UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, DC  20549FORM 10-K  [ x ]
			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For Fiscal Year Ended December 31, 2007[   ]
			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-known
			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, 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 XAggregate market value of the 1,978,699 shares of voting Common
			Stock held by non-affiliates of the registrant at the closing sales
			price on June 30, 2007:  $27,323,851.Number of shares of Common Stock, $.005 par value, outstanding
			as of the close of business on March 31, 2008:  3,620,899._____________________DOCUMENT INCORPORATED BY REFERENCEPortions of the registrant's definitive Proxy Statement for the 2008
			Annual Meeting of Shareholders are incorporated by reference into
			Item 10 through Item 14 of Part III of this report.




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PART I



Item
1.       Business.



General



Industrial Services of America, Inc. (herein "ISA," the "Company," "we," "us,"
"our," or other similar terms), is a Louisville, Kentucky-based logistic
management services company that offers total package waste and recycling
management services to commercial, industrial and logistic customers nationwide,
as well as providing recycling and scrap processing and waste handling equipment
sales and service.





Available Information

We make available, free of charge, through our website www.isa-inc.com, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy statements, and amendments to those reports as soon as
reasonably practicable after we have electronically filed with the Securities
and Exchange Commission. We also make available on our website our audit
committee charter, our Business Ethics Policy and Code of Conduct and our Code
of Ethics for the CEO, CFO and senior financial officers. Please note that our
Internet address is included in this annual report on Form 10-K as an inactive
textual reference only. Information contained on our website www.isa-inc.com
is not incorporated by reference into this annual report on Form 10-K and should
not be considered a part of this report.



Our principal products and services are ferrous and non-ferrous scrap metals,
management services, and waste equipment sales, rental and service.  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 our stockholders.



ISA Recycling Operating Division



Since October 2005, we have focused much of our attention on our recycling
business segment.  We sell processed ferrous and non-ferrous scrap material to
end-users such as steel mini-mills, integrated steel makers and 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 also continue to focus on initiating growth
in our management services business segment and our waste and recycling
equipment sales, service and leasing division.



Ferrous Operations



Ferrous Scrap Purchasing - We purchase ferrous scrap from two primary
sources: (i) industrial and commercial generators of steel and iron; and (ii)
scrap dealers, peddlers, and other generators and collectors who sell us steel
and iron scrap, known as obsolete scrap. Market demand and the composition,
quality, size and weight of the materials are the primary factors that determine
prices paid to these material providers.



Ferrous Scrap Processing - We prepare ferrous scrap material for resale
through a variety of methods including sorting, shearing, cutting and bailing. 
We produce a number of differently sized, shaped and graded products depending
upon customer specifications and market demand.



Sorting - After purchasing ferrous scrap material, we inspect it to
determine how we should process it to maximize profitability. In some instances,
we may sort scrap material and sell it without further processing. We separate
scrap material for further processing according to its size, composition and
grade by using conveyor systems, front-end loaders, crane-mounted electromagnets
and claw-like grapples.



Shearing or Cutting - Pieces of oversized ferrous scrap material, such as
obsolete steel girders and used pipe, which are too large for other processing
are cut with hand torches, crane-mounted alligator shears or stationary
guillotine shears.



Baling - We process light-gauge ferrous materials such as clips, sheet
iron and by-products from industrial and commercial processes, such as
stampings, clippings and excess trimmings, by baling these materials into large,
uniform blocks. We use cranes and conveyors to feed the material into a
hydraulic press, which compresses the material into uniform blocks.



Ferrous Scrap Sales - We sell processed ferrous scrap material to
end-users such as steel mini-mills, integrated steel makers and foundries, and
brokers who aggregate materials for other large users. Most customers purchase
processed ferrous scrap material through negotiated spot sales contracts, which
establish the quantity purchased for the month and the pricing. The price we
charge for ferrous scrap materials depends upon market supply and demand, as
well as quality and grade of the scrap material.



Non-Ferrous Operations



Non-Ferrous Scrap Purchasing - We purchase non-ferrous scrap from two
primary sources: (i) industrial and commercial non-ferrous scrap material
providers who generate or sell waste aluminum, copper, stainless steel, other
nickel-bearing metals, brass and other metals; and (ii) peddlers, scrap dealers,
generators and collectors who deliver directly to our facilities material that
they collect from a variety of sources. We also collect non-ferrous scrap from
sources other than those that are delivered directly to our processing
facilities by placing retrieval boxes at these sources. The boxes are
subsequently transported to our processing facilities.



Non-Ferrous Scrap Processing - We prepare non-ferrous scrap metals,
principally aluminum, copper, brass and stainless steel to sell by sorting,
shearing, cutting or baling.



Sorting - Our sorting operations separate and identify non-ferrous scrap
by using front-end loaders, grinders, hand torches and spectrometers. Our
ability to identify metallurgical composition maximizes margins and
profitability.  We sort non-ferrous scrap material for further processing
according to type, grade, size and chemical composition. Throughout the sorting
process, we determine whether the material requires further processing before we
sell it.



Shearing or Cutting - Pieces of oversized non-ferrous scrap material,
which are too large for other processing methods, are cut with alligator
shears.



Baling - We process non-ferrous metals such as aluminum cans, sheet and
siding by baling these materials into large uniform blocks. We use front-end
loaders and conveyors to feed the material into a hydraulic press, which
compresses the material into uniform blocks.



Non-Ferrous Scrap Sales - We sell processed non-ferrous scrap material to
end-users such as foundries, aluminum sheet and ingot manufacturers, copper
refineries and smelters, and brass and bronze ingot manufacturers. Prices for
the majority of non-ferrous scrap materials change based upon the daily
publication of spot and futures prices on COMEX or the London Metals Exchange.



Management Services Operations -- Computerized Waste Systems (CWS)



Our management services operations are in the business of commercial, retail and
industrial waste and recycling management services.  CWS offers a "total
package" concept to commercial, retail and industrial customers for their waste
and recycling management needs.  Combining waste reduction and diversion, and
waste equipment technology, CWScreates waste and recycling programs
tailored to each customer's needs.  The services we offer include locating and
contracting with a hauling company and recyclerat a reasonable cost for
each participating location.  CWS does not own waste-transporting trucks or
landfills.  We do not operate or partner with any of the national hauling or
recycling companies, and none of these companies own us. We are able to maintain
a neutral position for the benefit of our customers.  We have designed and
developed proprietary computer software that provides our personnel with
relevant information on each customer's locations, as well as pertinent
information on service providers, disposal rates, costs of equipment, including
installation and shipping, disposal rates and recycling prices.  This software
has allowed us to build a database for serving our customers that have locations
nationwide as well as Canada and Mexico.  This software enables us to generate
detailed monthly customized billing reports, and price tracking to accommodate
our customers' needs.



Our management services division provides our customers evaluation, management,
monitoring, auditing and cost reduction of non-hazardous solid waste removal and
recycling activities.  CWS has developed a network of over 2,300 hauling,
landfill, recycling and equipment manufacturing and maintenance service
providers throughout the United States and Canada.  Through this network, we are
able to provide pricing estimates for current and potential customers. CWS
customer service representatives have access to this information through the
computer software designed and developed to enhance the value offered to our
customers. Through this information retrieval system and database, customer
service representatives can review the accuracy of recent billings for hauling,
landfill and recycling rates.



Waste and Recycling Equipment Sales and Services Operations-WESSCO-Waste and
Sales Service Company



Our waste equipment sales and services operation, WESSCO, is in the business of
commercial and industrial waste and recycling handling equipment sales, rental
and maintenance.  By offering competitively priced waste and recycling handling
equipment from a number of different manufacturers, we are able to tailor
equipment packages for individual customer needs. We do not manufacture any
equipment, but we do refurbish, recondition and add options when necessary.  We
sell, rent and repair all types of industrial and commercial waste and recycling
handling equipment such as compactors, balers and containers.



"Total Package"
Concept



We record revenues and costs in the period of delivery.  Our management services
division has third party service providers providing same day service for all
waste removal and recycling services for our customers.  Our recycling division
purchases ferrous and nonferrous materials, cardboard and paper on a daily
basis.  We record these purchases in the period received.  We record revenue and
cost in the period of delivery.  The products or services have value to the
customer on a standalone basis.  These services make up the "total package"
concept.



Company
Background



ISA was incorporated in October 1953 in Florida under the name Alson
Manufacturing, Inc.  From the date of incorporation through January 5, 1975,
Alson designed and manufactured various forms of electrical products.  In 1979,
the Board of Directors and the shareholders of Alson commenced liquidation of
all the tangible assets of Alson.  On October 27, 1983, Harry Kletter, our
Chairman of the Board and Chief Executive Officer, acquired 419,500 shares of
ISA Common Stock.  The existing directors resigned and five new directors were
elected.



On July 1, 1984, we began a solid waste handling and disposal equipment sales
organization under the name Waste Equipment Sales and Services Company, which we
refer to as WESSCO.  On January 1, 1985, we merged with Computerized Waste
Systems, Inc., a Massachusetts corporation.  CWS was a corporation specializing
in offering solid waste management consultations for large multi-location
companies involved in the retail, restaurant and industrial sectors.  At the
time of the merger, CWS was concentrating on large retail chains, but has
changed its emphasis to include commercial and industrial customers.  This
strategy created an additional target market for us.   Subsequent to the merger
with CWS, we moved the CWS headquarters from Springfield, Massachusetts to
Louisville, Kentucky.  At the time of the merger, much of the customer base and
marketing efforts were concentrated in the Northeast.  With the move to
Louisville, we began to expand our marketing efforts, which are now nationwide
as well as in Canada.



On July 1, 1997, we acquired the assets of a non-ferrous scrap metal recycling
facility located at 7100 Grade Lane, Louisville, Kentucky, thus expanding our
recycling product lines.



In January 1998, we acquired the business of a ferrous scrap and corrugated
paper recycling facility located at 7100 Grade Lane, Louisville, Kentucky.  This
acquisition was the beginning of our ferrous scrap metal, non-ferrous scrap
metal and corrugated paper processing segment known as ISA Recycling.



On June 1, 1998, we acquired all of the business, property, rights and assets of
a ferrous and non-ferrous scrap metal recycling facility located in North
Vernon, Indiana.  On July 8, 2002, we acquired a five-acre tract at 1565 East 4th
Street, Seymour Indiana.  In the fourth quarter of 2002, we moved our metal
recycling facilities from North Vernon, Indiana to Seymour, Indiana.



On February 15, 2005 we added a location
in Lexington, Kentucky.  We were using this property as a transfer station for
ferrous and nonferrous material.  There were no processing operations at this
facility.  We discontinued operations at this location in the first quarter of
2007 and currently sublease the location to an unaffiliated party.



During 2007, we added a location in New
Albany, Indiana across the Ohio River from Louisville, Kentucky, the site of our
headquarters.  We use this property as a transfer station for nonferrous
material.



During 2007, we entered into an asset
purchase agreement for $1,300,000 funded primarily by a note payable to
Industrial Logistic Services, LLC, 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 also paid ILS $100,000 cash
as a portion of the purchase price at the time of execution of the asset
purchase agreement.





Industry
Background



Our operations primarily involve the collection and processing of ferrous and
non-ferrous scrap metals. We collect industrial scrap metal and obsolete scrap
metal, process it into reusable forms and supply the recycled scrap metals to
our customers.



We manage non-hazardous solid waste and recyclables for retail, commercial and
industrial customers.  As such, the multi-billion dollar solid waste collection
and disposal business drives the industry. The size of this industry has
increased for the past several years and should continue to increase as landfill
space decreases.  Although society and industry have developed an increased
awareness of environmental issues and recycling has increased, waste production
also continues to increase.  Because of environmental concerns, new regulations
and cost factors, it has become difficult to obtain the necessary permits to
build any new landfills. Management believes that with the consolidation taking
place in the waste industry, it will become increasingly difficult for a
customer to receive a fair price.  We are, therefore, in a position to represent
the best interest of the customer; this fact can only enhance our business.



In addition to increasing landfill costs, regulatory measures and more stringent
control of material bound for disposal ("flow control") are making the
management of solid waste an increasingly difficult problem.  The United States
Environmental Protection Agency is expected to continue the present trend of
restricting the amount of potentially recyclable material bound for landfills. 
Many states have passed, or are contemplating, measures that would require
industrial and commercial companies to recycle a minimum percentage of their
waste stream and restrict the percentage of recyclable materials in any
commercial load of waste material.  Many states have already passed restrictive
regulations requiring a plan for the reduction of waste or the segregation of
recyclable materials from the waste stream at the source.  ISA management
believes that these restrictions may create additional marketing opportunities
as waste disposal needs become more specialized.  Some large industrial and
commercial companies have hired in-house staff to handle the solid waste
management and recycling responsibilities, but have found that without adequate
resources and staff support, in-house handling of these responsibilities may not
be an effective alternative.  We offer these establishments a solution to this
increasing burden.



Competition



On a commercial/industrial waste management level, we have competition from a
variety of sources.  Much of it is from companies that concentrate their efforts
on a regional level. We believe that with the proprietary database of regional
and national pricing, we will maintain our edge on a national basis.



There has been increased competition from national hauling and recycling
companies.  The large national hauling and recycling companies often attempt to
handle all locations for a "national chain" customer.  This scenario poses a
potential conflict of interest since these hauling companies and recyclers can
attain greater profitability from increases in hauling and disposal revenues and
fluctuations in recycling prices.  In addition to having an interest in higher
hauling and disposal rates, the national hauling companies do not have
operations in every community.  Additionally, we have encountered evidence of
some reluctance from independent hauling and recycling companies to work with
national hauling and recycling companies for locations not serviced by these
national companies.



There is also competition from some equipment manufacturers.  The primary
interest of these companies is selling, leasing and renting equipment and
offering management services in order to secure these sales or leases.  There is
a cost involved in using the equipment and the money saved must justify the
amount spent on this equipment.



The metal recycling business is highly competitive and is subject to significant
changes in economic and market conditions.  Certain ISA competitors have greater
financial, marketing and physical resources.  There can be no assurance that we
will be able to obtain our desired market share based on the competitive nature
of this industry.



An important difference between us and the majority of our competition is our
management process.  Our systematic approach attempts to provide consistent
results for the customer.  At the implementation stage, we actively bid out
every location that a new customer requests.  We repeat this bidding process any
time a customer receives notice of an undocumented price increase or at regular
intervals as indicated in the contract.  At subsequent stages, we will evaluate
a customer's solid waste and recycling program and provide alternatives for
improvement.



We have developed a network of maintenance, hauling, disposal, equipment and
recycling companies throughout the country and in Canada, and due to the volume
of business we have awarded to them, these companies will often offer us
discounted hauling, disposal and maintenance rates and increased recycling
prices.  However, no company or service provider in the hauling, disposal,
recycling, equipment and/or maintenance industries owns or controls us.  We deal
with those companies and service providers that can supply quality service and
products at a favorable price and understand that as long as we serve our
customers well, we and our service providers will have the opportunity to bid on
future accounts.



Few, if any, of our competitors have a national network of service providers
similar to the one we have developed over our years of operation.  Although the
major hauling and recycling companies have operating companies in most major and
intermediate-sized cities, they do not have nationwide geographic coverage. 
Therefore, for large commercial and industrial clients, they must obtain bids
from local hauling, disposal and recycling companies that may perceive them to
be future competitors.  We have positioned ourselves to negotiate with the
haulers, landfill operators and recyclers while servicing our customers on a
nationwide basis.



Employees



As of December 31, 2007, ISA had one hundred nineteen (119) full-time employees
as follows: recycling 72, management services 14, sales/leasing 5, drivers 19,
mechanics 1, and administration/information technology 8.  None of our employees
is a member of a union.



Effect of State
and Federal Environmental Regulations



Any environmental regulatory liability relating to our operations is generally
borne by the customers with whom we contract and the service providers in their
capacity as transporters, disposers and recyclers.  Our policy is to use our
best efforts to secure indemnification for environmental liability from our
customers and service providers.  Although we believe that our business does not
subject us to potential environmental liability, we continue to use our best
efforts to be in compliance with federal, state and local environmental laws,
including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Clean Air Act, as amended, and the Clean Water Act.  Such
compliance has not historically constituted a material expense to us.



The collection and disposal of solid waste and rendering of related
environmental services as well as recycling operations and issues are subject to
federal, state and local requirements, which regulate health, safety, the
environment, zoning and land-use.  Federal, state and local regulations vary,
but generally govern hauling, disposal and recycling activities and the location
and use of facilities and also impose restrictions to prohibit or minimize air
and water pollution.  In addition, governmental authorities have the power to
enforce compliance with these regulations and to obtain injunctions or impose
fines in the case of violations, including criminal penalties.  The EPA and
various other federal, state and local environmental, health and safety agencies
and authorities, including the Occupational Safety and Health Administration of
the U.S. Department of Labor administer those regulations.



We strive to conduct our operations in compliance with applicable laws and
regulations.  While such amounts expended in the past or that we anticipate
spending in the future have not had and are not expected to have a material
adverse effect on our financial condition or operations, the possibility remains
that technological, regulatory or enforcement developments, the results of
environmental studies or other factors could materially alter this expectation.



Each state in which we operate has its own laws and regulations governing solid
waste disposal, water and air pollution and, in most cases, releases and cleanup
of hazardous substances and liability for such matters.  Several states have
enacted laws that will require counties to adopt comprehensive plans to reduce,
through waste planning, composting, recycling, or other programs, and the volume
of solid waste landfills. Several states have recently enacted these laws. 
Legislative and regulatory measures to mandate or encourage waste reduction at
the source and waste recycling also are under consideration by Congress and the
EPA.



Finally, various states have enacted, or are considering enacting, laws that
restrict the disposal within the state of solid or hazardous wastes generated
outside the state.  While courts have declared unconstitutional laws that
overtly discriminate against out of state waste, courts have upheld some laws
that are less overtly discriminatory.  Challenges to other such laws are
pending.  The outcome of pending litigation and the likelihood that
jurisdictions will adopt other such laws that will survive constitutional
challenge are uncertain.



ITEM 1A.  RISK
FACTORS



Risk Factors



This Annual Report on Form 10-K includes "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including, in particular, certain statements about our plans, strategies and
prospects. Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable, we
cannot assure you that such plans, intentions or expectations will be achieved.
Important factors that could cause our actual results to differ materially from
our forward-looking statements include those set forth in this Risk Factors
section. All forward-looking statements attributable to us or any persons acting
on our behalf are expressly qualified in their entirety by the cautionary
statements set forth below. Unless the context requires otherwise, all
references to the "company," "we," "us" or "our" include Industrial Services of
America, Inc. and subsidiaries.



If any of the following risks, or other risks not presently known to us or that
we currently believe to not be significant, develop into actual events, then our
business, financial condition, results of operations, cash flows or prospects
could be materially adversely affected.



Risks Related
to Our Operations



Our business has increasing involvement in ferrous, non-ferrous and fiber
recycling. Currently, the prices of metals are high, but changes in demand,
including foreign demand, regulation, economic slowdowns or increased
competition could result in a reduction of our revenue and consequent decrease
in our common stock price.



Many companies offer or are engaged in the development of products or the
provisions of services that may be or are competitive with our current products
or services, although we do not believe any competition offers the unique
mixture of the services and products we provide in the waste management area.
Many entities have substantially greater financial, technical, manufacturing,
marketing, distribution and other resources than we possess.  In addition, the
industry is constantly changing as a result of consolidation that may create
additional competitive pressures in our business environment.



An increase in
the price of fuel may adversely affect our business.



Our operations are dependent upon fuel, which we generally purchase in the open
market on a daily basis. Direct fuel costs include the cost of fuel and other
petroleum-based products used to operate our fleet of cranes and heavy
equipment. We are also susceptible to increases in indirect fuel costs which
include fuel surcharges from vendors.  During 2005, 2006 and 2007, we
experienced increases in the cost of fuel and other petroleum-based products.  A
portion of these increases we passed on to our customers. However, because of
the competitive nature of the industry, there can be no assurance that we will
be able to pass on current or future increases in fuel prices to our customers.
Due to political instability in oil-producing countries, fuel prices may
continue to increase in 2008. A significant increase in fuel costs could
adversely affect our business.



We could incur substantial costs in order to comply with, or to address any
violations under, environmental laws that could significantly increase our
operating expenses and reduce our operating income.



Our operations are subject to various environmental statutes and regulations,
including laws and regulations addressing materials used in the processing of
our products. In addition, certain of our operations are subject to federal,
state and local environmental laws and regulations that impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous wastes. Failure to
maintain or achieve compliance with these laws and regulations or with the
permits required for our operations could result in substantial operating costs
and capital expenditures, in addition to fines and civil or criminal sanctions,
third party claims for property damage or personal injury, cleanup costs or
temporary or permanent discontinuance of operations. Certain of our facilities
have been in operation for many years and, over time, we and other predecessor
operators of these facilities have generated, used, handled and disposed of
hazardous and other regulated wastes. Environmental liabilities could exist,
including cleanup obligations at these facilities or at off-site locations where
materials from our operations were disposed of, which could result in future
expenditures that cannot be currently quantified and which could reduce our
profits.



Our financial statements are based upon estimates and assumptions that may
differ from actual results.



We have prepared our financial statements in accordance with U.S. generally
accepted accounting principles and necessarily include amounts based on
estimates and assumptions we made.  Actual results could differ from these
amounts. Significant items subject to such estimates and assumptions include the
carrying value of long-lived assets, valuation allowances for accounts
receivable, liabilities for potential litigation, claims and assessments, and
liabilities for environmental remediation and deferred taxes.



We depend on our senior management team and the loss of any member could
prevent us from implementing our business strategy.



Our success is dependent on the management and leadership skills of our senior
management team. We have not entered into employment agreements with any of our
senior management personnel with the exception of our president and chief
operating officer, Brian Donaghy, and our vice president of ISA Recycling, James
Wiseman III. The loss of any members of our management team or the failure to
attract and retain additional qualified personnel could prevent us from
implementing our business strategy and continuing to grow our business at a rate
necessary to maintain future profitability.



Seasonal changes
may adversely affect our business and operations.



Our operations may be adversely affected by periods of inclement weather which
could decrease the collection and shipment volume of recycling materials.



Risks Related
to Our Common Stock



Future sales of
our common stock could depress our market price and diminish the value of your
investment.



Future sales of shares of our common stock could adversely affect the prevailing
market price of our common stock. If our existing shareholders sell a large
number of shares, or if we issue a large number of shares, the market price of
our common stock could significantly decline. Moreover, the perception in the
public market that our existing shareholders and in particular members of the
Kletter family might sell shares of common stock could depress the market for
our common stock.



The market price
for our common stock may be volatile.



In recent periods, there has been volatility in the market price for our common
stock. In addition, the market price of our common stock could fluctuate
substantially in the future in response to a number of factors, including the
following:



--       our quarterly operating results
or the operating results of our companies in the waste management or ferrous,
non-ferrous and fiber recycling industry;



--       changes in general conditions in
the economy, the financial markets or the ferrous, non-ferrous and fiber
recycling industry;



--       loss of significant customers and



--       increases in materials and other
costs.



In addition, in recent years the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance. These broad market fluctuations may materially adversely
affect our stock price, regardless of our operating results.



Item
2.        Properties.



Related Parties Agreements --K&R



On February 16, 1998 our Board of Directors ratified and formalized an existing
relationship in connection with (i) our leasing of facilities from K&R, LLC and
(ii) the provision of consulting services from K&R to us.  K&R is our affiliate
because our Chief Executive Officer is our principal shareholder and he owns
100% of K&R.



Lease Agreement.  This K&R lease, effective as of January 1, 1998,
covers approximately 20.5 acres of land and the improvements thereon, which are
located at 7100 Grade Lane in Louisville, Kentucky.  The principal improvements
consist of the following:



--       an approximately 22,750 square
foot building used as the corporate and CWS offices;

--       an approximately 8,286 square
foot building used for sales/leasing and information technology offices;

--       an approximately 13,995 square
foot building used as the paper recycling plant;

--       an approximately 12,000 square
foot building used for the metals recycling plant;

--       an approximately 51,760 square
foot building used as the recycling offices and warehouse space;

--       and the remaining 15,575 square
feet of space contained in five (5) buildings ranging in size from approximately
256 to 8,000 square feet.



The initial term of the K&R lease is for ten years with two five-year option
periods available thereafter.  In 2007, we extended this lease agreement for
five years per the terms of the lease.  The base rent for the first five years
was $450,000 per annum.  The rent for the second five years, beginning January
1, 2003, became $505,272 per annum, payable at the beginning of each month in an
amount equal to $42,106.  The rent for the third five years, beginning January
1, 2008, became $582,000 per annum, payable at the beginning of each month in an
amount equal to $48,500. This fixed minimum rent adjusts each five years,
including for each of the option periods, in accordance with the consumer price
index.  The fixed minimum rent also increases to $750,000 per annum, in an
amount equal to $62,500 per month in the event of our change in control.  We
must pay, as additional rent, all real estate taxes, insurance, utilities,
maintenance and repairs, replacements (including replacement of roofs if
necessary) and other expenses.  The K&R lease provides for our indemnification
of K&R for all damages arising out of our use of or the condition of the leased
premises excepting from K&R's negligence.



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. The rate of interest is five and one-half
percent (5.5%) per annum.  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
2006 and 2007, the payments to K&R by the Company of $4,000 for additional rent
and the monthly payment from K&R to the Company of $3,897.66 for the promissory
note were offset.  In 2007, we extended this lease agreement for five years per
the terms of the lease.



K&R Consulting Agreement.The K&R consulting agreement remains in
effect until December 31, 2007, with automatic annual renewals thereafter unless
one party provides written notice to the other party of its intent not to renew
at least six months in advance of the next renewal date.  We have renewed this
consulting agreement for one year.  K&R shall provide strategic planning for
mergers and acquisitions.  We are responsible for all of K&R's expenses and pay
to K&R $240,000 in equal monthly installments of $20,000 in connection with the
K&R consulting activities.



The K&R consulting agreement terminates upon a non-defaulting party providing
written notice to the other party of its intent to terminate.  The recipient of
the notice has 10 days to cure monetary defaults and 30 days to cure
non-monetary defaults.  Upon termination, K&R agrees not to engage, directly or
indirectly, in the business conducted by, or hire our employees for a period of
five years and within 100 miles of any of our operations.



We compensate our principal shareholder and Chief Executive Officer through
consulting fees paid pursuant to the K&R consulting agreement.



Lease and Sublease Agreements -- Lexington



We have subleased the Lexington property to an unaffiliated party for a term
that commenced March 1, 2007 and ends 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.



Lease Agreement , Louisiana



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.  On January 18, 2008, we sold our position in this property,
including the lease and the option, for $25,000.



Property Purchase, New Albany



During 2007, we added a location in New
Albany, Indiana across the Ohio River from Louisville, Kentucky, the site of our
headquarters.  We use this property as a transfer station for nonferrous
material.



Item 3.        Legal Proceedings.



In May 2006, All American Recycling ("AAR") and its owners, R.D. Burton and
Donna Burton filed an action against us and K & R Resources LLC in All
American Recycling, Inc. and RD Burton and Donna Burton vs. Industrial Services
of America, Inc., Jefferson County, Kentucky 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 the individual defendants and us
include breach of contract, misrepresentation, fraud, malicious, willful and
reckless conduct and trespass. The dispute arises from two agreements among the
parties in December 2004 in settlement of prior litigation between AAR and us. 
One of the two agreements called for us to refer to AAR a retail customer .  AAR,
in turn, agreed to then sell all of its non-ferrous metals to us based on an
agreed pricing schedule.  AAR alleges that we breached the agreement by not
referring the retail customer to AAR and paid AAR on a basis other than the
basis provided in the agreement.  Our counterclaim alleges 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.  The complaint does not allege any
specific amount of damages.  The case is in the discovery stage with the
plaintiff having made a motion for summary judgment to which we recently
responded.  A trial date is set for May 27, 2008.  Currently we  believe that
the case is without merit.



On January 4, 2007, Lennox Industries, Inc., a commercial heating and
air-conditioning manufacturer, filed suit against us in the Arkansas County,
Arkansas Circuit Court in the case styled Lennox Industries, Inc. v.
Industrial Services of America, Inc., Case No. CV-2007-004.  Because of
settlement negotiations, Lennox did not serve us until May 23, 2007.  Lennox
alleges that we breached a 2001 contract with Lennox where we agreed to act as
agent for Lennox, by our failure to properly evaluate, categorize, classify and
value the production scrap and waste of Lennox, thereby brokering such products
at prices below market value.  Lennox also alleges negligence and breach of
fiduciary duty related to the same alleged failure.  The Lennox complaint does
not state any specific monetary damages.  We have filed an answer denying all
claims.  The litigation is in its discovery phase.   We currently believe that
the claims have no merit.



On December 22, 2006, Container Recyclers, Inc., Allied Drum, Inc., and Columbus
Recyclers, Inc., Ohio drum recyclers, initiated a lawsuit in the Hamilton
County, Ohio, Court of Common Pleas in the case styled Container Recyclers,
Inc., et al vs. Industrial Services of America, Inc., Case No. A0611218. 
Allied Drum and Columbus Drum alleged that we failed to make payments to them in
the alleged amount in excess of $256,000 with interest in accordance with the
terms of contracts dated July 30, 1999, and March 21, 2002.  Under these
contracts we purchased recycled metal drums from the plaintiffs from July 1999 and
March 2002, until June 2006.



The parties entered into settlement negotiations resulting in our payment in
full of $287,500 to the plaintiffs, collectively, on December 28, 2007 at which
time the Hamilton County Court entered a final order with respect to this case.



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



None.



Item 4a.        ISA Executive Officers.Name
			Served as an
			ExecutiveOfficer From
			Age
			Position with the 
			Registrant and OtherPrincipal OccupationsHarry Kletter
			1983
			81
			ISA Chairman of the Board and Chief Executive Officer from May 2,
			2000 to 2007.  ISA Chairman of the Board and Chief Visionary Officer
			from February 3, 2000 to May 2, 2000.  Mr. Kletter served as
			Chairman of the Board and Chief Executive Officer from July 31, 1992
			to February 3, 2000, President of ISA from July 31, 1992 to December
			1997, from January 1990 to July 1991, and from October 1983 to
			January 1988;  Mr. Kletter is also Chairman and sole shareholder of
			K&R, LLC.Brian Donaghy
			August 2007
			32
			President and Chief Operating Officer since August 2007.  Mr.
			Donaghy served as ISA's acting COO from January 1, 2007 through
			August 2007.  Prior to his appointment to that position, Mr. Donaghy
			was a consultant to ISA Recycling.  From 2001 to 2007, he owned and
			operated Industrial Logistic Services, LLC, a scrap metal and waste
			transportation company located at ISA's Louisville headquarters, the
			assets of which he has sold to ISA in 2007.Alan L. Schroering
			2000
			43
			ISA Chief Financial Officer since May, 2001.  Mr. Schroering served
			as an ISA board member from June 2000 to May 2001. Mr. Schroering
			has served as Treasurer from October 2001 to present.  Mr.
			Schroering served in several accounting positions with National
			Processing Company from April 1998 to May 2000.  Mr. Schroering
			served previously in several accounting positions with ISA from
			November 1984 to March 1998.James K. Wiseman, III
			August 2007
			54
			Vice President of ISA Recycling since August 2007.  Midwest Metals,
			Inc. in Louisville, Kentucky employed Mr. Wiseman from May 1997 to
			March 2007 as general manager of the physical scrap operation and
			trader of non- ferrous metals.




None of the above officers is related to
any other.  With respect to certain arrangements with certain officers of ISA
relating to executive compensation, see section entitled "Executive Compensation
- Certain Transactions" in ISA's Proxy Statement for the 2008 Annual Meeting of
Shareholders as incorporated herein by reference at Item 11.





PART II



Item
5.        Market for ISA's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.



Effective August 29, 1996, the $.01 par value ISA common stock became listed on
the Small Cap Market (the "Small Cap Market") of the NASDAQ Stock Market under
the symbol "IDSA."  Prior to August 29, 1996, our common stock traded on the
Over the Counter Bulletin Board operated by the National Association of
Securities Dealers, Inc.   High and low sales price of the common stock price is
summarized as follows:





Quarter Ended
			
			2007
			
			2006
			
			2005High
			Low
			
			High
			Low
			
			High
			LowMarch 31
			
			$ 7.22
			$ 5.37
			
			$ 5.20
			$3.22
			
			$ 7.50
			$5.94June 30
			
			$17.19
			$ 6.84
			
			$ 8.00
			$4.82
			
			$ 6.10
			$3.70September 30
			
			$14.51
			$ 8.76
			
			$ 6.31
			$5.58
			
			$ 6.60
			$3.69December 31
			
			$13.38
			$ 7.36
			
			$ 6.72
			$5.26
			
			$ 3.70
			$2.85




There were approximately 380 shareholders
of record as of December 31, 2007.



Until August 8, 2000, we had always had a
policy intending that we would retain earnings to help finance our expansion
programs.  On August 8, 2000, our Board of Directors approved a change in the
dividend policy whereby our Board of Directors could declare dividends. The
Board of Directors, at our May 15, 2007 annual meeting, declared a cash dividend
payment of ten cents per share for shareholders of record as of June 15, 2007
with a payment date of July 20, 2007.

Our Board of Directors has the discretionary power to declare dividends within
the constraints of our loan agreement with the Branch Banking and Trust Company.



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. 
In 2007 we repurchased 40,000 shares, in 2006 we repurchased 5,509 shares and in
2005 we repurchased 10,000 shares.  We repurchased 673,400 shares of our common
stock in a prior stock repurchase program that began in August 2000.





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
			144,491




Item 6.        Selected Financial Data.



Selected Financial Data



2007
			
			2006
			
			2005
			
			2004
			
			2003(Amounts in Thousands, Except Per Share Data)Year ended December 31:Total revenue
			$   76,956
			
			$    62,082
			
			$  117,382
			
			$ 139,588
			
			$ 118,494Net income (loss)
			2,564
			
			2,188
			
			1,102
			
			1,497
			
			668Earnings (loss)per common share:Basic
			$        0.71
			
			$        0.61
			
			$        0.31
			
			$       0.43
			
			$      0.21Diluted
			$        0.71
			
			$        0.61
			
			$        0.31
			
			$       0.42
			
			$      0.21Cash dividends declaredper common share *
			$        0.10
			
			$              -
			
			$             -
			
			$       0.10
			
			$          -At year end:Total assets
			$    26,285
			
			$    19,332
			
			$    17,884
			
			$   21,079
			
			$  19,988Long-term debt and capital leaseobligations, net of current maturities
			$      8,495
			
			$      2,858
			
			$         153
			
			$     1,272
			
			$    3,748




* adjusted for two-for-one stock split effective February 26, 2004





Item
7.        Management's Discussion and Analysis of Financial Condition and
Results of Operation.



The following discussion and analysis should be read in conjunction with the
information set forth under Item 6, "Selected Financial Data" and our
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.  Please see Item 1A, "Risk Factors" for items that could affect
our financial predictions, forecasts and projections.



General



We are 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 2,271 customer locations throughout the United States and we utilize
an active database of over 6,500 vendors to provide timely, thorough and
cost-effective service to our customers.



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



We have operating locations in Louisville, Kentucky, and Seymour and New Albany,
Indiana.  We closed the Lexington, Kentucky location in the first quarter of
2007 and our location in Pineville, Louisiana in January 2008.  We do not have
operating locations outside the United States.



Liquidity and Capital Resources



As of December 31, 2007, we held cash and cash equivalents of $1,501,685.



On December 22, 2006, ISA executed a 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, 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, 6.85% as of December 31, 2007, and is
secured by all ISA assets (except rental fleet equipment).  The revolving credit
facility contains certain restrictive and financial covenants.  At December 31,
2007, ISA was in compliance with all restrictive covenants.



We also have a $2.0 million loan with
Fifth Third Bank secured by our rental fleet equipment.  Indebtedness under this
loan agreement accrues interest at a fixed interest rate of 6.83%.  The maturity
date under this agreement is June 2011 with a ten-year amortization schedule. 
As of December 31, 2007 we had borrowed $1,779,585 and as of December 31, 2006,
we had borrowed $1,929,016 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 December 31, 2007, we were in compliance with all
restrictive covenants.



During 2007, we paid $2,169,829 cash and
$1,229,929 funded via a note payable for land, improvements, property and
equipment.  We paid $297,166 for property in New Albany, Indiana, located across
the Ohio River from Louisville, Kentucky, the site of our headquarters.  We use
this New Albany property for nonferrous materials.  We paid $545,236 for
property improvements to our Louisville location.  In the recycling segment we
incurred expenditures of $1,935,300 for cranes, shear rebuild, scales, trailers,
and other operating equipment.  In the equipment sales, leasing and service
segment, we purchased $531,243 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 $90,813 of
office equipment.



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 also paid ILS $100,000 cash as a portion of the
purchase price at the time of execution of the asset purchase agreement.  We
recorded a note payable of $1,010,040 with an outstanding balance at December
31, 2007 of $953,112.



Also, the Board of Directors at its June
21, 2007 meeting announced authorization to proceed with the purchase of a TSC
80 SXS shredder system and complementary facility improvements totaling five
million dollars. The selection of the TSC 80 SXS shredding plant will allow us
to provide better quality scrap to our consumers, while at the same time
broadening the type of scrap that we can process.  Our intention is to process
many types of heavy grades of scrap that we presently process by shearing and to
make specialty shredder grades of material for specific consumers.  We plan to
finance the purchase of the shredder system using our $10 million senior
revolving credit facility with BB&T or securing a fixed rate bank loan.  As of
December 31, 2007 we had spent $2,173,076 toward the shredder system.  The
project is scheduled for completion in 2008.



We implemented the use of a purchasing card with a credit limit of $6.0 million
in the second quarter of 2004.  We have included the balance due on the
purchasing card as part of accounts payable.  The outstanding balance on the
purchasing card at December 31, 2007 was $885,537 with a due date of January 25,
2008; the entire balance was paid before the due date.  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, including the purchasing card, will be sufficient to
meet our cash needs in 2008.



Critical Accounting Policies



In preparing financial statements in conformity with accounting principles
generally accepted in the United States, we make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period.  We believe that we consistently apply judgments and estimates and that
such consistent application results in financial statements and accompanying
notes that fairly represent all periods presented.  However, any errors in these
judgments and estimates may have a material impact on our statement of
operations and financial condition.  Critical accounting policies, as defined by
the Securities and Exchange Commission, are those that are most important to the
portrayal of our financial condition and results of operations and require our
most difficult and subjective judgments and estimates of matters that are
inherently uncertain.



Revenue recognition



We recognize revenues from processed ferrous and non-ferrous scrap metal sales
when title passes to the customer.  We recognize revenues from services as the
service is performed.  We accrue sales adjustments related to price and weight
differences and allowances for uncollectible receivables against revenues as
incurred.



Accounts receivable and allowance for
doubtful accounts receivable



Accounts receivable consist primarily of amounts due from customers from product
and brokered sales. The allowance for doubtful accounts receivable totaled
$100,000 at December 31, 2007 and 2006.  Our determination of the allowance for
doubtful accounts receivable 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.



Potential credit losses from our significant customers could adversely affect
our results of operations or financial condition.  General weakness in the steel
and metals sectors in the past led to bankruptcy filings by many of our
customers, which caused us to recognize additional allowances for doubtful
accounts receivable. While we believe our allowance for doubtful accounts is
adequate, changes in economic conditions or any weakness in the steel and metals
industries could adversely impact our future earnings.



Inventory



Our inventories primarily consist of ferrous and non-ferrous scrap metals and we
value at the lower of average purchased cost or market. We determine quantities
of inventories based on our inventory systems, which are subject to periodic
physical verification using estimation techniques including observation,
weighing and other industry methods. Prices of commodities we own may be
volatile.  We are exposed to risks associated with fluctuations in the market
price for both ferrous and non-ferrous metals, which are at times volatile. We
attempt to mitigate this risk by seeking to rapidly turn our inventories.



Property and Equipment



We carry the value of land on our books at cost.  We report premises and
equipment at cost less accumulated depreciation and amortization.  We charge
depreciation and amortization for financial reporting purposes to operating
expense using the straight-line method over the estimated useful lives of the
assets.  Estimated useful lives are up to 40 years for buildings and leasehold
improvements, 1 to 10 years for office and operating equipment, and 5 years for
rental equipment.  Our determination of estimated useful life includes past
experience and normal deterioration.  We include maintenance and repairs in
selling, general and administrative expenses.  We include gains and losses on
disposition of premises and equipment in gain (loss) on sale of assets.



Valuation of long-lived assets and goodwill



We regularly review the carrying value of certain long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be realizable. If an evaluation is required, we compare
the estimated future undiscounted cash flows associated with the asset to the
asset's carrying amount to determine if an impairment of such asset is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such asset and its carrying value. During the year
ended December 31, 2007, we determined no impairment existed.



We review goodwill at least annually for impairment based on the fair value
method prescribed in Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill."  At December 31, 2007, we determined, based on current industry
and other market information, that no impairment existed.



Income Taxes



We account for income taxes under the asset and liability method.  We recognize
deferred tax assets and liabilities 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. We measure deferred tax assets and liabilities using
enacted tax rates expected to apply to taxable income in the years in which we
expect to recover or settle those temporary differences. We recognize the effect
on deferred tax assets and liabilities of a change in tax rates in income in the
period that includes the enactment date.



Results of Operations



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





Year ended December 31,
			
			2007
			2006
			2005Consolidated Statements of Income Data:Total
			revenue .......................................................
			
			100.0%
			100.0%
			100.0%Total cost of goods sold.....................................
			
			84.5%
			85.4%
			93.5%Selling, general and administrativeExpenses
			............................................................
			
			10.1%
			9.0%
			5.0%Income before other income (expense).............
			
			5.4%
			5.6%
			1.5%




Year Ended December 31, 2007
Compared to Year Ended December 31, 2006



Total revenue increased $14,873,493 or
24.0% to $76,955,541 in 2007 compared to $62,082,048 in 2006.  Recycling revenue
increased $12,636,048 or 28.1% to $57,603,071 in 2007 compared to $44,967,023 in
2006.This change is due to an increase of 8% in the volume of shipments
and an increase of 18% in average price per ton.  Management services revenue
increased $1,846,953 or 12.0% to $17,234,194 in 2007 compared to $15,387,241 in
2006.  This change is primarily due to new customers.  Equipment, service and
leasing revenue increased $390,492 or 22.60% to $2,118,276 in 2007 compared to
$1,727,784 in 2006.  This increase is primarily due to growth in equipment
rental revenue due to new customers.



Total cost of goods sold increased
$12,018,470 or 22.6% to $65,014,911 in 2007 compared to $52,996,441 in 2006. 
Recycling cost of goods sold increased $10,958,115 or 27.8% to $50,407,072 in
2007 compared to $39,448,957 in 2006 due to an increase in the volume of
shipments as well as an increase in the volume of purchases of 4% and an
increase in average cost per ton of 18.3%.  Management services cost of goods
sold increased $1,663,466 or 13.0% to $14,375,539 in 2007 compared to
$12,712,073 in 2006.  This change is primarily due to new customers.  We also
reduced CWS cost of goods sold by $858,249 in 2007 and $1,272,241 in 2006 due to
a change in management's estimate related to the liability associated with this
operation.  Equipment, service and leasing cost of goods sold decreased $603,111
or 72.2% to $232,300 in 2007 compared to $835,411 in 2006.  This decrease is
primarily due to the decreases in equipment costs, such as containers and
compactors, purchased for resale and a decrease in service and repair expense.



Selling, general and administrative
expenses increased $2,156,956 or 38.4% to $7,766,915 in 2007 compared to
$5,609,959 in 2006.  The increase in SG&A is primarily due to costs associated
with the ILS asset purchase, including stock bonus and increase in truck driver
labor and overtime, an increase in fuel costs, and an increase in legal costs
due to the settlement of a lawsuit.   As a percentage of total revenue, selling,
general and administrative expenses were 10.1% in 2007 compared to 9.0% in
2006.



Interest expense increased $77,967 or
36.7% to $290,689 in 2007 compared to $212,722 in 2006 due to an increase in
long term debt in 2007 compared to 2006.  Other income was $22,741 in 2007
compared to other income of $32,930 in 2006, a decrease of $10,189.



Significant components of other income
(expense) are as follows:



Fiscal Year Ended December 31Description
			2007
			
			2006Reversal of tax accrual for rental containers
			$ 20,670
			
			-Bankruptcy recoveries
			-
			
			22,787Interest on K&R note
			-
			
			6,845Other
			2,071
			
			3,298Total other income, net
			$ 22,741
			
			$  32,930




The income tax provision is 36.2% for the year ended December 31, 2007 compared
to 37.7% for the year ended December 31, 2006.  The impact of the tax credit of
$99,358 was to lower the provision by 2.5%.



Financial Condition at December 31,
2007 compared to December 31, 2006



Cash and cash equivalents increased
$169,878 to $1,501,685 as of December 31, 2007 compared to $1,331,807 as of
December 31, 2006.



Net cash from operating activities
increased $1,853,222 to $636,299 as of December 31, 2007 compared to net cash
used of ($1,216,923) as of December 31, 2006.  This increase was primarily due
to net income of $2,563,833 and noncash stock transactions of $426,364 offset by
increases in accounts receivable and inventory of $1,738,410 and $1,199,055,
respectively.



We used net cash from investing activities
of $4,251,092 for the year ending December 31, 2007 compared to $2,058,807 for
the same period in 2006.  The difference of $2,192,285 was primarily due to the
$2,173,076 deposit for the shredder system.



Net cash from financing activities
increased $1,114,235 to $4,000,471 for the year ending December 31, 2007
compared to $2,886,236 for the same period in 2006.  Proceeds from long term
debt totaled $7,850,000 in 2007 and $10,710,875 in 2006, and payments on
long-term debt were $3,010,306 in 2007 and $7,770,984 in 2006.



On December 22, 2006, we executed a new
revolving credit facility with BB&T increasing the borrowing line from $5.0
million to $10.0 million to provide us 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, and is secured by all our assets (except rental fleet
equipment).  As of December 31, 2007 we had borrowed $6,000,000 and as of
December 31, 2006 we had borrowed $1,010,875 against the credit facility.  The
revolving credit facility contains certain restrictive and financial covenants. 
At December 31, 2007, we were in compliance with all restrictive covenants.



We also have a $2.0 million loan with Fifth Third Bank secured by our rental
fleet equipment.  Indebtedness under this loan agreement accrues interest at a
fixed interest rate of 6.83%.  The maturity date under this agreement is June
2011 with a ten-year amortization schedule.   As of December 31, 2007 we had
borrowed $1,779,585 and as of December 31, 2006 we had borrowed $1,929,016
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
December 31, 2007, we were in compliance with all restrictive covenants.



We implemented the use of a purchasing card with a credit limit of $6.0 million
in the second quarter of 2004.  We include the balance due on the purchasing
card as part of accounts payable.  The outstanding balance on the purchasing
card at December 31, 2007 was $885,537.



We believe our principal sources of liquidity from available funds on hand, cash
generated from operations and the availability of borrowing under our senior
revolving credit facility and purchasing card will be sufficient to fund
operations in fiscal year 2008. Our primary sources of funds are our ability to
generate cash from operations and the availability of borrowing under our senior
revolving credit facility to meet our liquidity obligations, which could be
affected by factors such as a decline in demand for our products, loss of key
contract customers such as occurred with Home Depot in 2005, our ability to
generate profits and other unforeseen circumstances. The availability of our
revolving credit facility is contingent on complying with certain debt
covenants.  We do not expect the covenants to limit or restrict our ability to
borrow on the facility in fiscal year 2008.



Trade accounts receivable after allowances
for doubtful accounts increased $1,738,410 or 34% to $6,764,851 as of December
31, 2007.  The primary reason for the increase in trade accounts receivable
after allowances for doubtful accounts is an increase in the volume of shipments
and an increase in the selling prices in the recycling segment.



Recycling accounts receivable increased
$910,290 or 23% to $4,813,971 as of December 31, 2007 compared to $3,903,681 as
of December 31, 2006.  This change is primarily due to an increase in the volume
of shipments and an increase in the selling prices in the recycling segment.  On
average, volume of ferrous shipments in gross tons increased 7% as of December
31, 2007 compared to December 31, 2006.  On average, sales prices increased $12
per gross ton or 4% to $256 as of December 31, 2007 compared to $244 as of
December 31, 2006.  On average, volume of nonferrous shipments in pounds
increased 29% as of December 31, 2007 compared to December 31, 2006.  On
average, sales prices increased 9.7% as of December 31, 2007 compared to
December 31, 2006.



CWS accounts receivable increased $779,020
or 71% to $1,868,100 as of December 31, 2007 compared to $1,089,080 as of
December 31, 2006.  This change is primarily due to new customers.



WESSCO accounts receivable increased
$69,960 or 100% to $69,960 as of December 31, 2007 compared to $0 as of December
31, 2006.  This change is primarily due to increased rental revenues from new
customers.



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
$1,199,055 or 34% to $4,627,281 as of December 31, 2007 compared to $3,428,226
as of December 31, 2006.  Inventories as of December 31, 2007 and December 31,
2006 consist of the following:



December 31,2007
			
			December 31,2006Ferrous
			$  1,848,445
			
			$  1,667,937Non-Ferrous
			2,715,703
			
			1,678,655Waste equipment machinery
			36,498
			
			56,200Other
			26,635
			
			25,434Total inventories
			$  4,627,281
			
			$  3,428,226




For the year ended December 31, 2007, we shipped 81,947 gross tons of ferrous
material.  During the same period, we purchased 76,659 gross tons of ferrous
material.  For the year ended December 31, 2006, we shipped 76,331 gross tons of
ferrous material.  During the same period, we purchased 72,475 gross tons of
ferrous material.  As of December 31, 2007, ferrous inventory consisted of 7,713
gross tons at a unit cost of $239.65 per gross ton.  As of December 31, 2006,
ferrous inventory consisted of 9,400 gross tons at a unit cost of $177.44 per
gross ton.  For the year ended December 31, 2007, the purchase price plus
processing costs of ferrous material averaged $201.13 per gross ton compared to
$157.25 per gross ton in 2006.



For the year ended December 31, 2007, we shipped 28,840,349 pounds of nonferrous
material. During the same period, we purchased 24,314,589 pounds of nonferrous
material.  For the year ended December 31, 2006, we shipped 22,258,977 pounds of
nonferrous material. During the same period, we purchased 20,362,645 pounds of
nonferrous material.  As of December 31, 2007, nonferrous inventory consisted of
1,992,954 pounds with a unit cost of $1.3626 per pound.  As of December 31,
2006, nonferrous inventory consisted of 1,601,554 pounds at a unit cost of
$0.960 per pound.  For the year ended December 31, 2007, the purchase price plus
processing costs of non-ferrous material has averaged $1.363 per pound compared
to $0.960 per pound in 2006.



Year
			Inventory Type
			Gross Tons
			Unit Cost
			Amount2007
			Ferrous
			7,713
			$ 239.65
			$1,848,4452006
			Ferrous
			9,400
			177.44
			1,667,937Year
			Inventory Type
			Pounds
			Unit Cost
			Amount2007
			Nonferrous
			1,992,954
			1.36
			$ 2,715,7032006
			Nonferrous
			1,748,600
			0.96
			1,678,655






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



Description
			1-30
			
			31-60
			
			61-90
			
			Over 90
			
			TotalEquipment & parts
			$     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






Inventory aging for the year ended December 31, 2006 (Days Outstanding):



Description
			1-30
			
			31-60
			
			61-90
			
			Over 90
			
			TotalEquipment & parts
			$     33,720
			
			$  22,480
			
			$            -
			
			$           -
			
			$     56,200Ferrous
			Materials
			864,489
			
			448,842
			
			166,509
			
			188,097
			
			1,667,937Non-ferrous materials
			1,467,679
			
			41,840
			
			42,989
			
			126,147
			
			1,678,655Other
			25,434
			
			-
			
			-
			
			-
			
			25,434$2,391,322
			
			$513,162
			
			$ 209,498
			
			$314,244
			
			$3,428,226






Accounts payable trade increased $120,574
or 2.6% to $4,665,631 as of December 31, 2007 compared to $4,545,057 as of
December 31, 2006.  Recycling accounts payable increased $33,750 or 2.5% to
$1,332,287 as of December 31, 2007 compared to $1,298,537 as of December 31,
2006.  This increase is primarily due to the increase in volume of commodity
purchases at respective year-ends and increased commodity purchase prices of
ferrous and nonferrous materials.  Our accounts payable payment policy in the
recycling segment is consistent between years.



CWS accounts payable increased $94,580 or
3.1% to $3,063,832 as of December 31, 2007 compared to $2,969,252 as of December
31, 2006.  This change is primarily due to new customers.



WESSCO accounts payable decreased $120,784
or 58.8% to $84,384 as of December 31, 2007 compared to $205,168 as of December
31, 2006.



Working capital increased $4,316,584 to $7,840,682 as of December 31, 2007
compared to $3,524,098 as of December 31, 2006.  Net income of $2,464,475,
depreciation of $1,954,023 and an increase in inventories of $1,199,055 were
positive contributors to working capital in 2007.  During 2007, we used these
positive working capital contributors to purchase property and equipment of
$2,169,829.



Contractual Obligations



The following table provides information with respect to our known contractual
obligations for the year ended December 31, 2007.



Payments due by periodObligation Description
			Total
			Less
			than 1 year
			1-3 years
			3-5 years
			More
			than 5 yearsLong-term debt obligations
			$8,732,697
			$338,913
			$6,752,189
			$1,641,595
			0Capital lease obligations (1)
			235,244
			133,675
			101,569
			0
			0Operating lease obligations (2)
			3,207,375
			663,375
			1,272,000
			1,272,000
			0Total
			$12,175,316
			$1,135,963
			$8,125,758
			$2,913,595
			$0




(1)     We lease various pieces of
equipment that qualify for capital lease treatment.  These lease arrangements
require monthly lease payments expiring at various dates through August 2012.



(2)     We lease the Louisville, Kentucky
facility from a related party under an operating lease expiring December 2012
with automatic annual renewals thereafter unless one party provides written
notice to the other party of its intent not to renew at least six months in
advance of the next renewal date.  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.  See Item 1. Business -- Related Parties Agreements.



-- We also lease a management
services operations facility and various pieces of equipment in Dallas, Texas
for which monthly payments of $2,750 are due through September 2009.



-- 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.



--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.  On January 18, 2008, we
sold our position in this property, including the lease and the option, for
$25,000.



Year Ended December 31, 2006
Compared to Year Ended December 31, 2005



Total revenue decreased $55,299,811 or 47.1% to $62,082,048 in 2006 compared to
$117,381,859 in 2005.  Management services revenue decreased $67,888,697 or
84.2% to $12,712,073 in 2006 compared to $84,451,367 in 2005.



This change is primarily to due to the loss of Home Depot as a customer in
October 2005. Recycling revenue increased $15,014,085 or 50.1% to $44,967,023 in
2006 compared to $29,952,938 in 2005.This change is due to an increase
of 19% in the volume of shipments and an increase of 36% in average cost per
ton. Equipment, service and leasing revenue decreased $1,249,770 or 42.0% to
$1,727,784 in 2006 compared to $2,977,554 in 2005. This decrease is primarily
due to decreases in equipment sales and service revenue, offset by growth in
equipment rental revenue.



Total cost of goods sold decreased $56,780,120 or 51.7% to $52,996,441 in 2006
compared to $109,776,561 in 2005. Management services cost of goods sold
decreased $67,888,697 or 84.2% to $12,712,073 in 2006 compared to $80,600,770 in
2005. This change is primarily due to the loss of Home Depot as a customer.
Additionally, we reduced cost of goods sold by $1,272,241 in 2006 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.
Recycling cost of goods sold increased $12,177,245 or 44.7% to $39,448,957 in
2006 compared to $27,271,712 in 2005 due to an increase in the volume of
shipments as well as an increase in the volume of purchases of 8% and an
increase in average cost per ton of 55.6%. Equipment, service and leasing cost
of goods sold decreased $1,068,668 or 56.1% to $835,411 in 2006 compared to
$1,904,079 in 2005. This decrease is primarily due to the decrease in equipment
sales.



Selling, general and administrative expenses decreased $206,646 or 3.6% to
$5,609,959 in 2006 compared to $5,816,605 in 2005. The decrease in SG&A is due
to a decrease in labor and related benefits ($306,000) offset by an increase in
bad debt expense ($93,464).



--       Labor and related benefits decreased $306,000 due to the loss of Home
Depot as a customer.

--       Bad debt expense increased $93,464 primarily due to the write-off of
All County & Delta Management in 2006.



As a percentage of total revenue, selling, general and administrative expenses
were 9.0% in 2006 compared to 5.0% in 2005.



Interest expense increased $138,706 or 187% to $212,722 in 2006 compared to
$74,016 in 2005 due to an increase in long term debt in 2006 compared to a
payoff of debt during 2005. Other income was $32,930 in 2006 compared to other
income of $3,424 in 2005. This increase of $29,506 is primarily due to
bankruptcy recoveries.



Significant components of other income
(expense) are as follows:



Fiscal Year Ended December 31Description
			2006
			
			2005Bankruptcy recoveries
			$ 22,787
			
			$ 12,061Interest on K&R note
			6,845
			
			(11,782)Other
			3,298
			
			3,145Total other income (expense), net
			$ 32,930
			
			$ 3,424




Income tax provision increased $585,496 to $1,323,929 in 2006 compared to
$740,433 in 2005. The effective tax rate in 2006 was 37.7 % compared to
approximately 40.2% in 2005 based on federal and state statutory rates. The
provision for income taxes increased 4.2% to 37.7% for the year ended December
31, 2006 compared to 33.5% for the nine months ended September 30, 2006.  The
provision for income taxes increased 4.2% to 37.7% for the year ended December
31, 2007 compared to 33.5% for the nine months ended September 30, 2006.



The parties agreed mutually to decrease the taxable base of the common stock
awarded to Andrew M. Lassak on June 15, 2006. Based on the increase in profit in
the fourth quarter of 2006, the impact of the tax benefit of the common stock
had less impact on the income tax provision for the year ended December 31, 2006
compared to the income tax provision for the nine months ended September 30,
2006.



Financial Condition at December 31,
2006 compared to December 31, 2005



Cash and cash equivalents decreased
$389,494 to $1,331,807 as of December 31, 2006 compared to $1,721,301 as of
December 31, 2005.



Net cash from operating activities
decreased $5,075,653 to net cash used of ($1,216,923) as of December 31, 2006
compared to $3,858,730 as of December 31, 2005.  This decrease was directly
related to the decrease in accounts payable of  $3.7 million which is primarily
due to the loss of Home Depot as a customer in October 2005.



We used net cash from investing activities
of $2,058,807 for the year ending December 31, 2006 compared to $1,678,318 for
the same period in 2005.  The difference of $380,489 was primarily due to
$348,446 more in property and equipment purchases in 2006 than in 2005.



Net cash from financing activities
increased $4,475,037 to $2,886,236 for the year ending December 31, 2006
compared to net cash used of ($1,588,801) for the same period in 2005.  Proceeds
from long term debt totaled $10,710,875 in 2006, and payments on long-term debt
were $7,770,984 in 2006 and $1,000,000 in 2005.



On December 22, 2006, we executed a new revolving credit facility with BB&T
increasing the borrowing line from $5.0 million to $10.0 million to provide us
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, and is
secured by all our assets (except rental fleet equipment).  As of December 31,
2006 we had borrowed $1,010,875 and as of December 31, 2005, there were no
borrowings against the credit facility.  The revolving credit facility contains
certain restrictive and financial covenants.  At December 31, 2006, we were in
compliance with all restrictive covenants.



We also have a $2.0 million loan with Fifth Third Bank secured by our rental
fleet equipment.  Indebtedness under this loan agreement accrues interest at a
fixed interest rate of 6.83%.  The maturity date under this agreement is June
2011 with a ten-year amortization schedule.   As of December 31, 2006 we had
borrowed $1,929,016 and as of December 31, 2005, there were no borrowings
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
December 31, 2006, we were in compliance with all restrictive covenants.



We implemented the use of a purchasing card with a credit limit of $6.0 million
in the second quarter of 2004.  We include the balance due on the purchasing
card as part of accounts payable.  The outstanding balance on the purchasing
card at December 31, 2006 was $687,437.



We believe our principal sources of liquidity from available funds on hand, cash
generated from operations and the availability of borrowing under our senior
revolving credit facility and purchasing card will be sufficient to fund
operations in fiscal year 2007. Our primary sources of funds are our ability to
generate cash from operations and the availability of borrowing under our senior
revolving credit facility to meet our liquidity obligations, which could be
affected by factors such as a decline in demand for our products, loss of key
contract customers such as occurred with Home Depot in 2005, our ability to
generate profits and other unforeseen circumstances. The availability of our
revolving credit facility is contingent on complying with certain debt
covenants.  We do not expect the covenants to limit or restrict our ability to
borrow on the facility in fiscal year 2007.



Trade accounts receivable after allowances for doubtful accounts increased
$523,596 or 11.6% to $5,026,441 as of December 31, 2006.  The primary reason for
the increase in trade accounts receivable after allowances for doubtful accounts
is an increase in the volume of shipments and an increase in the selling prices
in the recycling segment.



Recycling accounts receivable increased $1,307,628 or 50.4% to $3,903,681 as of
December 31, 2006 compared to $2,596,053 as of December 31, 2005.  This change
is primarily due to an increase in the volume of shipments and an increase in
the selling prices in the recycling segment.  On average, volume of ferrous
shipments in gross tons increased 15% as of December 31, 2006 compared to
December 31, 2005.  On average, sales prices increased $20 per gross ton or 8.9%
to $244 as of December 31, 2006 compared to $224 as of December 31, 2005.  On
average, volume of nonferrous shipments in pounds increased 13% as of December
31, 2006 compared to December 31, 2005.  On average, sales prices increased
57.0% as of December 31, 2006 compared to December 31, 2005.



CWS accounts receivable decreased $704,467 or 39.3% to $1,089,080 as of December
31, 2006 compared to $1,793,547 as of December 31, 2005.  This change is
primarily due to the loss of Home Depot as a customer.



WESSCO accounts receivable decreased $85,431 or 100% to $0 as of December 31,
2006 compared to $85,431 as of December 31, 2005.  This change is primarily due
to a decrease in equipment sales.



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 $939,617 or 37.8% to $3,428,226 as of
December 31, 2006 compared to $2,488,609 as of December 31, 2005.  Inventories
as of December 31, 2006 and December 31, 2005 consist of the following:





December 31,2006
			
			December 31,2005Ferrous
			$  1,667,937
			
			$  1,380,050Non-Ferrous
			1,678,655
			
			961,085Waste equipment machinery
			56,200
			
			120,922Other
			25,434
			
			26,552Total inventories
			$  3,428,226
			
			$ 2,488,609




For the year ended December 31, 2006, we shipped 76,331 gross tons of ferrous
material.  During the same period, we purchased 72,475 gross tons of ferrous
material.  For the year ended December 31, 2005, we shipped 66,155 gross tons of
ferrous material.  During the same period, we purchased 66,947 gross tons of
ferrous material.  We did not write down ferrous inventory in 2006.  As of
December 31, 2005, ferrous inventory consisted of 7,750 gross tons at a unit
cost of $178.07 per gross ton.  As of December 31, 2006, ferrous inventory
consisted of 9,400 gross tons at a unit cost of $177.44 per gross ton.  For the
year ended December 31, 2006, the purchase price plus processing costs of
ferrous material averaged $157.25 per gross ton compared to $136.31 per gross
ton in 2005.



For the year ended December 31, 2006, we shipped 22,258,977 pounds of nonferrous
material. During the same period, we purchased 20,362,645 pounds of nonferrous
material.  For the year ended December 31, 2005, we shipped 19,622,793 pounds of
nonferrous material. During the same period, we purchased 18,660,006 pounds of
nonferrous material.  We did not write down nonferrous inventory in 2006.  As of
December 31, 2006, nonferrous inventory consisted of 1,601,554 pounds with a
unit cost of $0.960 per pound.  As of December 31, 2005, nonferrous inventory
consisted of 1,569,770 pounds at a unit cost of $0.612 per pound.  For the year
ended December 31, 2006, the purchase price plus processing costs of non-ferrous
material has averaged $0.960 per pound compared to $0.608 per pound in 2005.





Year
			Inventory Type
			Gross Tons
			Unit Cost
			Amount2005
			Ferrous
			7,750
			$178.07
			$1,380,0502006
			Ferrous
			9,400
			177.44
			1,667,937Year
			Inventory Type
			Pounds
			Unit Cost
			Amount2005
			Nonferrous
			1,569,770
			$0.61
			$   961,0852006
			Nonferrous
			1,748,600
			0.96
			1,678,655






Inventory Aging
for the year ended December 31, 2006 (Days Outstanding)



Description
			1-30
			
			31-60
			
			61-90
			
			Over 90
			
			TotalEquipment & parts
			$    33,720
			
			$   22,480
			
			$            -
			
			$           -
			
			$     56,200Ferrous
			Materials
			864,489
			
			448,842
			
			166,509
			
			188,097
			
			1,667,937Non-ferrous materials
			1,467,679
			
			41,840
			
			42,989
			
			126,147
			
			1,678,655Other
			25,434
			
			-
			
			-
			
			-
			
			25,434$2,391,322
			
			$ 513,162
			
			$ 209,498
			
			$ 314,244
			
			$3,428,226






Inventory aging for the year ended December 31, 2005 (Days Outstanding):



Description
			1-30
			
			31-60
			
			61-90
			
			Over 90
			
			TotalEquipment & parts
			$    29,437
			
			$   22,400
			
			$             -
			
			$    69,085
			
			$  120,922Ferrous
			Materials
			731,924
			
			353,962
			
			182,650
			
			111,514
			
			1,380,050Non-ferrous materials
			737,190
			
			108,394
			
			53,300
			
			62,201
			
			961,085Other
			26,552
			
			-
			
			-
			
			-
			
			26,552$1,525,103
			
			$ 484,756
			
			$  235,950
			
			$  242,800
			
			$2,488,609






Accounts payable trade decreased
$3,737,224 or 45.1% to $4,545,057 as of December 31, 2006 compared to $8,282,281
as of December 31, 2005.  Recycling accounts payable increased $202,592 or 18.5%
to $1,298,537 as of December 31, 2006 compared to $1,095,945 as of December 31,
2005.  This increase is primarily due to the increase in volume of commodity
purchases at respective year-ends and increased commodity purchase prices of
ferrous and nonferrous materials.  Our accounts payable payment policy in the
recycling segment is consistent between years.



CWS accounts payable decreased $3,886,325
or 56.7% to $2,969,252 as of December 31, 2006 compared to $6,855,577 as of
December 31, 2005.  This change is primarily due to the loss of Home Depot as a
customer.



WESSCO accounts payable decreased $51,159
or 20.0% to $205,168 as of December 31, 2006 compared to $256,327 as of December
31, 2005.  This change is due to a decrease in equipment sales.



Working capital increased $4,415,407 to $3,524,098 as of December 31, 2006
compared to a deficit of $861,309 as of December 31, 2005.  Net income of
$2,188,579, depreciation of $1,745,905, and pay down of accounts payable of
$3,737,224 were positive contributors to working capital in 2006.  During 2006,
we used these positive working capital contributors to purchase property and
equipment of $2,166,331.



Inflation and
Prevailing Economic Conditions



To date, inflation has not and is not expected to have a significant impact on
our operation in the near term.  We have no long-term fixed-price contracts and
we believe we will be able to pass through most cost increases resulting from
inflation to our customers. We are susceptible to the cyclical nature of the
commodity business.  In response to these economic conditions, we have focused
on the management consulting area of the business and are working to liquidate
inventories while we make efforts to enhance gross margins.



Impact of Recently Issued Accounting Standards



Effective January 1, 2007, we adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"),
an interpretation of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." FIN 48 requires that a position taken or
expected to be taken in a tax return be recognized in the financial statements
when it is more likely than not (i.e., a likelihood of more than fifty percent)
that the position would be sustained upon examination by tax authorities. A
recognized tax position is then measured at the largest amount of benefit that
is greater than fifty percent likely of being realized upon ultimate settlement.
Our adoption of FIN 48 did not have a material impact on our financial
statements.



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
as of 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 7A.        Quantitative and Qualitative Disclosures About Market
Risk.



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



We are exposed to interest rate risk on our floating rate borrowings. As of
December 31, 2007, variable rate borrowings consisted of outstanding borrowings
of $6,000,000 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 which was 6.85% as of December 31, 2007.We do not have any interest rate
swaps or caps in place, which would mitigate our exposure to fluctuations in the
interest rate on this indebtedness. Based on our average anticipated borrowings
under our credit agreement in fiscal 2007, a hypothetical increase or decrease
in the LIBOR rate by 1% would increase or decrease interest expense on our
variable borrowings by approximately $60,000 per year, with a corresponding
change in cash flows.



Item
8.        Consolidated Financial Statements and Supplementary Data.



Our consolidated financial statements required to be included in this Item 8 are
set forth in Item 15 of this report.



Item
9.        Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.



None



Item
9A(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 December
31, 2007, 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 report 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 year ended December 31, 2007, and concluded
that such internal control over financial reporting was effective as of December
31, 2007.



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



(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 December 31, 2007 that have materially affected, or are
reasonably likely to affect ISA's internal control over financial reporting.



Item
9B.      Other Information.



None





PART III



Item 10.        ISA Directors Executive Officers and Corporate Governance. *



Item 11.        Executive Compensation  *



Item 12.        Security Ownership of Certain Beneficial Owners, Management
and Related Stockholder Matters. *



Item 13.        Certain Relationships and Related Transactions. *



Item 14.        Principal Accountant Fees and Services. *



*  The information required by Items 10, 11, 12, 13 and 14 is or will be set
forth in the definitive proxy statement relating to the 2007 Annual Meeting of
Shareholders of ISA which is to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after ISA's year end for
the year covered by this report under the Securities Exchange Act of 1934, as
amended.  Such definitive proxy statement relates to an annual meeting of
shareholders and the portions therefrom required to be set forth in this Form
10-K by Items 10, 11, 12, 13 and 14 are incorporated herein by reference
pursuant to General Instruction G(3) to Form 10-K.



---



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, 2007 and 2006
			F-3Consolidated Statements of Income for the yearsended December 31, 2007, 2006 and 2005
			F-4Consolidated Statements of Shareholders' Equity for the years endedDecember 31, 2007, 2006 and 2005
			F-5Consolidated Statements of Cash Flows for the years ended December
			31, 2007, 2006 and 2005
			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, 2007, 2006 and 2005
			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, 2007, 2006
and 2005 are incorporated by reference at page F-28 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 to be signed on its
behalf by the undersigned, thereunto duly authorized.



INDUSTRIAL SERVICES OF AMERICA, INC.Dated: 
			March 31, 2008
			By :
			/s/
			Harry KletterHarry
			Kletter, Chairman of the Boardand
			Chief Executive Officer








Pursuant to
the requirements of the Securities Exchange Act of 1934, this report 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
			March 31, 2008Harry
			Kletter
			
			Executive Officer (Principal Executive 
			Officer)/s/  Alan L. Schroering
			
			Chief
			Financial Officer
			March 31, 2008Alan L.
			Schroering
			
			(Principal Financial Officer andPrincipal Accounting Officer)/s/  Orson Oliver
			
			Director
			March 31, 2008Orson
			Oliver/s/  Roman Epelbaum
			
			Director
			March 31, 2008Roman
			Epelbaum/s/  Albert Cozzi
			
			Director
			March 31, 2008Albert
			Cozzi/s/  Richard Ferguson
			
			Director
			March 31, 2008Richard
			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 on 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 Form 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
			**
			Sublease dated as of February 28, 2007 by and between ISA, as sub
			lessor, and Cohen Brothers of Lexington, Inc. as sub lessee, 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, 2007.10.39
			
			Asset Purchase Agreement dated as of August 2, 2007, between ISA and
			Industrial Logistic Services, LLC, including exhibits thereto, is
			incorporated by reference herein to Exhibit 10.1 of ISA's report on
			Form 8-K for the event reported on August 2, 2007, as filed on
			August 8, 2007.10.40
			**
			Executive Employment Agreement dated as of August 2, 2007, between
			ISA and Brian G. Donagy is incorporated by reference herein to
			Exhibit 10.2 of ISA's report on Form 8-K for the event reported on
			August 2, 2007, as filed on August 8, 2007.10.41
			**
			Employment Agreement dated effective as of April 4, 2007, between
			ISA and James K. Wiseman, III is incorporated by reference herein to
			Exhibit 10.3 of ISA's report on Form 8-K for the event reported on
			August 2, 2007, as filed on August 8, 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 for the
			year ended December 31, 2007.31.2
			
			Rule
			13a-14(a) Certification of Alan Schroering for the Form 10-K for the
			year ended December 31, 2007.32.1
			
			Section
			1350 Certification of Harry Kletter and Alan Schroering for the Form
			10-K for the year ended December 31, 2007.




*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, 2007, 2006 and 2005




---



INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			Louisville, KentuckyCONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2007, 2006 and 2005CONTENTSREPORTS 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, 2007 and 2006 and the related consolidated statements of income,
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 consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion.  An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, 2007 and 2006, 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

Mountjoy & Bressler, LLP

Louisville, Kentucky

March 27, 2008









See accompanying notes to consolidated financial
statements.

1.



---



INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED BALANCE SHEETS
			December 31, 2007 and 2006_________________________________________________________________________________________________2007
			
			2006ASSETSCurrent assetsCash
			$    1,501,685
			
			$    1,331,807Income tax receivable
			100,737
			
			-Accounts receivable -- trade (after
			allowance for doubtfulaccounts of $100,000 in 2007 and  2006)
			(Note 1)
			6,764,851
			
			5,026,441Net investment in sales-type leases (Note
			5)
			60,364
			
			50,586Inventories (Note 1)
			4,627,281
			
			3,428,226Deferred income taxes (Note 4)
			141,636
			
			106,725Other
			318,496
			
			88,113Total current assets
			13,515,050
			
			10,031,898Net property and equipment (Note 1)
			9,537,345
			
			8,152,606Other assetsNet investment in sales-type leases (Note
			5)
			125,851
			
			186,215Notes receivable -- related party (Note 6)
			204,053
			
			238,566Goodwill  (Note 1)
			560,005
			
			560,005Other assets
			2,342,218
			
			162,5273,232,127
			
			1,147,313$ 26,284,522
			
			$ 19,331,817LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilitiesCurrent maturities of long term debt 
			(Note 3)
			$     338,913
			
			$      149,431Current maturities of capital lease
			obligations (Note 8)
			133,675
			
			228,533Accounts payable
			4,665,631
			
			4,545,057Income tax payable
			-
			
			1,185,717Other current liabilities
			436,791
			
			399,062Total current liabilities
			5,575,010
			
			6,507,800Long-term liabilitiesLong-term debt (Note 3)
			8,393,784
			
			2,790,460Capital lease obligations (Note 8)
			101,569
			
			67,853Deferred income taxes (Note 4)
			194,721
			
			219,3998,690,074
			
			3,077,712Commitments (Note 8)Shareholders' equityCommon stock, $.005 par value: 10,000,000
			shares authorized,4,295,000 shares issued in 2007 and
			2006,3,620,899 shares outstanding in 2007 and
			3,640,899 in 2006respectively
			21,475
			
			21,475Additional paid-in capital
			3,599,624
			
			3,194,816Retained earnings
			9,434,733
			
			7,234,990Treasury stock at cost, 674,101 shares in
			2007 and 654,101 in 2006
			(1,036,394)
			
			(704,976)12,019,438
			
			9,746,305$  26,284,522
			
			$  19,331,817






See accompanying notes to consolidated
financial statements.



2.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED STATEMENTS OF INCOME
			Years ended December 31, 2007, 2006 and 2005____________________________________________________________________________________________2007
			
			2006
			
			2005Revenue from services
			$ 17,234,194
			
			$  15,387,241
			
			$  84,451,367Revenue from product sales
			59,721,347
			
			46,694,807
			
			32,930,492Total Revenue
			76,955,541
			
			62,082,048
			
			117,381,859Cost of goods sold for services
			15,233,788
			
			13,984,314
			
			80,600,770Cost of goods sold for product sales
			50,639,372
			
			40,284,368
			
			29,175,791Reduction of cost of goods sold
			(858,249)
			
			(1,272,241)
			
			-Total Cost of goods sold
			65,014,911
			
			52,996,441
			
			109,776,561Selling, general and administrative
			expenses
			7,766,915
			
			5,609,959
			
			5,816,605Income before other income (expense)
			4,173,715
			
			3,475,648
			
			1,788,693Other income (expense)Interest expense
			(290,689)
			
			(212,722)
			
			(74,016)Interest income
			119,762
			
			195,662
			
			126,578Gain (loss) on sale of assets
			(3,696)
			
			22,990
			
			(2,649)Other income, net
			22,741
			
			32,930
			
			3,424(151,882)
			
			38,860
			
			53,337Income before income taxes
			4,021,833
			
			3,514,508
			
			1,842,030Income tax provision (Note 4)
			1,458,000
			
			1,325,929
			
			740,433Net income
			$    2,563,833
			
			$    2,188,579
			
			$   1,101,597Basic earnings per share
			$                .71
			
			$               .61
			
			$              .31Diluted earnings per share
			$                .71
			
			$               .61
			
			$              .31






See accompanying notes to consolidated
financial statements.



3.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
			Years ended December 31, 2007, 2006 and 2005______________________________________________________________________________________________________________________________________________AdditionalCommon Stock
			
			Paid-in
			
			Retained
			
			Treasury StockShares
			
			Amount
			
			Capital
			
			Earnings
			
			Shares
			
			Cost
			
			TotalBalance as of January 1, 2005
			
			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)
			
			$  9,746,305Cash dividend
			
			-
			
			-
			
			-
			
			(364,090)
			
			-
			
			-
			
			(364,090)Repurchase of common stock
			
			-
			
			-
			
			-
			
			-
			
			(40,000)
			
			(352,974)
			
			(352,974)Stock bonus
			
			-
			
			-
			
			194,244
			
			-
			
			20,000
			
			21,556
			
			215,800Tax benefits related to common stock options
			
			-
			
			-
			
			210,564
			
			-
			
			-
			
			-
			
			210,564Net income
			
			-
			
			-
			
			-
			
			2,563,833
			
			-
			
			-
			
			2,563,833Balance as of December 31, 2007
			
			4,295,000
			
			$21,475
			
			$3,599,624
			
			$9,434,733
			
			(674,101)
			
			$
			(1,036,394)
			
			$
			12,019,438








See accompanying notes to consolidated
financial statements.



4.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
			AND SUBSIDIARIES
			CONSOLIDATED STATEMENTS OF CASH FLOWS
			Years ended December 31, 2007, 2006 and 2005________________________________________________________________________________________________2007
			
			2006
			
			2005Cash flows from operating activitiesNet income
			
			$    2,563,833
			
			$    2,188,579
			
			$  1,101,597Adjustments to reconcile net income to netcash from operating activitiesDepreciation
			
			1,954,023
			
			1,745,905
			
			1,709,668Stock distribution to employees
			
			215,800
			
			-
			
			6,524Deferred income taxes
			
			(59,589)
			
			(222,511)
			
			(213,538)Tax benefit of stock options exercised
			
			210,564
			
			-
			
			451,377Provision for doubtful accounts
			
			-
			
			50,000
			
			(25,000)(Gain) loss on sale of property and
			equipment
			
			3,696
			
			(22,990)
			
			2,649Change in assets and liabilitiesReceivables
			
			(1,738,410)
			
			(573,596)
			
			4,099,483Net investment in sales-type leases
			
			50,586
			
			65,797
			
			(94,360)Inventories
			
			(1,199,055)
			
			(939,617)
			
			(336,235)Other assets
			
			(337,735)
			
			110,987
			
			102,797Accounts payable
			
			120,574
			
			(3,737,224)
			
			(3,800,395)Other current liabilities
			
			(1,147,988)
			
			117,747
			
			854,163Net cash from operating activities
			
			636,299
			
			(1,216,923)
			
			3,858,730Cash flows from investing activitiesProceeds from sale of property and
			equipment
			
			57,300
			
			81,700
			
			101,797Purchases of property and equipment
			
			(2,169,829)
			
			(2,166,331)
			
			(1,817,885)Deposit for shredder system
			
			(2,173,076)
			
			-
			
			-Payments from related party
			
			34,513
			
			25,824
			
			37,770Net cash from investing activities
			
			(4,251,092)
			
			(2,058,807)
			
			(1,678,318)Cash flows from financing activitiesPayments on capital lease obligation
			
			(337,959)
			
			(161,626)
			
			(559,039)Proceeds from long-term debt
			
			7,850,000
			
			10,710,875
			
			-Payments on long-term debt
			
			(3,010,306)
			
			(7,770,984)
			
			(1,000,000)Proceeds from exercise of common stock
			options
			
			-
			
			124,309
			
			-Payment of cash dividend
			
			(364,090)
			
			-
			
			-Purchases of common stock
			
			(352,974)
			
			(16,338)
			
			(29,762)Net cash from financing activities
			
			3,784,671
			
			2,886,236
			
			(1,588,801)Net change in cash
			
			169,878
			
			(389,494)
			
			591,611Cash at beginning of year
			
			1,331,807
			
			1,721,301
			
			1,129,690Cash at end of year
			
			$    1,501,685
			
			$  1,331,807
			
			$   1,721,301Supplemental disclosure of cash flow
			informationCash paid for interest
			
			$      332,745
			
			$    212,722
			
			$       74,016Cash paid for taxes
			
			2,593,479
			
			604,652
			
			173,140Supplemental
			disclosure of noncash investing and financing activities:Equipment purchased
			under capital leases
			
			-
			
			186,178
			
			-Equipment purchased
			through seller financing
			
			1,010,040
			
			-
			
			-








See accompanying notes to consolidated
financial statements.



5.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature 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 and  Canada.  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.



6.







---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



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 consists primarily of amounts due from
customers from product and brokered sales. The allowance for doubtful accounts
totaled $100,000 at December 31, 2007 and 2006.  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% of 2005 total revenues and approximately 23% of
2005 total gross profit.   The revenue from this former customer represented
approximately 77% of CWS revenues in 2005.  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.



7.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005

____________________________________________________________________________________



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)



Common Control:  We conduct significant levels
of business (see Note 6) with K&R, LLC (K&R), which is owned by ISA's principal
shareholder.  Because these entities are under common control, our operating
results or our financial position 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
$432,377 at December 31, 2007 and $387,751 at December 31, 2006.  Processing
costs in non-ferrous inventory totaled $66,912 at December 31, 2007 and $86,101
at December 31, 2006.   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. 
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.  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.  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.  We charged $2,671,089 in general and administrative processing costs to
cost of sales for the year ended December 31, 2007 and $2,353,435 for the year
ended December 31, 2006.



8.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



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, 2007 and 2006 consist of the following:



2007
			
			2006Ferrous materials
			
			$ 1,848,445
			
			$1,667,937Non-ferrous materials, high grade
			
			2,689,635
			
			1,634,259Non-ferrous materials, low grade
			
			26,068
			
			44,396Waste Equipment Machinery
			
			36,498
			
			56,200Other
			
			26,635
			
			25,434$4,627,281
			
			$3,428,226




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, 2007 and 2006 consist of the
following:



Life
			
			
			2006
			
			2006Land
			
			
			
			$ 1,676,810
			
			$ 1,581,550Equipment and vehicles
			1-10 years
			
			
			11,189,279
			
			9,759,509Office equipment
			1-7 years
			
			
			1,560,081
			
			1,600,034Rental equipment
			3-5 years
			
			
			4,720,483
			
			4,238,555Building and leasehold improvements
			5-40 years
			
			
			2,788,560
			
			2,329,88621,935,213
			
			19,509,534Less accumulated depreciation andamortization
			
			
			
			12,397,868
			
			11,356,928$ 9,537,345
			
			$ 8,152,606




Depreciation expense for the years ended December 31,
2007, 2006 and 2005 was $1,954,023, $1,745,905 and $1,709,668.   Of the
$1,954,023 depreciation expense recognized in 2007, $860,226 was recorded in
cost of sales, and $1,093,797 was recorded in general and administrative
expense.



9.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



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:



2008
			
			$1,695,5352009
			
			1,511,5852010
			
			1,184,0432011
			
			716,3002012
			
			207,663$5,315,126




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.



10.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



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:  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.



2007
			
			2006
			
			2005Net income (loss)Net income, as reported
			
			$  2,563,833
			
			$  2,188,579
			
			$
			1,101,597Basic earnings (loss) per shareAs reported
			
			$          .71
			
			$            .61
			
			$             .31Diluted earnings (loss) per shareAs reported
			
			$          .71
			
			$            .61
			
			$            .31




11.





---





INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



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, 2007, 2006 and 2005:



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, 2005
			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
			years
			
			$1.21Exercised
			(20,000)
			
			$1.25
			
			$1.25
			
			-
			
			-Balance as of December 31, 2006
			-
			
			-
			
			-
			
			-
			
			-Balance as of December 31, 2007
			-
			
			-
			
			-
			
			-
			
			-




12.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



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, 2007 and 2006, 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.





13.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



Impact of Recently Issued Accounting Standards:



Effective December 31, 2006, we adopted Financial
Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"), an interpretation of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
FIN 48 requires that a position taken or expected to be taken in a tax return be
recognized in the financial statements when it is more likely than not (i.e., a
likelihood of more than fifty percent) that the position would be sustained upon
examination by tax authorities. A recognized tax position is then measured at
the largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. Our adoption of FIN 48 resulted in no
material impact to the financial statements.



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 as of 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.



14.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



NOTE 2 - NOTE PAYABLE TO BANK



On 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 6.85% as of December 31, 2007, and is
secured by all ISA assets (except rental fleet equipment).  The balance
outstanding was $6,000,000 as of December 31, 2007 and $1,010,875 as of December
31, 2006.  The revolving credit facility contains certain restrictive and
financial covenants.  At December 31, 2007, ISA was in compliance with all
restrictive covenants.





NOTE 3 - LONG-TERM DEBT



Long-term debt as of December 31, 2007 and 2006
consists of the following:



2007
			2006Note payable to Fifth Third 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.
			$  1,779,585
			$ 1,929,016Revolving 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.
			6,000,000
			1,010,875ILS Note.  The maturity date
			under this agreement is August 2012.
			953,112
			-8,732,697
			2,939,891Less current maturities
			338,913
			149,431$   8,393,784
			$  2,790,460




15.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________





The annual maturities of
			long-term debt as of December 31, 2007 are as follows:2008
			
			$     338,9132009
			
			6,363,1242010
			
			389,0652011
			
			1,485,715Thereafter
			
			155,880Total
			
			$8,732,697




NOTE 4 - INCOME TAXES



The income tax provision (benefit) consists of the
following for the years ended December 31, 2007, 2006 and 2005:





2007
			
			2006
			
			2005FederalCurrent
			$ 1,254,133
			
			$   1,178,483
			
			$  780,181Deferred
			(51,814)
			
			(174,958)
			
			(203,543)1,202,319
			
			1,003,525
			
			576,638StateCurrent
			356,943
			
			369,957
			
			173,790Refundable state tax credits
			(99,358)
			
			-
			
			-Deferred
			(1,904)
			
			(47,553)
			
			(9,995)255,681
			
			322,404
			
			163,795$1,458,000
			
			$ 1,325,929
			
			$ 740,433




A reconciliation of income taxes at the statutory rate to the reported provision
is as follows:



2007
			
			2006
			
			2005Federal income tax at statutory rate
			$ 1,352,831
			
			$ 1,194,933
			
			$  629,083State and local income taxes, net offederal income tax effect
			202,927
			
			212,787
			
			106,257Permanent differences
			(173,485)
			
			(43,702)
			
			-Stock options exercised
			210,564
			
			-
			
			-Refundable state tax credits
			(99,358)
			
			-
			
			-Other differences, net
			(35,479)
			
			(38,089)
			
			5,093$1,458,000
			
			$1,325,929
			
			$  740,433




16.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



NOTE 4 - INCOME
TAXES(Continued)



Significant
components of the Company's deferred tax liabilities and assets as of December
31, 2007 and 2006 are as follows:



2007
			
			2006Deferred tax liabilitiesTax depreciation in excess of book
			$ (202,313)
			
			$   278,929Tax amortization in excess of book
			(137,600)
			
			114,666Gross deferred tax liabilities
			$ (339,913)
			
			393,595Deferred tax assetsProperty taxes
			38,077
			
			39,495Allowance for doubtful accounts
			43,867
			
			43,000Book amortization in excess of tax
			145,192
			
			174,196Inventory capitalization
			59,692
			
			13,887Other
			-
			
			10,343Gross deferred tax assets
			$ 286,828
			
			280,921Net deferred tax liabilities
			$ (53,085)
			
			$ (112,674)




NOTE 5 - SALES-TYPE LEASES



The 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, 2007 are as follows:





2008
			$84,9202009
			66,7202010
			50,040Minimum lease payments receivable
			201,680Less unearned income
			(15,465)Net investment in sales-type
			leases
			186,215Less current portion
			(60,364)$ 125,851




17.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



NOTE 6 - RELATED PARTY TRANSACTIONS



The 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:



2007
			
			2006
			
			2005Balance sheet accounts:Accounts receivable
			$               -
			
			$              -
			
			$               -Notes receivable
			$   204,053
			
			$  238,566
			
			$   264,390Deposits (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.  In January 2005, K&R began making payments on the promissory note of
principal only in ninety-six (96) monthly installments of $3,147.50 each. 
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 2007 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. We have extended this agreement
for five years according to the terms of the lease.





18.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



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 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 .  In
2007, we extended this consulting agreement for one year according to the terms
of the contract.





NOTE 7 - EMPLOYEE RETIREMENT PLAN



The 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 2007, 2006 and 2005 was $42,810,  $33,438 and $31,996,
respectively.





NOTE 8 - LEASE COMMITMENTS



Operating Leases:

The Company leases its Louisville, Kentucky facility
from a related party (see Note 6) under an operating lease expiring December
2012.  The rent was adjusted in January 2008 per the agreement to monthly
payments of $48,500 through December 2012.  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, 2007 for a period of two years with monthly payments of $2,750.   The
Company also leases other machinery and equipment under operating leases which
expire through August 2012.



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 sub lessee 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.  On January 18, 2008, we sold our
position in this property, including the lease and the option, for $25,000.



19.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



NOTE 8 - LEASE
COMMITMENTS (Continued)



Future minimum lease payments for operating leases as
of December 31, 2008 are as follows:



2008
			
			$      663,3752009
			
			636,0002010
			
			636,0002011
			
			636,0002012
			
			636,000Future minimum lease payments
			
			$  3,207,375




Total rent expense for the years ended December 31,
2007, 2006 and 2005 was $832,733, $784,954 and $809,270, 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 August 2012.



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



2007
			
			2006Equipment
			
			$   1,881,607
			
			$     757,513Less accumulated depreciation
			
			273,005
			
			168,904$   1,608,602
			
			$     588,609




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, 2007.



2008
			
			$    134,0832009
			
			80,7712010
			
			20,798Total future minimum lease
			payments
			
			235,652Lessamount representing
			interest
			
			408Present value of net minimumlease payments
			
			235,244Less current portion
			
			(133,675)Capital Lease Obligations
			
			$    101,569




20.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005

____________________________________________________________________________________



NOTE  9 - CASH DIVIDEND



The Board of Directors, at our May 15, 2007 annual
meeting, declared a cash dividend payment of ten cents per share for
shareholders of record as of June 15, 2007 with a payment date of July 20,
2007.



NOTE 10 - PER SHARE DATA



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



2007
			
			2006
			
			2005Basic earnings per shareNet income
			$  2,563,833
			
			$  2,188,579
			
			$  1,101,597Weighted average shares outstanding
			3,638,215
			
			3,602,872
			
			3,575,202Basic earnings per share
			$             .71
			
			$              .61
			
			$              .31Diluted earnings per shareNet income
			$  2,563,833
			
			$  2,188,579
			
			$   1,101,597Weighted average shares outstanding
			3,638,215
			
			3,602,872
			
			3,575,202Add dilutive effect of assumed exercising
			  of stock options
			-
			
			10,218
			
			18,608Diluted average shares outstanding
			3,638,215
			
			3,613,090
			
			3,593,810Diluted earnings per share
			$             .71
			
			$             .61
			
			$               .31




NOTE 11 - LEGAL PROCEEDINGS



On December 22, 2006, Container Recyclers, Inc.,
Allied Drum, Inc., and Columbus Recyclers, Inc., Ohio drum recyclers, initiated
a lawsuit in the Hamilton County, Ohio, Court of Common Pleas in the case styled
Container Recyclers, Inc., et al v. Industrial Services of America, Inc.,
Case No. A0611218.  Allied Drum and Columbus Drum alleged that we failed to make
payments to them in the alleged amount in excess of $256,000 with interest in
accordance with the terms of contracts dated July 30, 1999, and March 21, 2002. 
Under these contracts we purchased recycled metal drums from the plaintiffs from
July 1999 and March 2002, until June 2006.  The parties entered into settlement
negotiations resulting in our payment in full of $287,500 to the plaintiffs,
collectively, on December 28, 2007, at which time the Hamilton County Court
entered a final order with respect to this case.



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 had disputed Lassak's
claims and had 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.



21.





---



NOTE 12 - SEGMENT INFORMATION



The 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.



22.





---



INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005

____________________________________________________________________________________



NOTE 12 - SEGMENT INFORMATION (Continued)



SegmentISA Recycling
			
			CWS
			
			WESSCO
			
			Other
			
			Totals2007Recycling revenues
			
			$  57,603,071
			
			$                 -
			
			$                  -
			
			$                 -
			
			$    57,603,071Equipment sales, servicesand leasing revenues
			
			-
			
			-
			
			2,118,276
			
			-
			
			2,118,276Management fees
			
			-
			
			17,234,194
			
			-
			
			-
			
			17,234,194Cost of goods sold
			
			(50,407,072)
			
			(14,375,539)
			
			(232,300)
			
			-
			
			(65,014,911)Selling, general andadministrative expenses
			
			(2,963,996)
			
			(1,048,347)
			
			(1,316,435)
			
			(2,438,137)
			
			(7,766,915)Segment profit (loss)
			
			$      4,232,003
			
			$   1,810,308
			
			$      569,541
			
			$  (2,438,137)
			
			$      4,173,715




SegmentISA Recycling
			
			CWS
			
			WESSCO
			
			Other
			
			Totals2007Cash
			
			$        390,868
			
			$      15,229
			
			$                 -
			
			$    1,095,588
			
			$     1,501,685Accounts receivable
			
			4,813,971
			
			1,868,100
			
			69,960
			
			12,820
			
			6,764,851Inventories
			
			4,574,648
			
			-
			
			52,633
			
			-
			
			4,627,281Net property andequipment
			
			5,694,134
			
			27,089
			
			1,851,916
			
			1,964,206
			
			9,537,345Goodwill
			
			560,005
			
			-
			
			-
			
			-
			
			560,005Other assets
			
			2,473,365
			
			18,249
			
			198,491
			
			503,892
			
			3,193,997Segment assets
			
			$   18,606,349
			
			$   1,928,667
			
			$    2,173,000
			
			$    3,576,506
			
			$   26,284,522




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




23.





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INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



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




24.





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INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005



____________________________________________________________________________________



NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)



1st
			
			2nd
			
			3rd
			
			4th
			
			Year2007Revenue
			
			$17,904,749
			
			$19,528,096
			
			$17,928,810
			
			$21,593,886
			
			$76,955,541Income before otherincome (expense)
			
			1,298,974
			
			1,406,383
			
			652,605
			
			815,753
			
			4,173,715Net income
			
			793,080
			
			821,299
			
			383,159
			
			566,295
			
			2,563,833Basic earnings per share
			
			0.22
			
			0.22
			
			0.11
			
			0.16
			
			0.71Diluted earnings per share
			
			0.22
			
			0.22
			
			0.11
			
			0.16
			
			0.711st
			
			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
			
			
			
			0.12
			
			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
			
			352,887
			
			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
			
			0.31




NOTE 14 - SIGNIFICANT EVENTS



On August 2, 2007, we named Brian G. Donaghy, age 31,
ISA President and Chief Operating Officer for an initial term commencing on
August 2, 2007 and ending on the termination date of December 31, 2011.  Mr.
Donaghy had served as our acting COO from January 1, 2007 until August 2, 2007. 
From 2001 to present, Mr. Donaghy owned and operated Industrial Logistic
Services, LLC, a scrap metal and waste transportation company that leases
property from ISA.  From May 2004 to December 2006, Mr. Donaghy assisted ISA as
a consultant in its ferrous and non ferrous operations.



In connection with his selection as President and
Chief Operating Officer, ISA entered into an executive employment agreement with
him.  The executive employment agreement stipulates that Mr. Donaghy will
receive a base salary of $3,000 per week plus benefits.  Mr. Donaghy will be
entitled to participate in all medical and hospitalization, group life
insurance, retirement, and any and all other welfare and fringe benefits.  We
will provide Mr. Donaghy with a term life insurance policy with a death benefit
not to exceed $50,000.  We will also provide Mr. Donaghy with a monthly car
payment allowance the amount of which will not exceed $1,000 per month, which
will be used by Mr. Donaghy to acquire an automobile selected by him with our
concurrence.



25.





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Additionally, during the initial term of the
agreement, Mr. Donaghy will be entitled to receive 20,000 shares of ISA's common
stock per year, provided that 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.  In no event will Mr. Donaghy receive
more than 100,000 shares of ISA's common stock under this agreement.



On August 2, 2007, we entered into an asset purchase
agreement funded primarily by a note payable to ILS whereby we pay $20,000 per
month for 60 months for various assets including tractor trailers, trucks and
containers.  The note payable reflects seven percent (7%) interest payment on
the outstanding balance plus principal amortization.  We also paid ILS $100,000
cash as a portion of the purchase price of $1,300,000 at the time of execution
of the asset purchase agreement.  We recorded a note payable obligation of
$1,010,040 with an outstanding balance at December 31, 2007 of $953,112.



NOTE 15 - SHREDDER SYSTEM COMMITMENT



The Board of Directors, at its June 21, 2007 meeting,
announced authorization to proceed with the purchase of a shredder system and
complimentary facility improvements totaling five million dollars.  On July 30,
2007, the Company entered into a contract with The Shredder Company located in
Canutillo, Texas to purchase a shredder system for $3,551,700.  To date, we have
made deposit payments totaling $2,173,076, including capitalized interest of
$42,056,  classified as other assets.  We plan to finance the purchase of the
shredder system using our $10 million senior revolving credit facility with BB&T
or securing a fixed rate bank loan.  The project is scheduled for completion in
2008.



NOTE 16 - CHANGE IN ESTIMATE



As disclosed in our annual report for the year ended
December 31, 2006, management changed an estimate in 2006 relating to the cost
of goods sold associated with the Computerized Waste Systems (CWS) segment. As a
result of this change in estimate, we recorded a reduction in the cost of goods
sold of $858,249 and $1,272,241 for the years ending December 31, 2007 and
2006.  For the year ending December 31, 2007, as a result of the reduction of
$858,249, income before other income (expense) increased $858,249, net income
increased by $547,132, and earnings per share increased $.15 per share.  For the
year ending December 31, 2006, as a result of the reduction of $1,272,241,
income before other income (expense) increased $1,272,241, net income increased
by $792,352, and earnings per share increased $.22 per share.



26.





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SUPPLEMENTARY INFORMATION









27.





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INDUSTRIAL SERVICES OF AMERICA, INC.
	AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
	Years ended December 31, 2007, 2006 and 2005  __________________________________________________________________________________________  Balance at
			
			Additions Charged toBeginning
			
			Costs and
			
			
			
			Balance atof Period
			
			Expenses
			
			Deductions *
			
			End of PeriodDescriptionAllowance for doubtfulaccounts 2007 (deductedfrom accounts receivable)
			
			$  100,000
			
			$             -
			
			$                -
			
			$      100,000Allowance for doubtfulaccounts 2006 (deductedfrom accounts receivable)
			
			$     50,000
			
			$    50,000
			
			$                -
			
			$      100,000Allowance for doubtfulaccounts 2005 (deductedfrom accounts receivable)
			
			$     75,000
			
			$             -
			
			$     (25,000)
			
			$        50,000




* uncollected amounts written off, net of recoveries



28.





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INDEX TO EXHIBITSExhibit
			Number
			
			Description of Exhibits31.1
			
			Rule
			13a-14(a) Certification of Harry Kletter for the Form 10-K for the
			year ended December 31, 2007.31.2
			
			Rule
			13a-14(a) Certification of Alan Schroering for the Form 10-K for the
			year ended December 31, 2007.32.1
			
			Section 1350
			Certification of Harry Kletter and Alan Schroering for the Form 10-K
			for the year ended December 31, 2007.




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