INDUSTRIAL SERVICES OF AMERICA INC /FL - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year Ended December 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
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Commission File No.: 0-20979
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INDUSTRIAL SERVICES OF AMERICA, INC.
(Exact name of registrant as specified in its charter)

Florida 59-0172746
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

7100 Grade Lane
P.O. Box 32428
Louisville, Kentucky 40232
(502) 368-1661
(Address, including zip code, and telephone number,
including area code, or registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of class)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.

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Aggregate market value of the 982,846 shares of voting Common
Stock held by non-affiliates of the registrant at the closing sales
price on March 29, 2000: $2,457,115.

Number of shares of Common Stock outstanding as of the close of
business on March 29, 2000: 1,929,600.
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DOCUMENT INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 2000
Annual Meeting of Shareholders are incorporated by reference into
Part III of this report.

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PART I

ITEM 1. BUSINESS.

GENERAL

Industrial Services of America, Inc. (the "Registrant") is a
management services company specializing in solid waste
management, as well as ferrous, non-ferrous and fiber recycling.
The management division of the Registrant is engaged in the
business of commercial, retail and industrial waste management
and waste handling. The Registrant also has an operating
division engaged in equipment sales and leasing activities. The
ferrous division's major products include recycling of steel and
iron products, whereas the non-ferrous division recycles copper,
aluminum and brass. The fiber recycling consists mainly of high-
grade papers and corrugated cardboard. The Registrant is able to
offer a "total package" concept to commercial, retail and
industrial clients to cover their waste management needs.
Combining waste reduction, waste materials diversion and waste
equipment technology, the Registrant creates waste programs
tailored to each client's individual needs. The Registrant
believes that it offers a more complete line of products and
services than its competitors and is better able to coordinate
these services on a regional and nationwide basis. By offering
competitively priced waste handling equipment from a number of
different manufacturers, the Registrant is able to tailor
equipment packages for individual client needs. The waste
management services offered by the Registrant include locating
and contracting with a hauling company at a reasonable cost at
each participating location for the retail chain customers of the
Registrant that are a part of the management program offered by
the Registrant. Because the Registrant is not a "waste
transporter," it is able to maintain a neutral position vis-a-via
the customers and the hauling companies. The Registrant has
designed and developed proprietary computer software that
provides the Registrant's personnel with relevant information on
each of the client's locations, as well as pertinent information
on disposal rates and costs of equipment, including installation
and shipping. The availability of this software has allowed the
Registrant to build a database for serving customers from coast
to coast. The Registrant is able to estimate cost savings to
potential customers by reviewing their current waste hauling
invoices either regionally or nationwide.

The Registrant plans to grow by expanding its marketing base
and by seeking future joint ventures and acquisitions of
companies in related businesses. The Registrant continues to
target retail and industrial customers throughout the United
States for the purpose of increasing its clientele in this
sector. Although the number of locations for each industrial
customer will generally be less than that of large retail chains,
solid waste output for each location of industrial clients is
generally greater than that of retail clients. The Registrant
believes that the corresponding greater need for appropriate
equipment results in the increased possibility of large equipment
orders. Further, the Registrant believes it can provide savings
for each industrial location.

The Registrant believes that opportunities for its continued
growth are enhanced by the increasingly stringent regulatory and
political constraints being placed on the waste hauling and
disposal industries. These more stringent federal, state and
local regulations drive prices higher throughout the industry.
With ever-increasing costs, solid waste disposal is becoming one
of the larger expense items for retail and industrial customers,
and perhaps one of the most difficult to control. The Registrant
believes these increased costs will enhance the value of its
services. Through the retention of the Registrant's services,
customers can "outsource" their in-house waste needs to an
experienced independent entity capable of lowering and containing
waste disposal costs. The Registrant is able to provide
customized reports detailing clients' recycling revenues as well
as waste disposal expense.

In October 1997, the Registrant issued options (the "Garber
Options") to purchase 25,000 shares and an additional option to
purchase 100,000 shares of Common Stock to its, then, Interim
President and Chief Operating Officer, Sean M. Garber, as a
component of a five-year employment agreement (the "Garber
Employment Agreement"). The exercise price related to the
options to purchase (i) the 25,000 shares is $1.00 per share and
(ii) the 100,000 shares was changed to $2.50 per share from $5.00
per share by Board of Director approval on November 3, 1999.
Compensation cost charged to operations in 1999 and 1998 related
to the option to purchase 25,000 shares was $56,901 and $71,875,
respectively. The option to purchase 100,000 shares was at market
value the day of the grant, therefore no charges were associated
with this option. None of the Garber Options have been
exercised.

OFFICER AND DIRECTOR CHANGES

Effective with the Board of Directors meeting and
Shareholder meeting held on May 27,1999, R. Michael Devereaux
chose not to accept the director nomination and Ted L. Cox was
elected to fill the position. Three outside members are included
on the Board: Ted L. Cox, Joseph H. Cohen and Dr. Barry N. Naft.
The Board of Directors of the Registrant appointed John O.
Tietjen to the position of Chief Financial Officer/Senior Vice-
President effective March 1, 1999. See Item 4a. EXECUTIVE
OFFICERS OF THE REGISTRANT.

FITZPATRICK PURCHASE AGREEMENT; LEASE AGREEMENT

Effective June 1, 1998 but executed as of July 31, 1998, ISA
Indiana, Inc. (the "Subsidiary"), an Indiana corporation and
wholly-owned subsidiary of the Registrant; R. J. Fitzpatrick
Smelters, Inc. (the "Seller"); and R. J. Fitzpatrick and Cheryl
Fitzpatrick (collectively the "Guarantors"); entered into an
Asset Purchase Agreement (the "Fitzpatrick Purchase Agreement")
whereby the Subsidiary acquired all of the business, property,
rights and assets of the Seller and assumed certain of the
liabilities of the Seller as set forth in the Fitzpatrick
Purchase Agreement. Under the Fitzpatrick Purchase Agreement,
the Subsidiary entered into a real property Lease Agreement (the
"Fitzpatrick Lease"), effective June 1, 1998, from the Guarantors
and the Seller for ten successive terms of ten years each at a
rental of $13,000 per month during the original term (as adjusted
in accordance with the Consumer Price Index for each renewal
term) with an option to purchase for $1,600,000 the real property
(including an adjoining 20 acre tract less 3 acres to be retained
by the Seller and Guarantors). The location of the business is
on an approximate 14-acre tract at U.S. 50 and Jennings County
Road 900 West, North Vernon, Jennings County, Indiana,
approximately 65 miles north of Louisville, Kentucky. The
business of the Seller is a metal salvage and metal handling
operation and is comprised of five buildings, the total square
footage of which is approximately 71,400 feet. The principal
improvement is a one-story concrete warehouse/foundry/office
approximating 25,500 square feet. The remaining buildings are
steel-framed buildings constituting warehouses, garages and
office space.

The Fitzpatrick Lease provides for the right of the
Subsidiary to terminate at any time after May 31, 2003, for a
termination payment of $156,000. Defaults include (i) failure of
the Subsidiary to pay rent or any other payments due under the
Fitzpatrick Lease within 20 days after written demand, (ii)
failure by the Subsidiary to observe or perform any other
covenants, agreements or conditions of the Fitzpatrick Lease
after 20 days written notice unless the Subsidiary has within
that 20 day period commenced to cure the default, and (iii)
certain events of bankruptcy of the Subsidiary. Remedies for a
default include termination of the Fitzpatrick Lease and a suit
for damages. The Subsidiary has the option to terminate the
Fitzpatrick Lease if it is deprived of the use and benefit of the
real property under certain conditions described in the
Fitzpatrick Lease.

CONSULTING AGREEMENTS; LASSAK AGREEMENT AND JCA/LASSAK AGREEMENT

On June 2, 1998, the Registrant entered into an agreement
(the "Lassak Agreement") with Andrew M. Lassak ("Lassak") to
perform financial advisory services for the Registrant for a
period of up to five years. The Company grants to Lassak and/or
his designee for the financial advisory services rendered under
the Lassak Agreement options to purchase from 25,000 up to a
maximum of 250,000 shares of the Company's Common Stock (the
"Common Stock") on the basis of 25,000 shares for each
$10,000,000 in additional capitalization of the Company measured
from June 2, 1998 that vests upon maintenance for three (3)
consecutive months after achieving the increase in each
$10,000,000 in capitalization for which each 25,000 shares of
Common Stock subject to options are granted. The exercise price
for the shares subject to options earned on account of the
capitalization increase will equal the fair market value of the
Common Stock on the date the $10,000,000 in increased
capitalization for which each 25,000 shares of Common Stock
subject to options will be granted. From the date of vesting of
shares subject to options, Lassak has (i) five (5) years to
exercise with respect to shares subject to option vesting in
Years one (1) and two (2); (ii) four (4) years to exercise with
respect to shares subject to option in Year three (3); (iii)
three (3) years to exercise with respect to shares subject to
option vesting in Year four (4); and (iv) two (2) years to
exercise with respect to shares subject to option vesting in Year
five (5). "Years" for purposes of this Agreement shall mean the
365/366 day period from June 2, 1998 through June 1, 1999 and
each 365/366 day period thereafter. During 1999, the Registrant
did not issue any options to purchase Common Stock to Lassak
under the Lassak Agreement; however, the Registrant anticipates
issuing such options to Lassak under the Lassak Agreement in
2000.

On June 2, 1998, the Registrant entered into an agreement
(the "JCA/Lassak Agreement") with Joseph Charles & Associates,
Inc. ("JCA") and Lassak. The term of the JCA/Lassak Agreement is
for a period of up to five (5) years. The Registrant agrees to
grant to JCA and Lassak options to purchase the Registrant's
Common Stock on the basis of 65% of the shares of Common Stock
subject to options being granted to Lassak and 35% to JCA, at (a)
$6.00 per share for the first 150,000 shares that vest, and (b)
$8.00 per share for the remaining 35,000 shares that vest. The
number of shares of the Common Stock that vest is determined
based upon the following schedule:

REGISTRANT SHARES
SUBJECT TO OPTIONS VESTING
VESTING SCHEDULE DATE YEAR
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45,000 From June 2, 1998 to, but not 1
including, first anniversary date
of JCA/Lassak Agreement
("Anniversary Date")

35,000 From Anniversary Date to, but not 2
including, Second Anniversary Date

35,000 From Second Anniversary Date to, 3
but not including, Third Anniversary
Date

35,000 From Third Anniversary Date to, but 4
not including, Fourth Anniversary Date

35,000 From Fourth Anniversary Date to, but 5
not including, Fifth Anniversary Date

From the date of vesting of shares subject to option, JCA
and Lassak have (i) five (5) years to exercise with respect to
shares subject to options vesting in Vesting Years one (1) and
two (2); (ii) four (4) years to exercise with respect to shares
subject to options in Vesting Year three (3); (iii) three (3)
years to exercise with respect to shares subject to options
vesting in Vesting Year four (4); and (iv) two (2) years to
exercise with respect to shares subject to options vesting in
Vesting Year five (5). During 1999, the Registrant did not issue
options to purchase Common Stock under the JCA/Lassak Agreement;
however, the Registrant anticipates issuing options in 2000.

AMENDMENT TO 1997 EMPLOYEE STOCK OPTION PLAN

The Industrial Services of America, Inc. 1997 Employee Stock
Option Plan (the "Plan") as originally adopted reserved 100,000
shares for the granting of options to employees of the
Registrant. On February 11, 1998, the Board of Directors
authorized the Registrant to increase the shares reserved under
the Plan from 100,000 to 330,000. The Registrant never
implemented this increase. On March 22, 1999, the Board of
Directors approved, authorized and ratified an amendment (the
"Amendment") to the Plan, and after shareholder approval at the
1999 Annual Meeting of Shareholders, the Amendment became
effective retroactively as of February 11, 1998. Upon
effectiveness, the Amendment: (i) increased the number of shares
reserved under the Plan from 100,000 to 400,000, (ii) allowed for
the grant of non-qualified stock options to non-employee
directors of the Company under the Plan, (iii) changed the name
of the Plan to the "Industrial Services of America, Inc. 1997
Stock Option Plan," and (iv) effected certain technical or
administrative changes to the Plan.

On March 1, 1999, the Board granted to each of its three non-
employee directors (Messrs. Cohen, Devereaux and Naft) non-
qualified stock options under the Plan to purchase 20,000 shares
of Common Stock at $5.00 per share (the "Director Options"). The
Director Options vested on the grant date. On November 3, 1999,
the Board approved the change in the option price for the non-
employee directors from $5.00 per share to $2.50 per share. The
Devereaux options have since expired and an option to purchase
20,000 shares of Common Stock have been offered to Ted L. Cox,
the third non-employee Board member. The Director Options expire
on March 1, 2009 unless terminated earlier pursuant to provisions
in the respective option certificates.

Additionally, on March 1, 1999, the Board granted to John O.
Tietjen, the Registrant's Chief Financial Officer, non-qualified
stock options under the Plan to purchase 15,000 shares of Common
Stock at $2.25 per share (the "Tietjen Option"). Subject to the
limitations contained in the next sentence, the Tietjen Option
vests as follows: 7,500 shares vest on January 1, 2000 and 7,500
shares vest on March 1, 2000. The Tietjen Option expires on
March 1, 2009 unless terminated earlier pursuant to provisions in
the option certificate.

REGISTRANT BACKGROUND

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

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

The Registrant's divisions operate closely with each other
in terms of present customer care and proposals for new
customers. WESSCO has expanded its product line and presently
offers a variety of equipment, which would be necessary for an
efficient waste handling and/or recycling system for an
individual user. The prices WESSCO can offer are competitive
with most dealers since it purchases equipment at dealer cost
without having to pay dealer overhead. The WESSCO program is
attractive to customers planning expansion programs. Some of
these customers have designated WESSCO as their exclusive waste
equipment supplier and consultant. By working with the customer
from the time the initial building plans are developed, WESSCO
has input into the design, development and implementation of the
waste handling system.

CWS has developed a network of over 2,500 vendors throughout
the United States, which include hauling companies, recycling
companies and equipment manufacturing and maintenance companies.
Through this network, the Registrant is able to provide pricing
estimates for potential customers in a timely fashion. CWS
customer representatives have access to this information through
the computer software designed and developed to accommodate the
daily needs of the Registrant. Through this information
retrieval system, customer representatives can review the
accuracy of customer concerns from recent billings to hauling
rates to the average monthly cost of service.

The Registrant also processes, sells and brokers a broad
range of materials for recycling. These materials include
ferrous and non-ferrous metals, corrugated containers, high-grade
paper and plastic. The Registrant offers document destruction
and transport of recyclable materials to the Registrant's
facility for regional clients. This division also brokers
recycled commodities for CWS customers.

The Registrant derives a significant portion of its revenues
from two primary customers (Home Depot and Office Depot)
accounting for approximately 64%, 63% and 80% of 1999, 1998 and
1997 total revenues, respectively. The Registrant is taking
affirmative action to counter its dependence on any one customer.
The potential negative effect of losing any single customer has
been reduced by the Registrant's expansion of its customer base.
However, there can be no assurance that if the Registrant was to
lose all or the substantial portion of the business with these
two customers that such losses would not have a material adverse
effect on the Registrant.

In addition to its other services, the Registrant provides
management services relating to recycling and waste stream
analysis. The main advantage to offering these types of
management services is that the individual projects are priced on
a substantial prepaid individual basis. This method of pricing
allows the Registrant to collect an up-front fee with the
opportunity to "sell" the customer traditional services after the
evaluation and/or any subsequent implementation is complete. By
offering management and evaluation services, the Registrant is
able to pursue additional customers.

K&R LEASE; K&R CONSULTING AGREEMENT

On February 16, 1998 the Registrant's Board of Directors
ratified and formalized an existing relationship in connection
with (i) the leasing by the Registrant of its facilities from K&R
and (ii) the provision of consulting services from K&R to the
Registrant. K&R is an affiliate of the Registrant.

LEASE AGREEMENT. The Lease Agreement (the "K&R Lease"),
effective as of January 1, 1998, between K&R, as landlord, and
the Registrant, as lessee, covers approximately 20.5 acres of
land and the improvements thereon, which are located at 7100
Grade Lane in Louisville, Kentucky (the "Leased Premises"). The
principal improvements consist of an approximately 22,750 square
foot building used as the Corporate Office, an approximately
8,286 square foot building used for CWS offices, an approximately
13,995 square foot used as the paper recycling plant, an
approximately 12,000 square foot building used for metals
recycling plant, and an approximately 51,760 square foot building
used as the recycling offices and warehouse space, with the
remaining 15,575 square feet of space contained in five (5)
buildings ranging in size from approximately 8,000 to 256 square
feet. The initial term of the K&R Lease is for ten years with
two five-year option periods (the "Option Periods") available
thereafter. The base rent for the first five years is $450,000
per annum, payable at the beginning of each month in an amount
equal to $37,500 (the "Fixed Minimum Rent"). The Fixed Minimum
Rent adjusts each five years, including each of the Option
Periods, in accordance with the Consumer Price Index. The Fixed
Minimum Rent also increases to $750,000 per annum, in an amount
equal to $62,500 per month in the event of a change in control of
the Registrant. The Registrant is also required to pay, as
additional rent, all real estate taxes, insurance, utilities,
maintenance and repairs, replacements (including replacement of
roofs if necessary) and other expenses. The K&R Lease provides
for indemnification of K&R by the Registrant for all damages
arising out of the Registrant's use or condition of the Leased
Premises excepting therefrom K&R's negligence.

Events of Default under the K&R Lease include (i) failure by
the Registrant to pay the Fixed Minimum Rent for 10 days after
written demand therefor, (ii) any other default in the observance
or performance by the Registrant of any of the other covenants,
agreements, or conditions of the K&R Lease, which shall continue
for 30 days after written notice, unless the Registrant shall
have commenced and shall be diligently pursuing curing such
default, (iii) certain bankruptcy or related events affecting the
Registrant, (iv) vacation of the Leased Premises by the
Registrant, or (v) the transfer or devolution whether by
operation of law or otherwise of the K&R Lease or the
Registrant's estate or of any of the Registrant's interest to
anyone other than K&R. Upon the occurrence of an event of
default, K&R may, at its option, terminate the K&R Lease and
enter into and take possession of the Leased Premises with the
right to sue for and collect all amounts due, including damages.
All payments are current.

K&R CONSULTING AGREEMENT. The K&R Consulting Agreement
remains in effect until December 31, 2007, with the automatic
annual renewals thereafter unless one party provides written
notice to the other party of its intent not to renew at least six
months in advance of the next renewal date. K&R shall provide
strategic planning and mergers and acquisitions (the "K&R
Consulting Activities"). The Registrant shall be responsible for
all of K&R's expenses and pay to K&R $240,000 in equal monthly
installments of $20,000 in connection with the K&R Consulting
Activities.

The K&R Consulting Agreement terminates upon a non-
defaulting party providing written notice to the other party of
its intent to terminate. The recipient of the notice has 10 days
to cure monetary defaults and 30 days to cure non-monetary
defaults. Upon termination, K&R agrees not to engage, directly
or indirectly, in the business conducted by, or hire employees
from, the Registrant for a period of five years and within 100
miles of any operation of the Registrant. The Registrant's
principal shareholder and Chief Executive Officer is compensated
through consulting fees pursuant to the K&R Consulting Agreement.

EQUIPMENT LEASING/WESSCO

The Registrant leased approximately 200 pieces of solid
waste and recycling equipment to customers in 1999, with a
subsequent increase in monthly rental income to the Registrant of
53.0% as compared to the same period of 1998. The majority of
these contracts are for a minimum of 36 months. While the
resources required to purchase this equipment are generated
internally and the revenues returned are deferred over the term
of the contract, the Registrant's management believes this
investment in the rental fleet to be a proper use of capital and
will provide a long-term favorable return on its investment.

INDUSTRY BACKGROUND

The Registrant is involved in the management of non-
hazardous solid waste and recyclables for retail, commercial and
industrial customers. As such, the industry is actually driven
by the multi-billion dollar solid waste collection and disposal
industry. The size of this industry has increased for the past
several years and should continue to increase, as landfill space
becomes scarcer. Although society (and industry) has developed
an increased awareness of the environmental issues and recycling
has increased, waste production also continues to increase.
Because of environmental concerns, new regulations and cost
factors, it has become difficult to obtain the necessary permits
to build any new landfills. Management of the Registrant believes
that with the consolidation taking place in the waste industry,
it will become increasingly difficult for a customer to receive a
fair price. The Registrant should therefore be in a position to
be called upon to represent the best interest of that customer;
this fact can only enhance the Registrant's business.

The rising costs associated with solid waste disposal have
created additional opportunities for the Registrant. Because
waste disposal has begun to be an increasingly larger percentage
of the total monthly expenditures incurred by commercial
establishments, the Registrant believes that the services offered
by the Registrant will be in greater demand. Many commercial
establishments that have paid little attention to the costs
associated with waste disposal in the past are now looking for
ways to reduce expenses in this area. The Registrant offers
commercial establishments its expertise to lower waste disposal
bills and initiate recycling programs to generate additional
revenues and/or reduce costs and materials bound for ultimate
disposal.

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

COMPETITION

On a commercial/industrial waste management level, the
Registrant has competition from a variety of sources. Much of it
is from companies that concentrate their efforts on a regional
level. Management of the Registrant believes that with the
proprietary database of regional and national pricing, the
Registrant will maintain its edge on a national basis.

There has been increased competition from national hauling
companies. The large national hauling companies often attempt to
handle an entire chain of locations for a "national chain"
client. This scenario poses a potential conflict of interest
since these hauling companies can attain greater profitability
from increases in hauling and disposal revenues. In addition to
having an interest in higher hauling and disposal rates, the
national hauling companies do not have operations in every
community and do not, to the knowledge of management, have some
of the billing and computer capabilities which the Registrant is
able to offer. Additionally, management has encountered evidence
of some reluctance from independent hauling companies to work
with national hauling companies.

There is also competition from some equipment manufacturers.
These companies have their primary interest in selling or leasing
equipment and offer management services in order to secure these
sales or leases. There is a cost involved in "using" the
equipment and the money saved must justify the amount spent on
this equipment.

The metals recycling business is highly competitive and is
subject to significant changes in economic and market conditions.
Certain of the Registrant's competitors have greater financial,
marketing and other resources. There can be no assurance that
the Registrant will be able to obtain its desired market share
based on the competitive nature of this industry.

An important difference between the Registrant and the
majority of its competition is the Registrant's management
"process". The systematic approach attempts to provide
consistent results for the customer. At the implementation
stage, the Registrant actively "bids out" every location that a
new customer requests. The Registrant repeats this bidding
process at any time that a client receives notice of an
undocumented price increase or at regular intervals as indicated
in the contractual relationship. At subsequent stages, the
Registrant will evaluate a customer's solid waste program and
give suggested alternatives for improvement.

The Registrant has developed a network of maintenance and
hauling companies throughout the country and due to the volume of
business awarded to them by the Registrant, often these companies
will offer discounted hauling and maintenance rates to the
Registrant. However, the Registrant is not "affiliated" with any
particular company or vendor in the hauling and/or maintenance
industries, but rather deals with those companies and vendors
that can supply quality service at a favorable price. In
addition to the volume of business handled by some of these
"vendors", the vendors understand that as long as the accounts
are well serviced, they will be invited to bid on future
accounts.

Few, if any, of the Registrant's competitors have a national
network of vendors similar to the one the Registrant has
developed over its years of operation. The major hauling
companies are limited in the scope of services, which they can
provide to commercial/industrial accounts. Although the major
hauling companies have operating companies in most major and
intermediate-sized cities, they do not have nationwide geographic
coverage. Therefore, for large commercial/industrial clients,
they must obtain bids from local hauling companies that may
perceive them to be future competitors. The Registrant has
positioned itself to negotiate with the haulers, while servicing
its clients on a nationwide basis.

Most of the direct competition is from small regional
companies that bid on regional accounts or national accounts on a
regional basis. Few of the Registrant's competitors appear to be
equipped to handle large national accounts nor do they seem to
have the inclination to expand their geographic coverage. There
are numerous national companies in closely related businesses,
including national hauling companies that have substantially
greater financial resources than does the Registrant. Should any
of these companies decide to compete directly with the
Registrant, it could have a material adverse effect on the
business of the Registrant.

EMPLOYEES

The Registrant has approximately one hundred thirty-nine
(139) full-time employees as follows: Recycling 93, Management
Services 29, Sales/Leasing 8 and Administration 9. No employee
is a member of a union with a contract with the Registrant.

EFFECT OF STATE AND FEDERAL ENVIRONMENTAL REGULATIONS

Any environmental regulatory liability relating to the
Registrant's operations is generally borne by the customers with
whom the Registrant contracts and the third party vendors in
their capacity as transporters. As a matter of Registrant's
policy, the Registrant uses its best efforts to secure
indemnification for environmental liability from its customers
and third party vendors. Although management of the Registrant
believes that for the most part its business does not subject it
to potential environmental liability, the Registrant continues to
use best efforts to be in compliance with federal, state and
local environmental laws, including but not limited to the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Clean Air Act, as amended, and the Clean Water Act.
Such compliance in 1999 or 1998 did not constitute a material
expense to the Registrant.

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

The Registrant strives to conduct its operations in
compliance with applicable laws and regulations. While such
amounts expended in the past or anticipated to be expended in the
future have not had and are not expected to have a material
adverse effect on the Registrant's financial condition or
operations, the possibility remains that technological,
regulatory or enforcement developments, the results of
environmental studies or other factors could materially alter
this expectation.

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

Finally, various states have enacted, or are considering
enacting, laws that restrict the disposal within the state of
solid or hazardous wastes generated outside the state. While
laws that overtly discriminate against out of state waste have
been found to be unconstitutional, some laws that are less
overtly discriminatory have been upheld in court. Challenges to
other such laws are pending. The outcome of pending litigation
and the likelihood that other such laws will be passed and will
survive constitutional challenge are uncertain. In addition,
Congress is currently considering legislation authorizing states
to adopt such restrictions.

ACQUISITIONS

During the second quarter of 1999, the Registrant signed a
Letter of Intent to acquire 100% of the capital stock of two
waste management services companies. The combined annual
revenues of the target companies were approximately $48,000,000.
The Registrant anticipated financing the purchase using an
undisclosed amount of stock and cash. The Letter of Intent was
subject to the completion of due diligence, signing of a
definitive agreement, shareholder approval, the receipt of all
regulatory approvals and the expiration of all statutory waiting
periods. On November 5, 1999 this Letter of Intent was nullified
by mutual consent of both parties.

SUBSEQUENT EVENTS

A. CHANGE IN TRANSFER AGENT

On February 2, 2000 the Board approved, authorized and
ratified the hiring of Registrar and Transfer Company ("R&T")
located in Cranford, New Jersey, as the transfer agent for the
Common Stock. The prior agent, Reliance Trust Company
("Reliance"), sold this portion of their business which no longer
fit into their strategic plan. Reliance recommended that the
Registrant utilize the services of R&T due to their expertise in
handling corporations the size of the Registrant.

B. CHIEF VISIONARY OFFICER

On February 2, 2000 the Board created a special advisory
role for ISA Chairman Harry Kletter to offer ideas and provide
guidance regarding future business initiatives and opportunities.
The Board designated Mr. Kletter as the Registrant's Chairman and
Chief Visionary Officer, drawing upon his experience in the waste
management consulting industry. Until the appointment, Mr.
Kletter had served as Chairman and Chief Executive Officer. The
Board did not re-establish the Chief Executive Officer position.
Instead, the Company's senior officers, the President and Chief
Financial Officer, report directly to the Board of Directors.
Subsequent to this realignment, the Board directed that the Chief
Financial Officer report to the Chairman of the Audit Committee
of the Board.

C. TECHNOLOGY SOLUTIONS

On March 8, 2000 the Registrant announced that it had
engaged Keane, Inc. as a provider of technology solutions.
Keane, a $1 billion business and information technology
consulting firm headquartered in Boston, Massachusetts, helps its
clients plan, build and manage application software solutions.
Keane is intending to improve the Registrant's existing
technology and align information to facilitate web-based
operations.

On March 10, 2000 the Registrant announced that it will sell
waste management products and services through Ariba network
commerce services. The Registrant will collaborate with Ariba on
the continued development of Commerce XML (cXML), an open
Internet standard for exchanging supplier content and transaction
information between buyers and suppliers. The Registrant will
use cXML to make its waste management product and services
available via the Ariba Network platform. This integration will
provide the opportunity for joint Ariba and Registrant customers
to gain cost savings, efficiency and convenience in purchasing
waste management products and services.

ITEM 2. PROPERTIES.

The Registrant leases its corporate offices and processing
property and buildings in Louisville, Kentucky for $37,500 per
month from K&R pursuant to the K&R Lease. See ITEM 1. BUSINESS.
"K&R Lease; K&R Consulting Agreement."

The Subsidiary has entered into the Fitzpatrick Lease
effective June 1, 1998, for ten successive terms of ten years
each at a rental of $13,000 per month during the original term
(as adjusted in accordance with the Consumer Price Index for each
renewal term) with an option to purchase for $1,600,000. See
ITEM 1. BUSINESS. "Fitzpatrick Purchase Agreement; Lease
Agreement."

ITEM 3. LEGAL PROCEEDINGS.

There are no material proceedings pending by, or against the
Registrant or affecting any of its properties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

Served as an Position with the
Executive Registrant and Other
Name Officer Since Age Principal Occupations
---- ------------- --- ---------------------

Harry Kletter 1983 73 Chairman of the
Board and Chief Visionary
Officer of the Registrant from
February 3, 2000 to present,
Chairman of the Board and
Chief Executive Officer from
July 31, 1992 to February 3,
2000, President of the
Registrant from July 31, 1992
to December 1997, from January
1990 to July 1991, and from
October 1983 to January 1988;
Mr. Kletter is also Chairman
and sole shareholder of K&R.

Sean M. Garber 1996 33 President and
Treasurer of the Registrant
since February 1998; Interim
President from December 1997
to February 1998; Chief
Operating Officer and Director
of the Registrant from
November 1997 to present; Vice
President of Recycling of the
Registrant from November 1996
to December 1997. From 1989 to
November 1996, Mr. Garber was
an employee of and held
positions as general manager
and marketing director with
OmniSource, Inc., a Fort
Wayne, Indiana recycling
company; Mr. Garber holds a
degree in Business Management
from Indiana University.

John O. Tietjen 1999 51 Senior Vice
President and Chief Financial
Officer of the Registrant
since March 1, 1999; from
September 1993 to February
1999, Vice President of
Finance at Greater Louisville,
Inc. (and its predecessor);
Mr. Tietjen served previously
as Corporate Controller for
OpenConnect Systems, Inc. and
for 15 years prior to his
employment with OpenConnect
Systems, Inc., he served in
various positions with Glidden
Paint Company; Mr. Tietjen
holds a B.A. in Business
Administration/ Economics from
Muskingum College and an
M.B.A. from Baldwin-Wallace
College.

Timothy W. Myers 1998 48 Vice President of
Operations of the Registrant
since July 1, 1998; Senior
Vice President and Chief
Operating Officer of the
Registrant from 1996 until
February 1998; President of
K&R from 1996 to July 1998;
Mr. Myers has served in
various operational capacities
with the Registrant and K&R
since 1973.

Charles J. Hulsman 1995 42 Manager of CWS, a
division of the Registrant,
since December 1991, and a
sales representative of
WESSCO, a division of the
Registrant, prior to that
date.

None of the above officers is related to one another. With
respect to certain arrangements with certain officers of the
Registrant relating to executive compensation, see section
entitled "Executive Compensation - Certain Transactions" in the
Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders as incorporated herein by reference at Item 11.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

Effective August 29, 1996, the $.01 par value common stock
of the Registrant became listed on the Small Cap Market (the
"Small Cap Market") of the Nasdaq Stock Market under the symbol
"IDSA". Prior to August 29, 1996, the Registrant's common stock
traded on the Over the Counter Bulletin Board ("OTCBB") operated
by the National Association of Securities Dealers, Inc.
("NASD").

QUARTER ENDED 1999 1998 1997
- ------------- ------------- ------------- -------------
HIGH LOW HIGH LOW HIGH LOW
March 31 $2.63 $1.88 $6.63 $4.13 $13.25 $7.25
June 30 $5.38 $2.50 $7.00 $4.75 $9.50 $5.50
September 30 $4.19 $2.00 $4.88 $3.63 $9.50 $7.13
December 31 $2.50 $1.50 $4.00 $1.75 $7.38 $4.50

There were approximately 406 shareholders of record as of
March 29, 2000.

The Registrant has never declared a cash dividend on its
Common Stock. The Board of Directors intends to retain all
earnings for investment into the Registrant's business and does
not anticipate any cash dividends in the foreseeable future. The
retention of these earnings will be used to help finance the
Registrant's expansion programs. Although there are no
restrictions on the Registrant's present or future ability to pay
dividends, the Board of Directors has the discretionary power to
make that determination.

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA

1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(Amounts in Thousands, Except Per Share Data)

Year ended December 31:
Total revenue $ 77,498 $ 65,205 $ 45,212 $ 34,277 $ 30,545
========= ========= ========== ========= =========

Income (loss) from
operations 827 (543) 215 742 1,162
========= ========= ========== ========= =========

Earnings per common share:
Basic $ 0.17 $ (0.26) $ 0.07 $ 0.25 $ 0.41
========= ========= ========== ========= =========

Assuming dilution $ 0.16 $ (0.26) $ 0.07 $ 0.24 $ 0.40
========= ========= ========== ========= =========

Cash dividends declared
Per common share - - - - -

At year end:
Total assets $ 20,823 $ 18,648 $ 13,893 $ 9,439 $ 6,209
========= ========= ========== ========= =========

Long-term notes payable $ 2,105 $ 2,613 $ 760 $ 5 $ 367
========= ========= ========== ========= =========

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.

The following discussion and analysis should be read in
conjunction with the information set forth under Item 6,
"Selected Financial Data" and the consolidated financial
statements of the Registrant 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 such financial predictions, forecasts and
projections will be achieved. Factors that could affect
financial predictions, forecasts and projections include the
fluctuations in the commodity price index and any conditions
internal to the major customers of the Registrant, including loss
of their accounts.

GENERAL

The Registrant continued to pursue a growth strategy in the
waste management services arena servicing over 4,200 customer
locations throughout the United States and Canada and building a
base of approximately 2,500 vendors. This strategy will allow
for diversity of business opportunities so that the Registrant is
not as dependent upon the profitability of the recycling
division. This diversity has helped to stabilize revenues and
gross profit during a period of time when commodity prices
fluctuate and affect the ferrous and non-ferrous markets. This
strategy is evidenced by the purchase of the management services
accounts of MGM Services, Inc. ("MGM") in September 1997. The
impact of this acquisition for the full year of 1998 and 1999
added approximately $3,200,000 in revenue each year. Much of
management's focus and attention now and in the future is
directed towards the growth of this business segment through
expansion in the existing markets and through an acquisition
strategy.

It is management's plan to expand in the management services
segment in 2000. At the same time, the Registrant will be
seeking more operational cost control, increased efficiency in
the information technology area and emphasize sales and marketing
efforts.

Management continues to maintain and grow the recycling
business, although is not actively seeking any further
acquisitions or mergers.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1999, the Registrant held cash and cash
equivalents of $2,388,811.

The Registrant currently maintains a working capital line of
credit with Bank of Louisville (BOL) in the amount of $2,000,000.
Indebtedness under this credit facility accrues interest at BOL's
prime rate as promulgated from time to time. The maturity date
under this agreement is June 30, 2000. The Credit Line is
collateralized by eligible accounts receivable, inventories,
equipment and the personal guarantees of the principal
shareholder and Chief Visionary Officer of the Registrant, Harry
Kletter. As of December 31, 1999, there were no amounts
outstanding under the credit facility as compared to $1,850,000
as of December 31, 1998.

During 1999, the Registrant committed approximately
$1,726,778 towards capital improvements. The Registrant used a
significant portion of such funds to purchase one (1) shaker
table, one (1) shear, five (5) balers and rolling stock. The
acquisition of this new material processing equipment has
enhanced operating efficiencies and created additional capacity
for new and expanded equipment leasing business opportunities.

RESULTS OF OPERATIONS

The following table presents, for the years indicated, the
percentage relationship which certain captioned items in the
Registrant's Consolidated Statements of Operations bear to total
revenues and other pertinent data:

YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------- ---- ---- ----

STATEMENTS OF OPERATIONS DATA:
Total Revenue ..................... 100.0% 100.0% 100.0%
Cost of Goods Sold ................ 91.7% 94.2% 91.4%
Selling, General and
Administrative Expenses ......... 7.2% 6.6% 8.1%
Income (Loss) from Operations ..... 1.1% (0.8)% 0.5%

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31,
1998

The revenue in 1999 was $77,497,819 representing an increase
of $12,292,839 or 18.9% compared to 1998. The management
services business grew 23.6% to $54,526,312 by increasing the
same account and new account business serviced to over 4,200
accounts nationwide. Recycling revenues grew 4.4% to
$20,017,132. The major products include recycling of copper,
aluminum and brass, referred to herein as non-ferrous scrap. The
ferrous recycling business increased its revenues by 6.6% through
an increase in direct sales to mills and more aggressive
purchasing practices.

The 1999 total cost of goods sold was $71,089,931 increasing
$9,632,041 or 15.7% compared to 1998. The cost of goods sold in
management services increased by 22.5% versus a decrease in
recycling cost of goods sold of 3.3%. The increase in management
services cost of sales mirrored the sales increase within one (1)
percentage point. The cost of goods sold in the recycling
operation decreased 3.3% on a revenue increase of 4.4%.
Commodity prices stabilized in 1999 after a severe decline in the
fourth quarter of 1998. Cost of goods sold in the equipment
sales/leasing business increased 58.6% on revenue growth of 53.0%

The gross margin was $6,407,888 representing an increase of
$2,660,798 or, as a percentage to revenue, a 2.5% increase. A
slight increase in gross margin as a percentage to revenue from
5.1% to 5.9% was realized in the management services segment.
The recycling division experienced an increase in gross margin as
a percentage to revenue of 7.0%. At the end of 1998 the
Registrant suffered a significant devaluation adjustment to
inventory due to decreases in commodity market values. Prices
stabilized throughout 1999 and the Registrant was able to widen
the margins with its pricing structure and the ability to sell to
new accounts.

The selling, general and administrative expenses increased
$1,290,137 from 1998 or as a percentage to revenue from 6.7% in
1998 to 7.2% in 1999. Bad debt expense increased approximately
$212,000 or as a percentage to revenue from 1.5% to 4.0% due
mainly to a clean up of the accounts receivable files and the
write-off of two hedging accounts. Depreciation and amortization
expenses increased approximately $211,000 from 1998 due mainly to
the full year of expenses in 1999 versus one-half year expenses
in 1998 from the Fitzpatrick acquisition, which closed in mid
1998. Insurance expenses increased by approximately $87,000 due
to increases in premiums, especially Director and Officer,
medical and liability. Insurance premiums based upon revenue
levels increased due to the 18.9% increase in revenue levels.
Fuel costs increased $63,000 due primarily to the full year of
shipments from the Fitzpatrick location, as well as, increased
movement of inventory between ISA Indiana, Inc. and ISA, Inc. in
Louisville.

An additional expense of $140,880 had an adverse impact
on operating results in 1999 due to a transaction between the
Registrant and K&R that the Registrant and K&R recently
rescinded. The Registrant on behalf of K&R paid $290,880 to
satisfy a note payable regarding the Metal Center real estate
acquisition. The Board Audit Committee discovered a miscommunication
relating to the transaction whereby the $290,880 transaction had
never been presented to nor approved by the Board. The Board Audit
Committee recommended to the full Board a rescission of the
transaction. In place of the rescinded transaction, the
Registrant Board and K&R approved the setoff of a $150,000
obligation owed by the Registrant to K&R for the purchase of
equipment against the $290,880 transaction funded by the
Registrant on behalf of K&R. The net result is that K&R has to
repay to the Registrant by May 15, 2000 the $140,880 (adjusted
for interest) to complete the rescission of the payment made by
the Registrant on behalf of K&R. The Registrant has treated the
$140,880 as management consulting fee expense in 1999.

FINANCIAL CONDITION AT DECEMBER 31, 1999 COMPARED TO DECEMBER 31,
1998

Trade accounts receivable increased $1,276,201 to $8,750,674
at December 31, 1999. This represents a 17.1% increase while
overall revenue increased 18.9%. Average days outstanding in 1999
were 41.2 days versus 41.8 days in 1998. This slight decrease
reflects management focus on working capital through the
liquidation of accounts receivable.

Inventory decreased $329,358 from $2,515,352 to $2,185,994
representing a 13.1% decrease. The equipment and parts inventory
decreased from $761,780 to $86,647 or an 88.6% decrease. This
decrease was due to the capitalization of the 1000 Ton shear
taken out of inventory and reclassed as a fixed asset to support
increased activity in 1999 in the recycling area. Non-ferrous
materials inventory increased 44.3 % as new supplier accounts
have materialized and the ferrous materials inventory increased
6.2% or $69,823 as the Registrant continues to ship increasing
numbers of truckloads of ferrous products to a major foundry.

Accounts payable trade increased $3,976,342 from December
31, 1998 to $13,722,878 as of December 31, 1999. This increase
was due to higher volumes in operations including increases to
same account and new account business.

As of December 31, 1999, the Registrant's working capital
was a deficit of $761,522, which represents a $101,525 increase
from 1998. The total current assets increased $2,125,884 due to
the $1,276,201 increase in accounts receivable, and the increase
in cash of $1,374,743 was offset by the decrease in inventory of
$329,358. The total current liabilities increased $2,227,409
affected primarily by total accounts payable increases of
$3,976,342 and the reduction of short-term bank borrowings of
$1,850,000.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31,
1997

The revenue in 1998 was $65,204,980 representing an increase
of $19,993,387 or 44.2% compared to 1997. The management
services business grew 36.7% to $44,106,218 by increasing the
same account and new account business serviced to over 2,500
accounts nationwide. Recycling revenues grew 66.5% to
$19,167,893 contributing to much of the remaining overall growth.
The major products include recycling of copper, aluminum and
brass, referred to herein as non-ferrous scrap. The ferrous
recycling business increased its revenues by 14.6% through an
increase in direct sales to mills and more aggressive purchasing
practices.

The 1998 total cost of goods sold was $61,457,890 increasing
$20,127,352 or 48.7% compared to 1997. The cost of goods sold in
management services increased by 38.5% versus an increase in
recycling cost of goods sold of 79.5%. The increase in
management services mirrored the sales increase within one (1)
percentage point, but the major cost of sales impact was realized
in the recycling business. Commodity prices of the ferrous and
non-ferrous markets began to decline during the third and fourth
quarters of 1998. The influx of foreign steel due to the
depressed Asian market caused domestic commodity pricing to
plummet. Due to the lack of domestic steel production, many of
the regional steel mills, which consume the Registrant's ferrous
product, had limited scrap purchasing during the fourth quarter.
The Registrant's inventory volume increased due to the local
dismantling of an automotive plant. Offsetting this quantity
increase in inventory is a decrease in inventory market value.
The Registrant estimates that these factors had a $370,000
adverse impact on its 1998 operations.

The gross margin was $3,747,090 representing a decrease of
$133,965 or as a percentage to revenue a 2.9% decrease. A slight
decrease in gross margin as a percentage to revenue from 5.7% to
5.1% was realized in the management services segment due to some
fixed fee contracts which experienced store location growth
during the year. The recycling division experienced a decrease
in gross margin as a percentage to revenue of 6.9% due mainly to
the declining commodity price index. It is estimated that the
decline in commodity values had an adverse gross margin impact on
operations of approximately $370,000. The equipment
sales/leasing business incurred a decline in gross margins due to
the changing mix of higher sales relative to the rental and
leasing volume.

The selling, general and administrative expenses increased
$624,192 from 1997. The increase was primarily attributable to
Goodwill and Non-compete amortization related to two recent
acquisitions.

The loss from operations in 1998 resulted not only from the
$370,000 due to inventory devaluation, but also from the
additional $376,800 due to an aggregate of non-cash charges made
in 1998.

FINANCIAL CONDITION AT DECEMBER 31, 1998 COMPARED TO DECEMBER 31,
1997

Trade accounts receivable increased $2,445,704 to $7,474,473
at December 31, 1998. This represents a 48.6% increase while
overall revenue increased 44.2%. Average days outstanding in
1998 were 41.8 days versus 40.6 days in 1997. Although there was
a slight increase in days outstanding due to the revenue mix, it
still reflects management focus on working capital through the
liquidation of accounts receivable.

Inventory increased $3,526 from $2,511,826 to $2,515,352
representing a .1% increase. The inventory of equipment and
parts increased from $752,099 to $761,780 or a 1.3% increase.
Non-ferrous materials inventory decreased 37.9% to $622,527 and
the inventory of ferrous materials increased 49.4% or $374,105.
The increase is due primarily to the purchase of a major ferrous
scrap plant rework which occurred at the end of 1998.

Accounts payable trade increased $3,570,103 from December
31, 1997 to $9,746,536 as of December 31, 1998. This increase
was due to higher volumes in operations.

As of December 31, 1998 the Registrant's working capital
deficit was $659,997, which represents a decrease of $164,447
from 1997. The total current assets increased $3,049,934 due to
the $2,445,704 in accounts receivable and the $518,234 increase
in cash. The total current liabilities increased $3,214,381
affected primarily by total accounts payable increase of
$3,570,103.

INFLATION AND PREVAILING ECONOMIC CONDITIONS

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

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities," in June 1998. SFAS 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition
of all derivatives as either assets or liabilities on the balance
sheet and measurement of those instruments at fair value. If
certain conditions are met, a derivative may be designed
specifically as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized
firm commitment referred to as a fair value hedge, (b) a hedge of
the exposure to variability in cash flows of a forecasted
transaction (a cash flow hedge), or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or
a forecasted transaction. The statement will not have an impact
on the Registrant's financial position or results of operations.

YEAR 2000 RISK FACTORS

In February 1997, the Registrant implemented its "Year 2000
Project" to address the potential problem with which
substantially all users of automated data processing and
information systems had to deal. This problem is mainly with
older systems with only two digits to represent the year, rather
than the full four digits. The fear was that older computer
systems would not operate when the two digit year became "00" in
January 2000.

The Registrant uses primarily "Microsoft" software, which
was already year 2000 compliant. The Registrant's accounting
system is a DOS based system, which could have created the
problem with "00". The Registrant in its endeavor to alleviate
this DOS-based problem contracted with the programmer of the
Registrant to write software to prevent this potential problem.
The software upgrade was completed in February 1999 and the
Registrant tested the programs to verify working order. By
having the upgrade completed in February 1999, the Registrant had
sufficient time to test systems to avert future problems. In
summary, the Registrant's Year 2000 Project's goals and
expectations were met and all necessary modifications and
upgrades were in place. The total costs incurred were less than
$10,000 to ensure compliance.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.

Not Applicable.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.

The consolidated financial statements of the Registrant
required to be included in this Item 8 are set forth in Item 14
of this report. The quarterly results of operations are included
in the Notes to Consolidated Financial Statements under Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. *

The information in Item 4a. in this report is incorporated
herein by reference.

ITEM 11. EXECUTIVE COMPENSATION *

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. *

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. *

- --------------------

* The information required by Items 10, 11, 12 and 13 is or
will be set forth in the definitive proxy statement relating
to the 2000 Annual Meeting of Shareholders of the Registrant
which is to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. Such definitive proxy
statement relates to an annual meeting of shareholders and
the portions therefrom required to be set forth in this Form
10-K by Items 10, 11, 12 and 13 are incorporated herein by
reference pursuant to General Instruction G(3) to Form 10-K.

PART IV

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.

(a)(1) The following consolidated financial statements of
Industrial Services of America, Inc. are filed as a part of this
report:

Page

Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31,
1999 and 1998 F-2
Consolidated Statements of Operations for the
years ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999,
1998 and 1997 F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6

(a)(2) Consolidated Financial Statement Schedules.

Schedule II- Valuation and Qualifying Accounts
for the Year ended December 31, 1999 F-21

(a)(3) List of Exhibits.

Exhibits filed with, or incorporated by reference herein,
this report are identified in the Index to Exhibits appearing in
this report. The Management Agreement and the Consulting
Agreement required to be filed as exhibits to this Form 10-K
pursuant to Item 14(c) are noted by an asterisk (*) in the Index
to Exhibits.

(b) Reports on Form 8-K.

None.

(c) Exhibits.

The exhibits listed on the Index to Exhibits are filed as a
part of this report.

(d) Consolidated Financial Statement Schedules.

Schedule II- Valuation and Qualifying Accounts for the year
ended December 31, 1999 is incorporated by reference at page F-21
of the Consolidated Financial Statements of the Registrant.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

INDUSTRIAL SERVICES OF AMERICA, INC.

Dated: April 13, 2000 By : /s/ Harry Kletter
--------------------------------
Harry Kletter, Chairman of the
Board and Chief Visionary Officer

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated:

Signature Title Date

/s/ Harry Kletter Chairman of the Board and Chief April 14, 2000
- -----------------------
Harry Kletter Visionary Officer (Principal
Executive Officer)

/s/ Sean M. Garber Director, President, Chief April 14, 2000
- -----------------------
Sean M. Garber Operating Officer and Treasurer

/s/ John O. Tietjen Chief Financial Officer April 14, 2000
- -----------------------
John O. Tietjen (Principal Financial Officer and
Principal Accounting Officer)

/s/ Joseph H. Cohen Director April 14, 2000
- -----------------------
Joseph H. Cohen

/s/ Ted L. Cox Director April 14, 2000
- -----------------------
Ted L. Cox

/s/ Dr. Barry N. Naft Director April 14, 2000
- -----------------------
Dr. Barry N. Naft

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------

3.1 Certificate of Incorporation of the Registrant is
incorporated by reference to Exhibit 3.1 of the
Registrant's report of Form 10-KSB for the year ended
December 31, 1995.

3.2 Bylaws of the Registrant are incorporated by reference
to Exhibit 3.2 of the Registrant's report on Form 10-
KSB for the year ended December 31, 1995.

10.1 Independent Consulting Services Agreement - Maxwell,
dated as of March 31, 1995, and executed on June 25,
1996, by and between the Registrant and Douglas I.
Maxwell, III ("Maxwell"), is incorporated by reference
to Exhibit 4(a) of Registration Statement on Form S-8
of the Registration, filed on June 26, 1996 (File No.
333-06915).

10.2 Confidential Information and Non-Competition Agreement
Independent Contractor - Maxwell, dated as of March 31,
1995, and executed on June 26, 1996, by and between the
Registrant and Maxwell, is incorporated by reference to
Exhibit 10.1 of Registration Statement on Form S-8 of
the Registrant, filed on June 26, 1996 (File No. 333-
06915).

10.3 Stock Option Agreement - Maxwell, dated as of March 31,
1995, and executed on June 26, 1996, by and between the
Registrant and Maxwell, is incorporated by reference to
Exhibit 4(b) of Registration Statement on Form S-8 of
the Registrant, filed on June 26, 1996 (File No. 333-
06915).

10.4 Independent Consulting Services Agreement - Sullivan,
dated as of March 31, 1995, and executed on June 26,
1996, by and between the Registrant and Neil C.
Sullivan ("Sullivan"), is incorporated by reference to
Exhibit 4(a) of Registration Statement on Form S-8 of
the Registrant, filed on June 26, 1996 (File No. 333-
06909).

10.5 Confidential Information and Non-Competition Agreement
Independent Contractor - Sullivan, dated as of March
31, 1995, and executed on June 26, 1996, by and between
the Registrant and Sullivan, is incorporated by
reference to Exhibit 10.1 of Registration Statement on
Form S-8 of the Registrant, filed on June 26, 1996
(File No. 333-06909).

10.6 Stock Option Agreement - Sullivan dated as of March 31,
1995, and executed on June 26, 1996, by and between the
Registrant and Sullivan, is incorporated by reference
to Exhibit 4(b) of Registration Statement on Form S-8
of the Registrant, filed on June 26, 1996 (File No. 333-
06909).

10.7 Acquisition of Assets Agreement - TMG known as "The
Metal Center" dated as of July 1, 1997, by and between
the Registrant and The Metal Center set forth in an
Asset Purchase Agreement, is incorporated by reference,
as the sole Exhibit on Form 8-K of the Registrant,
filed July 15, 1997 (File No. 0-20979).

10.8 Assignment of Contracts - MGM Assignment dated
September 4, 1997, by and between the Registrant and
MGM Services, Inc. is incorporated by reference to
Exhibit 10.11 of the Registrant's report on Form 10-K
for the year ended December 31, 1997.

10.9 Employment Agreement - Garber dated as of October 15,
1997, by and between the Registrant and Garber is
incorporated by reference to Exhibit 10.12 of the
Registrant's report on Form 10-K for the year ended
December 31, 1997.

10.10 Lease Agreement - K&R Lease dated January 1, 1998, by
and between the Registrant and K&R, is incorporated by
reference herein, to Exhibit 10.10 on Form 8-K of the
Registrant, filed March 3, 1998 (File No. 0-20979).*

10.11 Consulting Agreement - K&R Consulting Agreement dated
as of January 2, 1998, by and between the Registrant
and K&R, is incorporated by reference herein, to
Exhibit 10.11 on Form 8-K of the Registrant, filed
March 3, 1998 (File No. 0-20979).*

10.12 Amendment to Employment Agreement - Garber dated as of
February 5, 1998, by and between the Registrant and
Garber, amending original agreement dated October 15,
1997 is incorporated by reference to Exhibit 10.15 of
the Registrant's report on Form 10-K for the year ended
December 31, 1997.

10.13 Stock Option Agreement, effective as of October 31,
1997, by and between the Registrant and Glenn Bierman
is incorporated by reference herein to Exhibit 10.13 of
the Registrant's report on Form 10-K for the year ended
December 31, 1999, as filed on April 14, 1999.

10.14 Stock Option Agreement, effective as of October 27,
1997, by and between the Registrant and Sean Garber is
incorporated by reference herein to Exhibit 10.14 of
the Registrant's report on Form 10-K for the year ended
December 31, 1999, as filed on April 14, 1999.

10.15 Stock Option Agreement, effective as of October 31,
1997, by and between the Registrant and Sean Garber is
incorporated by reference herein to Exhibit 10.15 of
the Registrant's report on Form 10-K for the year ended
December 31, 1999, as filed on April 14, 1999.

10.16 Amendment No. 1 to Option Agreement, effective as of
February 5, 1998, by and between the Registrant and
Sean Garber is incorporated by reference herein to
Exhibit 10.16 of the Registrant's report on Form 10-K
for the year ended December 31, 1999, as filed on April
14, 1999.

10.17 Stock Option Agreement, effective as of February 16,
1998, by and between the Registrant and Harry Kletter
is incorporated by reference herein to Exhibit 10.17 of
the Registrant's report on Form 10-K for the year ended
December 31, 1999, as filed on April 14, 1999.

10.18 Consulting Agreement - Lassak, dated as of June 2,
1998, by and between the Registrant and Andrew M.
Lassak is incorporated by reference herein to Exhibit
10.18 of the Registrant's report on Form 10-K for the
year ended December 31, 1999, as filed on April 14,
1999.

10.19 Consulting Agreement - JCA/AML, dated as of June 2,
1998, by and among the Registrant, Joseph Charles &
Associates, Inc. and Andrew M. Lassak is incorporated
by reference herein to Exhibit 10.19 of the
Registrant's report on Form 10-K for the year ended
December 31, 1999, as filed on April 14, 1999.

10.20 Asset Purchase Agreement, effective as of June 1, 1998,
by and among the Registrant, ISA Indiana, Inc., R.J.
Fitzpatrick Smelters, Inc.; and R.K. Fitzpatrick and
Cheryl Fitzpatrick is incorporated by reference herein
to Exhibit 10.20 of the Registrant's report on Form 10-
K for the year ended December 31, 1999, as filed on
April 14, 1999.

10.21 Lease Agreement, effective June 1, 1998, by and between
R.K. Fitzpatrick and Cheryl Fitzpatrick, R.J.
Fitzpatrick Smelters, Inc., and ISA Indiana, Inc. is
incorporated by reference herein to Exhibit 10.21 of
the Registrant's report on Form 10-K for the year ended
December 31, 1999, as filed on April 14, 1999.

10.22 Environmental Indemnity Agreement, effective as of June
1, 1998, by and between R.K. Fitzpatrick and Cheryl
Fitzpatrick, R.J. Fitzpatrick Smelters, Inc., and ISA
Indiana, Inc. is incorporated by reference herein to
Exhibit 10.22 of the Registrant's report on Form 10-K
for the year ended December 31, 1999, as filed on April
14, 1999.

11 Statement of Computation of Earnings Per Share (See
Note 11 to Notes to Consolidated Financial Statements).

27 Financial Data Schedule.

*Denotes a management contract of the Registrant required to be
filed as an exhibit pursuant to Item 601(10)(iii) of Regulation S-
K under the Securities Act of 1933, as amended.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
Louisville, Kentucky

CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

CONTENTS

REPORT OF INDEPENDENT AUDITORS ................................ 1

FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS ................................. 2

CONSOLIDATED STATEMENTS OF OPERATIONS ....................... 3

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ............. 4

CONSOLIDATED STATEMENTS OF CASH FLOWS ....................... 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .................. 6

SUPPLEMENTARY INFORMATION

VALUATION AND QUALIFYING ACCOUNTS ...........................22

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Industrial Services of America, Inc. and Subsidiary
Louisville, Kentucky

We have audited the accompanying consolidated balance sheets of
Industrial Services of America, Inc. and Subsidiary as of
December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for
the years ended December 31, 1999, 1998 and 1997. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with general accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Industrial Services of America, Inc. and Subsidiary
at December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years ended December 31, 1999, 1998
and 1997 in conformity with generally accepted accounting
principles.

Our audit of the foregoing consolidated financial statements also
included the schedule listed under item 14(a)(2). In our
opinion, such schedule presents fairly the information required
to be set forth therein.

Crowe, Chizek and Company LLP

Indianapolis, Indiana
March 29, 2000

- -----------------------------------------------------------------

1.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998

- ---------------------------------------------------------------------------

1999 1998
---- ----

ASSETS
Current assets
Cash $ 2,388,811 $ 1,014,068
Accounts receivable - trade (after
allowance for doubtful accounts of
$190,000 and $116,000 in 1999 and
1998, respectively) (Notes 2 and 3) 8,750,674 7,474,473
Accounts receivable - related
party (Note 6) 11,028 26,259
Income tax refund receivable - 113,000
Net investment in sales-type
leases (Note 5) 96,864 35,270
Inventories (Notes 1, 2 and 3) 2,185,994 2,515,352
Deferred income taxes (Note 4) 89,300 52,000
Other 143,327 309,692
----------- -----------
Total current assets 13,665,998 11,540,114

Net property and equipment
(Notes 1, 2 and 3) 5,409,046 5,063,576

Other assets
Non-compete agreements, net (Note 8) 608,248 810,604
Intangibles (net of accumulated
amortization of $133,333 and
$80,000 in 1999 and 1998,
respectively) (Note 8) 666,668 720,000
Net investment in sales-type
leases (Note 5) 121,676 -
Other assets 43,859 153,439
----------- -----------
1,440,451 1,684,043
----------- -----------

$20,515,495 $18,287,733
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank (Note 2) $ - $ 1,850,000
Current maturities of long-term
debt (Note 3) 397,502 460,654
Accounts payable 13,722,878 9,746,536
Income tax payable 131,867 -
Affiliated companies payable (Note 6) - 22,000
Other current liabilities 175,273 120,921
----------- -----------
Total current liabilities 14,427,520 12,200,111

Long-term liabilities
Long-term debt (Note 3) 2,104,929 2,612,519
Deferred income taxes (Note 4) 157,800 52,000
----------- -----------
2,262,729 2,664,519

Shareholders' equity
Common stock, $.01 par value: 10,000,000
shares authorized, 1,957,500 shares
issued and 1,929,600 shares outstanding 19,575 19,575
Additional paid-in capital 1,669,963 1,589,155
Retained earnings 2,143,708 1,822,373
Treasury stock, 27,900 shares at cost (8,000) (8,000)
----------- -----------
3,825,246 3,423,103
----------- -----------

$20,515,495 $18,287,733
=========== ===========

- -------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

2.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997

- ---------------------------------------------------------------------------

1999 1998 1997
---- ---- ----

Revenue
Recycling $20,017,132 $19,167,893 $11,513,600
Equipment sales, service
and leasing 2,954,375 1,930,869 1,633,756
Management services 54,526,312 44,106,218 32,064,237
----------- ----------- -----------
Total revenue 77,497,819 65,204,980 45,211,593

Cost of goods sold
Recycling 17,607,626 18,204,999 10,141,882
Equipment sales, service
and leasing 2,190,713 1,380,946 953,463
Management services 51,291,592 41,871,945 30,235,253
----------- ----------- -----------
Total cost of goods sold 71,089,931 61,457,890 41,330,598
----------- ----------- -----------

GROSS MARGIN 6,407,888 3,747,090 3,880,995

Selling, general and administrative 5,580,505 4,290,368 3,666,176
----------- ----------- -----------

INCOME (LOSS) FROM OPERATIONS 827,383 (543,278) 214,819

Other income (expense)
Interest expense (257,147) (215,144) (78,810)
Interest income 88,697 67,993 64,549
Gain (loss) on sale of assets (6,359) (367) 4,496
Other income (expense) (73,614) (5,650) 17,372
----------- ----------- -----------
(248,423) (153,168) 7,607
----------- ----------- -----------

INCOME (LOSS) BEFORE INCOME TAXES 578,960 (696,446) 222,426

Provision for income taxes (Note 4) (257,625) 189,427 (85,290)
----------- ----------- -----------

NET INCOME (LOSS) $ 321,335 $ (507,019) $ 137,136
=========== =========== ===========

Earnings (loss) per share $ .17 $ (.26) $ .07
====== ======= ======

Earnings (loss) per share,
assuming dilution $ .16 $ (.26) $ .07
====== ======= ======

- -------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

3.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997

- --------------------------------------------------------------------------

Common Stock Additional Treasury Stock
------------ Paid-in Retained --------------
Shares Amount Capital Earnings Shares Cost Total
------ ------ ------- -------- ------ ---- -----

Balance as of
January 1, 1997 1,957,500 $19,575 $1,405,000 $2,192,256 27,900 $8,000 $3,608,831

Fair value of stock
options issued for
employee stock option
plan (Note 9) - - 143,750 - - - 143,750

Net income - - - 137,136 - - 137,136
--------- ------- ---------- ---------- ------ ------ ----------

Balance as of
December 31, 1997 1,957,500 19,575 1,548,750 2,329,392 27,900 8,000 3,889,717

Fair value of stock
options issued for
consulting services
provided to the
Company (Note 9) - - 40,405 - - - 40,405

Net loss - - - (507,019) - - (507,019)
--------- ------- ---------- ---------- ------ ------ ----------

Balance as of
December 31, 1998 1,957,500 19,575 1,589,155 1,822,373 27,900 8,000 3,423,103

Fair value of stock options
issued for consulting
services provided to
the Company (Note 9) - - 80,808 - - - 80,808

Net income - - - 321,335 - - 321,335
--------- ------- ---------- ---------- ------ ------ ----------

Balance as of
December 31, 1999 1,957,500 $19,575 $1,669,963 $2,143,708 27,900 $8,000 $3,825,246
========= ======= ========== ========== ====== ====== ==========

- ---------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

4.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997

- ---------------------------------------------------------------------------

1999 1998 1997
---- ---- ----

Cash flows from operating activities
Net income (loss) $ 321,335 $ (507,019) $ 137,136
Adjustments to reconcile net income
(loss) to net cash from operating
activities
(Gain) loss on equity investment - - (29,142)
Stock options granted for
services 137,709 112,270 14,974
Depreciation and amortization 1,417,199 1,173,448 730,227
Provision for doubtful accounts 312,872 100,580 37,983
Deferred income taxes 68,500 (239,500) 123,900
Loss (gain) on sale of
property and equipment 6,359 367 (4,496)
Change in assets and liabilities
Receivables (1,460,842) (2,486,139) (661,168)
Inventories 329,358 (3,526) (2,078,723)
Other current assets 219,044 (108,815) (27,009)
Payables 4,086,209 3,569,103 1,228,945
Other current liabilities 54,352 (19,897) 58,802
----------- ----------- -----------
Net cash from operating
activities 5,492,095 1,590,872 (468,571)

Cash flows from investing activities
Proceeds from sale of property
and equipment 213,438 - 86,028
Proceeds from sale of joint venture - - 44,826
Purchases of equipment under
sales-type leases (220,062) - (226,517)
Proceeds from sales-type leases 36,792 4,884 13,807
Purchases of property and equipment (1,726,778) (2,140,168) (1,373,610)
Other - 278,815 (139,787)
----------- ----------- -----------
Net cash from investing
activities (1,696,610) (1,856,469) (1,595,253)

Cash flows from financing activities
Net borrowings (payments) on note
payable to bank (1,850,000) 50,000 1,200,000
Proceeds from issuance of
long-term debt - 900,000 -
Payments on long-term debt (570,742) (166,169) (11,777)
----------- ----------- -----------
Net cash from financing
activities (2,420,742) 783,831 1,188,223
----------- ----------- -----------

Net change in cash 1,374,743 518,234 (875,601)

Cash at beginning of year 1,014,068 495,834 1,371,435
----------- ----------- -----------

Cash at end of year $ 2,388,811 $ 1,014,068 $ 495,834
=========== =========== ===========

Supplemental disclosure of cash
flow information
Cash paid for interest $ 257,147 $ 215,144 $ 78,810
Cash paid (refunded) for taxes $ (65,726) $ (1,614) $(1,077,773)

- -------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

5.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS: Industrial Services of America, Inc. (the
Company) provides products and services to meet the waste
management needs of its customers related to ferrous, non-ferrous
and corrugated scrap recycling, management services and waste
equipment sales and rental. Management services represent
contracts with retail, commercial and industrial businesses to
handle their waste disposal needs, primarily by subcontracting
with commercial waste hauling and disposal companies. The
Company's customers are located throughout the United States and
Canada. The Company's wholly-owned subsidiary, ISA Indiana,
Inc., provides services related to ferrous, non-ferrous and fiber
scrap recycling.

PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of the Company and its wholly
owned subsidiary, ISA Indiana, Inc. Upon consolidation, all
intercompany accounts, transactions and profits have been
eliminated.

COMMON CONTROL: The Company conducts significant levels of
business (see Note 6) with K & R Corporation, Inc. (K&R) which is
owned by the Company's principal shareholder. Because these
entities are under common control, operating results or financial
position of the Company may be materially different from those
that would have been obtained if the entities were autonomous.

ESTIMATES: In preparing the consolidated financial statements in
conformity with generally accepted accounting principles,
management must make estimates and assumptions. These estimates
and assumptions affect the amounts reported for assets,
liabilities, revenues and expenses, as well as affecting the
disclosures provided. Future results could differ from the
current estimates.

INVENTORIES: Inventories consist principally of waste equipment
machinery and parts, and scrap materials held for resale and are
stated at the lower of cost (first-in, first-out method) or
market. Inventories as of December 31, 1999 and 1998 consist of
the following:

1999 1998
---- ----

Equipment and parts $ 86,647 $ 761,780
Ferrous materials 1,200,868 1,131,045
Non-ferrous materials 898,479 622,527
---------- ----------

$2,185,994 $2,515,352
========== ==========

PROPERTY AND EQUIPMENT: Property and equipment are stated at
cost and depreciated on a straight-line basis over the estimated
useful lives of the related property.

- -----------------------------------------------------------------

(Continued)

6.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property and equipment as of December 31, 1999 and 1998 consist
of the following:

Life 1999 1998
---- ---- ----

Equipment and vehicles 3-10 years $6,654,641 $5,025,719
Office equipment 3-5 years 553,709 486,449
Rental equipment 5 years 1,462,805 1,799,017
Leasehold improvements 10-20 years 392,051 330,244
---------- ----------
9,063,206 7,641,429

Accumulated depreciation
and amortization 3,654,160 2,577,853
---------- ----------

$5,409,046 $5,063,576
========== ==========

Depreciation expense for the years ended December 31, 1999, 1998
and 1997 was $1,161,511, $968,937 and $653,561, respectively.

INTANGIBLE ASSETS: The excess of cost over fair value of assets
acquired is being amortized over a period of 15 years using the
straight-line method. Non-compete agreements are being amortized
using the straight-line method over the benefit period of 5
years.

INCOME TAXES: The Company records income tax expense based on
the amount of taxes due on its tax returns plus deferred taxes
computed based on the expected future tax consequences of
temporary differences between the carrying amounts and tax basis
of assets and liabilities, using enacted tax rates. A valuation
allowance is recorded, if necessary, to reduce deferred tax
assets to the amount considered more likely than not to be
realized.

STATEMENT OF CASH FLOWS: The statement of cash flows has been
prepared using a definition of cash that includes deposits with
original maturities of three months or less.

- -----------------------------------------------------------------

(Continued)

7.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- ----------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

EARNINGS PER COMMON SHARE: Amounts reported as Earnings per
Common Share for each of the three years ended December 31, 1999
reflect the earnings available to common shareholders for the
year divided by the weighted average number of common shares
outstanding during the year. The weighted average common shares
outstanding for each of the years ended December 31, 1999, 1998
and 1997 were 1,929,600.

STOCK-BASED COMPENSATION AND TRANSACTIONS: Expense for employee
compensation under stock option plans is reported only if options
are granted below the market price at the grant date. Pro forma
disclosures of net income and earnings per share are provided as
if the fair value method of Financial Accounting Standard No. 123
was used for stock-based compensation.

FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair value of financial
instruments are estimated using relevant market information and
other assumptions. Fair value estimates involve uncertainties
and matters of significant judgment regarding interest rates,
prepayments and other factors. Changes in assumptions or market
conditions could significantly affect the estimates. As of
December 31, 1999 and 1998, the estimated fair value of financial
instruments approximated book value.

NOTE 2 - NOTE PAYABLE TO BANK
At December 31, 1999 and 1998, the Company had a $2,000,000
operating line of credit collateralized by eligible accounts
receivable, inventories, equipment and the personal guarantee of
the principal shareholder. Interest is payable monthly on the
outstanding principal balance at the bank's current prime rate.
The note matures in June 2000.

- -----------------------------------------------------------------

(Continued)

8.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 3 - LONG-TERM DEBT
Long term debt as of December 31, 1999 and 1998 consists of the
following:

1999 1998
---- ----
Note payable to a bank in monthly
installments of $20,017 including
interest at 8.58% through July 2003;
secured by virtually all company
assets and a personal guarantee of the
principal shareholder. $1,432,385 $1,542,449

Note payable to a bank in monthly
installments of $18,520 including
interest at 8.5% through August 2003;
secured by virtually all company
assets and a personal guarantee of the
principal shareholder. 689,750 850,542

Note payable to R.J. Fitzpatrick for
covenant not to compete payable in
monthly installments of $10,500
including interest at 8.5% through
June 2003; secured by virtually all
company assets. 380,296 469,795

Note payable to a related party
payable in monthly installments of
$5,000; secured by virtually all
company assets. This note was
satisfied in full during 1999.
(Note 6) - 210,000

Note payable; interest rate of 8.75%,
due in monthly installments of
principal and interest totaling $387
with a maturity date of January 1999;
secured by vehicle. - 387
---------- ----------
2,502,431 3,073,173
Current maturities 397,502 460,654
---------- ----------

$2,104,929 $2,612,519
========== ==========

The long-term debt requires annual principal payments as follows:

2000 $ 397,502
2001 433,213
2002 472,132
2003 1,199,584

- -----------------------------------------------------------------

(Continued)

9.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 4 - INCOME TAXES

The provision for income taxes consists of the following for the
years ended December 31, 1999, 1998 and 1997:

1999 1998 1997
---- ---- ----
Federal
Current $212,485 $ 21,213 $(32,800)
Deferred 29,300 (219,280) 105,300
-------- ---------- ---------
241,785 (198,067) 72,500

State
Current (23,360) 28,860 (5,810)
Deferred 39,200 (20,220) 18,600
--------- --------- ---------
15,840 8,640 12,790
--------- --------- ---------

$257,625 $(189,427) $ 85,290
========= ========= =========

A reconciliation of income taxes at the statutory rate to the
Company's effective rate is as follows:

1999 1998 1997
---- ---- ----

Federal income tax (benefit)
at statutory rate $196,846 $(236,792) $75,600
State and local income taxes, net
of federal income tax affect 34,738 5,700 8,400
Valuation allowance (7,900) 7,900 -
Other differences, net 33,941 33,765 1,290
-------- --------- -------

$257,625 $(189,427) $85,290
======== ========= =======

- -----------------------------------------------------------------

(Continued)

10.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 4 - INCOME TAXES (Continued)
Significant components of the Company's deferred tax liabilities
and assets as of December 31, 1999 and 1998 are as follows:

1999 1998
---- ----
Deferred tax liabilities
Tax depreciation in excess of book $ 465,300 $411,800
Deferred tax assets
Allowance for doubtful accounts 79,300 48,400
Book amortization in excess of tax 56,000 56,000
Stock options 93,800 53,200
Net operating loss - 226,100
Alternative minimum tax credits 129,300 -
Inventory capitalization 10,000 11,500
State income taxes 28,400 24,500
--------- ---------
396,800 419,700
Valuation allowance - (7,900)
--------- ---------
396,800 411,800
--------- ---------

Net deferred tax liabilities $ 68,500 $ -
========= =========

The Company's tax operating loss carryforward from 1998 of
approximately $648,000 was utilized in full during 1999.

NOTE 5 - SALES-TYPE LEASES

The Company is the lessor of equipment under sales-type lease
agreements having terms of three to five years, with the lessees
having the option to acquire the equipment at the termination of
the leases. All costs associated with this equipment are the
responsibility of the lessees.

Future lease payments receivable under sales-type leases at
December 31, 1999 are as follows:

2000 $ 96,864
2001 74,835
2002 74,835
2003 57,690
2004 15,600
--------

Net minimum lease payments receivable 319,824

Less unearned income 101,284
--------

Net investment in sales-type leases 218,540

Less current portion 96,864
--------

$121,676
========

- -----------------------------------------------------------------

(Continued)

11.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 6 - RELATED PARTY TRANSACTIONS

The Company enters into various transactions with related parties
including the Company's principal shareholder and an affiliated
company wholly-owned by the Company's principal shareholder
(K&R). A summary of these transactions is as follows:

1999 1998 1997
---- ---- ----

Accounts receivable $ 11,028 $ 26,259 $ 34,667
======== ======== ========

Accounts payable $ - $ 22,000 $ 23,000
======== ======== ========

Notes payable (Note 3) $ - $210,000 $ -
======== ======== ========

Rent expense $450,000 $450,000 $261,000
======== ======== ========

Commission expense $ - $ - $114,000
======== ======== ========

Consulting fees $380,880 $240,000 $ 15,473
======== ======== ========

Legal expenses $ - $ - $ 9,100
======== ======== ========

Equipment acquisition $ - $250,000 $ -
======== ======== ========

The Company's Chairman is compensated through consulting fees
shown above, under a consulting agreement with K&R.

Under an agreement which was cancelled July 1, 1997, the Company
managed all aspects of K&R's scrap recycling operations. The
agreement provided that the Company pay a commission equal to 20%
of the profits from K&R's scrap recycling operations. The
Company included all revenue from the scrap recycling operations
and the related commission fee in the consolidated statements of
operations. The Company incurred commission expenses to K&R
totaling $114,000 for the year ended December 31, 1997.

In January 1998, the Company entered into an agreement with K&R
for consulting services related to the scrap metal and paper
recycling operations and related equipment sales and services.
The agreement is for a 10 year period and requires payments of
$240,000 annually. During 1999, the Company advanced K&R
approximately $140,000 which has been recorded by the Company as
additional consulting fees.

In September 1998, the Company purchased equipment from K&R for
$250,000. The purchase was financed with a note payable to K&R
(Note 3).

- -----------------------------------------------------------------

(Continued)

12.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 7 - EMPLOYEE RETIREMENT PLAN
The Company maintains a defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code which covers
substantially all employees. Eligible employees may contribute a
maximum of 15% of their annual salary. Under the plan, the
Company matches 10% of each employee's voluntary contributions.
The Company's contributions to the plan for 1999, 1998 and 1997
were $6,296, $11,126 and $11,448, respectively.

NOTE 8 - ACQUISITIONS
On July 1, 1997, the Company entered an agreement with the
principles of TMG Enterprises (TMG) d/b/a The Metal Center to
purchase the business operations of TMG for $1,100,000. The
purchase price of $1,100,000 exceeded the fair value of the net
assets acquired by $800,000. The excess is being amortized on
the straight-line method over 15 years. The amount charged to
expense in 1999, 1998, and 1997 was $53,332, $53,332, and
$26,667, respectively. Non-compete agreements of $500,000
represent the portion of the purchase price allocated to the
arrangement whereby TMG's principals agreed not to compete with
the Company for a period of five years. The cost is being
amortized on the straight-line method over the term of the
arrangement. The amount charged to expense in 1999, 1998 and
1997 was $100,000, $100,000, and $50,000, respectively. The
results of operations include the acquired operations from the
date of acquisition. The pro forma disclosures required by APB
No. 16 are not material.

On June 1, 1998, the Company entered an agreement with R.J.
Fitzpatrick's Smelters (RJF) to purchase the business operations
of RJF for $900,000, which approximated fair market value. Non-
compete agreements of $511,782 represent the portion of the
purchase price allocated to the agreement whereby the principal
of RJF agreed not to compete with the Company for a period of
five years. The cost is being amortized on the straight-line
method over the term of the arrangement. The amount charged to
expense in 1999 and 1998 was $102,356 and $51,178, respectively.
The results of operations are included in the statement of
operations from the date of acquisition. The pro forma
disclosures required by APB No. 16 are not material.

- -----------------------------------------------------------------

(Continued)

13.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 9 - STOCK OPTION PLANS

During the years ended December 31, 1999, 1998 and 1997, the
Company entered into various consulting agreements for certain
strategic and advisory services. In conjunction with these
agreements, the Company granted stock options to the consultants.
For 1999 and 1998, the estimated fair value of these stock
options at the date of grant was based on the Black-Scholes
option pricing method with the following weighted average
assumptions: risk free interest rate of 4.0%, dividend yield of
0%, volatility factor of the expected market price of the
Company's common stock of .60, and a weighted average expected
life of the options of 4 years. Because exercise prices of the
stock options issued in 1999, 1998 and 1997 were below the market
price of the Company's common stock at the dates of grant,
consulting costs of $80,808, $40,405 and $16,875 were recorded
for the years ended December 31, 1999, 1998 and 1997,
respectively. Because the stock options issued in 1999, 1998 and
1997 in conjunction with these consulting agreements were valued
at fair value as would have been determined in accordance with
SFAS No. 123, no pro forma disclosures related to net income and
earnings per share for these options are necessary.

During the years ended December 31, 1999 and 1997 the Company
extended options to purchase shares of the Company's common stock
to several of the Company's Officers and Outside Directors. The
Company applies APB Opinion 25 in accounting for its employees
stock option agreements. Compensation costs are not recognized
unless the exercise price of the options is in excess of the
market value on the date of grant. As a result, compensation
cost charged to operations in 1999, 1998, and 1997 totaled
$56,901, $71,875, and $14,974, respectively.

During 1997, the Company adopted an employee stock option plan
under which the Company may grant options for up to 400,000
shares of common stock, 300,000 which are reserved by the board
of directors. The exercise price of each option is equal to the
market price of the Company's stock on the date of grant. The
maximum term of the option is five years.

During 1997, the Company issued options to purchase 100,000
shares of common stock to its acting Chief Executive Officer.
The exercise price was $5 per share and was exercisable through
October 1999. Because the exercise price of these options was in
excess of the market value of the Company's common stock on the
date of grant, there was no compensation costs recorded in 1998
or 1997 related to these options. During 1999, the Chief
Executive Officer forfeited the right to exercise these options

The Company also issued options to purchase 25,000 shares of
common stock to its president as a component of an employment
agreement beginning in October 1997. The exercise price of each
option is $1 per share and exercisable over a five year period.
Compensation cost charged to operations in 1999, 1998 and 1997
related to this option was $56,901, $71,875 and $14,974,
respectively.

- -----------------------------------------------------------------

(Continued)

14.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 9 - STOCK OPTION PLANS (Continued)

Had compensation costs been recorded on the employee stock
options on the basis of fair market value pursuant to FASB
Statement No. 123, net income and earnings per share would have
been reduced as follows:

1999 1998 1997
---- ---- ----
NET INCOME

As reported $321,335 $(507,019) $ 137,136
======== ========= =========

Pro forma $261,222 $(551,944) $(145,684)
======== ========= =========

BASIC EARNINGS PER SHARE

As reported $ .17 $ (.26) $ .07
======== ========= =========

Pro forma $ .14 $ (.29) $ (.08)
======== ========= =========

DILUTED EARNINGS PER SHARE

As reported $ .16 $ (.26) $ .07
======== ========= =========

Pro forma $ .13 $ (.28) $ (.07)
======== ========= =========

The above pro forma information is based on an estimated fair
value of these stock options as of the date of grant using a
Black-Scholes option pricing method with the following weighted
average assumptions for 1999 and 1998: risk free interest rate
ranging from 6.0% to 4.0%, dividend yield of 0%, volatility
factor of the expected market price of the Company's common stock
ranging from .48 to .60, and a weighted average expected life of
the options ranging from 3 to 4 years.

- -----------------------------------------------------------------

(Continued)

15.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 9 - STOCK OPTION PLANS (Continued)

Following is a summary of stock option activity and number of
shares reserved for outstanding options for the years ended
December 31, 1999, 1998 and 1997:

Weighted
Weighted Maximum Average
Average Option Term of Grant Date
Number of Option Price Price Per Options Fair Value
Shares Per Share Share Granted of Options
------ --------- ----- ------- ----------

BALANCE AS OF JANUARY 1, 1997 70,000 $5.00 $5.00 2 to 10 $2.93
years

Granted 225,000 $3.44 $1.00 2 to 5 $5.19
to $5.00 years

Expired (50,000) $5.00 $5.00 2 years -
--------

BALANCE AS OF DECEMBER 31, 1997 245,000 $3.57 $1.00 2 to 10 $5.19
to $5.00 years

Granted 185,000 $6.38 $6.00 2 to5 $2.19
--------
to $8.00 years

BALANCE AS OF DECEMBER 31, 1998 430,000 $4.78 $1.00 2 to 10 $3.90
to $8.00 years

Granted 55,000 $2.43 $2.25 10 years $2.25
to $2.50

Expired (120,000) $5.00 $5.00 5 to 10 -
--------
years

BALANCE AS OF DECEMBER 31, 1999 365,000 $4.35 $1.00 2 to 10 $5.41
========
to $8.00 years

As of December 31, 1999, the 365,000 options outstanding have
exercise prices between $1 to $8 and a weighted-average remaining
contractual life of 4.2 years.

- -----------------------------------------------------------------

(Continued)

16.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 10 - LEASE COMMITMENTS

The Company leases its Louisville, Kentucky facility from a
related party (see Note 6) under an operating lease expiring
December 2007. This agreement provides for monthly payments of
$37,500 through December 2007.

The Company leases real estate in Seymour, Indiana under an
operating lease expiring June 2008. This agreement provides for
monthly payments of $13,000.

Future minimum lease payments receivable for operating leases as
of December 31, 1999 are as follows:

2000 $ 578,869
2001 577,973
2002 573,492
2003 558,000
2004 558,000
----------

Net minimum lease payments $2,846,334
==========

Total rent expense for the years ending December 31, 1999, 1998
and 1997 was $700,598, $605,021 and $381,884, respectively.

NOTE 11 - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES

The following noncash investing and financing activities occurred
during the years ended December 31, 1999, 1998 and 1997.

1999 1998 1997
---- ---- ----

Fair value of stock options
issued for employee and
non-employee services $ - $ - $ 128,776

Acquisition of equipment from
K&R by issuing note payable - 250,000 -

Acquisition of TMG Enterprises
by issuing note payable - - 1,600,000

Acquisition of RJ Fitzpatrick
Smelters by issuing
note payable - 511,782 -

- -----------------------------------------------------------------

(Continued)

17.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 12 - PER SHARE DATA

The following illustrates the computation for earnings per share
and earning per share assuming dilution.

1999 1998 1997
---- ---- ----

Earnings per share
Net income (loss) $ 321,335 $ (507,019) $ 137,136
Weighted average shares outstanding 1,929,600 1,929,600 1,929,600
---------- ---------- ----------

Basic earnings per share $ .17 $ (.26) $ .07
========== ========== ==========

Earnings per share assuming dilution
Net income (loss) $ 321,335 $ (507,019) $ 137,136
Weighted average shares outstanding 1,929,600 1,929,600 1,929,600
Add dilutive effect of assumed exercising
of stock options 28,697 31,717 28,595
---------- ---------- ----------
Diluted average shares outstanding 1,958,297 1,961,317 1,958,195
---------- ---------- ----------

Earnings per share assuming dilution $ .16 $ (.26) $ .07
========== ========== ==========

- -----------------------------------------------------------------

(Continued)
18.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 13 - SEGMENT INFORMATION

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

The Company's three reportable segments are determined by the
products and services that each offers. The recycling segment
generates its revenues based on buying and selling of ferrous,
non-ferrous and fiber scrap; CWS's revenues consist of management
fees charged to customers at a percentage of the total service
provided; and WESSCO sales and lease income comprise the primary
source of revenue for this segment.

The accounting policies of the three segments are the same as
those described in the summary of significant accounting policies
(Note 1). The Company evaluates segment performance based on
profit or loss before income taxes and the evaluation process for
each segment includes only direct expenses omitting any selling,
general and administrative costs.

Revenue from two CWS customers in 1999, 1998 and 1997 represents
approximately 64%, 65% and 80% of CWS revenues, respectively. At
December 31, 1999 and 1998, amounts due from these customers
included in CWS accounts receivable were $3,999,495 and
$2,337,266, respectively.

Waste
Computerized Equipment
Waste Sales & Segment
1999 ISA Recycling Systems Services Other Totals
- ---- ------------- ------- -------- ----- ------

Recycling revenues $20,017,132 $ - $ - $ - $20,017,132
Equipment sales, services
and leasing revenues - - 2,954,375 - 2,954,375
Management fees - 54,526,312 - - 54,526,312
Cost of goods sold (17,607,626) (51,291,592) (2,190,713) - (71,089,931)
----------- ----------- ---------- -------- -----------

Segment profit $ 2,409,506 $ 3,234,720 $ 763,662 $ - $ 6,407,888
=========== =========== ========== ======== ===========

- -----------------------------------------------------------------

(Continued)

19.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 13 - SEGMENT INFORMATION (Continued)

Waste
Computerized Equipment
Waste Sales & Segment
1999 ISA Recycling Systems Services Other Totals
- ---- ------------- ------- -------- ----- ------

Cash $ 242,511 $ 329,277 $ - $1,817,023 $ 2,388,811
Accounts receivable 4,017,325 4,641,590 - 102,787 8,761,702
Inventory 2,099,347 - 86,647 - 2,185,994
Net property and
equipment 4,929,310 16,667 463,069 - 5,409,046
Non-compete
agreements, net 608,248 - - - 608,248
Intangibles 666,668 - - - 666,668
Other assets 4,584 39,275 - 758,667 802,526
------------ ------------ ----------- ---------- ------------

Segment assets $ 12,567,993 $ 5,026,809 $ 549,716 $2,678,477 $ 20,822,995
============ ============ =========== ========== ============

1998
- ----
Recycling revenues $ 19,167,893 $ - $ - $ - $ 19,167,893
Equipment sales, services
and leasing revenues - - 1,930,869 - 1,930,869
Management fees - 44,106,218 - - 44,106,218
Cost of goods sold (18,204,999) (41,871,945) (1,380,946) - (61,457,890)
------------ ------------ ----------- ---------- ------------

Segment profit $ 962,894 $ 2,234,273 $ 549,923 $ - $ 3,747,090
============ ============ =========== ========== ============

Cash $ 91,381 $ 14,320 $ - $ 908,367 $ 1,014,068
Accounts receivable 3,574,150 3,849,081 - 51,242 7,474,473
Inventory 1,753,572 - 761,780 - 2,515,352
Net property and
equipment 4,123,053 66,667 873,856 - 5,053,576
Non-compete
agreements, net 810,604 - - - 810,604
Intangibles 720,000 - - - 720,000
Income tax refund
receivable - - - 113,000 113,000
Other assets 36,325 114,227 - 785,908 1,049,460
------------ ------------ ----------- ---------- ------------

Segment assets $ 11,109,085 $ 4,044,295 $ 1,635,636 $1,858,517 $ 18,647,533
============ ============ =========== ========== ============

- -----------------------------------------------------------------

(Continued)

20.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

- -----------------------------------------------------------------

NOTE 13 - SEGMENT INFORMATION (Continued)

Waste
ComputerizedEquipment
Waste Sales & Segment
1997 ISA Recycling Systems Services Other Totals
- ---- ------------- ------- -------- ----- ------

Recycling revenues $ 11,513,600 $ - $ - $ - $ 11,513,600
Equipment sales, services-
and leasing revenues - - 1,633,756 - 1,633,756
Management fees - 32,064,237 - - 32,064,237
Cost of goods sold (10,141,882) (30,235,253) (953,463) - (41,330,598)
------------ ------------ ---------- ------- ------------

Segment profit $ 1,371,718 $ 1,828,984 $ 680,293 $ - $ 3,880,995
============ ============ ========== ======= ============

- -----------------------------------------------------------------

(Continued)

21.

INDUSTRIAL SERVICES OF AMERICA, INC.
AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999 and 1998

- -----------------------------------------------------------------

Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Year Expenses Accounts Deductions of Year
------ -------- -------- ---------- -------
Description
- -----------

Allowance for doubtful
accounts 1999 (deducted
from accounts receivable) $116,000 $312,872 $27,327 $(266,199) $190,000
======== ======== ======= ========= ========

Allowance for doubtful
accounts 1998 (deducted
from accounts receivable) $ 16,000 $100,000 $ - $ - $116,000
======== ======== ======= ========= ========

- -----------------------------------------------------------------

(Continued)

22.

SUPPLEMENTARY INFORMATION