FORM 10-QSECURITIES 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 September 30, 2008OR[  ]   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 0-20979INDUSTRIAL 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
			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 XIndicate 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 September 30, 2008:  3,575,292.




---



INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIESINDEXPage No.Part I
			Financial InformationCondensed Consolidated Balance SheetsSeptember 30, 2008 (Unaudited) and December
			31, 2007
			3Condensed Consolidated Statements ofOperations - Three Months EndedSeptember 30, 2008 and 2007 (Unaudited)
			5Condensed Consolidated Statements ofOperations - Nine Months EndedSeptember 30, 2008 and 2007 (Unaudited)
			6Condensed Consolidated Statements of
			Shareholders' EquitySeptember 30, 2008 (Unaudited) and December
			31, 2007
			7Condensed Consolidated Statements ofCash Flows - Nine Months EndedSeptember 30, 2008 and 2007 (Unaudited)
			8Notes to Condensed ConsolidatedFinancial Statements (Unaudited)
			9Management's Discussion and Analysisof Financial Condition and Resultsof Operations
			19Part II
			Other Information
			30




---



Part I
			-- FINANCIAL INFORMATIONITEM
			1: Condensed CONSOLIDATED FINANCIAL STATEMENTS.INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETSASSETS




September 30,
			2008
			(Unaudited)
			
			December 31,
			2007Current assetsCash and cash equivalents
			$  3,060,139
			
			$  1,501,685Income tax receivable
			99,358
			
			100,737Accounts receivable - trade (after allowance
			
			    for doubtful accounts of $100,000 in 2008
			    and 2007)
			8,834,094
			
			6,764,851Net investment in sales-type leases
			52,568
			
			60,364Inventories
			6,471,067
			
			4,627,281Deferred income taxes
			141,636
			
			141,636Other
			48,876
			
			318,496Total current assets
			18,707,738
			
			13,515,050Shredder system construction in progress
			5,119,436
			
			-Net property and equipment
			10,362,882
			
			9,537,345Total property and equipment
			15,482,318
			
			9,537,345Other AssetsGoodwill
			560,005
			
			560,005Net investment in sales-type leases
			85,679
			
			125,851Notes receivable - related party
			176,898
			
			204,053Deposit for shredder system
			-
			
			2,173,076Other assets
			155,238
			
			169,142977,820
			
			3,232,127$ 35,167,876
			
			$ 26,284,522




_________________________See accompanying notes to consolidated financial
			statements.3.




---



INDUSTRIAL SERVICES
			OF AMERICA, INC. AND SUBSIDIARIESCONDENSED
			CONSOLIDATED BALANCE SHEETSCONTINUEDLIABILITIES AND STOCKHOLDERS' EQUITY




September 30,
			2008
			(Unaudited)
			
			December 31,
			2007Current liabilitiesCurrent maturities of long term debt
			$     440,876
			
			$     338,913Current maturities of capital lease obligation
			81,451
			
			133,675Accounts payable
			4,867,323
			
			4,665,631Income tax payable
			1,513,605
			
			-Other current liabilities
			1,014,140
			
			436,791Total current liabilities
			7,917,395
			
			5,575,010Long-term liabilitiesLong-term debt
			10,817,020
			
			8,393,784Capital lease obligation
			40,481
			
			101,569Deferred income taxes
			1,074,721
			
			194,72111,932,222
			
			8,690,074CommitmentsStockholders' equityCommon stock, $.005 par value, 10,000,000
			shares authorized,
			    4,295,000 shares issued in 2008 and 2007,
			    3,575,292 shares outstanding in 2008 and 3,620,899 in 2007
			21,475
			
			21,475Additional paid-in capital
			3,742,373
			
			3,599,624Retained earnings
			13,102,802
			
			9,434,733Treasury stock, 719,708 shares at average
			costin 2008 and 674,101 in 2007
			(1,548,391)
			
			(1,036,394)15,318,259
			
			12,019,438$ 35,167,876
			
			$ 26,284,522




_________________________See accompanying notes to consolidated financial
			statements.4.




---



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSTHREE
			MONTHS ENDED SEPTEMBER 30, 2008 AND 2007(UNAUDITED)




2008
			
			2007Revenue from
			services
			$  4,875,379
			
			$  4,311,553Revenue from product sales
			23,962,449
			
			13,617,257Total Revenue
			28,837,828
			
			17,928,810Cost of goods
			sold for services
			4,578,407
			
			3,841,742Cost of goods
			sold for product sales
			19,749,262
			
			11,980,863Reduction of
			cost of goods sold
			-
			
			(337,516)Total Cost of goods sold
			24,327,669
			
			15,485,089Selling, general and administrative expense
			2,569,743
			
			1,791,116Income before other income (expense)
			1,940,416
			
			652,605Other income (expense)Interest
			expense
			(76,628)
			
			(91,096)Interest
			income
			19,060
			
			30,238Gain/(loss)
			on sale of assets
			14,133
			
			9,782Other income
			158,884
			
			193115,449
			
			(50,883)Income before income taxes
			2,055,865
			
			601,722Income tax provision
			775,750
			
			218,563Net income
			$  1,280,115
			
			$     383,159Basic earnings per share
			$             .36
			
			$           0.11Diluted earnings per share
			$   
			         .36
			
			$           0.11Weighted shares outstanding:Basic
			3,593,966
			
			3,640,899Diluted
			3,593,966
			
			3,640,899




_________________________See accompanying notes to consolidated financial
			statements.5.




---



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSNINE
			MONTHS ENDED SEPTEMBER 30, 2008 AND 2007(UNAUDITED)




2008
			
			2007Revenue from
			services
			$  13,759,177
			
			$  11,804,056Revenue from product sales
			75,673,131
			
			43,557,599Total Revenue
			89,432,308
			
			55,361,655Cost of goods
			sold for services
			12,821,444
			
			10,769,624Cost of goods
			sold for product sales
			62,110,231
			
			36,909,805Reduction of
			cost of goods sold
			-
			
			(480,060)Total Cost of goods sold
			74,931,675
			
			47,199,369Selling, general and administrative expense
			7,861,160
			
			4,804,324Income before other income (expense)
			6,639,473
			
			3,357,962Other income (expense)Interest
			expense
			(305,197)
			
			(204,948)Interest
			income
			63,057
			
			92,002Gain/(loss)
			on sale of assets
			30,614
			
			(1,606)Other income
			287,550
			
			22,55176,024
			
			(92,001)Income before income taxes
			6,715,497
			
			3,265,961Income tax provision
			2,686,199
			
			1,268,423Net income
			$  4,029,298
			
			$  1,997,538Basic earnings per share
			$           1.12
			
			$           0.55Diluted earnings per share
			$           1.12
			
			$           0.55Weighted shares outstanding:Basic
			3,602,703
			
			3,640,899Diluted
			3,602,703
			
			3,640,899




_________________________See accompanying notes to consolidated financial
			statements.6.




---



INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
			NINE MONTHS ENDED SEPTEMBER 30, 2008(UNAUDITED)AdditionalCommon Stock
			
			Paid-in
			
			Retained
			
			Treasury StockShares
			
			Amount
			
			Capital
			
			Earnings
			
			Shares
			
			Cost
			
			TotalBalance as of December 31, 2007
			
			4,295,000
			
			$21,475
			
			$3,599,624
			
			$9,434,733
			
			(674,101)
			
			$
			(1,036,394)
			
			$12,019,438Stock repurchase
			
			-
			
			-
			
			-
			
			2,961
			
			(55,607)
			
			(530,648)
			
			(527,687)Stock bonus
			
			-
			
			-
			
			142,749
			
			-
			
			10,000
			
			18,651
			
			161,400Cash dividend
			
			-
			
			-
			
			-
			
			(364,190)
			
			-
			
			-
			
			(364,190)Net income
			
			-
			
			-
			
			-
			
			4,029,298
			
			-
			
			-
			
			4,029,298Balance as of September 30, 2008
			
			4,295,000
			
			$21,475
			
			$3,742,373
			
			$13,102,802
			
			(719,708
			
			$
			(1,548,391)
			
			$
			15,318,259




7



---



INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNINE
			MONTHS ENDED SEPTEMBER 30, 2008 AND 2007(UNAUDITED)




2008
			
			2007Cash flows from operating activitiesNet income
			$  4,029,298
			
			$  1,997,538Adjustments to reconcile net income to
			    net cash from operating activities:Depreciation and amortization
			1,575,843
			
			1,431,764Deferred income taxes
			880,000
			
			(99,434)Tax benefits related to common stock
			options
			-
			
			210,564(Gain)/loss on sale of property and
			equipment
			(30,614)
			
			1,606Change in assets and liabilitiesReceivables
			(2,069,243)
			
			(1,865,162)Net investment in sales-type leases
			47,968
			
			36,520Inventories
			1,843,786)
			
			(1,009,955)Other assets
			284,903
			
			(176,826)Accounts payable
			201,692
			
			(304,543)Other current liabilities
			2,090,954
			
			(912,009)Net cash from operating activities
			5,167,015
			
			(689,937)Cash flows from investing activitiesProceeds from sale of property and equipment
			82,827
			
			57,300Purchases of property and equipment
			(2,453,593)
			
			(1,716,680)Purchases for shredder system construction in
			progress
			(2,946,360)
			
			(1,065,510)Payments from related party
			27,155
			
			25,706Net cash from investing activities
			(5,289,971)
			
			(2,699,184)Cash flows from financing activitiesPurchases of common stock
			(527,687)
			
			(198,460)Issuance of common stock
			161,400
			
			215,800Payments on capital lease obligation
			(113,312)
			
			(210,080)Payment of cash dividend
			(364,190)
			
			(364,090)Proceeds from long-term debt
			6,513,703
			
			6,350,000Payments on long-term debt
			(3,988,504)
			
			(2,986,097)Net cash from financing activities
			1,681,410
			
			2,807,073Net increase/(decrease) in cash
			1,558,454
			
			(582,048)Cash at beginning of period
			1,501,685
			
			1,331,807Cash at end of period
			$  3,060,139
			
			$     749,759Supplemental disclosure of cash flow
			informationCash paid for interest
			$      305,197
			
			$      204,948Cash paid for taxes
			291,214
			
			2,235,377Supplemental disclosure of noncash investing
			and financing activities:Equipment purchased under capital leases
			-
			
			219,889Equipment purchased through seller
			financing
			-
			
			1,010,040




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 September
30, 2008 and the results of our operations and changes in our cash flow for the
periods ended September 30, 2008 and 2007.  Results of operations for the period
ended September 30, 2008 are not necessarily indicative of the results that may
be expected for the entire year.  Additional information, including the audited
December 31, 2007 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, 2007 on file with the Securities and Exchange
Commission.



In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosure about fair market value measurements.  This Statement does not
require any new fair value measurements, but provides guidance on how to measure
fair value by providing a fair value hierarchy used to classify the source of
the information.  For financial assets and liabilities, SFAS No. 157 is
effective for us beginning January 1, 2008.  In February 2008, the FASB deferred
the effective date of SFAS No. 157 for all non-financial assets and
non-financial liabilities, except those as recognized or disclosed at fair value
in the financial statements on a recurring basis (at least annually) until
January 1, 2009.  Management believes the impact will not require material
modification related to our non-recurring fair value measurements and will be
substantially limited to expanded disclosures in the Notes to the Financial
Statements for notes that currently have components measured at fair market
value.



Effective January 1, 2008 we adopted SFAS No. 157 for
financial assets and liabilities measure at fair market value on a recurring
basis.  The partial adoption of SFAS No. 157 for financial assets and
liabilities did not have a material impact on our consolidated financial
position, results of operations or cash flows.  See Note 10 for information and
related disclosures.





NOTE 2 --
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 3 -- LONG TERM DEBT AND
NOTES PAYABLE TO BANK



We currently maintain a $10.0 million senior revolving credit facility with the
Branch Banking and Trust Company.  This revolving credit facility has a three
year term expiring December 22, 2009,   provides for advances of up to eighty
percent (80%) of our eligible accounts receivable and up to forty percent (40%)
of eligible inventory, and up to one hundred percent (100%) of our net book
value of eligible equipment less an outstanding indebtedness on the equipment. 
The 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 6.25% as of September 30, 2008, and is
secured by all our assets (except rental fleet equipment).  The balance of the
credit facility at September 30, 2008 was $4,027,002.  The revolving credit facility contains certain restrictive and financial
covenants.  At September 30, 2008, we were in compliance with all restrictive
covenants and the entire amount of our credit facility less our outstanding
borrowings was available for borrowings.  On October 2, 2008, we paid
$2,000,000 to decrease the balance of the credit facility to $2,027,002.



On August 2, 2007, we entered
into an asset purchase agreement for $1,300,000 funded primarily by a note
payable to ILS, the sole member of which is Brian Donaghy, our president and
chief operating officer, whereby we pay $20,000 per month for 60 months for
various assets including tractor trailers, trucks and containers.  The note
payable reflects a seven percent (7%) interest payment on the outstanding
balance plus principal amortization.  We recorded a note payable of $1,010,040
with an outstanding balance at September 30, 2008 of $820,076.



On May 14, 2008, we executed a
new loan agreement with Branch Banking and Trust Company in the amount of $3.0
million secured by our rental fleet equipment.  This note replaces the $2.0
million rental fleet loan with Fifth Third Bank.  Until October 15, 2008,
indebtedness under this loan agreement accrued interest at the one month Libor
rate, as published in the Wall Street Journal, plus 1.625% per annum. 
Fifty-nine (59) monthly principal and interest payments of $30,966.76 commenced
on June 7, 2008 with one final payment of all remaining principal and accrued
interest due on May 7, 2013.  Effective October 15, 2008, we converted this
revolving credit facility with a variable interest rate into a fixed interest
rate of 5.65% by executing a floating to fixed interest rate swap with BB&T as
the counterparty to the ISDA Master Agreement, Schedule and confirmation.  The
maturity date under this revised agreement is May 2013.  The repayment terms are
principal paid in twelve (12) monthly payments of $19,673.54 plus interest
commencing on November 7, 2008 and continuing through October 7, 2009, principal
paid in 12 monthly payments of $20,835.07 plus interest commencing on November
7, 2009 and continuing through October 7, 2010; principal paid in 12 monthly
payments of $22,065.17 plus interest commencing on November 7, 2010 and
continuing through October 7, 2011; principal paid in 12 monthly payments of
$23,367.89 plus interest commencing on November 7, 2011 and continuing through
October 7, 2012; principal paid in six (6) monthly payments of $24,747.53 plus
interest commencing on November 7, 2012 and continuing through April 7, 2013,
with one final payment of all remaining principal and accrued interest due at
maturity on May 7, 2013.  The principal and interest payments of this facility
are calculated on the basis of a ten (10) year amortization, resulting in a
principal balance of approximately $1.7 million due at maturity.  As of
September 30, 2008 we had borrowed $2,897,114 against this loan.  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 EBITDA
ratio.  Consequently, these covenants restrict our ability to incur as much
additional debt as we may desire for future growth.  At September 30, 2008, we
were in compliance with all restrictive covenants.



On May 14, 2008, we executed a
new loan agreement with Branch Banking and Trust Company in the amount of $6.0
million to finance the purchase of our shredder system and complimentary
facility improvements.  The security for this facility is the shredder and
assets being purchased.  Our Board approved the acquisition and installation of
the shredder system and complimentary facility improvements on June 21, 2007. 
The note has a term beginning May 2008 and originally expiring November 2013. 
Until October 15, 2008, the facility bore interest at the one month Libor rate,
as published in the Wall Street Journal, plus 1.625% per annum.  The facility
originally provided for interest only monthly payments which commenced June 7,
2008 and continue through November 7, 2008.  Effective October 15, 2008, we
converted this revolving credit facility into a fixed interest rate of 5.89% by
executing a floating to fixed interest rate swap with BB&T as the counterparty
to the ISDA Master Agreement, Schedule and confirmation.  The maturity date
under this revised agreement is April 2014.  The repayment terms are interest
only paid in 6 monthly payments starting on November 7, 2008 and continuing
through April 7, 2009; principal paid in twelve (12) monthly payments of
$37,636.11 plus interest commencing on May 7, 2009 and continuing through April
7, 2010; principal paid in 12 monthly payments of $39,957.42 plus interest
commencing on May 7, 2010 and continuing through April 7, 2011; principal paid
in 12 monthly payments of $42,421.91 plus interest commencing on May 7, 2011 and
continuing through April 7, 2012; principal paid in 12 monthly payments of
$45,038.40 plus interest commencing on May 7, 2012 and continuing through April
7, 2013; principal paid in eleven (11) monthly payments of $47,816.27 plus
interest commencing on May 7, 2013 and continuing through March 7, 2014, with
one final payment of all remaining principal and accrued interest due at
maturity on April 7, 2014.  The principal and interest payments of the facility
are calculated on the basis of a ten (10) year amortization, resulting in a
principal balance of approximately $3.5 million being due on or before April 7,
2014, at which time we anticipate that we will refinance.  As of September 30,
2008 we had borrowed $3,513,703 against this loan.  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 EBITDA ratio.  Consequently,
these covenants restrict our ability to incur as much additional debt as we may
desire for future growth.  At September 30, 2008, we were in compliance with all
restrictive covenants.





NOTE 4 -- SEGMENT INFORMATION



Our operations include three primary
segments:  ISA Recycling, Computerized Waste Systems (CWS), and Waste Equipment
Sales & Service (WESSCO).  ISA Recycling provides products and services to meet
the needs of its customers related to ferrous, non-ferrous and fiber recycling
at three locations in the Midwest.  CWS provides waste disposal services
including contract negotiations with service providers, centralized billing,
invoice auditing, and centralized dispatching.  WESSCO sells, leases, and
services waste handling and recycling equipment.



Our three reportable segments are
determined by the products and services that each offers.  The recycling segment
generates its revenues based on buying and selling of ferrous, non-ferrous and
fiber scrap; CWS's revenues consist of charges to customers for waste disposal
services; and WESSCO sales and lease income comprise the primary source of
revenue for this segment.  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 
			NINE MONTHS
			ENDEDSEPTEMBER 30, 2008
			ISARECYLING
			
			COMPUTERIZED
			WASTESYSTEMS
			
			WASTE
			EQUIPMENT
			SALES &SERVICES
			
			OTHER
			
			SEGMENTTOTALSRecycling revenues
			$  73,936,140
			
			$                  -
			
			$    
			          -
			
			$                -
			
			$73,936,140Equipment sales, serviceand leasing revenues
			-
			
			-
			
			1,736,991
			
			-
			
			,736,991Management fees
			-
			
			13,759,177
			
			-
			
			-
			
			13,759,177Cost of goods sold
			(61,465,322)
			
			(12,821,444)
			
			(644,909)
			
			-
			
			(74,931,675)Selling, general andadministrative expenses
			(4,168,797)
			
			(862,205)
			
			(312,174)
			
			(2,517,984)
			
			(7,861,160)Segment profit (loss)
			$    8,302,021
			
			$        75,528
			
			$     779,908
			
			(2,517,984)
			
			$  6,639,473Segment assets
			$  25,953,912
			
			$   2,196,188
			
			$  1,969,974
			
			$   5,047,802
			
			$35,167,876FOR
			THE
			NINE MONTHS ENDEDSEPTEMBER 30, 2007
			ISARECYCLING
			
			COMPUTERIZED
			WASTESYSTEMS
			
			WASTE
			EQUIPMENT
			SALES &SERVICES
			
			OTHER
			
			SEGMENTTOTALSRecycling revenues
			$  42,015,848
			
			$                  -
			
			$       
			         -
			
			$                -
			
			$ 42,015,848Equipment sales, serviceand leasing revenues
			-
			
			-
			
			1,541,751
			
			-
			
			1,541,751Management fees
			-
			
			11,804,056
			
			-
			
			-
			
			11,804,056Cost of goods sold
			(36,280,146)
			
			(10,289,564)
			
			(629,659)
			
			-
			
			(47,199,369)Selling, general andadministrative expenses
			(1,393,658)
			
			(981,102)
			
			(520,397)
			
			(1,909,167)
			
			(4,804,324)Segment profit (loss)
			$    4,342,044
			
			$      533,390
			
			$    391,695
			
			$ (1,909,167)
			
			$  3,357,962Segment assets
			$  15,713,728
			
			$   3,293,727
			
			$ 2,224,422
			
			$  3,073,152
			
			$ 24,305,029




FOR THE
			THREE MONTHS ENDEDSEPTEMBER 30, 2008
			ISARECYCLING
			
			COMPUTERIZED
			WASTESYSTEMS
			
			WASTE
			EQUIPMENT
			SALES &SERVICES
			
			OTHER
			
			SEGMENTTOTALSRecycling revenues
			$  23,392,074
			
			$                  -
			
			$     
			          -
			
			$               -
			
			$23,392,074Equipment sales, serviceand leasing revenues
			-
			
			-
			
			570,375
			
			-
			
			570,375Management fees
			-
			
			4,875,379
			
			-
			
			-
			
			4,875,379Cost of goods sold
			(19,529,154)
			
			(4,578,407)
			
			(220,108)
			
			-
			
			(24,327,669)Selling, general andadministrative expenses
			(1,386,933)
			
			(289,499)
			
			(105,269)
			
			(788,042)
			
			(2,569,743)Segment profit (loss)
			$    2,475,987
			
			$          7,473
			
			$     244,998
			
			$  (788,042)
			
			$  1,940,416Segment assets
			$  25,953,912
			
			$   2,196,188
			
			$  1,969,974
			
			$  5,047,802
			
			$35,167,876FOR THE
			THREE MONTHS ENDEDSEPTEMBER 30, 2007
			ISARECYCLING
			
			COMPUTERIZED
			WASTESYSTEMS
			
			WASTE
			EQUIPMENT
			SALES &SERVICES
			
			OTHER
			
			SEGMENTTOTALSRecycling revenues
			$ 13,120,062
			
			$                  -
			
			$               -
			
			$                -
			
			$
			13,120,062Equipment sales, serviceand leasing revenues
			-
			
			-
			
			497,195
			
			-
			
			497,195Management fees
			-
			
			4,311,553
			
			-
			
			-
			
			4,311,553Cost of goods sold
			(11,781,279)
			
			(3,504,226)
			
			(199,584)
			
			-
			
			(15,485,089)Selling, general andadministrative expenses
			(402,237)
			
			(435,056)
			
			(167,553)
			
			(786,270)
			
			(1,791,116)Segment profit (loss)
			$      936,546
			
			$      372,271
			
			$    130,058
			
			$  (786,270)
			
			$    652,605Segment assets
			$ 15,713,728
			
			$   3,293,727
			
			$
			2,224,422
			
			$  3,073,152
			
			$
			24,305,029




NOTE 5
-- INVENTORIES



Our inventories primarily consist of
ferrous and non-ferrous 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 and estimated 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 $3,442,386 at September 30, 2008 was
comprised of $1,280,825 in raw materials and $2,161,561 of finished goods. 
Non-ferrous inventory of $2,862,115 at September 30, 2008 was comprised of
$910,150 in raw materials and $1,951,965 of finished goods.  Ferrous inventory
of $1,848,445 at December 31, 2007 was comprised of $686,332 in raw materials
and $1,162,113 of finished goods.  Non-ferrous inventory of $2,715,703 at
December 31, 2007 was comprised of $372,949 in raw materials and $2,342,754 of
finished goods.  We charged $2,358,075 in general and administrative processing
costs to cost of sales for the quarter ended September 30, 2008 and $2,671,089
for the year ended December 31, 2007.



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 September 30, 2008 and December 31, 2007 consist
of the following:



September 30, 2008(unaudited)
			
			December 31,2007Ferrous materials
			$ 3,442,386
			
			$  1,848,445Non-ferrous
			materials
			2,862,115
			
			2,715,703Waste equipment
			machinery
			75,750
			
			36,498Other
			90,816
			
			26,635Total
			inventories
			$ 6,471,067
			
			$  4,627,281




NOTE 6 - 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 July 2009.



Future minimum lease payments for operating leases as of September 30, 2008 are
as follows:



2008
			
			$     702,5102009
			
			636,0002010
			
			636,0002011
			
			636,0002012
			
			159,000Future minimum lease payments
			
			$  2,769,510




Total rent expense for the nine months ended September 30, 2008 and 2007 was
$661,111 and $637,741, 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:



2008
			
			2007Equipment
			
			$     771,567
			
			$    1,269,222Less accumulated
			depreciation
			
			242,418
			
			254,894$     529,149
			
			$    1,014,328






The
following is a schedule of future annual minimum lease payments under the
capitalized lease arrangements, together with the present value of net minimum
lease payments at September 30, 2008.



2008
			
			$     81,4512009
			
			40,481Total future minimum lease payments
			
			121,932Lessamount representing interest
			
			-Present value of net minimumlease payments
			
			121,932Less current portion
			
			(81,451)Capital Lease Obligations
			
			$     40,481




NOTE 7 -- PER SHARE DATA



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



Nine months ended September 30, 2008 compared to nine months
ended September 30, 2007:



2008
			
			2007Basic
			earnings per shareNet income
			$  4,029,298
			
			$  1,997,538Weighted average
			shares outstanding
			3,602,703
			
			3,640,899Basic earnings
			per share
			$           1.12
			
			$             .55Diluted
			earnings per shareNet income
			$  4,029,298
			
			$  1,997,538Weighted average
			shares outstanding
			3,602,703
			
			3,640,899Add dilutive
			effect of assumed exercising of stock options
			-
			
			-Diluted weighted
			average sharesoutstanding
			3,602,703
			
			3,640,899Diluted earnings
			per share
			$          1.12
			
			$             .55




Three months ended September 30, 2008 compared to three months ended September
30, 2007:



Basic
			earnings per shareNet income
			$  1,280,115
			
			$     383,159Weighted average
			shares outstanding
			3,593,966
			
			3,640,899Basic earnings
			per share
			$             .36
			
			$             .11Diluted
			earnings per shareNet income
			$  1,280,115
			
			$     383,159Weighted average
			shares outstanding
			3,593,966
			
			3,640,899Add dilutive
			effect of assumed exercising of stock options
			-
			
			-Diluted weighted
			average sharesoutstanding
			3,593,966
			
			3,640,899Diluted earnings
			per share
			$            .36
			
			$             .11




NOTE 8 -- SHREDDER SYSTEM
COMMITMENT



We have made a total commitment of ten million dollars to build a
state-of-the-art shredding and nonferrous recovery system.  The Board of
Directors, at its June 21, 2007 meeting, announced authorization to proceed with
the purchase of a shredder system and complimentary facility improvement
totaling five million dollars.  Commitments of an additional five million
dollars include the purchase of a nonferrous recovery system, modifications to
the original contract of the shredder system, additional facility improvements
including second entrance and scales, and installation costs.  On July 30, 2007,
we entered into a contract with The Shredder Company located in Canutillo, Texas
to purchase a shredder system.  The shredder will shred ferrous and non ferrous
scrap for domestic and international consumers. The shredder can also be used
for a disaster plan by handling materials prior to landfill disposal and
recycling purposes.  Through September 30, 2008, we made payments to The
Shredder Company and other vendors totaling $5,119,436 classified as
construction in progress.  Construction on the shredder began June 2008.  We are
financing the purchase of the shredder system with our loan with BB&T.  As of
September 30, 2008, we had incurred capitalized interest of $160,630.  This
project is scheduled to be completed by the end of February 2009.



NOTE 9 -- PROPERTY PURCHASE



On September 2, 2008, we announced our continuing expansion in Louisville,
Kentucky with the purchase of the former Allied System truck terminal for
$1,190,000. The 20,182 square foot facility sits on 4.4 acres of asphalted
parking area. Located in the Renaissance Zone, the property will be occupied by
ISA Logistics and Waste Equipment Sales and Service Company (WESSCO), relocating
from the main Louisville location, and creating room for the shredder system and
related maintenance equipment. We are committed, with the City of Louisville, to
the continued growth and development of the Renaissance Zone, and with a related
party, own almost 60 acres of mixed use land and buildings within the Zone.Our new geographical expansion includes two recycling facilities in New Albany
and Seymour, Indiana.



NOTE 10 -- FAIR VALUE
MEASUREMENTS



Effective January 1, 2008, we adopted SFAS No. 157, Fair Value
Measurements, for financial assets and liabilities.  This standard defines fair
value, provides guidance for measuring fair value and requires certain
disclosures.  This standard does not require any new fair market value
measurements, but rather applies to all other accounting pronouncements that
require or permit fair value measurements.  SFAS No. 157 discusses valuation
techniques, such as the market approach  (comparable market prices), the income
approach (present value of future income or cash flow), and the cost approach
(cost to replace the service capacity of an asset or replacement cost).  The
statement utilizes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels.  The
following is a brief description of those three levels:



Level 1  Observable inputs such
as quoted prices (unadjusted) in active markets for identical assets or
liabilities.



Level 2  Observable inputs other
than quoted prices for the asset or liability, either directly or indirectly. 
These include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in markets that
are not active.



Level 3  Unobservable inputs
that reflect our own assumptions.



We use the fair value
methodology outlined in SFAS 157 to value the assets and liabilities for cash
and debt. All of our cash and debt are defined as Level 1.  In accordance with
SFAS 157, the following table represents our fair value hierarchy for financial
instruments at September 30, 2008:



Level
			1
			
			TotalAssetsCash and cash equivalents
			$   3,060,139
			
			$   3,060 139LiabilitiesLong term debt
			$
			(11,257,896)
			
			$
			(11,257,896)




NOTE 11 -- STOCK
AWARD



Mr. Brian Donaghy, our President and Chief Operating Officer is entitled to
receive 20,000 shares of ISA's common stock per year per the terms of his
employment agreement, provided certain conditions have been met, including that
Mr. Donaghy has completed a full year of employment and that our EBITDA exceeds
$4.5 million for the previous fiscal year.  During 2008, the conditions of the
agreement for the year 2008 were determined probable that they would be met. 
Accordingly, we were accruing the share based award over the requisite period.



At a regular scheduled Board meeting on July 31, 2008, the directors approved
the issuance of 10,000 shares of ISA's common stock to Brian Donaghy.  The
directors also approved the issuance of the remaining 10,000 shares which are to
be paid equally in the third and fourth quarter at dates to be specified by the
Board.  We paid 10,000 shares to Mr. Donaghy in August 2008 for the first two
quarters of 2008.  We accrued $51,250 in the third quarter for the third quarter
stock award.



---



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, a significant downturn in the economy
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, 2007, as filed with the Securities and Exchange Commission.



General



We are primarily focusing our
attention now and in the future towards our recycling business segment.  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.



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 2,300 customer locations throughout the United States and
we utilize an active database of over 6,600 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 September 30, 2008 we
held cash and cash equivalents of $3,060,139.



We currently maintain a $10.0 million senior revolving credit facility with the
Branch Banking and Trust Company.  This revolving credit facility has a three
year term expiring December 22, 2009,   provides for advances of up to eighty
percent (80%) of our eligible accounts receivable and up to forty percent (40%)
of eligible inventory, and up to one hundred percent (100%) of our net book
value of eligible equipment less an outstanding indebtedness on the equipment. 
The 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 6.25% as of September 30, 2008, and is
secured by all our assets (except rental fleet equipment).  The balance of the
credit facility at September 30, 2008 was $4,027,002.  The revolving credit facility contains certain restrictive and financial
covenants.  At September 30, 2008, we were in compliance with all restrictive
covenants and the entire amount of our credit facility less our outstanding
borrowings was available for borrowings.  On October 2, 2008 we paid
$2,000,000 to decrease the balance of the credit facility to $2,027,002.



On August 2, 2007, we entered
into an asset purchase agreement for $1,300,000 funded primarily by a note
payable to ILS, the sole member of which is Brian Donaghy, our president and
chief operating officer, whereby we pay $20,000 per month for 60 months for
various assets including tractor trailers, trucks and containers.  The note
payable reflects a seven percent (7%) interest payment on the outstanding
balance plus principal amortization.  We recorded a note payable of $1,010,040
with an outstanding balance at September 30, 2008 of $820,076.



On May 14, 2008, we executed a
new loan agreement with Branch Banking and Trust Company in the amount of $3.0
million secured by our rental fleet equipment.  This note replaces the $2.0
million rental fleet loan with Fifth Third Bank.  Until October 15, 2008,
indebtedness under this loan agreement accrued interest at the one month Libor
rate, as published in the Wall Street Journal, plus 1.625% per annum. 
Fifty-nine (59) monthly principal and interest payments of $30,966.76 commenced
on June 7, 2008 with one final payment of all remaining principal and accrued
interest due on May 7, 2013.  Effective October 15, 2008, we converted this
revolving credit facility with a variable interest rate into a fixed interest
rate of 5.65% by executing a floating to fixed interest rate swap with BB&T as
the counterparty to the ISDA Master Agreement, Schedule and confirmation.  The
maturity date under this revised agreement is May 2013.  The repayment terms are
principal paid in twelve (12) monthly payments of $19,673.54 plus interest
commencing on November 7, 2008 and continuing through October 7, 2009, principal
paid in 12 monthly payments of $20,835.07 plus interest commencing on November
7, 2009 and continuing through October 7, 2010; principal paid in 12 monthly
payments of $22,065.17 plus interest commencing on November 7, 2010 and
continuing through October 7, 2011; principal paid in 12 monthly payments of
$23,367.89 plus interest commencing on November 7, 2011 and continuing through
October 7, 2012; principal paid in six (6) monthly payments of $24,747.53 plus
interest commencing on November 7, 2012 and continuing through April 7, 2013,
with one final payment of all remaining principal and accrued interest due at
maturity on May 7, 2013.  The principal and interest payments of this facility
are calculated on the basis of a ten (10) year amortization, resulting in a
principal balance of approximately $1.7 million due at maturity.  As of
September 30, 2008 we had borrowed $2,897,114 against this loan.  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 EBITDA
ratio.  Consequently, these covenants restrict our ability to incur as much
additional debt as we may desire for future growth.  At September 30, 2008, we
were in compliance with all restrictive covenants.



On May 14, 2008, we executed a
new loan agreement with Branch Banking and Trust Company in the amount of $6.0
million to finance the purchase of our shredder system and complimentary
facility improvements.  The security for this facility is the shredder and
assets being purchased.  Our Board approved the acquisition and installation of
the shredder system and complimentary facility improvements on June 21, 2007. 
The note has a term beginning May 2008 and originally expiring November 2013. 
Until October 15, 2008, the facility bore interest at the one month Libor rate,
as published in the Wall Street Journal, plus 1.625% per annum.  The facility
originally provided for interest only monthly payments which commenced June 7,
2008 and continue through November 7, 2008.  Effective October 15, 2008, we
converted this revolving credit facility into a fixed interest rate of 5.89% by
executing a floating to fixed interest rate swap with BB&T as the counterparty
to the ISDA Master Agreement, Schedule and confirmation.  The maturity date
under this revised agreement is April 2014.  The repayment terms are interest
only paid in 6 monthly payments starting on November 7, 2008 and continuing
through April 7, 2009; principal paid in twelve (12) monthly payments of
$37,636.11 plus interest commencing on May 7, 2009 and continuing through April
7, 2010; principal paid in 12 monthly payments of $39,957.42 plus interest
commencing on May 7, 2010 and continuing through April 7, 2011; principal paid
in 12 monthly payments of $42,421.91 plus interest commencing on May 7, 2011 and
continuing through April 7, 2012; principal paid in 12 monthly payments of
$45,038.40 plus interest commencing on May 7, 2012 and continuing through April
7, 2013; principal paid in eleven (11) monthly payments of $47,816.27 plus
interest commencing on May 7, 2013 and continuing through March 7, 2014, with
one final payment of all remaining principal and accrued interest due at
maturity on April 7, 2014.  The principal and interest payments of the facility
are calculated on the basis of a ten (10) year amortization, resulting in a
principal balance of approximately $3.5 million being due on or before April 7,
2014, at which time we anticipate that we will refinance.  As of September 30,
2008 we had borrowed $3,513,703 against this loan.  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 EBITDA ratio.  Consequently,
these covenants restrict our ability to incur as much additional debt as we may
desire for future growth.  At September 30, 2008, we were in compliance with all
restrictive covenants.



During the first three quarters
of 2008, we paid $2,453,593 for land, improvements, property and equipment.  We
paid $1,190,000 for the land and building at 6709 Grade Lane.  We paid $135,579
for other buildings and improvements.  In the recycling segment we paid $414,073
for cranes, a forklift, shear rebuild, scales, trailers, grapple and other
operating equipment.  In the equipment sales, leasing and service segment, we
purchased $458,374 in rental equipment that we located at customer sites.  This
rental fleet equipment consists of solid waste handling and recycling equipment
such as compactors, pre-crushers, containers and balers. It is our intention to
continue to pursue this market.  We purchased $50,760 of office equipment and
$204,807 in vehicles.



We have a purchasing card with a
credit limit of $6.0 million.  We included the balance due on the purchasing
card as part of accounts payable.  The outstanding balance on the purchasing
card at September 30, 2008 was $777,389 with a due date of October 27, 2008. 
The card accrues interest at prime plus 5.9% after the first twenty-five days of
the purchase; our intention is to pay off the full balance every month so as to
not incur finance charges.  To date we have not incurred any interest charges on
this purchasing card.  The card requires monthly minimum payments on any balance
outstanding at month end.  We receive rebates on an annual basis for all
purchases made with the card.



We expect that
existing cash flow from operations and available credit under our existing
credit facilities will be sufficient to meet our cash needs during the remainder
of 2008.



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:



Nine months ended September 30,2008
			
			2007Statements of Operations Data:Total Revenue
			..................................................................................
			100.0%
			
			100.0%Cost of goods
			sold............................................................................
			83.8%
			
			85.2%Selling, general and administrative expenses
			......................................
			8.8%
			
			8.7%Income before other
			expenses...........................................................
			7.4%
			
			6.1%




Nine months ended September
30, 2008 compared to nine months ended September 30, 2007



Total revenue increased
$34,070,653 or 61.5% to $89,432,308 in 2008 compared to $55,361,655 in 2007. 
Recycling revenue increased $31,920,292 or 76.0% to $73,936,140 in 2008 compared
to $42,015,848 in 2007.  This is primarily due to a 43% increase in price of
commodities in the recycling market and a 14% increase in volume of shipments. 
Management services revenue increased $1,955,121 or 16.6% to $13,759,177 in 2008
compared to $11,804,056 in 2007 primarily due to an increase in the number of
customer locations managed.  Equipment sales, service and leasing revenue
increased $195,240 or 12.7% to $1,736,991 in 2008 compared to $1,541,751 in
2007.  This increase is due to an increase in rental revenue because of more
equipment rentals and an increase in equipment sales.



Total cost of goods sold
increased $27,732,306 or 58.8% to $74,931,675 in 2008 compared to $47,199,369 in
2007.  Recycling cost of goods sold increased $25,185,176 or 69.4% to
$61,465,322 in 2008 compared to $36,280,146 in 2007.  This is primarily due to a
25% higher volume of purchases in the recycling market.  Management services
cost of goods sold increased $2,531,880 or 24.6% to $12,821,444 in 2008 compared
to $10,289,564 in 2007 primarily due to an increase in the number of customer
locations managed.  Additionally, we reduced cost of goods sold by $0 in 2008
and by $480,060 in 2007 due to a change in management's estimate related to the
liability associated with this operation which includes the contract settlement
with our former customers.  Equipment sales, service and leasing cost of goods
sold increased $15,250 or 2.4% to $644,909 in 2008 compared to $629,659 in 2007.



Selling, general and
administrative expenses increased $3,056,836 or 63.6% to $7,861,160 in 2008
compared to $4,804,324 in 2007.  As a percentage of revenue, selling, general
and administrative expenses were 8.8% in 2008 compared to 8.7% in 2007.  The
primary driver of the increase in total expenses is an increase in ISA Logistics
expenses of $1.8 million, Sarbanes Oxley expense of $108,830 and rising fuel
expenditures.   We acquired ILS in August 2007.



Other income/(expense) increased $168,025 to other income
of $76,024 in 2008 compared to other expense of $(92,001) in 2007.  This was
primarily due to the reduction of accounts payable of $156,400 and other income
of $117,306 due to an insurance reimbursement.



Income tax provision increased
$1,417,776 to $2,686,199 in 2008 compared to $1,268,423 in 2007.  The effective
tax rate in 2008 was 40.0% compared to 38.8% in 2007 based on federal and state
statutory rates.



Three months ended
September 30, 2008 compared to three months ended September 30, 2007



Total revenue increased
$10,909,018 or 60.8 % to $28,837,828 in 2008 compared to $17,928,810 in 2007. 
Recycling revenue increased $10,272,012 or 78.3% to $23,392,074 in 2008 compared
to $13,120,062 in 2007.  This is primarily due to a 55% increase in price of
commodities in the recycling market.  Management services revenue increased
$563,826 or 13.1% to $4,875,379 in 2008 compared to $4,311,553 in 2007 primarily
due to an increase in the number of customer locations managed.  Equipment
sales, service and leasing revenue increased $73,180 or 14.7% to $570,375 in
2008 compared to $497,195 in 2007.  This increase is due to an increase in
rental revenue because of more equipment rentals and an increase in equipment
sales.



Total cost of goods sold
increased $8,842,580 or 57.1% to $24,327,669 in 2008 compared to $15,485,089 in
2007.  Recycling cost of goods sold increased $7,747,875 or 65.8% to 19,529,154
in 2008 compared to $11,781,279 in 2007.  This is due to 2% higher commodity
purchase prices in the recycling market and a 40% increase in the volume of
purchases.  Management services cost of goods sold increased $1,074,181 or 30.7%
to $4,578,407 in 2008 compared to $3,504,226 in 2007 primarily due to an
increase in the number of customer locations managed.  Additionally, we reduced
cost of goods sold by $337,516 in 2007 due to a change in management's estimate
related to the liability associated with this operation, which includes the
contract settlement with our former customers.  Equipment sales, service and
leasing cost of goods sold increased $20,524 to $220,108 in 2008 compared to
$199,584 in 2007.



Selling, general and
administrative expenses increased $778,627 or 43.5% to $2,569,743 in 2008
compared to $1,791,116 in 2007.  As a percentage of revenue, selling, general
and administrative expenses were 8.9% in 2008 compared to 10% in 2007.  The
primary driver of the increase in total expense is ILS expenses, Sarbanes Oxley
expenditures and fuel costs.  We acquired ILS in August 2007.



Other income/(expense)
increased $166,332 to other income of $115,449 in 2008 compared to other expense
of ($50,883) in 2007 primarily due to the reduction of accounts payable of
$156,400.



Income
tax provision increased $557,187 to $775,750 in 2008 compared to $218,563 in
2007.  The effective tax rate in 2008 was 37.7% compared to 36.3% in 2007 based
on federal and state statutory rates.



Financial condition at
September 30, 2008 compared to December 31, 2007



Cash and cash equivalents
increased $1,558,454 to $3,060,139 as of September 30, 2008 compared to
$1,501,685 as of December 31, 2007.



We generated net cash from
operating activities of $5,167,015 for the nine months ended September 30, 2008
due to net income of $4.0 million and increases in current liabilities and
deferred taxes.



We used net cash from investing
activities of $5,289,971 for the nine months ended September 30, 2008. 
Primarily, we purchased recycling and rental fleet equipment and shredder system
equipment of $5,399,953.  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 $1,681,410 for the nine months ended September 30, 2008 is
primarily due to the advance of $6,513,703 on our new lines of credit offset by
payments on debt of $3,988,504.



Accounts receivable trade
increased $2,069,243 or 30.6% to $8,834,094 as of September 30, 2008 compared to
$6,764,851 as of December 31, 2007.  This change is primarily due to an increase
in selling prices in the recycling segment.



Inventories consist principally
of ferrous and nonferrous scrap materials and waste equipment machinery held for
resale.  We value inventory at the lower of cost or market.  Inventory increased
$1,843,786 or 39.9% to $6,471,067 as of September 30, 2008 compared to
$4,627,281 as of December 31, 2007.



We
have recognized an inventory impairment of $25,123 for the third quarter ending
September 30, 2008, based on the value of our inventories to the lower of
average purchased cost or market.  We have lowered our manufacturing
activity.  We are not currently offering our inventory for sale in the
present market as we believe from a historical perspective that the market will
see some improvement as we believe the supply of scrap material is limited. 
We believe we have the financial resources to withstand the present market
conditions.  We are looking forward to the opportunity to build our
inventories for shredder processing at attractive prices.



Inventory aging for the period ended September 30, 2008
(Days Outstanding):



Description
			
			1-30
			
			31-60
			
			61-90
			
			Over
			90
			
			TotalWaste equipment machinery
			
			$     75,750
			
			$              -
			
			$            -
			
			$            -
			
			$    75,750Ferrous materials
			
			2,400,791
			
			1,003,721
			
			-
			
			37,874
			
			3,442,386Non-ferrous materials
			
			1,760,840
			
			394,321
			
			325,275
			
			381,679
			
			2,862,115Other
			
			90,816
			
			-
			
			-
			
			-
			
			90,816$4,328,197
			
			$1,398,042
			
			$
			325,275
			
			$
			419,553
			
			$6,471,067




Inventory aging for the year ended December 31, 2007 (Days
Outstanding):



Description
			
			1-30
			
			31-60
			
			61-90
			
			Over
			90
			
			TotalWaste equipment machinery
			
			$    36,498
			
			$             -
			
			$           -
			
			$            -
			
			$    36,498Ferrous Materials
			
			1,163,306
			
			566,774
			
			78,183
			
			40,182
			
			1,848,445Non-ferrous materials
			
			1,885,783
			
			553,049
			
			129,552
			
			147,319
			
			2,715,703Other
			
			26,635
			
			-
			
			-
			
			-
			
			26,635$3,112,222
			
			$1,119,823
			
			$
			207,735
			
			$
			187,501
			
			$4,627,281




Accounts payable trade increased
$201,692 or 4.4% to $4,867,323 as of September 30, 2008 compared to $4,665,631
as of December 31, 2007, primarily due to market conditions.



Working capital increased
$2,850,303 to $10,790,343 as of September 30, 2008 compared to $7,940,040 as of
December 31, 2007.  The increase was primarily driven by the $2.0 million
increase in accounts receivable, the $1.8 million increase in inventories and
the $1.6 million increase in cash, offset by the $1.5 million in income tax
payable.



### Contractual Obligations



The following table provides
information with respect to our known contractual obligations for the quarter
ended September 30, 2008.



Obligation Description
			Total
			Less
			than 1 year
			1-3 years
			3-5 years
			More
			than 5 yearsLong-Term Debt Obligations (1)
			$11,257,896
			$440,876
			$8,496,259
			$2,320,761
			$0Capital Lease Obligations (2)
			121,932
			81,451
			40,481
			0
			0Operating Lease Obligations (3)
			2,769,510
			702,510
			1,272,000
			795,000
			0Total
			$14,149,338
			$
			1,224,837
			$9,808,740
			$3,115,761
			$0




(1)        We
currently maintain a $10.0 million senior revolving credit facility with the
Branch Banking and Trust Company.  This revolving credit facility has a three
year term expiring December 22, 2009, provides for advances of up to eighty
percent (80%) of our eligible accounts receivable and up to forty percent (40%)
of eligible inventory, and up to one hundred percent (100%) of our net book
value of eligible equipment less an outstanding indebtedness on the equipment. 
The 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 6.25% as of September 30, 2008, and is
secured by all our assets (except rental fleet equipment).  The balance of the
credit facility at September 30, 2008 was $4,027,002.  The revolving credit facility contains certain restrictive and financial
covenants.  At September 30, 2008, we were in compliance with all restrictive
covenants and the entire amount of our credit facility less our outstanding
borrowings was available for borrowings.  On October 2, 2008 we paid
$2,000,000 to decrease the balance of the credit facility to $2,027,002.



On
August 2, 2007, we entered into an asset purchase agreement for $1,300,000
funded primarily by a note payable to ILS, the sole member of which is Brian
Donaghy, our president and chief operating officer, whereby we pay $20,000 per
month for 60 months for various assets including tractor trailers, trucks and
containers.  The note payable reflects a seven percent (7%) interest payment on
the outstanding balance plus principal amortization.  We recorded a note payable
of $1,010,040 with an outstanding balance at September 30, 2008 of $820,076.



On
May 14, 2008, we executed a new loan agreement with Branch Banking and Trust
Company in the amount of $3.0 million secured by our rental fleet equipment. 
This note replaces the $2.0 million rental fleet loan with Fifth Third Bank. 
Until October 15, 2008, indebtedness under this loan agreement accrued interest
at the one month Libor rate, as published in the Wall Street Journal, plus
1.625% per annum.  Fifty-nine (59) monthly principal and interest payments of
$30,966.76 commenced on June 7, 2008 with one final payment of all remaining
principal and accrued interest due on May 7, 2013.  Effective October 15, 2008,
we converted this revolving credit facility with a variable interest rate into a
fixed interest rate of 5.65% by executing a floating to fixed interest rate swap
with BB&T as the counterparty to the ISDA Master Agreement, Schedule and
confirmation.  The maturity date under this revised agreement is May 2013.  The
repayment terms are principal paid in twelve (12) monthly payments of $19,673.54
plus interest commencing on November 7, 2008 and continuing through October 7,
2009, principal paid in 12 monthly payments of $20,835.07 plus interest
commencing on November 7, 2009 and continuing through October 7, 2010; principal
paid in 12 monthly payments of $22,065.17 plus interest commencing on November
7, 2010 and continuing through October 7, 2011; principal paid in 12 monthly
payments of $23,367.89 plus interest commencing on November 7, 2011 and
continuing through October 7, 2012; principal paid in six (6) monthly payments
of $24,747.53 plus interest commencing on November 7, 2012 and continuing
through April 7, 2013, with one final payment of all remaining principal and
accrued interest due at maturity on May 7, 2013.  The principal and interest
payments of this facility are calculated on the basis of a ten (10) year
amortization, resulting in a principal balance of approximately $1.7 million due
at maturity.  As of September 30, 2008 we had borrowed $2,897,114 against this
loan.  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 EBITDA ratio.  Consequently, these covenants restrict our ability to incur
as much additional debt as we may desire for future growth.  At September 30,
2008, we were in compliance with all restrictive covenants.



On
May 14, 2008, we executed a new loan agreement with Branch Banking and Trust
Company in the amount of $6.0 million to finance the purchase of our shredder
system and complimentary facility improvements.  The security for this facility
is the shredder and assets being purchased.  Our Board approved the acquisition
and installation of the shredder system and complimentary facility improvements
on June 21, 2007.  The note has a term beginning May 2008 and originally
expiring November 2013.  Until October 15, 2008, the facility bore interest at
the one month Libor rate, as published in the Wall Street Journal, plus 1.625%
per annum.  The facility originally provided for interest only monthly payments
which commenced June 7, 2008 and continue through November 7, 2008.  Effective
October 15, 2008, we converted this revolving credit facility into a fixed
interest rate of 5.89% by executing a floating to fixed interest rate swap with
BB&T as the counterparty to the ISDA Master Agreement, Schedule and
confirmation.  The maturity date under this revised agreement is April 2014. 
The repayment terms are interest only paid in 6 monthly payments starting on
November 7, 2008 and continuing through April 7, 2009; principal paid in twelve
(12) monthly payments of $37,636.11 plus interest commencing on May 7, 2009 and
continuing through April 7, 2010; principal paid in 12 monthly payments of
$39,957.42 plus interest commencing on May 7, 2010 and continuing through April
7, 2011; principal paid in 12 monthly payments of $42,421.91 plus interest
commencing on May 7, 2011 and continuing through April 7, 2012; principal paid
in 12 monthly payments of $45,038.40 plus interest commencing on May 7, 2012 and
continuing through April 7, 2013; principal paid in eleven (11) monthly payments
of $47,816.27 plus interest commencing on May 7, 2013 and continuing through
March 7, 2014, with one final payment of all remaining principal and accrued
interest due at maturity on April 7, 2014.  The principal and interest payments
of the facility are calculated on the basis of a ten (10) year amortization,
resulting in a principal balance of approximately $3.5 million being due on or
before April 7, 2014November 7, 2013, at which time we anticipate that we will
refinance.  As of September 30, 2008 we had borrowed $3,513,703 against this
loan.  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 EBITDA ratio.  Consequently, these covenants restrict our ability to incur
as much additional debt as we may desire for future growth.  At September 30,
2008, we were in compliance with all restrictive covenants.



(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 increased $2,423,236 or 28.9% to
$10,817,020 as of September 30, 2008 compared to $8,393,784 as of December 31,
2007.



Impact of Recently Issued
Accounting Standards



The Financial Accounting
Standards Board has published SFAS No. 157, Fair Value Measurements, to
eliminate the diversity in practice that exists due to the different definitions
of fair value and the limited guidance for applying those definitions in GAAP
that are dispersed among the many accounting pronouncements that require fair
value measurements.  SFAS No. 157 defines fair value 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 (an exit price).
SFAS No. 157 also stipulates that, as a market-based measurement, fair value
measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability, and establishes a fair
value hierarchy that distinguishes between (a) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (b) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).



SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years, although earlier application is
encouraged.  Additionally, prospective application of the provisions of SFAS No.
157 is required as of the beginning of the fiscal year in which it is initially
applied, except when certain circumstances require retrospective application.
Our adoption of this standard at January 1, 2008 did not have a material impact
on our consolidated financial statements.



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.



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 certain 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 interest rate
risk on our floating rate borrowings. As of September 30, 2008, our variable
rate borrowings consisted of outstanding borrowings of $4.0 million under our
credit agreement with BB&T.  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. Any increase in this rate
would lead to higher interest expense. Based on our average anticipated
borrowings under our credit agreement in fiscal 2008, a hypothetical increase or
decrease in the LIBOR rate by 1% would increase or decrease interest expense on
our variable borrowings by approximately $20,270 per year, with a corresponding
change in cash flows.



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
September 30, 2008, 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 September 30, 2008, and concluded that such
internal control over financial reporting was effective as of September 30,
2008.



(c)   Changes to
internal control over financial reporting



There were no changes in ISA's
internal control over financial reporting during the three months ended
September 30, 2008 that have materially affected, or are reasonably likely to
affect ISA's internal control over financial reporting.



---



PART II -- OTHER INFORMATION





Item 1.  Legal Proceedings



In May 2006, All American Recycling ("AAR") and its owners, R.D. Burton and
Donna Burton filed a lawsuit in Jefferson County, Kentucky Circuit Court against
us and K & R Resources LLC (All American Recycling, Inc. and RD Burton and
Donna Burton vs. Industrial Services of America, Inc. et al. Jefferson
Circuit Court, Case No.  06C04701).  In May 2007 AAR amended its complaint to
identify Harry Kletter, Brian Donaghy, Ronald Kletter and Edward List as
individual defendants in this action. The causes of action alleged against us
and the individual defendants include breach of contract, misrepresentation,
fraud, malicious, willful and reckless conduct and trespass. The dispute arises
from two agreements that were entered into by the parties in December 2004 (in
settlement of a prior litigation between ISA and AAR).  One of the two
agreements called for certain "retail customers" to be referred to AAR.  AAR, in
turn, agreed to then sell all of its non-ferrous metals to us based on a certain
agreed pricing schedule.  AAR alleges that we breached the agreement by not
referring such retail customers to AAR and paid AAR on a basis other than the
basis provided in the agreement.  We claim that we paid AAR on the basis
provided for in the agreement and that AAR breached the agreement by selling its
metals to third party purchasers.  No specific amount of damages was set forth
in the complaint, however AAR is claiming it is owed in excess of $2,000,000. 
Plaintiff filed a motion for summary judgment against us on February 27, 2008 to
which we responded on March 21, 2008.  The court denied this motion in August
2008.  Mediation failed to yield an agreement and the court has set a new trial
date for early January 2009.



In January of 2007 Lennox Industries commenced an action against ISA in Lennox Industries, Inc.  vs.  Industrial Services of America, Inc. (Circuit
Court of Arkansas County CV-2007-004).  Lennox alleges that we mis-categorized
certain materials that we brokered on behalf of Lennox generating less for those
materials than they were worth thereby depriving Lennox of income that it might
otherwise have received.  Lennox alleges that we had a duty to obtain a price
that was consistent with the materials being sold on behalf of Lennox and that
we failed to exercise the proper duty of care in our dealings with Lennox.   On
July 9, 2008, Lennox amended its complaint to add a cause of action based on
fraud and misrepresentation.  The amended complaint does not state a specific
amount of damages.  We believe Lennox's claims are without merit.  The case is
currently in the discovery phase and is scheduled for trial December 3, 2008.



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, 2007, as filed with the Securities and Exchange
Commission on March 31, 2008.





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



On November 15, 2005, our Board of Directors authorized a new program to
repurchase up to 200,000 shares of our common stock at current market prices. 
During 2008, we repurchased 55,607 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



None.



Item 5.  Other Information



None.



Item 6.  Exhibits



See exhibit index.











---



SIGNATURESPursuant 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:  November 5, 2008
			/s/  Harry KletterChairman and Chief Executive Officer(Principal Executive and FinancialOfficer)Date:  November 5, 2008
			/s/ Alan L. SchroeringChief Financial Officer






---



INDEX TO EXHIBITSExhibit Number
			
			Description of Exhibits10.1
			
			Note Modification Agreement, dated October 15,
			2008, in the amount of $2,897,114.77 from Industrial Services of
			America, Inc. in favor of Branch Banking and Trust Company of North
			Carolina.10.2
			
			Note Modification Agreement, dated October 15,
			2008, in the amount of $6,000,000 from Industrial Services of
			America, Inc. in favor of Branch Banking and Trust Company of North
			Carolina.10.3
			
			ISDA Master Agreement and Schedule, dated as
			December 22, 2006, between Industrial Services of America, Inc. and
			Branch Banking and Trust Company.10.4
			
			Swap Confirmation, dated October 20, 2008,
			between Industrial Services of America, Inc. and Branch Banking and
			Trust Company in the notional amount of $2,897,114.77.10.5
			
			Swap Confirmation, dated October 20, 2008,
			between Industrial Services of America, Inc. and Branch Banking and
			Trust Company in the notional amount of $6,000,000.31.1
			
			Rule 13a-14(a) Certification of Harry Kletter
			for the Form 10-Q for the quarter ended September 30, 2008.31.2
			
			Rule 13a-14(a) Certification of Alan Schroering
			for the Form 10-Q for the quarter ended September 30, 2008.32.1
			
			Section 1350 Certification of Harry Kletter and
			Alan Schroering for the Form 10-Q for the quarter ended September
			30, 2008.




---

---