UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, DC  20549FORM 10-K/A[
			x ]
			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
			THE SECURITIESEXCHANGE ACT OF 1934For Fiscal Year Ended December 31, 2006[   ]
			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
			OF THE SECURITIESEXCHANGE ACT OF 1934For the transition period from __________ to
			__________Commission File No.: 0-20979_____________________INDUSTRIAL SERVICES OF AMERICA, INC.(Exact name of registrant as specified in its charter)Florida
			59-0712746(State or other jurisdiction of
			incorporation or organization)
			(I.R.S. Employer
			Identification No.)7100 Grade Lane
			P.O. Box 32428
			Louisville, Kentucky 40232
			(502) 368-1661(Address, including zip code, and telephone number,
			including area code, of registrant's principal executive offices)Securities registered pursuant to Section 12(b) of the Act:  NoneSecurities registered pursuant to Section 12(g) of the Act:Common Stock, $.005 par value
			(Title of class)Indicate by check mark if the registrant is a well-seasoned
			issuer, as defined in Rule 405 of the Securities Act.Yes    No  XIndicate by check mark if the registrant is not required to
			file reports pursuant to Section 13 or Section 15(d) of the Act. 
			Yes   No  XIndicate by check mark whether the registrant (1) has filed
			all reports required to be filed by Section 13 or 15(d) of the
			Securities Exchange Act of 1934 during the preceding 12 months (or
			for such shorter period that the registrant was required to file
			such reports), and (2) has been subject to such filing requirements
			for the past 90 days.  
			Yes X  NoIndicate by check mark if disclosure of delinquent filers
			pursuant to Item 405 of Regulation S-K is not contained herein, and
			will not be contained, to the best of registrant's knowledge, in
			definitive proxy or information statements incorporated by reference
			in Part III of this Form 10-K or any amendment to this Form 10-K.
			   [   ]Indicate by check mark whether the registrant is a large
			accelerated filer, an accelerated filer, or a non-accelerated
			filer.   See definition of "accelerated filer and large accelerated
			filer" in Rule 12b-2 of the Exchange Act.(Check one):  Large accelerated filer   Accelerated
			filer    Non-accelerated filerXIndicate by check mark whether the registrant is a shell
			company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No  XAggregate market value of the 1,861,574 shares of voting
			Common Stock held by non-affiliates of the registrant at the closing
			sales price on June 30, 2006:  $10,704,050.Number of shares of Common Stock, $.005 par value,
			outstanding as of the close of business on March 22, 2007: 
			3,640,899._____________________DOCUMENT INCORPORATED BY REFERENCEPortions of the registrant's definitive Proxy Statement for the 2007
			Annual Meeting of Shareholders are incorporated by reference into
			Item 10 through Item 14 of Part III of this report.


---

EXPLANATORY NOTE



We are
filing this Form 10-K/A, which serves as a first amendment to our Annual Report
on Form 10-K for the year ended December 31, 2006, originally filed on March 27,
2007, to provide evidence of the actual execution of the opinions from our
external auditors related to our audited financial statements contained in the
Form 10-K.  Although we included the forms of these opinions in the
original filing under Part IV, Item 15, at pages F-1 and F-2 of the original
Form 10-K, evidence of the signatures is missing.  We have made no other
changes to the Form 10-K as filed on March 27, 2007, other than the
incorporation by reference from the Form 10-K for the year ended December 31,
2006, originally filed on March 27, 2007, of Exhibits 10.33 through 10.38 and
newly executed Rule 13a-14(a) and Section 1350 Certifications.



---





PART IV  Item
	15.    Exhibits and Consolidated Financial Statement Schedules.  (a)(1)       The following consolidated financial statements of Industrial
	Services of America, Inc. are filed as a part of this report: PageReport of Independent
			Registered Public Accounting Firms
			F-1Consolidated Balance
			Sheets as of December 31, 2006 and 2005
			F-3Consolidated Statements
			of Income for the yearsended December 31,
			2006, 2005 and 2004
			F-4Consolidated Statements
			of Shareholders' Equity for the years endedDecember 31, 2006,
			2005 and 2004
			F-5Consolidated Statements
			of Cash Flows for the years ended December 31, 2006, 2005 and 2004
			F-6Notes to Consolidated
			Financial Statements
			F-7
  (a)(2)       Consolidated Financial Statement Schedules.  Schedule II--Valuation
			and Qualifying Accounts for the
			  years ended December 31, 2006, 2005 and 2004
			F-28
  (a)(3)       List of Exhibits  Exhibits
	filed with, or incorporated by reference herein, this report are identified
	in the Index to Exhibits appearing in this report.  The Management Agreement
	and the Consulting Agreement required to be filed as exhibits to this Form
	10-K pursuant to Item 14(c) are noted by an asterisk (*) in the Index to
	Exhibits.  (b)           Exhibits.  The
	exhibits listed on the Index to Exhibits are filed as a part of this report.  (c)           Consolidated Financial Statement Schedules.  Schedule
	II--Valuation and Qualifying Accounts for the year ended December 31, 2006,
	2005 and 2004 are incorporated by reference at page F-29 of the ISA
	Consolidated Financial Statements.     SIGNATURES  Pursuant
	to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
	1934, the Registrant has duly caused this report on Form 10-K/A to be signed on its behalf
	by the undersigned, thereunto duly authorized.  INDUSTRIAL SERVICES OF AMERICA, INC.    Dated: 
	November 13,
	2007                                                        By : /s/ Harry Kletter Harry Kletter, Chairman of the Board and Chief Executive Officer   Pursuant
	to the requirements of the Securities Exchange Act of 1934, this report on
	Form 10-K/A has
	been signed below by the following persons on behalf of the Registrant and
	in the capacities and on the dates indicated:   Signature
			
			Title
			Date/s/  Harry
			Kletter
			
			Chairman of the Board and
			Chief
			November
			13, 2007Harry Kletter
			
			Executive Officer
			(Principal Executive 
			Officer)/s/  Alan L.
			Schroering
			
			Chief Financial Officer
			November
			13, 2007Alan L. Schroering
			
			(Principal Financial
			Officer andPrincipal Accounting
			Officer)/s/  David W.
			Lester
			
			Director
			November
			13, 2007David W. Lester/s/  Orson
			Oliver
			
			Director
			November
			13, 2007Orson Oliver/s/  Roman
			Epelbaum
			
			Director
			November
			13, 2007Roman Epelbaum/s/  Albert Cozzi
			
			Director
			November
			13, 2007Albert Cozzi/s/  Craig Feltner
			
			Director
			November
			13, 2007Craig Feltner/s/  Richard
			Ferguson
			
			Director
			November 13, 2007Richard Ferguson
    INDEX TO
	EXHIBITS  Exhibit 
				Number
				
				Description of Exhibits3.1
			**
			Certificate of
			Incorporation of ISA is incorporated by reference to Exhibit 3.1 of
			ISA's report of Form 10-KSB for the year ended December 31, 1995.3.2
			**
			Bylaws of ISA are
			incorporated by reference to Exhibit 3.2 of ISA's report on Form
			10-KSB for the year ended December 31, 1995.10.1
			**
			Independent Consulting
			Services Agreement, dated as of March 31, 1995, and executed on June
			25, 1996, by and between ISA and Douglas I. Maxwell, III
			("Maxwell"), is incorporated by reference to Exhibit 4(a) of ISA
			Statement on Form S-8 of the Registration, filed on June 26, 1996
			(File No. 333-06915).10.2
			**
			Confidential Information
			and Non-Competition Agreement Independent Contractor, dated as of
			March 31, 1995, and executed on June 26, 1996, by and between ISA
			and Maxwell, is incorporated by reference to Exhibit 10.1 of
			Registration Statement on Form S-8 of ISA, filed on June 26, 1996
			(File No. 333-06915).10.3
			**
			Stock Option Agreement,
			dated as of March 31, 1995, and executed on June 26, 1996, by and
			between ISA and Maxwell, is incorporated by reference to Exhibit
			4(b) of Registration Statement on Form S-8 of ISA, filed on June 26,
			1996 (File No. 333-06915).10.4
			**
			Independent Consulting
			Services Agreement, dated as of March 31, 1995, and executed on June
			26, 1996, by and between ISA and Neil C. Sullivan ("Sullivan"), is
			incorporated by reference to Exhibit 4(a) of Registration Statement
			on Form S-8 of ISA, filed on June 26, 1996 (File No. 333-06909).10.5
			**
			Confidential Information
			and Non-Competition Agreement Independent Contractor, dated as of
			March 31, 1995, and executed on June 26, 1996, by and between ISA
			and Sullivan, is incorporated by reference to Exhibit 10.1 of
			Registration Statement on Form S-8 of ISA, filed on June 26, 1996
			(File No. 333-06909).10.6
			**
			Stock Option Agreement,
			dated as of March 31, 1995, and executed on June 26, 1996, by and
			between ISA and Sullivan, is incorporated by reference to Exhibit
			4(b) of Registration Statement on Form S-8 of ISA, filed on June 26,
			1996 (File No. 333-06909).10.7
			**
			Acquisition of Assets
			Agreement, dated as of July 1, 1997, by and between ISA and The
			Metal Center set forth in an Asset Purchase Agreement, is
			incorporated by reference, as the sole Exhibit on Form 8-K of ISA,
			filed July 15, 1997 (File No. 0-20979).10.8
			**
			Assignment of Contracts,
			dated September 4, 1997, by and between ISA and MGM Services, Inc.
			is incorporated by reference to Exhibit 10.11 of ISA's report on
			Form 10-K for the year ended December 31, 1997.10.9
			**
			Employment Agreement,
			dated as of October 15, 1997, by and between ISA and Garber is
			incorporated by reference to Exhibit 10.12 of ISA's report on Form
			10-K for the year ended December 31, 1997.10.10
			**
			Lease Agreement, dated
			January 1, 1998, by and between ISA and K&R, is incorporated by
			reference herein, to Exhibit 10.10 on Form 8-K of ISA, filed March
			3, 1998 (File No. 0-20979).*10.11
			**
			Consulting Agreement,
			dated as of January 2, 1998, by and between ISA and K&R, is
			incorporated by reference herein, to Exhibit 10.11 on Form 8-K of
			ISA, filed March 3, 1998 (File No. 0-20979).*10.12
			**
			Amendment to Employment
			Agreement, dated as of February 5, 1998, by and between ISA and
			Garber, amending original agreement dated October 15, 1997 is
			incorporated by reference to Exhibit 10.15 of ISA's report on Form
			10-K for the year ended December 31, 1997.10.13
			**
			Stock Option Agreement,
			effective as of October 31, 1997, by and between ISA and Glenn
			Bierman is incorporated by reference herein to Exhibit 10.13 of
			ISA's report on Form 10-K for the year ended December 31, 1999, as
			filed on April 14, 2000.10.14
			**
			Stock Option Agreement,
			effective as of October 27, 1997, by and between ISA and Sean Garber
			is incorporated by reference herein to Exhibit 10.14 of ISA's report
			on Form 10-K for the year ended December 31, 1999, as filed on April
			14, 2000.10.15
			**
			Stock Option Agreement,
			effective as of October 31, 1997, by and between ISA and Sean Garber
			is incorporated by reference herein to Exhibit 10.15 of ISA's report
			on Form 10-K for the year ended December 31, 1999, as filed on April
			14, 2000.10.16
			**
			Amendment No. 1 to Option
			Agreement, effective as of February 5, 1998, by and between ISA and
			Sean Garber is incorporated by reference herein to Exhibit 10.16 of
			ISA's report on Form 10-K for the year ended December 31, 1999, as
			filed on April 14, 2000.10.17
			**
			Stock Option Agreement,
			effective as of February 16, 1998, by and between ISA and Harry
			Kletter is incorporated by reference herein to Exhibit 10.17 of
			ISA's report on Form 10-K for the year ended December 31, 1999, as
			filed on April 14, 2000.10.18
			**
			Consulting Agreement,
			dated as of June 2, 1998, by and between ISA and Andrew M. Lassak is
			incorporated by reference herein to Exhibit 10.18 of ISA's report on
			Form 10-K for the year ended December 31, 1999, as filed on April
			14, 2000.10.19
			**
			Consulting Agreement,
			dated as of June 2, 1998, by and among ISA, Joseph Charles &
			Associates, Inc. and Andrew M. Lassak is incorporated by reference
			herein to Exhibit 10.19 of ISA's report on Form 10-K for the year
			ended December 31, 1999, as filed on April 14, 2000.10.20
			**
			Asset Purchase Agreement,
			effective as of June 1, 1998, by and among ISA, ISA Indiana, Inc.,
			R.J. Fitzpatrick Smelters, Inc., and R.K. Fitzpatrick and Cheryl
			Fitzpatrick is incorporated by reference herein to Exhibit 10.20 of
			ISA's report on Form 10-K for the year ended December 31, 1999, as
			filed on April 14, 2000.10.21
			**
			Lease Agreement,
			effective June 1, 1998, by and between R.K. Fitzpatrick and Cheryl
			Fitzpatrick, R.J. Fitzpatrick Smelters, Inc., and ISA Indiana, Inc.
			is incorporated by reference herein to Exhibit 10.21 of ISA's report
			on Form 10-K for the year ended December 31, 1999, as filed on April
			14, 2000.10.22
			**
			Environmental Indemnity
			Agreement, effective as of June 1, 1998, by and between R.K.
			Fitzpatrick and Cheryl Fitzpatrick, R.J. Fitzpatrick Smelters, Inc.,
			and ISA Indiana, Inc. is incorporated by reference herein to Exhibit
			10.22 of ISA's report on Form 10-K for the year ended December 31,
			1999, as filed on April 14, 2000.10.23
			**
			Promissory Note dated May
			8, 1997, from Registrant to Bank of Louisville in the original
			principal amount of $2,000,000.00 is incorporated by reference
			herein to Exhibit 10.23 of ISA's report on Form 10-K for the year
			ended December 31, 2000, as filed on March 30, 2001.10.24
			**
			Loan Agreement dated
			November 30, 2000, by and between ISA and Bank of Louisville is
			incorporated by reference herein to Exhibit 10.24 of ISA's report on
			Form 10-K for the year ended December 31, 2000, as filed on March
			30, 2001.10.25
			**
			Change in Terms Agreement
			dated November 30, 2000, by and between ISA and Bank of Louisville
			is incorporated by reference herein to Exhibit 10.25 of ISA's report
			on Form 10-K for the year ended December 31, 2000, as filed on March
			30, 2001.10.26
			**
			Change in Terms Agreement
			dated March 26, 2001, by and between ISA and Bank of Louisville is
			incorporated by reference herein to Exhibit 10.26 of ISA's report on
			Form 10-K for the year ended December 31, 2000, as filed on March
			30, 2001.10.27
			**
			Penske Lease and Purchase
			Agreement effective July 8, 2004, for three years at a rental of
			$3,000 per month with an option to purchase for $425,000.10.28
			**
			Stock Option Agreement,
			dated June 11, 1996, by and between ISA and R. Jerry Falkner, is
			incorporated by reference to Exhibit 10.3 of ISA's report on Form
			10-K for the year ended December 31, 1996.10.29
			**
			Stock Option Agreement,
			dated March 1, 2000, by and between ISA and Andrew M. Lassak and
			related letter agreement dated November 3, 1999 is incorporated by
			reference herein to Exhibit 10.29 of ISA's report on Form 10-K for
			the year ended December 31, 2004, as filed on March 4, 2005.10.30
			**
			Contract of Purchase,
			dated March 24, 2005, by and between the Southern States
			Cooperative, Incorporated and the Harry Kletter Family Limited
			Partnership (HKFLP), as assigned by assignment of contract of
			purchase, dated April 24, 2005 from HKFLP to ISA Real Estate, LLC is
			incorporated by reference herein to Exhibit 10.30 of ISA's report on
			Form 10-K for the year ended December 31, 2004, as filed on March 4,
			2005.10.31
			**
			Lease, dated April 30,
			2005, from ISA Real Estate, LLC to Southern States Cooperative,
			Incorporated is incorporated by reference herein to Exhibit 10.31 of
			ISA's report on Form 10-K for the year ended December 31, 2004, as
			filed on March 4, 2005.10.32
			**
			Promissory Note for K&R,
			LLC in favor of ISA in the principal amount of $302,160, dated March
			25, 2006, and effective December 31, 2005, is incorporated by
			reference herein to Exhibit 10.32 of ISA's report on From 10-K for
			the year ended December 31, 2005, as filed on March 31, 2006.10.33
			**
			Loan and
			Security Agreement dated June
			30, 2006, by and between ISA and Fifth Third Bank is incorporated by
			reference herein to Exhibit 10.33 of ISA's report on Form 10-K for
			the year ended December 31, 2006, as filed on March 27, 2007.10.34
			**
			Promissory Note dated
			June 30, 2006, from ISA to Fifth Third Bank is incorporated by
			reference herein to Exhibit 10.34 of ISA's report on Form 10-K for
			the year ended December 31, 2006, as filed on March 27, 2007.10.35
			**
			Revolving Credit Facility
			Agreement dated December 22, 2006, by and between ISA and BB&T,
			is incorporated by reference herein to Exhibit 10.35 of ISA's report
			on Form 10-K for the year ended December 31, 2006, as filed on March
			27, 2007.10.36
			**
			Promissory Note dated
			December 22, 2006, from ISA to BB&T, is incorporated by
			reference herein to Exhibit 10.36 of ISA's report on Form 10-K for
			the year ended December 31, 2006, as filed on March 27, 2007.10.37
			**
			Lease dated as of
			February 6, 2007, by and between Parks Wood Products, as Lessor, and
			ISA Real Estate, LLC, as Lessee, is incorporated by reference herein
			to Exhibit 10.37 of ISA's report on Form 10-K for the year ended
			December 31, 2006, as filed on March 27, 2007.10.38
			**
			Sub-Lease dated as of
			February 28, 2007, by and between ISA, as Sublessor, and Cohen
			Brothers of Lexington, Inc., as Sublessee, is incorporated by
			reference herein to Exhibit 10.38 of ISA's report on Form 10-K for
			the year ended December 31, 2006, as filed on March 27, 2007.11
			
			Statement of Computation
			of Earnings Per Share (See Note 9 to Notes to Consolidated Financial
			Statements).16
			
			Letter from Crowe Chizek
			and Company, LLC dated April 28, 2005, regarding change in
			certifying accountant is incorporated by reference herein to Exhibit
			16 of ISA's report on Form 8-K/A, as filed on April 28, 2005.31.1
			
			Rule 13a-14(a)
			Certification of Harry Kletter for the Form 10-K/A for the year ended
			December 31, 2006.31.2
			
			Rule 13a-14(a)
			Certification of Alan Schroering for the Form 10-K/A for the year
			ended December 31, 2006.32.1
			
			Section 1350
			Certification of Harry Kletter and Alan Schroering for the Form 10-K/A
			for the year ended December 31, 2006.*Denotes a management
			contract of ISA required to be filed as an exhibit pursuant to Item
			601(10)(iii) of Regulation S‐K under the Securities Act of 1933, as
			amended.**Previously filed.


INDUSTRIAL SERVICES OF
			AMERICA, INC.AND SUBSIDIARIESCONSOLIDATED FINANCIAL
			STATEMENTSDecember 31, 2006, 2005
			and 2004


INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			Louisville, KentuckyCONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006, 2005 and 2004CONTENTSREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
			FIRMS ............
			1FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
			3CONSOLIDATED STATEMENTS OF INCOME
			4CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
			EQUITY
			5CONSOLIDATED STATEMENTS OF CASH FLOWS
			6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			7SUPPLEMENTARY INFORMATIONVALUATION AND QUALIFYING ACCOUNTS
			28


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    Board of Directors and Shareholders Industrial Services of America, Inc. and Subsidiaries Louisville, Kentucky   We have audited the accompanying consolidated balance sheets of
	Industrial Services of America, Inc. and Subsidiaries as of December 31,
	2006 and 2005 and the related consolidated statements of operations,
	shareholders' equity and cash flows for the years then ended.  These
	consolidated financial statements are the responsibility of the Company's
	management.  Our responsibility is to express an opinion on these
	consolidated financial statements based on our audit.  We conducted our audits in accordance with the standards of the Public
	Company Accounting Oversight Board (United States).  Those standards require
	that we plan and perform the audit to obtain reasonable assurance about
	whether the financial statements are free of material misstatement.  An
	audit includes examining, on a test basis, evidence supporting the amounts
	and disclosures in the financial statements.  An audit also includes
	assessing the accounting principles used and significant estimates made by
	management, as well as evaluating the overall financial statement
	presentation.  We believe that our audits provide a reasonable basis for our
	opinion.  In our opinion, the consolidated financial statements referred to above
	present fairly, in all material respects, the financial position of
	Industrial Services of America, Inc. and Subsidiaries as of December 31,
	2006 and 2005, and the results of its operations and its cash flows for the
	years then ended, in conformity with U. S. generally accepted accounting
	principles.  Also, in our opinion, the related consolidated financial
	statements schedule, when considered in relation to the basic consolidated
	financial statements taken as a whole, presents fairly, in all material
	respects, the information set forth therein.    /s/ Mountjoy & Bressler, LLP Louisville, Kentucky March 19, 2007    ____________________________________________________________________________________  1.    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    Board of Directors and Shareholders Industrial Services of America, Inc. and Subsidiaries Louisville, Kentucky   We have audited the accompanying consolidated statements of operations,
	shareholders' equity and cash flows of Industrial Services of America, Inc.
	and Subsidiaries for the year ended December 31, 2004.  These consolidated
	financial statements are the responsibility of the Company's management. 
	Our responsibility is to express an opinion on these consolidated financial
	statements based on our audits.  We conducted our audit in accordance with the standards of the Public
	Company Accounting Oversight Board (United States).  Those standards require
	that we plan and perform the audit to obtain reasonable assurance about
	whether the financial statements are free of material misstatement.  An
	audit includes examining, on a test basis, evidence supporting the amounts
	and disclosures in the financial statements.  An audit also includes
	assessing the accounting principles used and significant estimates made by
	management, as well as evaluating the overall financial statement
	presentation.  We believe that our audit provides a reasonable basis for our
	opinion.  In our opinion, the consolidated financial statements referred to above
	present fairly, in all material respects, Industrial Services of America,
	Inc. and Subsidiaries' results of its operations and its cash flows for the
	year ended December 31, 2004, in conformity with U. S. generally accepted
	accounting principles.  Also, in our opinion, the related consolidated
	financial statements schedule, when considered in relation to the basic
	consolidated financial statements taken as a whole, presents fairly, in all
	material respects, the information set forth therein.    /s/ Crowe Chizek and Company, LLC
                                                                       
	Crowe Chizek and Company, LLC Louisville, Kentucky January 28, 2005, except for Notes 3 and 6, as to which the date is March 25, 2005   ____________________________________________________________________________________  2.


INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED BALANCE SHEETS
			December 31, 2006 and 2005_________________________________________________________________________________________________2006
			
			2005ASSETSCurrent assetsCash
			$      1,331,807
			
			$    1,721,301Accounts receivable - trade (after allowance for
			doubtfulaccounts of $100,000 in 2006 and $50,000 in 2005)
			(Note 1)
			5,026,441
			
			4,502,845Net investment in sales-type leases (Note 5)
			50,586
			
			65,797Inventories (Note 1)
			3,428,226
			
			2,488,609Deferred income taxes (Note 4)
			106,725
			
			78,385Other
			88,113
			
			120,012Total current assets
			10,031,898
			
			8,976,949Net property and equipment (Note 1)
			8,152,606
			
			7,604,712Other assetsNet investment in sales-type leases (Note 5)
			186,215
			
			236,801Notes receivable - related party (Note 6)
			238,566
			
			264,390Goodwill  (Note 1)
			560,005
			
			560,005Other assets
			162,527
			
			241,6151,147,313
			
			1,302,811$   19,331,817
			
			$ 17,884,472LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilitiesCurrent maturities of long term debt  (Note 3)
			$        149,431
			
			-Current maturities of capital lease obligations
			(Note 8)
			228,533
			
			$       118,945Accounts payable
			4,545,057
			
			8,282,281Income tax payable
			1,185,717
			
			109,129Other current liabilities
			399,062
			
			1,357,903Total current liabilities
			6,507,800
			
			9,868,258Long-term liabilitiesLong-term debt (Note 3)
			2,790,460
			
			-Capital lease obligations (Note 8)
			67,853
			
			152,889Deferred income taxes (Note 4)
			219,399
			
			413,5703,077,712
			
			566,459Commitments (Note 8)Shareholders' equityCommon stock, $.005 par value: 10,000,000 shares
			authorized,4,295,000 and 4,255,000 shares issued in 2006 and
			2005,3,640,899 and 3,566,408 shares outstanding in 2006
			and 2005,respectively
			21,475
			
			21,275Additional paid-in capital
			3,194,816
			
			3,113,819Retained earnings
			7,234,990
			
			5,046,411Treasury stock at cost, 654,101 and 688,592 shares
			in 2006 and 2005
			(704,976)
			
			(731,750)9,746,305
			
			7,449,755$  19,331,817
			
			$  17,884,472
  See accompanying notes to consolidated financial statements. ____________________________________________________________________________________  3.    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED STATEMENTS OF OPERATIONS
			Years ended December 31, 2006, 2005 and 2004____________________________________________________________________________________________2006
			
			2005
			
			2004Revenue from services
			$  15,387,241
			
			$  84,451,367
			
			$  93,275,079Revenue from product sales
			46,694,807
			
			32,930,492
			
			46,312,997Total Revenue
			62,082,048
			
			117,381,859
			
			139,588,076Cost of goods sold for services
			13,984,314
			
			80,600,770
			
			89,443,927Cost of goods sold for product sales
			40,284,368
			
			29,175,791
			
			41,942,233Reduction of cost of goods sold
			(1,272,241)
			
			-
			
			-Total Cost of goods sold
			52,996,441
			
			109,776,561
			
			131,386,160Selling, general and administrative
			5,609,959
			
			5,816,605
			
			5,564,023Income before other income (expense)
			3,475,648
			
			1,788,693
			
			2,637,893Other income (expense)Interest expense
			(212,722)
			
			(74,016)
			
			(191,586)Interest income
			195,662
			
			126,578
			
			56,783Gain (loss) on sale of assets
			22,990
			
			(2,649)
			
			(15,727)Other income (expense), net
			32,930
			
			3,424
			
			21,83238,860
			
			53,337
			
			(128,698)Income before income taxes
			3,514,508
			
			1,842,030
			
			2,509,195Income tax provision (Note 4)
			1,325,929
			
			740,433
			
			1,012,001Net income
			$    2,188,579
			
			$    1,101,597
			
			$    1,497,194Basic earnings per share
			$                .61
			
			$               .31
			
			$               .43Diluted earnings per share
			$                .61
			
			$               .31
			
			$               .42
  See accompanying notes to consolidated financial
	statements.  ____________________________________________________________________________________  4.


INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
			Years ended December 31, 2006, 2005 and 2004______________________________________________________________________________________________________________________________________________AdditionalCommon Stock
			
			Paid-in
			
			Retained
			
			Treasury StockShares
			
			Amount
			
			Capital
			
			Earnings
			
			Shares
			
			Cost
			
			TotalBalance as of January 1, 2004
			
			3,935,000
			
			$   19,675
			
			$
			1,950,221
			
			$
			2,801,167
			
			(729,200)
			
			$ 
			(753,897)
			
			$
			4,017,166Exercise of stock options and related tax benefits
			
			320,000
			
			1,600
			
			647,985
			
			-
			
			-
			
			-
			
			649,585Treasury stock distribution to employees
			
			-
			
			-
			
			58,685
			
			-
			
			49,668
			
			50,936
			
			109,621Cash dividend
			
			-
			
			-
			
			-
			
			(353,547)
			
			-
			
			-
			
			(353,547)Net income
			
			-
			
			-
			
			-
			
			1,497,194
			
			-
			
			-
			
			1,497,194Balance as of December 31, 2004
			
			4,255,000
			
			21,275
			
			2,656,891
			
			3,944,814
			
			(679,532)
			
			(702,961)
			
			5,920,019Treasury stock distribution to employees
			
			-
			
			-
			
			5,551
			
			-
			
			940
			
			973
			
			6,524Repurchase of common stock
			
			-
			
			-
			
			-
			
			-
			
			(10,000)
			
			(29,762)
			
			(29,762)Tax benefits related to common stock options
			
			-
			
			-
			
			451,377
			
			-
			
			-
			
			-
			
			451,377Net income
			
			-
			
			-
			
			-
			
			1,101,597
			
			-
			
			-
			
			1,101,597Balance as of December 31, 2005
			
			4,255,000
			
			21,275
			
			3,113,819
			
			5,046,411
			
			(688,592)
			
			(731,750)
			
			7,449,755Treasury stock purchase
			
			-
			
			-
			
			-
			
			-
			
			(5,509)
			
			(16,338)
			
			(16,338)Exercise of stock options and related tax benefits
			
			40,000
			
			200
			
			80,997
			
			-
			
			40,000
			
			43,112
			
			124,309Net income
			
			-
			
			-
			
			-
			
			2,188,579
			
			-
			
			-
			
			2,188,579Balance as of December 31, 2006
			
			4,295,000
			
			$ 
			21,475
			
			$  3,194,816
			
			$  7,234,990
			
			(654,101)
			
			$ 
			(704,976)
			
			$
			9,746,305  __________________________________________________________________________________________________________________________________  5.


INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED STATEMENTS OF CASH FLOWS
			Years ended December 31, 2006, 2005 and 2004________________________________________________________________________________________________2006
			
			2005
			
			2004Cash flows from operating activitiesNet income
			
			$    2,188,579
			
			$  1,101,597
			
			$  1,497,194Adjustments to reconcile net income to netcash from operating activitiesDepreciation and amortization
			
			1,745,905
			
			1,709,668
			
			1,538,161Stock distribution to employees
			
			-
			
			6,524
			
			109,621Deferred income taxes
			
			(222,511)
			
			(213,538)
			
			335,023Tax benefit of stock options exercised
			
			-
			
			451,377
			
			213,444Provision for doubtful accounts
			
			50,000
			
			(25,000)
			
			-(Gain) loss on sale of property and equipment
			
			(22,990)
			
			2,649
			
			15,727Change in assets and liabilitiesReceivables
			
			(573,596)
			
			4,099,483
			
			472,524Net investment in sales-type leases
			
			65,797
			
			(94,360)
			
			79,754Inventories
			
			(939,617)
			
			(336,235)
			
			(445,279)Other assets
			
			110,987
			
			102,797
			
			(167,573)Accounts payable
			
			(3,737,224)
			
			(3,800,395)
			
			1,580,173Other current liabilities
			
			117,747
			
			854,163
			
			221,581Net cash from operating activities
			
			(1,216,923)
			
			3,858,730
			
			5,450,350Cash flows from investing activitiesProceeds from sale of property and equipment
			
			81,700
			
			101,797
			
			3,188Purchases of property and equipment
			
			(2,166,331)
			
			(1,817,885)
			
			(1,845,073)Payments from/(advances to) related party
			
			25,824
			
			37,770
			
			(302,160)Net cash from investing activities
			
			(2,058,807)
			
			(1,678,318)
			
			(2,144,045)Cash flows from financing activitiesPayments on capital lease obligation
			
			(161,626)
			
			(559,039)
			
			(159,073)Proceeds from long-term debt
			
			10,710,875
			
			-
			
			-Payments on long-term debt
			
			(7,770,984)
			
			(1,000,000)
			
			(2,762,908)Proceeds from exercise of common stock options
			
			124,309
			
			-
			
			436,141Payment of cash dividend
			
			-
			
			-
			
			(353,547)Purchases of common stock
			
			(16,338)
			
			(29,762)
			
			-Net cash from financing activities
			
			2,886,236
			
			(1,588,801)
			
			(2,839,387)Net change in cash
			
			(389,494)
			
			591,611
			
			466,918Cash at beginning of year
			
			1,721,301
			
			1,129,690
			
			662,772Cash at end of year
			
			$  1,331,807
			
			$ 1,721,301
			
			$  1,129,690Supplemental disclosure of cash flow informationCash paid for interest
			
			$     212,722
			
			$     74,016
			
			$     191,586Cash paid for taxes
			
			604,652
			
			173,140
			
			710,384Supplemental disclosure of noncash investing and financing
			activities:Equipment purchased under capital leases
			
			186,178
			
			-
			
			-
  ____________________________________________________________________________________  6.


INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT
			ACCOUNTING POLICIESNature of Business:  The recycling
			division of Industrial Services of America, Inc. and its
			subsidiaries (ISA) purchases and sells ferrous and nonferrous
			materials and fiber scrap on a daily basis at our two wholly owned
			subsidiaries, ISA Recycling, LLC (located in Louisville, Kentucky)
			and ISA Indiana, Inc. (serving southern Indiana).  ISA also provides
			products and services to meet the waste management needs of its
			customers related to ferrous, non-ferrous and corrugated scrap
			recycling, management services and waste equipment sales and
			rental.  Our management services division represents contracts with
			retail, commercial and industrial businesses to handle their waste
			disposal needs, primarily by subcontracting with commercial waste
			hauling and disposal companies.  Our customers and subcontractors
			are located throughout the United States, Canada and Mexico.  ISA's
			waste equipment sales and services division (WESSCO) installs or
			repairs equipment and rental equipment on a same day basis.  Each of
			our segments bills separately for its products or services. 
			Generally, services and products are not bundled for sale to
			individual customers.  The products or services have value to the
			customer on a standalone basis.Revenue Recognition:  ISA records
			revenue for its recycling and equipment sales divisions upon
			delivery of the related materials and equipment to the customer.  We
			provide installation and training on all equipment and we charge
			these costs to the customer, recording revenue in the period we
			provide the service.  We are the middleman in the sale of the
			equipment and not a manufacturer.  Any warranty is the
			responsibility of the manufacturer and therefore we make no
			estimates for warranty obligations.  Allowances for equipment
			returns are made on a case-by-case   basis.  Historically, returns
			of equipment have not been material.Our management services division
			provides our customers evaluation, management, monitoring, auditing
			and cost reduction of our customers' non-hazardous solid waste
			removal activities.  We recognize revenue related to the management
			aspects of these services when we deliver the services. We record
			revenue related to this activity on a gross basis because we are
			ultimately responsible for service delivery, have discretion over
			the selection of the specific service provided and the amounts to be
			charged, and are directly obligated to the subcontractor for the
			services provided.  We are an independent contractor.  If we
			discover that third party service providers have not performed,
			either by auditing of the service provider invoices or
			communications from our customers, we then resolve the service
			delivery dispute directly with the third party service supplier._____________________________________________________________________________________(Continued)7.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)In
			our management services division, the customer contacts us for
			service.  We determine the type of waste removal service required to
			meet the customer's needs, and we use our discretion to choose from
			a selection of approved third party service suppliers.  Upon our
			authorization, the third party service supplier uses its own
			trucking to remove waste materials from the customer's location.  We
			pay the third party service suppliers on several different payment
			terms after we have received payment from the customers who are
			billed monthly.  We recognize revenue after assessing the
			satisfactory performance of the service by the third party service
			supplier.  Assessment includes our review of landfill weight tickets
			provided by the third party service supplier documenting completion
			of the contracted service.We record sales-type leases at the
			net present value of future minimum lease payments.  Interest income
			related to the lease is recognized over the life of the lease.  At
			the inception of the lease, any difference between the net present
			value of future cash flows and the basis of the leased asset
			(carrying value plus initial direct costs, less present value of any
			residual) is recorded as a gain or loss.Accounts Receivable and Allowance
			for Doubtful Accounts:  Accounts receivable consist primarily of
			amounts due from customers from product and brokered sales. The
			allowance for doubtful accounts totaled $100,000 and $50,000 at
			December 31, 2006 and 2005, respectively.  Our determination of the
			allowance for doubtful accounts includes a number of factors,
			including the age of the balance, past experience with the customer
			account, changes in collection patterns and general industry
			conditions.  Interest is not normally charged on receivables. 
			Potential credit losses from our significant customers could
			adversely affect our results of operations or financial condition. 
			While we believe our allowance for doubtful accounts is adequate,
			changes in economic conditions or any weakness in the steel and
			metals industry could adversely impact our future earnings.  We
			charge off losses to the allowance when we deem further collection
			efforts will not provide additional recoveries.Major Customer:  We used to derive
			a significant portion of our revenues from one primary customer, The
			Home Depot, accounting for approximately 56% and 51% of 2005 and
			2004 total revenues, respectively, and approximately 24% and 23% of
			2005 and 2004 total gross profit, respectively.  The revenue from
			this former customer represented approximately 77% and 76% of CWS
			revenues in 2005 and 2004, respectively.  At December 31, 2005,
			amounts due from this former customer were $293,936.  We currently
			have no significant customer concentration.Principles of Consolidation:  The
			consolidated financial statements include the accounts of the
			Company and its wholly owned subsidiaries, ISA Indiana, Inc. and ISA
			Recycling, LLC.  Upon consolidation, all intercompany accounts,
			transactions and profits have been eliminated._____________________________________________________________________________________(Continued)8.
    INDUSTRIAL SERVICES OF
			AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT
			ACCOUNTING POLICIES (Continued)Common Control:  The Company
			conducts significant levels of business (see Note 6) with K&R, LLC
			(K&R), which is owned by the Company's principal shareholder. 
			Because these entities are under common control, operating results
			or the financial position of the Company may be materially different
			from those that would have been obtained if the entities were
			autonomous.Estimates:  In preparing the
			consolidated financial statements in conformity with accounting
			principles generally accepted in the United States of America,
			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.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 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 by gross ton.  Processing costs in
			ferrous inventory totaled $387,751 at December 31, 2006 and $242,295
			at December 31, 2005.  Processing costs in non-ferrous inventory
			totaled $86,101 at December 31, 2006 and $71,595 at December 31,
			2005.   Ferrous inventory of $1,667,937 at December 31, 2006 was
			comprised of $382,445 in raw materials and $1,285,492 of finished
			goods.  Ferrous inventory of $1,380,050 at December 31, 2005 was
			comprised of $402,041 in raw materials and $978,009 of finished
			goods.  Non-ferrous inventory of $1,678,655 at December 31, 2006 was
			comprised of $451,289 in raw materials and $1,227,366 of finished
			goods.  Non-ferrous inventory of $961,085 at December 31, 2005 was
			comprised of $196,508 in raw materials and $764,577 of finished
			goods.  We charged $2,353,435 in general and administrative
			processing costs to COS for the year ended December 31, 2006 and
			$2,015,733 for the year ended December 31, 2005._____________________________________________________________________________________(Continued)9.
 INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)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 December 31, 2006 and 2005 consist of the
			following:
  2006
			2005Ferrous materials
			$ 1,667,937
			$ 1,380,050Non-Ferrous materials
			1,678,655
			961,085Waste Equipment Machinery
			56,200
			120,922Other
			25,434
			26,552$ 3,428,226
			$ 2,488,609
  Property and Equipment:  Property and equipment are stated at cost
			and depreciated on a straight‐line basis over the estimated useful
			lives of the related property.  Assets under capital lease
			obligations are amortized over the term of the capital lease.Property and equipment as of December 31, 2006 and 2005 consist of
			the following:
  Life
			
			
			2006
			
			2005Land
			
			
			
			$ 1,581,550
			
			$ 1,581,550Equipment and vehicles
			1-10 years
			
			
			9,759,509
			
			8,535,479Office equipment
			1-7 years
			
			
			1,600,034
			
			1,521,783Rental equipment
			3-5 years
			
			
			4,238,555
			
			3,376,443Building and leasehold improvements
			5-40 years
			
			
			2,329,886
			
			2,292,33119,509,534
			
			17,307,586Less accumulated depreciation andamortization
			
			
			
			11,356,928
			
			9,702,874$ 8,152,606
			
			$ 7,604,712
  Depreciation expense for the years
			ended December 31, 2006, 2005 and 2004 was $1,745,905, $1,709,668
			and $1,538,161.   Of the $1,745,905 depreciation expense recognized
			in 2006, $1,325,035 was recorded in cost of sales, and $420,870 was
			recorded in general and administrative expense._____________________________________________________________________________________(Continued)10.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)A
			typical term of our rental equipment leases is five years.  The
			revenue stream is based on monthly usage and recognized in the month
			of usage.  We record purchased rental equipment, including all
			installation and freight charges, as a fixed asset.  We are
			typically responsible for all repairs and maintenance expenses on
			rental equipment.  Based on existing agreements, future operating
			lease revenue from rental equipment for each of the next five years
			is estimated to be:
  2007
			$1,586,2852008
			1,350,7002009
			1,200,6202010
			786,4682011
			293,990$5,218,063
  Goodwill and Other Intangible Assets:  Goodwill and certain
			intangible assets are no longer amortized but are assessed at least
			annually for impairment with any such impairment recognized in the
			period identified.  We perform our annual goodwill impairment test
			internally at December 31 and at the level of the recycling
			reporting unit to which all the goodwill is related.  We determine
			whether to impair goodwill by comparing the fair value of the
			recycling reporting unit as a whole (the present value of expected
			cash flows) to its carrying value including goodwill.  Since the
			recycling reporting unit's fair value exceeds its carrying value, no
			further computations are required.Income Taxes:  Income taxes are accounted for under the asset and
			liability method.  Deferred tax assets and liabilities are
			recognized for the future tax consequences attributable to
			differences between the financial statement carrying amounts of
			existing assets and liabilities and their respective tax bases and
			operating loss and tax credit carryforwards. Deferred tax assets and
			liabilities are measured using enacted tax rates expected to apply
			to taxable income in the years in which those temporary differences
			are expected to be recovered or settled.  The effect on deferred tax
			assets and liabilities of a change in tax rates is recognized in
			income in the period that includes the enactment date.Statement of Cash Flows:  The statement of cash flows has been
			prepared using a definition of cash that includes deposits with
			original maturities of three months or less._____________________________________________________________________________________(Continued)11.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Earnings Per Share:  Basic earnings per share is computed by
			dividing net income by the weighted average number of common shares
			outstanding during the year.  Diluted earnings per share is computed
			by dividing net income by the weighted average number of common
			shares outstanding plus the dilutive effect of stock options.Stock Option Plans:  During the year ended December 31, 2004 we
			granted options to purchase shares of our common stock to several of
			our officers and outside directors.  We applied APB Opinion No. 25
			in accounting for our employees' stock option agreements.  There was
			no compensation charged to operations in 2006, 2005, and 2004
			related to these options.We
			have an employee stock option plan under which we may grant options
			for up to 400,000 shares of common stock, which are reserved by the
			board of directors for issuance of stock options.  The exercise
			price of each option is equal to the market price of our stock on
			the date of grant.  The maximum term of the option is five years.On
			January 1, 2006, we adopted SFAS No. 123R (Revised 2004),
			Share-Based Payment, using the modified prospective method.  The
			impact of adopting SFAS 123R on our consolidated results of
			operations depends on the level of future option grants and the fair
			value of the options granted at such future dates, as well as the
			vesting periods provided by such awards.  Existing outstanding
			options did not result in additional compensation expense upon
			adoption of SFAS 123R since all outstanding options were fully
			vested.
  2006
			
			2005
			
			2004Net income (loss)Net income, as reported
			
			$  2,188,579
			
			$ 1,101,597
			
			$ 1,497,194Basic earnings (loss) per shareAs reported
			
			$          .61
			
			$            .31
			
			$            .43Diluted earnings (loss) per shareAs reported
			
			$          .61
			
			$            .31
			
			$            .42
  _____________________________________________________________________________________(Continued)12.
    INDUSTRIAL SERVICES OF
			AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Following is a summary of stock option activity and number of shares
			reserved for outstanding options for the years ended December 31,
			2006, 2005 and 2004:
  Maximum
			
			WeightedWeighted
			
			
			
			Remaining
			
			AverageAverage
			
			Exercise
			
			Term of
			
			Grant DateNumber of
			
			Exercise Price
			
			Price Per
			
			Options
			
			Fair ValueShares
			
			Per Share
			
			Share
			
			Granted
			
			of OptionsBalance as of January 1, 2004
			591,000
			
			$1.75
			
			$1.25
			
			1 to 5
			
			$1.12to $3.00
			
			yearsExercised
			(320,000)
			
			$1.41
			
			$1.41
			
			-
			
			-Expired
			(231,000)
			
			$2.31
			
			$1.25
			
			-
			
			-to $3.00Balance as of December 31, 2004
			40,000
			
			$1.25
			
			$1.25
			
			1 to 3
			
			$1.21yearsExpired
			(20,000)
			
			$1.25
			
			$1.25
			
			-
			
			-Balance as of December 31, 2005
			20,000
			
			$1.25
			
			$1.25
			
			1 to 3
			
			$1.21YearsExercised
			(20,000)
			
			$1.25
			
			$1.25
			
			-
			
			-Balance as of December 31, 2006
			-
			
			-
			
			-
			
			-
			
			-
  _____________________________________________________________________________________(Continued)13.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)SFAS No. 123 (Revised 2005), Share-Based Payment, applies to awards
			granted or modified by ISA after July 1, 2005.  Compensation cost is
			also to be recorded for prior option grants that vest after that
			date.  The effect of adopting SFAS 123R on ISA's consolidated
			results of operations depends on the level of future option grants
			and the fair value of the options granted at such future dates, as
			well as the vesting periods provided by such awards and, therefore,
			cannot currently be estimated.  There is no significant effect on
			ISA's consolidated financial position since total stockholders'
			equity is not impacted.Effective as of May 5, 2006, we entered into an agreement with
			Andrew M. Lassak to settle Mr. Lassak's claims against us in Lassak
			v. Industrial Services of America, Inc., et al, No. 04-423-CA (Fla.
			19th Cir. Ct. filed June 2, 2004).  Lassak's demands and claims
			included rights to purchase 240,500 shares of our common stock for
			$1.25 per share, rights to purchase 149,500 shares of our common
			stock for $3.00 per share, and demand and piggyback registration
			rights as well as cashless exercise rights with respect to such
			options. Since the inception of the suit, we have disputed Lassak's
			claims and have denied any liability for Lassak's claims and
			demands.  Pursuant to the settlement agreement, we allowed Lassak to
			exercise a reduced number of the options he was seeking - 40,000 at
			an exercise price of $1.25 per share. Lassak tendered to us the full
			exercise price for the 40,000 options and we filed a registration
			statement for the underlying shares with the Securities and Exchange
			Commission on May 24, 2006. The registration was declared effective
			by the Securities and Exchange Commission on June 12, 2006. We then
			delivered 40,000 registered shares to Lassak, thereby satisfying all
			our requirements under the settlement agreement and effectively
			concluding this matter.  The estimated fair value of these options
			is approximately $270,000.  Additional expense of $34,309 associated
			with the value of the options was recognized in the third quarter of
			2006 and the remaining $235,691 was recognized in prior years
			1998-2001.Fair Values of Financial Instruments:  We estimate the fair value of
			our financial instruments using relevant market information and
			other assumptions.  Fair value estimates involve uncertainties and
			matters of significant judgment regarding interest rates,
			prepayments and other factors.  Changes in assumptions or market
			conditions could significantly affect these estimates.    As of
			December 31, 2006 and 2005, the estimated fair value of our
			financial instruments approximated book value.  The fair value of
			our debt approximates its carrying value because the majority of our
			debt bears a floating rate of interest based on the prime rate. 
			There is no readily available market by which to determine fair
			market value of our fixed term debt; however, based on existing
			interest rates and prevailing rates as of each year end, we have
			determined that the fair value of our fixed rate debt approximates
			book value._____________________________________________________________________________________(Continued)14.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Impact of Recently Issued Accounting Standards:SFAS No. 154, Accounting Changes and Error Corrections, replaces APB
			Opinion No. 20, Accounting Changes, and FASB Statement No. 3,
			Reporting Accounting Changes in Interim Financial Statements, and
			changes the requirements for the accounting for and reporting of a
			change in accounting principle. SFAS No. 154 applies to all
			voluntary changes in accounting principle. It also applies to
			changes required by an accounting pronouncement in the unusual
			instance that the pronouncement does not include specific transition
			provisions. SFAS No. 154 requires retrospective application to prior
			periods' financial statements of changes in accounting principle,
			unless it is impracticable to determine either the period-specific
			effects or the cumulative effect of the change.  SFAS No. 154 was
			issued May 2005 and is effective for accounting changes and
			corrections of errors made in fiscal years beginning after December
			15, 2005.  We do not expect this standard to significantly impact
			our financial statements.SFAS No. 157, Fair Value Measurements, 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.  We do not expect this
			standard to significantly impact our financial statements.Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an
			interpretation of FASB Statement No. 109 (issued June 2006),
			clarifies the accounting for uncertainty in income taxes recognized
			in an enterprise's financial statements in accordance with FASB
			Statement No. 109, Accounting for Income Taxes. This Interpretation
			prescribes a recognition threshold and measurement attribute for the
			financial statement recognition and measurement of a tax position
			taken or expected to be taken in a tax return. This Interpretation
			also provides guidance on derecognition, classification, interest
			and penalties, accounting in interim periods, disclosure, and
			transition.  This Interpretation is effective for fiscal years
			beginning after December 15, 2006.  The adoption of this standard on
			January 1, 2007 did not have an impact on our consolidated financial
			statements._____________________________________________________________________________________(Continued)15.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 2 - NOTE PAYABLE TO BANKOn
			December 22, 2006, ISA executed a new revolving credit facility with
			BB&T increasing the borrowing line from $5.0 million to $10.0
			million to provide ISA with working capital to support the current
			needs of our business.  This revolving credit facility has a three
			year term expiring December 22, 2009, and provides for advances of
			up to eighty percent (80%) of ISA's eligible accounts receivable and
			up to the  forty percent (40%) of eligible inventory, and up to one
			hundred (100%) of ISA's 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 7.57% as of December 31, 2006,
			and is secured by all ISA assets (except rental fleet equipment). 
			The revolving credit facility contains certain restrictive and
			financial covenants.  At December 31, 2006, ISA was in compliance
			with all restrictive covenants.NOTE 3 - LONG-TERM DEBTLong-term debt as of December 31, 2006 and 2005 consists of the
			following:
  2006
			
			2005Note payable to a
			bank secured by our rental fleet equipment with a fixed interest
			rate of 6.83% and monthly payments of $23,047.  The maturity date
			under this agreement is June 2011 with a ten-year amortization
			schedule.
			
			$  1,929,016
			
			$                   -Revolving credit
			facility with a bank secured by all assets except for rental fleet
			equipment with a variable interest rate of Libor plus 2.25% and no
			required monthly principal payments.  The maturity date under this
			agreement is December 2009.
			
			1,010,875
			
			-2,939,891
			
			-Less current
			maturities
			
			149,431
			
			-$2,790,460
			
			$                   -
  The annual maturities of long-term debt as of December 31, 2004 are as
	follows:
  2007
			$     149,4312008
			159,9622009
			1,182,1112010
			183,3052011
			and thereafter
			1,265,082Total
			$ 2,939,891  _____________________________________________________________________________________(Continued)16.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 4 -- INCOME
			TAXESThe income tax
			provision (benefit) consists of the following for the years ended
			December 31, 2006, 2005 and 2004:
  2006
			
			2005
			
			2004FederalCurrent
			$  1,178,483
			
			$   780,181
			
			$    448,275Deferred
			(174,958)
			
			(203,543)
			
			343,9161,003,525
			
			576,638
			
			792,191StateCurrent
			369,957
			
			173,790
			
			228,703Deferred
			(47,553)
			
			(9,995)
			
			(8,893)322,404
			
			163,795
			
			219,810$  1,325,929
			
			$   740,433
			
			$1,012,001
  A
			reconciliation of income taxes at the statutory rate to the reported
			provision is as follows:
  2006
			
			2005
			
			2004Federal income tax at statutory rate
			$1,194,933
			
			$ 629,083
			
			$    853,127State and local income taxes, net offederal income tax effect
			212,787
			
			106,257
			
			145,074Permanent differences
			(43,702)
			
			-
			
			-Other differences, net
			(38,089)
			
			5,093
			
			13,800$1,325,929
			
			$ 740,433
			
			$ 1,012,001
  The
			permanent differences of $(43,702) and the other differences, net of
			$(38,089) are due to a decreased taxable base of the common stock
			awarded to Andrew J. Lassak in the second quarter of 2006.  This
			decrease was mutually agreed upon in the fourth quarter of 2006._____________________________________________________________________________________(Continued)17.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 4 - INCOME
			TAXES (Continued)Significant
			components of the Company's deferred tax liabilities and assets as
			of December 31, 2006 and 2005 are as follows:
  2006
			
			2005Deferred tax liabilitiesTax depreciation in excess of book
			$    278,929
			
			$     529,530Tax amortization in excess of book
			114,666
			
			89,598Gross deferred tax liabilities
			393,595
			
			619,128Deferred tax assetsProperty taxes
			39,495
			
			44,025Allowance for doubtful accounts
			43,000
			
			24,206Book amortization in excess of tax
			174,196
			
			205,558Inventory capitalization
			13,887
			
			10,154Other
			10,343
			
			-Gross deferred tax assets
			280,921
			
			283,943Net deferred tax liabilities
			$ (112,674)
			
			$   (335,185)
  NOTE
				5 - SALES-TYPE LEASESThe Company is the lessor of
				equipment under sales-type lease agreements having terms of
				three to five years, with the lessees having the option to
				acquire the equipment at the termination of the leases.  All
				costs associated with this equipment are the responsibility of
				the lessees.Future lease payments
				receivable under sales-type leases at December 31, 2006 are as
				follows:
  2007
			$
			94,0202008
			84,9202009
			66,7202010
			50,040Minimum lease payments receivable
			295,700Less unearned income
			(58,899)Net investment in sales-type leases
			236,801Less current portion
			(50,586)$  186,215
  _____________________________________________________________________________________(Continued)18.
    INDUSTRIAL
				SERVICES OF AMERICA, INC.
				AND SUBSIDIARIES
				NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
				December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 6 - RELATED PARTY
				TRANSACTIONSThe Company enters into
				various transactions with related parties including the
				Company's principal shareholder and an affiliated company owned
				by the Company's principal shareholder (K&R).  A summary of
				these transactions is as follows:
  2006
			
			2005
			
			2004Balance sheet accounts:Accounts receivable
			$              -
			
			$              -
			
			$              -Notes receivable
			$  238,566
			
			$   264,390
			
			$   302,160Deposits (included in other long-term assets)
			$    62,106
			
			$     62,106
			
			$     62,106Income statement activity:Rent expense
			$   505,272
			
			$   505,272
			
			$   505,272Consulting fees
			$   240,000
			
			$   240,000
			
			$   240,000
  ISA leases its
				corporate offices, processing property and buildings in
				Louisville, Kentucky for $42,106 per month from K&R pursuant to
				the K&R Lease.  Deposits include one month of rent in advance in
				the amount of $42,106.  In 2004, we paid for repairs totaling
				$302,160 that we made to the buildings and property that we
				lease from K&R, located at 7100 Grade Lane, Louisville,
				Kentucky.  K&R executed an unsecured promissory note, dated
				March 25, 2005, but effective December 31, 2004, to us for the
				principal sum of $302,160.  K&R makes payments on the promissory
				note of principal and interest in ninety-six (96) monthly
				installments of $3,897.66.  Failure of K&R to make any payment
				when due under this note within fifteen (15) days of its due
				date shall constitute a default.  After the fifteen day period,
				the note shall bear interest at a rate equal to fifteen percent
				(15%) per annum and we have the right to exercise our remedies
				to collect full payment of the note.In an addendum
				to the K&R lease as of January 1, 2005, the rent was increased
				$4,000 as a result of the improvements made to the property in
				2004.  For years 2005 and 2006, the payments to K&R by the
				Company of $4,000 for additional rent and the payment from K&R
				to the Company of $3,897.66 for the promissory note were offset.
  _____________________________________________________________________________________(Continued)19.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 6 - RELATED
			PARTY TRANSACTIONS (Continued)The Company entered into an agreement with K&R for consulting
			services related to the scrap metal and paper recycling operations
			and related equipment sales and services.  The agreement remains in
			effect until December 31, 2007, with automatic renewals thereafter
			unless one party provides written notice to theother party of its
			intent not to renew at least six months in advance of the next
			renewal date.  The agreement requires that we make annual payments
			to K&R of $240,000 in equal monthly installments of $20,000. 
			Deposits include one month of consulting services in advance in the
			amount of $20,000.  ISA's Chairman is compensated through these
			consulting fees .NOTE 7 - EMPLOYEE RETIREMENT PLANThe Company maintains a defined contribution retirement plan under
			Section 401(k) of the Internal Revenue Code which covers
			substantially all employees.  Eligible employees may contribute a
			maximum of 15% of their annual salary.  Under the plan, the Company
			matches 25% of each employee's voluntary contribution up to 6% of
			their gross salary.  The expense under the plan for 2006, 2005 and
			2004 was $33,438, $31,996 and $28,950, respectively.NOTE 8 - LEASE COMMITMENTSOperating Leases:The Company
			leases its Louisville, Kentucky facility from a related party (see
			Note 6) under an operating lease expiring December 2007.  The rent
			was adjusted in January 2003 per the agreement to monthly payments
			of $42,106 through December 2007.  In addition, the Company is also
			responsible for real estate taxes, insurance, utilities and
			maintenance expense.The Company
			leases a facility in Dallas, Texas for management services
			operations.  The  agreement provided that monthly payments of $2,457
			were paid through September 2005.  The lease was renewed effective
			October 1, 2005 for a period of two years with monthly payments of
			$2,525.   The Company also leases other machinery and equipment
			under operating leases which expire through February 2009.We lease a facility in Lexington, Kentucky for $4,500 per month; the
			lease terminates December 31, 2012.  We have subleased this property
			for a term commencing March 1, 2007 and ending December 31, 2012 for
			$4,500 per month.   If for any reason the sublessee defaults, we
			remain liable for the remainder of the lease payments through
			December 31, 2012.On February 6, 2007, we leased 7.7 acres of real property, including
			a 38,000 square foot warehouse and a 400 square foot office, in
			Pineville, Louisiana for $5,250 per month for twenty-four months
			beginning March 1, 2007 and ending February 28, 2009, with an option
			to purchase the property for a purchase price of $575,000.______________________________________________________________________________________(Continued)20.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 8 -- LEASE
			COMMITMENTS (Continued)Future minimum
			lease payments for operating leases as of December 31, 2006 are as
			follows:
  2007
				
				$      612,2462008
				
				80,5542009
				
				42,2432010
				
				3,375Future minimum lease payments
				
				$      738,418
    Total rent
			expense for the years ended December 31, 2006, 2005 and 2004 was
			$784,954, $809,270 and $773,139, respectively.Capital Leases:The Company leases various pieces of equipment which
			qualify as capital leases.  These lease arrangements require monthly
			lease payments expiring at various dates through November 2009.The following is a summary of assets held under
			capital leases which are included in property and equipment:
  2006
			
			2005Equipment
			
			$     757,513
			
			$     571,335Less accumulated depreciation
			
			168,904
			
			159,525$     588,609
			
			$     411,810
  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 December 31, 2006.
  2007
				
				$    233,9922008
				
				60,7862009
				
				7,475Total future minimum lease
				payments
				
				302,253Lessamount representing
				interest
				
				(5,867)Present value of net minimumlease payments
				
				296,386Less current portion
				
				(228,533)Capital Lease Obligations
				
				$      67,853
  _____________________________________________________________________________________(Continued)21.
    INDUSTRIAL SERVICES OF
			AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 9 - PER
			SHARE DATAThe computation for basic and diluted earnings per share is as
			follows:  2006
			
			2005
			
			2004Basic earnings per shareNet income
			$    2,188,579
			
			$    1,101,597
			
			$    1,497,194Weighted average shares outstanding
			3,602,872
			
			3,575,202
			
			3,473,887Basic earnings per share
			$               .61
			
			$              .31
			
			$               .43Diluted earnings per shareNet income
			$     2,188,579
			
			$    1,101,597
			
			$    1,497,194Weighted average shares outstanding
			3,602,872
			
			3,575,202
			
			3,473,887Add dilutive effect of assumed exercising
			  of stock options
			10,218
			
			18,608
			
			118,912Diluted average shares outstanding
			3,613,090
			
			3,593,810
			
			3,592,799Diluted earnings per share
			$               .61
			
			$              .31
			
			$              .42  NOTE 10 - SEGMENT INFORMATIONThe Company's 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 two 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.The Company's 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.The accounting policies of the
			three segments are the same as those described in the summary of
			significant accounting policies (Note 1).  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.
  _____________________________________________________________________________________(Continued)22.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 10 - SEGMENT INFORMATION
			(Continued)
  SegmentISA Recycling
			
			CWS
			
			WESSCO
			
			Other
			
			Totals2006Recycling revenues
			
			$  44,967,023
			
			$                 -
			
			$                  -
			
			$                 -
			
			$    44,967,023Equipment sales,
			servicesand leasing
			revenues
			
			-
			
			-
			
			1,727,784
			
			-
			
			1,727,784Management fees
			
			-
			
			15,387,241
			
			-
			
			-
			
			15,387,241Cost of goods sold
			
			(39,448,957)
			
			(12,712,073)
			
			(835,411)
			
			-
			
			(52,996,441)Selling, general andadministrative
			expenses
			
			(1,431,251)
			
			(1,479,302)
			
			(542,433)
			
			(2,156,973)
			
			(5,609,959)Segment profit (loss)
			
			$      4,086,815
			
			$    1,195,866
			
			$      349,940
			
			$  (2,156,973)
			
			$       3,475,648
  SegmentISA Recycling
			
			CWS
			
			WESSCO
			
			Other
			
			Totals2006Cash
			
			$        136,803
			
			$       16,254
			
			$                 -
			
			$    1,178,750
			
			$     1,331,807Accounts receivable
			
			3,903,681
			
			1,089,080
			
			-
			
			33,680
			
			5,026,441Inventories
			
			3,357,832
			
			-
			
			70,394
			
			-
			
			3,428,226Net property andequipment
			
			3,971,773
			
			156,756
			
			1,997,911
			
			2,026,166
			
			8,152,606Goodwill
			
			560,005
			
			-
			
			-
			
			-
			
			560,005Other assets
			
			96,848
			
			10,637
			
			75,397
			
			649,850
			
			832,732Segment assets
			
			$    12,026,942
			
			$    1,272,727
			
			$    2,143,702
			
			$       3,888,446
			
			$   19,331,817
  SegmentISA Recycling
			
			CWS
			
			WESSCO
			
			Other
			
			Totals2005Recycling revenues
			
			$  29,952,938
			
			$                 -
			
			$                  -
			
			$                 -
			
			$    29,952,938Equipment sales,
			servicesand leasing
			revenues
			
			-
			
			-
			
			2,977,554
			
			-
			
			2,977,554Management fees
			
			-
			
			84,451,367
			
			-
			
			-
			
			84,451,367Cost of goods sold
			
			(27,271,712)
			
			(80,600,770)
			
			(1,904,079)
			
			-
			
			(109,776,561)Selling, general andadministrative
			expenses
			
			(987,930)
			
			(2,051,475)
			
			(612,180)
			
			(2,165,020)
			
			(5,816,605)Segment profit (loss)
			
			$      1,693,296
			
			$    1,799,122
			
			$      461,295
			
			$  (2,165,020)
			
			$       1,788,693
  _____________________________________________________________________________________(Continued)23.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________
  SegmentISA Recycling
			
			CWS
			
			WESSCO
			
			Other
			
			Totals2005Cash
			
			$        332,351
			
			$       111,738
			
			$              500
			
			$    1,276,712
			
			$     1,721,301Accounts receivable
			
			2,596,053
			
			1,793,547
			
			85,431
			
			27,814
			
			4,502,845Inventories
			
			2,352,375
			
			-
			
			136,234
			
			-
			
			2,488,609Net property andequipment
			
			3,282,130
			
			310,769
			
			1,788,285
			
			2,223,528
			
			7,604,712Goodwill
			
			560,005
			
			-
			
			-
			
			-
			
			560,005Other assets
			
			132,346
			
			25,845
			
			85,164
			
			763,645
			
			1,007,000Segment assets
			
			$    9,255,260
			
			$    2,241,899
			
			$      2,095,614
			
			$       4,291,699
			
			$   17,884,472
  SegmentISA Recycling
				
				CWS
				
				WESSCO
				
				Other
				
				Totals2004Recycling revenues
				
				$   43,262,813
				
				$                 -
				
				$                -
				
				$                 -
				
				$  43,262,813Equipment sales, servicesand leasing revenues
				
				-
				
				-
				
				3,050,184
				
				-
				
				3,050,184Management fees
				
				-
				
				93,275,079
				
				-
				
				-
				
				93,275,079Cost of goods sold
				
				(40,129,036)
				
				(89,443,927)
				
				(1,813,197)
				
				-
				
				(131,386,160)Selling, general andadministrative expenses
				
				(846,631)
				
				(1,862,000)
				
				(588,882)
				
				(2,266,510)
				
				(5,564,023)Segment profit (loss)
				
				$     2,287,146
				
				$  1,969,152
				
				$     648,105
				
				$ (2,266,510)
				
				$    2,637,893
  _____________________________________________________________________________________(Continued)24.
    INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 11-- CONTINGENCY/LITIGATION
			SETTLEMENTOn June 2, 2004, Andrew M.
			Lassak filed a Complaint against us in the City of Stuart, Martin
			County, Florida.  In the complaint, Lassak alleged that we breached
			our contracts with him by failing and refusing to release and
			register 390,000 shares of stock. He claims he was entitled to
			"piggyback" registration rights relating to the Form S-3
			Registration Statement that we filed for the benefit of Falkner as
			well as "demand" registration rights. He sought specific performance
			of the contracts and damages that occurred by ISA not releasing and
			registering the underlying shares relating to his options sooner.On August 6, 2004 we filed a
			Motion to Dismiss or in the Alternative Motion for More Definite
			Statement. At a hearing before the Court on September 20, 2004, the
			judge granted our Motion without prejudice, allowing Lassak to amend
			the Complaint. Lassak filed an Amended Complaint on December 27,
			2004, which restated his previous claims and made a number of new
			claims including claims of federal and state securities fraud. The
			Amended Complaint also named Harry Kletter individually as a
			defendant.  In June 2005, Lassak filed a Second Amended Complaint
			which is substantially similar to the first Amended Complaint.  We
			filed an Answer and Affirmative Defenses to the Second Amended
			Complaint as well as a Motion to Dismiss on behalf of Harry Kletter
			that remains pending.Effective as of May 5, 2006,
			we entered into an agreement with Mr. Lassak to settle Mr. Lassak's
			claims against us in Lassak v. Industrial Services of America, Inc.,
			et al, No. 04-423-CA (Fla. 19th Cir. Ct. filed June 2, 2004). 
			Lassak's demands and claims included rights to purchase 240,500
			shares of our common stock for $1.25 per share, rights to purchase
			149,500 shares of our common stock for $3.00 per share, and demand
			and piggyback registration rights as well as cashless exercise
			rights with respect to such options. Since the inception of the
			suit, we have disputed Lassak's claims and have denied any liability
			for Lassak's claims and demands. Pursuant to the settlement
			agreement, we allowed Lassak to exercise a reduced number of the
			options he was seeking -- 40,000 at an exercise price of $1.25 per
			share. Lassak tendered to us the full exercise price for the 40,000
			options and we filed a registration statement for the underlying
			shares with the Securities and Exchange Commission on May 24, 2006.
			The registration was declared effective by the Securities and
			Exchange Commission on June 12, 2006. We then delivered 40,000
			registered shares to Lassak, thereby satisfying all our requirements
			under the settlement agreement and effectively concluding this
			matter.  The estimated fair value of these options is approximately
			$270,000.  We recognized additional expense of $34,309 associated
			with the value of the options in the third quarter of 2006 and we
			had recognized the remaining $235,691 in prior years 1998-2001._________________________________________________________________________________________(Continued)25.
    INDUSTRIAL SERVICES
			OF AMERICA, INC.
			AND SUBSIDIARIES
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			December 31, 2006, 2005 and 2004____________________________________________________________________________________NOTE 12 -- SELECTED QUARTERLY
			FINANCIAL DATA (UNAUDITED)
  1st
			2nd
			3rd
			4th
			Year2006Revenue
			$14,484,020
			$17,702,634
			$ 15,331,235
			$14,564,159
			$ 62,082,048Income before otherincome (expense)
			688,693
			1,007,525
			511,167
			1,268,263
			3,475,648Net income
			416,526
			602,757
			439,568
			729,728
			2,188,579Basic earnings per
			share
			0.12
			0.17
			0.12
			0.20
			0.61Diluted earnings per
			share
			0.12
			0.17
			0.12
			0.20
			0.611st
			2nd
			3rd
			4th
			Year2005Revenue
			$29,674,470
			$33,399,907
			$ 34,579,729
			$19,727,753
			$117,381,859Income before otherincome (expense)
			257,610
			52,887
			546,168
			632,028
			1,788,693Net income
			149,088
			211,679
			325,294
			415,536
			1,101,597Basic earnings per
			share
			0.04
			0.06
			0.09
			0.12
			0.31Diluted earnings per
			share
			0.04
			0.06
			0.09
			0.12
			0.311st
			2nd
			3rd
			4th
			Year2004Revenue
			$34,764,205
			$34,054,273
			$ 38,223,906
			$32,545,692
			$139,588,076Income before otherincome (expense)
			803,300
			613,084
			798,076
			423,433
			2,637,893Net income
			449,284
			363,693*
			429,584
			254,633
			1,497,194Basic earnings per
			share
			0.14
			0.10*
			0.12
			0.07
			0.43Diluted earnings per
			share
			0.13
			0.10*
			0.12
			0.07
			0.42
  * In the second quarter 2004, the
			net income amount of $363,693 (with basic and diluted earnings per
			share of $0.10) shown above is $127,300 less (with basic and diluted
			earnings per share of $0.04) than the net income amount of $490,933
			(with basic and diluted earnings per share of $0.14) previously
			reported in the second quarter report on Form 10-Q.In the second quarter of 2004, a
			permanent tax benefit related to the exercise of non-employee
			options was inadvertently recorded as a reduction to income tax
			expense.  After further review, we have determined that the tax
			benefit should instead be reported as an increase to additional paid
			in capital._________________________________________________________________________________________26.




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SUPPLEMENTARY INFORMATION


INDUSTRIAL SERVICES OF
		AMERICA, INC.
		AND SUBSIDIARIES
		SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
		Years ended December 31, 2006, 2005 and 2004__________________________________________________________________________________________Balance at
		
		Additions Charged toBeginning
		
		Costs and
		
		
		
		Balance atof Period
		
		Expenses
		
		Deductions *
		
		End of PeriodDescriptionAllowance for doubtfulaccounts 2006 (deductedfrom accounts
		receivable)
		
		$     50,000
		
		$      50,000
		
		$                 -
		
		$      100,000Allowance for doubtfulaccounts 2005 (deductedfrom accounts
		receivable)
		
		$     75,000
		
		$                -
		
		$      (25,000)
		
		$        50,000Allowance for doubtfulaccounts 2004 (deductedfrom accounts
		receivable)
		
		$     60,000
		
		$      37,937
		
		$      (22,937)
		
		$        75,000*  uncollected amounts
		written off, net of recoveries




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