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, 2013

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 August 16, 2013: 7,069,267.

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page No.
Part I	Financial Information
	Condensed Consolidated Balance Sheets - June 30, 2013 (Unaudited) and December 31, 2012	3
	Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2013 and 2012 (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2013 and 2012 (Unaudited)	6
	Condensed Consolidated Statements of Shareholders’ Equity - Six Months Ended June 30, 2013 (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
	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, 2013		December 31, 2012
	(Unaudited)
	(in thousands)
Current assets
Cash and cash equivalents	$	1,472	$	1,926
Income tax receivable	1,595		1,437
Accounts receivable – trade (after allowance for doubtful accounts of $100.0 thousand in 2013 and 2012)	11,274		13,344
Inventories	18,144		16,529
Deferred income taxes	55		276
Prepaid expenses	281		330
Employee loans	6		5
Total current assets	32,827		33,847
Net property and equipment	22,866		24,210
Other assets
Intangible assets, net	3,776		4,275
Deferred income taxes	1,464		870
Deposits	303		121
Total other assets	5,543		5,266
Total assets	$	61,236	$	63,323

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, 2013			December 31, 2012
	(Unaudited)
	(in thousands, except par value and share information)
Current liabilities
Current maturities of long-term debt	$	22,500		$	1,687
Accounts payable	7,711			6,408
Interest rate swap liability	131			250
Redeemable securities	500			—
Other current liabilities	392			374
Total current liabilities	31,234			8,719
Long-term liabilities
Long-term debt	—			23,369
Total long-term liabilities	—			23,369
Shareholders’ equity
Common stock, $0.0033 par value: 10,000,000 shares authorized; 7,192,479 shares issued in 2013 and 2012; 7,069,267 and 6,944,267 shares outstanding in 2013 and 2012, respectively	24			24
Additional paid-in capital	18,149			18,281
Retained earnings	12,085			13,437
Accumulated other comprehensive loss	(79		)	(150		)
Treasury stock at cost, 123,212 and 248,212 shares in 2013 and 2012, respectively	(177		)	(357		)
Total shareholders’ equity	30,002			31,235
Total liabilities and shareholders’ equity	$	61,236		$	63,323

See accompanying notes to consolidated financial statements.

4

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

	For the three months ended						For the six months ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Revenue from services	$	1,366		$	1,023		$	2,311		$	2,308
Revenue from product sales	38,757			48,829			72,570			109,222
Total revenue	40,123			49,852			74,881			111,530
Cost of goods sold for services	1,302			944			2,184			2,137
Cost of goods sold for product sales	37,474			47,548			69,309			104,530
Total cost of goods sold	38,776			48,492			71,493			106,667
Provision for employee terminations and severances	—			17			—			228
Other selling, general and administrative expenses	2,698			2,682			5,145			5,443
Total selling, general and administrative expenses	2,698			2,699			5,145			5,671
Loss before other income (expense)	(1,351		)	(1,339		)	(1,757		)	(808		)
Other income (expense)
Interest expense	(609		)	(515		)	(1,068		)	(1,054		)
Interest income	1			3			2			6
Gain on sale of assets	21			16			38			35
Gain on lawsuit settlement	—			—			625			—
Other income, net	—			—			9			—
Total other expense	(587		)	(496		)	(394		)	(1,013		)
Loss before income taxes	(1,938		)	(1,835		)	(2,151		)	(1,821		)
Income tax benefit	(700		)	(596		)	(799		)	(590		)
Net loss	$	(1,238	)	$	(1,239	)	$	(1,352	)	$	(1,231	)
Basic loss per share	$	(0.18	)	$	(0.18	)	$	(0.19	)	$	(0.18	)
Diluted loss per share	$	(0.18	)	$	(0.18	)	$	(0.19	)	$	(0.18	)
Weighted shares outstanding:
Basic	7,069			6,944			7,007			6,942
Diluted	7,069			6,944			7,007			6,942

See accompanying notes to consolidated financial statements.

5

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(UNAUDITED)

	For the three months ended						For the six months ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
	(in thousands)						(in thousands)
Net loss	$	(1,238	)	$	(1,239	)	$	(1,352	)	$	(1,231	)
Other comprehensive income:
Unrealized income on derivative instruments, net of tax	33			17			71			60
Comprehensive loss	$	(1,205	)	$	(1,222	)	$	(1,281	)	$	(1,171	)

See accompanying notes to consolidated financial statements.

6

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2013

(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, 2012	7,192,479	$	24	$	18,281		$	13,437		$	(150	)	(248,212	)	$	(357	)	$	31,235
Unrealized income on derivative instruments, net of tax	—	—		—			—			71			—		—			71
Stock options	—	—		48			—			—			—		—			48
Redeemable securities issued to Blue Equity, LLC	—	—		(180		)	—			—			125,000		180			—
Net loss	—	—		—			(1,352		)	—			—		—			(1,352		)
Balance as of June 30, 2013	7,192,479	$	24	$	18,149		$	12,085		$	(79	)	(123,212	)	$	(177	)	$	30,002

See accompanying notes to consolidated financial statements.

7

INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(UNAUDITED)

	2013			2012
	(in thousands)
Cash flows from operating activities
Net loss	$	(1,352	)	$	(1,231	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	2,053			2,236
Stock expense - bonuses and options	48			84
Deferred income taxes	(421		)	(1,431		)
Gain on sale of property and equipment	(38		)	(35		)
Gain on lawsuit settlement	(625		)	—
Change in assets and liability
Receivables	2,070			3,354
Net investment in sales-type leases	—			19
Inventories	(1,615		)	(9,011		)
Income tax receivable	(158		)	3,081
Other assets	(38		)	(134		)
Accounts payable	1,349			3,536
Other current liabilities	17			116
Net cash from operating activities	1,290			584
Cash flows from investing activities
Proceeds from sale of property and equipment	114			36
Proceeds from lawsuit to cancel intangible asset	770			—
Purchases of property and equipment	(435		)	(547		)
Construction in progress	—			(343		)
Deposits on equipment	(137		)	—
Payments from related party	—			22
Net cash from (used in) investing activities	312			(832		)
Cash flows from financing activities
Proceeds from sale of redeemable securities	500			—
Payments on long-term debt	(2,556		)	(946		)
Proceeds from long-term debt	—			1,502
Net cash (used in) from financing activities	(2,056		)	556
Net (decrease) increase in cash	(454		)	308
Cash at beginning of year	1,926			2,267
Cash at end of period	$	1,472		$	2,575
Supplemental disclosure of cash flow information:
Cash paid for interest	$	793		$	908
Cash tax refunds received	238			2,548
Cash paid for taxes	8			308
Supplemental disclosure of noncash investing and financing activities:
(Decrease) increase in equipment accrual	$	(46	)	$	190

See accompanying notes to consolidated financial statements.

8

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 generally accepted accounting principles in the United States of America ("GAAP") 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 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, 2013 and the results of our operations and changes in our cash flows for the periods ended June 30, 2013 and 2012. Results of operations for the period ended June 30, 2013 are not necessarily indicative of the results that may be expected for the entire year. Additional information, including the audited December 31, 2012 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, 2012, on file with the Securities and Exchange Commission.

Liquidity and Going Concern

As discussed in Note 5 - "Long Term Debt and Notes Payable to Bank," all of the Company's debt is with Fifth Third Bank (the “Bank”) and virtually all is scheduled to mature in April 2014, which requires current classification in the accompanying condensed consolidated balance sheet at June 30, 2013. Further, the Company is not in compliance with all of the debt covenants of this indebtedness as measured at June 30, 2013. This condition allows the Bank, if it chooses, to call the debt due immediately. In prior reporting periods, where relevant, the Company has obtained from the Bank a waiver of non-compliance with applicable loan covenants. For the June 30, 2013 measurement period, a waiver of non-compliance was not obtained as the Company has been in the active process of restructuring its debt.  This debt restructuring process has included the Company's existing bank as well as other banks.  Management expects any restructuring with the Bank would include extending the maturity of the Company's revolving line of credit beyond 2014 and embody a waiver of any past non-compliance with loan covenants.

It is management's plan to complete this debt restructuring as soon as practicable. However, there can be no assurance this debt restructuring can be completed to management's satisfaction, timely or at all. The inability to complete this debt restructuring in a satisfactory manner could have a material, adverse impact on the Company. Further, if the Bank were to call the debt due immediately, it would have a material, adverse impact on the Company.

The condensed consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company's continuation as a going concern is dependent upon its ability to satisfactorily restructure its debt.  These consolidated financial statements do not include any adjustments relating to the recoverability and classification of the carrying amounts of assets or the amount and classification of liabilities that might result if the Company is unable to continue as a going concern.

Estimates

In preparing the consolidated financial statements in accordance with GAAP 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 intangible 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.

9

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 intangibles 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 applicable accounting standards, 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 and commodity-based 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, 2013 (in thousands):

	Fair Value at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs
Assets:	Level 1		Level 2			Total
Cash and cash equivalents	$	1,472	$	—		$	1,472
Liabilities:
Long-term debt	$	—	$	(22,500	)	$	(22,500	)
Derivative contract - interest rate swap	—		(131		)	(131		)

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 and six month periods ended June 30, 2013.

10

Factoring fees and certain banking expenses

We have included factoring fees and certain banking expenses relating to our loans and loan restructuring within interest expense. The factoring fees totaled $80.2 thousand and $116.6 thousand for the periods ended June 30, 2013 and 2012, respectively. The loan fee amortization expense relating to our loans and loan restructuring totaled $220.2 thousand and $114.0 thousand for the periods ended June 30, 2013 and 2012, respectively.

Subsequent Events

We have evaluated the period from June 30, 2013 through the date the financial statements herein were issued for subsequent events requiring recognition or disclosure in the financial statements and we identified the following events:

Changes to Management and Board:

On July 15, 2013, the Company's Board of Directors appointed the Vice President of Recycling, Jim Wiseman, as General Manager of the Company, reporting to Orson Oliver, interim Chief Executive Officer and interim President, with the primary responsibility of overseeing the day-to-day operation of the Company.

On July 26, 2013, the Company's Board of Directors authorized an increase in the number of directors which constitute the entire Board of Directors from four to five.

On July 26, 2013, the Board of Directors appointed Ronald W. Strecker to fill a board vacancy and also appointed Mr. Strecker to serve on the Audit Committee of the Board of Directors.

Termination of the Management Services Agreement with Blue Equity, LLC:

At the Company's annual meeting of shareholders on July 16, 2013 (the "Annual Meeting"), the Company's shareholders voted against approval of the options to purchase 1.5 million shares that had been granted to Blue Equity, LLC ("Blue Equity") under the Management Services Agreement (the "Management Agreement") dated April 1, 2013. In accordance with the Management Agreement, the options terminated on that same date.

Following the failure of the Company's shareholders to approve the option grant, Blue Equity delivered a letter to the Company stating that it was terminating the Management Agreement, effective July 31, 2013. In addition, Blue Equity notified the Company of its intention to exercise its right to cause the Company to redeem 125.0 thousand shares of Company Common Stock for $4.00 per share, the price at which Blue Equity purchased those shares, payable on September 30, 2013. See Note 2 - "Management Services Agreement with Blue Equity, LLC" for additional details relating to this agreement and its termination.

Articles of Amendment to the Articles of Incorporation:

At the Annual Meeting, the Company's shareholders approved the amendment of the Company's Articles of Incorporation (the "Amendment") pursuant to which the Company's authorized common stock increased by 10.0 million shares, from 10.0 million to 20.0 million shares. The Amendment is discussed in the proxy statement dated June 6, 2013.

Impact of Recently Issued Accounting Standards

As of June 30, 2013, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.

In February 2013, the FASB issued ASU 2013-2, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires that the effect of significant reclassifications out of accumulated other comprehensive income be reported on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted principles to be reclassified in its entirety in the same reporting period to net income. For reclassifications involving other amounts, cross references would be required to other disclosures provided under generally accepted accounting principles on such items. This update is effective prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. Since this update addresses only financial reporting disclosures, the Company does not expect it to have a direct impact on the Company’s financial statements. No reclassification events occurred in the quarter or six month period ended June 30, 2013.

11

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists, an amendment to FASB ASC Topic 740, Income Taxes. This update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carry forward, a similar tax loss, or a tax credit carry forward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The Company will comply with the presentation requirements of this ASU for the quarter ending March 31, 2014. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows as we do not currently have any uncertain tax positions which would require an unrecognized tax benefit liability to be recorded.

In July 2013, the FASB issued ASU 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, an amendment to FASB ASC Topic 815, Derivatives and Hedging. The update permits the use of the Fed Funds Effective Swap Rate to be used as a US benchmark interest rate for hedge accounting purposes under FASB ASC Topic 815, in addition to the interest rates on direct Treasury obligations of the US government ("UST") and the London Interbank Offered Rate ("LIBOR"). The update also removes the restriction on using different benchmark rates for similar hedges. This ASU is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows.

NOTE 2 - MANAGEMENT SERVICES AGREEMENT WITH BLUE EQUITY, LLC

On April 1, 2013, the Company and Blue Equity entered into the Management Agreement under which Blue Equity was to provide the Company with day-to-day senior executive level operating management supervisory services. Blue Equity was also to provide business, financial, and organizational strategy and consulting services, as the Company's Board of Directors reasonably requested from time to time. The Management Agreement provided for a 12-month term beginning April 1, 2013, subject to earlier termination upon mutual agreement or upon circumstances set forth in the agreement, including the shareholders' failure to approve the issuance of the stock options. (See Note 1).

At the time the parties entered into the Management Agreement, the Company (i) issued 125.0 thousand shares of its Common Stock to Blue Equity at a per share purchase price of $4.00, and (ii) granted options to purchase 1.5 million shares of its Common Stock to Blue Equity at an exercise price per share of $5.00, subject to shareholder approval.

At the Annual Meeting, the Company's shareholders voted against approval of the options to purchase 1.5 million shares. In accordance with the Management Agreement, the options terminated on that same date. Following the failure of the Company's shareholders to approve the option grant, Blue Equity delivered a letter to the Company stating that it was terminating the Management Agreement, effective July 31, 2013. Blue Equity has also demanded payment of a monthly management fee of $85.0 thousand along with reimbursement of out-of-pocket expenses, through July 31, 2013. In addition, Blue Equity has notified the Company of its intention to exercise its right to cause the Company to redeem the 125.0 thousand shares of Common Stock for $4.00 per share, the price at which Blue Equity purchased those shares, payable on September 30, 2013. For the period ended June 30, 2013, the Company recorded a current liability entitled "Redeemable Securities" for $500.0 thousand as a result.

On May 7, 2013, the Board of Directors appointed Jonathan S. Blue, Chairman and Managing Director of Blue Equity, to the positions of director and Chief Executive Officer of the Company. However, the Board and Mr. Blue were unable to negotiate mutually agreeable terms and conditions of his service in those positions, and Mr. Blue did not accept either position.

NOTE 3 - TERMINATION AND CONSULTING AGREEMENT WITH BRIAN DONAGHY

On June 11, 2013, Brian G. Donaghy notified the Company that, effective immediately, he was resigning his position as the Company's President and Chief Operating Officer and all other positions he held with the Company, including principal executive officer.

12

On June 17, 2013, the Company and Mr. Donaghy entered into a Termination and Consulting Agreement (the “Consulting Agreement”) pursuant to which Mr. Donaghy will provide consulting services to the Company with respect to the scrap metals industry with compensation at a monthly rate of $12.5 thousand. The Consulting Agreement terminated Mr. Donaghy's Amended and Restated Employment Agreement with the Company dated as of April 1, 2010.

The Consulting Agreement is for a term of no less than six months nor longer thanone year, and either party may terminate the Consulting Agreement at any time after the initial six months by giving thirty days prior written notice of termination to the other party. During the consulting period, the Company will pay premiums for Mr. Donaghy's COBRA coverage to the extent of the amount of coverage premiums paid by the Company immediately before Mr. Donaghy's termination of employment.

In connection with the Consulting Agreement, Mr. Donaghy granted the Company a full release of its obligations under his Amended and Restated Employment Agreement. The Company granted Mr. Donaghy a release of his non-competition obligations under that agreement, but the Consulting Agreement provides that Mr. Donaghy may not solicit Company employees to leave the Company during the consulting period and for two years thereafter and may not be employed by certain industry competitors during the consulting period.

NOTE 4 – 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 as required by FASB's ASC. The Company has no intangible assets having indefinite lives.

We have the following intangible assets as of June 30, 2013:

	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Amortized intangible assets	(in thousands)
Venture Metals, LLC trade name	$	730	$	(438	)	$	292
Non-compete agreements	310		(186		)	124
Venture Metals, LLC customer list	4,800		(1,440		)	3,360
Total intangible assets	$	5,840	$	(2,064	)	$	3,776

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 $354.3 thousand and $375.0 thousand for the six month periods ended June 30, 2013 and 2012, respectively. Pursuant to a legal settlement, we canceled $144.7 thousand of our non-compete agreements balance effective February 28, 2013.

As of June 30, 2013, we expect amortization expense for these assets for the next five fiscal years and thereafter to be as follows:

	Balance -	Cancellation of		Balance -
Year	Beginning of Year	Intangible Asset	Amortization	End of Year
	(in thousands)
2013	$4,275	$(145)	$(698)	$3,432
2014	3,432	—	(688)	2,744
2015	2,744	—	(584)	2,160
2016	2,160	—	(480)	1,680
2017	1,680	—	(480)	1,200
Thereafter	1,200	—	(1,200)	—

13

NOTE 5 – LONG TERM DEBT AND NOTES PAYABLE TO BANK

All of the Industrial Services of America, Inc.'s (the "Company") debt is with Fifth Third Bank (the “Bank”) and virtually all is scheduled to mature in April 2014, which requires current classification in the accompanying condensed consolidated balance sheet at June 30, 2013. Further, the Company is not in compliance with all of the debt covenants of this indebtedness as measured at June 30, 2013. This condition allows the Bank, if it chooses, to call the debt due immediately. In prior reporting periods, where relevant, the Company has obtained from the Bank a waiver of non-compliance with applicable loan covenants. For the June 30, 2013 measurement period, a waiver of non-compliance was not obtained as the Company has been in the active process of restructuring its debt.  This debt restructuring process has included the Company's existing bank as well as other banks.  Management expects any restructuring with the Bank would include extending the maturity of the Company's revolving line of credit beyond 2014 and embody a waiver of any past non-compliance with loan covenants.

On April 1, 2013, Industrial Services of America, Inc. and its subsidiary, ISA Indiana, Inc., (the "Companies") entered into a Sixth Amendment to Credit Agreement (the "Sixth Amendment") with 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 "First Amendment"), the Second Amendment to Credit Agreement dated as of November 16, 2011 (the "Second Amendment"), the Third Amendment to Credit Agreement dated as of March 2, 2012 (the "Third Amendment"), the Fourth Amendment to Credit Agreement dated as of August 13, 2012 (the "Fourth Amendment"), and the Fifth Amendment to Credit Agreement dated as of November 14, 2012 (the "Fifth Amendment") as follows. The Sixth Amendment extended the maturity date of both the revolving credit facility and the term loan from October 31, 2013 to April 30, 2014. The Sixth Amendment also provided a waiver of the ratio of debt to adjusted EBITDA for the preceding twelve months (the "Senior Leverage Ratio") and the ratio of adjusted EBITDA for the preceding twelve months to aggregate cash payments of interest expense and scheduled payment of principal in the preceding twelve months (the "Fixed Charge Coverage Ratio") covenant defaults for the quarter ended December 31, 2012. The Sixth Amendment eliminated the Senior Leverage Ratio for the remaining term of the loan. The Sixth Amendment reduced our covenant to maintain the Fixed Charge Coverage Ratio to 0.6 to 1.0 for the quarter ended March 31, 2013. This ratio was calculated using a trailing three-month basis for that quarter. Beginning with the quarter ended June 30, 2013, the Fixed Charge Coverage Ratio requirement returned to 1.20 to 1.0 and will be tested on a trailing 12-month basis as of each quarter end date. The Sixth Amendment increased our interest rate on both the revolving credit facility and term loan by 1.75% and 1.50%, respectively, to equal the one month LIBOR plus five hundred basis points (5.00%) per annum, adjusted monthly on the first day of each month. For the quarter ended March 31, 2013, the Sixth Amendment required that the sum of the Companies' cash balances plus the amount of unused revolving line of credit availability under the borrowing base equal or exceed $3.0 million in the aggregate ("Minimum Liquidity Covenant"). The Sixth Amendment decreased the eligible inventory available for calculating the borrowing base effective April 1, 2013 to 57.5% of eligible inventory up to $12.5 million, and then to 55.0% of eligible inventory up to $12.5 million effective June 18, 2013 upon the delivery of the May 31, 2013 borrowing base certificate. In addition, the Companies agreed to perform other customary commitments and paid a fee of $40.0 thousand to the Bank.  All other terms of the Credit Agreement and previous amendments remain in effect.

On November 14, 2012, the Companies entered into the Fifth Amendment.  The Fifth Amendment decreased our maximum revolving commitment by $5.0 million to $25.0 million and provided a waiver of the Senior Leverage Ratio and the Fixed Charge Coverage Ratio covenant defaults for the quarter ended September 30, 2012.  In addition, the Companies also agreed to perform other customary commitments and paid a fee of $25.0 thousand to the Bank.  All other terms of the Credit Agreement and previous amendments remain in effect.

On August 13, 2012, the Companies entered into the Fourth Amendment. 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 ended June 30, 2012. The Fourth Amendment also changed our covenant to maintain the Fixed Charge Coverage Ratio from not less than 1.20 to 1 to not less than 1.0 to 1 for the third quarter of 2012, and to not less than 1.50 to 1 for the fourth quarter of 2012. 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. In addition, the Companies also agreed to perform other customary commitments and paid 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. The Third Amendment redefined the calculation period for the purpose of measuring compliance with our Senior Leverage Ratio and Fixed Charge Coverage Ratio such that each ratio would 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. 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 paid a fee of $10.0 thousand to the Bank.

14

On April 14, 2011, the Companies entered into the First Amendment. The First 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. Under the First Amendment, the Companies were 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. On November 16, 2011, the Second Amendment decreased our Maximum Revolving Commitment to $40.0 million.

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 than ninety 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 the 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, the interest rate at June 30, 2013 was the one month LIBOR plus five hundred basis points (5.00%) per annum, adjusted monthly on the first day of each month. As of June 30, 2013, the interest rate was 5.25%. We also paid a fee of 0.75% on the unused portion. Under the Sixth Amendment the revolving credit facility expires on April 30, 2014. As of June 30, 2013, the outstanding balance on the revolving line of credit was $17.2 million.

Beginning with the Sixth Amendment, the original $8.8 million term loan provides for an interest rate that is equal to the interest rate for the revolving credit facility, and was 5.25% as of June 30, 2013. Principal and interest is payable monthly, originally in 36 consecutive installments, of approximately $125.0 thousand. The first such payment commenced September 1, 2010 and the final payment of the then-unpaid balance becomes due and payable in full on April 30, 2014. 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 2012 operating results, no annual payment was required in 2013 for the 2012 fiscal year. The next annual payment will be due on April 30, 2014 (or earlier, upon completion of the Companies' financial statements for the fiscal year ending December 31, 2013). 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, 2013, the outstanding balance on the term loan was $4.6 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 original Credit Agreement, we agreed to certain covenants, including (i) maintenance of the Senior Leverage Ratio 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 the Fixed Charge Coverage Ratio 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 ended March 31, 2012. The Senior Leverage Ratio decreased to 3.50 to 1 for the period ended June 30, 2012. Pursuant to the Fourth Amendment, the Senior Leverage Ratio increased to 4.75 to 1 for the period ended September 30, 2012 and decreased to 3.25 to 1 for the period ended December 31, 2012. The Senior Leverage Ratio was eliminated after December 31, 2012 by the Sixth Amendment. In 2012, the Senior Leverage Ratio was, in each quarter, calculated using a measurement period beginning January 1, 2012 and ending at the end of the quarterly measurement period. The Sixth Amendment reduced the Fixed Charge Coverage Ratio requirements and added the Minimum Liquidity Covenant for the first quarter of 2013, as noted above. The limitation on capital expenditures remains the same. As of June 30, 2013, we were not in compliance with the Fixed Charge Coverage ratio for the quarter. As of June 30, 2013, our ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled principal payments was 0.07 and our capital expenditures totaled $435.0 thousand, plus $136.5 thousand in deposits on equipment. As of June 30, 2013, we had $2.6 million available under our existing credit facilities.

15

On April 12, 2011, we entered into a Loan and Security Agreement with the Bank pursuant to which the Bank agreed to provide us 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 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. Due to our non-compliance with a debt covenant in the Credit Agreement with the Bank, the Bank may choose to accelerate the maturity of the April Note and call this debt immediately. 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, 2013, the outstanding balance of this loan was $104.4 thousand.

On August 9, 2011, we entered into a Loan and Security Agreement with the Bank pursuant to which the Bank agreed to loan us 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.  Due to our non-compliance with a debt covenant in the Credit Agreement with the Bank, the Bank may choose to accelerate the maturity of the August Note and call this debt immediately. 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, 2013, the outstanding balance of this loan was $65.7 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 5.20%. 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. Due to our non-compliance with a debt covenant in the Credit Agreement with the Bank, the Bank may choose to accelerate the maturity of the October Note and call this debt immediately. As security for the October Note, we provided the Bank a first priority security interest in the equipment purchased with the proceeds. As of June 30, 2013, the outstanding balance on the October Note was $470.6 thousand.

We originally entered into three interest rate swap agreements swapping variable rates based on LIBOR for fixed rates. The first swap agreement covers approximately $3.9 million in debt, commenced April 7, 2009, and matures on April 7, 2014. The second swap agreement commenced on October 15, 2008, and no longer covers any debt balance as it matured on May 7, 2013. The third swap agreement covers approximately $372.7 thousand in debt, commenced October 22, 2008, and matures on October 22, 2013. The two remaining swap agreements fix our interest rate at approximately 5.9%. At June 30, 2013, we recorded the estimated fair value of the liability related to the two swaps at approximately $131.4 thousand. We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional and forecasted amounts. We maintain a cash account on deposit with BB&T which serves as collateral for the swap agreements.As of June 30, 2013, the balance in this account was $190.7 thousand.

16

Our long term debt as of June 30, 2013 and December 31, 2012 consisted of the following:

	2013		2012
	(Unaudited)
	(in thousands)
Revolving credit facility of $25.0 million in 2013 and 2012 with Fifth Third Bank. See above description for additional details.	$	17,234	$	18,450
Note payable to Fifth Third Bank in the original amount of $8.8 million secured by rental fleet equipment, shredder system assets, and a crane. See above description for additional details.	4,625		5,755
Note payable to Fifth Third Bank in the amount of $1.3 million secured by equipment purchased with proceeds. See above description for additional details.	471		638
Loan and Security Agreement payable to Fifth Third Bank in the amount of $226.9 thousand secured by the equipment purchased with proceeds. See above description for additional details.	104		133
Note payable to Fifth Third Bank in the amount of $115.0 thousand secured by the equipment purchased with proceeds. See above description for additional details.	66		80
	22,500		25,056
Less current maturities	22,500		1,687
	$	—	$	23,369

Because the Company is out of compliance with a bank loan covenant, all debt is recorded as currently due. The annual maturities of long term debt (in thousands) for the next twelve-month period and thereafter as of June 30, 2013 are as follows:

2014	$	22,500
Thereafter	—
Total	$	22,500

17

NOTE 6 – 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, scrap metals, 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, 2013	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	71,496		$	—		$	—		$	71,496
Equipment sales, service and leasing revenues	—			1,074			—			1,074
Management fees	—			2,311			—			2,311
Cost of goods and services sold	(69,014		)	(2,479		)	—			(71,493		)
Selling, general, and administrative expenses	(2,635		)	(417		)	(2,093		)	$	(5,145	)
Segment profit (loss)	$	(153	)	$	489		$	(2,093	)	$	(1,757	)
Segment assets	$	49,056		$	2,153		$	10,027		$	61,236

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 and services sold	(104,185		)	(2,482		)	—			(106,667		)
Selling, general, and administrative expenses	(3,076		)	(375		)	(2,220		)	(5,671		)
Segment profit (loss)	$	857		$	555		$	(2,220	)	$	(808	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

FOR THE THREE MONTHS ENDED JUNE 30, 2013	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	38,225		$	—		$	—		$	38,225
Equipment sales, service and leasing revenues	—			532			—			532
Management fees	—			1,366			—			1,366
Cost of goods and services sold	(37,324		)	(1,452		)	—			(38,776		)
Selling, general, and administrative expenses	(1,314		)	(212		)	(1,172		)	(2,698		)
Segment profit (loss)	$	(413	)	$	234		$	(1,172	)	$	(1,351	)
Segment assets	$	49,056		$	2,153		$	10,027		$	61,236

18

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 and services sold	(47,366		)	(1,126		)	—			(48,492		)
Selling, general, and administrative expenses	(1,536		)	(193		)	(970		)	(2,699		)
Segment profit (loss)	$	(666	)	$	297		$	(970	)	$	(1,339	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

NOTE 7 – 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 based on the specific scrap commodity. 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, 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.

Inventory also includes all types of industrial waste handling equipment and machinery held for resale such as compactors, balers, and containers, which are valued based on cost. Replacement parts for internal equipment included in inventory are depreciated over a one-year life and are used by us within this one-year period as these parts wear out quickly due to the high-volume and intensity of the shredder function. Other inventory includes fuel and baling wire.

Inventories as of June 30, 2013 and December 31, 2012 consist of the following:

	June 30, 2013								December 31, 2012
	Raw Materials		Finished Goods		Processing Costs		Total (unaudited)		Raw Materials		Finished Goods		Processing Costs		Total
	(in thousands)
Stainless steel, ferrous and non-ferrous materials	$	13,775	$	1,723	$	1,065	$	16,563	$	12,519	$	1,412	$	963	$	14,894
Waste equipment machinery	—		50		—		50		—		57		—		57
Other	—		32		—		32		—		36		—		36
Total inventories for sale	13,775		1,805		1,065		16,645		12,519		1,505		963		14,987
Replacement parts	1,499		—		—		1,499		1,542		—		—		1,542
Total inventories	$	15,274	$	1,805	$	1,065	$	18,144	$	14,061	$	1,505	$	963	$	16,529

19

NOTE 8 - LEASE COMMITMENTS

Operating Leases:

We lease our Louisville, Kentucky facility from a related party under an operating lease expiring December 2017. As of December 31, 2012, the lease automatically renewed for a five-year option period under terms of the lease agreement. Effective January 1, 2013, the lease amount increased to $53.8 thousand per month based on the CPI index as stated in the lease agreement. In addition, we are responsible for real estate taxes, insurance, utilities and maintenance expense for the facility.

We lease office space in Dallas, Texas for which monthly payments of $1.0 thousand are due through September 2013.

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 that commenced in March 2012 and ends 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 for the next five twelve-month periods ending June 30 of each year, in thousands, as of June 30, 2013 are as follows:

2014	$	888
2015	817
2016	765
2017	646
2018	323
Future minimum lease payments	$	3,439

Total rent expense for the six months ended June 30, 2013 and 2012 was $488.7 thousand and $472.7 thousand, respectively.

NOTE 9 – PER SHARE DATA

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

Six months ended June 30, 2013 compared to six months ended June 30, 2012:

	2013			2012
	(in thousands, except per share information)
Basic loss per share
Net loss	$	(1,352	)	$	(1,231	)
Weighted average shares outstanding	7,007			6,942
Basic loss per share	$	(0.19	)	$	(0.18	)
Diluted loss per share
Net loss	$	(1,352	)	$	(1,231	)
Weighted average shares outstanding	7,007			6,942
Add dilutive effect of assumed exercising of stock options	—			—
Diluted weighted average shares outstanding	7,007			6,942
Diluted loss per share	$	(0.19	)	$	(0.18	)

20

Three months ended June 30, 2013 compared to three months ended June 30, 2012:

	2013			2012
	(in thousands, except per share information)
Basic loss per share
Net loss	$	(1,238	)	$	(1,239	)
Weighted average shares outstanding	7,069			6,944
Basic loss per share	$	(0.18	)	$	(0.18	)
Diluted loss per share
Net loss	$	(1,238	)	$	(1,239	)
Weighted average shares outstanding	7,069			6,944
Add dilutive effect of assumed exercising of stock options	—			—
Diluted weighted average shares outstanding	7,069			6,944
Diluted loss per share	$	(0.18	)	$	(0.18	)

NOTE 10 - LEGAL PROCEEDINGS

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

21

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, 2012, as filed with the Securities and Exchange Commission.

General

On April 1, 2013, we entered into a management services agreement (the "Management Agreement") with Louisville-based Blue Equity, LLC ("Blue Equity"). For a 12-month term beginning April 1, 2013, Blue Equity was to provide management services to us, including working with our existing management team to review operations and identify opportunities for growth and profitability. Also on April 1, 2013, we issued 125.0 thousand shares of our Common Stock to Blue Equity in a private placement at a per share purchase price of $4.00 and granted options to purchase 1.5 million shares of our Common Stock to Blue Equity at a per share price of $5.00, subject to shareholder approval. At the annual meeting of shareholders of the Company on July 16, 2013, shareholders voted against approval of the options to purchase 1.5 million shares of our Common Stock, and the options terminated. Following the failure of the Company's shareholders to approve the option grant, Blue Equity delivered a letter to the Company stating that it was terminating the Management Agreement, effective July 31, 2013. See Note 2 - "Management Services Agreement with Blue Equity, LLC" in the Notes to Condensed Consolidated Financial Statements for additional details relating to this agreement and its termination.

On June 11, 2013, Brian G. Donaghy notified the Company that, effective immediately, he was resigning his position as the Company's President and Chief Operating Officer and all other positions he held with the Company, including principal executive officer.

On June 17, 2013, the Company and Mr. Donaghy entered into a Termination and Consulting Agreement (the “Consulting Agreement”) pursuant to which Mr. Donaghy will provide consulting services to the Company with respect to the scrap metals industry with compensation at a monthly rate of $12.5 thousand. The Consulting Agreement terminated Mr. Donaghy's Amended and Restated Employment Agreement with the Company dated as of April 1, 2010. See Note 3 - "Termination and Consulting Agreement with Brian Donaghy" in the Notes to Condensed Consolidated Financial Statements for additional details relating to this agreement.

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, cutting and/or baling. We will also continue to pursue a growth strategy 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 over 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 and Seymour and New Albany, Indiana. We do not have operating locations outside the United States.

22

Liquidity and Capital Resources

As of June 30, 2013, we held cash and cash equivalents of $1.5 million. Included in the $1.5 million is a cash account on deposit with BB&T which serves as collateral for our swap agreements. As of June 30, 2013, the balance in this account was $190.7 thousand. Other than this balance, our cash accounts are available to us without restriction.

As discussed in Note 5 - "Long Term Debt and Notes Payable to Bank," all of the Company's debt is with Fifth Third Bank (the “Bank”) and virtually all is scheduled to mature in April 2014, which requires current classification in the accompanying condensed consolidated balance sheet at June 30, 2013. Further, the Company is not in compliance with all of the debt covenants of this indebtedness as measured at June 30, 2013. This condition allows the Bank, if it chooses, to call the debt due immediately. In prior reporting periods, where relevant, the Company has obtained from the Bank a waiver of non-compliance with applicable loan covenants. For the June 30, 2013 measurement period, a waiver of non-compliance was not obtained as the Company has been in the active process of restructuring its debt.  This debt restructuring process has included the Company's existing bank as well as other banks.  Management expects any restructuring with the Bank would include extending the maturity of the Company's revolving line of credit beyond 2014 and embody a waiver of any past non-compliance with loan covenants.

It is management's plan to complete this debt restructuring as soon as practicable. However, there can be no assurance this debt restructuring can be completed to management's satisfaction, timely or at all. The inability to complete this debt restructuring in a satisfactory manner could have a material, adverse impact on the Company. Further, if the Bank were to call the debt due immediately, it would have a material, adverse impact on the Company.

The condensed consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company's continuation as a going concern is dependent upon its ability to satisfactorily restructure its debt.  These consolidated financial statements do not include any adjustments relating to the recoverability and classification of the carrying amounts of assets or the amount and classification of liabilities that might result if the Company is unable to continue as a going concern.

On April 1, 2013, Industrial Services of America, Inc. and its subsidiary (the "Companies") entered into a Sixth Amendment to Credit Agreement (the "Sixth 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 "First Amendment"), the Second Amendment to Credit Agreement dated as of November 16, 2011 (the "Second Amendment"), the Third Amendment to Credit Agreement dated as of March 2, 2012 (the "Third Amendment"), the Fourth Amendment to Credit Agreement dated as of August 13, 2012 (the "Fourth Amendment"), and the Fifth Amendment to Credit Agreement dated as of November 14, 2012 (the "Fifth Amendment"), as follows. The Sixth Amendment extended the maturity date of both the revolving credit facility and the term loan from October 31, 2013 to April 30, 2014. The Sixth Amendment also provided a waiver of the ratio of debt to adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") for the preceding twelve months (the "Senior Leverage Ratio") and the ratio of adjusted EBITDA for the preceding twelve months to aggregate cash payments of interest expense and scheduled payment of principal in the preceding twelve months (the "Fixed Charge Coverage Ratio") covenant defaults for the quarter ended December 31, 2012. The Sixth Amendment eliminated the Senior Leverage Ratio for the remaining term of the loan. The Sixth Amendment reduced our covenant to maintain the Fixed Charge Coverage Ratio to 0.6 to 1.0 for the quarter ended March 31, 2013. This ratio was calculated using a trailing 3-month basis for that quarter. Beginning with the quarter ended June 30, 2013, the Fixed Charge Coverage Ratio requirement returned to 1.20 to 1.0 and will be tested on a trailing 12-month basis as of each quarter end date. The Sixth Amendment increased our interest rate on both the revolving credit facility and term loan by 1.75% and 1.50%, respectively, to equal the one month LIBOR plus five hundred basis points (5.00%) per annum, adjusted monthly on the first day of each month. For the quarter ended March 31, 2013, the Sixth Amendment required that the sum of the Companies' cash balances plus the amount of unused revolving line of credit availability under the borrowing base equal or exceed $3.0 million in the aggregate ("Minimum Liquidity Covenant"). The Sixth Amendment decreased the eligible inventory available for calculating the borrowing base effective April 1, 2013 to 57.5% of eligible inventory up to $12.5 million, and then to 55.0% of eligible inventory up to $12.5 million effective June 18, 2013 upon the delivery of the May 31, 2013 borrowing base certificate. In addition, the Companies agreed to perform other customary commitments and paid a fee of $40.0 thousand to the Bank.  All other terms of the Credit Agreement and previous amendments remain in effect.

In our original Credit Agreement with the Bank, we agreed to certain covenants, including (i) maintenance of the Senior Leverage Ratio 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 the Fixed Charge Coverage Ratio 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 ended March 31, 2012. The Senior Leverage Ratio decreased to 3.50 to 1 for the period ended June 30, 2012. Pursuant to the Fourth Amendment, the Senior Leverage Ratio increased to 4.75 to 1 for the period ended September 30, 2012 and decreased to 3.25 to 1 for the period ended

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December 31, 2012. The Senior Leverage Ratio was eliminated after December 31, 2013 by the Sixth Amendment. In 2012, the Senior Leverage Ratio was, in each quarter, calculated using a measurement period beginning January 1, 2012 and ending at the end of the quarterly measurement period. The Sixth Amendment reduced the Fixed Charge Coverage Ratio requirements and added the Minimum Liquidity Covenant for the first quarter of 2013, as noted above. The limitation on capital expenditures remains the same. As of June 30, 2013, we were not in compliance with the Fixed Charge Coverage ratio covenant for the quarter. As of June 30, 2013, our ratio of adjusted EBITDA to aggregate cash payments of interest expense and scheduled principal payments was 0.07 and our capital expenditures totaled $435.0 thousand, plus $136.5 thousand in deposits on equipment. As of June 30, 2013, we had $2.6 million available under our existing credit facilities.

We have long term debt, including current maturities thereof, comprised of the following:

	June 30, 2013		December 31, 2012
	(Unaudited)
	(in thousands)
Revolving line of credit	$	17,234	$	18,450
Notes payable	5,266		6,606
	$	22,500	$	25,056

Pursuant to the Fifth Amendment, our revolving credit facility was reduced to $25.0 million. This revolving credit facility expires and the $4.6 million term loan becomes due and payable in full on April 30, 2014. We intend to restructure these credit arrangements to extend the maturity date beyond a one-year period prior to September 30, 2013, as noted above.

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. However, due to the maturity of the revolving credit facility and term loan on April 30, 2014, the Company is unable to determine whether it will have sufficient funds to meet its obligations for at least the next twelve months. The Company's future depends on its ability to satisfactorily resolve the restructuring of the aforementioned debt and there is no assurance it will be able to do so. If the Company fails for any reason, it would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the US Bankruptcy Code.

See also "Financial condition at June 30, 2013 compared to December 31, 2012" section for additional discussion and details relating to cash flow from operating, investing, and financing activities. As of June 30, 2013, we do not have any material commitments for capital expenditures. On September 30, 2013, we will be required to redeem for cash 125.0 thousand shares of our common stock from Blue Equity at $4.00 per share, the price at which Blue Equity purchased those shares. See Note 2 - "Management Services Agreement with Blue Equity, LLC" in the Notes to Condensed Consolidated Financial Statements.

Results of Operations

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

	Six months ended
	June 30,
	2013		2012
Statements of Operations Data:
Total Revenue	100.0	%	100.0	%
Cost of goods sold	95.5	%	95.6	%
Selling, general and administrative expenses	6.9	%	5.1	%
Income (loss) before other expenses	(2.4	)%	(0.7	)%

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Although selling, general and administrative expenses ("SG&A") expenses decreased by $0.6 million, or 10.5%, in the first six months of 2013 as compared to the same period in 2012, revenue decreased at a higher rate by $36.6 million, or 32.8%, during this period, causing a higher percentage of SG&A expenses to revenue in the first six months of 2013 as compared to the same period in 2012.

Six months ended June 30, 2013 compared to six months ended June 30, 2012

Total revenue decreased $36.6 million or 32.8% to $74.9 million in the six month period ended June 30, 2013 as compared to $111.5 million in the same period in 2012. Recycling revenue decreased $36.6 million or 33.9% to $71.5 million in 2013 compared to $108.1 million in 2012. This is primarily due to a decrease of 11.1 million pounds, or 25.8%, in the volume of stainless steel materials shipments. 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 beginning in the second quarter of 2011 and continuing throughout 2012 and the first quarter of 2013. Although sales orders received from this customer increased in the second quarter of 2013, we do not have any assurance this customer will continue to increase its sales orders in the future. The volume of ferrous and nonferrous materials shipments also decreased in the six month period ended June 30, 2013 by 14.5 thousand gross tons, or 17.6%, and 2.3 million pounds, or 13.7%, respectively, as compared to the same period in 2012.

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, 2013, sales to repeat Recycling scrap buyers decreased by approximately $36.5 million, or 33.8%, as compared to the same period in 2012. Within the amount sold to all Recycling scrap buyers, 3.6% of these sales were to new and competitively priced, intermittent scrap buyers in the six month period ended June 30, 2013. In the same period in 2012, 7.8% of sales to Recycling scrap buyers were to new and competitively priced, intermittent scrap buyers. Sales during this period in 2012 to non-recurring Recycling scrap buyers in 2013 totaled 13.8% of 2013 sales to all Recycling scrap buyers.Sales during this period in 2011 to non-recurring Recycling scrap buyers in 2012 totaled 9.2% of 2012 sales to all Recycling scrap buyers.

In addition to the reduction in volume, total revenue was affected by the decrease in overall average price for all commodities shipped by $152.72 per gross ton, or 18.6%.Specifically, average nickel prices on the London Metal Exchange decreased $1.04 per pound, or 12.5%, for the six month period ended June 30, 2013 as compared to average nickel prices for the same period in2012. Nickel is a key commodity used in stainless steel blends.

Waste Services' revenue remained stable at $3.4 million in the six month periods ended June 30, 2013 and 2012. After a decrease in the first quarter due to lower recycling volumes and lower average metal prices for industrial customers, many customers increased their Waste Services spending as their sales increased, which offset the first quarter decrease. In general, the timing of services provided or equipment installed will cause fluctuations in Waste Services' revenue between periods.

Total cost of goods sold decreased $35.2 million or 33.0% to $71.5 million in the six month period ended June 30, 2013 as compared to $106.7 million for the same period in 2012.Recycling cost of goods sold decreased $35.2 million or 33.8% to $69.0 million in the six month period ended June 30, 2013 as compared to $104.2 million for the same period in 2012.This decrease is primarily due to the decrease in the volume of all materials shipments along with a decrease in the volume of stainless steel materials purchases of 18.1 million pounds, or 34.5%, a decrease in the volume of ferrous materials purchases of 31.7 thousand gross tons, or 31.0%, and a decrease in the volume of nonferrous materials purchases of 6.1 million pounds, or 28.8%.

Other material decreases in the Recycling segment's cost of goods sold include the following:

• A decrease in labor and overtime expenses of $191.7 thousand;

• A decrease in hauling, fuel and lubricant expenses of $130.2 thousand; and

• A decrease in repair and maintenance expenses of $128.9 thousand.

In addition to the reduction in volume, total cost of goods sold was affected by the decrease in overall average price for all commodities purchased of $109.05 per gross ton, or 14.2%. Capitalized processing costs decreased by $209.5 thousand, or 16.4%, for the six month period ended June 30, 2013 as compared to the same period in 2012.

Waste Services' cost of goods sold remained stable at $2.5 million in the six month periods ended June 30, 2013 and 2012. Increased Waste Services spending due to increased sales in turn increased cost of sales in the second quarter, which offset the first quarter decrease. In general, the timing of third party haulers' services and changes in cardboard prices cause fluctuations in Waste Services' cost of goods sold between periods.

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SG&A expenses decreased $0.6 million or 10.5% to $5.1 million in the six month period ended June 30, 2013 compared to $5.7 million in the same period in 2012. As a percentage of revenue, SG&A expenses were 6.9% in 2013 compared to 5.1% in 2012. Although SG&A expenses decreased by $0.6 million, or 10.5%, in the first six months of 2013 as compared to the same period in 2012, revenue decreased at a higher rate by $36.6 million, or 32.8%, during this period, causing a higher percentage of SG&A expenses to revenue in the first six months of 2013 as compared to the same period in 2012. The primary driver of the decrease in SG&A expenses was a decrease in labor and bonus expenses of $671.1 thousand, of which $228.4 thousand related to a provision for termination and severance expenses in the six month period ended June 30, 2012 that did not occur in 2013. Also, several management level employees left the Company after the six month period ended June 30, 2012 and were not replaced.The average number of active employees per week decreased in the six month period ended June 30, 2013 to 156 employees as compared to 174 employees in the same period in 2012, thus decreasing labor expenses in 2013 as compared to 2012.

Additional decreases include the following:

• A decrease in depreciation and amortization of $136.5 thousand;

• A decrease in repair and maintenance expenses of $97.6 thousand;

• A decrease in employer taxes and employment fees of $52.9 thousand;

• A decrease in insurance expense of $50.9 thousand; and

• A decrease in utilities and office expenses of $45.3 thousand.

These decreases were partially offset by an increase in management fees, directors' fees, and consulting fees of $383.4 thousand, of which $255.0 thousand related to fees paid to Blue Equity under the Management Agreement, and an increase in legal fees of $112.9 thousand, which related to the settlement of a lawsuit in the first quarter of 2013 and the preparation and review of the Management Agreement with Blue Equity in 2013.

Other expense decreased $0.6 million to $0.4 million in the six month period ended June 30, 2013 as compared to other expense of $1.0 million in the same period in 2012.The decrease was primarily due to other income of $0.6 million related to proceeds from a legal settlement in 2013.

The income tax benefit increased $0.2 million to a benefit of $0.8 million in the six month period ended June 30, 2013 compared to a benefit of $0.6 million in the same period in 2012 due to the increased loss reported in 2013 as compared to 2012. The effective tax rates in 2013 and 2012 were 37.2% and 32.4%, respectively, based on federal and state statutory rates.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 state and city returns that lowered the income tax benefit for that time period.

Three months ended June 30, 2013 compared to three months ended June 30, 2012

Total revenue decreased $9.8 million or 19.6% to $40.1 million in the second quarter of 2013 compared to $49.9 million in the same period in 2012. With respect to the Recycling segment, Recycling revenue decreased $10.0 million or 20.7% to $38.2 million in 2013 compared to $48.2 million in 2012. This was primarily due to a decreases in the volume of ferrous and nonferrous materials shipments of 3.2 thousand gross tons, or 8.1%, and 315.3 thousand pounds, or 3.8%, respectively, and a decrease in overall average price for all commodities shipped in the second quarter of 2013 by $120.34 per gross ton, or 15.3%, as compared to the same period in 2012. Although the volume of stainless steel materials shipments increased by 408.5 thousand pounds, or 2.3%, in the second quarter of 2013 as compared to the same period in 2012, nickel prices remained low, andaverage nickel prices on the London Metal Exchange decreased $0.99 per pound, or 12.7%, in this period as compared to average nickel prices for the same period of 2012. Nickel is a key commodity used in stainless steel blends. Substantially all of our stainless steel sales are to one customer. In response to an overall decrease in demand for stainless steel, this customer decreased our sales orders received beginning in the second quarter of 2011 and continuing throughout 2012 and the first quarter of 2013. The increase in volume of stainless steel materials shipments in the second quarter of 2013 as compared to the second quarter of 2012 could not offset the decrease in commodity prices between the same periods. We do not have any assurance this customer will continue to increase its sales orders in the future.

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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 three month period ended June 30, 2013, sales to repeat Recycling scrap buyers decreased by approximately $10.1 million, or 21.0%, compared to the same period in 2012. Within the amount sold to all Recycling scrap buyers, 6.7% of these sales were to new and competitively priced, intermittent scrap buyers in the second quarter of 2013. In the same period in 2012, 10.6% of sales to Recycling scrap buyers were to new and competitively priced, intermittent scrap buyers. Sales during this period in 2012 to non-recurring Recycling scrap buyers in 2013 totaled 13.5% of 2013 sales to all Recycling scrap buyers. Sales during this period in 2011 to non-recurring Recycling scrap buyers in 2012 totaled 16.0% of 2012 sales to all Recycling scrap buyers.

With respect to the Waste Services segment, Waste Services revenue increased $0.3 million or 18.8% to $1.9 million in the second quarter of 2013 compared to $1.6 million in the same period in 2012 primarily due to an increase in customers' Waste Services spending as customers' sales increased, including increased equipment and container rentals and dumpster and compactor usage charges. In general, the timing of services provided or equipment installed will cause fluctuations in Waste Services revenue between periods.

Total cost of goods sold decreased $9.7 million or 20.0% to $38.8 million in the second quarter of 2013 compared to $48.5 million for the same period in 2012. Recycling cost of goods sold decreased $10.1 million or 21.3% to $37.3 million in 2013 compared to $47.4 million for the same period in 2012. This decrease was primarily due to the decrease in the volume of ferrous and nonferrous materials shipments along with a decrease in the volume of stainless steel, ferrous and nonferrous materials purchases of 5.7 million pounds, or 27.3%, 10.4 thousand gross tons, or 21.5%, and 1.0 million pounds, or 11.3%, respectively. Overall average price per gross ton for all commodities purchased in the second quarter of 2013 also decreased $99.82, or 13.4%, as compared to the same period in 2012.

Additional decreases were as follows:

• A decrease in repair and maintenance expense of $180.0 thousand;

• A decrease in hauling, fuel and lubricant expense of $65.9 thousand;

• A decrease in operating supplies and torching materials expense of $65.7 thousand; and

• A decrease in direct labor costs of $62.7 thousand.

Capitalized processing costs decreased by $238.6 thousand, or 106.8%, for the three month period ended June 30, 2013 as compared to the same period in 2012.

Waste Services cost of goods sold increased $0.4 million or 36.4% to $1.5 million in the second quarter of 2013 compared to $1.1 million in same period in 2012. The increase was primarily due to the increase in customers' Waste Services spending, including increased equipment and container rentals and dumpster and compactor usage charges noted above.

SG&A expenses remained stable at $2.7 million in the second quarter of 2013 and 2012. As a percentage of revenue, SG&A expenses were 6.7% in 2013 compared to 5.4% in 2012.

SG&A expenses had the following increases:

• An increase in consulting, management and directors' fees of $305.7 thousand; and

• An increase in legal fees of $57.0 thousand.

These increases were partially offset by the following decreases:

• A decrease in labor expense of $192.0 thousand primarily due to the termination of an executive level employee and the severance payment recorded relating to that employee in the first quarter of 2012;

• A decrease in depreciation and amortization expense of $79.0 thousand;

• A decrease in hauling, fuel, and lubricant expense of $39.6 thousand; and

• A decrease in insurance expense of $22.1 thousand.

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Other income and expense increased $0.1 million to other expense of $0.6 million in the second quarter of 2013 compared to other expense of $0.5 million in the same period in 2012. This increase was primarily due to an increase in interest expense of $0.1 million after the bank increased the interest rate on both the revolving credit facility and the term loan to equal the one-month LIBOR plus five hundred basis points in the second quarter of 2013.

The income tax benefit increased $0.1 million to a benefit of $0.7 million in the second quarter of 2013 compared to a $0.6 million tax in the same period in 2012 due to the increased loss reported in the second quarter of 2013 as compared to the same period in 2012. The effective tax rates in 2013 and 2012 were 36.1% and 32.5%, respectively, based on federal and state statutory rates. 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 state and city returns that lowered the income tax benefit for that time period.

Financial condition at June 30, 2013 compared to December 31, 2012

Cash and cash equivalents decreased $0.4 million to $1.5 million as of June 30, 2013 compared to $1.9 million as of December 31, 2012.

Net cash from operating activities was $1.3 million for the six month period ended June 30, 2013. The increase in net cash from operating activities was primarily due to a decrease in accounts receivable of $2.0 million and an increase in accounts payable of $1.3 million (this amount is net of the decrease in the equipment accrual of $46.4 thousand), partially offset by an increase in inventories of $1.6 million and an increase in income tax receivable of $0.2 million. With respect to accounts receivable, the decrease was primarily due to the receipt of several large payments just prior to the end of the second quarter of 2013 as compared to the receipt of several large payments just after the end of the fourth quarter of 2012. Also, the overall average commodity prices for shipments in the second quarter of 2013 decreased by $25.61, or 3.7%, per gross ton as compared to the overall average commodity prices for shipments in the fourth quarter of 2012. With respect to inventories and accounts payable, the increases were primarily due to increased purchase volumes for all commodities in the second quarter of 2013 as compared to purchase volumes for all commodities in the fourth quarter of 2012, as further described below. In general, inventories, accounts receivable and payable balances are affected by the timing of shipments, purchases and payments made and received throughout the quarter.

Net cash from investing activities was $0.3 million for the six month period ended June 30, 2013. In the first six months of 2013, we used $116.8 thousand for road and building improvements. We purchased recycling and rental fleet equipment and vehicles of $318.3 thousand. The rental fleet equipment consists of solid waste handling and recycling equipment such as compactors, balers, pre-crushers, and containers. It is our intention to continue to pursue this market. We paid deposits of $136.5 thousand on machinery and equipment. We received $114.0 thousand from sales of a truck, a trailer and a rental fleet container. We also received $0.8 million in proceeds from a lawsuit to cancel certain intangible assets.

Net cash used in financing activities was $2.1 million for the six month period ended June 30, 2013. In the period ended June 30, 2013, we made payments on debt obligations of $2.6 million, and we received proceeds of $0.5 million from the sale of redeemable securities to Blue Equity.

Accounts receivable trade decreased $2.0 million or 15.0% to $11.3 million as of June 30, 2013 compared to $13.3 million as of December 31, 2012 due to the timing of the receipt of customer payments and a decrease in overall average commodity prices for shipments noted above. 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 $1.6 million, or 9.7%, to $18.1 million as of June 30, 2013 compared to $16.5 million as of December 31, 2012. The volume of stainless steel materials purchases increased by 2.9 million pounds, or 23.4% in the second quarter of 2013 as compared to the fourth quarter of 2012. Purchases of ferrous and nonferrous materials also increased in the second quarter of 2013 by 6.5 gross tons, or 21.8%, and 747.4 thousand pounds, or 10.0%, respectively, as compared to the fourth quarter of 2012.

Inventory aging for the period ended June 30, 2013 (Days Outstanding):

	(in thousands)
Description	1 - 30		31 - 60		61 - 90		Over 90		Total
Stainless steel, ferrous and non-ferrous materials	$	7,515	$	2,410	$	1,857	$	4,781	$	16,563
Replacement parts	1,499		—		—		—		1,499
Waste equipment machinery	—		7		—		43		50
Other	32		—		—		—		32
Total	$	9,046	$	2,417	$	1,857	$	4,824	$	18,144

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Inventory aging for the period ended December 31, 2012 (Days Outstanding):

	(in thousands)
Description	1 - 30		31 - 60		61 - 90		Over 90		Total
Stainless steel, ferrous and non-ferrous materials	$	8,070	$	1,417	$	470	$	4,937	$	14,894
Replacement parts	1,542		—		—		—		1,542
Waste equipment machinery	—		6		—		51		57
Other	36		—		—		—		36
Total	$	9,648	$	1,423	$	470	$	4,988	$	16,529

Inventory in the “Over 90 days” category as of June 30, 2013 and December 31, 2012 includes several materials that were bought in bulk that had intrinsic values for stainless steel blends. We purchased a majority of the bulk materials in the second quarter of 2011 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. With continued low demand for stainless steel blends, restrictions on blend content and high monetary penalties on certain metals, we will continue to work them out of the system as demand allows. Inventory controls have been put into place to assure proper turnover ratios. This balance also includes $0.3 million in older automobile inventory held at the PPS yard for continued harvesting of parts by retail customers and $0.2 million in an item we are accumulating with the intent to process and sell it.

Accounts payable trade increased $1.3 million or 20.3% to $7.7 million as of June 30, 2013 compared to $6.4 million as of December 31, 2012, primarily due to increased purchases in the second quarter of 2013 as compared to the fourth quarter of 2012, noted above, and the termination of a joint venture in the second quarter of 2013. As of December 31, 2012, liabilities of $0.5 million relating to the joint venture were netted with its receivables; however, once the joint venture was terminated in May 2013, the Company no longer had receivables to net against payables to certain vendors previously used for the joint venture. Accounts payable trade is also affected by the timing of purchases from and payments made to our vendors. The equipment accrual decreased $46.4 thousand during this period.

Working capital decreased $23.5 million to $1.6 million as of June 30, 2013 compared to $25.1 million as of December 31, 2012. The decrease was driven by the $20.8 million increase in current maturities of long term debt, the $2.0 million decrease in accounts receivable, the $1.3 million increase in accounts payable, the $0.5 million increase in redeemable securities, and the $0.4 million decrease in cash. These decreases were partially offset by the $1.6 million increase in inventory.

Contractual Obligations

The following table provides information with respect to our known contractual obligations for the quarter ended June 30, 2013.

	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	$	22,500	$	22,500	$	—	$	—	$	—
Operating lease obligations (1)	3,439		888		1,582		969		—
Redeemable securities to Blue Equity, LLC	$	500	$	500	$	—	$	—	$	—
Total	$	26,439	$	23,888	$	1,582	$	969	$	—

(1) We lease the Louisville, Kentucky facility from K&R, LLC, the sole member of which is Harry Kletter, our former Chief Executive Officer, under an operating lease expiring December 2017. We have monthly rental payments of $53.8 thousand through December 2017. 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 that commenced in March 2012 and ends 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.

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We also lease office space in Dallas, Texas for which monthly payments of $1.0 thousand are due through September 2013.

(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, decreased $2.6 million to $22.5 million as of June 30, 2013 compared to $25.1 million as of December 31, 2012 due to payments made on debt during the six month period ended June 30, 2013.

Impact of Recently Issued Accounting Standards

As of June 30, 2013, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.

In February 2013, the FASB issued ASU 2013-2, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires that the effect of significant reclassifications out of accumulated other comprehensive income be reported on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted principles to be reclassified in its entirety in the same reporting period to net income. For reclassifications involving other amounts, cross references would be required to other disclosures provided under generally accepted accounting principles on such items. This update is effective prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. Since this update addresses only financial reporting disclosures, the Company does not expect it to have a direct impact on the Company’s financial statements. No reclassification events occurred in the quarter or six month period ended June 30, 2013.

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists, an amendment to FASB ASC Topic 740, Income Taxes. This update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carry forward, a similar tax loss, or a tax credit carry forward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The Company will comply with the presentation requirements of this ASU for the quarter ending March 31, 2014. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows as we do not currently have any uncertain tax positions which would require an unrecognized tax benefit liability to be recorded.

In July 2013, the FASB issued ASU 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, an amendment to FASB ASC Topic 815, Derivatives and Hedging. The update permits the use of the Fed Funds Effective Swap Rate to be used as a US benchmark interest rate for hedge accounting purposes under FASB ASC Topic 815, in addition to the interest rates on direct Treasury obligations of the US government ("UST") and the London Interbank Offered Rate ("LIBOR"). The update also removes the restriction on using different benchmark rates for similar hedges. This ASU is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows.

30

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 market risk stemming from changes in metal commodity prices, specifically nickel, and interest rates.  In the normal course of business, we actively manage our exposure to interest rate risks by entering into various hedging transactions, authorized under established policies that place clear controls on these activities.  These transactions utilize exchange traded derivatives or over-the-counter derivatives with investment grade counter-parties.  Derivative financial instruments currently available to us consist of commodity futures, options and swap contracts and interest rate swaps.

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

Based on our average anticipated borrowings under our credit agreements in fiscal 2013, 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, excluding amounts covered under swap agreements as noted below, with a corresponding change in cash flows.

We originally entered into three interest rate swap agreements with BB&T swapping variable rates based on LIBOR for fixed rates in a previous year. The first swap agreement covers $3.9 million in debt, commenced April 7, 2009, and matures on April 7, 2014. The second swap agreement commenced October 15, 2008, and no longer covers any debt balance as it matured on May 7, 2013. The third swap agreement covers approximately $372.7 thousand in debt, commenced October 22, 2008, and matures on October 22, 2013. The remaining two swap agreements fix our interest rate at approximately 5.9%. At June 30, 2013, we recorded the estimated fair value of the liability related to the two swaps as approximately $131.4 thousand. We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional and forecasted amounts. We maintain a cash account on deposit with BB&T which serves as collateral for the swap agreements. As of June 30, 2013, the balance in this account was $190.7 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, 2013, 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 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, 2013 that have materially affected, or are reasonably likely to materially affect ISA’s internal control over financial reporting.

31

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.

Except as set forth below, we have had no material changes from the risk factors reported in our Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on April 1, 2013.

As of June 30, 2013, we are not in compliance with all loan covenants in our senior debt credit agreement and our senior lender has the right to accelerate our obligations at any time, which raises substantial doubt about our ability to continue as a going concern.

As described in Note 5 - “Long Term Debt and Notes Payable to Bank,” we are not in compliance with the Fixed Charge Coverage Ratio debt covenant of our senior indebtedness as measured at June 30, 2013. Because of this noncompliance, our senior lender has the right to accelerate all of our secured debt at any time such that it would become immediately due and payable. In prior reporting periods, when we have not been in compliance with certain loan covenants, our lender has provided a waiver of non-compliance with applicable loan covenants. For the June 30, 2013 measurement period, our lender has not provided a waiver of non-compliance. We are currently seeking a number of financing alternatives and are in discussions with our senior lender and other banks regarding the restructuring of our debt. We may not be able to reach such resolution, obtain sufficient financing or enter into other transactions to satisfy our senior loan obligations in a timely manner, or at all. We do not have sufficient cash resources to pay the amount that would become payable in the event of an acceleration of the senior indebtedness, and even if we are able to obtain additional financing, we may not be able to obtain an amount sufficient to repay the senior indebtedness in full. Our recurring losses from operations and current obligations raise substantial doubt about our ability to continue as a going concern.

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

None not previously disclosed.

Item 3.Defaults upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

None.

Item 6.Exhibits.

See exhibit index.

32

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 19, 2013	/s/ Orson Oliver
		Orson Oliver
		Interim Chief Executive Officer and Interim President
		(Principal Executive Officer)
Date:	August 19, 2013	/s/ Alan Schroering
		Alan Schroering
		VP of Finance and Interim Chief Financial Officer

33

INDEX TO EXHIBITS

Exhibit Number	Description of Exhibits
3.1**	Articles of Amendment to the Articles of Incorporation of ISA, dated July 16, 2013, is incorporated by reference herein to Exhibit 3.1 of the Company's Report on Form 8-K, as filed on July 18, 2013.
10.1**	Management Services Agreement dated as of April 1, 2013, between the Company and Blue Equity, LLC, including the Stock Option Agreement attached thereto as Attachment A is incorporated by reference herein to Exhibit 10.1 of the Company's Report on Form 8-K, as filed on April 5, 2013.
10.2**	Termination and Consulting Agreement dated as of June 17, 2013, between the Company and Brian Donaghy is incorporated by reference herein to Exhibit 10.1 of the Company's Report on Form 8-K, as filed on June 17, 2013.
10.3**	Sixth Amendment to Credit Agreement dated as of April 1, 2013, by and among Industrial Services of America, Inc., ISA Indiana, Inc. and Fifth Third Bank is incorporated by reference herein to Exhibit 10.53 of the Company's Report on Form 10-K, as filed on April 1, 2013.
10.4**	Renewed Revolving Loan Note dated as of April 1, 2013, by Industrial Services of America, Inc. and ISA Indiana, Inc. in favor of Fifth Third Bank is incorporated by reference herein to Exhibit 10.54 of the Company's Report on Form 10-K, as filed on April 1, 2013.
10.5**	Renewed Term Loan Note dated as of April 1, 2013, by Industrial Services of America, Inc. and ISA Indiana, Inc. in favor of Fifth Third Bank is incorporated by reference herein to Exhibit 10.55 of the Company's Report on Form 10-K, as filed on April 1, 2013.
31.1	Rule 13a-14(a) Certification of Orson Oliver for the Form 10-Q for the quarter ended June 30, 2013.
31.2	Rule 13a-14(a) Certification of Alan Schroering for the Form 10-Q for the quarter ended June 30, 2013.
32.1	Section 1350 Certification of Orson Oliver and Alan Schroering for the Form 10-Q for the quarter ended June 30, 2013.
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.

**Previously filed.

34

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Orson Oliver, certify that:

1. I have reviewed this Form 10-Q for the quarter ended June 30, 2013 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(s) 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(s) 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 19, 2013	/s/ Orson Oliver
Date	Orson Oliver, Interim Chief Executive Officer and Interim President
	(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Alan Schroering, certify that:

1. I have reviewed this Form 10-Q for the quarter ended June 30, 2013 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(s) 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(s) 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 19, 2013	/s/ Alan Schroering
Date	Alan Schroering, VP of Finance and Interim Chief Financial Officer
	(principal financial officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS

Orson Oliver and Alan Schroering, being the Interim Chief Executive Officer and Interim President and VP of Finance and Interim Chief Financial Officer, respectively, of Industrial Services of America, Inc., hereby certify as of this 19th day of August, 2013, that the Form 10-Q for the quarter ended June 30, 2013, 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/ Orson Oliver

Orson Oliver, Interim Chief Executive Officer and Interim President

(principal executive officer)

/s/ Alan Schroering

Alan Schroering, VP of Finance and Interim Chief Financial Officer

(principal financial officer)

XML

LEGAL PROCEEDINGS

6 Months Ended

Jun. 30, 2013

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.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenue from services	$ 1,366,000	$ 1,023,000	$ 2,311,000	$ 2,308,000
Revenue from product sales	38,757,000	48,829,000	72,570,000	109,222,000
Total revenue	40,123,000	49,852,000	74,881,000	111,530,000
Cost of goods sold for services	1,302,000	944,000	2,184,000	2,137,000
Cost of goods sold for product sales	37,474,000	47,548,000	69,309,000	104,530,000
Total cost of goods sold	38,776,000	48,492,000	71,493,000	106,667,000
Provision for employee terminations and severances	0	17,000	0	228,000
Other selling, general and administrative expenses	2,698,000	2,682,000	5,145,000	5,443,000
Total selling, general and administrative expenses	2,698,000	2,699,000	5,145,000	5,671,000
Loss before other income (expense)	(1,351,000)	(1,339,000)	(1,757,000)	(808,000)
Other income (expense)
Interest expense	(609,000)	(515,000)	(1,068,000)	(1,054,000)
Interest income	1,000	3,000	2,000	6,000
Gain on sale of assets	21,000	16,000	38,000	35,000
Gain on lawsuit settlement	0	0	625,000	0
Other income, net	0	0	9,000	0
Total other expense	(587,000)	(496,000)	(394,000)	(1,013,000)
Loss before income taxes	(1,938,000)	(1,835,000)	(2,151,000)	(1,821,000)
Income tax benefit	(700,000)	(596,000)	(799,000)	(590,000)
Net loss	$ (1,238,000)	$ (1,239,000)	$ (1,352,000)	$ (1,231,000)
Basic loss per share (in Dollars per share)	$ (0.18)	$ (0.18)	$ (0.19)	$ (0.18)
Diluted loss per share (in Dollars per share)	$ (0.18)	$ (0.18)	$ (0.19)	$ (0.18)
Weighted shares outstanding:
Basic (in Shares)	7,069	6,944	7,007	6,942
Diluted (in Shares)	7,069	6,944	7,007	6,942

XML

TERMINATION AND CONSULTING AGREEMENT WITH BRIAN DONAGHY (Notes)

6 Months Ended

Jun. 30, 2013

TERMINATION AND CONSULTING AGREEMENT [Abstract]

TERMINATION AND CONSULTING AGREEMENT WITH BRIAN DONAGHY

TERMINATION AND CONSULTING AGREEMENT WITH BRIAN DONAGHY

On June 11, 2013, Brian G. Donaghy notified the Company that, effective immediately, he was resigning his position as the Company's President and Chief Operating Officer and all other positions he held with the Company, including principal executive officer.

On June 17, 2013, the Company and Mr. Donaghy entered into a Termination and Consulting Agreement (the “Consulting Agreement”) pursuant to which Mr. Donaghy will provide consulting services to the Company with respect to the scrap metals industry with compensation at a monthly rate of $12.5 thousand. The Consulting Agreement terminated Mr. Donaghy's Amended and Restated Employment Agreement with the Company dated as of April 1, 2010.

The Consulting Agreement is for a term of no less than six months nor longer thanone year, and either party may terminate the Consulting Agreement at any time after the initial six months by giving thirty days prior written notice of termination to the other party. During the consulting period, the Company will pay premiums for Mr. Donaghy's COBRA coverage to the extent of the amount of coverage premiums paid by the Company immediately before Mr. Donaghy's termination of employment.

In connection with the Consulting Agreement, Mr. Donaghy granted the Company a full release of its obligations under his Amended and Restated Employment Agreement. The Company granted Mr. Donaghy a release of his non-competition obligations under that agreement, but the Consulting Agreement provides that Mr. Donaghy may not solicit Company employees to leave the Company during the consulting period and for two years thereafter and may not be employed by certain industry competitors during the consulting period.

XML

SEGMENT INFORMATION (Tables)

6 Months Ended

Jun. 30, 2013

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, 2013	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	71,496		$	—		$	—		$	71,496
Equipment sales, service and leasing revenues	—			1,074			—			1,074
Management fees	—			2,311			—			2,311
Cost of goods and services sold	(69,014		)	(2,479		)	—			(71,493		)
Selling, general, and administrative expenses	(2,635		)	(417		)	(2,093		)	$	(5,145	)
Segment profit (loss)	$	(153	)	$	489		$	(2,093	)	$	(1,757	)
Segment assets	$	49,056		$	2,153		$	10,027		$	61,236

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 and services sold	(104,185		)	(2,482		)	—			(106,667		)
Selling, general, and administrative expenses	(3,076		)	(375		)	(2,220		)	(5,671		)
Segment profit (loss)	$	857		$	555		$	(2,220	)	$	(808	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

FOR THE THREE MONTHS ENDED JUNE 30, 2013	RECYCLING			WASTE SERVICES			OTHER			SEGMENT TOTALS
	(in thousands)
Recycling revenues	$	38,225		$	—		$	—		$	38,225
Equipment sales, service and leasing revenues	—			532			—			532
Management fees	—			1,366			—			1,366
Cost of goods and services sold	(37,324		)	(1,452		)	—			(38,776		)
Selling, general, and administrative expenses	(1,314		)	(212		)	(1,172		)	(2,698		)
Segment profit (loss)	$	(413	)	$	234		$	(1,172	)	$	(1,351	)
Segment assets	$	49,056		$	2,153		$	10,027		$	61,236

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 and services sold	(47,366		)	(1,126		)	—			(48,492		)
Selling, general, and administrative expenses	(1,536		)	(193		)	(970		)	(2,699		)
Segment profit (loss)	$	(666	)	$	297		$	(970	)	$	(1,339	)
Segment assets	$	72,116		$	1,832		$	8,799		$	82,747

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Liquidity and going concern

Liquidity and Going Concern

As discussed in Note 5 - "Long Term Debt and Notes Payable to Bank," all of the Company's debt is with Fifth Third Bank (the “Bank”) and virtually all is scheduled to mature in April 2014, which requires current classification in the accompanying condensed consolidated balance sheet at June 30, 2013. Further, the Company is not in compliance with all of the debt covenants of this indebtedness as measured at June 30, 2013. This condition allows the Bank, if it chooses, to call the debt due immediately. In prior reporting periods, where relevant, the Company has obtained from the Bank a waiver of non-compliance with applicable loan covenants. For the June 30, 2013 measurement period, a waiver of non-compliance was not obtained as the Company has been in the active process of restructuring its debt.  This debt restructuring process has included the Company's existing bank as well as other banks.  Management expects any restructuring with the Bank would include extending the maturity of the Company's revolving line of credit beyond 2014 and embody a waiver of any past non-compliance with loan covenants.

It is management's plan to complete this debt restructuring as soon as practicable. However, there can be no assurance this debt restructuring can be completed to management's satisfaction, timely or at all. The inability to complete this debt restructuring in a satisfactory manner could have a material, adverse impact on the Company. Further, if the Bank were to call the debt due immediately, it would have a material, adverse impact on the Company.

The condensed consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company's continuation as a going concern is dependent upon its ability to satisfactorily restructure its debt.  These consolidated financial statements do not include any adjustments relating to the recoverability and classification of the carrying amounts of assets or the amount and classification of liabilities that might result if the Company is unable to continue as a going concern.

Estimates

Estimates

In preparing the consolidated financial statements in accordance with GAAP 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 intangible 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.

Reclassifications

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 intangibles 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 applicable accounting standards, 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 and commodity-based 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.

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LONG TERM DEBT AND NOTES PAYABLE TO BANK (Schedule of Long-Term Debt) (Details) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Debt Instrument [Line Items]
Total long-term debt	$ 22,500,000	$ 25,056,000
Less current maturities	22,500,000	1,687,000
Long-term debt	0	23,369,000
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Total long-term debt	17,234,000	18,450,000
Maximum revolving commitment	25,000,000	25,000,000
Notes Payable to Banks [Member] | Note payable to Fifth Third Bank in the original amount of $8.8 million secured by rental fleet equipment, shredder system assets, and a crane [Member]
Debt Instrument [Line Items]
Total long-term debt	4,625,000	5,755,000
Face amount	8,800,000
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]
Debt Instrument [Line Items]
Total long-term debt	471,000	638,000
Face amount	1,300,000
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]
Debt Instrument [Line Items]
Total long-term debt	104,000	133,000
Face amount	226,900
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]
Debt Instrument [Line Items]
Total long-term debt	66,000	80,000
Face amount	$ 115,000

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PER SHARE DATA (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

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

Six months ended June 30, 2013 compared to six months ended June 30, 2012:

	2013			2012
	(in thousands, except per share information)
Basic loss per share
Net loss	$	(1,352	)	$	(1,231	)
Weighted average shares outstanding	7,007			6,942
Basic loss per share	$	(0.19	)	$	(0.18	)
Diluted loss per share
Net loss	$	(1,352	)	$	(1,231	)
Weighted average shares outstanding	7,007			6,942
Add dilutive effect of assumed exercising of stock options	—			—
Diluted weighted average shares outstanding	7,007			6,942
Diluted loss per share	$	(0.19	)	$	(0.18	)

Three months ended June 30, 2013 compared to three months ended June 30, 2012:

	2013			2012
	(in thousands, except per share information)
Basic loss per share
Net loss	$	(1,238	)	$	(1,239	)
Weighted average shares outstanding	7,069			6,944
Basic loss per share	$	(0.18	)	$	(0.18	)
Diluted loss per share
Net loss	$	(1,238	)	$	(1,239	)
Weighted average shares outstanding	7,069			6,944
Add dilutive effect of assumed exercising of stock options	—			—
Diluted weighted average shares outstanding	7,069			6,944
Diluted loss per share	$	(0.18	)	$	(0.18	)

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LEASE COMMITMENTS (Tables)

6 Months Ended

Jun. 30, 2013

Leases [Abstract]

Schedule of Future Minimum Rental Payments

Future minimum lease payments for operating leases for the next five twelve-month periods ending June 30 of each year, in thousands, as of June 30, 2013 are as follows:

2014	$	888
2015	817
2016	765
2017	646
2018	323
Future minimum lease payments	$	3,439

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INTANGIBLE ASSETS (Amortization Expense) (Details) (USD $)	Jun. 30, 2013	Dec. 30, 2020 Scenario, Forecast [Member]	Dec. 31, 2017 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]	Jun. 30, 2013 Non-compete agreements [Member]	Feb. 28, 2013 Non-compete agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Cancelation of intangible asset										$ (144,700)
Finite-lived Intangible Assets [Roll Forward]
Intangible Assets, Beginning Balance	3,776,000	0	1,200,000	1,680,000	2,160,000	2,744,000	3,432,000	4,275,000	124,000
Amortization, 2013	(698,000)
Amortization, 2014	(688,000)
Amortization, 2015	(584,000)
Amortization, 2016	(480,000)
Amortization, 2017	(480,000)
Amortization, Thereafter	(1,200,000)
Intangible Assets, Ending Balance	$ 3,776,000	$ 0	$ 1,200,000	$ 1,680,000	$ 2,160,000	$ 2,744,000	$ 3,432,000	$ 4,275,000	$ 124,000

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SEGMENT INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 segments	Jun. 30, 2012	Dec. 31, 2012
Segment Reporting Information [Line Items]
Number of reportable segments			2
Recycling revenues	$ 38,225	$ 48,236	$ 71,496	$ 108,118
Equipment sales, service and leasing revenues	532	593	1,074	1,104
Management fees	1,366	1,023	2,311	2,308
Cost of goods and services sold	38,776	48,492	71,493	106,667
Selling, general and administrative expenses	(2,698)	(2,699)	(5,145)	(5,671)
Loss before other income (expense)	(1,351)	(1,339)	(1,757)	(808)
Segment assets	61,236	82,747	61,236	82,747	63,323
Recycling [Member]
Segment Reporting Information [Line Items]
Recycling revenues	38,225	48,236	71,496	108,118
Equipment sales, service and leasing revenues	0	0	0	0
Management fees	0	0	0	0
Cost of goods and services sold	37,324	47,366	69,014	104,185
Selling, general and administrative expenses	(1,314)	(1,536)	(2,635)	(3,076)
Loss before other income (expense)	(413)	(666)	(153)	857
Segment assets	49,056	72,116	49,056	72,116
Waste Services [Member]
Segment Reporting Information [Line Items]
Recycling revenues	0	0	0	0
Equipment sales, service and leasing revenues	532	593	1,074	1,104
Management fees	1,366	1,023	2,311	2,308
Cost of goods and services sold	1,452	1,126	2,479	2,482
Selling, general and administrative expenses	(212)	(193)	(417)	(375)
Loss before other income (expense)	234	297	489	555
Segment assets	2,153	1,832	2,153	1,832
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 and services sold	0	0	0	0
Selling, general and administrative expenses	(1,172)	(970)	(2,093)	(2,220)
Loss before other income (expense)	(1,172)	(970)	(2,093)	(2,220)
Segment assets	$ 10,027	$ 8,799	$ 10,027	$ 8,799

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TERMINATION AND CONSULTING AGREEMENT WITH BRIAN DONAGHY (Details) (Former President and Chief Operating Officer [Member], USD $)	0 Months Ended
	Jun. 17, 2013
Consulting compensation, monthly fee [Line Items]
Monthly rate	$ 12,500
Days required for written notice of agreement termination	30 days
Number of years following consulting period cannot employ Company personnel	2 years
Minimum [Member]
Consulting compensation, monthly fee [Line Items]
Term of consulting agreement	6 months
Maximum [Member]
Consulting compensation, monthly fee [Line Items]
Term of consulting agreement	1 year

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LEASE COMMITMENTS (Lease Payments) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Leases [Abstract]
2014	$ 888
2015	817
2016	765
2017	646
2018	323
Future minimum lease payments	$ 3,439

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INVENTORIES (Tables)

6 Months Ended

Jun. 30, 2013

Inventory Disclosure [Abstract]

Schedule of Inventory

Other inventory includes fuel and baling wire.

Inventories as of June 30, 2013 and December 31, 2012 consist of the following:

	June 30, 2013								December 31, 2012
	Raw Materials		Finished Goods		Processing Costs		Total (unaudited)		Raw Materials		Finished Goods		Processing Costs		Total
	(in thousands)
Stainless steel, ferrous and non-ferrous materials	$	13,775	$	1,723	$	1,065	$	16,563	$	12,519	$	1,412	$	963	$	14,894
Waste equipment machinery	—		50		—		50		—		57		—		57
Other	—		32		—		32		—		36		—		36
Total inventories for sale	13,775		1,805		1,065		16,645		12,519		1,505		963		14,987
Replacement parts	1,499		—		—		1,499		1,542		—		—		1,542
Total inventories	$	15,274	$	1,805	$	1,065	$	18,144	$	14,061	$	1,505	$	963	$	16,529

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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 Loss [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2012	$ 31,235	$ 24	$ 18,281	$ 13,437	$ (150)	$ (357)
Balance (in Shares) at Dec. 31, 2012		7,192,479				(248,212)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Unrealized income on derivative instruments, net of tax	71				71
Stock options	48		48
Redeemable securities issued to Blue Equity, LLC	0		(180)			180
Redeemable securities issued to Blue Equity, LLC (in Shares)						125,000
Net loss	(1,352)			(1,352)
Balance at Jun. 30, 2013	$ 30,002	$ 24	$ 18,149	$ 12,085	$ (79)	$ (177)
Balance (in Shares) at Jun. 30, 2013		7,192,479				(123,212)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2013

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 generally accepted accounting principles in the United States of America ("GAAP") 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 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, 2013 and the results of our operations and changes in our cash flows for the periods ended June 30, 2013 and 2012. Results of operations for the period ended June 30, 2013 are not necessarily indicative of the results that may be expected for the entire year. Additional information, including the audited December 31, 2012 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, 2012, on file with the Securities and Exchange Commission.

Liquidity and Going Concern

As discussed in Note 5 - "Long Term Debt and Notes Payable to Bank," all of the Company's debt is with Fifth Third Bank (the “Bank”) and virtually all is scheduled to mature in April 2014, which requires current classification in the accompanying condensed consolidated balance sheet at June 30, 2013. Further, the Company is not in compliance with all of the debt covenants of this indebtedness as measured at June 30, 2013. This condition allows the Bank, if it chooses, to call the debt due immediately. In prior reporting periods, where relevant, the Company has obtained from the Bank a waiver of non-compliance with applicable loan covenants. For the June 30, 2013 measurement period, a waiver of non-compliance was not obtained as the Company has been in the active process of restructuring its debt.  This debt restructuring process has included the Company's existing bank as well as other banks.  Management expects any restructuring with the Bank would include extending the maturity of the Company's revolving line of credit beyond 2014 and embody a waiver of any past non-compliance with loan covenants.

It is management's plan to complete this debt restructuring as soon as practicable. However, there can be no assurance this debt restructuring can be completed to management's satisfaction, timely or at all. The inability to complete this debt restructuring in a satisfactory manner could have a material, adverse impact on the Company. Further, if the Bank were to call the debt due immediately, it would have a material, adverse impact on the Company.

The condensed consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company's continuation as a going concern is dependent upon its ability to satisfactorily restructure its debt.  These consolidated financial statements do not include any adjustments relating to the recoverability and classification of the carrying amounts of assets or the amount and classification of liabilities that might result if the Company is unable to continue as a going concern.

Estimates

In preparing the consolidated financial statements in accordance with GAAP 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 intangible 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.

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 intangibles 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 applicable accounting standards, 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 and commodity-based 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, 2013 (in thousands):

	Fair Value at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs
Assets:	Level 1		Level 2			Total
Cash and cash equivalents	$	1,472	$	—		$	1,472
Liabilities:
Long-term debt	$	—	$	(22,500	)	$	(22,500	)
Derivative contract - interest rate swap	—		(131		)	(131		)

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 and six month periods ended June 30, 2013.

Factoring fees and certain banking expenses

We have included factoring fees and certain banking expenses relating to our loans and loan restructuring within interest expense. The factoring fees totaled $80.2 thousand and $116.6 thousand for the periods ended June 30, 2013 and 2012, respectively. The loan fee amortization expense relating to our loans and loan restructuring totaled $220.2 thousand and $114.0 thousand for the periods ended June 30, 2013 and 2012, respectively.

Subsequent Events

We have evaluated the period from June 30, 2013 through the date the financial statements herein were issued for subsequent events requiring recognition or disclosure in the financial statements and we identified the following events:

Changes to Management and Board:

On July 15, 2013, the Company's Board of Directors appointed the Vice President of Recycling, Jim Wiseman, as General Manager of the Company, reporting to Orson Oliver, interim Chief Executive Officer and interim President, with the primary responsibility of overseeing the day-to-day operation of the Company.

On July 26, 2013, the Company's Board of Directors authorized an increase in the number of directors which constitute the entire Board of Directors from four to five.

On July 26, 2013, the Board of Directors appointed Ronald W. Strecker to fill a board vacancy and also appointed Mr. Strecker to serve on the Audit Committee of the Board of Directors.

Termination of the Management Services Agreement with Blue Equity, LLC:

At the Company's annual meeting of shareholders on July 16, 2013 (the "Annual Meeting"), the Company's shareholders voted against approval of the options to purchase 1.5 million shares that had been granted to Blue Equity, LLC ("Blue Equity") under the Management Services Agreement (the "Management Agreement") dated April 1, 2013. In accordance with the Management Agreement, the options terminated on that same date.

Following the failure of the Company's shareholders to approve the option grant, Blue Equity delivered a letter to the Company stating that it was terminating the Management Agreement, effective July 31, 2013. In addition, Blue Equity notified the Company of its intention to exercise its right to cause the Company to redeem 125.0 thousand shares of Company Common Stock for $4.00 per share, the price at which Blue Equity purchased those shares, payable on September 30, 2013. See Note 2 - "Management Services Agreement with Blue Equity, LLC" for additional details relating to this agreement and its termination.

Articles of Amendment to the Articles of Incorporation:

At the Annual Meeting, the Company's shareholders approved the amendment of the Company's Articles of Incorporation (the "Amendment") pursuant to which the Company's authorized common stock increased by 10.0 million shares, from 10.0 million to 20.0 million shares. The Amendment is discussed in the proxy statement dated June 6, 2013.

Impact of Recently Issued Accounting Standards

As of June 30, 2013, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.

In February 2013, the FASB issued ASU 2013-2, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires that the effect of significant reclassifications out of accumulated other comprehensive income be reported on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted principles to be reclassified in its entirety in the same reporting period to net income. For reclassifications involving other amounts, cross references would be required to other disclosures provided under generally accepted accounting principles on such items. This update is effective prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. Since this update addresses only financial reporting disclosures, the Company does not expect it to have a direct impact on the Company’s financial statements. No reclassification events occurred in the quarter or six month period ended June 30, 2013.

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists, an amendment to FASB ASC Topic 740, Income Taxes. This update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carry forward, a similar tax loss, or a tax credit carry forward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The Company will comply with the presentation requirements of this ASU for the quarter ending March 31, 2014. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows as we do not currently have any uncertain tax positions which would require an unrecognized tax benefit liability to be recorded.

In July 2013, the FASB issued ASU 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, an amendment to FASB ASC Topic 815, Derivatives and Hedging. The update permits the use of the Fed Funds Effective Swap Rate to be used as a US benchmark interest rate for hedge accounting purposes under FASB ASC Topic 815, in addition to the interest rates on direct Treasury obligations of the US government ("UST") and the London Interbank Offered Rate ("LIBOR"). The update also removes the restriction on using different benchmark rates for similar hedges. This ASU is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows.

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INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2013

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 as required by FASB's ASC. The Company has no intangible assets having indefinite lives.

We have the following intangible assets as of June 30, 2013:

	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Amortized intangible assets	(in thousands)
Venture Metals, LLC trade name	$	730	$	(438	)	$	292
Non-compete agreements	310		(186		)	124
Venture Metals, LLC customer list	4,800		(1,440		)	3,360
Total intangible assets	$	5,840	$	(2,064	)	$	3,776

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 $354.3 thousand and $375.0 thousand for the six month periods ended June 30, 2013 and 2012, respectively. Pursuant to a legal settlement, we canceled $144.7 thousand of our non-compete agreements balance effective February 28, 2013.

As of June 30, 2013, we expect amortization expense for these assets for the next five fiscal years and thereafter to be as follows:

	Balance -	Cancellation of		Balance -
Year	Beginning of Year	Intangible Asset	Amortization	End of Year
	(in thousands)
2013	$4,275	$(145)	$(698)	$3,432
2014	3,432	—	(688)	2,744
2015	2,744	—	(584)	2,160
2016	2,160	—	(480)	1,680
2017	1,680	—	(480)	1,200
Thereafter	1,200	—	(1,200)	—

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MANAGEMENT SERVICES AGREEMENT MANAGEMENT SERVICES AGREEMENT WITH BLUE EQUITY, LLC (Notes)

6 Months Ended

Jun. 30, 2013

MANAGEMENT SERVICES AGREEMENT 2013 [Abstract]

Managment Services Agreement with Blue Equity, LLC

MANAGEMENT SERVICES AGREEMENT WITH BLUE EQUITY, LLC

On April 1, 2013, the Company and Blue Equity entered into the Management Agreement under which Blue Equity was to provide the Company with day-to-day senior executive level operating management supervisory services. Blue Equity was also to provide business, financial, and organizational strategy and consulting services, as the Company's Board of Directors reasonably requested from time to time. The Management Agreement provided for a 12-month term beginning April 1, 2013, subject to earlier termination upon mutual agreement or upon circumstances set forth in the agreement, including the shareholders' failure to approve the issuance of the stock options. (See Note 1).

At the time the parties entered into the Management Agreement, the Company (i) issued 125.0 thousand shares of its Common Stock to Blue Equity at a per share purchase price of $4.00, and (ii) granted options to purchase 1.5 million shares of its Common Stock to Blue Equity at an exercise price per share of $5.00, subject to shareholder approval.

At the Annual Meeting, the Company's shareholders voted against approval of the options to purchase 1.5 million shares. In accordance with the Management Agreement, the options terminated on that same date. Following the failure of the Company's shareholders to approve the option grant, Blue Equity delivered a letter to the Company stating that it was terminating the Management Agreement, effective July 31, 2013. Blue Equity has also demanded payment of a monthly management fee of $85.0 thousand along with reimbursement of out-of-pocket expenses, through July 31, 2013. In addition, Blue Equity has notified the Company of its intention to exercise its right to cause the Company to redeem the 125.0 thousand shares of Common Stock for $4.00 per share, the price at which Blue Equity purchased those shares, payable on September 30, 2013. For the period ended June 30, 2013, the Company recorded a current liability entitled "Redeemable Securities" for $500.0 thousand as a result.

On May 7, 2013, the Board of Directors appointed Jonathan S. Blue, Chairman and Managing Director of Blue Equity, to the positions of director and Chief Executive Officer of the Company. However, the Board and Mr. Blue were unable to negotiate mutually agreeable terms and conditions of his service in those positions, and Mr. Blue did not accept either position.

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INVENTORIES (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Inventory [Line Items]
Replacement parts, depreciation	1 year
Raw Materials	$ 15,274	$ 14,061
Finished Goods	1,805	1,505
Processing Costs	1,065	963
Total	18,144	16,529
Stainless steel, ferrous and non-ferrous materials [Member]
Inventory [Line Items]
Raw Materials	13,775	12,519
Finished Goods	1,723	1,412
Processing Costs	1,065	963
Total	16,563	14,894
Waste equipment machinery [Member]
Inventory [Line Items]
Raw Materials	0	0
Finished Goods	50	57
Processing Costs	0	0
Total	50	57
Other [Member]
Inventory [Line Items]
Raw Materials	0	0
Finished Goods	32	36
Processing Costs	0	0
Total	32	36
Total inventories for sale [Member]
Inventory [Line Items]
Raw Materials	13,775	12,519
Finished Goods	1,805	1,505
Processing Costs	1,065	963
Total	16,645	14,987
Replacement parts [Member]
Inventory [Line Items]
Raw Materials	1,499	1,542
Finished Goods	0	0
Processing Costs	0	0
Total	$ 1,499	$ 1,542

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Fair Value of Financial Instruments) (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Cash and cash equivalents	$ 1,472
Liabilities, Fair Value Disclosure [Abstract]
Long-term debt	0
Level 1 [Member] | Derivative contract - interest rate swap [Member]
Liabilities, Fair Value Disclosure [Abstract]
Derivative contract - interest rate swap	0
Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Cash and cash equivalents	0
Liabilities, Fair Value Disclosure [Abstract]
Long-term debt	(22,500)
Level 2 [Member] | Derivative contract - interest rate swap [Member]
Liabilities, Fair Value Disclosure [Abstract]
Derivative contract - interest rate swap	(131)
Total [Member]
Assets, Fair Value Disclosure [Abstract]
Cash and cash equivalents	1,472
Liabilities, Fair Value Disclosure [Abstract]
Long-term debt	(22,500)
Total [Member] | Derivative contract - interest rate swap [Member]
Liabilities, Fair Value Disclosure [Abstract]
Derivative contract - interest rate swap	$ (131)

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INTANGIBLE ASSETS (Details) (USD $)	6 Months Ended					6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Venture Metals, LLC trade name [Member]	Jun. 30, 2013 Non-compete agreements [Member]	Feb. 28, 2013 Non-compete agreements [Member]	Jun. 30, 2013 Venture Metals, LLC customer list [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Useful life			5 years	5 years		10 years
Amortization expense	$ 354,300	$ 375,000
Cancelation of non-compete agreement					$ (144,700)

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LONG TERM DEBT AND NOTES PAYABLE TO BANK (Interest Rate Swap) (Details) (USD $)	Jun. 30, 2013 derivatives
Derivative contract - interest rate swap [Member]
Derivative [Line Items]
Number of original interest rate swaps established	3
Number of current interest rate swaps held	2
Average interest rate, interest rate swaps	5.90%
Fair value of liability	$ 131,400
Cash balance used as collateral for hedged item	190,700
Interest Rate Swap 1 [Member]
Derivative [Line Items]
Notional amount	3,900,000
Interest Rate Swap 2 [Member]
Derivative [Line Items]
Notional amount	0
Interest Rate Swap 3 [Member]
Derivative [Line Items]
Notional amount	$ 372,700

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CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
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	7,069,267	6,944,267
Treasury stock, shares	123,212	248,212

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INVENTORIES

6 Months Ended

Jun. 30, 2013

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 based on the specific scrap commodity. 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, 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.

Inventory also includes all types of industrial waste handling equipment and machinery held for resale such as compactors, balers, and containers, which are valued based on cost. Replacement parts for internal equipment included in inventory are depreciated over a one-year life and are used by us within this one-year period as these parts wear out quickly due to the high-volume and intensity of the shredder function. Other inventory includes fuel and baling wire.

Inventories as of June 30, 2013 and December 31, 2012 consist of the following:

	June 30, 2013								December 31, 2012
	Raw Materials		Finished Goods		Processing Costs		Total (unaudited)		Raw Materials		Finished Goods		Processing Costs		Total
	(in thousands)
Stainless steel, ferrous and non-ferrous materials	$	13,775	$	1,723	$	1,065	$	16,563	$	12,519	$	1,412	$	963	$	14,894
Waste equipment machinery	—		50		—		50		—		57		—		57
Other	—		32		—		32		—		36		—		36
Total inventories for sale	13,775		1,805		1,065		16,645		12,519		1,505		963		14,987
Replacement parts	1,499		—		—		1,499		1,542		—		—		1,542
Total inventories	$	15,274	$	1,805	$	1,065	$	18,144	$	14,061	$	1,505	$	963	$	16,529

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net loss	$ (1,238)	$ (1,239)	$ (1,352)	$ (1,231)
Other comprehensive income:
Unrealized income on derivative instruments, net of tax	33	17	71	60
Comprehensive loss	$ (1,205)	$ (1,222)	$ (1,281)	$ (1,171)

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current assets
Cash and cash equivalents	$ 1,472	$ 1,926
Income tax receivable	1,595	1,437
Accounts receivable – trade (after allowance for doubtful accounts of $100.0 thousand in 2013 and 2012)	11,274	13,344
Inventories	18,144	16,529
Deferred income taxes	55	276
Prepaid expenses	281	330
Employee loans	6	5
Total current assets	32,827	33,847
Net property and equipment	22,866	24,210
Other assets
Intangible assets, net	3,776	4,275
Deferred income taxes	1,464	870
Deposits	303	121
Total other assets	5,543	5,266
Total assets	61,236	63,323
Current liabilities
Current maturities of long-term debt	22,500	1,687
Accounts payable	7,711	6,408
Interest rate swap liability	131	250
Redeemable securities	500	0
Other current liabilities	392	374
Total current liabilities	31,234	8,719
Long-term liabilities
Long-term debt	0	23,369
Total long-term liabilities	0	23,369
Shareholders’ equity
Common stock, $0.0033 par value: 10,000,000 shares authorized; 7,192,479 shares issued in 2013 and 2012; 7,069,267 and 6,944,267 shares outstanding in 2013 and 2012, respectively	24	24
Additional paid-in capital	18,149	18,281
Retained earnings	12,085	13,437
Accumulated other comprehensive loss	(79)	(150)
Treasury stock at cost, 123,212 and 248,212 shares in 2013 and 2012, respectively	(177)	(357)
Total shareholders’ equity	30,002	31,235
Total liabilities and shareholders’ equity	$ 61,236	$ 63,323

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) (USD $)	6 Months Ended			0 Months Ended			0 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jul. 16, 2013 Subsequent Event [Member]	Jul. 26, 2013 Prior to July 26, 2013 [Member] Director [Member] Subsequent Event [Member] directors	Jul. 26, 2013 After July 26, 2013 [Member] Director [Member] Subsequent Event [Member] directors	Apr. 02, 2013 Blue Equity, LLC [Member]	Jul. 16, 2013 Blue Equity, LLC [Member] Subsequent Event [Member]
Accounting Policies [Abstract]
Factoring fees	$ 80,200	$ 116,600
Loan fee amortization expense	$ 220,200	$ 114,000
Subsequent Event [Line Items]
Total Number of Board Members					4	5
Stock options							1,500,000	1,500,000
Common stock, shares issued	7,192,479		7,192,479				125,000
Share price							$ 4.00
Increase in authorized shares				10,000,000
Common stock, shares authorized	10,000,000		10,000,000	20,000,000

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LONG TERM DEBT AND NOTES PAYABLE TO BANK (Tables)

6 Months Ended

Jun. 30, 2013

Debt Disclosure [Abstract]

Schedule of Long-term

Our long term debt as of June 30, 2013 and December 31, 2012 consisted of the following:

	2013		2012
	(Unaudited)
	(in thousands)
Revolving credit facility of $25.0 million in 2013 and 2012 with Fifth Third Bank. See above description for additional details.	$	17,234	$	18,450
Note payable to Fifth Third Bank in the original amount of $8.8 million secured by rental fleet equipment, shredder system assets, and a crane. See above description for additional details.	4,625		5,755
Note payable to Fifth Third Bank in the amount of $1.3 million secured by equipment purchased with proceeds. See above description for additional details.	471		638
Loan and Security Agreement payable to Fifth Third Bank in the amount of $226.9 thousand secured by the equipment purchased with proceeds. See above description for additional details.	104		133
Note payable to Fifth Third Bank in the amount of $115.0 thousand secured by the equipment purchased with proceeds. See above description for additional details.	66		80
	22,500		25,056
Less current maturities	22,500		1,687
	$	—	$	23,369

Schedule of Maturities of Long-term Debt

The annual maturities of long term debt (in thousands) for the next twelve-month period and thereafter as of June 30, 2013 are as follows:

2014	$	22,500
Thereafter	—
Total	$	22,500

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PER SHARE DATA (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Earnings Per Share, Basic [Abstract]
Net loss	$ (1,238)	$ (1,239)	$ (1,352)	$ (1,231)
Weighted average shares outstanding	7,069	6,944	7,007	6,942
Basic loss per share (in Dollars per share)	$ (0.18)	$ (0.18)	$ (0.19)	$ (0.18)
Earnings Per Share, Diluted [Abstract]
Add dilutive effect of assumed exercising of stock options	0	0	0	0
Diluted weighted average shares outstanding	7,069	6,944	7,007	6,942
Diluted loss per share (in Dollars per share)	$ (0.18)	$ (0.18)	$ (0.19)	$ (0.18)