FORM 10-Q

                                  United States
                       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, 1998
                                       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 Employer
      Incorporation 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 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 _____



      Indicate  the  number  of  shares  outstanding  of each of the  issuer's
      classes of common stock, as of August 11, 1998: 1,929,600.




<PAGE>


                      INDUSTRIAL SERVICES OF AMERICA, INC.


                                      INDEX


                                                         Page No.

        Part I  Financial Information

         Item 1. Financial Statements

                Condensed Balanced Sheet
                  June 30, 1998 and December 31, 1997                 3


                Condensed Statement of Operations
                  three months ended June 30, 1998                    5
                  and 1997

                Condensed Statement of Operations
                  six months ended June 30, 1998                      6
                  and 1997

                Condensed Statement of Cash Flows-
                  six months ended June 30, 1998                      7
                  and 1997

                Notes to Condensed Financial
                  Statements                                          8

           Item 2. Management's Discussion and Analysis
                  of Financial Condition and Results
                  of Operations                                       9


        Part II Other Information

           Item 4. Submission of Matters to a Vote of Security Holders 11

           Item 6. Exhibits and Reports on Form 8-K                    11





<PAGE>


                             Part I - FINANCIAL INFORMATION



 ITEM 1. FINANCIAL STATEMENTS

                      INDUSTRIAL SERVICES OF AMERICA, INC.

                            CONDENSED BALANCE SHEETS
                                   (UNAUDITED)

                                     ASSETS


                                                  June 30,     December 31,
                                                    1998           1997

Current assets
  Cash and cash equivalents                       $   522,358        $495,834
  Accounts    receivables   -   trade   (after
allowance                                           6,658,655       5,028,769
   for  doubtful  accounts  of $16,000 in 1998
and 1997)
  Accounts receivable - related parties                34,667          34,667
  Income taxes refund receivable                      163,123         164,737
  Net investment in sales-type leases                  38,656          40,154
  Inventories                                       2,618,609       2,511,826
  Deferred income taxes                                18,200          18,200
  Other                                               224,599         195,993
                                                      -------         -------

    Total current assets                           10,278,867       8,490,180

Net property and equipment                          5,038,804       3,642,712

Other Assets
  Non-compete agreements, net                         400,000         450,000
  Intangibles      (net     of     accumulated
amortization of                                       746,668         773,333
  $53,332   and  $26,667  in  1998  and  1997,
respectively)
  Net investment in sales type leases                 129,086         192,154
  Other assets                                        313,652         344,645
                                                      -------         -------

                                                    1,589,406       1,760,132
                                                    ---------       ---------

                                                  $16,907,077     $13,893,024
                                                  ===========     ===========











     See accompanying notes to financial statements.

<PAGE>


                      INDUSTRIAL SERVICES OF AMERICA, INC.

                            CONDENSED BALANCE SHEETS
                                    CONTINUED
                                   (UNAUDITED)

                          LIABILITIES AND STOCKHOLDERS' EQUITY


                                                 June 30,        December 31,
                                                   1998             1997
Current liabilities
  Notes payable to bank                          $                $  1,800,000
                                                          -
  Notes payable                                           -            800,000
  Current maturities of long-term debt              258,972             45,479
  Accounts payable                                8,669,874          6,176,433
  Affiliated companies payable                            -             23,000
  Other current liabilities                        333,947             140,818
                                                   -------             -------

    Total current liabilities                     9,262,793          8,985,730
                                                  ---------          ---------

Long-term liabilities
  Long-term debt                                  3,193,707            759,877
  Deferred income taxes                             257,700            257,700
                                                    -------            -------

                                                  3,451,407          1,017,577

Stockholders' equity
  Common stock, $.01 par value,
  10,000,000 shares authorized; 1,957,500
    shares issued as of June 30, 1998                19,575             19,575
  Additional paid-in capital                      1,548,750          1,548,750
  Retained earnings                               2,632,552          2,329,392
  Treasury stock, at cost, 27,900 shares             (8,000)            (8,000)
                                                     ------             ------


    Total stockholders' equity                    4,192,877          3,889,717
                                                  ---------          ---------


                                                $16,907,077        $13,893,024
                                                ===========        ===========











                     See accompanying notes to financial statements.


<PAGE>



                      INDUSTRIAL SERVICES OF AMERICA, INC.

                       CONDENSED STATEMENTS OF OPERATIONS
                    THREE MONTHS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)

                                                      1998              1997
                                                      ----              ----


Revenue
  Recycling                                        $ 5,140,721       $1,681,023
  Equipment sales, service and leasing                 328,008          345,898
  Management services                               11,313,976        8,249,376
                                                    ----------        ---------

    Total revenue                                   16,782,705       10,276,297

Cost of goods sold
  Recycling                                          4,659,418        1,374,131
  Equipment sales, service and leasing                 183,373          139,083

  Management services                               10,738,421        7,840,868
                                                    ----------        ---------

    Total cost of sales                             15,581,212        9,354,082
                                                    ----------        ---------


Gross margin                                         1,201,493          922,215
                                                     ---------          -------

Selling, general and administrative                    918,151          913,345
                                                       -------          -------


Income from operations                                 283,342            8,870

Other income (expenses)                                (41,788)           1,050
                                                       -------            -----


Income before income taxes                             241,554            9,920

Provision for income taxes                              91,000            5,000
                                                        ------            -----


Net income                                        $    150,554      $     4,920
                                                  ============      ===========


Earnings per share                                       $0.08            $0.01
                                                         =====            =====

Earnings per share, assuming dilution                    $0.08            $0.01
                                                         =====            =====


                  See accompanying notes to financial statements.


<PAGE>



                      INDUSTRIAL SERVICES OF AMERICA, INC.

                       CONDENSED STATEMENTS OF OPERATIONS
                     SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)

                                                      1998              1997
                                                      ----              ----


Revenue
  Recycling                                       $ 10,008,914       $3,274,576
  Equipment sales, service and leasing                 751,860          704,752
  Management services                               20,181,055       15,414,313
                                                    ----------       ----------

    Total revenue                                   30,941,829       19,393,641

Cost of goods sold
  Recycling                                          9,104,648        2,608,645
  Equipment sales, service and leasing                 412,065          303,935

  Management services                               19,115,929       14,570,470
                                                    ----------       ----------

    Total cost of sales                             28,632,642       17,483,050
                                                    ----------       ----------

Gross margin                                         2,309,187        1,910,591

Selling, general and administrative                  1,798,361        1,765,026
                                                     ---------        ---------


Income from operations                                 510,826          145,565

Other income (expenses)                                (22,666)          37,325


Income before income taxes                             488,160          182,890

Provision for income taxes                             185,000           70,000
                                                       -------           ------


Net income                                        $    303,160       $  112,890
                                                  ============       ==========


Earnings per share                                       $0.16            $0.06
                                                         =====            =====

Earnings per share, assuming dilution                    $0.15            $0.06
                                                         =====            =====


                  See accompanying notes to financial statements.


<PAGE>


                      INDUSTRIAL SERVICES OF AMERICA, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)


                                                    1998           1997
                                                    ----           ----
Operating activities
  Net Income                                       $  303,160     $  112,890
  Adjustments to reconcile net income to
   net cash from operating activities:
     Depreciation and amortization                    401,713        271,897
     Change in assets and liabilities
        Receivables                                (1,629,886)       131,885
        Inventories                                  (106,783)      (204,599)
        Other assets                                    4,001         55,446
        Accounts payable                            2,493,441        930,478
        Other current liabilities                     170,129        119,271
                                                      -------        -------

          Net cash from operating activities        1,635,775      1,417,268

Investing activities
  Investment in affiliate                                   -       (179,778)
  Purchase of investments                                   -       (134,316)
  Purchases of property and equipment              (1,721,140)      (475,368)
  Deposits                                                  -       (310,415)
                                                   ----------       --------

     Net cash from investing activities            (1,721,140)    (1,099,877)

Financing activities
  Net borrowings from note payable to bank           (850,000)              -
  Proceeds from issuance of long-term debt            900,000        150,000
  Payments on long-term debt                           (2,677)        (6,754)
  Proceeds from sales-type leases                      64,566          4,537
                                                       ------          -----

     Net cash from financing activities               111,889        147,783
                                                      -------        -------


Net change in cash                                     26,524        465,174

Cash beginning of period                              495,834      1,371,435
                                                      -------      ---------

Cash at end of period                             $   522,358    $ 1,836,609
                                                  ===========    ===========










                     See accompanying notes to financial statements.


<PAGE>


                      INDUSTRIAL SERVICES OF AMERICA, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


      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 June 30, 1998 and the results of its
      operations  and changes in cash flows for the periods  ended June 30, 1998
      and 1997. Results of operations for the period ended June 30, 1998 are not
      necessarily  indicative of the results that may be expected for the entire
      year.  Additional  information,   including  the  audited  1997  Financial
      Statements and the Summary of Significant Accounting Policies, is included
      in the Registrant's Annual Report on Form 10-K for the year ended December
      31, 1997 on file with the Securities and Exchange Commission.

      2. Acquisition

      Effective  June 1, 1998,  the  Registrant  acquired  the assets of a scrap
      metal recycling  facility in Seymour,  Indiana.  The acquisition of assets
      included the purchase of equipment  for $900,000.  The purchase  price was
      paid in two installments of $250,000 and $650,000 on June 1, 1998 and July
      31, 1998,  respectively.  The  purchase  price was financed by a five year
      bank loan bearing  interest at a rate of 8.58%.  For further  information,
      see the Registrant's  Form 8-K filed on August 3, 1998 with the Securities
      and Exchange Commission.


      3.  Inventories

      Inventories consist of the following:

                                               June 30,       December 31,
                                                 1998             1997

          Equipment and parts                  $   690,814      $   752,099
          Ferrous materials                      1,124,595          756,940
          Non-ferrous materials                    803,200        1,002,787
                                               -----------      -----------

            Total inventories                  $ 2,618,609      $ 2,511,826
                                               ===========      ===========


      4.   Subsequent Event

      Subsequent to June 30, 1998, the Registrant refinanced certain debt. Under
      the  refinancing  agreements,  the debt matures at various  points through
      June,  2003.  Therefore,  as  of  June  30,  1998,  debt  related  to  the
      refinancing agreements is classified as long-term.

      On July 28, 1998, the Registrant entered into an equipment lease and scrap
      brokerage  agreement  with  Southern  Salvage  Scrap  Metals  (SSSM).  The
      Registrant  will  receive  monthly  rentals of $7,000.  Additionally,  the
      Registrant  will market  SSSM's scrap  materials in exchange for brokerage
      fees.


<PAGE>



      ITEM 2. MANGEMENT'S DISCUSSTION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS.

      Liquidity and Capital Resources

           As of June 30, 1998 the Registrant held cash and cash  equivalents of
      $522,358.

           The  Registrant  derives  its  revenues  from a variety  of  sources,
      including  management  services,  equipment sales and leasing,  consulting
      fees and from its recycling operations. The recycling operations comprised
      approximately  32.3%  and  16.9%  of the  Registrant's  revenues  for  the
      six-month period ended June 30, 1998 and 1997, respectively.

               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 $2,000,000.  Outstanding principal under this
          credit  facility  bears  interest  based  at prime  rate  plus .5% The
          maturity date under this credit  facility is June 30, 2000. As of June
          30, 1998,  $950,000 was outstanding  under this credit facility.  This
          line of credit in the amount of $2,000,000 was refinanced.

      Results of Operations

           The  following  table  presents,  for  the  periods  indicated,   the
      percentage  relationship which certain captioned items in the Registrant's
      Statements of Operations bear to total revenues and other pertinent data:

                                            Six-months ended June 30,
                                                1998           1997
      Statements of Operations Data:
      Total Revenue......................      100.0%         100.0%
      Cost of Goods Sold.................       92.5%          90.1%
      Selling, general and administrative
      expenses...........................        5.8%           9.1%
      Income from operations.............        1.7%           0.8%


      Six months ended June 30, 1998 compared to Six months ended June 30, 1997

           Total revenue increased 59.5% from $19,393,641 in 1997 to $30,941,829
      in 1998.  This  increase  in total  revenue is the result of (i) CWS sales
      increasing  30.9% from $15,414,313 in 1997 to $20,181,055 in 1998 and (ii)
      an increase of 206% related to the recycling  operations of $10,008,914 in
      1998 as compared to $3,274,576 in 1997 primarily due to the acquisition of
      The Metal Center in the third quarter of 1997.

           The 1998 total cost of sales was $28,632,642,  increasing $11,149,592
      or 63.8% compared to 1997.  The cost of goods sold in management  services
      increased  31.2%  versus an increase in  recycling  costs of goods sold of
      249%.  This  deviation  resulted  from a  declining  economy  in the Asian
      market. Consequently, commodity prices in the United States have decreased
      over the past year, thereby tightening our gross margin.

           The gross margin was $2,309,187  representing an increase of $398,596
      in 1998 or 20.9% from 1997.  The gross  margin was 7.5% of revenue,  which
      was 2.4% lower than 1997. A reduced  gross margin  percentage  of 0.3% was
      experienced  in  management  services due to the addition of certain fixed
      fee contracts  which  experienced  store location growth during the period
      along with the assimilation of the shared savings contracts.



           Selling,  general and  administrative  expenses  increased  1.9% from
      $1,765,026  in 1997 to  $1,798,361  in 1998.  However,  as a percentage of
      total revenue, selling, general and administrative expenses decreased from
      9.1% in 1997 to 5.8% in 1998.


      Quarter ended June 30, 1998 compared to quarter ended June 30, 1997

           Total revenue increased 63.3% from $10,276,297 in 1997 to $16,782,705
      in 1998.  This  increase  in total  revenue is the result of (i) CWS sales
      increasing  37.1% from  $8,249,376 in 1997 to $11,313,976 in 1998 and (ii)
      an increase of 206% related to the  recycling  operations of $5,140,721 in
      1998 as compared to $1,681,023 in 1997 primarily due to the acquisition of
      The Metal Center in the third quarter of 1997.

           The 1998 total cost of sales was $15,581,212 increasing $6,227,130 or
      66.6%  compared  to 1997.  The cost of goods sold in  management  services
      increased  37.0%  versus an increase in  recycling  costs of goods sold of
      239%.  This  deviation  resulted  from a  declining  economy  in the Asian
      market. Consequently, commodity prices in the United States have decreased
      over the past year, thereby tightening our gross margin.

           The gross margin was $1,201,493  representing an increase of $279,278
      in 1998 or 30.3% from 1997.  The gross  margin was 7.2% of revenue,  which
      was 1.8% lower than 1997. A reduced  gross margin  percentage  of 8.9% was
      experienced in recycling due to the declining commodity prices.



           Selling,  general and administrative  expenses remained consistent in
      1998 compared to 1997. However, as a percentage of total revenue, selling,
      general and administrative expenses decreased from 8.9% in 1997 to 5.5% in
      1998.

      Financial Condition at June 30, 1998 Compared to December 31, 1997

           Accounts   receivable-trade   increased   32.4%  or  $1,629,886  from
      $5,028,769  as of December 31, 1997 to  $6,658,655  at June 30, 1998.  The
      increase in accounts  receivable-trade was primarily due to higher volumes
      pertaining to both the recycling  operations  and from major  customers of
      CWS.

           Accounts payable-trade  increased 40.4% or $2,493,442 from $6,176,433
      as of December 31, 1997 to $8,669,875 at June 30, 1998. The increase was a
      result of additional  expenses incurred to generate higher revenue volumes
      as noted above.

           From  December 31, 1997 to June 30, 1998,  the  Registrant's  working
      capital  increased by $1,511,624 to  $1,016,074.  The increase in accounts
      receivable  and payable as noted above,  coupled with the  refinancing  of
      short-term notes payable into long term financing arrangements, were major
      contributors to the working capital increase.


<PAGE>


                               Part II - OTHER INFORMATION


        Item 1.    Legal Proceedings
                   None

        Item 2.    Changes in Securities and Use of Proceeds
                   None

        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 May 21,  1998,  the
            following proposals were adopted by the margins indicated:

        (b) 1. To elect a Board  of  Directors  to hold  office  until  the next
            annual  meeting  of  shareholders  and until  their  successors  are
            elected and qualified.

                                                Number of Shares
                                                                     Broker
                              For          Withheld  Abstentions   Non-Votes
        Harry Kletter       929,780           500                 1,019,444
        Sean Garber         929,780           500                 1,019,444
        Michael Devereaux   929,780           500                 1,019,444
        Joe Cohen           929,780           500                 1,019,444
        Dr. Barry Naft      929,280         1,000                 1,019,444


             2.  To  confirm  Crowe-Chizek  &  Company,  LLP  as  the  Company's
        independent auditors.



            For                                    930,980
            Withhold Authority                       3,600
            Abstain                                    500
            Broker Non-Votes                     1,014,644



        Item 5.    Other Information
                   None


        Item 6.    Exhibits and Reports on Form 8-K
                   (a)  None

                   (b) The  Registrant  filed a Form 8-K on  August 3, 1998 with
        respect to the earliest  event  reported on July 31,  1998.  This filing
        reports "Item 5-Other Events" from the Form 8-K.



<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: August 11, 1998   /s/ Harry Kletter
                               Chairman and Chief Executive Officer
                               (Principal Executive and Financial Officer)