10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From _________ to ________

Commission File Number 0-20979

INDUSTRIAL SERVICES OF AMERICA, INC.

_______________________________________________________________________________________________________

(Exact Name of Registrant as specified in its Charter)

Florida	59-0712746
(State or other jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

7100 Grade Lane, PO Box 32428

Louisville, Kentucky 40232

(Address of principal executive offices)

(502) 368-1661

(Registrant’s Telephone Number, Including Area Code)

Check whether the registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

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 o	Accelerated filer o
	Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2012: 6,944,267

.

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

INDEX

		Page No.
Part I	Financial Information
	Condensed Consolidated Balance Sheets June 30, 2012 (Unaudited) and December 31, 2011	3
	Condensed Consolidated Statements of Operations - Three Months Ended June 30. 2012 and 2011 (Unaudited)	5
	Condensed Consolidated Statements of Operations - Six Months Ended June 30, 2012 and 2011 (Unaudited)	6
	Condensed Consolidated Statements of Comprehensive Income - Three Months Ended June 30, 2012 and 2011 (Unaudited)	7
	Condensed Consolidated Statements of Comprehensive Income - Six Months Ended June 30, 2012 and 2011 (Unaudited)	8
	Condensed Consolidated Statements of Shareholders’ Equity June 30, 2012 (Unaudited) and December 31, 2011	9
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2012 and 2011 (Unaudited)	10
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Part II	Other Information	32

PART I – FINANCIAL INFORMATION

ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	June 30, 2012		December 31, 2011
	(Unaudited)
	(in thousands)
Current assets
Cash and cash equivalents	$	2,575	$	2,267
Income tax receivable	886		3,967
Accounts receivable – trade (after allowance for doubtful accounts of $100.0 thousand in 2012 and 2011)	13,837		17,191
Net investment in sales-type leases	21		40
Inventories	27,555		18,544
Deferred income taxes	368		411
Prepaid expenses	296		328
Employee loans	5		6
Total current assets	45,543		42,754
Net property and equipment	25,417		26,199
Other assets
Notes receivable – related party	23		45
Goodwill	6,840		6,840
Intangible assets, net	4,650		5,025
Deposits	274		107
Total other assets	11,787		12,017
Total assets	$	82,747	$	80,970

See accompanying notes to consolidated financial statements.

3

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

CONTINUED

LIABILITIES AND STOCKHOLDERS’ EQUITY

	June 30, 2012			December 31, 2011
	(Unaudited)
	(in thousands, except par value and share information)
Current liabilities
Current maturities of long-term debt	$	1,715		$	1,821
Accounts payable	14,407			10,681
Interest rate swap agreements liability	371			484
Other current liabilities	447			331
Total current liabilities	16,940			13,317
Long-term liabilities
Long-term debt	27,350			26,688
Deferred income taxes	1,984			3,406
Total long-term liabilities	29,334			30,094
Shareholders’ equity
Common stock, $0.0033 par value: 10,000,000 shares authorized, 7,192,479 shares issued in 2012 and 2011, 6,944,267 and 6,940,517 shares outstanding in 2012 and 2011, respectively	24			24
Additional paid-in capital	18,210			18,131
Retained earnings	18,826			20,057
Accumulated other comprehensive loss	(230		)	(290		)
Treasury stock at cost, 248,212 and 251,962 shares in 2012 and 2011, respectively	(357		)	(363		)
Total shareholders’ equity	36,473			37,559
Total liabilities and shareholders’ equity	$	82,747		$	80,970

See accompanying notes to consolidated financial statements.

4

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

	2012			2011
	(in thousands, except per share information)
Revenue from services	$	1,023		$	1,290
Revenue from product sales	48,829			63,772
Total revenue	49,852			65,062
Cost of goods sold for services	944			1,006
Cost of goods sold for product sales	47,340			59,612
Total cost of goods sold	48,284			60,618
Provision for employee terminations and severances	17			—
Other selling, general and administrative expenses	2,950			2,735
Total selling, general and administrative expenses	2,967			2,735
(Loss) income before other income (expense)	(1,399		)	1,709
Other income (expense)
Interest expense	(455		)	(633		)
Interest income	3			5
Gain on sale of assets	16			92
Provision for lawsuit settlement	—			(175		)
Other loss, net	—			(502		)
Total other expense	(436		)	(1,213		)
(Loss) income before income taxes	(1,835		)	496
Income tax (benefit) provision	(596		)	183
Net (loss) income	(1,239		)	313
Basic (loss) earnings per share	$	(0.18	)	$	0.05
Diluted (loss) earnings per share	$	(0.18	)	$	0.05
Weighted shares outstanding:
Basic	6,944			6,790
Diluted	6,944			6,825

See accompanying notes to consolidated financial statements.

5

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

	2012			2011
	(in thousands, except per share information)
Revenue from services	$	2,308		$	2,661
Revenue from product sales	109,222			168,802
Total revenue	111,530			171,463
Cost of goods sold for services	2,137			2,283
Cost of goods sold for product sales	104,138			156,528
Total cost of goods sold	106,275			158,811
Provision for employee terminations and severances	228			—
Other selling, general, and administrative expenses	5,949			6,673
Total selling, general and administrative expenses	6,177			6,673
(Loss) income before other income (expense)	(922		)	5,979
Other income (expense)
Interest expense	(940		)	(1,518		)
Interest income	6			11
Gain on sale of assets	35			141
Provision for lawsuit settlement	—			(175		)
Other loss, net	—			(502		)
Total other expense	(899		)	(2,043		)
(Loss) income before income taxes	(1,821		)	3,936
Income tax (benefit) provision	(590		)	1,456
Net (loss) income	$	(1,231	)	$	2,480
Basic (loss) earnings per share	$	(0.18	)	$	0.36
Diluted (loss) earnings per share	$	(0.18	)	$	0.36
Weighted shares outstanding:
Basic	6,942			6,913
Diluted	6,942			6,953

See accompanying notes to consolidated financial statements.

6

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

	2012			2011
	(in thousands)
Net (loss) income	$	(1,239	)	$	313
Other comprehensive income:
Unrealized income (loss) on derivative instruments, net of tax	17			(7		)
Comprehensive (loss) income	$	(1,222	)	$	306

See accompanying notes to consolidated financial statements.

7

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

	2012			2011
	(in thousands)
Net (loss) income	$	(1,231	)	$	2,480
Other comprehensive income:
Unrealized income on derivative instruments, net of tax	60			43
Comprehensive (loss) income	$	(1,171	)	$	2,523

See accompanying notes to consolidated financial statements.

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INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

	Common Stock			Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Total Shareholders’ Equity
	Shares	Amount										Shares		Cost
(in thousands, except share information)
Balance as of December 31, 2011	7,192,479	$	24	$	18,131	$	20,057		$	(290	)	(251,962	)	$	(363	)	$	37,559
Net unrealized income on derivative instruments, net of tax	—	—		—		—			60			—		—			60
Stock/options bonuses	—	—		79		—			—			3,750		6			85
Net loss	—	—		—		(1,231		)	—			—		—			(1,231		)
Balance as of June 30, 2012	7,192,479	$	24	$	18,210	$	18,826		$	(230	)	(248,212	)	$	(357	)	$	36,473

See accompanying notes to consolidated financial statements.

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INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED)

	2012			2011
	(in thousands)
Cash flows from operating activities
Net (loss) income	$	(1,231	)	$	2,480
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	2,236			2,255
Stock expense - bonuses and options	84			495
Deferred income taxes	(1,431		)	—
Gain on sale of property and equipment	(35		)	(141		)
Change in assets and liability
Receivables	3,354			7,281
Net investment in sales-type leases	19			16
Inventories	(9,011		)	145
Income tax receivable	3,081			—
Other assets	(134		)	(1,732		)
Accounts payable	3,536			(6,385		)
Accrued bonuses	—			(946		)
Income tax payable	—			456
Other current liabilities	116			71
Net cash from operating activities	584			3,995
Cash flows from investing activities
Proceeds from sale of property and equipment	36			154
Purchases of property and equipment	(547		)	(895		)
Construction in progress	(343		)	—
Deposits on equipment	—			(260		)
Payments from related party	22			21
Net cash used in investing activities	(832		)	(980		)
Cash flows from financing activities
Payments on long-term debt	(946		)	(3,916		)
Proceeds from long-term debt	1,502			517
Net cash from (used in) financing activities	556			(3,399		)
Net increase (decrease) in cash	308			(384		)
Cash at beginning of year	2,267			2,468
Cash at end of period	$	2,575		$	2,084
Supplemental disclosure of cash flow information:
Cash paid for interest	$	871		$	1,206
Cash tax refund received	2,548			—
Cash paid for taxes	308			1,000
Supplemental disclosure of noncash investing and financing activities
Equipment accrual	190			—

See accompanying notes to consolidated financial statements.

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INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("GAAP") for complete consolidated financial statements. The Accounting Standards Codification ("ASC") as produced by the Financial Accounting Standards Board ("FASB") is the sole source of authoritative GAAP for non-governmental entities. The information furnished includes all adjustments, which are, in the opinion of management, necessary to present fairly our financial position as of June 30, 2012 and the results of our operations and changes in our cash flow for the periods ended June 30, 2012 and 2011. Results of operations for the period ended June 30, 2012 are not necessarily indicative of the results that may be expected for the entire year. Additional information, including the audited December 31, 2011 consolidated financial statements and the Summary of Significant Accounting Policies, is included in our Annual Report on Form 10-K for the year ended December 31, 2011 on file with the Securities and Exchange Commission.

Estimates

In preparing the condensed consolidated financial statements in accordance with U. S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, management must make estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues and expenses, as well as affecting the disclosures provided. Examples of estimates include the allowance for doubtful accounts, estimates associated with annual goodwill impairment tests, estimates of deferred income tax assets and liabilities, estimates of inventory balances, and estimates of stock option values. The Company also uses estimates when assessing fair values of assets and liabilities acquired in business acquisitions as well as any fair value and any related impairment charges related to the carrying value of machinery and equipment, and other long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.

Restatements and Reclassifications

We have reclassified certain income statement items within the accompanying Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements for the prior year in order to be comparable with the current presentation. These reclassifications had no effect on previously reported income.

Fair Value

We carry certain of our financial assets and liabilities at fair value on a recurring basis. These financial assets and liabilities are composed of cash and cash equivalents and derivative instruments. Long-term debt is carried at cost, and the fair value is disclosed herein. In addition, we measure certain assets, such as goodwill and other long-lived assets, at fair value on a non-recurring basis to evaluate those assets for potential impairment. Fair value is defined 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.

In accordance with the accounting standard, we categorize our financial assets and liabilities into the following fair value hierarchy:

Level 1 – Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Examples of level 1 financial instruments include active exchange-traded equity securities and certain U.S. government securities.

Level 2 – Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Examples of level 2 financial instruments include commercial paper purchased from the State Street-administered asset-backed commercial paper conduits, various types of interest-rate derivative instruments, and various types of fixed-income investment securities. Pricing models are utilized to estimate fair value for certain financial assets and liabilities categorized in level 2.

Level 3 – Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall fair value measurement. These inputs reflect management’s judgment about the assumptions that a market participant would use in pricing the asset or liability, and are based on the best available

11

information, some of which is internally developed. Examples of level 3 financial instruments include certain corporate debt with little or no market activity and a resulting lack of price transparency.

When determining the fair value measurements for financial assets and liabilities carried at fair value on a recurring basis, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, we look to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets, and we use alternative valuation techniques to derive fair value measurements.

We use the fair value methodology outlined in the related accounting standard to value the assets and liabilities for cash, debt and derivatives. All of our cash is defined as Level 1 and all our debt and derivative contracts are defined as Level 2. In accordance with this guidance, the following table represents our fair value hierarchy for Level 1 and Level 2 financial instruments at June 30, 2012 (in thousands):

Assets	Level 1		Level 2			Total
Cash and cash equivalents	$	2,575	$	—		$	2,575
Liabilities
Long-term debt	$	—	$	(29,065	)	$	(29,065	)
Derivative contract - interest rate swap	—		(371		)	(371		)

We have had no transfers in or out of Levels 1 or 2 fair value measurements, and no activity in Level 3 fair value measurements for the three month and six month periods ended June 30, 2012. For Level 3 assets, goodwill is subject to impairment analysis each year end under Phase I of the ASC guidance. We hired an independent third party to evaluate Level 3 assets for impairment as of December 31, 2011. No impairment adjustment was necessary.

Stock Option Plan

We provide compensation benefits by granting stock options to employees and directors. 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 5 years. We recognize share-based compensation expense for the fair value of the awards, as estimated using the Modified Black-Scholes-Merton Model, on the date granted on a straight-line basis over their vesting term. Compensation expense is recognized only for share-based payments expected to vest. We estimate forfeitures at the date of grant based on our historical experience and future expectations.

There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected term. We estimate expected volatility based on traded option volatility of the our stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the our long-term incentive plan and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of stock-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management's judgment. As a result, if factors change and we use different assumptions, stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

As of May 15, 2012, we awarded options to purchase 30.0 thousand shares of our stock each to our three new directors for a total of 90.0 thousand shares at a per share exercise price of $4.94, the fair value as of the grant date. As of June 30, 2012, the unrecognized stock-based compensation cost related to non-vested option awards was $129.5 thousand and such amount will be recognized in operations over the vesting period of 1 year. Stock compensation charged to operations was $24.0 thousand as of June 30, 2012. We did not charge any stock compensation to operations as of June 30, 2011.

See also Note 10 - "Long Term Incentive Plan" in these Notes to Consolidated Financial Statements for additional information regarding the Long Term Incentive Plan.

Factoring fees

We have included factoring fees with interest expense. These fees were previously recorded as discounts taken and totaled $101.4 thousand and $312.5 thousand for the year-to-date periods ending June 30, 2012 and 2011, respectively.

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Subsequent Events

We have evaluated the period from June 30, 2012 through the date the financial statements herein were issued for subsequent events requiring recognition or disclosure in the financial statements and the following event was identified:

On August 13, 2012, Industrial Services of America, Inc. and ISA Indiana, Inc. (the “Companies”) entered into a Fourth Amendment to Credit Agreement (the “Fourth Amendment”) with Fifth Third Bank (the “Bank”) which amended the July 30, 2010 Credit Agreement (the “Credit Agreement”), including the First Amendment to Credit Agreement dated as of April 14, 2011 (the “April Amendment”), the Second Amendment to Credit Agreement dated as of November 16, 2011 (the “November Amendment”), and the Third Amendment to Credit Agreement dated as of March 2, 2012 (the “Third Amendment”) as follows. The Fourth Amendment decreased our maximum revolving commitment by $10.0 million to $30.0 million and extended the maturity date of both the revolving credit facility and the term loan from July 31, 2013 to October 31, 2013. The Fourth Amendment also provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ending June 30, 2012. The Fourth Amendment changed our covenant to maintain a ratio of debt to adjusted EBITDA (the "Senior Leverage Ratio") from 3.50 to 1 in the third quarter of 2012 to 4.75 to 1 in the third quarter of 2012. The ratio in the fourth quarter of 2012 and thereafter remains at 3.25 to 1. The Fourth Amendment also changed our covenant to maintain a ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled payment of principal (the "Fixed Charge Coverage Ratio") from not less than 1.2 to 1 to not less than 1.0 to 1 for the third quarter of 2012, and to not less than 1.5 to 1 for the fourth quarter of 2012. For every test period thereafter, it will return to not less than 1.2 to 1. The Fourth Amendment also increased the interest rate for both the revolving credit facility and the term loan by fifty basis points (0.50%) to 3.50% and 3.75%, respectively. The rate will decrease by twenty-five basis points (0.25%) if the Companies achieve a Senior Leverage Ratio of 3.50 to 1 or below beginning with the quarter ending September 30, 2012. In addition, the Companies also agreed to perform other customary commitments and pay a fee of $25.0 thousand to the Bank. All other terms of the Credit Agreement and previous Amendments remain in effect. See also Note 4 - "Long Term Debt and Notes Payable" in these Notes to Consolidated Financial Statements for additional information regarding the Fourth Amendment.

NOTE 2 – CHANGE IN ESTIMATE

As of June 2012, the Company adopted a new method for estimating residual value amounts for automotive vehicle parts and appliances held in inventory. The new method was adopted due to the ongoing evaluation of our experience with the materials produced from our shredder operations. This change in estimate provides a more accurate value of these residual values in inventory and was applied prospectively in accordance with FASB ASC 250, “Accounting Changes and Error Corrections.” The impact of this change resulted in an increase in the cost of goods sold of $352.1 thousand for the six month period ended June 30, 2012.

NOTE 3 – INTANGIBLE ASSETS

Purchased intangible assets are initially recorded at cost and finite life intangible assets are amortized over their useful economic lives on a straight line basis. Intangible assets having indefinite lives and intangible assets that are not yet ready for use are not amortized and are reviewed annually for impairment in accordance with Note 1 – “Summary of Significant Accounting Policies – Fair Value.”

Intangible assets are considered to have indefinite lives when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate cash flows for the Company. The factors considered in making this determination include the existence of contractual rights for unlimited terms and the life cycles of the products and processes that depend on the asset.

We have the following intangible assets as of June 30, 2012:

	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Amortized intangible assets	(in thousands)
Venture Metals, LLC trade name	$	730	$	(292	)	$	438
Non-compete agreements	620		(248		)	372
Venture Metals, LLC customer list	4,800		(960		)	3,840
Total intangible assets	$	6,150	$	(1,500	)	$	4,650

We amortize the trade name and non-compete agreements using a method that reflects the pattern in which the economic benefits are consumed or otherwise used over a 5-year life as stated in the agreements. We amortize the customer list on a straight-line

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basis over a 10-year life as estimated by management. We incurred amortization expense related to these assets of $375.0 thousand for the six month periods ending June 30, 2012 and 2011.

As of June 30, 2012, we expect amortization expense for these assets for the next five fiscal years and thereafter to be as follows:

	Balance -					Balance -
Year	Beginning of Year		Amortization			End of Year
(in thousands)
2012	$	5,025	$	(750	)	$	4,275
2013	4,275		(750		)	3,525
2014	3,525		(750		)	2,775
2015	2,775		(615		)	2,160
2016	2,160		(480		)	1,680
Thereafter	1,680		(1,680		)	—

NOTE 4 – LONG TERM DEBT AND NOTES PAYABLE TO BANK

On August 13, 2012, Industrial Services of America, Inc. and ISA Indiana, Inc. (the “Companies”) entered into a Fourth Amendment to Credit Agreement (the “Fourth Amendment”) with Fifth Third Bank (the “Bank”) which amended the July 30, 2010 Credit Agreement (the “Credit Agreement”), including the First Amendment to Credit Agreement dated as of April 14, 2011 (the “April Amendment”), the Second Amendment to Credit Agreement dated as of November 16, 2011 (the “November Amendment”), and the Third Amendment to Credit Agreement dated as of March 2, 2012 (the “Third Amendment”) as follows. The Fourth Amendment decreased our maximum revolving commitment by $10.0 million to $30.0 million and extended the maturity date of both the revolving credit facility and the term loan from July 31, 2013 to October 31, 2013. The Fourth Amendment also provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ending June 30, 2012. The Fourth Amendment changed our covenant to maintain a ratio of debt to adjusted EBITDA (the "Senior Leverage Ratio") from 3.50 to 1 in the third quarter of 2012 to 4.75 to 1 in the third quarter of 2012. The ratio in the fourth quarter of 2012 and thereafter remains at 3.25 to 1. The Fourth Amendment also changed our covenant to maintain a ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled payment of principal (the "Fixed Charge Coverage Ratio") from not less than 1.2 to 1 to not less than 1.0 to 1 for the third quarter of 2012, and to not less than 1.5 to 1 for the fourth quarter of 2012. For every test period thereafter, it will return to not less than 1.2 to 1. The Fourth Amendment also increased the interest rate for both the revolving credit facility and the term loan by fifty basis points (0.50%) to 3.50% and 3.75%, respectively. The rate will decrease by twenty-five basis points (0.25%) if the Companies achieve a Senior Leverage Ratio of 3.50 to 1 or below beginning with the quarter ending September 30, 2012. In addition, the Companies also agreed to perform other customary commitments and pay a fee of $25.0 thousand to the Bank. All other terms of the Credit Agreement and previous Amendments remain in effect.

On March 2, 2012, the Companies entered into the Third Amendment with the Bank which amended the Credit Agreement, including the April Amendment and the November Amendment, as follows. The Third Amendment redefines the calculation period for the purpose of measuring compliance with the Senior Leverage Ratio and the Fixed Charge Coverage Ratio of not less than 1.20 to 1 such that each ratio will be calculated quarterly for the period beginning January 1, 2012 through the end of each quarter of 2012. Prior to the Third Amendment, the ratios were calculated on a rolling 12 month basis. The Third Amendment also changed the Senior Leverage Ratio from 3.50 to 1 in the original Credit Agreement to (i) 4.25 to 1 in the first quarter of 2012, (ii) 3.50 to 1 in the second and third quarter of 2012, and (iii) 3.25 to 1 in the fourth quarter of 2012 and thereafter. The Third Amendment also increased the unused line fee by 0.25% to 0.75% and provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ending December 31, 2011. In addition, the Companies also agreed to perform other customary commitments and pay a fee of $10.0 thousand to the Bank.

On April 14, 2011, we entered into the April Amendment with the Bank which amended the Credit Agreement as follows: The April Amendment (i) increased the maximum revolving commitment and the maximum amount of eligible inventory advances in the calculation of the borrowing base, (ii) changed the due date of the first excess cash flow payment to April 30, 2012, and (iii) amended certain other provisions of the Credit Agreement and certain of the other loan documents.

On December 6, 2011, we entered into the November Amendment with the Bank which amended the Credit Agreement, as amended by the April Amendment described above. Under the April Amendment, the Company was permitted to borrow the lesser of $45.0 million (the “Maximum Revolving Commitment”) or the borrowing base, consisting of the sum of 85% of eligible accounts plus

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60% of eligible inventory up to $18.0 million. Under the November Amendment, the Maximum Revolving Commitment was reduced to $40.0 million. In addition, the Company agreed to perform other customary commitments.

Under the original Credit Agreement, we were permitted to borrow via a revolving credit facility the lesser of $40.0 million or the borrowing base, consisting of the sum of 85% of eligible accounts plus 60% of eligible inventory up to $17.0 million.Eligible accounts are generally those receivables that are less than90 days from the invoice date. As security for the revolving credit facility, we provided the Bank a first priority security interest in the accounts receivable from most of our customers and in our inventory. We also cross collateralized the revolving line of credit with an $8.8 million term loan, entered into to replace several notes payable with another bank. Proceeds of the original revolving credit facility in the amount of $33.4 million were used to repay the outstanding principal balance of prior obligations with another bank.  We used additional proceeds of the revolving credit facility to pay closing costs and for funding temporary fluctuations in accounts receivable of most of our customers and inventory.

With respect to the revolving credit facility, as of June 30, 2012, the interest rate was the one month LIBOR plus two hundred fifty basis points (2.50%) per annum, adjusted monthly on the first day of each month. As of June 30, 2012, the interest rate was 3.00%. We also pay a fee of 0.75% on the unused portion. As of June 30, 2012 the revolving credit facility expired on July 31, 2013. Pursuant to the Fourth Amendment, the interest rate was raised by fifty basis points 0.50%) and the revolving credit facility expiration date was extended to October 31, 2013. As of June 30, 2012, the outstanding balance on the revolving line of credit was $21.6 million. 

The $8.8 million term loan provides for an interest rate that is twenty-five basis points (0.25%) higher than the interest rate for the revolving credit facility, which is 3.25% as of June 30, 2012. Principal and interest is payable monthly in 36 consecutive installments of approximately $125.0 thousand. The first such payment commenced September 1, 2010. As of June 30, 2012, the final payment of the then-unpaid balance became due and payable in full on July 31, 2013.  Pursuant to the Fourth Amendment, the interest rate was raised by fifty basis points (0.50%) and the final payment becomes due and payable in full on October 31, 2013. In addition, we will make an annual payment equal to 25% of (i) our adjusted EBITDA, minus (ii) our aggregate cash payments of interest expense and scheduled payments of principal (including any prepayments of the term loan), minus (iii) any non-financed capital expenditures, in each case for the Company's prior fiscal year.  Based on 2011 operating results, no annual payment was required in 2012 for the 2011 fiscal year. The next annual payment will be due on April 30, 2013 (or earlier, upon completion of the Company's financial statements for the fiscal year ending December 31, 2012).Any such payments will be applied to remaining installments of principal under the term loan in the inverse order of maturity, and to accrued but unpaid interest thereon. As security for the term loan, we provided the Bank a first priority security interest in all equipment other than the rental fleet that we own. As of June 30, 2012, the outstanding balance on the term loan was $6.4 million.

In addition, we provided a first mortgage on the property at the following locations: 3409 Campground Road, 6709, 7023, 7025, 7101, 7103, 7110, 7124, 7200 and 7210 Grade Lane, Louisville Kentucky, 1565 East Fourth Street, Seymour, Indiana and 1617 State Road 111, New Albany, Indiana.  The Company also cross collateralized the term loan with the revolving credit facility and all other existing debt the Company owes to the Bank.

In our Credit Agreement with the Bank, we agreed to certain covenants, including (i) maintenance of a ratio of debt to adjusted EBITDA for the preceding 12months of not more than 3.50 to 1 (or, if measured as of December 31 of any fiscal year, 4.0 to 1), (ii) maintenance of a ratio of adjusted EBITDA for the preceding twelve months to aggregate cash payments of interest expense and scheduled payment of principal in the preceding 12 months of not less than 1.20 to 1, and (iii) a limitation on capital expenditures of $4.0 million in any fiscal year. Pursuant to the Third Amendment, the Senior Leverage Ratio increased to 4.25 to 1 for the period ending March 31, 2012. The Senior Leverage Ratio decreased to 3.50 to 1 for the period ending June 30, 2012. Pursuant to the Fourth Amendment, the Senior Leverage Ratio increased to 4.75 to 1 for the period ending September 30, 2012 and will decrease to 3.25 to 1 for the period ending December 31, 2012 and thereafter. The Senior Leverage Ratio will, in each quarter, be calculated using a measurement period beginning January 1, 2012 and ending at the end of the quarterly measurement period. The other covenants will remain the same going forward. As of June 30, 2012, we were not in compliance with the covenants in (i) and (ii) above. As of June 30, 2012, our ratio of debt to adjusted EBITDA was 6.59; our ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled principal payments was 0.43. As of June 30, 2012, capital expenditures totaled $889.9 thousand, which includes $342.9 thousand in construction in progress. We received a waiver from the bank for the quarter ending June 30, 2012 for failing to meet the ratio requirements for covenants (i) and (ii) above. As of June 30, 2012, we have $18.4 million available to us under our existing credit facilities.

On April 12, 2011, we entered into a Loan and Security Agreement with the Bank pursuant to which the Bank agreed to provide the Company with a Promissory Note (the “April Note”) in the amount of $226.9 thousand for the purpose of purchasing operating equipment. The interest rate is five and sixty-eight hundredths percent (5.68%). Principal and interest is payable in 48 equal monthly installments of $5.3 thousand, each due on the 20th day of each calendar month. Payment commenced on the 20th day of May, 2011, and the entire unpaid principal amount, together with all accrued and unpaid interest, charges, fees or other advances,

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if any, comes due on or before April 20, 2015. As security for the Note, we have granted the Bank a first priority security interest in the equipment purchased with the proceeds of the April Note. As of June 30, 2012, the outstanding balance of this loan was $160.3 thousand.

On August 9, 2011, we entered into a Loan and Security Agreement (the "August Agreement") with the Bank pursuant to which the Bank agreed to loan the Company funds pursuant to a Promissory Note (the "August Note") in the amount of $115.0 thousand for the purpose of purchasing operating equipment.  The interest rate is 5.95%.  Principal and interest is payable in 48 equal monthly installments of $2.7 thousand. The first such payment commenced on September 12, 2011, and the entire unpaid principal amount, together with all accrued and unpaid interest, charges, fees or other advances, if any, becomes due no later than August 12, 2015.  As security for the August Note, we have granted the Bank a first priority security interest in the equipment purchased with the proceeds of the Note. As of June 30, 2012, the outstanding balance of this loan was $93.1 thousand.

On October 19, 2010, we entered into a Promissory Note (the “October Note”) with the Bank in the amount of $1.3 million for the purpose of purchasing equipment. The interest rate is equal to five and two tenths percent (5.20%) per annum. Principal and interest is payable monthly in 48 consecutive equal installments of $30.5 thousand with the first such payment commencing November 15, 2010, and the final unpaid principal amount due, together with all accrued and unpaid interest, charges, fees, or other advances, if any, to be paid on October 15, 2014. As security for the October Note, we provided Fifth Third Bank a first priority security interest in the equipment purchased with the proceeds. As of June 30, 2012, the outstanding balance on the October Note was $802.4 thousand.

On August 2, 2007, we entered into an asset purchase agreement for $1.3 million 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 $20.0 thousand per month for 60 months for various assets including tractor trailers, trucks and containers. The note payable reflects a seven percent (7.0%) interest payment on the outstanding balance plus principal amortization. We also paid ILS $100.0 thousand cash as a portion of the purchase price at the time of execution of the asset purchase agreement. We recorded a note payable of $1.0 million with an outstanding balance at June 30, 2012 of $39.6 thousand.

We entered into three interest rate swap agreements swapping variable rates for fixed rates. The first swap agreement covers approximately $4.5 million in debt, commenced April 7, 2009, and matures on April 7, 2014. The second swap agreement covers approximately $2.0 million in debt, commenced October 15, 2008, and matures on May 7, 2013. The third swap agreement covers approximately $429.9 thousand in debt, commenced October 22, 2008, and matures on October 22, 2013. The three swap agreements fix our interest rate at approximately 5.8%. At June 30, 2012, we recorded the estimated fair value of the liability related to the three swaps at approximately $371.3 thousand. We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional amounts. We maintain a cash account on deposit with BB&T which serves as collateral for the swap agreements.As of June 30, 2012, the balance in this account was $438.0 thousand.

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Our long term debt as of June 30, 2012 and December 31, 2011 consisted of the following:

	2012		2011
	(Unaudited)
	(in thousands)
Revolving credit facility of $40.0 million with Fifth Third Bank. See above description for additional details.	$	21,585	$	20,083
Note payable to Fifth Third Bank in the amount of $8.8 million secured by our rental fleet equipment, our shredder system assets, and a crane. See above description for additional details.	6,385		7,015
Note payable to Fifth Third Bank in the amount of $1.3 million secured by equipment purchased with the proceeds. See above description for additional details.	802		962
Loan and Security Agreement payable to Fifth Third Bank in the amount of $226.9 thousand secured by the equipment purchased with the proceeds. See above description for additional details.	160		187
Note payable to Fifth Third Bank in the amount of $115.0 thousand secured by the equipment purchased with the proceeds. See above description for additional details.	93		106
Note payable to ILS for various assets including tractor trailers, trucks and containers. The repayment terms are $20.0 thousand per month for 60 months at a seven percent (7.0%) interest rate. The maturity date under this agreement is August 2012.	40		156
	29,065		28,509
Less current maturities	1,715		1,821
	$	27,350	$	26,688

The annual maturities of long term debt (in thousands) as of June 30, 2012 are as follows:

2012	$	1,715
2013	27,148
2014	197
2015	5
Thereafter	—
Total	$	29,065

NOTE 5 – SEGMENT INFORMATION

Our operations include two primary segments: Recycling and Waste Services.

The Company’s two 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, including stainless steel, automobile parts, and fiber scrap. Waste Services’ revenues consist of charges to customers for waste disposal services and equipment sales and lease income. The components of the column labeled “other” are selling, general and administrative expenses that are not directly related to the two primary segments.

We evaluate segment performance based on gross profit or loss and the evaluation process for each segment includes only direct expenses and selling, general and administrative costs, omitting any other income and expense and income taxes.

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FOR THE SIX MONTHS ENDED JUNE 30, 2012	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	108,118		$	—		$	—		$	108,118
Equipment sales, service and leasing revenues	—			1,104			—			1,104
Management fees	—			2,308			—			2,308
Cost of goods sold	(103,792		)	(2,483		)	—			(106,275		)
Selling, general, and administrative expenses	(3,643		)	(376		)	(2,158		)	$	(6,177	)
Segment profit (loss)	$	683		$	553		$	(2,158	)	$	(922	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

FOR THE SIX MONTHS ENDED June 30, 2011	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	167,637		$	—		$	—		$	167,637
Equipment sales, service and leasing revenues	—			1,165			—			1,165
Management fees	—			2,661			—			2,661
Cost of goods sold	(156,103		)	(2,708		)	—			(158,811		)
Selling, general, and administrative expenses	(4,524		)	(385		)	(1,764		)	(6,673		)
Segment profit (loss)	$	7,010		$	733		$	(1,764	)	$	5,979
Segment assets	$	88,689		$	2,179		$	8,066		$	98,934

FOR THE THREE MONTHS ENDED JUNE 30, 2012	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	48,236		$	—		$	—		$	48,236
Equipment sales, service and leasing revenues	—			593			—			593
Management fees	—			1,023			—			1,023
Cost of goods sold	(47,158		)	(1,126		)	—			(48,284		)
Selling, general, and administrative expenses	(1,831		)	(193		)	(943		)	(2,967		)
Segment profit (loss)	$	(753	)	$	297		$	(943	)	$	(1,399	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

FOR THE THREE MONTHS ENDED JUNE 30, 2011	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	63,185		$	—		$	—		$	63,185
Equipment sales, service and leasing revenues	—			587			—			587
Management fees	—			1,290			—			1,290
Cost of goods sold	(59,400		)	(1,218		)	—			(60,618		)
Selling, general, and administrative expenses	(2,203		)	(191		)	(341		)	(2,735		)
Segment profit (loss)	$	1,582		$	468		$	(341	)	$	1,709
Segment assets	$	88,689		$	2,179		$	8,066		$	98,934

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NOTE 6 – INVENTORIES

Our inventories primarily consist of ferrous and non-ferrous, including stainless steel, scrap metals and are valued at the lower of average purchased cost or market using the specific identification method based on individual scrap commodities. 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 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 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 shredded, 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.

As of June 2012, the Company adopted a new method for estimating residual value amounts for automotive vehicle parts and appliances held in inventory. The new method was adopted due to the ongoing evaluation of our experience with the materials produced from our shredder operations. This change in estimate provides a more accurate value of these residual values in inventory and was applied prospectively in accordance with FASB ASC 250, “Accounting Changes and Error Corrections.” The impact of this change resulted in an increase in the cost of goods sold of $352.1 thousand for the six month period ended June 30, 2012.

Inventory also includes all types of industrial waste handling equipment and machinery held for resale such as compactors, balers, and containers. Replacement parts included in inventory are depreciated over a one-year life. Other inventory includes fuel, cardboard and baling wire.

Inventories as of June 30, 2012 and December 31, 2011 consist of the following:

	June 30, 2012								December 31, 2011
	Raw Materials		Finished Goods		Processing Costs		Total (unaudited)		Raw Materials		Finished Goods		Processing Costs		Total
	(in thousands)
Stainless steel, ferrous and non-ferrous materials	$	23,260	$	1,199	$	1,275	$	25,734	$	14,633	$	1,409	$	777	$	16,819
Waste equipment machinery	—		85		—		85		—		39		—		39
Other	—		69		—		69		—		63		—		63
Total inventories for sale	23,260		1,353		1,275		25,888		14,633		1,511		777		16,921
Replacement parts	1,667		—		—		1,667		1,623		—		—		1,623
Total inventories	$	24,927	$	1,353	$	1,275	$	27,555	$	16,256	$	1,511	$	777	$	18,544

NOTE 7 - LEASE COMMITMENTS

Operating Leases:

We lease our Louisville, Kentucky facility from a related party under an operating lease expiring December 2012. The rent was adjusted in December 2007 per the Company’s agreement to make monthly payments of $48.5 thousand through December 2012. In addition, we are also responsible for real estate taxes, insurance, utilities and maintenance expense.

We lease office space in Dallas, Texas for which monthly payments of $1.0 thousand are due through September 2012.

We lease equipment from a related party under operating leases expiring in November 2015 and May 2016 for a monthly payment totaling $10.5 thousand.

We lease a lot in Louisville, Kentucky for a term commencing in March 2012 and ending in February 2016. The monthly payment

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amount from March 2012 through February 2014 is $3.5 thousand. The monthly payment amount then increases to $3.8 thousand for the remaining term.

Future minimum lease payments for operating leases in thousands as of June 30, 2012 are as follows:

2012	$	441
2013	168
2014	171
2015	134
2016	8
Thereafter	—
Future minimum lease payments	$	922

Total rent expense for the six months ended June 30, 2012 and 2011 was $472.7 thousand and $557.2 thousand, respectively.

NOTE 8 - PROVISION FOR EMPLOYEE TERMINATIONS AND SEVERANCES

In the six month period ended June 30, 2012, the Company accrued $228.4 thousand for expenses related to employee terminations and severances.

NOTE 9 – PER SHARE DATA

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

Six months ended June 30, 2012 compared to six months ended June 30, 2011:

	2012			2011
	(in thousands, except per share information)
Basic (loss) earnings per share
Net (loss) income	$	(1,231	)	$	2,480
Weighted average shares outstanding	6,942			6,913
Basic (loss) earnings per share	$	(0.18	)	$	0.36
Diluted (loss) earnings per share
Net (loss) income	$	(1,231	)	$	2,480
Weighted average shares outstanding	6,942			6,913
Add dilutive effect of assumed exercising of stock options	—			40
Diluted weighted average shares outstanding	6,942			6,953
Diluted (loss) earnings per share	$	(0.18	)	$	0.36

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Three months ended June 30, 2012 compared to three months ended June 30, 2011:

	2012			2011
	(in thousands, except per share information)
Basic (loss) earnings per share
Net (loss) income	$	(1,239	)	$	313
Weighted average shares outstanding	6,944			6,790
Basic (loss) earnings per share	$	(0.18	)	$	0.05
Diluted (loss) earnings per share
Net (loss) income	$	(1,239	)	$	313
Weighted average shares outstanding	6,944			6,790
Add dilutive effect of assumed exercising of stock options	—			35
Diluted weighted average shares outstanding	6,944			6,825
Diluted (loss) earnings per share	$	(0.18	)	$	0.05

NOTE 10 – LONG TERM INCENTIVE PLAN

The Company’s long term incentive plan makes available up to 2.4 million shares of our common stock for performance-based awards under the plan. We may grant any of these types of awards: non-qualified and incentive stock options, stock appreciation rights, and other stock awards including stock units, restricted stock units, performance shares, performance units, and restricted stock. The performance goals that we may use for such awards will be based on any one or more of the following performance measures: cash flow, earnings, earnings per share, market value added or economic value added, profits, return on assets, return on equity, return on investment, revenues, or total shareholder return.

The plan is administered by a committee selected by the Board, initially our Compensation Committee, and consisting of two or more outside members of the Board. The Committee may grant one or more awards to our employees, including our officers, our directors and consultants, and will determine the specific employees who will receive awards under the plan and the type and amount of any such awards. A participant who receives shares of stock awarded under the plan must hold those shares for six months before the participant may dispose of such shares. The Committee may settle an award under the plan in cash rather than stock.

The Company uses the Modified Black-Scholes-Merton option-pricing model to value the Company's stock options for each stock option award. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company's stock option awards, which are generally subject to pro-rata vesting annually over one year, is expensed on a straight-line basis over the vesting period of the stock options. The expected volatility assumption is based on traded options volatility of the Company's stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company's stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The expected term assumption incorporates the contractual term of an option grant, which is five years, as well as the vesting period of an award, which is generally pro-rata vesting annually over one year. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.

The Company recognizes stock-based compensation costs, net of estimated forfeitures, for only those shares expected to vest on a straight-line basis over the requisite service period of the award. The Company estimates the forfeiture rates based on its historical experience. Treasury shares are issued for exercised options. The Company does not expect to repurchase any additional shares within the following annual period to accommodate the exercise of outstanding stock options.

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The weighted average assumptions relating to the valuation of the Company's stock options awarded in May, 2012 is shown below. No stock options were granted during 2011.

	2012
Weighted average grant-date fair value of grants per option	$1.71
Volatility	52.8%
Risk-free interest rate	2.5%
Expected life	2.5 years
Expected dividend yield	0.0%

The following table presents a summary of the Company's stock option activity:

Options	Number of shares (in thousands)	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2011 (vested)	90	$	4.23	3.5 years	$	1.05
Granted	—	—		—	—
Outstanding at December 31, 2011	90	$	4.23	2.5 years	$	1.05
Granted (nonvested)	90	4.94		5 years	1.71
Outstanding at June 30, 2012	180	$	4.59	3.4 years	$	1.38
Vested and expected to vest in the future at June 30, 2012	180
Exercisable at June 30, 2012	90	$	4.23	2 years	$	1.05
Available for grant at June 30, 2012	2,095

As of July 1, 2009, we awarded options to purchase 30.0 thousand shares of our stock each to our three independent directors for a total of 90.0 thousand shares at a per share exercise price of $4.23. We recorded expense related to these stock options of $95.1 thousand in 2009. These options are outstanding as of June 30, 2012. As of May 15, 2012, we awarded options to purchase 30.0 thousand shares of our stock each to our three new directors for a total of 90.0 thousand shares at a per share exercise price of $4.94, the fair value as of the grant date. We recorded expense related to these stock options of $24.0 thousand for the quarter ended June 30, 2012. See Note 1 - "Summary of Significant Accounting Policies" of these Consolidated Financial Statements for additional information on the stock option plan.

In January 2011, we issued 60.0 thousand shares of our stock to management. These shares were granted pursuant to performance based stock plans authorized on April 1, 2010, at a grant date fair value of $11.93 per share. We also issued non-performance based stock awards of 0.6 thousand shares to consultants at $12.28 per share in January 2011. On April 9, 2012, we issued 3.8 thousand shares of our stock to a previous executive. These shares were granted pursuant to a performance based stock plan authorized on August 13, 2010, at a grant date fair value of $15.98 per share with performance requirements met on August 15, 2011.

NOTE 11 – LEGAL PROCEEDINGS

We have litigation from time to time, including employment-related claims, none of which we currently believe to be material.

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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this report.

The following discussion and analysis contains certain financial predictions, forecasts and projections which constitute “forward-looking statements” within the meaning of the federal securities laws. Actual results could differ materially from those financial predictions, forecasts and projections and there can be no assurance that we will achieve such financial predictions, forecasts and projections. Factors that could affect financial predictions, forecasts and projections include the fluctuations in the commodity price index and any conditions internal to our major customers, including loss of their accounts and other factors as listed in our Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission.

General

We are primarily focusing our attention now and in the future towards our recycling business. We sell processed ferrous and non-ferrous scrap material to end-users such as steel mini-mills, integrated steel makers, foundries and refineries. We deliver all scrap ourselves or through third parties via truck, rail car, and/or barge. Some customers choose to send their own delivery trucks, which are weighed and loaded at one of our sites based on the sales order. 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 shredding, sorting, shearing, cutting and/or baling. We will also continue to focus on initiating growth in our waste services business segment, which includes management services and waste and recycling equipment sales, service and leasing.

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 approximately 900 customer locations throughout the United States and we utilize an active database of over 7,000 vendors to provide timely, thorough and cost-effective service to our customers. Along with positioning ourselves to efficiently service our customers, our management services division methods of competition include offering our clients competitive pricing, superior customer service and industry expertise.

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

We have operating locations in Louisville, Kentucky, Seymour and New Albany, Indiana. We do not have operating locations outside the United States.

Liquidity and Capital Resources

As of June 30, 2012 we held cash and cash equivalents of $2.6 million. Included in the $2.6 million is a cash account on deposit with BB&T which serves as collateral for our swap agreements. As of June 30, 2012, the balance in this account was $438.0 thousand. Other than this balance, our cash accounts are available to us without restriction.

On August 13, 2012, Industrial Services of America, Inc. and ISA Indiana, Inc. (the “Companies”) entered into a Fourth Amendment to Credit Agreement (the “Fourth Amendment”) with Fifth Third Bank (the “Bank”) which amended the July 30, 2010 Credit Agreement (the “Credit Agreement”), including the First Amendment to Credit Agreement dated as of April 14, 2011 (the “April Amendment”), the Second Amendment to Credit Agreement dated as of November 16, 2011 (the “November Amendment”), and the Third Amendment to Credit Agreement dated as of March 2, 2012 (the “Third Amendment”) as follows. The Fourth Amendment decreased our maximum revolving commitment by $10.0 million to $30.0 million and extended the maturity date of both the revolving credit facility and the term loan from July 31, 2013 to October 31, 2013. The Fourth Amendment also provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ending June 30, 2012. The Fourth Amendment changed our covenant to maintain a ratio of debt to adjusted EBITDA (the "Senior Leverage Ratio") from 3.50 to 1 in the third quarter of 2012 to 4.75 to 1 in the third quarter of 2012. The ratio in the fourth quarter of 2012 and thereafter remains at 3.25 to 1. The Fourth Amendment also changed our covenant to maintain a ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled payment of principal (the "Fixed Charge Coverage Ratio") from not less than 1.2 to 1 to not less than 1.0 to 1 for the third quarter of 2012, and to not less than 1.5 to 1 for the fourth quarter of 2012. For every test period thereafter, it will return to not less than 1.2 to 1. The Fourth Amendment also increased the interest rate for both the revolving credit facility and the term loan by fifty basis points (0.50%) to 3.50% and 3.75%, respectively. The rate will decrease by twenty-five basis points (0.25%) if the Companies achieve a Senior Leverage Ratio of 3.50 to 1 or below beginning with the quarter ending September 30, 2012. In addition, the Companies also agreed to perform other customary commitments and pay a fee of $25.0 thousand to the Bank. All other terms of the Credit Agreement and previous Amendments remain in effect. See also Note

23

4 - "Long Term Debt and Notes Payable" in these Notes to Consolidated Financial Statements for additional information regarding the Fourth Amendment.

On March 2, 2012, the Companies entered into the Third Amendment with the Bank which amended the Credit Agreement, including the April Amendment and the November Amendment, as follows. The Third Amendment redefines the calculation period for the purpose of measuring compliance with the Senior Leverage Ratio and the Fixed Charge Coverage Ratio of not less than 1.20 to 1 such that each ratio will be calculated quarterly for the period beginning January 1, 2012 through the end of each quarter of 2012. Prior to the Third Amendment, the ratios were calculated on a rolling 12 month basis. The Third Amendment also changed the Senior Leverage Ratio from 3.50 to 1 in the original Credit Agreement to (i) 4.25 to 1 in the first quarter of 2012, (ii) 3.50 to 1 in the second and third quarter of 2012, and (iii) 3.25 to 1 in the fourth quarter of 2012 and thereafter. The Third Amendment also increased the unused line fee by 0.25% to 0.75% and provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ending December 31, 2011. In addition, the Companies also agreed to perform other customary commitments and pay a fee of $10.0 thousand to the Bank.

In our Credit Agreement with the Bank, we agreed to certain covenants, including (i) maintenance of a ratio of debt to adjusted EBITDA for the preceding 12months of not more than 3.50 to 1 (or, if measured as of December 31 of any fiscal year, 4.0 to 1), (ii) maintenance of a ratio of adjusted EBITDA for the preceding twelve months to aggregate cash payments of interest expense and scheduled payment of principal in the preceding 12 months of not less than 1.20 to 1, and (iii) a limitation on capital expenditures of $4.0 million in any fiscal year. Pursuant to the Third Amendment, the Senior Leverage Ratio increased to 4.25 to 1 for the period ending March 31, 2012. The Senior Leverage Ratio decreased to 3.50 to 1 for the period ending June 30, 2012. Pursuant to the Fourth Amendment, the Senior Leverage Ratio increased to 4.75 to 1 for the period ending September 30, 2012 and will decrease to 3.25 to 1 for the period ending December 31, 2012 and thereafter. The Senior Leverage Ratio will, in each quarter, be calculated using a measurement period beginning January 1, 2012 and ending at the end of the quarterly measurement period. The other covenants will remain the same going forward. As of June 30, 2012, we were not in compliance with the covenants in (i) and (ii) above. As of June 30, 2012, our ratio of debt to adjusted EBITDA was 6.59; our ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled principal payments was 0.43. As of June 30, 2012, capital expenditures totaled $889.9 thousand, which includes $342.9 thousand in construction in progress. We received a waiver from the bank for the quarter ending June 30, 2012 for failing to meet the ratio requirements for covenants (i) and (ii) above. As of June 30, 2012, we have $18.4 million available to us under our existing credit facilities.

We have long term debt comprised of the following:

	June 30, 2012		December 31, 2011
	(Unaudited)
	(in thousands)
Revolving line of credit	21,585		20,083
Notes payable	7,480		8,426
	$	29,065	$	28,509

Pursuant to the Fourth Amendment, our revolving credit facility was reduced to $30.0 million. This revolving credit facility expires and the $8.8 million term loan becomes due and payable in full on October 31, 2013. We intend to restructure these credit arrangements to extend the maturity date beyond a one-year period prior to December 31, 2012.

We expect that existing cash flow from operations and available credit under our existing credit facilities will be sufficient to meet our cash needs for the next year and beyond, assuming compliance with the covenants in our Credit Agreement or continued waivers thereof and restructuring of the arrangements beyond a one-year period, as mentioned above. As of June 30, 2012, we do not have any material commitments for capital expenditures.

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Results of Operations

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

	Six months ended
	June 30,
	2012		2011
Statements of Operations Data:
Total Revenue	100.0	%	100.0	%
Cost of goods sold	95.3	%	92.6	%
Selling, general and administrative expenses	5.5	%	3.9	%
Income before other expenses	(0.8	)%	3.5	%

Six months ended June 30, 2012 compared to six months ended June 30, 2011

Total revenue decreased $60.0 million or 35.0% to $111.5 million in the six month period ended June 30, 2012 as compared to $171.5 million in the same period in 2011. Recycling revenue decreased $59.5 million or 35.5% to $108.1 million in the six month period ended June 30, 2012 compared to $167.6 million in the same period in 2011. This is primarily due to a decrease of 32.3million pounds, or 42.9%, in the volume of stainless steel materials shipments due to a continued decrease in worldwide stainless steel demand beginning in the second quarter of 2011. Substantially all of our stainless steel sales are to one customer. In response to the overall decrease in demand for stainless steel, this customer decreased our sales orders received in both the second and third quarters of 2011. As demand began to recover, this customer increased sales orders in the fourth quarter of 2011 and again in the first quarter of 2012. Demand in the second quarter of 2012 slowed again, causing another decrease in sales orders from this customer during this time period. The volume of ferrous materials shipments also decreased by 22.3 thousand gross tons, or 20.2%, as compared to the same period in 2011. While some scrap buyers provide consistently competitive pricing from year to year, others may provide competitive pricing one year but not the next. This market-driven competition causes our preferred buyer base to fluctuate from year to year. In the six month period ended June 30, 2012, sales to comparable Recycling scrap buyers decreased by approximately $59.0 million, or 35.3%, as compared to the same period in 2011. New and competitively priced, intermittent scrap buyers sales totaled approximately $8.4 million in the six month period ended June 30, 2012. Sales during this period in 2011 to intermittent scrap buyers with non-competitive prices in 2012 totaled $9.9 million. In addition to the reduction in volume, total revenue was also affected by the decrease in overall average price for all commodities shipped by $184.04 per gross ton, or 18.7%. Specifically, average nickel prices on the London Metal Exchange decreased $3.30 per pound, or 28.5%, for the six month period ended June 30, 2012 as compared to average nickel prices for the same period in 2011. Nickel is a key commodity used in stainless steel blends. These decreases were partially offset by an increase of 2.4 million pounds, or 16.6%, in the volume of nonferrous materials shipments.

Waste Services revenue decreased $0.4 million or 10.5% to $3.4 million in the six month period ended June 30, 2012 compared to $3.8 million in the same period in 2011primarily due to lower average cardboard prices in these time frames, which lowered cardboard recycling revenue by $186.5 thousand. The average cardboard price was $20.00 per ton lower in the six month period ended June 30, 2012 compared to the same period in 2011. In general, the timing of services provided or equipment installed will cause fluctuations in Waste Services revenue between periods. Also, for industrial customers, recycling volumes and prices for similar commodities decreased by 267.6 thousand pounds or 3.0% and $0.03 per pound or 17.0%, respectively, in this period in 2012 as compared to the same period in 2011. The recycling revenue generated for these customers is originally paid to Waste Services from Recycling. This revenue is then passed on to the customer as an off-setting expense for Waste Services cost of sales, which causes a decrease in Waste Services cost of sales when comparing the same periods of 2012 and 2011, as described below.

Total cost of goods sold decreased $52.5 million or 33.1% to $106.3 million in the period ended June 30, 2012 as compared to $158.8 million for the same period in 2011. Recycling cost of goods sold decreased $52.3 million or 33.5% to $103.8 million in the six month period ended June 30, 2012 as compared to $156.1 million for the same period in 2011. This decrease is primarily due to the decrease in the volume of stainless steel and ferrous materials shipments along with a decrease in the volume of stainless steel materials purchases of 16.3 million pounds, or 23.7%, and a decrease in the volume of ferrous materials purchases of 32.2 thousand gross tons, or 23.6%.Overall average price for all commodities purchased decreased $73.26, or 8.8%. Direct labor costs also decreased by $644.1 thousand due to two manager level employees leaving the Company, fewer average employees on weekly payroll in 2012 as compared to 2011, and decreased production due to the continued decline in market demand for stainless steel and other metals. These factors caused decreases in overtime expense of $220.0 thousand, contract labor expense of $167.3 thousand, maintenance labor expense of $103.9 thousand, and other labor expense of $152.9 thousand.

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Other decreases in cost of goods sold include the following:

• A decrease in repair and maintenance expenses of $333.8 thousand;

• A decrease in hauling, fuel and lubricant expenses of $142.1 thousand;

• A decrease in depreciation expense of $55.9 thousand;

• A decrease in utilities of $49.7 thousand; and

• A decrease in lease and rent expense of $47.9 thousand.

These decreases are partially offset by the increase in the volume of nonferrous materials shipments as noted above and an increase in the volume of nonferrous materials purchases of 2.1 million pounds, or 11.0%. Processing costs increased $178.0 thousand or 13.4% in the period ended June 30, 2012 as compared to the same period in 2011.

Waste Services cost of goods sold decreased $0.2 million or 7.4% to $2.5 million in the six month period ended June 30, 2012 compared to $2.7 million in the same period in 2011. We often use third party haulers to meet customers' Waste Services needs. We then pay these third party providers and in turn invoice our customers for these amounts. The decrease above was primarily due to the timing of these third party haulers' services provided and their invoices received, the decrease in industrial customers' recycling volumes and prices mentioned above, along with the decrease in cardboard prices mentioned above.

Selling, general and administrative expenses decreased $0.5 million or 7.5% to $6.2 million in the period ended June 30, 2012 compared to $6.7 million in the same period in 2011. As a percentage of revenue, selling, general and administrative expenses were 5.5% in 2012 compared to 3.9% in 2011. The primary driver of the decrease in selling, general and administrative expenses was a decrease in management fees, directors' fees, and consulting fees of $263.3 thousand.

Additional decreases include the following:

• A decrease in legal expenses of $146.7 thousand;

• A decrease in operating supplies expenses of $118.7 thousand;

• A decrease in repair and maintenance expenses of $106.8 thousand;

• A decrease in fuel, lubricant, and hauling expenses of $103.3 thousand; and

• A decrease in property taxes, license taxes and fees of $93.0 thousand.

These decreases were partially offset by an increase in labor expenses of $325.9 thousand, of which $228.4 thousand relates to a provision for termination and severance expenses in the six month period ended June 30, 2012.

Other expense decreased $1.1 million to $0.9 million in the period ending June 30, 2012 as compared to other expense of $2.0 million in the same period in 2011. This was primarily due to a decrease in interest expense of $579.0 thousand due to lower debt levels in 2012. Other expense also decreased by $501.6 thousand due to purchase contract termination fees paid in 2011 that were not taken in 2012. Additionally, an accrual for a legal settlement of $175.0 thousand paid in 2011 was not necessary in 2012. These decreases were partially offset by a decrease in the gain on sale of assets of $106.4 thousand.

The income tax provision decreased $2.1 million to a benefit of $0.6 million in the period ended June 30, 2012 compared to an expense of $1.5 million in the same period in 2011 due to the decreased net income reported in 2012. The effective tax rates in 2012 and 2011 were 32.4% and 37.0%, respectively, based on federal and state statutory rates. Beginning in the first quarter of 2011, we were able to take advantage of the Domestic Production Activities Deduction available to US-based manufacturing companies. In the second quarter of 2012, we had an additional tax expense of approximately $77.0 primarily due to a prior year correction of the state and city returns.

Three months ended June 30, 2012 compared to three months ended June 30, 2011

Total revenue decreased $15.2 million or 23.3% to $49.9 million in the second quarter of 2012 compared to $65.1 million in the same period in 2011. Recycling revenue decreased $15.0 million or 23.7% to $48.2 million in 2012 compared to $63.2 million in 2011. This is primarily due to a decrease of 1.9 million pounds, or 9.4%, in the volume of stainless steel materials shipments due to a decrease in worldwide stainless steel demand beginning in the second quarter of 2011. Substantially all of our stainless steel sales are to one customer. In response to the overall decrease in demand for stainless steel, this customer decreased our sales orders

26

received in both the second and third quarters of 2011. As demand began to recover, this customer increased sales orders in the fourth quarter of 2011 and again in the first quarter of 2012. Demand in the second quarter of 2012 slowed again, causing another decrease in sales orders from this customer during this time period. The volume of ferrous and nonferrous materials shipments also decreased by 18.4 thousand gross tons, or 29.0%, and 2.9 million pound, or 26.0%, respectively, as compared to the same period in 2011. While some scrap buyers provide consistently competitive pricing from year to year, others may provide competitive pricing one year but not the next. This market-driven competition causes our preferred buyer base to fluctuate from year to year. In 2012, sales to comparable Recycling scrap buyers decreased by approximately $15.3 million, or 24.1%, compared to the same period in 2011. New and competitively priced, intermittent scrap buyers sales in the second quarter of 2012 totaled approximately $5.1 million. Sales during this period in 2011 to intermittent scrap buyers with non-competitive prices in 2012 totaled $7.7 million. In addition to the reduction in volume, total revenue was also affected by the decrease in overall average price for all commodities shipped by $32.75 per gross ton, or 4.2%. Specifically, average nickel prices on the London Metal Exchange decreased $3.18 per pound, or 29.0%, in the second quarter of 2012 as compared to average nickel prices for the same period of 2011. Nickel is a key commodity used in stainless steel blends.

Waste Services revenue decreased $0.3 million or 15.8% to $1.6 million in the second quarter of 2012 compared to $1.9 million in the same period in 2011 primarily due to lower cardboard prices in the three month period ended June 30, 2012 as compared to the same period in 2011, which lowered cardboard recycling revenue by $93.8 thousand. In general, the timing of services provided or equipment installed will cause fluctuations in Waste Services revenue between periods. Also, for industrial customers, recycling volumes and prices for similar commodities decreased by 418.8 thousand pounds or 9.3% and $0.04 per pound or 25.9%, respectively, in this period in 2012 as compared to the same period in 2011. The recycling revenue generated for these customers is originally paid to Waste Services from Recycling. This revenue is then passed on to the customer as an off-setting expense for Waste Services cost of sales, which causes a decrease in Waste Services cost of sales when comparing the same periods of 2012 and 2011, as described below.

Total cost of goods sold decreased $12.3 million or 20.3% to $48.3 million in the second quarter of 2012 compared to $60.6 million for the same period in 2011. Recycling cost of goods sold decreased $12.2 million or 20.5% to $47.2 million in 2012 compared to $59.4 million for the same period in 2011. This decrease is primarily due to the decrease in the volume of stainless steel, ferrous and nonferrous materials shipments along with a decrease in the volume of ferrous and nonferrous materials purchases of 17.6 thousand gross tons, or 26.1%, and 1.7 million pounds, or 15.5%, respectively. Direct labor costs also decreased by $298.7 thousand, along with a decrease in repair and maintenance expenses of $178.0 thousand, and a decrease in hauling, fuel and lubricant expense of $105.2 thousand. These decreases are partially offset by the increase in stainless steel materials purchases of 3.3 million pounds, or 19.1%. In 2012, the Company broadened its customer base, began brokered sales, and began building blends for specialty mills. Inventory levels in the beginning of the second quarter in 2012 were lower than the 2011 levels during the same period; however, the future expected sales orders were higher at the end of the second quarter of 2012 than at the end of the second quarter of 2011. Thus, the Company increased purchases in the second quarter of 2012 to meet the inventory needs of current and future sales orders. Overall average price for all commodities purchased also increased $33.14, or 4.9%. Processing costs increased $88.5 thousand or 15.4% in the three month period ended June 30, 2012 as compared to June 30, 2011.

Waste Services cost of goods sold decreased $0.1 million or 8.3% to $1.1 million in the second quarter of 2012 compared to $1.2 million in same period in 2011. We often use third party haulers to meet customers' Waste Services needs. We then pay these third party providers and in turn invoice our customers for these amounts. The decrease above was primarily due to the timing of these third party haulers' services provided and their invoices received, the decrease in industrial customers' recycling volumes and prices mentioned above, and the decrease in cardboard prices mentioned above.

Selling, general and administrative expenses increased $0.3 million or 11.1% to $3.0 million in the second quarter of 2012 compared to $2.7 million in the same period in 2011. As a percentage of revenue, selling, general and administrative expenses were 6.0% in 2012 compared to 4.2% in 2011. The primary driver of the increase in selling, general and administrative expenses was an increase in bonus expense of $502.7 thousand due to two manager level employees leaving the Company in April, 2011. The accrual for their bonuses was reversed in the second quarter of 2011. Employment-related taxes increased by $58.1 thousand primarily due to a state unemployment tax refund received in June 2011 that was not applicable in 2012. The payroll processor had withheld this tax at a rate higher than required in the first quarter of 2011. Tax rates in 2012 were correct. Labor expenses also increased by $48.6 thousand primarily due to the replacement of several employees who left the Company in the second quarter of 2011 or were not on the payroll at all in the second quarter of 2011 but their replacements are on the payroll in the second quarter of 2012. Stock options expense increased by $24.0 thousand due to the stock options granted to the three new directors in May 2012.

These increases were partially offset by the following:

• A decrease in management fees, directors' fees, and consulting fees of $110.5 thousand;

• A decrease in legal fees of $77.1 thousand;

27

• A decrease in operating supplies expense of $59.3 thousand;

• A decrease in repairs and maintenance expense of $44.3 thousand;

• A decrease in hauling, fuel and lubricants expenses of $33.8 thousand;

• A decrease in property taxes, licenses and fees of $25.3 thousand;

• A decrease in utilities and telephone expenses of $21.2 thousand; and

• A decrease in lease and rent expense of $21.0 thousand.

Other expense decreased $0.8 million to $0.4 million in the second quarter of 2012 compared to other expense of $1.2 million in the same period in 2011. This was primarily due to the purchase contract termination fees of $501.6 thousand paid in the second quarter of 2011 that did not take place in 2012. Interest expense also decreased by $177.5 thousand due to lower debt levels in 2012 and the accrual for a legal settlement of $175.0 thousand paid in 2011 was not applicable in 2012. These decreases in other expense were partially offset by a decrease in the gain on sale of assets of $75.7 thousand.

The income tax provision decreased $0.8 million to a benefit of $0.6 million in the second quarter of 2012 compared to $0.2 million in expense in the same period in 2011 due to the decreased net income reported in 2012. The effective tax rates in 2012 and 2011 were 32.5% and 37.0%, respectively, based on federal and state statutory rates. Beginning in the first quarter of 2011, we were able to take advantage of the Domestic Production Activities Deduction available to US-based manufacturing companies. In the second quarter of 2012, we had an additional tax expense of approximately $77.0 thousand primarily due to a prior year correction for the state and city returns.

Financial condition at June 30, 2012 compared to December 31, 2011

Cash and cash equivalents increased $0.3 million to $2.6 million as of June 30, 2012 compared to $2.3 million as of December 31, 2011.

Net cash from operating activities was $0.6 million for the six month period ended June 30, 2012. The net cash from operating activities is primarily due to an increase in accounts payable of $3.5 million (this amount is net of the increase in the equipment accrual of $0.2 million), a decrease in accounts receivable of $3.4 million, and a decrease in income tax receivable of $3.1 million, partially offset by an increase in inventories of $9.0 million and a decrease of $1.4 million in deferred income taxes. In 2012, the Company broadened its customer base, added brokered sales, and began building blends for specialty mills. Primarily due to these factors, purchase volumes of stainless steel and other nickel-based scrap increased 4.9 million pounds or 31.2% in the quarter ended June 30, 2012 as compared to the quarter ended December 31, 2011. This increase in purchasing caused the increase in inventory and accounts payable balances. The decrease in accounts receivable relates to the decrease in shipping volumes of stainless steel materials of 1.4 million pounds or 7.2% in the quarter ended June 30, 2012 as compared to the quarter ended December 31, 2011. We received tax refunds of $2.5 million during the six month period ended June 30, 2012. No refunds were received during this period in 2011. Accounts receivable and payable balances are also affected by the timing of shipments, receipts, and payments throughout the quarter.

We used net cash in investing activities of $0.8 million for the six month period ended June 30, 2012. In the first six months of 2012, we used $42.6 thousand for road and building improvements. We purchased recycling and rental fleet equipment and office equipment of $482.1 thousand. The rental fleet equipment consists of solid waste handling and recycling equipment such as compactors and balers. It is our intention to continue to pursue this market. We spent $22.5 thousand on vehicle improvements. We spent $342.7 thousand for construction in progress. We received $36.2 thousand from sales of our rental fleet compactors and $22.4 thousand in payments from related parties.

Net cash from financing activities was $0.6 million for the six month period ended June 30, 2012. In the period ended June 30, 2012, we made payments on debt obligations of $0.9 million and received $1.5 million in proceeds from debt.

Accounts receivable trade decreased $3.4 million or 19.8% to $13.8 million as of June 30, 2012 compared to $17.2 million as of December 31, 2011. The volume of stainless steel materials shipments decreased 1.4 million pounds, or 7.2%. The volume of non ferrous materials shipments decreased by 23.4 thousand pounds, or 0.3%, in the second quarter of 2012 as compared to the fourth quarter of 2011. These decreases were partially offset by an increase in the volume of ferrous materials shipments of 1.9 thousand gross tons, or 4.5%. In general, the accounts receivable balance fluctuates due to the timing of shipments and receipt of customer payments.

Inventories consist principally of stainless steel, ferrous and nonferrous scrap materials and waste equipment machinery held for resale. We value inventory at the lower of cost or market. Inventory increased $9.0 million or 48.6% to $27.5 million as of June 30, 2012 compared to $18.5 million as of December 31, 2011. In 2012, the Company broadened its customer base, began brokered

28

sales, and began building blends for specialty mills. Inventory levels in the beginning of the second quarter in 2012 were lower than the 2011 levels; however, the future expected sales orders were higher at the end of the second quarter of 2012 than at the end of the second quarter of 2011. Thus, the Company increased purchases in the second quarter of 2012 to meet the inventory needs of current and future sales orders. The volume of stainless steel materials purchases increased by 4.9 million pounds, or 31.2% in the second quarter of 2012 as compared to the fourth quarter of 2011. The overall average price of all commodities purchased increased by $8.39 per gross ton, or 1.2%, during this time period.

Inventory aging for the period ended June 30, 2012 (Days Outstanding):

	(in thousands)
Description	1 - 30		31 - 60		61 - 90		Over 90		Total
Stainless steel, ferrous and non-ferrous materials	$	18,469	$	1,489	$	1,205	$	4,573	$	25,736
Replacement parts	1,665		—		—		—		1,665
Waste equipment machinery	—		30		—		55		85
Other	69		—		—		—		69
Total	$	20,203	$	1,519	$	1,205	$	4,628	$	27,555

Inventory aging for the period ended December 31, 2011 (Days Outstanding):

	(in thousands)
Description	1 - 30		31 - 60		61 - 90		Over 90		Total
Stainless steel, ferrous and non-ferrous materials	$	11,160	$	1,475	$	424	$	3,760	$	16,819
Replacement parts	1,623		—		—		—		1,623
Waste equipment machinery	—		—		—		39		39
Other	63		—		—		—		63
Total	$	12,846	$	1,475	$	424	$	3,799	$	18,544

Inventory in the “Over 90 days” category as of June 30, 2012 and December 31, 2011 includes several materials that were bought in bulk that had intrinsic values for stainless steel blends. We purchased the bulk materials in anticipation of continued high demand for stainless steel shipments as well as other specialty metal shipments. These materials are low value items that can only be used in limited quantities. If demand increases, these items will be slowly worked out of the system. Inventory controls have been put into place to assure proper turnover ratios. Inventory in this category as of June 30, 2012 also includes vehicle inventory held for use in the third quarter.

Accounts payable trade increased $3.7 million or 34.6% to $14.4 million as of June 30, 2012 compared to $10.7 million as of December 31, 2011, primarilydue to increased purchasing activity in the second quarter of 2012 as compared to the fourth quarter of 2011, noted above, and the timing of payments made to our vendors. The equipment accrual also increased $0.2 million during this period.

Working capital decreased $0.8 million to $28.6 million as of June 30, 2012 compared to $29.4 million as of December 31, 2011. The decrease was driven by the the $3.7 million increase in accounts payable, the $3.4 million decrease in accounts receivable, and the $3.1 million decrease in income tax receivable. These decreases were partially offset by $9.0 million increase in inventories, the $0.3 million increase in cash, and the $0.1 million decrease in current maturities of long term debt.

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Contractual Obligations

The following table provides information with respect to our known contractual obligations for the quarter ended June 30, 2012.

	Payments due by period (in thousands)
	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Obligation Description (2)
Long-term debt obligations	$	29,065	$	1,715	$	27,345	$	5	$	—
Operating lease obligations (1)	922		441		339		142		—
Total	$	29,987	$	2,156	$	27,684	$	147	$	—

(1) We lease the Louisville, Kentucky facility from K&R, LLC, the sole member of which is Harry Kletter, our chief executive officer, under an operating lease expiring December 2012. We have monthly rental payments of $48.5 thousand through December 2012. In the event of a change of control, the monthly payments become $62.5 thousand.

We also lease equipment from K&R, LLC for which monthly payments of $5.5 thousand are due through October 2015 and monthly payments of $5.0 thousand are due through April 2016.

We lease a lot in Louisville, Kentucky for a term commencing in March 2012 and ending in February 2016. The monthly payment amount from March 2012 through February 2014 is $3.5 thousand. The monthly payment amount then increases to $3.8 thousand for the remaining term.

We subleased the Lexington property to an unaffiliated third party for a term commencing on March 1, 2007 and ending January 31, 2012 for $4.5 thousand per month. We leased this property from an unrelated party for $4.5 thousand per month. The lease terminated February 10, 2012.

We also lease office space in Dallas, Texas for which monthly payments of $1.0 thousand are due through September 2012.

(2) All interest commitments under interest-bearing debt are included in this table, excluding the interest rate swaps, for which changes in value are accounted for in other comprehensive income.

Long-term debt, including the current portions thereof, increased $0.6 million to $29.1 million as of June 30, 2012 compared to $28.5 million as of December 31, 2011.

Impact of Recently Issued Accounting Standards

In September 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-08, an amendment to Topic 350, Intangibles—Goodwill and Other, which simplifies how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill for impairment using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated and compared to its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying amount, the amount of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the entity to determine that it is more likely than not that its fair value is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it is required to test goodwill for impairment under the two-step process as described under paragraphs 350-20-35-4 and 350-20-35-9 under Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, the quarter ending March 31, 2012 for us, and early adoption was permitted. The adoption of ASU 2011-08 did not have a material impact on our Condensed Consolidated Financial Statements.

In June 2011, the FASB issued ASU 2011-05, which is an update to Topic 220, “Comprehensive Income.” This update eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity, requires consecutive presentation of the statement of net income and other comprehensive income and requires reclassification adjustments from other comprehensive income to net income to be shown on the financial statements. ASU 2011-05 is effective for all interim and annual reporting periods beginning after December 15, 2011, the quarter ending March 31, 2012 for us. However,

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in December 2011, the FASB issued ASU 2011-12, which has deferred the specific requirement within ASU 2011-05 to present on the face of the financial statements items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. Entities should continue to report reclassifications out of accumulated comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. As ASU 2011-05 relates only to the presentation of Comprehensive Income, the adoption of such did not have a material impact on our Condensed Consolidated Financial Statements.

In May 2011, the FASB issued ASU 2011-04, which is an update to Topic 820, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). The amendments in this ASU generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRS. The amendments are effective for interim and annual periods beginning after December 15, 2011, the quarter ending March 31, 2012 for us, and are to be applied prospectively. Early application was not permitted. The adoption of ASU 2011-04 did not have a material impact on our Condensed Consolidated Financial Statements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Fluctuating commodity prices affect market risk in our recycling segment. We mitigate this risk by selling our product on a monthly contract basis. Each month we negotiate selling prices for 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 commodity price risk, mainly associated with variations in the market price for ferrous and nonferrous metal, and other commodities. The timing and magnitude of industry cycles are difficult to predict and are impacted by general economic conditions. We respond to changes in recycled metal selling prices by adjusting purchase prices on a timely basis and by turning rather than holding inventory in expectation of higher prices. However, financial results may be negatively impacted where selling prices fall more quickly than purchase price adjustments can be made or when levels of inventory have an anticipated net realizable value that is below average cost.

We are exposed to interest rate risk on our floating rate borrowings.

Based on our average anticipated borrowings under our credit agreements in fiscal 2012, a hypothetical increase or decrease in the LIBOR rate by 1% would increase or decrease interest expense on our variable borrowings by 1% of the outstanding balance, with a corresponding change in cash flows.

We entered into three interest rate swap agreements with BB&T swapping variable rates for fixed rates in a previous year. The first swap agreement covers $4.5 million in debt, commenced April 7, 2009, and matures on April 7, 2014. The second swap agreement covers approximately $2.0 million in debt, commenced October 15, 2008, and matures on May 7, 2013. The third swap agreement covers approximately $429.9 thousand in debt, commenced October 22, 2008, and matures on October 22, 2013. The three swap agreements fix our interest rate at approximately 5.8%. At June 30, 2012, we recorded the estimated fair value of the liability related to the three swaps as approximately $371.3 thousand. We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional amounts. We maintain a cash account on deposit with BB&T which serves as collateral for the swap agreements. As of June 30, 2012, the balance in this account was $438.0 thousand.

We are exposed to market risk from changes in interest rates in the normal course of business. Our interest income and expense are most sensitive to changes in the general level of U.S. interest rates and the LIBOR rate. In order to manage this exposure, we use a combination of debt instruments, including the use of derivatives in the form of interest rate swap agreements. We do not enter into any derivatives for trading purposes. The use of the interest rate swap agreement is intended to convert the variable rate to a fixed rate.

ITEM 4: 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 June 30, 2012, 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 specified in the SEC’s rules and forms, and (2) is accumulated and

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communicated to ISA’s management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure.

(b) Changes to internal control over financial reporting

There were no changes in ISA’s internal control over financial reporting during the three months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect ISA’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.Legal Proceedings.

We have litigation from time to time, including employment-related claims, none of which we currently believe to be material.

Item 1A.Risk Factors.

We have had no material changes from the risk factors reported in our Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on March 7, 2012.

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

On April 9, 2012, we issued 3.8 thousand shares of our common stock to Daniel Gascoyne, our former Executive Vice-President of Recycling.  These shares were granted pursuant to a performance based stock plan authorized on August 13, 2010, at a grant date fair value of $15.98 per share with performance requirements met on August 15, 2011.  The issuance of shares to Mr. Gascoyne was a private offering exempt from registration under Section 4(2) of the Securities Act of 1933, as amended.

On May 15, 2012, we awarded options to purchase 30.0 thousand shares of our stock each to our three new directors (Dr. David Russell, Ms. Francesca Scarito, and Mr. Alan Gildenberg) for a total of 90.0 thousand shares at a per share exercise price of $4.94. We recorded expense related to these stock options of $24.0 thousand for the quarter ending June 30, 2012. The vesting period of these options is 1 year. The maximum term of the options is 5 years. See Note 1 - "Summary of Significant Accounting Policies" of these Consolidated Financial Statements for additional information on the stock option plan. The issuance of options to our new board members was a private offering exempt from registration under Section 4(2) of the Securities Act of 1933, as amended.

Beginning November 17, 2005, our Board of Directors authorized a program to repurchase up to 300,000 shares of our common stock at current market prices. This program has no termination date. No shares were repurchased in 2012, 2011, 2010 or 2009. In 2008, we repurchased 83,411 shares. Prior to 2008, we repurchased 83,264 shares.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
Mar-08	29,630	$	5.5215	112,893	187,107
Jun-08	14,781	$	7.6113	127,674	172,326
Sept-08	39,000	$	6.5268	166,674	133,326

Item 3.Defaults upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

Not applicable.

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Item 5.Other Information.

None.

Item 6.Exhibits.

See exhibit index.

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SIGNATURES

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

		INDUSTRIAL SERVICES OF AMERICA, INC.
Date:	August 14, 2012	/s/ Harry Kletter
		Vice-Chairman and Chief Executive Officer
		(Principal Executive Officer)
Date:	August 14, 2012	/s/ Alan Schroering
		VP of Finance and Interim Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit Number	Description of Exhibits
10.1	Fourth Amendment to Credit Agreement, dated August 13, 2012, by and among Industrial Services of America, Inc., ISA Indiana, Inc. and Fifth Third Bank.
10.2	Exhibit D (Compliance Certificate) of Fourth Amendment to Credit Agreement, dated August 13, 2012 by and among Industrial Services of America, Inc., ISA Indiana, Inc. and Fifth Third Bank.
10.3	Amended and Restated Revolving Loan Note, dated August 13, 2012, by Industrial Services of America, Inc. and ISA Indiana, Inc. in favor of Fifth Third Bank.
31.1	Rule 13a-14(a) Certification of Harry Kletter for the Form 10-Q for the quarter ended June 30, 2012.
31.2	Rule 13a-14(a) Certification of Alan Schroering for the Form 10-Q for the quarter ended June 30, 2012.
32.1	Section 1350 Certification of Harry Kletter and Alan Schroering for the Form 10-Q for the quarter ended June 30, 2012.
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Document*
101.DEF	XBRL Taxonomy Extension Definitions Document*
101.LAB	XBRL Taxonomy Extension Labels Document*
101.PRE	XBRL Taxonomy Extension Presentation Document*

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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EX-10.1

Exhibit 10.1

FOURTH AMENDMENT TO CREDIT AGREEMENT

THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), entered into as of August 13, 2012 (the “Effective Date”), by and among INDUSTRIAL SERVICES OF AMERICA, INC., a Florida corporation (“ISA”), ISA INDIANA, INC., an Indiana corporation (“ISA Indiana”), the Lenders party hereto, and FIFTH THIRD BANK, an Ohio banking corporation (“Fifth Third”), in its capacity as Agent for Lenders and LC Issuer under this Agreement (“Agent”) and as LC Issuer and a Lender, is as follows:

Preliminary Statements

A.ISA and ISA Indiana (each a “Borrower” and, collectively, “Borrowers”), Agent, LC Issuer and the Lenders entered into that certain Credit Agreement dated as of July 30, 2010, as amended by the First Amendment to Credit Agreement dated as of April 14, 2011, the Second Amendment to Credit Agreementdated as of November 16, 2011, and the Third Amendment to Credit Agreement dated as of March 2, 2012 (as modified, extended, amended or restated from time to time, the “Credit Agreement”). Capitalized terms used, but not defined, in this Amendment will have the meanings given to them in the Credit Agreement.

B.Borrowers have requested that Agent, LC Issuer and the Lenders: (i) waive certain Events of Default; (ii) modify the Senior Leverage Ratio as specifically set forth herein and (iii) amend certain other provisions of the Credit Agreement.

C. Agent, LC Issuer and the Lenders are willing to so amend the Credit Agreement, all on the terms (including, without limitation, the reduction of the Maximum Revolving Commitment to $30,000,000), and subject to the conditions, of this Amendment.

Statement of Amendment

In consideration of the mutual covenants and agreements set forth in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, LC Issuer and the Lenders and Borrowers hereby agree as follows:

1.Amendments to Credit Agreement. Subject to the satisfaction of the conditions of this Amendment, the Credit Agreement is hereby amended as follows:

1.The following definitions are hereby added to Section 1.2 of the Credit Agreement in their proper alphabetical order:

“Fourth Amendment” means the Fourth Amendment to Credit Agreement among Agent, LC Issuer, the Lenders and Borrowers dated to be effective as of August 13, 2012.

“Fourth Amendment Effective Date” means August 13, 2012.

2.The following definitions in Section 1.2 of the Credit Agreement are hereby amended in their entirety by substituting the following in their respective steads:

“Applicable Daily LIBOR Rate Margin” means, as of any date, three and one quarter percent (3.25%) for Revolving Loans and three and one-half percent (3.50%) for the Term Loan; provided that, if the Specified Conditions are met,

“Applicable Daily LIBOR Rate Margin” means, effective as of the first Business Day of first calendar month after the Specified Conditions are met, three percent (3.00%) for Revolving Loans and three and one-quarter percent (3.25%) for the Term Loan.

“Applicable LIBOR Tranche Rate Margin” means, as of any date, three percent (3.00%) for Revolving Loans and three and one quarter percent (3.25%) for the Term Loan; provided that, if the Specified Conditions are met, “Applicable LIBOR Tranche Rate Margin” means, effective as of the first Business Day of first calendar month after the Specified Conditions are met, two and three quarters percent (2.75%) for Revolving Loans and three percent (3.00%) for the Term Loan.

“Applicable Prime Rate Margin” means, as of any date, one percent (1.00%); provided that, if the Specified Conditions are met, “Applicable Prime Rate Margin” means, effective as of the first Business Day of first calendar month after the Specified Conditions are met, three quarter percent (.75%).

“Maximum Revolving Commitment” means Thirty Million Dollars ($30,000,000).

“Stated Termination Date” means October 31, 2013.

“Test Period” means, with respect to a particular Computation Date, the period of four (4) consecutive Fiscal Quarters ending on such Computation Date (i.e., a rolling four (4) consecutive Fiscal Quarter period); provided that for purposes of the determination of the: (i) Senior Leverage Ratio as of the Computation Date for the Fiscal Quarter ending: (a) on September 30, 2012, Consolidated Adjusted EBITDA shall equal the amount of Consolidated Adjusted EBITDA for the period commencing on July 1, 2012 through and including September 30, 2012 multiplied by 4; (b) on December 31, 2012, Consolidated Adjusted EBITDA shall equal the amount of Consolidated Adjusted EBITDA for the period commencing on July 1, 2012 through and including December 31, 2012 multiplied by 2; and (c) on March 31, 2013, Consolidated Adjusted EBITDA shall equal the amount of Consolidated Adjusted EBITDA for the period commencing on July 1, 2012 through and including March 31, 2013 multiplied by 4 and divided by 3; and (ii) Fixed Charge Coverage Ratio as of the Computation Date for the Fiscal Quarter ending: (a) on September 30, 2012, Consolidated Adjusted EBITDA and Consolidated Fixed Charges shall equal the amount of Consolidated Adjusted EBITDA and Consolidated Fixed Charges for the period commencing on July 1, 2012 through, and including, September 30, 2012; (b) on December 31, 2012, Consolidated Adjusted EBITDA and Consolidated Fixed Charges shall equal the amount of Consolidated Adjusted EBITDA and Consolidated Fixed Charges for the period commencing on July 1, 2012 through, and including, December 31, 2012; and (c) on March 31, 2013, Consolidated Adjusted EBITDA and Consolidated Fixed Charges shall equal the amount of Consolidated Adjusted EBITDA and Consolidated Fixed Charges for the period commencing on July 1, 2012 through, and including, March 31, 2013.

3.The following definition is added in Section 1.2 of the Credit Agreement in its proper alphabetical order:

“Specified Conditions” means (i) no Event of Default has occurred and is then continuing and (ii) the Senior Leverage Ratio is 3.50 to 1 or less as of the end of any Fiscal Quarter occurring on or after September 30, 2012.

1.4The second sentence of Section 2.2(a) of the Credit Agreement is hereby amended in its entirety by substituting the following in its stead:

The aggregate amount of all of the Revolving Loan Commitments is $30,000,000.

1.5Sections 7.1 and 7.2 of the Credit Agreement are hereby amended in their entireties by substituting the following in their respective steads:

Section 7.1Senior Leverage Ratio. Borrowers shall not permit the Senior Leverage Ratio for (a) the Test Period ending on the Computation Date occurring on September 30, 2012 to exceed 4.75 to 1; and (b) each Test Period ending on each Computation Date occurring on or after December 31, 2012 to exceed 3.25 to 1.

Section 7.2Minimum Fixed Charge Coverage. Borrowers shall not permit the Fixed Charge Coverage Ratio for (a) the Test Period ending on the Computation Date occurring on September 30, 2012 to be less than 1.0 to 1; (b) the Test Period ending on the Computation Date occurring on December 31, 2012 to be less than 1.50 to 1; and (c) each Test Period ending on each Computation Date occurring on or after March 31, 2013 to be less than 1.20 to 1.

1.6Exhibit D of the Credit Agreement is hereby amended in its entirety by substituting the document attached hereto as Exhibit D in its stead.

2.Waiver of Covenant Defaults. Events of Default have occurred under (i) Section 7.1 of the Credit Agreement in connection with the Senior Leverage Ratio Financial Covenant for the Fiscal Quarter ending on June 30, 2012 and (ii) Section 7.2 of the Credit Agreement in connection with the Fixed Charge Coverage Ratio Financial Covenant for the Fiscal Quarter ending on June 30, 2012 (collectively, the “Existing Defaults”). Borrowers have requested that Agent, LC Issuer and the Lenders waive the Existing Defaults. Agent, LC Issuer and the Lenders hereby waive the Existing Defaults. The waiver provided in this Section 2 will not apply to any other Event of Default, whether past, present, or future, including, without limitation, any violations of the above described Financial Covenants as of dates occurring after the dates specifically referenced in this Section 2. The waiver provided in this Section 2, either alone or together with other waivers which Agent, LC Issuer and the Lenders may give from time to time, shall not, by course of dealing, implication or otherwise, obligate Agent, LC Issuer and the Lenders to waive any Event of Default past, present or future, other than the Events of Default specifically waived by this Amendment, or reduce, restrict or in any way affect the discretion of Agent, LC Issuer and the Lenders in considering any future waiver requested by Borrowers. The foregoing Events of Default will not be deemed to limit or estop Agent, LC Issuer or the Lenders from exercising any rights or remedies with respect to any other Event of Default.

3.Amendment and Restatement of Revolving Loan Note. On the Effective Date, Borrowers will duly execute and deliver to Agent an Amended and Restated Revolving Loan Note in the form attached hereto as Exhibit A (the “Amended and Restated Revolving Loan Note”).

4.Term Loan Note. The reference to “July 31” in the Term Loan Note is hereby amended by substituting a reference to “October 31” for the reference to “July 31” where “July 31” appears therein. Except as modified in the preceding sentence, all of the provisions of the Term Loan Note are ratified and confirmed and remain in full force and effect.

5.Consultant; Cash Flow Forecast. (a) Borrowers agree to continue to retain a consultant acceptable to Agent (“Consultant”) to: (i) review Borrowers' financial statements, (ii) to continue to prepare an independent 13 week cash flow forecast, in form and substance acceptable to Agent (the “Cash Flow Forecast”), (iii) assist in preparation and evaluate Borrowers' 2013 business plan and (iv) identify and assist in implementation of potential performance improvements. Agent shall have the right to contact Consultant directly without either Borrower's participation in such discussions. The fee for Consultant shall be the sole responsibility of Borrowers. The identity of Consultant will at all times remain acceptable to Agent. Without limiting any other rights or remedies of Agent, Agent reserves the right to retain one or more professionals of its own choosing, the fees, costs and expenses of which will be the sole responsibility of Borrowers.

(b)Until such time, if any, that Agent advises Borrowers that the Cash Flow Forecast is no longer required, promptly when available and in no event later than Wednesday of each week, Borrowers shall deliver to Agent an updated Cash Flow Forecast (in each case covering the subsequent 13-week period), including, but not limited to, a variance report in the aggregate, of the Cash Flow Forecast opposite actual results (i) of the applicable week (which is based on information through the immediately preceding week) and (ii) on a cumulative basis (for the then cumulative period). The Cash Flow Forecast and variance report shall include, among other things, a narrative analysis of the operations of Borrowers' business for such period, summarizing the variances as evidenced in the variance report.

6.Reaffirmation of Cross-Guaranties. Each of the Borrowers (collectively, the “Cross-Guarantors”) hereby (i) confirms, ratifies and reaffirms its respective Cross-Guaranty and (ii) acknowledges and agrees that no Cross-Guarantor is released from its obligations under its respective Cross-Guaranty by reason of this Amendment and that the obligations of each Cross-Guarantor under its respective Cross-Guaranty extend to the Credit Agreement and the other Loan Documents as amended by, or in connection with, this Amendment. This reaffirmation of each Cross-Guarantor's Cross-Guaranty shall not be construed, by implication or otherwise, as imposing any requirement that Agent notify or seek the consent of any Cross-Guarantor relative to any past or future extension of credit, amendment or modification, extension or other action with respect thereto, in order for any such extension of credit, amendment or modification, extension or other action with respect thereto to be subject to a Cross-Guarantor's Cross-Guaranty, it being expressly acknowledged and reaffirmed that each Cross-Guarantor has under its respective Cross-Guaranty consented, among others things, to modifications, amendments, extensions and other actions with respect thereto without any notice thereof or any further consent thereto.

7.Reaffirmation of Guaranty and Security. As a condition of this Amendment, on the Effective Date, Borrowers will cause each Guarantor to execute and deliver to Agent the Reaffirmation of Guaranty and Security provided after the signatures below and incorporated by reference herein.

8.Additional Conditions; Other Documents. As a condition of this Amendment, Borrowers will deliver to Agent, on or before the execution of this Amendment, (i) the Amended and Restated Revolving Loan Note duly executed by Borrowers; (ii) a copy, certified by the Secretary of each Borrower, of resolutions of the Board of Directors of Borrowers, authorizing the execution of this Amendment and all other documents

executed in connection herewith, which certificate and resolutions will be in form and substance acceptable to Agent; (iii) a copy, certified by the Secretary of each Guarantor of resolutions of the sole member of each Guarantor authorizing the execution of the Reaffirmation of Guaranty and Security and all other documents executed in connection therewith, which certificate and resolutions will be in form and substance acceptable to Agent; and (iv) such other documents, instruments, and agreements deemed necessary or desirable by Agent to effect the amendments to Borrowers' credit facilities with Agent, LC Issuer and the Lenders contemplated by this Amendment.

9.Reaffirmation of Security. Borrowers and Agent, LC Issuer and the Lenders hereby expressly intend that this Amendment shall not in any manner: (i) constitute the refinancing, refunding, payment or extinguishment of the existing Obligations as of the Effective Date; (ii) be deemed to evidence a novation of the outstanding balance of the Obligations; or (iii) affect, replace, impair, or extinguish the creation, attachment, perfection or priority of the Liens on the Loan Collateral granted pursuant to any of the Security Documents. Borrowers ratify and reaffirm any and all grants of Liens to Agent in the Loan Collateral as security for the Obligations, and Borrowers acknowledge and confirm that the grant of the Liens to Agent in the Loan Collateral: (a) represent continuing Liens on all of the Loan Collateral, (b) secure all of the Obligations, and (c) represent valid, first and best Liens on all of the Loan Collateral except to the extent, if any, of the Permitted Liens.

10.Representations. To induce Agent, LC Issuer and the Lenders to accept this Amendment, each Borrower hereby represents and warrants to Agent, LC Issuer and the Lenders as follows:

10.1Each Borrower has full power and authority to enter into, and to perform its obligations under, this Amendment, the Amended and Restated Revolving Loan Note, and the other documents executed in connection therewith (collectively, the “Amendment Documents”), and the execution and delivery of, and the performance of its obligations under and arising out of, the Amendment Documents have been duly authorized by all necessary corporate action.

10.2The Amendment Documents constitute the legal, valid and binding obligations of each Borrower, enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally.

10.3Each Borrower's representations and warranties contained in the Credit Agreement are complete and correct as of the Effective Date with the same effect as though these representations and warranties had been made again on and as of the Effective Date, subject to those changes as are not prohibited by, or do not constitute Events of Default under, the Credit Agreement.

10.4No Event of Default has occurred and is continuing under the Credit Agreement, other than the Existing Defaults.

11.Costs and Expenses; Covenant Waiver Fee. As a condition of this Amendment, (i) Borrowers will pay to Agent a covenant waiver fee of $25,000, payable in full on the Effective Date; such fee, when paid, will be fully earned and non-refundable under all circumstances, and (ii) Borrowers will promptly on demand pay or reimburse Agent for the costs and expenses incurred by Agent in connection with this Amendment, including, without limitation, attorneys' fees.

12.Release. Borrowers hereby release Agent, LC Issuer and the Lenders from any and all liabilities, damages and claims arising from or in any way related to the Obligations or the Loan Documents, other than such liabilities, damages and claims which arise after the execution of this Amendment. The foregoing release does not release or discharge, or operate to waive performance by, Agent, LC Issuer and

the Lenders of its express agreements and obligations stated in the Loan Documents on and after the Effective Date.

13.Default. Any default by Borrowers in the performance of Borrowers' obligations under this Amendment shall constitute an Event of Default under the Credit Agreement.

14.Continuing Effect of the Credit Agreement. Except as expressly amended hereby, all of the provisions of the Credit Agreement are ratified and confirmed and remain in full force and effect.

15.One Agreement; References; Fax Signature. The Credit Agreement, as amended by this Amendment, will be construed as one agreement. All references in any of the Loan Documents to the (i) Credit Agreement will be deemed to be references to the Credit Agreement as amended by this Amendment, (ii) Revolving Loan Note will be deemed to be references to the Amended and Restated Revolving Loan Note, and (iii) Term Loan Note will be deemed to be references to the Term Loan Note, as amended by this Amendment. This Amendment may be signed by facsimile signatures or other electronic delivery of an image file reflecting the execution hereof, and if so signed, (a) may be relied on by each party as if the document were a manually signed original and (b) will be binding on each party for all purposes.

16.Captions.The headings to the Sections of this Amendment have been inserted for convenience of reference only and shall in no way modify or restrict any provisions hereof or be used to construe any such provisions.

17.Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument.

18.Entire Agreement. This Amendment, together with the other Loan Documents, sets forth the entire agreement of the parties with respect to the subject matter of this Amendment and supersedes all previous understandings, written or oral, in respect of this Amendment.

19.Governing Law. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Ohio (without regard to Ohio conflicts of law principles).

[Signature Page Follows]

IN WITNESS WHEREOF, Borrowers have executed this Amendment to be effective as of the Effective Date.

INDUSTRIAL SERVICES OF AMERICA, INC.

By:___/s/ Harry Kletter__________________

Harry Kletter, Chief Executive Officer

ISA INDIANA, INC.

By: /s/ Harry Kletter______ ____________

Harry Kletter, Chief Executive Officer

Accepted as of the Effective Date.

FIFTH THIRD BANK, as Agent

By: /s/ Jason McCaw

Jason McCaw, Assistant Vice President

FIFTH THIRD BANK, as Lender

By:     /s/ Jason McCaw

Jason McCaw, Assistant Vice President

FIFTH THIRD BANK, as LC Issuer

By: /s/ Jason McCaw

Jason McCaw, Assistant Vice President

SIGNATURE PAGE TO

FOURTH AMENDMENT TO CREDIT AGREEMENT

(Industrial Services of America)

REAFFIRMATION OF GUARANTY AND SECURITY

In satisfaction of the condition set forth in the Fourth Amendment to Credit Agreement between Agent, LC Issuer, the Lenders and Borrowers (the “Amendment”), the undersigned (“Guarantors”) hereby: (i) consent to the Amendment, the other Amendment Documents and to the transactions contemplated thereby, (ii) ratify and reaffirm their Guaranty dated as of July 30, 2010 (the “Guaranty”), (iii) acknowledge and agree that Guarantors are not released from their obligations under the Guaranty by reason of the Amendment, the other Amendment Documents or the transactions contemplated thereby and that the obligations of Guarantors under the Guaranty extend to the Credit Agreement and the other Loan Documents, as amended, or as amended and restated, in connection with the Amendment and the other Amendment Documents, and (iv) confirm that the Amendment and the other Amendment Documents shall not in any manner (a) constitute the refinancing, refunding, payment or extinguishment of the indebtedness evidenced by the existing Loan Documents and secured by their Security Agreement dated as of July 30, 2010 (the “Security Agreement”); (b) be deemed to evidence a novation of the outstanding balance of the indebtedness secured by the Security Agreement; or (c) affect, replace, impair, or extinguish the creation, attachment, perfection or priority of the Liens on the Loan Collateral granted pursuant to the Security Agreement or any other Security Document evidencing, governing or creating a Lien on the Loan Collateral. Guarantors further ratify and reaffirm any and all grants of Liens to Agent on the Loan Collateral to secure Guarantors' obligations owing under the Guaranty, and Guarantors acknowledge and confirm that the grants of the Liens to Agent on Guarantors' Loan Collateral: (A) represent continuing Liens on all such Loan Collateral, (B) secure all of the Guaranteed Obligations (as defined in the Guaranty), and (C) represent valid, first and best Liens on all such Loan Collateral, subject to the Permitted Liens.

This Reaffirmation of Guaranty and Security shall not be construed, by implication or otherwise, as imposing any requirement that Agent notify or seek the consent of Guarantors relative to any past or future extension of credit, or modification, extension or other action with respect thereto, in order for any such extension of credit or modification, extension or other action with respect thereto to be subject to the Guaranty or the Security Agreement, it being expressly acknowledged and reaffirmed that Guarantors have under the Guaranty and the Security Agreement consented, among others things, to modifications, extensions and other actions with respect thereto without any notice thereof or further consent thereto. All references in any of the Loan Documents to the Guaranty will be deemed to be references to the Guaranty as amended by this Reaffirmation of Guaranty and Security. This Reaffirmation of Guaranty and Security may be signed by facsimile signatures or other electronic delivery of an image file reflecting the execution hereof, and if so signed, (i) may be relied on by each party and Fifth Third Bank as if this Reaffirmation of Guaranty and Security were a manually signed original and (ii) will be binding on each party for all purposes. All capitalized terms used in this Reaffirmation of Guaranty and Security and not otherwise defined herein shall have the meanings ascribed thereto in the Amendment.

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned have executed this Reaffirmation of Guaranty and Security as of the Effective Date.

ISA Indiana Real Estate, LLC

ISA Logistics LLC

ISA Real Estate, LLC

7021 Grade Lane LLC

7124 Grade Lane LLC

7200 Grade Lane LLC

Computerized Waste Systems, LLC

ISA Recycling LLC

Waste Equipment Sales & Service Co., LLC

By: Industrial Services of America, Inc., sole member

By: ___/s/ Harry Kletter__________________

Harry Kletter, Chief Executive Officer

Accepted as of the Effective Date.

FIFTH THIRD BANK, as Agent

By: /s/ Jason McCaw

Jason McCaw, Assistant Vice President

ACKNOWLEDGMENT PAGE TO

REAFFIRMATION OF GUARANTY AND SECURITY

(Industrial Services of America)

(Fourth Amendment to Credit Agreement)

EXHIBIT D

(Compliance Certificate)

See attached.

EX-10.2

Exhibit 10.2

EXHIBIT D

COMPLIANCE CERTIFICATE

For the [Quarterly] [Annual] Test Period

from , 20

to , 20

Fifth Third Bank, as Agent

38 Fountain Square Plaza

MD#10908F

Cincinnati, Ohio 45263

Attn: Jason McCaw, Assistant Vice President

Fax Number: (513) 534-8400

Ladies and Gentlemen:

This Compliance Certificate (this “Certificate”) is delivered to you pursuant to Sections 6.1(a) and 6.1(b) of the Credit Agreement dated as of July 30, 2010, among INDUSTRIAL SERVICES OF AMERICA, INC., a Florida corporation (“ISA”), ISA INDIANA, INC., an Indiana corporation (“ISA Indiana” and together with ISA, collectively, “Borrowers”), the Lenders (as defined in the Credit Agreement) party thereto, and FIFTH THIRD BANK, as Agent (“Agent”) for the Lenders and the LC Issuer, as amended by the First Amendment to Credit Agreement dated as of April 14, 2011, the Second Amendment to Credit Agreement dated as of November 16, 2011, the Third Amendment to Credit Agreement dated as of March 2, 2012, and the Fourth Amendment to Credit Agreement dated as of August 13, 2012 (such Credit Agreement, as it now exists or as it may be amended, modified or restated from time to time, is referred to as the “Credit Agreement”). Unless otherwise stated in this Certificate, capitalized terms used in this Certificate shall have the meanings ascribed to them in the Credit Agreement.

The undersigned hereby certifies to Agent and the Lenders (“you”) as follows:

1.The undersigned is, and at all times during the Subject Period was, the duly elected, qualified and acting [Insert correct title: chief financial officer, chief operating officer OR chief executive officer] of ISA.

2.The undersigned has reviewed the provisions of the Credit Agreement and the other Loan Documents (collectively, the “Documents”) and has reviewed the activities of the Credit Parties during the period from ____________, 20__, to ______________, 20__ (the “Subject Period”) with a view towards determining whether, during the Subject Period, the Credit Parties have kept, observed, performed and fulfilled all of their respective obligations under the Documents.

3.The financial statements of the Credit Parties delivered to you concurrently herewith (the “Financial Statements”)[, while not examined by the Accountants,] reflect [in the undersigned's opinion] all adjustments necessary to present fairly, in all material respects, the Consolidated financial position of the Credit Parties as at the end of the Subject Period and the results of their operations for the Subject Period then ended in conformity with GAAP consistently applied[, subject only to normal year-end adjustments and the absence of footnotes].

[Delete bracketed statements for Annual Certificate.]

4.As of the date of this Certificate, to the best of the undersigned's knowledge, after reasonable inquiry, no event has occurred which constitutes a Default or an Event of Default. (If a Default or an Event of Default has occurred and is continuing, Schedule A contains a statement as to the nature thereof and the action which the Credit Parties have taken or propose to take with respect thereto).

5.In particular, the calculations shown on Schedule B attached hereto demonstrate compliance with the Financial Covenants as set forth in Article VII of the Credit Agreement. (If there is not compliance with any Financial Covenant, Schedule B (i) lists the same and sets forth what action the Credit Parties have taken or propose to take with respect thereto and (ii) explains the variances of the figures in the Financial Statements from the Projections). Schedule B attached hereto also describes and analyzes in detail all material trends, changes, and development in each and all Financial Statements.

6.Attached hereto as Schedule C are summaries of accounts payable agings, Receivable agings, and Inventory, in each case reconciled to the Credit Parties' general ledger and Borrowing Base Certificate for the end of the Subject Period.

7.[Annual:] Attached hereto as Schedule D are Projections of the Credit Parties for the period from ____________, 20___ to ______________, 20___. Schedule D states: (i) the assumptions on which the Projections were prepared and (ii) that the assumptions, except as otherwise noted on Schedule D, were prepared on a consistent basis with the operation of the Credit Parties' business during the immediately preceding Fiscal Year and with factors known to exist as of the date of this Certificate or anticipated to exist during the periods covered by the Projections. The undersigned certifies that he or she has no reason to believe that the Projections, subject to the assumptions stated on Schedule D, are false or misleading in any material respect. The Credit Parties make no representations or warranties regarding the accuracy of any projections, predictions or other estimation of future events, or any information or data, in each case, pertaining generally to the Credit Parties' respective industries.

Dated:, 20

By:

Name:

Title:

Schedules:

A - Defaults and Events of Default

B - Financial Covenant Calculations

C - Summaries of Accounts Receivable, Accounts Payable and Inventory Values

D - Projections

Schedule A

to

Compliance Certificate

(Description of any Defaults or Events of Default)

Schedule B

to

Compliance Certificate

(Financial Covenant Calculations Per definitions in, and as determined by, the Credit Agreement.)

I.    Maximum Senior Leverage Ratio:

A.    Computation Date: For Test Period Ended , 20

B.    Required Covenant:

Computation Date	Maximum Senior Leverage Ratio
September 30, 2012	4.750 to 1
December 31, 2012	3.250 to 1
March 31, 2013	3.250 to 1
June 30, 2013	3.250 to 1
September 30, 2013	3.250 to 1

C.    Actual Computation:            : 1

1.	Consolidated Senior Funded Debt (as of the end of the applicable Test Period):	$________________
2.	# 1 Divided by:
3.	Consolidated Adjusted EBITDA	$________________

Consolidated Adjusted EBITDA Computation (for the applicable Test Period):

1.	Net Income	$________________
2.	Plus: to the extent deducted in determining Net Income and Consolidated EBITDA for such period:
a.	Interest Expense	$________________
b.	Tax expense	$________________
c.	Amortization and Depreciation expenses	$________________
d.	Non-cash compensation for issuance of Equity Interests and Capital Securities	$________________
e.	Non-cash extraordinary or non-recurring non-cash charges or non-cash losses	$________________
f.	Non-cash charges under Rate Management Agreements	$________________
3.	Subtotal (2a + 2b + 2c + 2d + 2e + 2f) =	$________________
4.	Minus: to the extent included in Net Income and Consolidated EBITDA for such period:
a.	Non-cash extraordinary or non-cash non-recurring income or gains	$________________
b.	Gains from sales of capital Property	$________________
c.	Gains from write-up of Property	$________________
5.	Subtotal (4a + 4b + 4c) =	$________________
6.	Total (1 + 3 - 5) =	$________________

II.    Minimum Fixed Charge Coverage Ratio:

A.    Computation Date: For Test Period Ended , 20

B.    Required Covenant:

Computation Date	Maximum Leverage Ratio
September 30, 2012	1.0 to 1
December 31, 2012	1.50 to 1
March 31, 2013 and each Computation Date thereafter	1.20 to 1

C.    Actual Computation:            : 1

1.	Consolidated Adjusted EBITDA (as computed under I above) for the Test Period	$________________
2.	Minus:
a.	Cash Non-financed Capital Expenditures for such Test Period	$________________
b.	Income, franchise, commercial activity Taxes or equivalent income-type Taxes paid in cash for such Test Period	$________________
3.	Subtotal (1 - 2a - 2b) =	$________________
4.	#3 Divided by (the sum of):
a.	Consolidated Fixed Charges (see below) for the Test Period	$________________
b.	Dividends or distributions (including Share Repurchases) paid by Parent to its stockholders in cash for the Test Period	$________________
5.	Subtotal (4a + 4b) =	$________________
6.	Ratio (3 ÷ 5) =	$________________

Consolidated Fixed Charges Computation (for the applicable Test Period):

1.	Interest Expense paid in cash	$________________
	Plus:
2.	Scheduled payments of principal on Indebtedness for Borrowed Money, including principal component of any Capital Lease	$________________
3.	Total (1 + 2) =	$________________

III.    Limitation on Capital Expenditures:

A.    Computation Date: For Test Period Ended , 20

B.    Required Covenant:

Computation Date	Maximum Aggregate Cumulative Capital Expenditures
For each Fiscal Year ending on or after December 31, 2010	$4,000,000

C.    Actual Amount: $    _______ [which is net of the aggregate costs of the 7100 Grade Lane Real Property Acquisition of $_________________].    

IV.    Further Description. If there is not compliance with any Financial Covenant, below (i) sets forth what action the Credit Parties have taken or propose to take with respect thereto and (ii) explains the variances of the figures in the Financial Statements from the Projections (as defined in the Credit Agreement). Also below is a description and analysis of all material trends, changes, and development in each and all Financial Statements:

Schedule C

to

Compliance Certificate

(Summaries of Accounts Receivable, Accounts Payable, and Inventory Values)

Schedule D

to

Compliance Certificate

(Projections)

EX-10.3

Exhibit 10.3

AMENDED AND RESTATED REVOLVING LOAN NOTE

$30,000,000                                 July 30, 2010

First Amendment and Restatement April 14, 2011

Second Amendment and Restatement November 16, 2011

Third Amendment and Restatement August 13, 2012

(“Effective Date”)

For value received, the undersigned, INDUSTRIAL SERVICES OF AMERICA, INC., a Florida corporation (“ISA”), ISA INDIANA, INC., an Indiana corporation (“ISA Indiana”), and each of the other Persons that become a Borrower under the Credit Agreement after the Effective Date (such Persons, together with ISA and ISA Indiana, are each a “Borrower” and, collectively, “Borrowers”), hereby jointly and severally promise to pay to the order of FIFTH THIRD BANK, an Ohio banking corporation (“Lender”), the principal sum of THIRTY MILLION AND 00/100 DOLLARS ($30,000,000), or such lesser amount as shall equal the aggregate unpaid and outstanding principal amount of the Revolving Loans made by Lender to Borrowers under the Credit Agreement dated as of July 30, 2010, as amended by the First Amendment to Credit Agreement dated as of April 14, 2011, the Second Amendment to Credit Agreement dated as of November 16, 2011, the Third Amendment to Credit Agreement dated as of March 2, 2012, and the Fourth Amendment to Credit Agreement dated of even date herewith (as the same may be hereafter amended, supplemented or restated from time to time, the “Credit Agreement”), by and among Borrowers, the Persons party thereto as “Lenders” (including, without limitation, Lender), and Fifth Third Bank, as Agent and LC Issuer, in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Revolving Loan, in like money and funds, for the period commencing on the date of this Amended and Restated Revolving Loan Note (this “Note”) until such Indebtedness evidenced by this Note shall be paid in full, at the rates per annum and on the dates and at the offices provided in the Credit Agreement. The entire unpaid principal balance of this Note, together with all accrued but unpaid interest, shall, if not sooner paid or required to be paid pursuant to the Credit Agreement, be due and payable on October 31, 2013.

This Note is one of the Revolving Loan Notes referred to in the Credit Agreement and is entitled to the benefits and security, and is subject to the terms and conditions, of the Credit Agreement, including, without limitation, acceleration upon the terms provided therein and in the other Loan Documents. All capitalized terms used herein which are defined in the Credit Agreement and not otherwise defined herein shall have the meanings given in the Credit Agreement.

The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for voluntary and mandatory prepayments of Loans upon the terms and conditions specified therein. This Note is subject to voluntary prepayment, in full or in part, in accordance with, and subject to the terms of, the Credit Agreement.

If, at any time, the rate of interest contracted for, and computed in the manner provided, in the Credit Agreement (“Applicable Rate”), together with all fees and charges as provided for in the Credit Agreement or in any other Loan Document (collectively, the “Charges”), which are treated as interest under applicable law, exceeds the maximum lawful rate (the “Maximum Rate”) allowed under applicable law, it is agreed that such contracting for, charging or receiving of such excess amount was an accidental and bona fide error and the provisions of this paragraph will govern and control. The rate of interest payable under the Credit Agreement and this Note, together with all Charges, shall be limited to the Maximum Rate; provided, however, that any subsequent reduction in the Daily LIBOR-Based Rate or the LIBOR Tranche-Based Rate (or in the interest

rate equal to the Prime Rate plus the Applicable Prime Rate Margin in the event LIBOR Rate Loans are no longer permitted or available under the Credit Agreement) shall not reduce the Applicable Rate below the Maximum Rate until the total amount of interest earned under the Credit Agreement and this Note, together with all Charges, equals the total amount of interest which would have accrued at the Applicable Rate if the Applicable Rate had at all times been in effect. If any payment hereunder, for any reason, results in Borrowers having paid interest in excess of that permitted by applicable law, then all excess amounts theretofore collected by Lender shall be credited on the principal balance of the Obligations (or, if all sums owing hereunder have been paid in full, refunded to Borrowers), and the amounts thereafter collectible hereunder shall immediately be deemed reduced, without the necessity of the execution of any new document, so as to comply with applicable law and permit the recovery of the fullest amount otherwise called for hereunder.

Borrowers hereby agree to pay all costs of collection, including, without limitation, Attorneys' Fees, if this Note is not paid when due, whether or not legal proceedings are commenced.

All of the obligations of Borrowers hereunder are joint, several and primary. No Borrower shall be, or be deemed to be, an accommodation party with respect to this Note.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

This Note is issued, not as a refinancing or refunding of or payment toward, but as a continuation of, the Obligations of Borrowers to Lender pursuant to that certain Amended and Restated Revolving Loan Note dated as of November 16, 2011 in the principal amount of $40,000,000 (the “Prior Note”), together with any and all additional Revolving Loans incurred under this Note. Accordingly, this Note shall not be construed as a novation or extinguishment of the Obligations arising under the Prior Note, and its issuance shall not affect the priority of any Lien granted in connection with the Prior Note. Interest accrued under the Prior Note prior to the Effective Date remains accrued and unpaid under this Note and does not constitute any part of the principal amount of the Indebtedness evidenced hereby. All Revolving Loans created or existing under, pursuant to, as a result of, or arising out of, the Prior Note shall, together with any and all additional Revolving Loans incurred under this Note, continue in existence under this Note, which Obligations Borrowers acknowledge, reaffirm, and confirm to Lender. The Indebtedness evidenced by this Note will continue to be secured by all of the collateral and other security granted to Lender under the Prior Note and the other Loan Documents.

THIS NOTE HAS BEEN DELIVERED AND ACCEPTED AT AND SHALL BE DEEMED TO HAVE BEEN MADE AT CINCINNATI, OHIO. THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF OHIO (WITHOUT REFERENCE TO OHIO CONFLICTS OF LAW PRINCIPLES).

AS A SPECIFICALLY BARGAINED INDUCEMENT FOR AGENT AND LENDERS TO ENTER INTO THE CREDIT AGREEMENT AND EXTEND CREDIT TO BORROWERS, BORROWERS, AGENT AND LENDERS AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE, ITS VALIDITY OR PERFORMANCE, AND WITHOUT LIMITATION ON THE ABILITY OF AGENT OR ANY LENDER, OR ITS RESPECTIVE SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE LOAN COLLATERAL AND TO INITIATE AND PROSECUTE IN ANY APPLICABLE JURISDICTION ACTIONS RELATED TO REPAYMENT OF THE OBLIGATIONS, SHALL BE INITIATED AND PROSECUTED AS TO BORROWERS, AGENT AND LENDERS AND THEIR SUCCESSORS AND ASSIGNS AT CINCINNATI, OHIO. AGENT, LENDERS AND BORROWERS EACH CONSENT TO AND SUBMIT TO THE EXERCISE OF JURISDICTION OVER THEIR RESPECTIVE PERSONS BY ANY COURT SITUATED AT CINCINNATI, OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER, AND EACH CONSENTS THAT ALL SERVICE OF

PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO BORROWERS, AGENT AND LENDERS AT THEIR RESPECTIVE ADDRESSES SET FORTH IN SECTION 12.2 OF THE CREDIT AGREEMENT OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF OHIO. EACH BORROWER WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.

AS A SPECIFICALLY BARGAINED INDUCEMENT FOR AGENT AND LENDERS TO ENTER INTO THE CREDIT AGREEMENT AND EXTEND CREDIT TO BORROWERS, BORROWERS, AGENT AND LENDERS EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE OR THE CONDUCT OF THE RELATIONSHIP AMONG AGENT, LENDERS AND BORROWERS.

[Signature Page Follows]

In Witness Whereof, Borrowers, intending to be legally bound, have caused this Note to be executed and delivered by its duly authorized officer as of the Effective Date and at the place set forth above.

INDUSTRIAL SERVICES OF AMERICA, INC.

By:     /s/ Harry Kletter__________________

Harry Kletter, Chief Executive Officer

ISA INDIANA, INC.

By: /s/ Harry Kletter__________________

Harry Kletter, Chief Executive Officer

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Harry Kletter, certify that:

1. I have reviewed the Form 10-Q for the quarter ended June 30, 2012 of Industrial Services of America, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in the report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants' fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 14, 2012	/s/ Harry Kletter
Date	Harry Kletter, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Alan Schroering, certify that:

1. I have reviewed the Form 10-Q for the quarter ended June 30, 2012 of Industrial Services of America, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in the report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants' fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 14, 2012	/s/ Alan Schroering
Date	Alan Schroering, VP of Finance and Interim Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS

Harry Kletter and Alan Schroering, being the Chief Executive Officer and VP of Finance and Interim Chief Financial Officer, respectively, of Industrial Services of America, Inc., hereby certify as of this 14th day of August, 2012, that the Form 10-Q for the Quarter ended June 30, 2012, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Industrial Services of America, Inc.

/s/ Harry Kletter

Harry Kletter, Chief Executive Officer

/s/ Alan Schroering

Alan Schroering, VP of Finance and Interim Chief Financial Officer

XML

LONG TERM DEBT AND NOTES PAYABLE TO BANK (Schedule of Long-Term Debt) (Details) (USD $)			6 Months Ended															0 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Term Loan [Member]	Jul. 30, 2010 Term Loan [Member]	Jun. 30, 2012 Revolving Credit Facility [Member]	Dec. 31, 2011 Revolving Credit Facility [Member]	Jul. 30, 2010 Revolving Credit Facility [Member] Credit Agreement [Member]	Jun. 30, 2012 Notes Payable to Banks [Member] Note payable to Fifth Third Bank in the amount of $8.8 million secured by rental fleet equipment, shredder system assets, and a crane [Member]	Dec. 31, 2011 Notes Payable to Banks [Member] Note payable to Fifth Third Bank in the amount of $8.8 million secured by rental fleet equipment, shredder system assets, and a crane [Member]	Jun. 30, 2012 Notes Payable to Banks [Member] Note payable to Fifth Third Bank in the amount of $1.3 million secured by equipment purchased with proceeds [Member]	Dec. 31, 2011 Notes Payable to Banks [Member] Note payable to Fifth Third Bank in the amount of $1.3 million secured by equipment purchased with proceeds [Member]	Jun. 30, 2012 Notes Payable to Banks [Member] Loan and Security Agreement payable to Fifth Third Bank in the amount of $226.9 thousand secured by the equipment purchased with proceeds [Member]	Dec. 31, 2011 Notes Payable to Banks [Member] Loan and Security Agreement payable to Fifth Third Bank in the amount of $226.9 thousand secured by the equipment purchased with proceeds [Member]	Jun. 30, 2012 Notes Payable to Banks [Member] Note payable to Fifth Third Bank in the amount of $115.0 thousand secured by the equipment purchased with proceeds [Member]	Dec. 31, 2011 Notes Payable to Banks [Member] Note payable to Fifth Third Bank in the amount of $115.0 thousand secured by the equipment purchased with proceeds [Member]	Jun. 30, 2012 Notes Payable to Banks [Member] Note payable to ILS for various assets including tractor trailers, trucks and containers [Member]	Dec. 31, 2011 Notes Payable to Banks [Member] Note payable to ILS for various assets including tractor trailers, trucks and containers [Member]	Oct. 19, 2010 Notes Payable to Banks [Member] October Note [Member]	Apr. 12, 2011 Notes Payable to Banks [Member] April Note [Member]	Aug. 09, 2011 Notes Payable to Banks [Member] August Agreement [Member]	Aug. 02, 2007 Notes Payable [Member] Industrial Logistic Services [Member]
Debt Instrument [Line Items]
Total long-term debt	$ 29,065,000	$ 28,509,000			$ 21,585,000	$ 20,083,000		$ 6,385,000	$ 7,015,000	$ 802,000	$ 962,000	$ 160,000	$ 187,000	$ 93,000	$ 106,000	$ 40,000	$ 156,000
Current maturities of long-term debt	1,715,000	1,821,000
Long-term debt	27,350,000	26,688,000
Maximum revolving commitment							40,000,000
Face amount				8,800,000														1,300,000	226,900	115,000	1,000,000
Principal and interest			$ 125,000															$ 30,500	$ 5,300	$ 2,700	$ 20,000
Debt interest rate																		5.20%	5.68%	5.95%	7.00%
Payment period																					60 months

XML

LONG TERM INCENTIVE PLAN (Weighted Average Assumptions) (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Weighted average grant-date fair value of grants per option	$ 1.71	$ 0.00
Volatility	52.80%
Risk-free interest rate	2.50%
Expected life	2 years 6 months
Expected dividend yield	0.00%

XML

PER SHARE DATA (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share, Basic [Abstract]
Net (loss) income	$ (1,239)	$ 313	$ (1,231)	$ 2,480
Weighted average shares outstanding	6,944	6,790	6,942	6,913
Basic (loss) earnings per share (in Dollars per share)	$ (0.18)	$ 0.05	$ (0.18)	$ 0.36
Earnings Per Share, Diluted [Abstract]
Add dilutive effect of assumed exercising of stock options	0	35	0	40
Diluted weighted average shares outstanding	6,944	6,825	6,942	6,953
Diluted (loss) earnings per share (in Dollars per share)	$ (0.18)	$ 0.05	$ (0.18)	$ 0.36

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INTANGIBLE ASSETS (Schedule of Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Value	$ 6,150
Accumulated Amortization	(1,500)
Net Carrying Value	4,650
Venture Metals, LLC trade name [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Value	730
Accumulated Amortization	(292)
Net Carrying Value	438
Non-compete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Value	620
Accumulated Amortization	(248)
Net Carrying Value	372
Venture Metals, LLC customer list [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Value	4,800
Accumulated Amortization	(960)
Net Carrying Value	$ 3,840

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LEASE COMMITMENTS (Tables)

6 Months Ended

Jun. 30, 2012

Leases [Abstract]

Schedule of Future Minimum Rental Payments

2012	$	441
2013	168
2014	171
2015	134
2016	8
Thereafter	—
Future minimum lease payments	$	922

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INVENTORIES (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Inventory [Line Items]
Replacement parts, depreciation	1 year
Raw Materials	$ 24,927,000	$ 16,256,000
Finished Goods	1,353,000	1,511,000
Processing Costs	1,275,000	777,000
Total	27,555,000	18,544,000
Stainless steel, ferrous and non-ferrous materials [Member]
Inventory [Line Items]
Raw Materials	23,260,000	14,633,000
Finished Goods	1,199,000	1,409,000
Processing Costs	1,275,000	777,000
Total	25,734,000	16,819,000
Waste equipment machinery [Member]
Inventory [Line Items]
Raw Materials	0	0
Finished Goods	85,000	39,000
Processing Costs	0	0
Total	85,000	39,000
Other [Member]
Inventory [Line Items]
Raw Materials	0	0
Finished Goods	69,000	63,000
Processing Costs	0	0
Total	69,000	63,000
Total inventories for sale [Member]
Inventory [Line Items]
Raw Materials	23,260,000	14,633,000
Finished Goods	1,353,000	1,511,000
Processing Costs	1,275,000	777,000
Total	25,888,000	16,921,000
Replacement parts [Member]
Inventory [Line Items]
Raw Materials	1,667,000	1,623,000
Finished Goods	0	0
Processing Costs	0	0
Total	1,667,000	1,623,000
Inventory Valuation and Obsolescence [Member]
Inventory [Line Items]
Increase in cost of goods sold	$ 352,100

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LONG TERM DEBT AND NOTES PAYABLE TO BANK (Promissory Notes) (Details) (USD $)	0 Months Ended		0 Months Ended		0 Months Ended		0 Months Ended
	Apr. 12, 2011 Notes Payable to Banks [Member] April Note [Member] installmenrs	Jun. 30, 2012 Notes Payable to Banks [Member] April Note [Member]	Aug. 09, 2011 Notes Payable to Banks [Member] August Agreement [Member] installmenrs	Jun. 30, 2012 Notes Payable to Banks [Member] August Agreement [Member]	Oct. 19, 2010 Notes Payable to Banks [Member] October Note [Member] installmenrs	Jun. 30, 2012 Notes Payable to Banks [Member] October Note [Member]	Aug. 02, 2007 Notes Payable [Member] Industrial Logistic Services [Member]	Jun. 30, 2012 Notes Payable [Member] Industrial Logistic Services [Member]
Debt Instrument [Line Items]
Face amount	$ 226,900		$ 115,000		$ 1,300,000		$ 1,000,000
Debt interest rate	5.68%		5.95%		5.20%		7.00%
Total amount of asset purchase agreement							1,300,000
Cash portion of asset purchase agreement							100,000
Number of monthly installments	48		48		48
Principal and interest	5,300		2,700		30,500		20,000
Outstanding balance		$ 160,300		$ 93,100		$ 802,400		$ 39,600
Payment period							60 months

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LONG TERM INCENTIVE PLAN (Details) (USD $)	6 Months Ended	12 Months Ended		1 Months Ended		3 Months Ended	6 Months Ended	12 Months Ended		1 Months Ended			3 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Minimum [Member] awards people	May 31, 2012 Stock Options [Member] directors	Jul. 31, 2009 Stock Options [Member] directors	Jun. 30, 2012 Stock Options [Member]	Jun. 30, 2012 Stock Options [Member]	Dec. 31, 2009 Stock Options [Member]	Jun. 30, 2012 Performance Shares [Member]	May 31, 2012 Director [Member] Stock Options [Member]	Jul. 31, 2009 Director [Member] Stock Options [Member]	Jan. 31, 2011 Management [Member] Performance Shares [Member]	Mar. 31, 2011 Consultants [Member] Non-performance Based Shares [Member]	Jun. 30, 2012 Previous Executive [Member] Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available under plan									2,400,000
Number of people, outside Board members			2
Number of awards available for grant			1
Vesting period	1 year
Contractual term				5 years			5 years
Stock options	90,000	0		90,000	90,000					30,000	30,000
Number of directors awarded options to purchase shares				3	3
Exercise price				$ 4.94	$ 4.23
Stock option expense						$ 24,000		$ 95,100
Shares issued, stock-based compensation												60,000
Grant date fair value												$ 11.93	$ 12.28	$ 15.98
Shares issued, payment award													600	3,800

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CHANGE IN ESTIMATE

6 Months Ended

Jun. 30, 2012

Accounting Changes and Error Corrections [Abstract]

Change in Estimate

CHANGE IN ESTIMATE

As of June 2012, the Company adopted a new method for estimating residual value amounts for automotive vehicle parts and appliances held in inventory. The new method was adopted due to the ongoing evaluation of our experience with the materials produced from our shredder operations. This change in estimate provides a more accurate value of these residual values in inventory and was applied prospectively in accordance with FASB ASC 250, “Accounting Changes and Error Corrections.” The impact of this change resulted in an increase in the cost of goods sold of $352.1 thousand for the six month period ended June 30, 2012.

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LEASE COMMITMENTS (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Operating Leased Assets [Line Items]
Rent expense, gross	$ 472,700	$ 557,200
Related Party [Member]
Operating Leased Assets [Line Items]
Monthly rent expense	10,500
Louisville, Kentucky [Member] | March 2012 through February 2014 [Member]
Operating Leased Assets [Line Items]
Monthly rent expense	3,500
Louisville, Kentucky [Member] | After February 2014 [Member]
Operating Leased Assets [Line Items]
Monthly rent expense	3,800
Louisville, Kentucky [Member] | Related Party [Member]
Operating Leased Assets [Line Items]
Monthly rent expense	48,500
Dallas, Texas [Member]
Operating Leased Assets [Line Items]
Monthly rent expense	$ 1,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Stock Option Plan and Factoring Fees) (Details) (USD $)	6 Months Ended		12 Months Ended	1 Months Ended		6 Months Ended	1 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	May 31, 2012 Stock Options [Member] directors	Jul. 31, 2009 Stock Options [Member] directors	Jun. 30, 2012 Stock Options [Member]	May 31, 2012 Stock Options [Member] Director [Member]	Jul. 31, 2009 Stock Options [Member] Director [Member]
Accounting Policies [Abstract]
Factoring fees	$ 101,400	$ 312,500
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum term of options				5 years		5 years
Stock options	90,000		0	90,000	90,000		30,000	30,000
Number of directors awarded options to purchase shares				3	3
Exercise price				$ 4.94	$ 4.23
Unrecognized stock-based compensation						129,500
Weighted average period						1 year
Share-based compensation expense	$ 24,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Fair Value) (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Cash and cash equivalents	$ 2,575
Liabilities, Fair Value Disclosure [Abstract]
Long-term debt	0
Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member]
Liabilities, Fair Value Disclosure [Abstract]
Derivative contract	0
Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Cash and cash equivalents	0
Liabilities, Fair Value Disclosure [Abstract]
Long-term debt	(29,065)
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Liabilities, Fair Value Disclosure [Abstract]
Derivative contract	(371)
Estimate of Fair Value, Fair Value Disclosure [Member]
Assets, Fair Value Disclosure [Abstract]
Cash and cash equivalents	2,575
Liabilities, Fair Value Disclosure [Abstract]
Long-term debt	(29,065)
Estimate of Fair Value, Fair Value Disclosure [Member] | Interest Rate Swap [Member]
Liabilities, Fair Value Disclosure [Abstract]
Derivative contract	$ (371)

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LEASE COMMITMENTS (Lease Payments) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Leases [Abstract]
2012	$ 441
2013	168
2014	171
2015	134
2016	8
Thereafter	0
Future minimum lease payments	$ 922

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Subsequent Events) (Details) (USD $)	0 Months Ended		3 Months Ended		6 Months Ended
	Aug. 13, 2012	Jul. 30, 2010	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2012
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Senior leverage ratio, next quarter	4.75		3.5
Senior leverage ratio, end of year					3.25
Fixed charge coverage ratio		1.2
Interest rate increase	0.0050
Credit facility, interest rate			3.00%		3.00%
Senior leverage ratio				4.25
Fee to Bank			$ 10,000		$ 10,000
Revolving Credit Facility [Member] | Subsequent Event [Member] | Fourth Amendment [Member]
Line of Credit Facility [Line Items]
Decrease maximum revolving commitment	10,000,000
Maximum revolving commitment	30,000,000
Senior leverage ratio, next quarter	4.75
Senior leverage ratio, end of year	3.25
Fixed charge coverage ratio, next quarter	1.0
Fixed charge coverage ratio, end of year	1.5
Fixed charge coverage ratio, thereafter	1.2
Interest rate increase	0.0050
Credit facility, interest rate	3.50%
Interest rate decrease	0.25%
Senior leverage ratio	3.50
Fee to Bank	25,000
Term Loan [Member] | Subsequent Event [Member] | Fourth Amendment [Member]
Line of Credit Facility [Line Items]
Credit facility, interest rate	3.75%

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CHANGE IN ESTIMATE (Details) (Inventory Valuation and Obsolescence [Member], USD $)	6 Months Ended
	Jun. 30, 2012
Inventory Valuation and Obsolescence [Member]
Increase in cost of goods sold	$ 352,100

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("GAAP") for complete consolidated financial statements. The Accounting Standards Codification ("ASC") as produced by the Financial Accounting Standards Board ("FASB") is the sole source of authoritative GAAP for non-governmental entities. The information furnished includes all adjustments, which are, in the opinion of management, necessary to present fairly our financial position as of June 30, 2012 and the results of our operations and changes in our cash flow for the periods ended June 30, 2012 and 2011. Results of operations for the period ended June 30, 2012 are not necessarily indicative of the results that may be expected for the entire year. Additional information, including the audited December 31, 2011 consolidated financial statements and the Summary of Significant Accounting Policies, is included in our Annual Report on Form 10-K for the year ended December 31, 2011 on file with the Securities and Exchange Commission.

Estimates

In preparing the condensed consolidated financial statements in accordance with U. S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, management must make estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues and expenses, as well as affecting the disclosures provided. Examples of estimates include the allowance for doubtful accounts, estimates associated with annual goodwill impairment tests, estimates of deferred income tax assets and liabilities, estimates of inventory balances, and estimates of stock option values. The Company also uses estimates when assessing fair values of assets and liabilities acquired in business acquisitions as well as any fair value and any related impairment charges related to the carrying value of machinery and equipment, and other long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.

Restatements and Reclassifications

We have reclassified certain income statement items within the accompanying Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements for the prior year in order to be comparable with the current presentation. These reclassifications had no effect on previously reported income.

Fair Value

We carry certain of our financial assets and liabilities at fair value on a recurring basis. These financial assets and liabilities are composed of cash and cash equivalents and derivative instruments. Long-term debt is carried at cost, and the fair value is disclosed herein. In addition, we measure certain assets, such as goodwill and other long-lived assets, at fair value on a non-recurring basis to evaluate those assets for potential impairment. Fair value is defined 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.

In accordance with the accounting standard, we categorize our financial assets and liabilities into the following fair value hierarchy:

Level 1 – Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Examples of level 1 financial instruments include active exchange-traded equity securities and certain U.S. government securities.

Level 2 – Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Examples of level 2 financial instruments include commercial paper purchased from the State Street-administered asset-backed commercial paper conduits, various types of interest-rate derivative instruments, and various types of fixed-income investment securities. Pricing models are utilized to estimate fair value for certain financial assets and liabilities categorized in level 2.

Level 3 – Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall fair value measurement. These inputs reflect management’s judgment about the assumptions that a market participant would use in pricing the asset or liability, and are based on the best available information, some of which is internally developed. Examples of level 3 financial instruments include certain corporate debt with little or no market activity and a resulting lack of price transparency.

When determining the fair value measurements for financial assets and liabilities carried at fair value on a recurring basis, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, we look to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets, and we use alternative valuation techniques to derive fair value measurements.

We use the fair value methodology outlined in the related accounting standard to value the assets and liabilities for cash, debt and derivatives. All of our cash is defined as Level 1 and all our debt and derivative contracts are defined as Level 2. In accordance with this guidance, the following table represents our fair value hierarchy for Level 1 and Level 2 financial instruments at June 30, 2012 (in thousands):

Assets	Level 1		Level 2			Total
Cash and cash equivalents	$	2,575	$	—		$	2,575
Liabilities
Long-term debt	$	—	$	(29,065	)	$	(29,065	)
Derivative contract - interest rate swap	—		(371		)	(371		)

We have had no transfers in or out of Levels 1 or 2 fair value measurements, and no activity in Level 3 fair value measurements for the three month and six month periods ended June 30, 2012. For Level 3 assets, goodwill is subject to impairment analysis each year end under Phase I of the ASC guidance. We hired an independent third party to evaluate Level 3 assets for impairment as of December 31, 2011. No impairment adjustment was necessary.

Stock Option Plan

We provide compensation benefits by granting stock options to employees and directors. 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 5 years. We recognize share-based compensation expense for the fair value of the awards, as estimated using the Modified Black-Scholes-Merton Model, on the date granted on a straight-line basis over their vesting term. Compensation expense is recognized only for share-based payments expected to vest. We estimate forfeitures at the date of grant based on our historical experience and future expectations.

There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected term. We estimate expected volatility based on traded option volatility of the our stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the our long-term incentive plan and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of stock-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management's judgment. As a result, if factors change and we use different assumptions, stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

As of May 15, 2012, we awarded options to purchase 30.0 thousand shares of our stock each to our three new directors for a total of 90.0 thousand shares at a per share exercise price of $4.94, the fair value as of the grant date. As of June 30, 2012, the unrecognized stock-based compensation cost related to non-vested option awards was $129.5 thousand and such amount will be recognized in operations over the vesting period of 1 year. Stock compensation charged to operations was $24.0 thousand as of June 30, 2012. We did not charge any stock compensation to operations as of June 30, 2011.

See also Note 10 - "Long Term Incentive Plan" in these Notes to Consolidated Financial Statements for additional information regarding the Long Term Incentive Plan.

Factoring fees

We have included factoring fees with interest expense. These fees were previously recorded as discounts taken and totaled $101.4 thousand and $312.5 thousand for the year-to-date periods ending June 30, 2012 and 2011, respectively.

Subsequent Events

We have evaluated the period from June 30, 2012 through the date the financial statements herein were issued for subsequent events requiring recognition or disclosure in the financial statements and the following event was identified:

On August 13, 2012, Industrial Services of America, Inc. and ISA Indiana, Inc. (the “Companies”) entered into a Fourth Amendment to Credit Agreement (the “Fourth Amendment”) with Fifth Third Bank (the “Bank”) which amended the July 30, 2010 Credit Agreement (the “Credit Agreement”), including the First Amendment to Credit Agreement dated as of April 14, 2011 (the “April Amendment”), the Second Amendment to Credit Agreement dated as of November 16, 2011 (the “November Amendment”), and the Third Amendment to Credit Agreement dated as of March 2, 2012 (the “Third Amendment”) as follows. The Fourth Amendment decreased our maximum revolving commitment by $10.0 million to $30.0 million and extended the maturity date of both the revolving credit facility and the term loan from July 31, 2013 to October 31, 2013. The Fourth Amendment also provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ending June 30, 2012. The Fourth Amendment changed our covenant to maintain a ratio of debt to adjusted EBITDA (the "Senior Leverage Ratio") from 3.50 to 1 in the third quarter of 2012 to 4.75 to 1 in the third quarter of 2012. The ratio in the fourth quarter of 2012 and thereafter remains at 3.25 to 1. The Fourth Amendment also changed our covenant to maintain a ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled payment of principal (the "Fixed Charge Coverage Ratio") from not less than 1.2 to 1 to not less than 1.0 to 1 for the third quarter of 2012, and to not less than 1.5 to 1 for the fourth quarter of 2012. For every test period thereafter, it will return to not less than 1.2 to 1. The Fourth Amendment also increased the interest rate for both the revolving credit facility and the term loan by fifty basis points (0.50%) to 3.50% and 3.75%, respectively. The rate will decrease by twenty-five basis points (0.25%) if the Companies achieve a Senior Leverage Ratio of 3.50 to 1 or below beginning with the quarter ending September 30, 2012. In addition, the Companies also agreed to perform other customary commitments and pay a fee of $25.0 thousand to the Bank. All other terms of the Credit Agreement and previous Amendments remain in effect. See also Note 4 - "Long Term Debt and Notes Payable" in these Notes to Consolidated Financial Statements for additional information regarding the Fourth Amendment.

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INTANGIBLE ASSETS (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization expense	$ 375,000	$ 375,000
Non-compete agreements [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Useful life	5 years
Customer List [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Useful life	10 years

XML

LONG TERM DEBT AND NOTES PAYABLE TO BANK (Annual Maturities) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Debt Disclosure [Abstract]
2012	$ 1,715
2013	27,148
2014	197
2015	5
Thereafter	0
Total long-term debt	$ 29,065	$ 28,509

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets
Cash and cash equivalents	$ 2,575	$ 2,267
Income tax receivable	886	3,967
Accounts receivable – trade (after allowance for doubtful accounts of $100.0 thousand in 2012 and 2011)	13,837	17,191
Net investment in sales-type leases	21	40
Inventories	27,555	18,544
Deferred income taxes	368	411
Prepaid expenses	296	328
Employee loans	5	6
Total current assets	45,543	42,754
Net property and equipment	25,417	26,199
Other assets
Notes receivable – related party	23	45
Goodwill	6,840	6,840
Intangible assets, net	4,650	5,025
Deposits	274	107
Total other assets	11,787	12,017
Total assets	82,747	80,970
Current liabilities
Current maturities of long-term debt	1,715	1,821
Accounts payable	14,407	10,681
Interest rate swap agreement liability	371	484
Other current liabilities	447	331
Total current liabilities	16,940	13,317
Long-term liabilities
Long-term debt	27,350	26,688
Deferred income taxes	1,984	3,406
Total long-term liabilities	29,334	30,094
Shareholders’ equity
Common stock, $0.0033 par value: 10,000,000 shares authorized, 7,192,479 shares issued in 2012 and 2011, 6,944,267 and 6,940,517 shares outstanding in 2012 and 2011, respectively	24	24
Additional paid-in capital	18,210	18,131
Retained earnings	18,826	20,057
Accumulated other comprehensive loss	(230)	(290)
Treasury stock at cost, 248,212 and 251,962 shares in 2012 and 2011, respectively	(357)	(363)
Total shareholders’ equity	36,473	37,559
Total liabilities and shareholders’ equity	$ 82,747	$ 80,970

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PROVISION FOR EMPLOYEE TERMINATIONS AND SEVERANCES (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Postemployment Benefits [Abstract]
Provision for employee terminations and severances	$ 17	$ 0	$ 228	$ 0

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2011	$ 37,559	$ 24	$ 18,131	$ 20,057	$ (290)	$ (363)
Balance (in Shares) at Dec. 31, 2011		7,192,479				(251,962)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net unrealized income on derivative instruments, net of tax	60				60
Stock/options bonuses	85		79			6
Stock/options bonuses (in Shares)						3,750
Net loss	(1,231)			(1,231)
Balance at Jun. 30, 2012	$ 36,473	$ 24	$ 18,210	$ 18,826	$ (230)	$ (357)
Balance (in Shares) at Jun. 30, 2012		7,192,479				(248,212)

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LONG TERM DEBT AND NOTES PAYABLE TO BANK (Subsequent Events) (Details) (USD $)	0 Months Ended		3 Months Ended		6 Months Ended
	Aug. 13, 2012	Jul. 30, 2010	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2012
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Senior leverage ratio, next quarter	4.75		3.5
Senior leverage ratio, end of year					3.25
Fixed charge coverage ratio		1.2
Interest rate increase	0.0050
Credit facility, interest rate			3.00%		3.00%
Senior leverage ratio				4.25
Fee to Bank			$ 10,000		$ 10,000
Fourth Amendment [Member] | Revolving Credit Facility [Member] | Subsequent Event [Member]
Line of Credit Facility [Line Items]
Decrease maximum revolving commitment	10,000,000
Maximum revolving commitment	30,000,000
Senior leverage ratio, next quarter	4.75
Senior leverage ratio, end of year	3.25
Fixed charge coverage ratio, next quarter	1.0
Fixed charge coverage ratio, end of year	1.5
Fixed charge coverage ratio, thereafter	1.2
Interest rate increase	0.0050
Credit facility, interest rate	3.50%
Interest rate decrease	0.25%
Senior leverage ratio	3.50
Fee to Bank	25,000
Fourth Amendment [Member] | Term Loan [Member] | Subsequent Event [Member]
Line of Credit Facility [Line Items]
Credit facility, interest rate	3.75%

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LONG TERM DEBT AND NOTES PAYABLE TO BANK (Tables)

6 Months Ended

Jun. 30, 2012

Debt Disclosure [Abstract]

Schedule of Long-term

Our long term debt as of June 30, 2012 and December 31, 2011 consisted of the following:

	2012		2011
	(Unaudited)
	(in thousands)
Revolving credit facility of $40.0 million with Fifth Third Bank. See above description for additional details.	$	21,585	$	20,083
Note payable to Fifth Third Bank in the amount of $8.8 million secured by our rental fleet equipment, our shredder system assets, and a crane. See above description for additional details.	6,385		7,015
Note payable to Fifth Third Bank in the amount of $1.3 million secured by equipment purchased with the proceeds. See above description for additional details.	802		962
Loan and Security Agreement payable to Fifth Third Bank in the amount of $226.9 thousand secured by the equipment purchased with the proceeds. See above description for additional details.	160		187
Note payable to Fifth Third Bank in the amount of $115.0 thousand secured by the equipment purchased with the proceeds. See above description for additional details.	93		106
Note payable to ILS for various assets including tractor trailers, trucks and containers. The repayment terms are $20.0 thousand per month for 60 months at a seven percent (7.0%) interest rate. The maturity date under this agreement is August 2012.	40		156
	29,065		28,509
Less current maturities	1,715		1,821
	$	27,350	$	26,688

Schedule of Maturities of Long-term Debt

The annual maturities of long term debt (in thousands) as of June 30, 2012 are as follows:

2012	$	1,715
2013	27,148
2014	197
2015	5
Thereafter	—
Total	$	29,065

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LONG TERM DEBT AND NOTES PAYABLE TO BANK (Credit Facility) (Details) (USD $)	6 Months Ended				0 Months Ended		3 Months Ended		6 Months Ended			0 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 Term Loan [Member]	Jul. 30, 2010 Term Loan [Member] installmenrs	Aug. 13, 2012 Revolving Credit Facility [Member]	Jul. 30, 2010 Revolving Credit Facility [Member]	Jun. 30, 2012 Revolving Credit Facility [Member]	Mar. 31, 2012 Revolving Credit Facility [Member]	Jun. 30, 2012 Revolving Credit Facility [Member]	Jun. 30, 2012 Revolving Credit Facility [Member] Before March 2nd, 2012 [Member]	Jun. 30, 2012 Revolving Credit Facility [Member] After March 2nd, 2012 [Member]	Jul. 30, 2010 Revolving Credit Facility [Member] Credit Agreement [Member]	Apr. 14, 2011 Revolving Credit Facility [Member] April Amendment [Member]	Dec. 06, 2011 Revolving Credit Facility [Member] November Amendment [Member]
Line of Credit Facility [Line Items]
Fixed charge coverage ratio						1.2
Original senior leverage ratio						3.50
Annual senior leverage ratio						4
Senior leverage ratio								4.25
Senior leverage ratio, next quarter					4.75		3.5
Senior leverage ratio, end of year									3.25
Change in unused borrowing percentage										0.25%
Unused borrowing percentage											0.75%
Interest rate increase					0.0050
Fee to Bank							$ 10,000		$ 10,000
Maximum revolving commitment												40,000,000	45,000,000
Percent of eligible accounts												85.00%	85.00%
Percent of eligible inventory												60.00%	60.00%
Borrowing base												17,000,000	18,000,000
Current borrowing capacity														40,000,000
Eligible inventory, period from invoice date												90 days
Face amount				8,800,000
Proceeds from credit facility												33,400,000
Description of variable rate basis									one month LIBOR
Basis spread on variable rate			0.25%				2.50%		2.50%
Credit facility, interest rate			3.25%				3.00%		3.00%
Number of monthly installments				36
Amount outstanding							21,600,000		21,600,000
Principal and interest			125,000
Percentage of EBITDA			25.00%
Outstanding balance			6,400,000
Limitations on capital expenditures						4,000,000
Debt ratio							6.59		6.59
EBITDA to cash payments ratio							0.43		0.43
Purchases of property and equipment	889,900
Construction in progress	(343,000)	0
Remaining borrowing capacity							$ 18,400,000		$ 18,400,000

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INVENTORIES (Tables)

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

Schedule of Inventory

Other inventory includes fuel, cardboard and baling wire.

Inventories as of June 30, 2012 and December 31, 2011 consist of the following:

	June 30, 2012								December 31, 2011
	Raw Materials		Finished Goods		Processing Costs		Total (unaudited)		Raw Materials		Finished Goods		Processing Costs		Total
	(in thousands)
Stainless steel, ferrous and non-ferrous materials	$	23,260	$	1,199	$	1,275	$	25,734	$	14,633	$	1,409	$	777	$	16,819
Waste equipment machinery	—		85		—		85		—		39		—		39
Other	—		69		—		69		—		63		—		63
Total inventories for sale	23,260		1,353		1,275		25,888		14,633		1,511		777		16,921
Replacement parts	1,667		—		—		1,667		1,623		—		—		1,623
Total inventories	$	24,927	$	1,353	$	1,275	$	27,555	$	16,256	$	1,511	$	777	$	18,544

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities
Net (loss) income	$ (1,231)	$ 2,480
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	2,236	2,255
Stock expense - bonus and options	84	495
Deferred income taxes	(1,431)	0
Gain on sale of property and equipment	(35)	(141)
Change in assets and liability
Receivables	3,354	7,281
Net investment in sales-type leases	19	16
Inventories	(9,011)	145
Income tax receivable	3,081	0
Other assets	(134)	(1,732)
Accounts payable	3,536	(6,385)
Accrued bonuses	0	(946)
Income tax payable	0	456
Other current liabilities	116	71
Net cash from operating activities	584	3,995
Cash flows from investing activities
Proceeds from sale of property and equipment	36	154
Purchases of property and equipment	(547)	(895)
Construction in progress	(343)	0
Deposits on equipment	0	(260)
Payments from related party	22	21
Net cash used in investing activities	(832)	(980)
Cash flows from financing activities
Payments on long-term debt	(946)	(3,916)
Proceeds from long-term debt	1,502	517
Net cash from (used in) financing activities	556	(3,399)
Net increase (decrease) in cash	308	(384)
Cash at beginning of year	2,267	2,468
Cash at end of year	2,575	2,084
Supplemental disclosure of cash flow information:
Cash paid for interest	871	1,206
Cash tax refund received	2,548	0
Cash paid for taxes	308	1,000
Supplemental disclosure of noncash investing and financing activities
Equipment accrual	$ 190	$ 0

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CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Allowance for doubtful accounts	$ 100	$ 100
Common stock, par value	$ 0.0033	$ 0.0033
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	7,192,479	7,192,479
Common stock, shares outstanding	6,944,267	6,940,517
Treasury stock, shares	248,212	251,962

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LONG TERM INCENTIVE PLAN

6 Months Ended

Jun. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Long Term Incentive Plan

LONG TERM INCENTIVE PLAN

The Company’s long term incentive plan makes available up to 2.4 million shares of our common stock for performance-based awards under the plan. We may grant any of these types of awards: non-qualified and incentive stock options, stock appreciation rights, and other stock awards including stock units, restricted stock units, performance shares, performance units, and restricted stock. The performance goals that we may use for such awards will be based on any one or more of the following performance measures: cash flow, earnings, earnings per share, market value added or economic value added, profits, return on assets, return on equity, return on investment, revenues, or total shareholder return.

The plan is administered by a committee selected by the Board, initially our Compensation Committee, and consisting of two or more outside members of the Board. The Committee may grant one or more awards to our employees, including our officers, our directors and consultants, and will determine the specific employees who will receive awards under the plan and the type and amount of any such awards. A participant who receives shares of stock awarded under the plan must hold those shares for six months before the participant may dispose of such shares. The Committee may settle an award under the plan in cash rather than stock.

The Company uses the Modified Black-Scholes-Merton option-pricing model to value the Company's stock options for each stock option award. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company's stock option awards, which are generally subject to pro-rata vesting annually over one year, is expensed on a straight-line basis over the vesting period of the stock options. The expected volatility assumption is based on traded options volatility of the Company's stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company's stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The expected term assumption incorporates the contractual term of an option grant, which is five years, as well as the vesting period of an award, which is generally pro-rata vesting annually over one year. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.

The Company recognizes stock-based compensation costs, net of estimated forfeitures, for only those shares expected to vest on a straight-line basis over the requisite service period of the award. The Company estimates the forfeiture rates based on its historical experience. Treasury shares are issued for exercised options. The Company does not expect to repurchase any additional shares within the following annual period to accommodate the exercise of outstanding stock options.

The weighted average assumptions relating to the valuation of the Company's stock options awarded in May, 2012 is shown below. No stock options were granted during 2011.

	2012
Weighted average grant-date fair value of grants per option	$1.71
Volatility	52.8%
Risk-free interest rate	2.5%
Expected life	2.5 years
Expected dividend yield	0.0%

The following table presents a summary of the Company's stock option activity:

Options	Number of shares (in thousands)	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2011 (vested)	90	$	4.23	3.5 years	$	1.05
Granted	—	—		—	—
Outstanding at December 31, 2011	90	$	4.23	2.5 years	$	1.05
Granted (nonvested)	90	4.94		5 years	1.71
Outstanding at June 30, 2012	180	$	4.59	3.4 years	$	1.38
Vested and expected to vest in the future at June 30, 2012	180
Exercisable at June 30, 2012	90	$	4.23	2 years	$	1.05
Available for grant at June 30, 2012	2,095

As of July 1, 2009, we awarded options to purchase 30.0 thousand shares of our stock each to our three independent directors for a total of 90.0 thousand shares at a per share exercise price of $4.23. We recorded expense related to these stock options of $95.1 thousand in 2009. These options are outstanding as of June 30, 2012. As of May 15, 2012, we awarded options to purchase 30.0 thousand shares of our stock each to our three new directors for a total of 90.0 thousand shares at a per share exercise price of $4.94, the fair value as of the grant date. We recorded expense related to these stock options of $24.0 thousand for the quarter ended June 30, 2012. See Note 1 - "Summary of Significant Accounting Policies" of these Consolidated Financial Statements for additional information on the stock option plan.

In January 2011, we issued 60.0 thousand shares of our stock to management. These shares were granted pursuant to performance based stock plans authorized on April 1, 2010, at a grant date fair value of $11.93 per share. We also issued non-performance based stock awards of 0.6 thousand shares to consultants at $12.28 per share in January 2011. On April 9, 2012, we issued 3.8 thousand shares of our stock to a previous executive. These shares were granted pursuant to a performance based stock plan authorized on August 13, 2010, at a grant date fair value of $15.98 per share with performance requirements met on August 15, 2011.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2012
Entity Information [Line Items]
Entity Registrant Name	INDUSTRIAL SERVICES OF AMERICA INC /FL
Entity Central Index Key	0000004187
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding	6,944,267

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LEGAL PROCEEDINGS

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Legal Proceedings

LEGAL PROCEEDINGS

We have litigation from time to time, including employment-related claims, none of which we currently believe to be material.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenue from services	$ 1,023	$ 1,290	$ 2,308	$ 2,661
Revenue from product sales	48,829	63,772	109,222	168,802
Total revenue	49,852	65,062	111,530	171,463
Cost of goods sold for services	944	1,006	2,137	2,283
Cost of goods sold for product sales	47,340	59,612	104,138	156,528
Total cost of goods sold	48,284	60,618	106,275	158,811
Provision for employee terminations and severances	17	0	228	0
Other selling, general and administrative expenses	2,950	2,735	5,949	6,673
Total selling, general and administrative expenses	2,967	2,735	6,177	6,673
(Loss) income before other income (expense)	(1,399)	1,709	(922)	5,979
Other income (expense)
Interest expense	(455)	(633)	(940)	(1,518)
Interest income	3	5	6	11
Gain on sale of assets	16	92	35	141
Provision for lawsuit settlement	0	(175)	0	(175)
Other loss, net	0	(502)	0	(502)
Total other expense	(436)	(1,213)	(899)	(2,043)
(Loss) income before income taxes	(1,835)	496	(1,821)	3,936
Income tax (benefit) provision	(596)	183	(590)	1,456
Net (loss) income	$ (1,239)	$ 313	$ (1,231)	$ 2,480
Basic (loss) earnings per share (in Dollars per share)	$ (0.18)	$ 0.05	$ (0.18)	$ 0.36
Diluted (loss) earnings per share (in Dollars per share)	$ (0.18)	$ 0.05	$ (0.18)	$ 0.36
Weighted shares outstanding:
Basic (in Shares)	6,944	6,790	6,942	6,913
Diluted (in Shares)	6,944	6,825	6,942	6,953

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SEGMENT INFORMATION

6 Months Ended

Jun. 30, 2012

Segment Reporting [Abstract]

Segment Information

SEGMENT INFORMATION

Our operations include two primary segments: Recycling and Waste Services.

The Company’s two 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, including stainless steel, automobile parts, and fiber scrap. Waste Services’ revenues consist of charges to customers for waste disposal services and equipment sales and lease income. The components of the column labeled “other” are selling, general and administrative expenses that are not directly related to the two primary segments.

We evaluate segment performance based on gross profit or loss and the evaluation process for each segment includes only direct expenses and selling, general and administrative costs, omitting any other income and expense and income taxes.

FOR THE SIX MONTHS ENDED JUNE 30, 2012	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	108,118		$	—		$	—		$	108,118
Equipment sales, service and leasing revenues	—			1,104			—			1,104
Management fees	—			2,308			—			2,308
Cost of goods sold	(103,792		)	(2,483		)	—			(106,275		)
Selling, general, and administrative expenses	(3,643		)	(376		)	(2,158		)	$	(6,177	)
Segment profit (loss)	$	683		$	553		$	(2,158	)	$	(922	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

FOR THE SIX MONTHS ENDED June 30, 2011	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	167,637		$	—		$	—		$	167,637
Equipment sales, service and leasing revenues	—			1,165			—			1,165
Management fees	—			2,661			—			2,661
Cost of goods sold	(156,103		)	(2,708		)	—			(158,811		)
Selling, general, and administrative expenses	(4,524		)	(385		)	(1,764		)	(6,673		)
Segment profit (loss)	$	7,010		$	733		$	(1,764	)	$	5,979
Segment assets	$	88,689		$	2,179		$	8,066		$	98,934

FOR THE THREE MONTHS ENDED JUNE 30, 2012	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	48,236		$	—		$	—		$	48,236
Equipment sales, service and leasing revenues	—			593			—			593
Management fees	—			1,023			—			1,023
Cost of goods sold	(47,158		)	(1,126		)	—			(48,284		)
Selling, general, and administrative expenses	(1,831		)	(193		)	(943		)	(2,967		)
Segment profit (loss)	$	(753	)	$	297		$	(943	)	$	(1,399	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

FOR THE THREE MONTHS ENDED JUNE 30, 2011	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	63,185		$	—		$	—		$	63,185
Equipment sales, service and leasing revenues	—			587			—			587
Management fees	—			1,290			—			1,290
Cost of goods sold	(59,400		)	(1,218		)	—			(60,618		)
Selling, general, and administrative expenses	(2,203		)	(191		)	(341		)	(2,735		)
Segment profit (loss)	$	1,582		$	468		$	(341	)	$	1,709
Segment assets	$	88,689		$	2,179		$	8,066		$	98,934

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LONG TERM DEBT AND NOTES PAYABLE TO BANK

6 Months Ended

Jun. 30, 2012

Debt Disclosure [Abstract]

Long term debt and notes payable to bank

LONG TERM DEBT AND NOTES PAYABLE TO BANK

On August 13, 2012, Industrial Services of America, Inc. and ISA Indiana, Inc. (the “Companies”) entered into a Fourth Amendment to Credit Agreement (the “Fourth Amendment”) with Fifth Third Bank (the “Bank”) which amended the July 30, 2010 Credit Agreement (the “Credit Agreement”), including the First Amendment to Credit Agreement dated as of April 14, 2011 (the “April Amendment”), the Second Amendment to Credit Agreement dated as of November 16, 2011 (the “November Amendment”), and the Third Amendment to Credit Agreement dated as of March 2, 2012 (the “Third Amendment”) as follows. The Fourth Amendment decreased our maximum revolving commitment by $10.0 million to $30.0 million and extended the maturity date of both the revolving credit facility and the term loan from July 31, 2013 to October 31, 2013. The Fourth Amendment also provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ending June 30, 2012. The Fourth Amendment changed our covenant to maintain a ratio of debt to adjusted EBITDA (the "Senior Leverage Ratio") from 3.50 to 1 in the third quarter of 2012 to 4.75 to 1 in the third quarter of 2012. The ratio in the fourth quarter of 2012 and thereafter remains at 3.25 to 1. The Fourth Amendment also changed our covenant to maintain a ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled payment of principal (the "Fixed Charge Coverage Ratio") from not less than 1.2 to 1 to not less than 1.0 to 1 for the third quarter of 2012, and to not less than 1.5 to 1 for the fourth quarter of 2012. For every test period thereafter, it will return to not less than 1.2 to 1. The Fourth Amendment also increased the interest rate for both the revolving credit facility and the term loan by fifty basis points (0.50%) to 3.50% and 3.75%, respectively. The rate will decrease by twenty-five basis points (0.25%) if the Companies achieve a Senior Leverage Ratio of 3.50 to 1 or below beginning with the quarter ending September 30, 2012. In addition, the Companies also agreed to perform other customary commitments and pay a fee of $25.0 thousand to the Bank. All other terms of the Credit Agreement and previous Amendments remain in effect.

On March 2, 2012, the Companies entered into the Third Amendment with the Bank which amended the Credit Agreement, including the April Amendment and the November Amendment, as follows. The Third Amendment redefines the calculation period for the purpose of measuring compliance with the Senior Leverage Ratio and the Fixed Charge Coverage Ratio of not less than 1.20 to 1 such that each ratio will be calculated quarterly for the period beginning January 1, 2012 through the end of each quarter of 2012. Prior to the Third Amendment, the ratios were calculated on a rolling 12 month basis. The Third Amendment also changed the Senior Leverage Ratio from 3.50 to 1 in the original Credit Agreement to (i) 4.25 to 1 in the first quarter of 2012, (ii) 3.50 to 1 in the second and third quarter of 2012, and (iii) 3.25 to 1 in the fourth quarter of 2012 and thereafter. The Third Amendment also increased the unused line fee by 0.25% to 0.75% and provided a waiver of the Senior Leverage Ratio and Fixed Charge Coverage Ratio covenant defaults for the quarter ending December 31, 2011. In addition, the Companies also agreed to perform other customary commitments and pay a fee of $10.0 thousand to the Bank.

On April 14, 2011, we entered into the April Amendment with the Bank which amended the Credit Agreement as follows: The April Amendment (i) increased the maximum revolving commitment and the maximum amount of eligible inventory advances in the calculation of the borrowing base, (ii) changed the due date of the first excess cash flow payment to April 30, 2012, and (iii) amended certain other provisions of the Credit Agreement and certain of the other loan documents.

On December 6, 2011, we entered into the November Amendment with the Bank which amended the Credit Agreement, as amended by the April Amendment described above. Under the April Amendment, the Company was permitted to borrow the lesser of $45.0 million (the “Maximum Revolving Commitment”) or the borrowing base, consisting of the sum of 85% of eligible accounts plus 60% of eligible inventory up to $18.0 million. Under the November Amendment, the Maximum Revolving Commitment was reduced to $40.0 million. In addition, the Company agreed to perform other customary commitments.

Under the original Credit Agreement, we were permitted to borrow via a revolving credit facility the lesser of $40.0 million or the borrowing base, consisting of the sum of 85% of eligible accounts plus 60% of eligible inventory up to $17.0 million.Eligible accounts are generally those receivables that are less than90 days from the invoice date. As security for the revolving credit facility, we provided the Bank a first priority security interest in the accounts receivable from most of our customers and in our inventory. We also cross collateralized the revolving line of credit with an $8.8 million term loan, entered into to replace several notes payable with another bank. Proceeds of the original revolving credit facility in the amount of $33.4 million were used to repay the outstanding principal balance of prior obligations with another bank.  We used additional proceeds of the revolving credit facility to pay closing costs and for funding temporary fluctuations in accounts receivable of most of our customers and inventory.

With respect to the revolving credit facility, as of June 30, 2012, the interest rate was the one month LIBOR plus two hundred fifty basis points (2.50%) per annum, adjusted monthly on the first day of each month. As of June 30, 2012, the interest rate was 3.00%. We also pay a fee of 0.75% on the unused portion. As of June 30, 2012 the revolving credit facility expired on July 31, 2013. Pursuant to the Fourth Amendment, the interest rate was raised by fifty basis points 0.50%) and the revolving credit facility expiration date was extended to October 31, 2013. As of June 30, 2012, the outstanding balance on the revolving line of credit was $21.6 million. 

The $8.8 million term loan provides for an interest rate that is twenty-five basis points (0.25%) higher than the interest rate for the revolving credit facility, which is 3.25% as of June 30, 2012. Principal and interest is payable monthly in 36 consecutive installments of approximately $125.0 thousand. The first such payment commenced September 1, 2010. As of June 30, 2012, the final payment of the then-unpaid balance became due and payable in full on July 31, 2013.  Pursuant to the Fourth Amendment, the interest rate was raised by fifty basis points (0.50%) and the final payment becomes due and payable in full on October 31, 2013. In addition, we will make an annual payment equal to 25% of (i) our adjusted EBITDA, minus (ii) our aggregate cash payments of interest expense and scheduled payments of principal (including any prepayments of the term loan), minus (iii) any non-financed capital expenditures, in each case for the Company's prior fiscal year.  Based on 2011 operating results, no annual payment was required in 2012 for the 2011 fiscal year. The next annual payment will be due on April 30, 2013 (or earlier, upon completion of the Company's financial statements for the fiscal year ending December 31, 2012).Any such payments will be applied to remaining installments of principal under the term loan in the inverse order of maturity, and to accrued but unpaid interest thereon. As security for the term loan, we provided the Bank a first priority security interest in all equipment other than the rental fleet that we own. As of June 30, 2012, the outstanding balance on the term loan was $6.4 million.

In addition, we provided a first mortgage on the property at the following locations: 3409 Campground Road, 6709, 7023, 7025, 7101, 7103, 7110, 7124, 7200 and 7210 Grade Lane, Louisville Kentucky, 1565 East Fourth Street, Seymour, Indiana and 1617 State Road 111, New Albany, Indiana.  The Company also cross collateralized the term loan with the revolving credit facility and all other existing debt the Company owes to the Bank.

In our Credit Agreement with the Bank, we agreed to certain covenants, including (i) maintenance of a ratio of debt to adjusted EBITDA for the preceding 12months of not more than 3.50 to 1 (or, if measured as of December 31 of any fiscal year, 4.0 to 1), (ii) maintenance of a ratio of adjusted EBITDA for the preceding twelve months to aggregate cash payments of interest expense and scheduled payment of principal in the preceding 12 months of not less than 1.20 to 1, and (iii) a limitation on capital expenditures of $4.0 million in any fiscal year. Pursuant to the Third Amendment, the Senior Leverage Ratio increased to 4.25 to 1 for the period ending March 31, 2012. The Senior Leverage Ratio decreased to 3.50 to 1 for the period ending June 30, 2012. Pursuant to the Fourth Amendment, the Senior Leverage Ratio increased to 4.75 to 1 for the period ending September 30, 2012 and will decrease to 3.25 to 1 for the period ending December 31, 2012 and thereafter. The Senior Leverage Ratio will, in each quarter, be calculated using a measurement period beginning January 1, 2012 and ending at the end of the quarterly measurement period. The other covenants will remain the same going forward. As of June 30, 2012, we were not in compliance with the covenants in (i) and (ii) above. As of June 30, 2012, our ratio of debt to adjusted EBITDA was 6.59; our ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled principal payments was 0.43. As of June 30, 2012, capital expenditures totaled $889.9 thousand, which includes $342.9 thousand in construction in progress. We received a waiver from the bank for the quarter ending June 30, 2012 for failing to meet the ratio requirements for covenants (i) and (ii) above. As of June 30, 2012, we have $18.4 million available to us under our existing credit facilities.

On April 12, 2011, we entered into a Loan and Security Agreement with the Bank pursuant to which the Bank agreed to provide the Company with a Promissory Note (the “April Note”) in the amount of $226.9 thousand for the purpose of purchasing operating equipment. The interest rate is five and sixty-eight hundredths percent (5.68%). Principal and interest is payable in 48 equal monthly installments of $5.3 thousand, each due on the 20th day of each calendar month. Payment commenced on the 20th day of May, 2011, and the entire unpaid principal amount, together with all accrued and unpaid interest, charges, fees or other advances, if any, comes due on or before April 20, 2015. As security for the Note, we have granted the Bank a first priority security interest in the equipment purchased with the proceeds of the April Note. As of June 30, 2012, the outstanding balance of this loan was $160.3 thousand.

On August 9, 2011, we entered into a Loan and Security Agreement (the "August Agreement") with the Bank pursuant to which the Bank agreed to loan the Company funds pursuant to a Promissory Note (the "August Note") in the amount of $115.0 thousand for the purpose of purchasing operating equipment.  The interest rate is 5.95%.  Principal and interest is payable in 48 equal monthly installments of $2.7 thousand. The first such payment commenced on September 12, 2011, and the entire unpaid principal amount, together with all accrued and unpaid interest, charges, fees or other advances, if any, becomes due no later than August 12, 2015.  As security for the August Note, we have granted the Bank a first priority security interest in the equipment purchased with the proceeds of the Note. As of June 30, 2012, the outstanding balance of this loan was $93.1 thousand.

On October 19, 2010, we entered into a Promissory Note (the “October Note”) with the Bank in the amount of $1.3 million for the purpose of purchasing equipment. The interest rate is equal to five and two tenths percent (5.20%) per annum. Principal and interest is payable monthly in 48 consecutive equal installments of $30.5 thousand with the first such payment commencing November 15, 2010, and the final unpaid principal amount due, together with all accrued and unpaid interest, charges, fees, or other advances, if any, to be paid on October 15, 2014. As security for the October Note, we provided Fifth Third Bank a first priority security interest in the equipment purchased with the proceeds. As of June 30, 2012, the outstanding balance on the October Note was $802.4 thousand.

On August 2, 2007, we entered into an asset purchase agreement for $1.3 million 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 $20.0 thousand per month for 60 months for various assets including tractor trailers, trucks and containers. The note payable reflects a seven percent (7.0%) interest payment on the outstanding balance plus principal amortization. We also paid ILS $100.0 thousand cash as a portion of the purchase price at the time of execution of the asset purchase agreement. We recorded a note payable of $1.0 million with an outstanding balance at June 30, 2012 of $39.6 thousand.

We entered into three interest rate swap agreements swapping variable rates for fixed rates. The first swap agreement covers approximately $4.5 million in debt, commenced April 7, 2009, and matures on April 7, 2014. The second swap agreement covers approximately $2.0 million in debt, commenced October 15, 2008, and matures on May 7, 2013. The third swap agreement covers approximately $429.9 thousand in debt, commenced October 22, 2008, and matures on October 22, 2013. The three swap agreements fix our interest rate at approximately 5.8%. At June 30, 2012, we recorded the estimated fair value of the liability related to the three swaps at approximately $371.3 thousand. We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional amounts. We maintain a cash account on deposit with BB&T which serves as collateral for the swap agreements.As of June 30, 2012, the balance in this account was $438.0 thousand.

Our long term debt as of June 30, 2012 and December 31, 2011 consisted of the following:

	2012		2011
	(Unaudited)
	(in thousands)
Revolving credit facility of $40.0 million with Fifth Third Bank. See above description for additional details.	$	21,585	$	20,083
Note payable to Fifth Third Bank in the amount of $8.8 million secured by our rental fleet equipment, our shredder system assets, and a crane. See above description for additional details.	6,385		7,015
Note payable to Fifth Third Bank in the amount of $1.3 million secured by equipment purchased with the proceeds. See above description for additional details.	802		962
Loan and Security Agreement payable to Fifth Third Bank in the amount of $226.9 thousand secured by the equipment purchased with the proceeds. See above description for additional details.	160		187
Note payable to Fifth Third Bank in the amount of $115.0 thousand secured by the equipment purchased with the proceeds. See above description for additional details.	93		106
Note payable to ILS for various assets including tractor trailers, trucks and containers. The repayment terms are $20.0 thousand per month for 60 months at a seven percent (7.0%) interest rate. The maturity date under this agreement is August 2012.	40		156
	29,065		28,509
Less current maturities	1,715		1,821
	$	27,350	$	26,688

The annual maturities of long term debt (in thousands) as of June 30, 2012 are as follows:

2012	$	1,715
2013	27,148
2014	197
2015	5
Thereafter	—
Total	$	29,065

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SEGMENT INFORMATION (Tables)

6 Months Ended

Jun. 30, 2012

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

We evaluate segment performance based on gross profit or loss and the evaluation process for each segment includes only direct expenses and selling, general and administrative costs, omitting any other income and expense and income taxes.

FOR THE SIX MONTHS ENDED JUNE 30, 2012	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	108,118		$	—		$	—		$	108,118
Equipment sales, service and leasing revenues	—			1,104			—			1,104
Management fees	—			2,308			—			2,308
Cost of goods sold	(103,792		)	(2,483		)	—			(106,275		)
Selling, general, and administrative expenses	(3,643		)	(376		)	(2,158		)	$	(6,177	)
Segment profit (loss)	$	683		$	553		$	(2,158	)	$	(922	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

FOR THE SIX MONTHS ENDED June 30, 2011	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	167,637		$	—		$	—		$	167,637
Equipment sales, service and leasing revenues	—			1,165			—			1,165
Management fees	—			2,661			—			2,661
Cost of goods sold	(156,103		)	(2,708		)	—			(158,811		)
Selling, general, and administrative expenses	(4,524		)	(385		)	(1,764		)	(6,673		)
Segment profit (loss)	$	7,010		$	733		$	(1,764	)	$	5,979
Segment assets	$	88,689		$	2,179		$	8,066		$	98,934

FOR THE THREE MONTHS ENDED JUNE 30, 2012	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	48,236		$	—		$	—		$	48,236
Equipment sales, service and leasing revenues	—			593			—			593
Management fees	—			1,023			—			1,023
Cost of goods sold	(47,158		)	(1,126		)	—			(48,284		)
Selling, general, and administrative expenses	(1,831		)	(193		)	(943		)	(2,967		)
Segment profit (loss)	$	(753	)	$	297		$	(943	)	$	(1,399	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

FOR THE THREE MONTHS ENDED JUNE 30, 2011	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	63,185		$	—		$	—		$	63,185
Equipment sales, service and leasing revenues	—			587			—			587
Management fees	—			1,290			—			1,290
Cost of goods sold	(59,400		)	(1,218		)	—			(60,618		)
Selling, general, and administrative expenses	(2,203		)	(191		)	(341		)	(2,735		)
Segment profit (loss)	$	1,582		$	468		$	(341	)	$	1,709
Segment assets	$	88,689		$	2,179		$	8,066		$	98,934

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Estimates

Estimates

In preparing the condensed consolidated financial statements in accordance with U. S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, management must make estimates and assumptions. These estimates and assumptions affect the amounts reported for assets, liabilities, revenues and expenses, as well as affecting the disclosures provided. Examples of estimates include the allowance for doubtful accounts, estimates associated with annual goodwill impairment tests, estimates of deferred income tax assets and liabilities, estimates of inventory balances, and estimates of stock option values. The Company also uses estimates when assessing fair values of assets and liabilities acquired in business acquisitions as well as any fair value and any related impairment charges related to the carrying value of machinery and equipment, and other long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.

Restatements and Reclassifications

Restatements and Reclassifications

We have reclassified certain income statement items within the accompanying Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements for the prior year in order to be comparable with the current presentation. These reclassifications had no effect on previously reported income.

Fair Value

Fair Value

We carry certain of our financial assets and liabilities at fair value on a recurring basis. These financial assets and liabilities are composed of cash and cash equivalents and derivative instruments. Long-term debt is carried at cost, and the fair value is disclosed herein. In addition, we measure certain assets, such as goodwill and other long-lived assets, at fair value on a non-recurring basis to evaluate those assets for potential impairment. Fair value is defined 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.

In accordance with the accounting standard, we categorize our financial assets and liabilities into the following fair value hierarchy:

Level 1 – Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Examples of level 1 financial instruments include active exchange-traded equity securities and certain U.S. government securities.

Level 2 – Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Examples of level 2 financial instruments include commercial paper purchased from the State Street-administered asset-backed commercial paper conduits, various types of interest-rate derivative instruments, and various types of fixed-income investment securities. Pricing models are utilized to estimate fair value for certain financial assets and liabilities categorized in level 2.

Level 3 – Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall fair value measurement. These inputs reflect management’s judgment about the assumptions that a market participant would use in pricing the asset or liability, and are based on the best available information, some of which is internally developed. Examples of level 3 financial instruments include certain corporate debt with little or no market activity and a resulting lack of price transparency.

When determining the fair value measurements for financial assets and liabilities carried at fair value on a recurring basis, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, we look to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets, and we use alternative valuation techniques to derive fair value measurements.

We use the fair value methodology outlined in the related accounting standard to value the assets and liabilities for cash, debt and derivatives. All of our cash is defined as Level 1 and all our debt and derivative contracts are defined as Level 2

Stock Option Plan

Stock Option Plan

We provide compensation benefits by granting stock options to employees and directors. 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 5 years. We recognize share-based compensation expense for the fair value of the awards, as estimated using the Modified Black-Scholes-Merton Model, on the date granted on a straight-line basis over their vesting term. Compensation expense is recognized only for share-based payments expected to vest. We estimate forfeitures at the date of grant based on our historical experience and future expectations.

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PROVISION FOR EMPLOYEE TERMINATIONS AND SEVERANCES

6 Months Ended

Jun. 30, 2012

Postemployment Benefits [Abstract]

Provision for Employee Termiinations and Severances

PROVISION FOR EMPLOYEE TERMINATIONS AND SEVERANCES

In the six month period ended June 30, 2012, the Company accrued $228.4 thousand for expenses related to employee terminations and severances.

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INVENTORIES

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

Inventories

INVENTORIES

Our inventories primarily consist of ferrous and non-ferrous, including stainless steel, scrap metals and are valued at the lower of average purchased cost or market using the specific identification method based on individual scrap commodities. 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 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 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 shredded, 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.

As of June 2012, the Company adopted a new method for estimating residual value amounts for automotive vehicle parts and appliances held in inventory. The new method was adopted due to the ongoing evaluation of our experience with the materials produced from our shredder operations. This change in estimate provides a more accurate value of these residual values in inventory and was applied prospectively in accordance with FASB ASC 250, “Accounting Changes and Error Corrections.” The impact of this change resulted in an increase in the cost of goods sold of $352.1 thousand for the six month period ended June 30, 2012.

Inventory also includes all types of industrial waste handling equipment and machinery held for resale such as compactors, balers, and containers. Replacement parts included in inventory are depreciated over a one-year life. Other inventory includes fuel, cardboard and baling wire.

Inventories as of June 30, 2012 and December 31, 2011 consist of the following:

	June 30, 2012								December 31, 2011
	Raw Materials		Finished Goods		Processing Costs		Total (unaudited)		Raw Materials		Finished Goods		Processing Costs		Total
	(in thousands)
Stainless steel, ferrous and non-ferrous materials	$	23,260	$	1,199	$	1,275	$	25,734	$	14,633	$	1,409	$	777	$	16,819
Waste equipment machinery	—		85		—		85		—		39		—		39
Other	—		69		—		69		—		63		—		63
Total inventories for sale	23,260		1,353		1,275		25,888		14,633		1,511		777		16,921
Replacement parts	1,667		—		—		1,667		1,623		—		—		1,623
Total inventories	$	24,927	$	1,353	$	1,275	$	27,555	$	16,256	$	1,511	$	777	$	18,544

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LEASE COMMITMENTS

6 Months Ended

Jun. 30, 2012

Leases [Abstract]

Lease Commitments

LEASE COMMITMENTS

Operating Leases:

We lease our Louisville, Kentucky facility from a related party under an operating lease expiring December 2012. The rent was adjusted in December 2007 per the Company’s agreement to make monthly payments of $48.5 thousand through December 2012. In addition, we are also responsible for real estate taxes, insurance, utilities and maintenance expense.

We lease office space in Dallas, Texas for which monthly payments of $1.0 thousand are due through September 2012.

We lease equipment from a related party under operating leases expiring in November 2015 and May 2016 for a monthly payment totaling $10.5 thousand.

We lease a lot in Louisville, Kentucky for a term commencing in March 2012 and ending in February 2016. The monthly payment amount from March 2012 through February 2014 is $3.5 thousand. The monthly payment amount then increases to $3.8 thousand for the remaining term.

Future minimum lease payments for operating leases in thousands as of June 30, 2012 are as follows:

2012	$	441
2013	168
2014	171
2015	134
2016	8
Thereafter	—
Future minimum lease payments	$	922

Total rent expense for the six months ended June 30, 2012 and 2011 was $472.7 thousand and $557.2 thousand, respectively.

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PER SHARE DATA

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Per Share Data

PER SHARE DATA

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

Six months ended June 30, 2012 compared to six months ended June 30, 2011:

	2012			2011
	(in thousands, except per share information)
Basic (loss) earnings per share
Net (loss) income	$	(1,231	)	$	2,480
Weighted average shares outstanding	6,942			6,913
Basic (loss) earnings per share	$	(0.18	)	$	0.36
Diluted (loss) earnings per share
Net (loss) income	$	(1,231	)	$	2,480
Weighted average shares outstanding	6,942			6,913
Add dilutive effect of assumed exercising of stock options	—			40
Diluted weighted average shares outstanding	6,942			6,953
Diluted (loss) earnings per share	$	(0.18	)	$	0.36

Three months ended June 30, 2012 compared to three months ended June 30, 2011:

	2012			2011
	(in thousands, except per share information)
Basic (loss) earnings per share
Net (loss) income	$	(1,239	)	$	313
Weighted average shares outstanding	6,944			6,790
Basic (loss) earnings per share	$	(0.18	)	$	0.05
Diluted (loss) earnings per share
Net (loss) income	$	(1,239	)	$	313
Weighted average shares outstanding	6,944			6,790
Add dilutive effect of assumed exercising of stock options	—			35
Diluted weighted average shares outstanding	6,944			6,825
Diluted (loss) earnings per share	$	(0.18	)	$	0.05

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INTANGIBLE ASSETS (Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Jun. 30, 2020 Scenario, Forecast [Member]	Dec. 31, 2016 Scenario, Forecast [Member]	Dec. 31, 2015 Scenario, Forecast [Member]	Dec. 31, 2014 Scenario, Forecast [Member]	Dec. 31, 2013 Scenario, Forecast [Member]	Dec. 31, 2012 Scenario, Forecast [Member]	Dec. 31, 2011 Scenario, Forecast [Member]
Finite-lived Intangible Assets [Roll Forward]
Intangible Assets, Beginning Balance	$ 4,650	$ 0	$ 1,680	$ 2,160	$ 2,775	$ 3,525	$ 4,275	$ 5,025
Amortization, Remainder of 2012	(750)
Amortization, 2013	(750)
Amortization, 2014	(750)
Amortization, 2015	(615)
Amortization, 2016	(480)
Amortization, Thereafter	(1,680)
Intangible Assets, Ending Balance	$ 4,650	$ 0	$ 1,680	$ 2,160	$ 2,775	$ 3,525	$ 4,275	$ 5,025

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INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2012

Intangible Assets, Net (Excluding Goodwill) [Abstract]

Schedule of Finite-Lived Intangible Assets

We have the following intangible assets as of June 30, 2012:

	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Amortized intangible assets	(in thousands)
Venture Metals, LLC trade name	$	730	$	(292	)	$	438
Non-compete agreements	620		(248		)	372
Venture Metals, LLC customer list	4,800		(960		)	3,840
Total intangible assets	$	6,150	$	(1,500	)	$	4,650

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

As of June 30, 2012, we expect amortization expense for these assets for the next five fiscal years and thereafter to be as follows:

	Balance -					Balance -
Year	Beginning of Year		Amortization			End of Year
(in thousands)
2012	$	5,025	$	(750	)	$	4,275
2013	4,275		(750		)	3,525
2014	3,525		(750		)	2,775
2015	2,775		(615		)	2,160
2016	2,160		(480		)	1,680
Thereafter	1,680		(1,680		)	—

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PER SHARE DATA (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

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

Six months ended June 30, 2012 compared to six months ended June 30, 2011:

	2012			2011
	(in thousands, except per share information)
Basic (loss) earnings per share
Net (loss) income	$	(1,231	)	$	2,480
Weighted average shares outstanding	6,942			6,913
Basic (loss) earnings per share	$	(0.18	)	$	0.36
Diluted (loss) earnings per share
Net (loss) income	$	(1,231	)	$	2,480
Weighted average shares outstanding	6,942			6,913
Add dilutive effect of assumed exercising of stock options	—			40
Diluted weighted average shares outstanding	6,942			6,953
Diluted (loss) earnings per share	$	(0.18	)	$	0.36

Three months ended June 30, 2012 compared to three months ended June 30, 2011:

	2012			2011
	(in thousands, except per share information)
Basic (loss) earnings per share
Net (loss) income	$	(1,239	)	$	313
Weighted average shares outstanding	6,944			6,790
Basic (loss) earnings per share	$	(0.18	)	$	0.05
Diluted (loss) earnings per share
Net (loss) income	$	(1,239	)	$	313
Weighted average shares outstanding	6,944			6,790
Add dilutive effect of assumed exercising of stock options	—			35
Diluted weighted average shares outstanding	6,944			6,825
Diluted (loss) earnings per share	$	(0.18	)	$	0.05

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LONG TERM INCENTIVE PLAN (Stock Option Activity) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Dec. 31, 2010
Number of Shares [Roll Forward]
Beginning Balance, Outstanding Shares	90	90
Granted, Shares	90	0
Ending Balance, Outstanding Shares	180	90	90
Vested and Expected to Vest, Shares	180
Exercisable, Shares	90
Available for Grant, Shares	2,095
Weighted Average Exercise Price per Share [Roll Forward]
Outstanding, Weighted Average Exercise Price	$ 4.23	$ 4.23
Granted, Weighted Average Exercise Price	$ 4.94	$ 0.00
Outstanding, Weighted Average Exercise Price	$ 4.59	$ 4.23	$ 4.23
Exercisable, Weighted Average Exercise Price	$ 4.23
Weighted Average Remaining Contractual Term [Roll Forward]
Outstanding, Weighted Average Remaining Contractual Term	3 years 4 months 24 days	2 years 6 months	3 years 6 months
Granted, Weighted Average Remaining Contractual Term	5 years
Outstanding, Weighted Average Remaining Contractual Term	3 years 4 months 24 days	2 years 6 months	3 years 6 months
Exercisable, Weighted Average Remaining Contractual Term	2 years
Weighted Average Grant Date Fair Value [Roll Forward]
Outstanding, Weighted Average Grant Date Fair Value	$ 1.05	$ 1.05
Weighted average grant-date fair value of grants per option	$ 1.71	$ 0.00
Outstanding, Weighted Average Grant Date Fair Value	$ 1.38	$ 1.05	$ 1.05
Exercisable, Weighted Average Grant Date Fair Value	$ 1.05

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SEGMENT INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 segments	Jun. 30, 2011	Dec. 31, 2011
Segment Reporting Information [Line Items]
Number of reportable segments			2
Recycling revenues	$ 48,236	$ 63,185	$ 108,118	$ 167,637
Equipment sales, service and leasing revenues	593	587	1,104	1,165
Management fees	1,023	1,290	2,308	2,661
Cost of goods sold	(48,284)	(60,618)	(106,275)	(158,811)
Selling, general and administrative expenses	(2,967)	(2,735)	(6,177)	(6,673)
(Loss) income before other income (expense)	(1,399)	1,709	(922)	5,979
Segment assets	82,747	98,934	82,747	98,934	80,970
Recycling [Member]
Segment Reporting Information [Line Items]
Recycling revenues	48,236	63,185	108,118	167,637
Equipment sales, service and leasing revenues	0	0	0	0
Management fees	0	0	0	0
Cost of goods sold	(47,158)	(59,400)	(103,792)	(156,103)
Selling, general and administrative expenses	(1,831)	(2,203)	(3,643)	(4,524)
(Loss) income before other income (expense)	(753)	1,582	683	7,010
Segment assets	72,116	88,689	72,116	88,689
Waste Services [Member]
Segment Reporting Information [Line Items]
Recycling revenues	0	0	0	0
Equipment sales, service and leasing revenues	593	587	1,104	1,165
Management fees	1,023	1,290	2,308	2,661
Cost of goods sold	(1,126)	(1,218)	(2,483)	(2,708)
Selling, general and administrative expenses	(193)	(191)	(376)	(385)
(Loss) income before other income (expense)	297	468	553	733
Segment assets	1,832	2,179	1,832	2,179
All Other Segments [Member]
Segment Reporting Information [Line Items]
Recycling revenues	0	0	0	0
Equipment sales, service and leasing revenues	0	0	0	0
Management fees	0	0	0	0
Cost of goods sold	0	0	0	0
Selling, general and administrative expenses	(943)	(341)	(2,158)	(1,764)
(Loss) income before other income (expense)	(943)	(341)	(2,158)	(1,764)
Segment assets	$ 8,799	$ 8,066	$ 8,799	$ 8,066

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net (loss) income	$ (1,239)	$ 313	$ (1,231)	$ 2,480
Other comprehensive income:
Unrealized income (loss) on derivative instruments, net of tax	17	(7)	60	43
Comprehensive (loss) income	$ (1,222)	$ 306	$ (1,171)	$ 2,523

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INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2012

Intangible Assets, Net (Excluding Goodwill) [Abstract]

Intangible Assets

INTANGIBLE ASSETS

Purchased intangible assets are initially recorded at cost and finite life intangible assets are amortized over their useful economic lives on a straight line basis. Intangible assets having indefinite lives and intangible assets that are not yet ready for use are not amortized and are reviewed annually for impairment in accordance with Note 1 – “Summary of Significant Accounting Policies – Fair Value.”

Intangible assets are considered to have indefinite lives when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate cash flows for the Company. The factors considered in making this determination include the existence of contractual rights for unlimited terms and the life cycles of the products and processes that depend on the asset.

We have the following intangible assets as of June 30, 2012:

	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Amortized intangible assets	(in thousands)
Venture Metals, LLC trade name	$	730	$	(292	)	$	438
Non-compete agreements	620		(248		)	372
Venture Metals, LLC customer list	4,800		(960		)	3,840
Total intangible assets	$	6,150	$	(1,500	)	$	4,650

We amortize the trade name and non-compete agreements using a method that reflects the pattern in which the economic benefits are consumed or otherwise used over a 5-year life as stated in the agreements. We amortize the customer list on a straight-line basis over a 10-year life as estimated by management. We incurred amortization expense related to these assets of $375.0 thousand for the six month periods ending June 30, 2012 and 2011.

As of June 30, 2012, we expect amortization expense for these assets for the next five fiscal years and thereafter to be as follows:

	Balance -					Balance -
Year	Beginning of Year		Amortization			End of Year
(in thousands)
2012	$	5,025	$	(750	)	$	4,275
2013	4,275		(750		)	3,525
2014	3,525		(750		)	2,775
2015	2,775		(615		)	2,160
2016	2,160		(480		)	1,680
Thereafter	1,680		(1,680		)	—

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LONG TERM INCENTIVE PLAN (Tables)

6 Months Ended

Jun. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Weighted Average Assumptions

The weighted average assumptions relating to the valuation of the Company's stock options awarded in May, 2012 is shown below. No stock options were granted during 2011.

	2012
Weighted average grant-date fair value of grants per option	$1.71
Volatility	52.8%
Risk-free interest rate	2.5%
Expected life	2.5 years
Expected dividend yield	0.0%

Stock Option Activity

The following table presents a summary of the Company's stock option activity:

Options	Number of shares (in thousands)	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2011 (vested)	90	$	4.23	3.5 years	$	1.05
Granted	—	—		—	—
Outstanding at December 31, 2011	90	$	4.23	2.5 years	$	1.05
Granted (nonvested)	90	4.94		5 years	1.71
Outstanding at June 30, 2012	180	$	4.59	3.4 years	$	1.38
Vested and expected to vest in the future at June 30, 2012	180
Exercisable at June 30, 2012	90	$	4.23	2 years	$	1.05
Available for grant at June 30, 2012	2,095

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LONG TERM DEBT AND NOTES PAYABLE TO BANK (Interest Rate Swap) (Details) (USD $)	Jun. 30, 2012 Interest Rate Swap [Member] derivatives	Apr. 07, 2009 Interest Rate Swap 1 [Member]	Oct. 15, 2008 Interest Rate Swap 2 [Member]	Oct. 22, 2008 Interest Rate Swap 3 [Member]
Derivative [Line Items]
Number of interest rate derivatives	3
Notional amount		$ 4,500,000	$ 2,000,000	$ 429,900
Fixed interest rate	5.80%
Fair value of liability	371,300
Cash balance used as collateral for hedged item	$ 438,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

In accordance with this guidance, the following table represents our fair value hierarchy for Level 1 and Level 2 financial instruments at June 30, 2012 (in thousands):

Assets	Level 1		Level 2			Total
Cash and cash equivalents	$	2,575	$	—		$	2,575
Liabilities
Long-term debt	$	—	$	(29,065	)	$	(29,065	)
Derivative contract - interest rate swap	—		(371		)	(371		)