price index and any conditions internal to our
major customers, including loss of their accounts and other factors as listed in
our Form 10-K for the year ended December 31, 2008, as filed with the Securities
and Exchange Commission.



General



We are primarily focusing our
attention now and in the future towards our recycling business.  We sell
processed ferrous and non-ferrous scrap material to end-users such as steel
mini-mills, integrated steel makers, foundries and refineries.  We purchase
ferrous and non-ferrous scrap material primarily from industrial and commercial
generators of steel, iron, aluminum, copper, stainless steel and other metals as
well as from other scrap dealers who deliver these materials directly to our
facilities. We process these materials by sorting, shearing, cutting and/or
baling. We will also continue to focus on initiating growth in our management
services business segment and our waste and recycling equipment sales, service
and leasing division.



In January 2009, we expanded
into the stainless steel recycling market for super alloys and high temperature
metals by purchasing inventories from Venture Metals, LLC and hiring two of its
key executives.  We buy, remelt, and sell stainless steel and high-temperature
alloys to steel mills like North American Stainless, our primary customer.  The
Venture Metals asset purchase is the latest in a series of actions we have
undertaken to position ourselves for strategic growth. The multi-million-dollar
shredder project, completed in June 2009, expands our processing capacity,
offers specialty grades of scrap and improves end-product quality.  The shredder
began operations on July 1, 2009.



We continue to pursue a growth
strategy in the waste management services arena by adding new locations of
existing customers as well as marketing our services to potential customers. 
Currently, we service approximately 2,000 customer locations throughout the
United States and we utilize an active database of over 6,500 vendors to provide
timely, thorough and cost-effective service to our customers.



Our goal is to remain dedicated
to the recycling, management services, and equipment industry while sustaining
steady growth at an acceptable profit, adding to our net worth, and providing
positive returns for stockholders.  We intend to increase efficiencies and
productivity in our core business while remaining alert for possible
acquisitions, strategic partnerships, mergers and joint-ventures that would
enhance our profitability.



We have operating locations in
Louisville, Kentucky, Seymour, Indiana, New Albany, Indiana, and Dallas, Texas. 
We do not have operating locations outside the United States.



Liquidity and Capital
Resources



As of June 30, 2009 we held
cash and cash equivalents of $644,097.



On June 30, 2009, we executed a
promissory note, loan agreement and related security documents with Branch
Banking and Trust Company in the amount of $5,000,000 to support our ongoing
growth and as a first step in our planned and forthcoming restructuring of our
banking facilities.  Over the past seven years, we have been acquiring real
estate and have made substantial investments in our real property infrastructure
using operating cash.  We have acquired a valuable portfolio of real estate and
this is a first step in maximizing its value to us.



Together with the loan agreement
we executed a promissory note, maturing September 28, 2009 at which time the
principal plus accrued interest thereon is to be paid in full.  The loan is a
non-revolving credit facility and provides that we may borrow from time to time
through the maturity date.  The loan bears interest at the one month LIBOR plus
3.25% per annum, which shall be adjusted monthly on the first day of each month
for each LIBOR interest period.  The minimum rate of interest is 4.5%, which was
the interest rate as of June 30, 2009.  Accrued interest is payable monthly
commencing July 30, 2009 with the balance due at maturity on September 28,
2009.  We have secured the loan with mortgages, related assignments of leases
and rents and environmental certificates against our properties or those of our
affiliates, ISA Real Estate, LLC, ISA Indiana Real Estate, LLC and 7021 Grade
Lane, LLC.  In addition we have cross-collateralized this loan with our other
indebtedness owed to BB&T.  As a result of this financing BB&T has reduced our
available amount under the BB&T Bankcard from $2.5 million to an amount not to
exceed $500,000 so long as this loan is outstanding.  In addition to the
cross-collateralization of these other financings with this loan, these loans
are all cross-defaulted.  The terms of the loan agreement place certain
restrictive covenants on us, including maintenance of a specified tangible net
worth, debt to net worth and EBITA ratio.  Consequently, these covenants
restrict our ability to incur as much additional debt as we may desire for
future growth.  At June 30, 2009, we were in compliance with all restrictive
covenants related to our indebtedness owed to BB&T.  As of June 30, 2009, the
outstanding balance on this credit facility was $5,000,000.



In addition to the $5,000,000
short term credit facility, we have long term debt comprised of the following:



June 30, 2009(unaudited)
			
			December 31,2008Non-revolving line
			of credit
			$ 11,517,440
			
			$                  -Revolving line of
			credit
			4,026,005
			
			-Notes payable
			9,999,045
			
			9,367,877Total debt
			$ 25,542,490
			
			$   9,367,877




Results of Operations



The following table presents, for the years indicated, the
percentage relationship that certain captioned items in our Consolidated
Statements of Operations bear to total revenues and other pertinent data:



Six months ended June 30,2009
			
			2008Statements of Operations Data:Total Revenue
			..................................................................................
			100.0%
			
			100.0%Cost of goods
			sold............................................................................
			87.2%
			
			83.7%Selling, general and administrative expenses
			......................................
			8.1%
			
			8.5%Income before other
			expenses...........................................................
			4.7%
			
			7.8%




Six months ended June 30,
2009 compared to six months ended June 30, 2008



Total revenue increased
$2,779,757 or 4.6% to $63,374,237 in 2009 compared to $60,594,480 in 2008. 
Recycling revenue increased $7,607,826 or 15% to $58,151,892 in 2009 compared to
$50,544,066 in 2008.  This is primarily due to our acquisition of the Venture
Metals stainless steel recycling business, partially offset by a decrease in
shipments of 33% in ferrous and 42% in other nonferrous materials and an average
decrease in price of commodities of 50%.  Management services revenue decreased
$4,716,095 or 53.1% to $4,167,702 in 2009 compared to $8,883,798 in 2008
primarily due to the loss of major customers Circuit City and Mervyn's, both of
whom declared bankruptcy and closed.  Equipment sales, service and leasing
revenue decreased $111,973 or 9.6% to $1,054,643 in 2009 compared to $1,166,616
in 2008.  This decrease is due to a $46,200 decrease in equipment sales and a
$55,154 decrease in service and repairs revenue.



Total cost of goods sold
increased $4,522,197 or 8.9% to $55,238,361 in 2009 compared to $50,716,164 in
2008.  Recycling cost of goods sold increased $9,407,392 or 22.4% to $51,431,327
in 2009 compared to $42,023,935 in 2008.  This is primarily due to our
acquisition of the Venture Metals stainless steel recycling business, partially
offset by a 33% decrease in shipments of ferrous and 41% decrease in shipments
of other nonferrous materials, and to 55% lower commodity purchase prices.
Management services cost of goods sold decreased $4,851,441 or 58.7% to
$3,415,987 in 2009 compared to $8,267,428 in 2008 primarily due to the loss of
major customers Circuit City and Mervyn's due to bankruptcy.  Equipment sales,
service and leasing cost of goods sold decreased $33,754 or 7.9% to $391,047 in
2009 compared to $424,801 in 2008.   This decrease is due to a decrease of
$37,651 in cost of equipment sales.



Selling, general and
administrative expenses decreased $29,715 or 0.6% to $5,149,544 in 2009 compared
to $5,179,259 in 2008.  As a percentage of revenue, selling, general and
administrative expenses were 8.1% in 2009 compared to 8.5% in 2008.  The primary
drivers of the decrease in total expenses are decreases in fuel expense of
$258,000 and stock bonus of $240,000, offset by increases in manager and
clerical labor of $365,000 and an increase of $114,000 in licenses and fees,
both attributable to our new stainless steel recycling business



Other expense increased $319,785 to other expense of
$359,210 in 2009 compared to other expense of $39,425 in 2008.  This was
primarily due to an increase in interest expense of $123,097 and an increase in
other expense of $169,341.  The increase in other expense is primarily due to an
additional $65,597 paid in the All-American legal settlement in the first
quarter of 2009.  Also, in 2008, we recorded other income of $117,306 due to an
insurance reimbursement.



Income tax provision decreased
$859,600 to $1,050,849 in 2009 compared to $1,910,449 in 2008.  The effective
tax rate in 2009 was 40.0% compared to 41.0% in 2008 based on federal and state
statutory rates.



Three months ended June 30,
2009 compared to three months ended June 30, 2008



Total revenue increased
$4,613,229 or 13.4 % to $39,124,314 in 2009 compared to $34,511,085 in 2008. 
Recycling revenue increased $7,229,908 or 24.2% to $37,100,257 in 2009 compared
to $29,870,349 in 2008.  This is primarily due to our acquisition of the Venture
Metals stainless steel recycling business, partially offset by a decrease in
shipments of 21% in ferrous and 40% in other nonferrous materials and an average
decrease in price of commodities of 49%.  Management services revenue decreased
$2,489,122 or 62% to $1,522,134 in 2009 compared to $4,011,256 in 2008 primarily
due to the loss of major customers Circuit City and Mervyn's, both of whom
declared bankruptcy and closed.  Equipment sales, service and leasing revenue
decreased $127,557 or 20% to $501,923 in 2009 compared to $629,480 in 2008. 
This decrease is due to a decrease in equipment sales and service and repairs
revenue.



Total cost of goods sold
increased $6,152,554 or 21.3% to $34,973,243 in 2009 compared to $28,820,689 in
2008.  Recycling cost of goods sold increased $9,314,335 or 38.3% to $33,627,397
in 2009 compared to $24,313,062 in 2008.  This is primarily due to our
acquisition of the Venture Metals stainless steel recycling business, partially
offset by a 30% decrease in shipments of ferrous and 41% decrease in shipments
of other nonferrous materials, and to 54% lower commodity purchase prices. 
Management services cost of goods sold decreased $3,131,443 or 73% to $1,153,058
in 2009 compared to $4,284,501 in 2008 primarily
due to the loss of major customers Circuit City and Mervyn's who declared
bankruptcy.  Equipment sales, service and leasing cost of goods sold decreased
$30,338 or 13.6 to $192,788 in 2009 compared to $223,126 in 2008 due to a
decrease in the cost of equipment sales.



Selling, general and
administrative expenses decreased $436,351 or 15.2% to $2,439,883 in 2009
compared to $2,876,234 in 2008.  As a percentage of revenue, selling, general
and administrative expenses were 6.2% in 2009 compared to 8.3% in 2008.  The
primary drivers of the decrease in total expense is a decrease in stock bonus
expense, fuel expense, and overtime labor.



Other income/(expense)
decreased ($208,723) to other expense of ($174,171) in 2009 compared to other
income of $34,552 in 2008 primarily due to an insurance reimbursement for repair
of our roof in 2008 and due to the increase in interest expense due to new debt.



Income tax provision decreased
$571,275 to $614,807 in 2009 compared to $1,186,082 in 2008.  The effective tax
rate in 2009 was 40% compared to 41% in 2008 based on federal and state
statutory rates.



Financial condition at June 30, 2009 compared to December
31, 2008



Cash and cash equivalents
decreased $459,745 to $644,097 as of June 30, 2009 compared to $1,103,842 as of
December 31, 2008.



We used net cash from operating activities of $5,825,412 for the six months ended June 30, 2009.  This was
primarily due to an increase in accounts receivable, partially
offset by the increase in accounts payable and the decrease in inventory. 
The increases in accounts receivable and accounts payable were both due to our acquisition of the
Venture Metals stainless steel business.



We used net cash from investing
activities of $15,768,221 for the six months ended June 30, 2009.  We used
$10,607,944 for our acquisition of the inventory and fixed assets of Venture
Metals.  Additionally, we purchased recycling and rental fleet equipment and shredder system equipment of
$5,223,020.  The rental fleet equipment consists of solid waste handling and
recycling equipment such as compactors, containers and balers. It is our
intention to continue to pursue this market.



Our net cash from financing
activities of $21,133,888 for the six months ended June 30, 2009 is primarily
due to the advance of $23,042,330 on our new lines of credit offset by payments
on debt of $1,867,717.



Accounts receivable trade
increased $17,812,243 to $21,623,727 as of June 30, 2009 compared to $3,811,484
as of December 31, 2008.  This change is due to our acquisition of the Venture
Metals stainless steel business and their level of accounts receivable from time
to time.



Inventories consist principally
of stainless steel, ferrous and nonferrous scrap materials and waste equipment
machinery held for resale.  We value inventory at the lower of cost or market. 
Inventory increased $6,322,464 or 145% to $10,693,812 as of June 30, 2009
compared to $4,371,348 as of December 31, 2008.  The primary reason for the
increase was the acquisition of  Venture Metals and the stainless steel
inventory that became a portion of our assets.



Inventory aging for the period ended June 30, 2009 (Days
Outstanding):



Description
			
			1-30
			
			31-60
			
			61-90
			
			Over
			90
			
			TotalStainless steel alloys
			
			$ 6,608,670
			
			$             -
			
			$            -
			
			$   438,000
			
			$  7,046,670Ferrous materials
			
			820,876
			
			231,884
			
			190,997
			
			548,869
			
			1,792,626Non-ferrous materials
			
			1,039,578
			
			126,013
			
			41,396
			
			474,555
			
			1,681,542Waste equipment machinery
			
			75,365
			
			25,122
			
			-
			
			-
			
			100,487Other
			
			72,487
			
			-
			
			-
			
			-
			
			72,487$8,616,976
			
			$
			383,019
			
			$
			232,393
			
			$1,461,424
			
			$10,693,812




Inventory aging for the year ended December 31, 2008 (Days
Outstanding):



Description
			
			1-30
			
			31-60
			
			61-90
			
			Over
			90
			
			TotalFerrous Materials
			
			$
			1,364,091
			
			$  376,684
			
			$ 326,874
			
			$  94,500
			
			$
			2,162,149Non-ferrous materials
			
			990,843
			
			217,591
			
			294,992
			
			529,728
			
			2,033,154Waste equipment machinery
			
			95,675
			
			-
			
			-
			
			-
			
			95,675Other
			
			80,370
			
			-
			
			-
			
			-
			
			80,370$2,530,979
			
			$  594,275
			
			$
			621,866
			
			$624,228
			
			$ 4,371,348




Accounts payable trade increased
$6,018,500 or 163% to $9,720,395 as of June 30, 2009 compared to $3,701,895 as
of December 31, 2008, primarily due to our acquisition of the Venture Metals
stainless steel recycling business and their level of accounts payable from time
to time.



Working capital increased
$951,170 to $3,940,042 as of June 30, 2009 compared to $2,988,872 as of December
31, 2008.  The increase was primarily driven by the $17.8 million increase in
accounts receivable, partially offset by the $16.7 million increase in current
maturities of long term debt.



Contractual Obligations



The following table provides information with respect to
our known contractual obligations for the quarter ended June 30, 2009.



Obligation Description (1)
			Total
			Less
			than 1 year
			1-3 years
			3-5 years
			More
			than 5 yearsLong-Term Debt Obligations
			$25,542,490
			$12,510,331
			$6,206,633
			$6,825,526
			$0Capital Lease Obligations (2)
			60,844
			60,844
			0
			0
			0Operating Lease Obligations (3)
			2,245,171
			655,171
			1,272,000
			318,000
			0Total
			$27,848,505
			$13,226,346
			$7,478,633
			$7,143,526
			$0






(1)  Does not
include the short term $5 million non-revolving credit facility closed on June
30, 2009 and coming due September 28, 2009.



(2) We lease
various pieces of equipment that qualify for capital lease treatment.  These
lease arrangements require monthly lease payments expiring at various dates
through June 2010.



(3) We lease
the Louisville, Kentucky facility from K&R, LLC, the sole member of which is
Harry Kletter, our chief executive officer, under an operating lease expiring
December 2012.  We have monthly rental payments of $48,500 through December
2012.  In the event of a change of control, the monthly payments become $62,500.
We have subleased the Lexington property to an unaffiliated third party for a
term commencing March 1, 2007 and ending December 31, 2012 for $4,500 per
month.   We currently lease this property from an unrelated party for $4,500 per
month; the lease terminates December 31, 2012.  If for any reason the sub-lessee
defaults, we remain liable for the remainder of the lease payments through
December 31, 2012.



We also lease
a management services operations facility and various pieces of equipment in
Dallas, Texas for which monthly payments of $969 are due through September 2009.



Long-term debt, including the current portions thereof,
increased $16,174,613 to $25,542,490 as of June 30, 2009 compared to $9,367,877
as of December 31, 2008.



Impact of Recently Issued Accounting Standards



FAS 141R, Business Combinations,
was issued in December 2007 and applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, which for us is
January 1, 2009.  The objective of FAS 141R is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. This statement requires us as an acquirer of the assets of
Venture Metals to recognize the assets acquired, the liabilities assumed, and
any non-controlling interest in Venture Metals at the acquisition date, measured
at their fair values as of that date, with limited exceptions specified in the
statement.  Refer to Note 9 of our financial statements for more detailed
information about our acquisition of Venture Metals.



In February 2007, the FASB
issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities" ("SFAS 159"). SFAS 159 provides companies with an option to report
selected financial assets and financial liabilities at fair value. Unrealized
gains and losses on items for which the fair value option has been elected are
reported in earnings at each subsequent reporting date. SFAS 159 is effective
for fiscal years beginning after November 15, 2007, the year beginning January
1, 2008 for us. While we continue to review the provisions of SFAS 159, we have
not yet identified any assets or liabilities for which we currently believe we
will elect the fair value reporting option.



In March 2008, the FASB issued
SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities"
("SFAS 161").  SFAS 161 amends and expands the disclosure requirements in SFAS
133, "Accounting for Derivative Instruments and Hedging Activities".  SFAS 161
is effective for fiscal years and interim periods beginning after November 15,
2008, the year beginning January 1, 2009 for us, and we have included the
required disclosures in Note 4 of our Condensed Consolidated Financial
Statements.



In April 2009, the FASB issued
FSP No. FAS 157-4 ("FSP FAS 157-4"), "Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability has Significantly Decreased and
Identifying Transactions That Are Not Orderly" and FSP No. FAS 115-2 and FAS
124-2 ("FSP FAS 115-2"), "Recognition and Presentation of Other-Than-Temporary
Impairments".  These two FSPs were issued to provide additional guidance about
(1) measuring the fair value of financial instruments when the markets become
inactive and quoted prices may reflect distressed transactions, and (2)
recording impairment charges on investments in debt instruments.  Additionally,
the FASB issued FSP No. FAS 107-1 and APB 28-1 ("FSP FAS 107-1"), "Interim
Disclosures about Fair Value of Financial Instruments," to require disclosures
of fair value of certain financial instruments in interim financial statements. 
We do not anticipate the adoption of these FSPs will materially impact us. 
These FSPs are effective for financial statements issued for interim and annual
reporting periods ending after June 15, 2009, the quarter ending June 30, 2009
for us.



In May 2009, the FASB issued
FASB Statement No. 165, "Subsequent Events."  It is intended to establish
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued.  It requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date--that is,
whether that date represents the date the financial statements were issued or
were available to be issued.  This disclosure should alert all users of
financial statements that an entity has not evaluated subsequent events after
that date in the set of financial statements being presented.  In particular,
this Statement sets forth:



* The period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements;

* The circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements;

* The disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date.



This Statement is effective for
interim and annual periods ending after June 15, 2009.



In July 2009, the FASB issued
SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles -- a replacement of FASB Statement No.
162".    SFAS 168 provides for the FASB Accounting Standards Codification to
become the single official source of authoritative, nongovernmental U.S.
generally accepted accounting principles (GAAP).  The Codification did not
change GAAP but reorganizes the literature.  Following this Statement, the FASB
will not issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates. The FASB will not consider Accounting Standards Updates as
authoritative in their own right. Accounting Standards Updates will serve only
to update the Codification, provide background information about the guidance,
and provide the bases for conclusions on the change(s) in the Codification. 
SFAS 168 is effective for interim and annual periods ending after September 15,
2009, the quarter ending September 30, 2009 for us.





ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.



Fluctuating commodity prices
affect market risk in our recycling segment.  We mitigate this risk by selling
our product on a monthly contract basis.  Each month we negotiate selling prices
for all commodities.  Based on these monthly agreements, we determine purchase
prices based on a margin needed to cover processing and administrative
expenses.



We are exposed to commodity
price risk, mainly associated with variations in the market price for ferrous
and nonferrous metal, and other commodities. The timing and magnitude of
industry cycles are difficult to predict and are impacted by general economic
conditions. We respond to changes in recycled metal selling prices by adjusting
purchase prices on a timely basis and by turning rather than holding inventory
in expectation of higher prices.  However, financial results may be negatively
impacted where selling prices fall more quickly than purchase price adjustments
can be made or when levels of inventory have an anticipated net realizable value
that is below average cost.



We are exposed to interest rate
risk on our floating rate borrowings. On June 30, 2009, we executed a promissory
note, loan agreement and related security documents with Branch Banking and
Trust Company in the amount of $5,000,000 for the purpose of financing our
ongoing growth.  This non-revolving credit facility bears interest at the month
LIBOR plus 3.25% per annum, which is to be adjusted monthly on the first day of
each month for each LIBOR interest period with a minimum interest rate of 4.5%. 
The interest rate as of June 30, 2009 was 4.5%.  This credit facility had
$5,000,000 in outstanding borrowings as of June 30, 2009.  We also maintain a
$10.0 million senior revolving credit facility with the BB&T which had
$4,026,005 in outstanding borrowings as of June 30, 2009.  This revolving credit
facility bears interest at the one month LIBOR rate, as published in the Wall
Street Journal, plus two and twenty-five one-hundredths percent (2.25%) per
annum, which was 4.0% as of June 30, 2009.   On February 11, 2009, we executed a
promissory note with BB&T in the amount of $12,000,000 which had $11,517,440 in
outstanding borrowings as of June 30, 2009.  This note bears interest at the
adjusted LIBOR rate of one month LIBOR plus 2.25% per annum with a floor of 4%. 
As of June 30, 2009, the applicable interest rate was 4%.  Based on our average
anticipated borrowings under our credit agreements in fiscal 2009, a
hypothetical increase or decrease in the LIBOR rate by 1% would increase or
decrease interest expense on our variable borrowings by 1% of the outstanding
balance, with a corresponding change in cash flows.



Last year, we entered into
three interest rate swap agreements swapping variable rates for fixed rates. The
first swap agreement covers $6 million in debt and commenced October 15, 2008
and matures on April 7, 2014. The second swap agreement covers approximately
$2.9 million in debt and commenced October 15, 2008 and matures on May 7, 2013. 
The third swap agreement covers $606,027 in debt and commenced October 22, 2008
and matures on October 22, 2013.  The three swap agreements fix our interest
rate at approximately 5.8%.  At June 30, 2009, we recorded the estimated fair
value of the three swaps at approximately $580,000.  We entered into the swap
agreements for the purpose of hedging the interest rate market risk for the
respective notional amounts.



We are exposed to market risk
from changes in interest rates in the normal course of business. Our interest
income and expense are most sensitive to changes in the general level of U.S.
interest rates and the LIBOR rate. In order to manage this exposure, we use a
combination of debt instruments, including the use of derivatives in the form of
interest rate swap agreements. We do not enter into any derivatives for trading
purposes.  The use of the interest rate swap agreement is intended to convert
the variable rate to a fixed rate.





ITEM 4(T):    CONTROLS AND PROCEDURES



(a)        Disclosure controls and procedures.



ISA's management, including ISA's principal executive officer and principal
financial officer, have evaluated the effectiveness of our "disclosure controls
and procedures," as such term is defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934.  Based upon their evaluation, our principal
executive officer and principal financial officer concluded that, as of June 30,
2009, ISA's disclosure controls and procedures were effective for the purpose of
ensuring that the information required to be disclosed in the reports that ISA
files under the Exchange Act with the Securities and Exchange Commission  (1) is
recorded, processed, summarized and reported within the time periods specific in
the SEC's rules and forms, and (2) is accumulated and communicated to ISA's
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding the required disclosure.



(b)     Internal controls over financial reporting.



Our management is responsible for establishing and maintaining adequate internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act).  Our internal control over financial reporting
is designed to provide reasonable assurance to our management and Board of
Directors regarding the reliability of financial reporting and the preparation
and fair presentation of published financial statements for external purposes in
accordance with generally accepted accounting principles in the United States.



Our internal control over financial reporting includes those policies and
procedures that:



--       pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect our transactions and dispositions of our assets;



--       provide reasonable assurance that our transactions are recorded as
necessary to permit preparation of our financial statements in accordance with
GAAP, and that our receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and



--       provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of our assets that could have a
material effect on our financial statements.



Because of its inherent limitations, internal control over financial reporting
cannot prevent or detect every potential misstatement.  Therefore, even those
systems determined to be effective can provide only reasonable assurances with
respect to financial statement preparation and presentation.  Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may decline.



Our management conducted an evaluation of the effectiveness of our internal
control over financial reporting, based on the framework and criteria
established in Internal Control -- Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission.  Based on this
evaluation, our management assessed the effectiveness of our internal control
over financial reporting for the quarter ended June 30, 2009, and concluded that
such internal control over financial reporting was effective as of June 30,
2009.



This Report on Form 10-Q does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that require only
management's report in this Report on Form 10-Q.



(c)     Changes to internal control over financial reporting



With the exception noted below, there were no changes in ISA's internal control
over financial reporting during the three months ended June 30, 2009 that have
materially affected, or are reasonably likely to affect ISA's internal control
over financial reporting.



During the three months ended June 30, 2009, ISA concluded the acquisition of
all the assets of Venture Metals, LLC, in order to enter into the stainless
steel and alloys recycling business.  For this new business, ISA purchased a new
recycling system software package from a third party vendor.  ISA is in the
process of conducting an assessment of our new stainless steel recycling
business internal controls over financial reporting for the period between the
consummation date and June 30, 2009, the date of our management's assessment,
however, the assessment is not yet complete.  As such, we have excluded our
stainless steel recycling business from our management's report on internal
control over financial reporting.



---



PART II -- OTHER INFORMATION





Item 1.       Legal Proceedings



On January 4,
2007, Lennox Industries, Inc., a commercial heating and air-conditioning
manufacturer, filed suit against us in the Arkansas County, Arkansas Circuit
Court in the case styled Lennox Industries, Inc. v. Industrial Services of
America, Inc., Case No. CV-2007-004.  Because of settlement negotiations, Lennox
did not serve us until May 23, 2007.  Lennox alleges that we breached a 2001
contract with Lennox where we agreed to act as agent for Lennox, by our failure
to properly evaluate, categorize, classify and value the production scrap and
waste of Lennox, thereby brokering such products at prices below market value. 
Lennox also alleges negligence and breach of fiduciary duty related to the same
alleged failure.  Lennox is taking the position that ISA had a duty to obtain a
price that was consistent with the materials being sold on their behalf and that
it failed to show a proper duty of care in its dealings with Lennox.  On July 9,
2008, Lennox amended its Complaint to add a cause of action based on fraud and
misrepresentation (civil fraud).  The Lennox complaint does not state any
specific monetary damages.  We have filed an answer denying all claims.  The
litigation is in its discovery phase with a trial date currently set for
November 2009.  We currently believe that the claims have no merit.



We have other
litigation from time to time, including employee or former employee claims, none
of which we believe to be material.



Item 1A.    Risk Factors



We
have had no material changes from the risk factors reported in our Form 10-K for
the year ended December 31, 2008, as filed with the Securities and Exchange
Commission on June 30, 2009.



Item 2.       Unregistered Sales of Equity Securities and Use of
Proceeds



On November 15, 2005, our Board of
Directors authorized a program to repurchase up to 200,000 shares of our common
stock at current market prices.  During 2008, we repurchased 19,753 shares.  In
2007 we repurchased 40,000 shares, in 2006 we repurchased 5,509 shares and in
2005 we repurchased 10,000 shares.



Issuer Purchases of Equity SecuritiesPeriod
			Total Number
			Average Price
			Total Number of Shares
			Maximum Number ofof Shares
			Paid per Share
			Purchased as part of
			Shares that may yet bePurchased
			
			Publicly Announced
			Purchased Under thePlans or Programs
			Plans or ProgramsOct-05
			-Nov-05
			10,000
			$ 2.9762
			10,000
			190,000Dec-05
			-Jan-06
			5,509
			$ 2.9658
			15,509
			184,491Aug-07
			20,000
			$ 9.9229
			35,509
			164,491Dec-07
			20,000
			$ 7.7257
			55,509
			144,491Mar-08
			19,753
			$ 8.2823
			75,262
			124,738Jun-08
			9,854
			$ 11.4169
			85,116
			114,884Sept-08
			26,000
			$ 9.7902
			111,116
			88,884






Item 3.       Defaults upon Senior Securities

None.



Item 4.       Submission of Matters to a Vote of Security Holders



(a)   At the Annual Meeting of Shareholders held on June 16,
2009, the following proposals were adopted by the margins indicated:



(b)   PROPOSAL
1:  Annual Election of Directors.  The nominees for election as directors were
Harry Kletter, Roman Epelbaum, Orson Oliver, Albert Cozzi and Brian Donaghy. The
five director positions were filled based upon the five receiving the most
votes:





For
			
			Withheld
			
			Broker Non-
			Votes And
			AbstentionsHarry Kletter
			3,001,905
			
			112,930
			
			-Roman Epelbaum
			2,998,925
			
			115,910
			
			-Albert A. Cozzi
			3,039,866
			
			74,969
			
			-Orson Oliver
			2,998,925
			
			115,910
			
			-Brian Donaghy
			3,033,785
			
			81,050
			
			-






(c)   PROPOSAL
2:  Ratification of Mountjoy & Bressler, LLP as our independent auditors.





For
			Against
			Broker Non VotesAnd Abstentions3,084,435
			28,596
			1,804




(d)   PROPOSAL 3:  Ratification of long term incentive plan.



For
			Against
			Broker Non VotesAnd Abstentions1,892,798
			211,021
			1,011,016




(e)   PROPOSAL
4:  Approve the issuance of additional common shares of stock.



For
			Against
			Broker Non VotesAnd Abstentions2,064,189
			39,769
			1,010,877






Item 5.       Other Information

None.



Item 6.       Exhibits

See exhibit index.



---



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.





INDUSTRIAL SERVICES OF AMERICA, INC.Date:  August 14, 2009
			/s/  Harry KletterChairman and Chief Executive Officer(Principal Executive and FinancialOfficer)Date:  August 14, 2009
			/s/ Alan L. SchroeringChief Financial Officer




---





INDEX TO EXHIBITSExhibit Number
			
			Description of Exhibits31.1
			
			Rule 13a-14(a) Certification of Harry Kletter
			for the Form 10-Q for the quarter ended June 30, 2009.31.2
			
			Rule 13a-14(a) Certification of Alan Schroering
			for the Form 10-Q for the quarter ended June 30, 2009.32.1
			
			Section 1350 Certification of Harry Kletter and
			Alan Schroering for the Form 10-Q for the quarter ended June 30,
			2009.




---

---