SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C.  20549
                           FORM 10-QSB

  [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                 SECURITIES EXCHANGE ACT OF 1934
            For the quarter ended September 30, 1996

  [ ]  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             (I.R.S. Employer
Incorporation or Organization)             Identification No.)

                 7100 Grade Lane, P.O. Box 32428
                 -------------------------------
                   Louisville, Kentucky  40232
                   ---------------------------
            (Address of principal executive offices)

                         (502) 368-1661
                         --------------
                   (Issuer's Telephone Number)

                         Not Applicable
                         --------------
      (Former name, former address and former fiscal year,
                  if changed since last report)

Check whether the Issuer (1) filed all Reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 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
    -----      -----

        APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
           PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act after the distribution of securities
under a plan confirmed by court.  YES   X     NO
                                      -----      -----

              APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 
Common Stock ($.01) par value) - 1,957,500 as of November 11, 1996.

                    --------------------

Transitional Small Business Disclosure Format (check one):
YES         NO    X
    ------     -------

<PAGE>
                 PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements
------------------------------

              INDUSTRIAL SERVICES OF AMERICA, INC.
                         AND SUBSIDIARY
                   CONSOLIDATED BALANCE SHEETS
                           (UNAUDITED)

                             ASSETS
                             ------
<TABLE>
<CAPTION>
                                       SEPT 30       JANUARY 1
                                        1996           1996
                                       -------       ---------

<S>                                   <C>            <C>
CURRENT ASSETS
--------------
Cash                                  $1,521,865     $  507,889
Receivables:
  Trade, net of allowance for
    doubtful accounts of $16,000       2,772,777      3,241,290
  Other                                  122,468            -0-
                                      ----------     ----------
                                       2,895,245      3,241,290

Net investment in sales-type leases        3,789         29,273
Inventories                              269,454        138,503
Deferred tax assets                        6,400          6,400
Other                                     19,957        168,773
                                      ----------     ----------

  Total current assets                 4,716,710      4,092,128

Property and equipment, net            2,595,872      1,961,381

Other assets                             176,006        155,852
                                      ----------     ----------

Total assets                          $7,488,588     $6,209,361
                                      ==========     ==========
</TABLE>

<PAGE>
              LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                       SEPT 30       JANUARY 1
                                        1996           1996
                                       -------       ---------

<S>                                   <C>            <C>
Current liabilities
  Accounts payable                    $4,229,238     $3,600,857
  Income taxes payable                    52,188        184,126
  Current maturities of 
    long-term debt                         5,185         19,797
  Other current liabilities               71,032        202,555
                                      ----------     ----------

    Total current liabilities          4,357,643      4,007,335

Long-Term Debt                           465,875        367,431

Deferred tax liability                    66,600         66,600

Stockholders' equity
  Common stock, $.01 par value,
    10,000,000 shares authorized;
    1,957,500 shares issued               19,575         17,575
  Additional paid-in capital             275,000         27,000
  Retained earnings                    2,311,895      1,731,420
  Treasury stock, at cost,
    27,900 shares                         (8,000)        (8,000)
                                      ----------     ----------

    Total stockholders' equity         2,598,470      1,767,995
                                      ----------     ----------

Total liabilities and stockholders'
  equity                              $7,488,588     $6,209,361
                                      ==========     ==========
</TABLE>

<PAGE>
              INDUSTRIAL SERVICES OF AMERICA, INC.
                         AND SUBSIDIARY
              CONSOLIDATED STATEMENTS OF OPERATIONS
         THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                           (UNAUDITED)

<TABLE>
<CAPTION>
                                         1996           1995   
                                      ----------     ----------

<S>                                   <C>            <C>
Revenue
  Net sales                           $9,184,714     $8,213,186
  Rental income                          102,194         65,713
                                      ----------     ----------

    Total revenue                      9,286,908      8,278,899

Cost and expenses
  Cost of sales                        7,885,364      6,380,229
  Direct expenses applicable to
    rental income                         28,454         20,901
  Selling, general and administrative
    expenses                           1,087,705      1,517,675
                                      ----------     ----------

    Total cost and expenses            9,001,523      7,918,805
                                      ----------     ----------

Income from operations                   285,385        360,094

Other income, net                         41,614         21,416
                                      ----------     ----------

Income before provision for
  income taxes                           326,999        381,510

Provision for income taxes               137,000        195,000
                                      ----------     ----------

Net income                            $  189,999     $  186,510
                                      ==========     ==========

Earnings per common share             $     0.10     $     0.10

</TABLE>

<PAGE>
              INDUSTRIAL SERVICES OF AMERICA, INC.
                         AND SUBSIDIARY
              CONSOLIDATED STATEMENTS OF OPERATIONS
          NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                           (UNAUDITED)

<TABLE>
<CAPTION>
                                         1996           1995   
                                      ----------     ----------

<S>                                  <C>            <C>
Revenue
  Net sales                          $25,795,837    $22,491,628
  Rental income                          283,682        176,346
                                     -----------    -----------

    Total revenue                     26,079,519     22,667,974

Cost and expenses
  Cost of sales                       21,696,810     17,898,394
  Direct expenses applicable to
    rental income                         78,104         66,837
  Selling, general and administrative
    expenses                           3,399,151      3,779,454
                                     -----------    -----------

    Total cost and expenses           25,174,065     21,744,685
                                     -----------    -----------

Income from operations                   905,454        923,289

Other income, net                         69,991         61,192
                                     -----------    -----------

Income before provision for
  income taxes                           975,445        984,481

Provision for income taxes               395,000        435,000
                                     -----------    -----------

Net income                           $   580,445    $   549,481
                                     ===========    ===========

Earnings per common share            $      0.32    $      0.30

</TABLE>

<PAGE>
              INDUSTRIAL SERVICES OF AMERICA, INC.
                         AND SUBSIDIARY
              CONSOLIDATED STATEMENTS OF CASH FLOWS
          NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                           (UNAUDITED)

<TABLE>
<CAPTION>
                                         1996           1995   
                                      ----------     ----------
<S>                                   <C>            <C>
Operating activities
  Net income                          $  580,445     $  549,481
  Adjustments to reconcile net
    income to net cash provided
    by operating activities:
      Depreciation and amortization      353,558        231,108
      Gain on sale of property
        and equipment                    (25,053)           -0-
      Increase (decrease) in cash
        resulting from changes in:
         Receivables                     468,513       (905,303)
         Inventories                    (130,951)       (52,953)
         Prepaid expenses                120,824         94,753
         Accounts payable                628,381      1,128,618
         Deferred revenue                    -0-         45,000
         Income taxes payable           (131,938)       (72,659)
         Other current liabilities      (131,523)       169,496
                                      ----------     ----------

  Net cash provided by operating
    activities                         1,732,256      1,187,541

Investing activities
  Purchase of restricted investment          -0-       (100,000)
  Advances to related parties            (14,968)           -0-
  Proceeds from sale of property
    and equipment                         56,423            -0-
  Payments/Deposits for property
    and equipment                     (1,019,419)    (1,131,547)
  Additions to notes receivables        (107,500)           -0-
                                      ----------     ----------

  Net cash used in investing
    activities                        (1,085,464)    (1,231,547)

Financing activities
  Payments on long-term debt             (16,168)        (5,826)
  Proceeds from issuance of
    notes payable to bank                100,000        300,000
  Proceeds from issuance of
    long-term debt                           -0-         21,976
  Investment in sales-type leases         (2,463)       (15,412)
  Proceeds from sales-type leases         35,815            -0-
  Proceeds from issuance of
    stock options                        250,000            -0-
                                      ----------     ----------

  Net cash provided by financing
    activities                           367,184        300,738
                                      ----------     ----------

Net increase (decrease) in cash        1,013,976        256,732

Cash at beginning of period              507,889        354,884

Cash at end of period                 $1,521,865     $  611,616
                                      ==========     ==========

</TABLE>

<PAGE>
              INDUSTRIAL SERVICES OF AMERICA, INC.

                  NOTES TO FINANCIAL STATEMENTS

                           (UNAUDITED)
                            ---------


1.   Basis of Presentation
     ---------------------

The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial reporting.  They do not include
all information and footnotes required by generally accepted
accounting principles for complete financial statements.  The
information furnished includes all adjustments which are, in the
opinion of management, necessary to present fairly the
Registrant's financial position as of September 30, 1996 and the
results of its operations and changes in cash flows for the
periods ended September 30, 1996 and 1995.  Results of operations
for the period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the entire
year.

2.   Additional information
     ----------------------

Additional information, including the audited 1995 Financial
Statements and the Summary of Significant Accounting Policies, is
included in the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1995 on file with the Securities and
Exchange Commission.

<PAGE>
Item 2.   Management's Discussion and Analysis or Plan of
          -----------------------------------------------
          Operation
          ---------

1.   Liquidity and Capital Resources
     -------------------------------

     As of September 30, 1996, the Registrant held cash and cash
equivalents of $1,521,865.

     The Registrant derives its revenues from a variety of
sources, including customer services, equipment sales, consulting
fees, and from its recycling operations.  The recycling
operations comprised approximately 30% and 60% of the
Registrant's income before provision for income taxes for the
years ended December 31, 1994 and 1995, respectively.  In the
event the Registrant were to operate without revenue derived from
its recycling operations, the Registrant's liquidity would be
significantly decreased but would not materially impair the
Registrant's ability to continue its operations and business.

2.   Results of Operations
     ---------------------

     The Registrant currently manages the recycling operations of
K&R Corporation.  The Registrant reports gross sales derived from
its recycling operations within its computation of total revenue. 
The cost of purchasing recyclable materials is reported as a Cost
of Sales of the Registrant.  Effective January 1, 1996, the
Registrant is charging K&R Corporation a management fee of 80% of
income before provision for income taxes from the recycling
operations.  The remaining 20% of income before provision for
income taxes is remitted to K&R Corporation and is reported in
the Registrant's financial statements as a Selling Expense.  Prior to
January 1, 1996, the Registrant was charging K&R Corporation a
management fee of 60% of income before provision for income taxes
from the recycling operations.

     Income before provisions for income taxes for the nine
months ended September 30, 1996 was $975,445, as compared to
$984,481 for the comparable period of 1995.

     Revenues for the nine months ended September 30, 1996 was
$26,079,519, as compared to $22,667,974 for the comparable period
of 1995.

     Costs and expenses for the nine months ended September 30,
1996 were $25,174,065 as compared to $21,744,685 for the
comparable period of 1995.

     Income from operations for the nine months ended
September 30, 1996 was $905,454, as compared to $923,289 for the
comparable period of 1995.

     Increases in net income of 6% and revenues of 15% of the
Registrant are attributable to an increase in the volume of the
recyclable processing operations and an increase in the leasing
of waste disposal and recycling equipment.  The percentage of
costs and expenses increased slightly above the percentage of
revenues due to a depressed market for recycling materials.

<PAGE>
     The Registrant does not believe that the impact of inflation
on operations has been material.  The Registrant believes that
any cost increase resulting from periods of high inflation can be
passed through to its customers without negative reactions.

     The Registrant currently maintains a working capital line of
credit with The Mid-America Bank of Louisville and Trust Company
(the "Bank") in the amount of $750,000.  Indebtedness under this
credit facility earns interest at the Bank's prime rate as
promulgated from time to time.  The maturity date under this
credit facility is June 30, 1997.  As of September 30, 1996
approximately $450,000 was outstanding under this credit
facility.

     The Registrant provides waste management consulting services
to its customers.  Prior to 1994, the Registrant's service and
consulting revenue was derived principally from management fees
paid by its customers.  The Registrant collected funds from its
customers for services rendered, retained its management fee, and
remitted the remaining funds to third party vendors who performed
the waste removal and maintenance services.  In 1994, because of
certain market dynamics, changes in the industry and changes
related to the Registrant's operations, management re-evaluated
the Registrant's manner of conducting business.  Based on this
re-evaluation, the Registrant's pricing process was modified.  As
a result, the majority of the Registrant's current customers pay
a negotiated fee for their waste service needs, and in turn the
Registrant subcontracts the necessary work to third party vendors
and pays those vendors for their services.

3.   Other Information
     -----------------

     The Registrant entered into a Management Agreement (the
"Management Agreement"), dated as of July 3, 1996, with
Earthwatch Waste Systems, Inc. ("EWS"), a Delaware corporation
headquartered in Buffalo, New York.  EWS is in the business of
arranging for the disposal of municipal solid waste primarily in
the Northeastern United States.  The Registrant has agreed to
provide management consulting services to EWS in exchange for a
quarterly management fee equal to 60% of the net income of EWS
for each fiscal quarter as adjusted for losses in prior quarters. 
The initial term of the Management Agreement was to commence
effective July 1, 1996 and expires on September 30, 1997 unless
sooner terminated by either party under the terms of the
Management Agreement.  The Management Agreement automatically
renews on an annual basis.  To date, EWS has not paid any fees
because the Management Agreement has not been implemented by 
agreement of the parties.  If the Management Agreement had been 
implemented, to date, EWS would not have been required to pay 
any such fees under its terms.  As a result, the Management 
Agreement has not had a material effect on the income 
of the Registrant.  
<PAGE>
                   PART II - OTHER INFORMATION


Item 1.   Legal Proceedings
---------------------------
          None

Item 2.   Changes in Securities
-------------------------------
          None

Item 3.   Defaults upon Senior Securities
-----------------------------------------
          None

Item 4.   Submission of Matters to a Vote of Security Holders
-------------------------------------------------------------
          None

Item 5.   Other Information
---------------------------
          On July 8, 1996, the Registrant filed a Form 8-A with
the Securities and Exchange Commission (the "Commission")
registering the $.01 par value common stock of the Registrant
under Section 12(g) of the Securities Exchange Act of 1934, as
amended.  The Commission declared the Form 8-A effective on July
17, 1996.

Item 6.   Exhibits and Reports on Form 8-K
------------------------------------------
          (a)  The following exhibits are filed as part of this
report:

          27 -- Financial Data Schedule

          (b)  No reports on Form 8-K were filed during the
quarter ended September 30, 1996.

<PAGE>
                           SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                              INDUSTRIAL SERVICES OF AMERICA, INC.



DATE:  11/14/96               /s/ Harry Kletter
     ----------------         -------------------------------------
                              President and Principal Accounting
                              and Financial Officer