Industrial Services of America, Inc. Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2017 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 For the transition period from _________ to ________ Commission File Number 0-20979 INDUSTRIAL SERVICES OF AMERICA, INC._______________________________________________________________________________________________________(Exact Name of Registrant as specified in its Charter) Florida 59-0712746(State or other jurisdiction of incorporation ororganization) (IRS Employer Identification No.) 7100 Grade Lane, Louisville, Kentucky 40213(Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (502) 368-1661 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.0033 par value NASDAQ Capital Market(Title of class) (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 1 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 Actof 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is notcontained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerginggrowth company" in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ☐Accelerated filer ☐ Non-accelerated filer ☐Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying withany new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the voting and non-voting common equity held by non-affiliates based on the closing price per share of $1.49 forshares of the registrant’s common stock as reported by the Nasdaq Capital Market as of the last business day of the registrant’s most recentlycompleted second fiscal quarter was $8,608,748. Solely for the purposes of this calculation, shares held by directors, executive officers and 10%owners of the registrant have been excluded. Such exclusion should not be deemed a determination or an admission by the registrant that suchindividuals are, in fact, affiliates of the registrant. Number of shares of Common Stock, $0.0033 par value, outstanding as of the close of business on March 12, 2018: 8,089,129. ____________________________________________ DOCUMENTS INCORPORATED BY REFERENCENone. 2 Table of ContentsPage PART I4 Item 1. Business4Item 1A. Risk Factors8Item 1B. Unresolved Staff Comments12Item 2. Properties12Item 3. Legal Proceedings13Item 4. Mine Safety Disclosures13 PART II14 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities14Item 6. Selected Financial Data15Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations16Item 7A. Quantitative and Qualitative Disclosures About Market Risk22Item 8. Financial Statements and Supplementary Data22Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure22Item 9A. Controls and Procedures23Item 9B. Other Information23 PART III24 Item 10. Directors, Executive Officers and Corporate Governance24Item 11. Executive Compensation27Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters33Item 13. Certain Relationships and Related Transactions, and Director Independence37Item 14. Principal Accounting Fees and Services39 PART IV40 Item 15. Exhibits, Financial Statement Schedules40Item 16. Form 10-K Summary40 Signatures41Index to Exhibits42 3Table of Contents PART IItem 1. Business GeneralIndustrial Services of America, Inc. (herein “ISA,” the “Company,” “we,” “us,” “our,” or other similar terms) is a Louisville, Kentucky-basedcompany that buys, processes and markets ferrous and non-ferrous metals and other recyclable commodities and buys used autos in order tosell used auto parts. We purchase, process and sell ferrous and non-ferrous scrap metal to steel mini-mills, integrated steel makers, foundries,refineries and processors. We purchase ferrous and non-ferrous scrap metal primarily from industrial and commercial generators of steel,aluminum, copper, brass, stainless steel and other metals as well as from scrap dealers and retail customers who deliver these materials directlyto our facilities. We process scrap metal through our sorting, cutting, baling, and shredding operations. The shredding operations wererestarted in May 2017, which had previously been idled in May 2015. Our non-ferrous scrap recycling operations consist primarily of collecting,sorting and processing various grades of copper, aluminum, stainless steel and brass. Our used automobile yard primarily purchasesautomobiles so that retail customers can locate and remove used parts for purchase. Our core business is now focused on the metal recycling industry. During 2016, we announced that the Company formed a special committee ofindependent board members to evaluate various growth and strategic options. During the first quarter of 2017, the special committee concludedits work and reported to the Board. The Board accepted the special committee's recommendation to focus on returning our core recyclingbusiness to profitability. We intend to do this by increasing efficiencies and productivity, which included the commercial restart of our shredderin the second quarter of 2017. We intend to run the shredder in the normal course of business subject to market conditions and operatingneeds. We will also evaluate other various options and remain alert for possible strategic partnerships, joint ventures and mergers/acquisitions. The Company announced on October 4, 2016 the Company and Algar, Inc. ("Algar") mutually agreed to terminate the Management Agreementbetween us, pursuant to the Agreement to Terminate Management Services among the Company, Algar, and Sean Garber dated as of September30, 2016. Effective September 30, 2016, Mr. Garber resigned from all positions with the Company, including as President. Also, on September 30,2016, the Company’s Chief Financial Officer was appointed to serve in the additional role as President. Available Information We make available, free of charge, through our website www.isa-inc.com, our annual reports on Form 10-K and quarterly reports on Form 10-Qand amendments to those reports as soon as reasonably practicable after we have electronically filed with the Securities and ExchangeCommission. We also make available on our website our Board of Directors committee charters, our Business Ethics Policy and Code ofConduct and our Code of Ethics for the CEO, CFO and senior financial officers. Please note that our Internet address is included in this annualreport on Form 10-K as an inactive textual reference only. Information contained on our website www.isa-inc.com is not incorporated byreference into this annual report on Form 10-K and should not be considered a part of this report.ISA Recycling Operating Division Our Recycling Segment buys, processes and markets ferrous and non-ferrous metals and other recyclable commodities and buys usedautomobiles in order to sell used automobile parts. The Company purchases, processes and sells ferrous and non-ferrous scrap metal to steelmini-mills, integrated steel makers, foundries, refineries and processors. The Company purchases ferrous and non-ferrous scrap metal primarilyfrom industrial and commercial generators of steel, aluminum, copper, brass, stainless steel and other metals as well as from scrap dealers andretail customers who deliver these materials directly to our facilities. The Company processes ferrous scrap metal through sorting, cutting,baling, and shredding operations. The shredding operations were idled in May 2015 and restarted in May 2017. The non-ferrous scrap recyclingoperations consist primarily of collecting, sorting and processing various grades of copper, aluminum, stainless steel and brass. We also operate the ISA Pick.Pull.Save used automobile parts yard, which is considered a product line within the Recycling Segment. Wepurchase automobiles for the yard through auctions, automobile purchase programs with various suppliers and general scrap purchases. Retailcustomers locate and remove used parts for purchase from automobiles within the yard. Freon, fuel, tires and certain core automobile parts arealso sold to various resellers for additional revenue. All automobiles are sold as scrap metal or used in our shredding operations after aspecified time period in the yard. 4Table of Contents Ferrous Operations Ferrous Scrap Purchasing - We purchase ferrous scrap from two primary sources: (i) industrial and commercial generators of steel and iron; and(ii) scrap dealers, peddlers, and other generators and collectors who sell us steel and iron scrap, known as obsolete scrap. Market demand andthe composition, quality, size and weight of the materials are the primary factors that determine prices paid to these material providers. Ferrous Scrap Processing - We prepare ferrous scrap material for resale through a variety of methods including sorting, cutting, baling andshredding operations. The shredding operations were idled in May 2015 and restarted in May 2017. We produce a number of differently sized,shaped and graded products depending upon customer specifications and market demand. •Sorting - After purchasing ferrous scrap material, we inspect it to determine how we should process it to maximize profitability. In someinstances, we may sort scrap material and sell it without further processing. We separate scrap material for further processing accordingto its size, composition and grade by using conveyor systems, front-end loaders, crane-mounted electromagnets and claw-like grapples. •Cutting - Pieces of over-sized ferrous scrap material, such as obsolete steel girders and used pipe, which are too large for otherprocessing, are cut with hand torches. •Baling - We process light-gauge ferrous materials such as clips, sheet iron and by-products from industrial and commercial processes,such as stampings, clippings and excess trimmings, by baling these materials into large, uniform blocks. We use cranes and conveyorsto feed the material into a hydraulic press, which compresses the material into uniform blocks. •Shredding and related metal recovery - The shredding operations were idled in May 2015 and restarted in May 2017. We shred largepieces of scrap material, such as automobiles and major appliances, in our shredder by hammer mill action into pieces of a workable sizethat pass through magnetic separators to separate ferrous metal from non-ferrous metals, synthetic foam, fabric, rubber, stone, dirt, etc.The ferrous metal we recover from the shredding process is sold directly to customers or reused in some other metal blend. The residueby-product is usually referred to as “automobile shredder residue” ("ASR") or “shredder fluff." We further separate the ASR into non-ferrous metals and non-metal waste. The non-ferrous metals are sold directly to customers or reused in some other metal blend. Wedispose of the non-metal waste, which can reduce the volume of the scrap as much as 25.0%, in a landfill. Revenues from the ferrousand non-ferrous metals related to this shredding and related metal recovery processes are recognized in revenue fromferrous operations in the Consolidated Financial Statements. Ferrous Scrap Sales - We sell processed ferrous scrap material to end-users such as steel mini-mills, integrated steel makers and foundries, andbrokers who aggregate materials for other large users. Most customers purchase processed ferrous scrap material through negotiated spotsales contracts, which establish the quantity purchased for the month and the pricing. The price we charge for ferrous scrap materials dependsupon market supply and demand, as well as quality and grade of the scrap material. We deliver scrap ourselves or use third party carriers viatruck, and/or rail car. Some customers choose to send their own delivery trucks. These trucks are weighed and loaded at one of our sites basedon the sales order. Auto Parts Operations We operate a single self-service retail parts location. We generate revenue from the sale of parts, cores and scrap. Our location consists of anindoor retail facility combined with a fenced outdoor storage area for autos. We operate our self-service auto parts business under the name ofISA Pick.Pull.Save. Non-Ferrous Operations Non-Ferrous Scrap Purchasing - We purchase non-ferrous scrap from two primary sources: (i) industrial and commercial non-ferrous scrapmaterial providers who generate or sell waste aluminum, copper, stainless steel, other nickel-bearing metals, brass and other metals; and (ii)peddlers, scrap dealers, generators and collectors who deliver directly to our facilities material that they collect from a variety of sources. Wealso collect non-ferrous scrap from sources other than those that are delivered directly to our processing facilities by placing retrieval boxes atthese sources. We subsequently transport the boxes to our processing facilities. Non-Ferrous Scrap Processing - We prepare non-ferrous scrap metals, principally aluminum, copper, brass and stainless steel to sell by sorting,cutting and baling. 5Table of Contents •Sorting - Our sorting operations separate and identify non-ferrous scrap by using front-end loaders, grinders, hand torches andspectrometers. Our ability to identify metallurgical composition maximizes margins and profitability. We sort non-ferrous scrap materialfor further processing according to type, grade, size and chemical composition. Throughout the sorting process, we determine whetherthe material requires further processing before we sell it. •Cutting - Pieces of over-sized non-ferrous scrap material, which are too large for other processing methods, are cut with hand torches. •Baling - We process non-ferrous metals such as aluminum cans, sheet and siding by baling these materials into large uniform blocks.We use front-end loaders and conveyors to feed the material into a hydraulic press, which compresses the material into uniform blocks. Non-Ferrous Scrap Sales - We sell processed non-ferrous scrap material either directly or indirectly to end-users or processors such asfoundries, aluminum sheet and ingot manufacturers, copper refineries and smelters, steel mini-mills, integrated steel makers, steel foundries andrefineries, copper wire processors and brass and bronze ingot manufacturers. Prices for the majority of non-ferrous scrap materials changebased upon the daily publication of spot and futures prices on COMEX or the London Metals Exchange. We deliver scrap ourselves or usethird party carriers via truck and/or rail car. Some customers choose to send their own delivery trucks. These trucks are weighed and loaded atone of our sites based on the sales order. Company Background ISA was incorporated in 1953 in Florida under the name ALSON MFG. CO. and originally designed and manufactured various forms of electricalproducts. In 1984, ISA moved into waste handling and disposal equipment sales. In 1985, we began offering solid waste management consultations. We began focusing on ferrous and non-ferrous scrap metal recycling in 1997 and expanded into the stainless steel blending and high-temperature alloys recycling business in 2009. 6Table of Contents In 2012, we opened the ISA Pick.Pull.Save used automobile yard. In 2013, we discontinued the stainless steel blending and high-temperature alloys recycling business. In 2015, we exited the waste services business and idled our shredder.In May 2017, we restarted our shredding operations.Currently, our primary focus is ferrous and non-ferrous metal recycling, as well as selling used auto parts. Competition The metal recycling business is highly competitive and is subject to significant changes in economic and market conditions. Pricing andproximity to a metal source are the major competitive factors in the metal recycling business. We compete for the purchase and sale of scrapmetal with large, well-financed recyclers of scrap metal as well as smaller metal facilities and brokers/dealers. Dependence on Major Customer We had sales to one major customer that totaled approximately 16.3% and 12.5% of our net sales for the years ended December 31, 2017 and2016, respectively. Employees As of March 11, 2018, we had 76 full-time employees. None of our employees are members of a union. Effect of State and Federal Environmental Regulations Although we believe that our business model adequately protects us from potential environmental liability, we also continue to use our bestefforts to be in compliance with federal, state and local environmental laws. Such compliance has not historically constituted a material expenseto us. The recycling operations are subject to federal, state and local requirements, which regulate health, safety, the environment, zoning and land-use. We strive to conduct our operations in compliance with applicable laws and regulations. While such amounts expended in the past or thatwe anticipate spending in the future have not had and are not expected to have a material adverse effect on our financial condition oroperations, the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or otherfactors could materially alter this expectation. 7Table of Contents Item 1A. Risk Factors This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of1934, as amended, including, in particular, certain statements about our plans, strategies and prospects. Although we believe that our plans,intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that suchplans, intentions or expectations will be achieved. Important factors that could cause our actual results to differ materially from our forward-looking statements include those set forth in this Risk Factors section. All forward-looking statements attributable to us or any persons actingon our behalf are expressly qualified in their entirety by the cautionary statements set forth below. Unless the context requires otherwise, allreferences to the “Company,” “we,” “us” or “our” include Industrial Services of America, Inc. and subsidiaries. If any of the following risks, or other risks not presently known to us or that we currently believe to not be significant, develop into actualevents, then our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected. Risks Related to Our Operations We operate in industries that are cyclical and sensitive to general economic conditions, which could have a material adverse effect on ouroperating results, financial condition and cash flows.Demand for most of our products is cyclical in nature and sensitive to general economic conditions. The timing and magnitude of the cycles inthe industries in which our products are used, including global metal production, are difficult to predict. The cyclical nature of our operationstends to reflect and be amplified by changes in economic conditions, both domestically and internationally, and foreign currency exchangefluctuations. The impact of recent political events, such as tariffs on metal imports, on global economic conditions is currently uncertain.Economic downturns or a prolonged period of slow growth in the industries in which we operate could have a material adverse effect on ourresults of operations, financial condition and cash flows. Our business has a major involvement in ferrous and non-ferrous metals. This market is extremely competitive and increased competitioncould result in a reduction of our revenue and consequent decrease in our common stock price. The metal recycling business is highly competitive. Pricing and proximity to a metal source are the major competitive factors in the metalrecycling business. Many companies offer or are engaged in the development of products or the provisions of services that may be or arecompetitive with our current products or services. Certain of our competitors have greater financial, technical, manufacturing, marketing,distribution, and other resources and assets than we possess. In addition, the industry is constantly changing as a result of consolidation,which may create additional competitive pressures in our business environment. There can be no assurance that we will be able to maintain ourcurrent market share or obtain our desired market share based on the competitive nature of this industry. Changes in the availability or price of raw materials and end-of-life vehicles could reduce our sales. We rely on suppliers for most of our raw material needs. Industry supply conditions generally involve risks, including the possibility ofshortages of raw materials, increases in raw material costs and reduced control over delivery schedules. We procure our scrap inventory fromnumerous sources. These suppliers generally are not bound by long-term contracts and have no obligation to sell scrap metal to us. In periodsof declining or lower scrap metal prices, such as the declining price environment we experienced in fiscal 2015 and the first half of fiscal 2016,suppliers may elect to hold scrap metal to wait for higher prices or intentionally slow their metal collection activities, tightening supply. If asubstantial number of suppliers cease selling scrap metal to us, we will be unable to recycle metal at desired levels, and our results of operationsand financial condition could be materially adversely affected. A slowdown of industrial production in the U.S. may also reduce the supply ofindustrial grades of metal to the metals recycling industry, resulting in less recyclable metal available to process and market. Increasedcompetition for domestic scrap metal, including as a result of overcapacity in the scrap recycling industry in the U.S. and Canada, may alsoreduce the supply of scrap metal available to us. Failure to obtain a steady supply of scrap material could both adversely impact our ability tomeet sales commitments and reduce our operating margins. Failure to obtain an adequate supply of end-of-life vehicles could adversely impactour ability to attract customers and reduce our parts sales. 8Table of Contents Significant decreases in scrap metal prices may adversely impact our operating results. The timing and magnitude of the cycles in the industries in which we operate are difficult to predict and are influenced by different economicconditions. Purchase prices for scrap metal including end-of-life vehicles and selling prices for recycled scrap metal are subject to market forcesbeyond our control. While we attempt to respond to changing recycled scrap metal selling prices through adjustments to our metal purchaseprices, our ability to do so is limited by competitive and other market factors. As a result, we may not be able to reduce our metal purchaseprices to fully offset a sharp reduction in recycled scrap metal sales prices, which may adversely impact our operating income and cash flows. Infiscal 2015 and the first half of fiscal 2016, lower demand for recycled scrap metal relative to demand and competition for supply of unprocessedscrap metal in the domestic market compressed operating margins due to selling prices decreasing at a faster rate than purchase prices forunprocessed scrap metal. In addition, a rapid decrease in selling prices may compress our operating margins due to the impact of averageinventory cost accounting, which causes cost of goods sold recognized in the Consolidated Statements of Operations to decrease at a slowerrate than metal purchase prices and net selling prices. Volatility in market prices of our scrap metal recycling inventory may cause us to re-assess the carrying value of our inventory and adverselyaffect our balance sheet. We make certain assumptions regarding future demand and net realizable value in order to assess that we record our ferrous and non-ferrousinventory properly at the lower of cost or net realizable value. We base our assumptions on historical experience, current market conditions andcurrent replacement costs. If the anticipated future selling prices of scrap metal and finished steel products should decline due to the cyclicalityof the business or otherwise, we would re-assess the recorded net realizable value of such inventory which could result in downwardadjustments to reduce the value of such inventory (and increase cost of sales) to the lower of cost or net realizable value. Potential limitations on our ability to access capital resources may restrict our ability to operate. Our operations are capital intensive. Our business also requires substantial expenditures for routine maintenance. While we expect that ourcash requirements, including the funding of capital expenditures and debt service, will be financed by internally generated funds or fromborrowings under our line of credit, there can be no assurance that this will be the case. Additional capital expenditures could require financingfrom external sources. Although we believe we have adequate access to contractually committed borrowings, we could be adversely affected ifour lender was unable to honor the contractual commitments or ceased lending. Failure to access our line of credit could restrict our ability tofund operations or make capital expenditures.The agreement governing our line of credit facility imposes certain restrictions on our business and contains financial covenants.Our line of credit facility contains certain restrictions on our business which limit (subject to certain exceptions) our ability to, among otherthings, dispose of collateral, incur certain liens, make investments, incur or guaranty additional indebtedness, enter into consolidations,mergers, sales or asset acquisitions, make distributions and other restricted payments, materially change the nature of our business, and engagein transactions with affiliates. These restrictions may affect our ability to operate our business or execute our strategy and may limit our abilityto take advantage of potential business opportunities as they arise.Our line of credit agreement also requires that we maintain certain financial and other covenants. Our ability to comply with these covenantsmay be affected by events beyond our control, including prevailing economic, financial and industry conditions. Our failure to comply with anyof these restrictions or financial covenants could result in an event of default under the lender credit agreement, and permit our lender to ceaselending to us and declare all amounts borrowed to be due and payable, together with accrued and unpaid interest. This could require us torefinance our line of credit, which we may not be able to do at terms acceptable to us, or at all. Our debt may increase our vulnerability to economic or business downturns. We are vulnerable to higher interest rates because interest expense on our borrowing is based on margins over a variable base rate. We mayexperience material increases in our interest expense as a result of increases in general interest rate levels. Our current line of credit agreementwith our lender contains a subjective acceleration clause and requires the Company to maintain a lockbox arrangement with the lender. Upon abreach of covenants in our lending facility, our lender could exercise its remedies related to any material breaches, including acceleration of ourpayments and taking action with respect to its loan security. We have relied upon and will rely on borrowings under various credit facilities tooperate our business. We may not have the ability to borrow from other lenders to operate our business.9Table of Contents An increase in the price of fuel may adversely affect our business. Our operations are dependent upon fuel, which we generally purchase in the open market on a daily basis. Direct fuel costs include the cost offuel and other petroleum-based products used to operate our fleet of cranes and heavy equipment, as well as our shredder when it is not idled.We are also susceptible to increases in indirect fuel costs which include fuel surcharges from vendors. When we have experienced increases inthe cost of fuel and other petroleum-based products in the past, we were able to pass a portion of these increases on to our customers.However, because of the competitive nature of the industry, there can be no assurance that we will be able to pass on current or futureincreases in fuel prices to our customers. A significant increase in fuel costs could adversely affect our business, which adverse impact wouldbe magnified if combined with a decrease in revenue caused by a decrease in commodity prices. We could incur substantial costs in order to comply with, or to address any violations under, environmental laws that could significantlyincrease our operating expenses and reduce our operating income. Compliance with environmental laws and regulations is a significant factor in our business. We are subject to local, state and federalenvironmental laws and regulations relating to, among other matters:•Waste disposal; •Air emissions; •Waste water and storm water management and treatment; •Soil and groundwater contamination remediation; and •Employee health and safety. Failure to maintain or achieve compliance with these laws and regulations or with the permits required for our operations could result insubstantial operating costs and capital expenditures, in addition to fines and civil or criminal sanctions, third party claims for property damageor personal injury, cleanup costs or temporary or permanent discontinuance of operations. Certain of our facilities have been in operation formany years and, over time, we and other predecessor operators of these facilities have generated, used, handled and disposed of hazardousand other regulated wastes. Material environmental liabilities could exist, including cleanup obligations at these facilities or at off-site locationswhere we disposed of materials from our operations, which could result in future expenditures that we cannot currently estimate and whichcould reduce any profits.Our financial statements are based upon estimates and assumptions that may differ from actual results. We have prepared our financial statements in accordance with U.S. generally accepted accounting principles and necessarily include amountsbased on estimates and assumptions we made. Actual results could differ from these amounts. Significant items subject to such estimates andassumptions include the carrying value of long-lived assets, valuation allowances for accounts receivable, inventory, lower of cost or netrealizable value, stock option values, liabilities for potential litigation, claims and assessments, and liabilities for environmental remediation anddeferred taxes. 10Table of ContentsWe depend on our senior management team and the loss of any member could prevent us from implementing our business strategy. Our success is dependent on the management and leadership skills of our senior management team. The loss of any members of ourmanagement team or the failure to attract and retain additional qualified personnel could prevent us from implementing our business strategyand continuing to grow our business at a rate necessary to achieve and maintain future profitability. Seasonal changes may adversely affect our business and operations. Our operations may be adversely affected by periods of inclement weather, which could decrease the collection and shipment volume ofrecyclable materials.A disruption in our information technology systems, including a disruption related to cybersecurity, could adversely affect our financialperformance.Cyber-attacks are increasing in their frequency, sophistication and intensity. Cyber-attacks could include the deployment of harmful malware,denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Werely on the accuracy, capacity and security of our information technology systems. Despite the security measures that we have implemented,including those measures related to cybersecurity, our systems could be breached or damaged by computer viruses, natural or man-madeincidents or disasters or unauthorized physical or electronic access. A breach could result in business disruption, theft of our intellectualproperty, trade secrets or customer and supplier information and unauthorized access to personnel information. To the extent that our businessis interrupted or data is lost, destroyed or inappropriately used or disclosed, such disruptions could materially and adversely affect ourcompetitive position, relationships with our customers and suppliers, financial condition, operating results and cash flows. In addition, we maybe required to incur significant costs to protect against the damage caused by these disruptions or security breaches in the future. Risks Related to Our Common Stock Future sales of our common stock could depress our market price and diminish the value of your investment. Future sales of shares of our common stock could adversely affect the prevailing market price of our common stock. If our existing shareholderssell a large number of shares, or if we issue a large number of shares, the market price of our common stock could significantly decline.Moreover, the perception in the public market that our existing shareholders and, in particular, Kletter affiliates might sell shares of commonstock could depress the market for our common stock. The market price for our common stock may be volatile. In recent periods, there has been volatility in the market price for our common stock. In addition, the market price of our common stock couldfluctuate substantially in the future in response to a number of factors, including the following: •Our quarterly operating results or the operating results of our operations in the ferrous, non-ferrous and used auto parts industries; •Changes in general conditions in the economy, the financial markets or the ferrous and non-ferrous recycling industry; •Loss of significant customers; and •Increases in materials and other costs. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effecton the market prices of securities issued by many companies for reasons unrelated to their operating performance. These broad marketfluctuations may materially adversely affect our stock price, regardless of our operating results.11Table of Contents Item 1B. Unresolved Staff Comments None. Item 2. Properties The following table outlines our principal properties as of December 31, 2017: Property Address Lease or own Segment Acreage6709 Grade Lane, Louisville, KY Lease (1) Recycling & Other 1.326 7023-7103 Grade Lane, Louisville, KY Own Recycling 2.530 7020/7100 Grade Lane, Louisville, KY Lease (K&R) (2) Recycling & Other 14.230 7110 Grade Lane, Louisville, KY Own Recycling 10.723 7124 Grade Lane, Louisville, KY Own Recycling 5.120 7200-7210 Grade Lane, Louisville, KY Own Recycling 15.520 3409 Camp Ground Road, Louisville, KY Own Recycling 5.670 960 S. County Rd 900 W, North Vernon, IN Lease (3) Recycling 14.000 1617 State Road 111, New Albany, IN Own Recycling 1.300 (1)See Note 9 - Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional informationrelated to the 6709 Grade Lane lease. (2)See Note 9 - Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional informationrelated to the K&R lease. (3)See Note 4 - Lease Commitments in the accompanying Notes to Consolidated Financial Statements for additional information related tothe Seymour/North Vernon lease. These properties total 70.419 acres, which provides adequate space necessary to perform administrative and retail operation processes andstore inventory. All facilities maintain industry standard insurance coverages. We do not expect any major land or building additions will beneeded to increase capacity for our operations in the foreseeable future. 12Table of Contents Item 3. Legal Proceedings We have litigation from time to time, including employment-related claims, none of which we currently believe to be material. Our operations are subject to various environmental statutes and regulations, including laws and regulations addressing materials used in theprocessing of our products. In addition, certain of our operations are subject to federal, state and local environmental laws and regulations thatimpose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solidand hazardous wastes. Failure to maintain or achieve compliance with these laws and regulations or with the permits required for our operationscould result in substantial operating costs and capital expenditures, in addition to fines and civil or criminal sanctions, third party claims forproperty damage or personal injury, cleanup costs or temporary or permanent discontinuance of operations. Certain of our facilities have beenin operation for many years and, over time, we and other predecessor operators of these facilities have generated, used, handled and disposedof hazardous and other regulated wastes. Environmental liabilities in material amounts could exist, including cleanup obligations at thesefacilities or at off-site locations where we disposed of materials from our operations, which could result in future expenditures that we cannotcurrently estimate and which could reduce our profits. ISA records liabilities for remediation and restoration costs related to past activities whenour obligation is probable and the costs can be reasonably estimated. Costs of future expenditures for environmental remediation are notdiscounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt isdeemed probable. Costs of ongoing compliance activities related to current operations are expensed as incurred. Such compliance has nothistorically constituted a material expense to us.Item 4. Mine Safety Disclosures Not applicable. 13Table of Contents PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ISA common stock is traded on the NASDAQ Capital Market under the symbol “IDSA.” High and low sales prices of the common stock priceare summarized as follows: 2017 2016Quarter Ended High Low High LowMarch 31 $2.60 $1.56 $3.05 $0.87 June 30 $1.79 $0.96 $2.78 $1.63 September 30 $2.29 $1.30 $2.30 $1.32 December 31 $1.97 $1.45 $3.35 $1.10 There were approximately 130 shareholders of record as of December 31, 2017. Our Board of Directors did not declare any dividends in 2017 or 2016. Under our previous Wells Fargo and our current MidCap loan agreements, ISA covenants that so long as the lenders remain committed to makeany advance or extend any other credit to us, or any obligations remain outstanding, ISA will not declare or pay any dividend or distribution(either in cash or any other property in respect of any stock) or redeem, retire, repurchase or otherwise acquire any of our stock, other thandividends and distributions by our subsidiaries to a parent. On November 15, 2005, our Board of Directors authorized a program to repurchase up to 300.0 thousand shares of our common stock at currentmarket prices. We did not repurchase any shares in 2017 or 2016. There are approximately 133.3 thousand shares still available for repurchaseunder this program. 14Table of Contents Item 6. Selected Financial Data (Amounts in thousands, except per share data)Year ended December 31: 2017 2016 2015 2014 2013Total revenue $54,935 $36,505 $46,180 $110,091 $136,753 Net loss from continuing operations $(1,131) $(3,230) $(9,085) $(8,686) $(13,816)Net income from discontinued operations $— $— $7,320 $1,413 $* Earnings (loss) per common share from continuingoperations: Basic $(0.14) $(0.40) $(1.14) $(1.15) $(1.96)Diluted $(0.14) $(0.40) $(1.14) $(1.15) $(1.96)Earnings (loss) per common share from discontinuedoperations: Basic $— $— $0.92 $0.19 $* Diluted $— $— $0.92 $0.19 $* At year end: Total assets $21,867 $20,856 $19,434 $37,790 $44,032 Current maturities of long-term debt $5,018 $2,942 $20 $15,911 $1,597 Current maturities of long-term debt, related parties $ 64 $— $— $— $— Current maturities of capital lease obligations $300 $198 $— $— $— Long-term debt, net of current maturities $— $— $— $— $16,295 Long-term debt, net of current maturities, relatedparties $ 1,536 $1,504 $— $— $— Capital lease obligations, net of current maturities $819 $1,050 $— $— $— The recycling business is highly competitive and is subject to various market and company risks. See Item 1A. - Risk Factors for a discussion ofthe material risks related to our operations. Due to these risks, past performance is not necessarily indicative of our future financial condition orresults of operations. * On December 4, 2015, the Company sold a majority of its Waste Services Segment assets. Years 2015 and 2014 have been adjusted to reflectdiscontinued operations of the Waste Services Segment. Year 2013 has not been adjusted for discontinued operations of the Waste ServicesSegment. 15Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the information set forth under Item 6, “Selected Financial Data”and our consolidated financial statements and the accompanying notes thereto included elsewhere in this report. The following discussion and analysis contains certain financial predictions, forecasts and projections which constitute “forward-lookingstatements” within the meaning of the federal securities laws. Actual results could differ materially from those financial predictions, forecastsand projections and there can be no assurance that we will achieve such financial predictions, forecasts and projections. Please see Item 1A,“Risk Factors” for items that could affect our financial predictions, forecasts and projections. General Our core business is now focused on the metal recycling industry. During 2016, we announced that the Company formed a special committee ofindependent board members to evaluate various growth and strategic options. During the first quarter of 2017, the special committee concludedits work and reported to the Board. The Board accepted the special committee's recommendation to focus on returning our core recyclingbusiness to profitability. We intend to do this by increasing efficiencies and productivity. These efforts included the commercial restart of ourshredder in the second quarter of 2017, which had been previously idled in 2015. We intend to run the shredder in the normal course ofbusiness subject to market conditions and operating needs. We will also evaluate other various options and remain alert for possible strategicpartnerships, joint ventures and mergers/acquisitions. The Company announced on October 4, 2016 the Company and Algar, Inc. ("Algar") mutually agreed to terminate the Management Agreementbetween us, pursuant to the Agreement to Terminate Management Services among the Company, Algar, and Sean Garber dated as of September30, 2016. Effective September 30, 2016, Mr. Garber resigned from all positions with the Company, including as President. Also, on September 30,2016, the Company’s Chief Financial Officer was appointed to serve in the additional role as President. We have operating locations in Louisville, Kentucky, and Seymour and New Albany, Indiana. We do not have operating locations outside theUnited States. Seymour is used interchangeably with North Vernon herein. Liquidity and Capital Resources Cash flows generated from operations and our revolving credit facility are significant sources of ongoing liquidity. We have also been able tomanage liquidity by deferring certain rent payments made to related parties during 2016 and through October 1, 2017, as well as deferring capitalexpenditures during 2016 and 2017. See Note 9 - Related Party Transactions in the accompanying Notes to Consolidated Financial Statementsfor additional information. We actively manage our working capital and associated cash requirements and continually seek more effective use ofcash. As of December 31, 2017, we held cash and cash equivalents of $841.0 thousand. We drew $2.1 million on our revolving credit facilityduring the year ended December 31, 2017. We expect operating cash flow and borrowings under our working capital line of credit to besufficient to meet our ongoing liquidity needs. Credit facilities and notes payable See Note 1 - Summary of Significant Accounting Policies and General, Note 3 - Long-term Debt and Notes Payable to Bank, Note 4 - LeaseCommitments and Note 9 - Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for details on debt andnotes payable, capital leases and related party obligations.The borrowings under the line of credit are classified as short-term obligations under GAAP as the agreement with the lender contains asubjective acceleration clause and requires the Company to maintain a lockbox arrangement with the lender. However, the contractual maturitydate of the line of credit is February 28, 2020.16Table of Contents Critical Accounting Policies In preparing financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"), we makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at thedate of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. We believe that weconsistently apply judgments and estimates and that such consistent application results in financial statements and accompanying notes thatfairly represent all periods presented. However, any errors in these judgments and estimates may have a material impact on our statement ofoperations and financial condition. Our significant accounting policies are described in Note 1 - Summary of Significant Accounting Policiesand General in the accompanying Notes to Consolidated Financial Statements. Critical accounting policies, as defined by the Securities andExchange Commission, are those that are most important to the portrayal of our financial condition and results of operations and require ourmost difficult and subjective judgments and estimates of matters that are inherently uncertain. We consider the following policies to be the mostcritical in understanding the judgments that are involved in preparing the consolidated financial statements. Revenue Recognition We recognize revenues from processed ferrous and non-ferrous scrap metal sales when title passes to the customer, which generally is upondelivery of the related materials. We recognize revenue on auto parts when title passes to the customer. We accrue sales adjustments related toprice and weight differences and allowances for uncollectible receivables against revenues as incurred. Inventory Our inventories primarily consist of ferrous and non-ferrous, including stainless steel and scrap metals, and are valued at the lower of averagepurchased cost or net realizable value ("NRV") based on the specific scrap commodity. Quantities of inventories are determined based on ourinventory systems and are subject to periodic physical verification using estimation techniques including observation, weighing and otherindustry methods. We recognize inventory impairment and related adjustments when the NRV, based upon current market pricing, falls belowrecorded value or when the estimated volume is less than the recorded volume of the inventory. We record the loss in cost of sales in the periodduring which we identified the loss.Prices of commodities we own may be volatile. We are exposed to risks associated with fluctuations in the market price for both ferrous andnon-ferrous metals, which are at times volatile. We attempt to mitigate this risk by seeking to rapidly turn our inventories. We make certain assumptions regarding future demand and NRV in order to assess whether inventory is properly recorded at the lower of costor NRV. We base our assumptions on historical experience, current market conditions and remaining costs of processing (if any) and disposal. Ifthe anticipated future selling prices of scrap metal and finished steel products should decline, we would re-assess the recorded NRV of ourinventory and make any adjustments we feel necessary in order to reduce the value of our inventory (and increase cost of sales) to the lower ofcost or NRV. Valuation of long-lived assets We regularly review the carrying value of certain long-lived assets for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be realizable. If an evaluation is required, we compare the estimated future undiscounted cash flows associatedwith the asset to the asset’s carrying amount to determine if an impairment of such asset is necessary. The effect of any impairment would be toexpense the difference between the fair value of such asset and its carrying value. Income Taxes We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respectivetax bases and operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected toapply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect on deferred taxassets and liabilities of a change in tax rates in income in the period that includes the enactment date. We recognize interest accrued related tounrecognized tax positions in interest expense and penalties in operating expenses, if appropriate. We use the deferral method of accounting forthe available state tax credits relating to the purchase of the shredder equipment. We recognize uncertain income tax positions using the "more-likely-than-not" approach as defined in the ASC. The amount recognized issubject to estimate and management’s judgment with respect to the most likely outcome for each uncertain tax position. The amount that isultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amountrecognized. We have no liability for uncertain tax positions recognized as of December 31, 2017 and 2016. See also Note 6 - Income Taxes in the accompanying Notes to Consolidated Financial Statements for additional information regarding incometaxes and related assets. 17Table of Contents Stock Incentive Plan We have a Long Term incentive Plan adopted in 2009 under which we may grant equity awards for up to 2.4 million shares of common stock,which are reserved by the board of directors for issuance of equity awards. We account for this plan based on FASB’s authoritative guidancetitled "ASC Topic 718 - Compensation - Stock Compensation." We recognize share-based compensation expense for the fair value of theawards, as estimated using the Modified Black-Scholes-Merton Model, on the date granted on a straight-line basis over their vesting term.Compensation expense is recognized only for share-based payments expected to vest. We estimate forfeitures at the date of grant based on ourhistorical experience and future expectations. Under the plan, the maximum term of an option is five years. Results of Operations Year Ended Compared to Year Ended The following table presents, for the years indicated, the percentage relationship that certain captioned items in our Consolidated Statements ofOperations bear to total revenue: Year ended December 31,2017 2016Consolidated Statements of Operations Data: Total revenue100.0 % 100.0 %Total cost of sales94.2 % 96.1 %Selling, general and administrative expenses6.4 % 12.3 %Loss before other income (expense)(0.5)% (8.4)% Total revenue increased $18.4 million or 50.5% to $54.9 million for the year ended December 31, 2017 compared to $36.5 million for the year endedDecember 31, 2016.Ferrous revenue increased $8.9 million or 69.0% to $21.9 million for the year ended December 31, 2017 compared to $12.9 million for the yearended December 31, 2016. For the year ended December 31, 2017 compared to the year ended December 31, 2016, the average selling price("ASP") of ferrous material increased $110 per gross ton, or 57.0%, partially as a result of the shredder restart that led to a favorable shift in theferrous sales mix and partially due to market improvements. For the year ended December 31, 2017 compared to the year ended December 31,2016, ferrous material shipments increased 2.3 thousand tons, or 3.2%, despite the negative impact from the shredder restart. The inherentnature of the shredding process produces less saleable product volume but at a higher quality level, thereby increasing the ASP while itdecreases the volume of material shipped. Ferrous revenue includes non-commodity revenue such as service fees, transportation and returnsand allowances; the ASP calculation excludes these non-commodity revenues. Non-ferrous revenue increased $9.8 million or 44.6% to $31.6 for the year ended December 31, 2017 compared to $21.9 million for the year endedDecember 31, 2016. Non-ferrous material shipments increased by 4.6 million pounds, or 17.8% and the ASP of non-ferrous materialincreased $0.21 per pound or 24.5% for the year ended December 31, 2017 compared to the year ended December 31, 2016. Non-ferrous revenueincludes non-commodity revenue such as service fees, transportation and returns and allowances; the ASP calculation excludes these non-commodity revenues.Total cost of sales increased $16.6 million or 47.4% to $51.7 million for the year ended December 31, 2017 compared to $35.1 million for the yearended December 31, 2016. The increase was a result of volume increases in our ferrous and non-ferrous operations as well as higher averageprices on a per-unit basis in our ferrous and non-ferrous operations. Total cost of sales as a percent of revenue decreased 2.0% for the year ended December 31, 2017 as compared the year ended December 31,2016. This improvement was a result of generally increasing ASP during 2017 as well as favorable sales mix that resulted from the startup of theshredder. This was partially offset by startup expenses the Company incurred due to the restart of the shredder operations in May 2017. Thesestartup expenses consisted primarily of repairs and maintenance expenses, utilities expenses and personnel expenses. Selling, general and administration expenses decreased $1.0 million to $3.5 million for the year ended December 31, 2017 as compared to$4.5 million for the year ended December 31, 2016, mainly due to a decrease in share based compensation expense of $296.4 thousand and adecrease in amounts paid to Algar for management expense of $251.6 thousand. Other expense was $837.0 thousand for the year ended December 31, 2017 compared to $94.0 thousand for the year ended December 31, 2016. The $743.0 thousand change is primarily a result of a $339.0 thousand increase in interest expense, which is a result of the increasedoutstanding balance on the line of credit, and a decrease of $399.0 thousand in the gain on insurance proceeds in 2017 compared to 2016. 18December 31, 2017December 31, 2016Table of Contents Significant components of other income (expense), in thousands, were as follows: Year Ended December 31,(in thousands)Description Other Income (Expense)2017 2016(Loss) gain from settlements$(19) $10 Other3 6 Total other (expense) income, net$(16) $16 The income tax provision decreased $68.0 thousand to a tax provision of $12.0 thousand in 2017 compared to a tax expense of $80.0 thousand in2016. The effective tax rates in 2017 and 2016 were (1.1)% and (2.5)%, respectively, based on federal and state statutory rates. Due to recurringoperating losses being incurred, at December 31, 2013, we recorded nearly a full valuation allowance, which is continuing through December 31,2017. We also have state and franchise taxes payable based on gross receipts. The Company is currently under a property tax audit and hasaccrued $100.0 thousand as an estimate of potential assessments.Net loss for the year ended December 31, 2017 was $1.1 million compared to $3.2 million for the same period of 2016, a decrease of $2.1 million or65.0%. Financial Condition at December 31, 2017 compared to December 31, 2016 Cash and cash equivalents increased $0.3 million to $0.8 million as of December 31, 2017 compared to $0.5 million as of December 31, 2016. Net cash used in operating activities was $1.4 million for the year ended December 31, 2017. The net cash used in operating activities is primarilydue to a net loss of $1.1 million, in inventories of $1.7 million, an increase in receivables of $0.9 million, and a decrease in payableand accrued expenses to related parties of $405.0 thousand, partially offset by depreciation and amortization of $2.2 million, an increase inaccounts payables of $0.2 million, in other current liabilities of $138.0 thousand, share-based option expense of $116.0 thousand,and a decrease in receivables from related parties of $58.0 thousand. The company had $132.0 thousand of capital expenditures in 2017. Net cash from financing activities was $1.8 million for the year ended December 31, 2017. For the year ended December 31, 2017, we received netproceeds from debt of $2.1 million less capitalized loan fees in the amount of $125.0 thousand, and we made payments on capital leaseobligations and related party debt of $204.0 thousand and $33.0 thousand, respectively. Trade accounts receivable after allowances for doubtful accounts increased $0.9 million or 25.6% to $4.2 million as of December 31, 2017compared to $3.4 million as of December 31, 2016 due to increased shipments and commodity price increases. In general, the accountsreceivable balance fluctuates due to the quantity and timing of shipments, commodity prices and receipt of customer payments. Inventories consist principally of ferrous and non-ferrous scrap materials. We value inventory at the lower of cost or net realizable value.Inventory increased $1.7 million or 48.6% to $5.1 million as of December 31, 2017 compared to $3.4 million as of December 31, 2016. This increaseis primarily driven by higher commodity prices and increased volumes during the fourth quarter of 2017 compared to the fourth quarter of 2016. 19an increasean increaseTable of Contents Inventory aging for the period ended December 31, 2017 (Days Outstanding): (in thousands)Description 1 - 30 31 - 60 61 - 90 Over 90 TotalFerrous and non-ferrous materials $4,069 $693 $119 $225 $5,106 Inventory aging for the period ended December 31, 2016 (Days Outstanding): (in thousands)Description 1 - 30 31 - 60 61 - 90 Over 90 TotalFerrous and non-ferrous materials $3,011 $268 $62 $96 $3,437 Inventory in the "1-30 days" category increased by $1.1 million from December 31, 2016 to December 31, 2017. This increase is primarily due toincreased volumes during December 2017 as compared to December 2016. Accounts payable trade increased $0.2 million or 11.2% to $1.8 million as of December 31, 2017 compared to $1.6 million as of December 31, 2016.The accounts payable balance fluctuates due to quantity and timing of purchases from and payments made to our vendors. Payable and accrued expenses to related parties decreased $0.4 million to $0.2 million as of December 31, 2017 compared to $0.6 million as ofDecember 31, 2016. This decrease is largely a result of a decrease in the bonus payable to Algar of $180.0 thousand, a decrease in the accountspayable to the Board of Directors for fees of $94.0 thousand, a decrease in accrued interest to related parties of $63.0 thousand and a decreasein facility rent payable to related parties of $53.0 thousand. See Note 9 - Related Party Transactions in the Consolidated Financial Statements foradditional information. Working capital, defined as current assets less current liabilities, increased $0.5 million to $2.2 million as of December 31, 2017 compared to $1.7million as of December 31, 2016 as a result of the above noted items. 20Table of Contents Contractual Obligations The following table provides information with respect to our known contractual obligations as of December 31, 2017: Payments due by period (in thousands)Obligation Description: Total Less than 1 year 1 - 2 years 3 - 4 years More than 4 yearsLong-term debt obligations $6,618 $64 $6,554 $— $— Operating lease obligations 3,372 582 1,102 900 788 Capital lease obligations 1,119 300 690 121 8 Total $11,109 $946 $8,346 $1,021 $796 Inflation and Prevailing Economic Conditions To date, inflation has not and is not expected to have a significant impact on our operation in the near term. We have no long-term fixed-pricecontracts and we believe we will be able to pass through most cost increases resulting from inflation to our customers. We are susceptible tothe cyclical nature of the commodity business. Fluctuating commodity prices affect market risk in our Recycling Segment. We mitigate the risk by selling our product on a monthly contractbasis. Each month we negotiate selling prices for all commodities. Based on these monthly agreements, we determine purchase prices based ona margin needed to cover processing and administrative expenses. We are exposed to commodity price risk, mainly associated with variations in the market price for stainless steel, ferrous and non-ferrous metal,and other commodities. The timing and magnitude of industry cycles are difficult to predict and general economic conditions impact the cycles.We respond to changes in recycled metal selling prices by adjusting purchase prices on a timely basis and by turning rather than holdinginventory in expectation of higher prices. However, an adverse impact on our financial results may occur if selling prices fall more quickly thanwe can adjust purchase prices or if levels of inventory have an anticipated net realizable value that is below average cost. Impact of Recently Issued Accounting Standards In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 affect anyentity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancialassets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The core principle of theguidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflectsthe consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments are effective for annualreporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application for annualreporting periods beginning after December 15, 2016 was permitted. The Company evaluated the impact of the adoption of ASU 2014-09 on theConsolidated Financial Statements and did not record any material impact from the adoption of ASU 2014-09 on the Consolidated FinancialStatements as of January 1, 2018. 21Table of Contents In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that deferred tax assets andliabilities be classified as noncurrent on the consolidated balance sheet. ASU 2015-17 was effective for annual periods beginning afterDecember 15, 2016, including interim periods within those annual periods. Upon adoption, ASU 2015-17 may be applied either prospectively orretrospectively. The Company adopted the standard prospectively in the first quarter of 2017 and noted no material impact from the adoption onthe Consolidated Financial Statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, to improve financial reporting about leasing transactions. This ASU will requireorganizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms ofmore than twelve months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basisand a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASUsimplify the accounting for sale and leaseback transactions. This ASU leaves the accounting for the organizations that own the leased assetslargely unchanged except for targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts withCustomers. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscalyears. Early adoption is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases)must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparativeperiod presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases thatexpired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. TheCompany is evaluating the potential impact of ASU 2016-02 on the Consolidated Financial Statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which provides guidance to improve financial reporting byrequiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and otherorganizations. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. TheCompany is evaluating the potential impact of ASU 2016-13 on the Consolidated Financial Statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments, whichprovides guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, includinginterim periods within those annual periods. Early adoption is permitted as of the beginning of an interim or annual reporting period. Uponadoption, ASU 2016-15 should be applied retrospectively. The Company is evaluating the potential impact of ASU 2016-15 on the ConsolidatedFinancial Statements, but does not expect a material impact from the adoption of ASU 2016-15 on the Consolidated Financial Statements.Item 7A. Quantitative and Qualitative Disclosures About Market Risk N/A - Not required for smaller reporting companies.Item 8. Financial Statements and Supplementary Data Our consolidated financial statements required to be included in this Item 8 are set forth in Item 15 of this report and incorporated herein byreference.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 22Table of Contents Item 9A. Controls and Procedures (a)Disclosure controls and procedures. ISA’s management, including ISA’s principal executive officer and principal financial officer, have evaluated the effectiveness of our“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of1934. Based upon their evaluation, our principal executive officer and principal financial officer concluded that, as of December 31,2017, ISA’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosedin the reports that ISA files under the Exchange Act with the Securities and Exchange Commission (1) is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated toISA’s management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regardingthe required disclosure. (b)Internal controls over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term isdefined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Our internal control over financial reporting includes the processdesigned by, or under the supervision of, our CEO and CFO, and effected by our Board of Directors, management and other personnel,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles and includes those policies and procedures that: ▪pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions ofour assets;▪provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements inaccordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of ourmanagement and directors; and▪provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of ourassets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting cannot prevent or detect every potential misstatement.Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statementpreparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controlsmay become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydecline. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting, based on the frameworkand criteria established in the 2013 Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations ofthe Treadway Commission. Based on this evaluation, our management assessed the effectiveness of our internal control over financialreporting for the year ended December 31, 2017, and concluded that such internal control over financial reporting was effective as ofDecember 31, 2017. This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internalcontrol over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuantto rules of the SEC that require only management’s report in this Annual Report on Form 10-K. (c)Changes to internal control over financial reporting. There were no changes in ISA’s internal control over financial reporting during the year ended December 31, 2017 that have materiallyaffected, or are reasonably likely to affect ISA’s internal control over financial reporting. Item 9B. Other Information Effective following the filing of this Annual Report on Form 10-K, Orson Oliver will resign his positions as Chairman of the Board and InterimChief Executive Officer; he will remain as a member of the Board of Directors, Vince Tyra will assume the role of Chairman of the Board and ToddL. Phillips will become the Chief Executive Officer, along with his positions as President and Chief Financial Officer.23Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance BOARD OF DIRECTORS Set forth below is a list of members of the Board of Directors, together with their ages, all Company positions and offices each person currentlyholds and the year in which each person joined the Board. Name and Principal Occupation with Company Age Year FirstBecameDirector Orson Oliver 75 2005 Chairman of the Board and Interim Chief Executive Officer Albert Cozzi 72 2006 Director Vince Tyra 52 2014 Director William Yarmuth 66 2014 Director ORSON OLIVER has been our director since 2005, our Chairman of the Board since 2012 and our interim Chief Executive Officer since 2013. Hecurrently holds an officer position as General Counsel with the A.J. Schneider Company. He has over thirty-five years of experience in bankingand financial consulting. Mr. Oliver began his career in 1968 as an attorney with the U.S. Treasury Department in Washington, D.C. In 1975, hejoined the Bank of Louisville as general counsel. In 1985, he became president of the Bank of Louisville. When Branch Banking and TrustCompany acquired the Bank of Louisville in 2003, the Bank of Louisville had assets of $1.6 billion and was the largest, locally managed bank inLouisville, Kentucky. Since his retirement from banking in February 2004, Mr. Oliver has worked as an independent general business consultantfor the Al J. Schneider Company, a corporation with a number of large hotels and real estate holdings in the Louisville, Kentucky area. FromMay 2004 through December 2011, Mr. Oliver also worked as an independent general business consultant for PNC Bank, which isheadquartered in Pittsburgh, Pennsylvania. Mr. Oliver was a member of the Board of Directors of the Al J. Schneider Company from February2004 through June 2016. Beginning in 2013, Mr. Oliver also serves as a director of the Bankers' Bank of Kentucky. ALBERT A. COZZI has been our director since 2006. Since February 2006, Mr. Cozzi has been a partner with Cozzi Consulting Group, a start-upconsulting business, marking the re-entry of Mr. Cozzi into the scrap industry following a two-year non-compete agreement he had with hisformer employers at Metal Management, Inc. From July 1999 to January 2004, Mr. Cozzi served as the chief executive officer of MetalManagement, Inc. headquartered in Chicago, Illinois, and one of the largest full service metals recyclers in the United States. From December1997 to June 1999, Mr. Cozzi served as the president and chief operating officer of Metal Management, Inc. From 1963 to 1997, Mr. Cozzi heldvarious positions with Cozzi Iron & Metal, originally located in Chicago, Illinois, prior to its merger with Metal Management, Inc., includingpresident from 1990 to 1997. Mr. Cozzi received an M.B.A. from the University of Chicago. 24Table of Contents VINCE TYRA has been our director since 2014. Since October 2017, Mr. Tyra has been the interim Athletic Director at the University ofLouisville. Mr. Tyra was President of ISCO Industries ("ISCO"), a global, customized piping solutions provider based in Louisville, Kentucky,through 2016. Prior to his position at ISCO, Mr. Tyra was a Managing Partner at Southfield Capital, a private investment firm based inGreenwich, Connecticut, where he joined in 2007. Mr. Tyra continues to be an Operating Partner with Southfield Capital, serves on the firm'sinvestment committee and is a board member of various Southfield Capital portfolio companies. Prior to Southfield Capital, Mr. Tyra was CEO ofBroder Bros., Co., a wholesale distributor of imprintable activewear. Prior to joining Broder, Mr. Tyra served as President of Retail andActivewear at Fruit of the Loom. Previous to Fruit of the Loom, Mr. Tyra was a principal investor and Executive Vice President of TSM, aLouisville, Kentucky based wholesale distributor of activewear. WILLIAM YARMUTH has been our director since 2014. Mr. Yarmuth has been the Chairman and Chief Executive Officer at Almost Family Inc.("Almost Family"), a Louisville, Kentucky-based provider of a range of Medicare-certified home health nursing services to patients in need ofrecuperative and other care, since 1992. Mr. Yarmuth has been a director of Almost Family since 1991, when the company acquired NationalHealth Industries, where Mr. Yarmuth was Chairman, President and Chief Executive Officer. Almost Family's common stock is registered underSection 12 of the Exchange Act. Except as disclosed above, none of the other directors holds another directorship in a company with a class of securities registered pursuant toSection 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or in a company registered as an investmentcompany under the Investment Company Act of 1940, as amended. None of our directors has any family relationship with any of our otherdirectors or executive officers. Audit Committee The Audit Committee confers with our independent registered public accounting firm regarding the scope and adequacy of annual audits;reviews reports from such independent accountants; and meets with the independent accountants to review the adequacy of our accountingprinciples, financial controls and policies. The Audit Committee met four (4) times in 2017. The members of the Audit Committee are Messrs.Tyra, Cozzi and Yarmuth. Mr. Tyra is the chairperson of this committee. All current members of the Audit Committee are independent as definedin Rule 5605(a)(2) of the NASDAQ listing standards and the Audit Committee Qualifications of Rule 5605(c)(2). The Board of Directors hasdetermined that Mr. Tyra is qualified as an "audit committee financial expert" based on a thorough review of his education and financialexperience and is independent as described in the preceding sentences. Our Audit Committee has a written charter, which is available on ourwebsite at www.isa-inc.com under Investors. 25Table of Contents EXECUTIVE OFFICERS The following table sets forth certain information with respect to the Company's executive officers. Name Served as anExecutive OfficerFrom Age Position with theRegistrant and OtherPrincipal OccupationsOrson Oliver 2013 75 Mr. Oliver has been our director since 2005, our Chairman of the Board since 2012 and our interimChief Executive Officer since 2013. He currently holds an officer position as General Counselwith the A.J. Schneider Company. He has over thirty-five years of experience in banking andfinancial consulting. Mr. Oliver began his career in 1968 as an attorney with the U.S. TreasuryDepartment in Washington, D.C. In 1975, he joined the Bank of Louisville as general counsel. In1985, he became president of the Bank of Louisville. When Branch Banking and Trust Companyacquired the Bank of Louisville in 2003, the Bank of Louisville had assets of $1.6 billion and wasthe largest, locally managed bank in Louisville, Kentucky. Since his retirement from banking inFebruary 2004, Mr. Oliver has worked as an independent general business consultant for the AlJ. Schneider Company, a corporation with a number of large hotels and real estate holdings in theLouisville, Kentucky area. From May 2004 through December 2011, Mr. Oliver also worked as anindependent general business consultant for PNC Bank, which is headquartered in Pittsburgh,Pennsylvania. Mr. Oliver was a member of the Board of Directors of the Al J. SchneiderCompany from February 2004 through June 2016. Beginning in 2013, Mr. Oliver also serves as adirector of the Bankers' Bank of Kentucky. Todd L. Phillips 2014 42 Mr. Phillips joined ISA as Chief Financial Officer on December 31, 2014; he was also appointedPresident in September 2016. Mr. Phillips joined ISA from CRS Reprocessing, LLC, where he heldthe positions of Chief Operating Officer and Chief Financial Officer from January 2009 toDecember 2014. CRS is a private-equity backed company with operations in the United States,Europe and Asia. Prior to CRS, Mr. Phillips was Chief Financial Officer at Genscape, Inc. fromMarch 2004 to January 2009, a global information provider to energy commodity traders. Genscape was backed by private equity firm Oaktree Capital and was honored twice during Mr.Phillips’s tenure as an Inc. 500 company, recognizing Genscape as one of the 500 fastest growingcompanies in the United States. Mr. Phillips was the corporate controller for Metal SalesManufacturing Corporation from March 2002 to March 2004. Mr. Phillips began his career atArthur Andersen LLP from December 1997 through March 2002 following his graduation fromthe University of Kentucky. He is a Certified Public Accountant and holds degrees inaccounting and business administration, with a focus on finance, from the University ofKentucky. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors, certain officers and persons who own more than ten percent (10%) of our outstandingcommon stock to file with the Securities and Exchange Commission reports of changes in ownership of our common stock held by suchpersons. Officers, directors and greater than 10% shareholders must furnish us with copies of all forms they file under this regulation. To ourknowledge, based solely on a review of the copies of such reports furnished to us and representations from reporting persons that no otherreports including Forms 5 were required, all Section 16(a) filing requirements applicable to all of our officer, directors and greater than 10%shareholders were timely complied with during 2017. Code of Ethics The Board of Directors has adopted our Code of Ethics for the Chief Executive Officer and Financial Executives, which is available on ourwebsite at www.isa-inc.com under Investors. The Company will post any waivers to the Code of Ethics to our website. Shareholders maycommunicate directly with the Board of Directors in writing by sending a letter to the Board at: Industrial Services of America, Inc., 7100 GradeLane, Louisville, KY 40213 or by a secure e-mail via our website at www.isa-inc.com. 26Table of Contents Item 11. Executive Compensation EXECUTIVE COMPENSATION DISCUSSION In accordance with SEC regulations, the following table summarizes the compensation awarded to, paid to, or earned by: (i) all persons whoserved as our principal executive officer during 2017 and (ii) our executive officers whose total compensation exceeded $100,000in 2017 (collectively the "Named Executive Officers"). No other persons served as executive officers during 2017. Summary Compensation Table Name and Principal Position Year Salary($) Bonus($) Share-Based Compensation($) Non-EquityIncentive PlanCompensation($) All OtherCompensation($) Total($)Orson Oliver 2017 $— $— $ — $ — $37,500 (1)$37,500 Interim Chief Executive Officer 2016 — — — — 52,400 (1)52,400 Todd L. Phillips 2017 $220,000 $ 110,000 $ — $ 125,000 $— (2)$455,000 President, Secretary,and Chief Financial Officer 2016 220,000 110,000 189,000 100,000 — (2)619,000 (1) Mr. Oliver was appointed interim CEO in June 2013. He does not receive any compensation for serving in this role. Amounts reflectdirector's fees earned of $37.5 thousand in 2017 and $52.4 thousand in 2016. (2) Mr. Phillips was appointed President in September 2016, was appointed Secretary in June 2016, and continues to be Chief Financial Officer, aposition he has held since December 31, 2014. Amounts shown under Share-Based Compensation represent the grant date fair value ofRestricted Stock Units granted on June 15, 2016. For additional information, see Note 10 - Share-based Compensation and Other CompensationAgreements in the accompanying Notes to Consolidated Financial Statements for 2017. Amounts shown under Bonus represent a discretionarycash bonus awarded to Mr. Phillips during 2017 and 2016. Amounts shown under Non-Equity Incentive Plan Compensation representsretention bonuses earned by Mr. Phillips during 2017 and 2016. See Annual Incentive Bonuses section below for further detail. Compensation Risk AssessmentWe have assessed the incentive compensation policies and practices for our employees and concluded that they do not create risks that arereasonably likely to have a material adverse effect on the Company. The Company’s compensation policies and practices are evaluated toensure that they do not foster risk-taking above the level of risk associated with the Company’s business model. Interim Chief Executive Officer Orson Oliver does not receive any compensation in connection with his service as our interim Chief Executive Officer. 27Table of Contents Compensation Committee The members of the Compensation Committee are Messrs. Cozzi, Tyra and Yarmuth. The Compensation Committee is responsible for makingrecommendations to the Board regarding salaries and bonuses that we pay to our executive officers. This committee held two duly calledmeetings in 2017 and seven telephonic meetings. Mr. Cozzi is the committee chairperson. All functions of the Compensation Committee areperformed by the committee as a whole. However, the Compensation Committee confers with our interim Chief Executive Officer and Presidentto obtain additional input for the committee's decision-making process and recording our processes and procedures for determination ofexecutive and director compensation, including the scope of authority of the Compensation Committee, the extent to which the CompensationCommittee may delegate any authority, and any role of executive officers in determining or recommending the amount or form of executive anddirector compensation. The Compensation Committee has delegated to our President decisions regarding non-executive employeecompensation. None of our executive officers served as a member of the Compensation Committee of another entity. Our CompensationCommittee has a written charter, which is available on our website at www.isa-inc.com under Investors. Compensation Committee Consultant In January 2011 the Compensation Committee retained Bostonian Group, a Marsh & McLennan Agency Company, to undertake a marketassessment and provide trend information on incentive compensation plans. Bostonian Group used Towers Watson Top Management Report(Services: $100M - $449M), Mercer Executive Compensation Survey (General Industry Less Than $500M), and Salary.com Companalyst Survey(General Industry $200M - $500M) as well as a peer group of companies to determine the benchmark range of competitive salaries andincentives from which to determine the appropriate salaries and incentives for the Company's executives and senior managers. The marketcomposite was calculated from the 25th, 50th and 75th percentiles of the aggregate peer group data and the three published surveys, with eachweighted 25%. Bostonian Group also provided a summary of the peer group prevalent compensation practices, including merit increases,promotions, market adjustments, and target cash and equity incentives. Bostonian Group identified the group of public companies as the peergroup that was similar to the Company (Avalon Holdings Corp, Casella Waste Systems Inc, Ceco Environmental Corp, Davey Tree Expert Co,Heritage-Crystal Clean Inc, Homeland Security Capital CP, Metalico Inc, Perma-Fix Environmental Svcs, Schnitzer Steel Inds, Team Inc, TRCCos Inc, Unvl Stainless & Alloy Prods, US Ecology Inc, Versar Inc, Waste Connections Inc, Waste Management Inc, Waste Services Inc, WCAWaste Corp) in one or more of the following ways: •Operate in the scrap metal, waste management, recycling or related environmental services industries; •Reported revenue ranging from $36 million to $562 million in their most recent fiscal year; and •Employ executives in positions similar to those of the Company's senior management. The Compensation Committee subsequently retained a second consultant, RS Finance & Consulting, LLC, to supplement Bostonian Group'sdata by identifying additional public companies with gross margins and number of employees that were similar to those of the Company, andanalyzing the compensation practices of those companies. At the request of our then President, RS Finance & Consulting updated its datain connection with the negotiation of our CFO's employment agreement in 2014. During 2017, the Compensation Committee engaged FW Cook to perform a board compensation study and a market assessment on executivecompensation plans. FW Cook used a peer group of companies to determine the benchmark range and design of competitive salaries andincentives from which to determine the appropriate salaries and incentives for the Company's executives and managers. FW Cook identifiedthirteen public companies as a peer group that was similar to the Company. The peer group consists of Schnitzer Steel Industries, Inc., CasellaWaste Systems, Inc., US Ecology, Inc., Haynes International, Inc., Insteel Industries, Inc., Heritage-Crystal Clean, Inc., Universal Stainless &Alloy Products, Inc., Quest Resource Holding Corporation, Synalloy Corporation, Hudson Technologies Inc., Friedman Industries,Incorporated, Avalon Holdings Corporation and Perma-Fix Environmental Services, Inc. These companies range between revenues of $52million and $1.7 billion. ISA is small relative to the median revenue of the peer group. Therefore, FW Cook determined that the 25th percentileof this peer group is a suitable data point. Further, FW Cook recommended amounts and design of compensation structure for named executiveofficers based on the 25th percentile of the peer group. 28Table of Contents Executive Employment Agreement and Stock Option Agreements with Chief Financial Officer On December 31, 2014, in connection with the hiring of a new Chief Financial Officer, our then President negotiated and we entered into anExecutive Employment Agreement with Mr. Phillips having successive one-year terms, which are automatically extended unless earlierterminated by either party in accordance with the agreement. Mr. Phillips' annual base salary increased from an annual rate of $200.0 thousand to an annual rate of $220.0 thousand on July 1, 2015. Mr.Phillips is eligible to receive an annual bonus with a target of 50% of his then-current annual base salary. The Company’s CompensationCommittee may determine, in its sole discretion, whether the CFO will receive an annual bonus. At the time of entry into his employment agreement, we entered into two Stock Option Agreements with our CFO, dated December 31, 2014 andJanuary 2, 2015, respectively. Under these agreements, our CFO received a grant of an aggregate of 170.0 thousand non-incentive stockoptions, with vesting scheduled over a three-year period, with 1/3 vesting on the first anniversary of the grant date and 1/6 vesting every sixmonths thereafter until the three-year anniversary of the grant date. The stock option agreement dated December 31, 2014 granted our CFO150.0 thousand stock options at an exercise price per share of $5.97. The stock option agreement dated January 2, 2015 granted our CFO 20.0thousand stock options at an exercise price per share of $5.71. The exercise price per share of the options is equal to the fair market value of theCompany’s common stock on the grant date. These options were cancelled on June 15, 2016. On June 15, 2016, at the Company's annual meeting, the Company's shareholders approved a one-time stock option exchange for the CFO as analternative to a direct repricing of options previously granted to the CFO. The stock option exchange allowed the Company to cancel 170.0thousand stock options, including 20.0 thousand granted in January 2015, previously granted to the CFO in exchange for the grant of 90.0thousand Restricted Stock Units ("RSUs") to the CFO. The RSUs vest as follows if and to the extent that the CFO remains employed by theCompany through each of the following dates: (i) on July 1, 2016, 50.00% (45,000) of the RSUs vested and became nonforfeitable; (ii) onDecember 31, 2016, 12.50% (11,250) of the RSUs vested and became nonforfeitable; (iii) on June 30, 2017, 12.50% (11,250) of the RSUsvested and became nonforfeitable; (iv) on December 31, 2017, 12.50% (11,250) of the RSUs vested and became nonforfeitable; and (v) on June15, 2018, 12.50% (11,250) of the RSUs vest and become nonforfeitable. Each RSU represents the right to receive one share of the Company'scommon stock upon the vesting of the RSU, subject to the terms and conditions set forth in the RSU Agreement and the Plan. The CFO hascontinued his employment by the Company through December 31, 2017 and the related 78,750 RSUs have vested and become nonforfeitable. The stock options and one-time stock option exchange were granted pursuant to the Company’s 2009 Long Term Incentive Plan. Base Salary When determining base salary levels for senior management, we evaluate base salary levels of similar positions in the group of our selectedpeer companies. Base salaries reflect an executive's roles and responsibilities and recognize and reward individual skills, experience andsustained job performance. Mr. Phillips’s base salary was $220.0 thousand per year during 2016 and 2017. Annual Incentive Bonuses The Company's annual incentive compensation plan is a cash-based, pay-for-performance incentive plan. The plan covers executives andcertain other personnel as determined by the Compensation Committee and the Company's President. The incentive compensation planrewards the achievement of certain corporate operating and financial targets set by the Compensation Committee at the beginning of each year. The Compensation Committee may also establish individual performance goals for executives and other employees in connection with annualincentive compensation. The Compensation Committee awarded Mr. Phillips a discretionary bonus earned during 2017 and to be paid in 2018 of$110.0 thousand. The Compensation Committee awarded Mr. Phillips a discretionary bonus earned during 2016 and paid in 2017 of $110.0thousand. 29Table of Contents Long Term Incentive Plan Long-term incentive compensation opportunities may be performance-based. Long-term incentives provided by the Company may consist ofequity awards based on achievement of certain corporate targets. The Company may award long-term incentives in the form of restricted stock,stock options and other forms of equity incentives as more fully described in the Company's 2009 Long-Term Incentive Plan. Equity-basedperformance awards provide an adequate incentive to management to perform well for shareholders. In addition, equity awards have been aneffective means of attracting and retaining management talent.Long-term incentive plans are designed to ensure that incentive compensation reflects the growth and profitability of the Company. Each of theequity-based awards offered by the Company is intended to reward specified results. These awards promote a long-term view, reward long-termpositive performance of the Company, and are intended to align management's interests with shareholders' interests. Stock Options and Restricted Stock Units The Company awards stock options and RSUs because it believes they serve a valuable purpose in aligning management's interests withshareholders' interests. Because stock options and RSUs generally vest over time, they serve not only as an incentive for superior performance,but also as a retention device. The Company generally receives an income tax deduction when an executive exercises a stock option or whenthe RSUs vest. Perquisites The Company provides certain members of management various perquisites that are provided by similar companies throughout the industryand include health, dental, vision, life and disability insurance. We furnish these benefits to provide an additional incentive for ourmanagement and to remain competitive in the general marketplace for managerial talent. 401(k) Savings Plans Our CFO is eligible to participate in our defined contribution retirement plan under Section 401(k) of the Internal Revenue Code on the samebasis as all other eligible employees. Eligible employees may contribute 100.0% of their annual salary to meet the IRS limit of $18,000. We do notcurrently provide an employer match.30Table of Contents Compensation Recovery We expect to implement a clawback policy in accordance with the requirements of the Dodd-Frank Act and the regulations that the SEC isexpected to issue under that Act. We have elected to wait until the SEC issues guidance about the proper form of a clawback policy beforeformulating our policy. Termination and Change of Control Agreements CFO Employment Agreement and Retention Agreement If our CFO’s employment is terminated by the Company without “Cause” or due to his resignation for “Good Reason”, he will be entitled to thecontinued payment of his base salary and COBRA premiums for twelve months following such termination. Our CFO’s receipt of the paymentsand benefits described in this paragraph is contingent on his execution and non-revocation of a release of claims in favor of the Company. Following the termination of our CFO’s employment with the Company, he is subject to non-competition and non-solicitation covenants, whichextend for 12 months following termination of employment. Under a Retention Agreement with our CFO dated as of March 25, 2016, the Company paid our CFO bonuses of $100.0 thousand and $125.0thousand on each of December 31, 2016 and December 31, 2017, respectively, as he remained employed with the Company on those dates. Outstanding Equity Awards at Fiscal Year-End 2017 The following table provides information with respect to outstanding equity awards for each Named Executive Officer as of December 31, 2017. Name Option and RSU Awards Number of SecuritiesUnderlyingUnexercised Options(#) Exercisable OptionExercisePrice ($) Option ExpirationDate Number ofUnearned Shares,Units or OtherRights That HaveNot Vested (#) Market or PayoutValue ofUnearned Shares,Units or OtherRights That HaveNot Vested ($)Orson Oliver (1) Interim CEO 86,000 $4.68 May 16, 2019 — — Todd L. Phillips (2)President, Secretary, andChief Financial Officer — NA NA 11,250 18,450 (1) Mr. Oliver was awarded 86,000 options to purchase shares of our Common Stock on May 16, 2014. The market value of the stock options isbased on a closing price of $4.68 per share on grant date. These shares were fully vested on the grant date.(2) Mr. Phillips has 11,250 RSUs outstanding at December 31, 2017. The RSUs vest if Mr. Phillips remains employed by the Company throughJune 15, 2018. Market value was computed using the Company’s closing stock price on December 29, 2017, the last trading date before theCompany’s fiscal year ended, which was $1.64.31Table of Contents 2017 Director Compensation Table The following table summarizes the compensation earned by or awarded to each director, other than a Named Executive Officer, during 2017. Name Fees Earned or Paid inCash ($) (1) Option Awards ($) All OtherCompensation ($) Total ($) Orson Oliver $37,500 $— $— $37,500Vince Tyra 58,000 — — 58,000William Yarmuth 51,500 — — 51,500Albert Cozzi 52,750 — — 52,750 Beginning with the June 2016 Board meeting, the Company revised its Board compensation policy to provide for payments to Board members of$5,000 per Board meeting and $2,000 per committee meeting. For service on the Board’s Special Committee, the Chairman of that committee, Mr.Tyra, received a monthly retainer of $5,000 per month, and other members, Messrs. Cozzi and Yarmuth, of that committee received $3,000per month. This Board compensation policy ended September 30, 2017.During 2017, the Compensation Committee engaged FW Cook to perform a board compensation study. FW Cook recommended acompensation program based on the 25th percentile of a NACD Director Compensation study for Micro Companies ($50-500 million inrevenues). Effective October 1, 2017, the Company revised its Board compensation policy based on FW Cook's recommendation to provide anannual retainer of $50,000 per Board member, an additional $10,000 annual retainer to the chairman of the audit committee, and an additional$5,000 annual retainer to the chairman, if any, of other standing committees. These payments are to be paid in quarterly installments, in advanceupon the first day of each quarter. No additional fees are to be paid for individual meeting attendance. In addition, each director will receive anannual grant of RSUs equal to $25.0 thousand that vest over one year. 32Table of Contents Item 12. Security Ownership of Certain Beneficial Owners, Management and Related Stockholder Matters Shares Available for Grant and Options/Warrants Outstanding The following information is provided as of December 31, 2017 with respect to our existing compensation plans, including individualcompensation arrangements, under which our equity securities are authorized for issuance: Plan Category Number of securities to beissued upon exercise ofoutstanding options,warrants and rights Weighted-average exerciseprice of outstanding options,warrants and rights ($) Number of securities remainingavailable for future issuanceunder equity compensation plans Equity compensation plans approved bysecurity holders 412,000 $4.75 1,753,996Equity compensation plans not approvedby security holders — — —Total 412,000 $4.75 1,753,996 The Company had 22,650 Restricted Stock Units outstanding at December 31, 2017. 33Table of Contents VOTING SECURITIES The following table sets forth information regarding beneficial ownership of our common stock as of February 16, 2018 for (i) each of our NamedExecutive Officers, directors and nominees for director, (ii) each person known to management to own of record or beneficially more than fivepercent of our outstanding shares, and (iii) all of our executive officers and directors as a group. Name Amount and Nature ofBeneficial Ownership (1)(2)(3) Percentage of Class (1) Orson Oliver 7100 Grade Lane Louisville, KY 40213 1,951,705 (4) 23.87% (4) Todd Phillips 78,393 * Albert Cozzi 191,752 (5) 2.35% (5) William Yarmuth 33,953 (6) * (6) Vince Tyra 30,000 (7) * (7) All directors and executive officers as a group 2,285,803 (8) 27.53% (8) * denotes less than 1% ownership 34Table of Contents Name and Address Amount and Nature ofBeneficial Ownership (1)(2)(3) Percentage of Class (1) Other Beneficial Ownership over 5%:Recycling Capital Partners, LLC295 S. Commerce DriveWaterloo, IN 46793 1,714,286 (9) 19.16% (9) Daniel M. Rifkin295 S. Commerce DriveWaterloo, IN 46793 1,714,286 (9) 19.16% (9) Harry Kletter Family Ltd. Ptnsp7100 Grade LaneLouisville, KY 40213 750,000 (10) 9.27% (10) K&R, LLC 7100 Grade LaneLouisville, KY 40213 549,168 (10) 6.79% (10) The Estate of Harry Kletter7100 Grade LaneLouisville, KY 40213 517,788 (10) 6.40% (10) David Russell P.O. Box 280481 Northridge, CA 91328 795,197 (11) 9.83% (11) 35Table of Contents (1)The table reflects share ownership and the percentage of such share ownership as of February 16, 2018. We have determined thepercentages on the basis of 8,089,129 shares of our Common Stock outstanding and exclusive of 30,690 shares of Common Stock held asTreasury stock. (2) Except as otherwise indicated, each person or entity shown has sole voting and investment power with respect to the shares of commonstock beneficially owned by him, her or it. (3)Based upon information furnished to the Company by the named persons, information contained in filings with the SEC, and information inour shareholder records. Under the rules of the SEC, a person is deemed to beneficially own shares over which the person has or sharesvoting or investment power or has the right to acquire beneficial ownership within 60 days, and such shares are deemed to be outstandingfor the purpose of computing the percentage beneficially owned by such person or group. However, we do not consider shares of whichbeneficial ownership can be acquired within 60 days to be outstanding when we calculate the percentage ownership of any other person. (4)Includes options to purchase 86,000 shares exercisable within 60 days of February 16, 2018 and 3,750 shares held in Trusts for Mr. Oliver'sdaughter and minor grandchildren for which Mr. Oliver is the trustee. Also includes 517,788 shares held by the Estate of Harry Kletter ofwhich Mr. Oliver is executor, 750,000 shares owned by The Harry Kletter Family Limited Partnership of which Mr. Oliver is general partner,and 549,168 shares owned by K&R, LLC which is controlled by Mr. Oliver. (5) Includes options to purchase 68,000 shares exercisable within 60 days of February 16, 2018. (6) Includes options to purchase 30,000 shares exercisable within 60 days of February 16, 2018. (7) Includes options to purchase 30,000 shares exercisable within 60 days of February 16, 2018. (8) Includes the options described in notes 4 through 10 above to purchase 214,000 shares exercisable within 60 days of February 16, 2018. (9)Based on information set forth on Schedule 13D/A filed with the SEC on October 14, 2014. As sole manager of Recycling Capital Partners,LLC, Daniel M. Rifkin shares voting and dispositive power over these shares. Includes warrants to purchase 857,143 shares exercisablewithin 60 days of February 16, 2018. (10)Includes 517,788 shares held by the Estate of Harry Kletter of which Mr. Oliver is executor, 750,000 shares owned by The Harry KletterFamily Limited Partnership of which Mr. Oliver is general partner, and 549,168 shares owned by K&R, LLC which is controlled by Mr.Oliver. (11)Based on information obtained via email confirmation on February 19, 2018 from David Russell. Includes the following beneficially ownedshares of our common stock: 446,676 shares held in a trust, 102,588 shares held in custodial accounts for Dr. Russell's minor children, and215,833 shares held in various retirement plans for Dr. Russell's benefit. 36Table of Contents Item 13. Certain Relationships and Related Transactions, and Director Independence CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Policies and Procedures for Related Person Transactions Our Board of Directors has adopted written policies and procedures for the review of any transaction, arrangement, or relationship in which weare a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% shareholders (ortheir immediate family members), each of whom we refer to as a “related person,” has a direct or indirect material interest. If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,”the related person must report the proposed related person transaction to our Board. The policy calls for the proposed related persontransaction to be reviewed and, if deemed appropriate, approved by our Audit Committee. Whenever practicable, the reporting, review andapproval will occur prior to entry into the transaction. If advance review and approval is not practicable, the Audit Committee will review, and inits discretion may ratify the related person transaction. The policy also permits the chairman of the Audit Committee to review and, if deemedappropriate, approve proposed related person transactions that arise between Audit Committee meetings, subject to ratification by the AuditCommittee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually. If the related person atissue is a director of the Company, or a family member of a director, then that director would recuse himself and abstain from voting on theapproval of the related person transaction, but may, if so requested by the chair of the Audit Committee, participate in some or all of thecommittee's discussions of the related person transaction. A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the Audit Committee afterfull disclosure of the related person's interest in the transaction. As appropriate for the circumstances of the related person transaction, the Audit Committee will review and consider the following: •The related person's interest in the related person transaction; •The approximate dollar value of the amount involved in the related person transaction; •The approximate dollar value of the amount of the related person's interest in the transaction without regard to the amount of any profitor loss; •Whether the transaction will be undertaken in the ordinary course of our business; •Whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party; •The purpose, and the potential benefits to us, of the transaction; and •Any other information regarding the related person transaction or the related person in the context of the proposed transaction thatwould be material to investors in light of the circumstances of the particular transaction. The Audit Committee may approve or ratify the transaction only if it determines that, under all of the circumstances, the transaction is in, andnot inconsistent with, our best interests. The Audit Committee may impose any conditions on the related person transaction that it deemsappropriate. Unless the transaction is excluded by the instructions to the SEC's related person transaction disclosure rule, any approved related persontransaction would be disclosed in accordance with SEC rules. 37Table of Contents The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the CompensationCommittee in the manner specified in its charter. For more information related to related party transactions, see Note 9 - Related Party Transactions in the accompanying Notes to ConsolidatedFinancial Statements, which information is hereby incorporated by reference. Corporate Governance - Director Independence A majority of our directors are independent. We combined the roles of Chairman of the Board and Chief Executive Officer in 2013. The Boardappointed Mr. Oliver as Chairman of the Board in May 2012 due to his legal and financial background as well as his previous work on the Boardand as Audit Committee Chairman. On June 14, 2013, the Board appointed Mr. Oliver as interim President and interim Chief Executive Officer, forwhich he continues to be our interim Chief Executive Officer. Mr. Oliver's legal and financial background as well as his knowledge andexperience with the Company make Mr. Oliver capable of effectively identifying strategic priorities and leading the discussion and execution ofstrategy. Mr. Oliver does not receive any salary from the Company; he receives fees as a director of the Company. We recognize that differentBoard leadership structures may be appropriate for companies in different situations and believe that no one structure is suitable for allcompanies at all times. We believe our current Board leadership structure is optimal given its current composition. The members of the Audit Committee are Messrs. Tyra, Cozzi, and Yarmuth. All current members of the Audit Committee are independent asdefined in Rule 5605(a)(2) of the NASDAQ listing standards and the Audit Committee Qualifications of Rule 5605(c)(2). The members of the Compensation Committee are Messrs. Cozzi, Tyra, and Yarmuth. All current members of the Compensation Committee areindependent as defined in Rule 5605(a)(2) of the NASDAQ listing standards and the Compensation Committee Qualifications of Rule 5605(d)(2)(A). The members of the Nominating Committee are Messrs. Cozzi and Tyra. This committee does not have a chairperson. The NominatingCommittee met one (1) time in 2017. One new director nomination was submitted in 2017. Messrs. Cozzi and Tyra are independent as defined inRule 5605(a)(2) of the NASDAQ listing standards. 38Table of Contents Item 14. Principal Accountant Fees and Services INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FEES The aggregate fees billed for professional services by principal accountants MCM CPAs & Advisors LLP in 2017 and 2016 are as follows: Audit Fees: $129,425 and $129,325 to principal accountants MCM CPAs & Advisors LLP for the years ended December 31, 2017 and 2016,respectively, for services rendered for the annual audit of our financial statements and the quarterly reviews of the financial statements includedin our quarterly reports on Form 10-Q. Audit Related Fees: $0 and $8,700 to principal accountants MCM CPAs & Advisors LLP for the annual audit of our 401(k) retirement plan forthe years ended December 31, 2017 and 2016, respectively. Tax Fees: No tax services were provided by principal accountants MCM CPAs & Advisors LLP for the years ended December 31, 2017 and2016. All Other Fees: No other services were provided by principal accountants MCM CPAs & Advisors LLP for the years ended December 31, 2017and 2016. The Audit Committee is responsible for pre-approving all auditing services and permitted non-audit services that our independent registeredpublic accountants are to perform, except as described below. The Audit Committee has established general guidelines for the permissible scope and nature of any permitted non-audit services in connectionwith its annual review of the audit plan and will review such guidelines with the Board of Directors. The full Audit Committee, or in its absence,the chair of the Audit Committee, may pre-approve non-audit services. No pre-approval is necessary for the provision of non-audit services if(1) the aggregate amount of all such non-audit services constitutes no more than 5% of the total amount of revenues paid by us to theregistered public accountants during the fiscal year in which the accountants provide the non-audit services, (2) we did not recognize suchservices at the time of engagement to be non-audit services, and (3) such services are promptly brought to the attention of the Audit Committeeand approved prior to the completion of the audit. MCM CPAs & Advisors LLP did not provide any such services in 2017. 39Table of Contents PART IV Item 15. Exhibits and Consolidated Financial Statement Schedules (a)(1) The following consolidated financial statements of Industrial Services of America, Inc. are filed as a part of this report: PageReport of Independent Registered Public Accounting FirmF-1 Consolidated Balance Sheets as of December 31, 2017 and 2016F-2 Consolidated Statements of Operations for the years ended December 31, 2017 and 2016F-4 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2017 and 2016F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016F-6 Notes to Consolidated Financial StatementsF-8 (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. Eachmanagement agreement or compensatory plan required to be filed as exhibits to this Form 10-K pursuant to Item 15(b) is noted by anasterisk (*) in the Index to Exhibits. (b) Exhibits. The exhibits listed on the Index to Exhibits are filed as a part of this report. Item 16. Form 10-K Summary Not applicable. 40Table of Contents 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 tobe signed on its behalf by the undersigned, thereunto duly authorized. INDUSTRIAL SERVICES OF AMERICA, INC. Dated:March 26, 2018By :/s/ Orson Oliver Orson Oliver, Chairman of the Board and Interim Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Orson Oliver Chairman of the Board and Interim Chief Executive Officer March 26, 2018Orson Oliver (Principal Executive Officer) /s/ Todd L. Phillips President and Chief Financial Officer March 26, 2018Todd L. Phillips (Principal Financial and Accounting Officer) /s/ Albert Cozzi Director March 26, 2018Albert Cozzi /s/ Vince Tyra Director March 26, 2018Vince Tyra /s/ William Yarmuth Director March 26, 2018William Yarmuth 41Table of ContentsTable of Contents INDEX TO EXHIBITS ExhibitNumber Description of Exhibits2.1**Asset Purchase Agreement dated as of December 4, 2015, by and among Industrial Services of America, Inc., WESSCO,LLC, and Compactor Rentals of America, LLC. (Attachments and schedules have been omitted pursuant to Item 601(b)(2)of Regulation S-K. Industrial Services of America, Inc. hereby undertakes to furnish supplementally copies of any of theomitted attachments and schedules upon request by the U.S. Securities and Exchange Commission.) (Incorporated hereinby reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed on December 7, 2015) (File No. 0-20979) 2.2 **Asset Purchase Agreement Amendment No. 1 dated April 1, 2016, by and among Industrial Services of America, Inc.,WESSCO, LLC, and Compactor Rentals of America, LLC. (Incorporated herein by reference to Exhibit 10.1 to theCompany’s Quarterly Report on Form 10-Q as filed May 13, 2016) (File No. 0-20979) 2.3**Asset Purchase Agreement Amendment No. 2 dated April 15, 2016, by and among Industrial Services of America, Inc.,WESSCO, LLC, and Compactor Rentals of America, LLC. (Incorporated herein by reference to Exhibit 10.2 to theCompany’s Quarterly Report on Form 10-Q as filed May 13, 2016) (File No. 0-20979) 3.1**Industrial Services of America, Inc. Amended and Restated Articles of Incorporation. (Incorporated herein by reference toExhibit 3.1 to the Company’s Annual Report on Form 10-K as filed on March 31, 2014) (File No. 0-20979) 3.2**Amended and Restated By-laws of ISA, dated March 8, 2016. (Incorporated herein by reference to Exhibit 3.1 to theCompany’s Current Report on Form 8-K as filed on March 8, 2016) (File No. 0-20979) 4.1**Securities Purchase Agreement dated as of June 13, 2014 between the Company and Recycling Capital Partners,LLC. (Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed on June 19,2014) (File No. 0-20979) 4.2**Registration Rights Agreement dated as of June 13, 2014 between the Company and Recycling Capital Partners,LLC. (Incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K as filed on June 19,2014) (File No. 0-20979) 4.3**Common Stock Purchase Warrant dated as of June 13, 2014 by the Company to Recycling Capital Partners,LLC. (Incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K as filed on June 19,2014) (File No. 0-20979) 10.1**Lease Agreement, dated January 1, 1998, by and between ISA and K&R. (Incorporated herein by reference to Exhibit 10.10to the Company's Current Report on Form 8-K as filed on March 3, 1998) (File No. 0-20979) 10.2**Industrial Services of America, Inc. 2009 Long Term Incentive Plan. (Incorporated herein by reference to Exhibit 10.57 to theCompany's Proxy Statement on Form DEF 14A as filed on April 30, 2009) (File No. 0-20979)* 10.3**Form of Stock Option Agreement issued in connection with the 2009 Long Term Incentive Plan. (Incorporated herein byreference to Exhibit 10.57 to the Company's Annual Report on Form 10-K as filed on April 1, 2013) (File No. 0-20979)* 42Table of Contents ExhibitNumber Description of Exhibits10.4**Management Services Agreement dated as of December 1, 2013, between the Company and Algar, Inc., including theStock Option Agreement attached thereto as Attachment A. (Incorporated herein by reference to Exhibit 10.1 to theCompany's Current Report on Form 8-K as filed on December 4, 2013) (File No. 0-20979)* 10.5**Director Designation Agreement dated as of June 13, 2014 between the Company and Recycling Capital Partners,LLC. (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed on June 19,2014) (File No. 0-20979) 10.6**Securities Purchase Agreement dated December 31, 2014 between the Company and Todd L. Phillips. (Incorporated hereinby reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed on January 5, 2015) (File No. 0-20979)* 10.7**Executive Employment Agreement dated December 31, 2014 between the Company and Todd L. Phillips. (Incorporatedherein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed on January 5, 2015) (File No. 0-20979)* 10.8**First Amendment to Executive Employment Agreement, dated February 1, 2017, between the Company and Todd Phillips.* 10.9**Stock Option Agreement dated December 31, 2014 between the Company and Todd L. Phillips. (Incorporated herein byreference to Exhibit 10.3 to the Company’s Current Report on Form 8-K as filed on January 5, 2015) (File No. 0-20979)* 10.10**Stock Option Agreement dated January 2, 2015 between the Company and Todd L. Phillips. (Incorporated herein byreference to Exhibit 10.4 to the Company’s Current Report on Form 8-K as filed on January 5, 2015) (File No. 0-20979)* 10.11**Offer to Purchase Real Estate dated April 30, 2015 from LK Property Investments, LLC to ISA Real EstateLLC. (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed on May 6,2015) (File No. 0-20979) 10.12**Lease Agreement dated April 30, 2015 by and between Industrial Services of America, Inc. and LK Property Investments,LLC. (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed on May 6,2015) (File No. 0-20979) 10.13**Stock Purchase Agreement, dated as of August 5, 2015, between Industrial Services of America, Inc. andAlgar, Inc. (Incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filedon August 7, 2015) (File No. 0-20979)* 10.14**Loan and Security Agreement dated as of February 29, 2016 between the Company, its subsidiaries and MidCap BusinessCredit LLC. (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filedon March 2, 2016) (File No. 0-20979) 10.15**Revolving Note made by the Company to the order of MidCap Business Credit LLC in face principal amount of$6,000,000. (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filedon March 2, 2016) (File No. 0-20979) 10.16**Pledge and Security Agreement dated as of February 29, 2016 between the Company, its subsidiaries and MidCapBusiness Credit LLC. (Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K asfiled on March 2, 2016) (File No. 0-20979) 43Table of Contents ExhibitNumber Description of Exhibits10.17**Guaranty and Suretyship Agreement of the Company’s subsidiaries as guarantors for the benefit of MidCap BusinessCredit LLC, dated February 29, 2016. (Incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report onForm 8-K as filed on March 2, 2016) (File No. 0-20979) 10.18**Term Note, date February 29, 2016, issued by the Company to K&R, LLC. (Incorporated herein by reference to Exhibit10.35 to the Company’s Annual Report on Form 10-K as filed on March 25, 2016) (File No. 0-20979) 10.19**Term Note, date February 29, 2016, issued by the Company to 7100 Grade Lane, LLC. (Incorporated herein by reference toExhibit 10.36 to the Company’s Annual Report on Form 10-K as filed on March 25, 2016) (File No. 0-20979) 10.20**Intercreditor and Subordination Agreement, dated February 29, 2016, among the Company and K&R, LLC for the benefitof MidCap Business Credit LLC. (Incorporated herein by reference to Exhibit 10.37 to the Company’s Annual Report onForm 10-K as filed on March 25, 2016) (File No. 0-20979) 10.21**Intercreditor and Subordination Agreement, dated February 29, 2016, among the Company and 7100 Grade Lane, LLC forthe benefit of MidCap Business Credit LLC. (Incorporated herein by reference to Exhibit 10.38 to the Company’sAnnual Report on Form 10-K as filed on March 25, 2016) (File No. 0-20979) 10.22**Restricted Stock Unit Grant Agreement, dated March 25, 2016, between the Company and Todd L. Phillips. (Incorporatedherein by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K as filed on March 25, 2016) (File No. 0-20979)* 10.23**Retention Agreement, dated March 25, 2016, between the Company and Todd L. Phillips. (Incorporated herein byreference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K as filed on March 25, 2016) (File No. 0-20979)* 10.24**Restricted Stock Unit Grant Agreement, dated as of June 15, 2016, between Industrial Services of America, Inc. and ToddL. Phillips. (Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K as filed on June16, 2016) (File No. 0-20979)* 10.25**Industrial Services of America, Inc. Amended and Restated Long Term Incentive Plan, restated as of June 15,2016. (Incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K as filed on June 16,2016) (File No. 0-20979)* 10.26**Agreement to Terminate Management Services Agreement dated as of September 30, 2016, by and among: (i) Algar, Inc.,(ii) Sean Garber, and (iii) Industrial Services of America, Inc. (Incorporated herein by reference to Exhibit 10.1 to theCompany's Current Report on Form 8-K as filed on October 4, 2016) (File No. 0-20979) 10.27**First Amendment to the Loan and Security Agreement dated as of March 31, 2017 between the Company, its subsidiariesand MidCap Business Credit LLC. (Incorporated herein by reference to Exhibit 10.27 to the Company’s Annual Report onForm 10-K as filed on March 31, 2017) (File No. 0-20979) 10.28**934 Crane Purchase Agreement dated June 23, 2017 by and between the Company and K&R, LLC. (Incorporated byreference to Exhibit 10.1 of the Company’s Form 8-K as filed on June 23, 2017) (File No. 0-20979) 10.29**Komatsu Purchase Agreement dated June 23, 2017 by and between the Company and K&R, LLC. (Incorporated byreference to Exhibit 10.2 of the Company’s Form 8-K as filed on June 23, 2017) (File No. 0-20979) 44Table of Contents 10.30** All Net Lease, effective as of October 1, 2017, between the Company and 7100 Grade Lane LLC. (Incorporated by referenceto Exhibit 10.1 of the Company’s Form 8-K as filed on November 1, 2017)(File No. 0-20979) 10.31** Back Rent Payment Agreement, effective as of October 1, 2017, between the Company and 7100 Grade Lane LLC, includingthe Promissory Note, effective October 1, 2017, in the principal amount of $345,808 attached thereto. (Incorporated byreference to Exhibit 10.2 of the Company’s Form 8-K as filed on November 1, 2017)(File No. 0-20979) 11 Statement of Computation of Earnings Per Share (See Note 8 in the accompanying Notes to Consolidated FinancialStatements). 21 List of subsidiaries of Industrial Services of America, Inc. 23 Consent of Independent Registered Public Accounting Firm. 31.1 Rule 13a-14a Certification of Orson Oliver for the Form 10-K for the year ended December 31, 2017 31.2 Rule 13a-14a Certification of Todd L. Phillips for the Form 10-K for the year ended December 31, 2017 32.1 Section 1350 Certification of Orson Oliver and Todd L. Phillips for the Form 10-K for the year ended December 31, 2017. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Document 101.DEF XBRL Taxonomy Extension Definitions Document 101.LAB XBRL Taxonomy Extension Labels Document 101.PRE XBRL Taxonomy Extension Presentation Document *Denotes a management contract of ISA required to be filed as an exhibit pursuant to Item 601(b)(10)(iii) of Regulation S-K. **Previously filed. 45Table of Contents INDUSTRIAL SERVICES OF AMERICA, INC.AND SUBSIDIARIESLouisville, Kentucky CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2017 and 2016 CONTENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-1 CONSOLIDATED BALANCE SHEETSF-2 CONSOLIDATED STATEMENTS OF OPERATIONSF-4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYF-5 CONSOLIDATED STATEMENTS OF CASH FLOWSF-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-8 46Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and ShareholdersIndustrial Services of America, Inc. and SubsidiariesLouisville, KentuckyOpinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Industrial Services of America, Inc. and Subsidiaries (“theCompany”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, shareholders' equity, andcash flows for the years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion,the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Industrial Servicesof America, Inc. and Subsidiaries as of December 31, 2017 and 2016, and the consolidated results of its operations and its cashflows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PublicCompany Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to theCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financialreporting but not for the purpose of expressing an opinion on effectiveness of the Company's internal control over financialreporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on atest basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also includedassessing the accounting principles used and significant estimates made by management, as well as evaluating the overallconsolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ MCM CPAs & Advisors LLPWe have served as the Company's auditor since 2005.Louisville, KentuckyMarch 26, 2018 F - 1Table of Contents INDUSTRIAL SERVICES OF AMERICA, INC.AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 31, 2017 and 2016 2017 2016ASSETS(in thousands)Current assets Cash and cash equivalents$841 $526 Income tax receivable— 14 Accounts receivable – trade after allowance for doubtful accounts of $60.0 thousand and $35.0thousand in 2017 and 2016, respectively4,220 3,361 Receivables and other assets from related parties (Note 9)92 150 Inventories (Note 1)5,106 3,437 Prepaid expenses and other current assets182 216 Total current assets10,441 7,704 Net property and equipment (Note 1)11,212 13,068 Other assets Deferred income taxes (Note 6)27 27 Other non-current assets187 57 Total other assets214 84 Total assets$21,867 $20,856 See accompanying notes to consolidated financial statements. F - 2Table of Contents INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 31, 2017 and 2016 2017 2016LIABILITIES AND SHAREHOLDERS’ EQUITY(in thousands, except par value andshare information)Current liabilities Current maturities of long-term debt (Note 3)$5,018 $2,942 Current maturities of long-term debt, related parties (Note 3 and 9)64 — Current maturities of capital lease obligations (Note 4)300 198 Bank overdrafts148 79 Accounts payable1,784 1,605 Payable and accrued expenses to related parties (Note 9)173 578 Income tax payable 2 — Other current liabilities765 627 Total current liabilities8,254 6,029 Long-term liabilities Long-term debt, net of current maturities, related parties (Note 3 and 9)1,536 1,504 Capital lease obligations, net of current maturities (Note 4)819 1,050 Total long-term liabilities2,355 2,554 Shareholders’ equity Common stock, $0.0033 par value: 20.0 million shares authorized in 2017 and 2016; 8,089,129 and8,074,541 shares issued and outstanding in 2017 and 2016, respectively27 27 Additional paid-in capital24,028 23,912 Stock warrants outstanding1,025 1,025 Retained losses(13,778) (12,647)Treasury stock at cost, 30,690 shares in 2017 and 2016(44) (44)Total shareholders’ equity11,258 12,273 Total liabilities and shareholders’ equity$21,867 $20,856 See accompanying notes to consolidated financial statements.F - 3Table of Contents INDUSTRIAL SERVICES OF AMERICA, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSYears ended December 31, 2017 and 2016 2017 2016 (in thousands, except per shareinformation)Revenue from product sales Revenue from ferrous operations$21,885 $12,947 Revenue from non-ferrous operations 31,620 21,870 Revenue from auto parts operations and other revenue 1,430 1,688 Total revenue from product sales 54,935 36,505 Cost of sales for product sales51,727 35,086 Gross profit3,208 1,419 Selling, general, and administrative expenses3,490 4,475 Loss before other income (expense)(282) (3,056)Other income (expense) Interest expense, including loan fee amortization(848) (509)Gain on sale of assets27 — Gain on insurance proceeds— 399 Other (expense) income, net(16) 16 Total other expense, net(837) (94)Loss before income taxes(1,119) (3,150)Income tax provision (Note 6)12 80 Net Loss$(1,131) $(3,230) Net loss per share of common stock: Basic loss per share$(0.14) $(0.40)Diluted loss per share$(0.14) $(0.40) Weighted average shares outstanding: Basic 8,078 8,048 Diluted 8,078 8,048 See accompanying notes to consolidated financial statements. F - 4Table of Contents INDUSTRIAL SERVICES OF AMERICA, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYYears ended December 31, 2017 and 2016(in thousands, except share information) Common Stock Additional Paid-in Capital StockWarrants Retained Losses Treasury Stock Shares Amount Shares Cost Total Shareholders'EquityBalance as of December 31, 20158,049,622 $27 $23,555 $1,025 $(9,417) (30,690) $(44) $15,146 Common stock 55,609 — — — — — — — Share-based compensation— — 357 — — — — 357 Net loss— — — — (3,230) — — (3,230)Balance as of December 31, 20168,105,231 $27 $23,912 $1,025 $(12,647) (30,690) $(44) $12,273 Common stock14,588 — — — — — — — Share-based compensation— — 116 — — — — 116 Net loss— — — — (1,131) — — (1,131)Balance as of December 31, 20178,119,819 $27 $24,028 $1,025 $(13,778) (30,690) $(44) $11,258 See accompanying notes to consolidated financial statements. F - 5Table of Contents INDUSTRIAL SERVICES OF AMERICA, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYears ended December 31, 2017 and 2016 2017 2016 (in thousands)Cash flows from operating activities Net loss$(1,131) $(3,230)Adjustments to reconcile net loss to net cash used in operating activities: Bad debt expense 25 — Depreciation and amortization2,191 2,297 Share-based compensation expense116 357 Gain on sale of assets(27) —Gain from insurance proceeds — (399)Deferred income taxes— 70 Amortization of loan fees included in interest expense124 130 Change in assets and liabilities Receivables(884) (1,692) Receivables from related parties58 58 Inventories(1,669) (1,027) Income tax receivable/payable16 —Prepaid expenses and other assets(95) 80 Accounts payable179 (547)Payables and accrued expenses to related parties(405) 160 Other current liabilities138 433 Net cash used in operating activities(1,364) (3,310)Cash flows from investing activities Proceeds from insurance claim— 479 Proceeds from sale of property and equipment28 — Purchases of property and equipment(132) (8)Net cash (used in) from investing activities(104) 471 Cash flows from financing activities Loan fees capitalized(125) (241) Change in bank overdrafts69 79Payments on long-term debt— (20)Payments on long-term debt, related parties (33) — Payments on capital lease obligations(204) (37)Proceeds from revolving line of credit, net2,076 2,942 Net cash from financing activities1,783 2,723Net change in cash and cash equivalents315 (116)Cash and cash equivalents at beginning of year526 642 Cash and cash equivalents at end of year$841 $526 See accompanying notes to consolidated financial statements. F - 6Table of Contents INDUSTRIAL SERVICES OF AMERICA, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYears ended December 31, 2017 and 2016 2017 2016 (in thousands)Supplemental disclosure of cash flow information: Cash paid for interest$755 $300 Tax refunds received5 5 Cash paid for income taxes2 15 Supplemental disclosure of noncash investing and financing activities: Equipment financed by related party debt 129 — Equipment additions financed by capital lease obligations 75 1,285 Conversion of related party payables to long-term debt, related parties— 1,504 See accompanying notes to consolidated financial statements. F - 7Table of Contents INDUSTRIAL SERVICES OF AMERICA, INC.AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2017 and 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL Nature of Business Industrial Services of America, Inc. (a Florida corporation) and its subsidiaries ("ISA" or the "Company") buys, processes and markets ferrousand non-ferrous metals and other recyclable commodities at four Kentucky and Indiana locations. Additionally, ISA operates one Pick.Pull.Saveused automobile parts yard. All of these activities operate under the Company's Recycling Segment. The Company's core business is now focused on the metal recycling industry. During 2016, the Company announced that the Company formeda special committee of independent board members to evaluate various growth and strategic options. During the first quarter of 2017, thespecial committee concluded its work and reported to the Board. The Board accepted the special committee's recommendation to focus onreturning the core recycling business to profitability. The Company intends to do this by increasing efficiencies and productivity, whichincluded the commercial restart of the Company's auto shredder in the second quarter of 2017, which had been previously idled in 2015. TheCompany intends to run the auto shredder in the normal course of business subject to market conditions and operating needs. ISA will alsoevaluate other various options and remain alert for possible strategic partnerships, joint ventures and mergers/acquisitions. In connection with the evaluation of strategic alternatives, on September 30, 2016, the Company and Algar, Inc. ("Algar") mutually agreed toterminate the Management Services Agreement between them dated as of December 1, 2013 (the "Management Agreement"), pursuant to theAgreement to Terminate Management Services among the Company, Algar, and Sean Garber dated as of September 30, 2016 (the "TerminationAgreement"). See Note 9 - Related Party Transactions for further details. Effective September 30, 2016, Mr. Garber resigned from all positionswith the Company, including as President. Also, on September 30, 2016, the Company’s Chief Financial Officer was appointed to serve in theadditional role as President. Liquidity Risk Factors Management believes it will have adequate liquidity for at least one year beyond the date this Form 10-K is issued. This determination is basedon improved operating results during 2017, operating and cash flow projections for 2018 and 2019, and the amended credit facility with MidCapBusiness Credit LLC ("MidCap") which extended the contractual maturity date to February 28, 2020 and increased the borrowing availability asdescribed in Note 3 - Long-term Debt and Notes Payable to Bank. Revenue Recognition The Company recognizes revenue from processed ferrous and non-ferrous scrap metal sales when title passes to the customer, which generallyis upon delivery of the related materials. The Company also recognizes revenue on auto parts when title passes to the customer. Fair Value of Financial Instruments The Company carries certain of its financial assets and liabilities at fair value on a recurring basis. Cash and cash equivalents are carried at costwhich approximates fair value. Long-term debt is carried at cost, and the fair value is disclosed herein. In addition, the Company measurescertain assets, such as long-lived assets, at fair value on a non-recurring basis to evaluate those assets for potential impairment. Fair value isdefined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date. In accordance with applicable accounting standards, the Company categorizes its financial assets and liabilities into the following fair valuehierarchy: Level 1 – Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market.Examples of Level 1 financial instruments include active exchange-traded securities. F - 8Table of Contents NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL, Continued Level 2 – Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that areobservable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Examples of Level 2financial instruments include various types of interest-rate and commodity-based derivative instruments, and various types of fixed-incomeinvestment securities. Pricing models are utilized to estimate fair value for certain financial assets and liabilities categorized in Level 2. Level 3 – Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable inthe market and significant to the overall fair value measurement. These inputs reflect management’s judgment about the assumptions that amarket participant would use in pricing the asset or liability, and are based on the best available information, some of which is internallydeveloped. When determining the fair value measurements for financial assets and liabilities carried at fair value on a recurring basis, the Companyconsiders the principal or most advantageous market in which it would transact and consider assumptions that market participants would usewhen pricing the asset or liability. When possible, ISA looks to active and observable markets to price identical assets or liabilities. Whenidentical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities.Nevertheless, certain assets and liabilities are not actively traded in observable markets, and the Company uses alternative valuationtechniques to derive fair value measurements. The Company uses the fair value methodology outlined in the related accounting standards to value the assets and liabilities for cash and debt.All of the Company's cash is defined as Level 1 and all debt is defined as Level 2. In accordance with this guidance, the following tables represent the fair value hierarchy for Level 1 and Level 2 financial instruments, inthousands, at December 31, 2017 and 2016: Fair Value at Reporting Date Using Quoted Prices in ActiveMarkets for Identical Assets Significant OtherObservable Inputs 2017: Level 1 Level 2 TotalAssets: Cash and cash equivalents $841 $— $841 Liabilities Current maturities of long-term debt $— $(5,018) $(5,018)Long-term debt, related parties — (1,331) (1,331) Fair Value at Reporting Date Using Quoted Prices in ActiveMarkets for Identical Assets Significant OtherObservable Inputs 2016: Level 1 Level 2 TotalAssets: Cash and cash equivalents $526 $— $526 Liabilities Current maturities of long-term debt $— $(2,942) $(2,942)Long-term debt, related parties — (1,171) (1,171) The Company had no transfers in or out of Levels 1 or 2 fair value measurements. We have had no activity in Level 3, fair value measurementsfor the years ended December 31, 2017 or 2016. F - 9Table of Contents NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL, Continued Estimates In preparing the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America("GAAP"), management must make estimates and assumptions. These estimates and assumptions affect the amounts reported for assets,liabilities, revenues and expenses, as well as affecting the disclosures provided. Examples of estimates include the allowance for doubtfulaccounts, estimates of realizability of deferred income tax assets and liabilities, estimates of inventory balances and values, and estimates ofstock option and warrant values. The Company also uses estimates when assessing fair values of assets and liabilities acquired in businessacquisitions as well as any fair value and any related impairment charges related to the carrying value of inventory and machinery andequipment, and other long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions,actual results may differ from these estimates. Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. Upon consolidation, all inter-company accounts, transactions and profits have been eliminated.Reclassifications The Company has reclassified certain items within the accompanying Consolidated Financial Statements and these Notes to ConsolidatedFinancial Statements for the prior year in order to be comparable with the current presentation. These reclassifications had no effect onpreviously reported net income (loss) or shareholders' equity. Cash and Cash Equivalents Cash and cash equivalents includes cash in banks with original maturities of three months or less. Cash and cash equivalents are stated at costwhich approximates fair value, which in the opinion of management, are subject to an insignificant risk of loss in value. The Company maintainscash balances in excess of federally insured limits. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable consists primarily of amounts due from U.S. customers from product sales. The allowance for doubtful accounts totaled$60.0 thousand and $35.0 thousand at December 31, 2017 and 2016, respectively. The determination of the allowance for doubtful accountsincludes a number of factors, including the age of the balance, estimated settlement adjustments, past experience with the customer account,changes in collection patterns and general economic and industry conditions. Interest is not normally charged on receivables, nor is collateralfor receivables normally required. Potential credit losses from significant customers could adversely affect results of operations or financialcondition. While the Company believes the allowance for doubtful accounts is adequate, changes in economic conditions or any weakness inthe steel and metals industry could adversely impact future earnings. In general, the Company considers accounts receivable past due whichare 30 to 60 days after the invoice date. Losses are charged off to the allowance when it is deemed further collection efforts will not provideadditional recoveries. Major Customer The Company had sales to a major customer that totaled approximately 16.3% and 12.5% of net sales for the years ended December 31, 2017 and2016, respectively. The accounts receivable balance related to the major customer was $0.8 million and $0.4 million as of December 31, 2017 and2016, respectively. Inventories The Company's inventories primarily consist of ferrous and non-ferrous scrap metals, and are valued at the lower of average purchased cost ornet realizable value ("NRV") based on the specific scrap commodity. See Impact of Recently Issued Accounting Standards at the end of Note 1.Quantities of inventories are determined based on our inventory systems and are subject to periodic physical verification using estimationtechniques including observation, weighing and other industry methods. The Company recognizes inventory impairment and relatedadjustments when the NRV, based upon current market pricing, falls below recorded value or when the estimated volume is less than therecorded volume of the inventory. The Company records the loss in cost of sales in the period during which the loss is identified. F - 10Table of Contents NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL, Continued Certain assumptions are made regarding future demand and net realizable value in order to assess whether inventory is properly recorded at thelower of cost or NRV. Assumptions are based on historical experience, current market conditions and remaining costs of processing (if any) anddisposal. If the anticipated future selling prices of scrap metal and finished steel products should decline, the Company would re-assess therecorded NRV of the inventory and make any adjustments believed necessary in order to reduce the value of the inventory (and increase cost ofsales) to the lower of cost or NRV. The Company did not have a lower of cost or NRV inventory write-down for the years ended December 31,2017 and 2016. Some commodities are in saleable condition at acquisition. The Company purchases these commodities in small amounts until it has a truckloadof material available for shipment. Some commodities are not in saleable condition at acquisition. These commodities must be shredded, torchedor baled. ISA does not have work-in-process inventory that needs to be manufactured to become finished goods. The Company includesprocessing costs in inventory for all commodities based upon weight. Inventories for ferrous and non-ferrous materials as of December 31, 2017 and 2016 consist of the following: December 31, 2017 December 31, 2016 (in thousands)Raw materials$3,046 $2,222 Finished goods1,366 805 Processing costs694 410 Total inventories for sale$5,106 $3,437 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. Property and equipment, in thousands, as of December 31, 2017 and 2016 consist of the following: Life 2017 2016 (in thousands)Land $4,993 $4,993 Equipment and vehicles1-10 years 26,738 26,606 Office equipment1-7 years 1,457 1,624 Building and leasehold improvements5-40 years 7,685 7,708 $40,873 $40,931 Less accumulated depreciation 29,661 27,863 $11,212 $13,068 Depreciation expense for the years ended December 31, 2017 and 2016 was $2.2 million and $2.3 million, respectively. Of the $2.2 million ofdepreciation expense recognized in 2017, $2.1 million was recorded in cost of sales, and $0.1 million was recorded in general and administrativeexpense. Of the $2.3 million of depreciation expense recognized in 2016, $2.2 million was recorded in cost of sales, and $0.1 million was recordedin general and administrative expense. F - 11Table of Contents NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL, Continued Certain Banking Expenses The Company has included certain banking costs relating to our loans and loan restructuring within interest expense. The loan feesamortization totaled $123.9 thousand and $130.1 thousand for the years ended December 31, 2017 and 2016, respectively. In 2016, the Companyincurred $240.5 thousand in banking expenses when the Company entered into a loan with MidCap. In 2017, the Company capitalized loan feesof $124.9 thousand of which the Company incurred $59.7 thousand in banking expenses when the Company entered into a loan amendmentwith Midcap. Shipping and Handling Fees and Costs Shipping and handling charges incurred by the Company are included in cost of sales and shipping charges billed to the customer are includedin revenues in the accompanying consolidated statements of operations. Derivative and Hedging Activities The Company is exposed to market risk stemming from changes in metal commodity prices, and interest rates. In the normal course of business,the Company actively manages its exposure to interest rate risks by entering into various hedging transactions, authorized under establishedpolicies that place clear controls on these activities. Derivative financial instruments previously used consist of interest rate swap contracts.Derivative financial instruments are accounted for under the provisions of the FASB's authoritative guidance titled “ASC 815 - Derivatives andHedging.” Under these standards, derivatives are carried on the balance sheet at fair value. The Company's interest rate swaps were designatedas a cash flow hedge, and the effective portions of changes in the fair value of the derivatives were recorded as a component of othercomprehensive income or loss and were recognized in the statement of operations when the hedged item affected earnings. Ineffective portionsof changes in the fair value of cash flow hedges were recognized in gain or loss on derivative liabilities. Cash flows related to derivativeswere included in operating activities. As of December 31, 2017 and 2016, the Company did not have any interest rate swap instruments. During 2017 and 2016, the Company did not use derivative instruments in the form of exchange traded commodity futures to assist in managingcommodity price risk. The Company does not enter into any commodity hedges for trading purposes. Income Taxes Deferred income taxes are recorded to recognize the tax consequences on future years of differences between the tax basis of assets andliabilities and their carrying amounts for financial reporting purposes, referred to as “temporary differences,” and for net operating loss carry-forwards subject to an ongoing assessment of realizability. Deferred income taxes are measured by applying currently enacted tax laws. TheCompany uses the deferral method of accounting for available state tax credits relating to the purchase of the shredder equipment. The FASB has issued guidance, included in the ASC, related to the accounting for uncertainty in income taxes recognized in financialstatements. The Company recognizes uncertain income tax positions using the "more-likely-than-not" approach as defined in the ASC. Theamount recognized is subject to estimate and management’s judgment with respect to the most likely outcome for each uncertain tax position.The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differfrom the amount recognized. The Company has no liability for uncertain tax positions recognized as of December 31, 2017 and 2016. As a policy, the Company recognizes interest accrued related to unrecognized tax positions in interest expense and penalties in operatingexpenses. See also Note 6 - Income Taxes for additional information relating to income taxes. Earnings (Loss) Per Share Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstandingduring the year. Diluted earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of commonshares outstanding plus the dilutive effect of stock options, restricted stock units and warrants. F - 12Table of Contents NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL, Continued Stock Option Arrangements The Company has a Long Term Incentive Plan adopted in 2009 ("LTIP") under which it may grant equity awards for up to 2.4 million shares ofcommon stock, which are reserved by the Board of Directors for issuance of equity awards. The Company provides compensation benefits bygranting stock options and other share-based awards to employees and directors. The exercise price of each option is equal to the market priceof the Company's stock on the date of grant. The maximum term of the option is five years. The plan is accounted for based on FASB’sauthoritative guidance titled "ASC 718 - Compensation - Stock Compensation." The Company recognizes share-based compensation expensefor the fair value of the awards, on the date granted, on a straight-line basis over their vesting term (service period). Compensation expense isrecognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based on the Company'shistorical experience and future expectations. The Company uses the grant date stock price to value the Company's restricted stock units. The fair value of each restricted stock unit isestimated on the date of grant. The Company uses the Modified Black-Scholes-Merton option-pricing model to value the Company's stock options for each employee stockoption award. See Note 10 - Share-based Compensation and Other Compensation Agreements. Using these option pricing models, the fair valueof each stock option award is estimated on the date of grant. There are two significant inputs into the stock option pricing models: expected volatility and expected term. The Company estimates expectedvolatility based on traded option volatility of the Company's stock over a term equal to the expected term of the option granted. The expectedterm of stock option awards granted is derived from historical exercise experience under the Company's stock option plans and represents theperiod of time that stock option awards granted are expected to be outstanding. The expected term assumption incorporates the contractual term of an option grant, as well as the vesting period of an award. The risk-freeinterest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the optiongranted. The assumptions used in calculating the fair value of stock-based payment awards represent management's best estimates, but theseestimates involve inherent uncertainties and the application of management's judgment. As a result, if factors change and different assumptionsare used, stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate theexpected forfeiture rate, and only recognize expense for those shares expected to vest. If the actual forfeiture rate is materially different from theestimate, the stock-based compensation expense could be significantly different from what was recorded in the current period. Treasury shares or new shares are issued for exercised options. The Company does not expect to repurchase any additional shares within thefollowing annual period to accommodate the exercise of outstanding stock options. Under the LTIP, the Company may grant any of these types of awards: non-qualified and incentive stock options; stock appreciation rights; andother stock awards including stock units, restricted stock units, performance shares, performance units and restricted stock. The performancegoals that the Company may use for such awards will be based on any one or more of the following performance measures: cash flow; earnings;earnings per share; market value added or economic value added; profits; return on assets; return on equity; return on investment; revenues;stock price; or total shareholder return. The LTIP is administered by a committee selected by the Board consisting of two or more outside members of the Board. The Committee maygrant one or more awards to our employees, including our officers, our directors and consultants, and will determine the specific employeeswho will receive awards under the plan and the type and amount of any such awards. A participant who receives shares of stock awarded underthe plan must hold those shares for six months before the participant may dispose of such shares. Subject to shareholder approval and restrictions on exercisability set forth in a Stock Option Agreement entered into on December 2, 2013between the Company and Algar (the “Stock Option Agreement”), the Company granted Algar an option to purchase a total of 1.5 millionshares (in four tranches) of Company common stock (the "Algar Options") at an exercise price per share of $5.00. The Algar Options were notissued under the LTIP. The Company's shareholders approved the Algar Options on October 15, 2014. On September 30, 2016, the Companyand Algar mutually agreed to terminate the Management Agreement between them dated as of December 1, 2013. As part of the agreement toterminate the Management Agreement, the Stock Option Agreement was also terminated. See Note 9 - Related Party Transactions for furtherdetails. The Company used the Lattice-Based model to value the Company's stock options for the Algar Options due to market and performanceconditions prior to September 30, 2016. See Note 10 - Share-based Compensation and Other Compensation Agreements. The fair value of theAlgar Options was estimated at the end of each quarter for the third and fourth tranches due to ongoing performance conditions. For the firsttwo tranches, the conditions for vesting were met. F - 13Table of Contents NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL, Continued Subsequent Events The Company has evaluated the period from December 31, 2017 through the date the financial statements herein were issued and noted nosubsequent events requiring recognition or disclosure in the financial statements. Impact of Recently Issued Accounting Standards In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 affect anyentity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancialassets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The core principle of theguidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflectsthe consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments are effective for annualreporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application for annual periodsbeginning after December 15, 2016 was permitted. The Company evaluated the impact of the adoption of ASU 2014-09 on the ConsolidatedFinancial Statements and did not record any material impact from the adoption of ASU 2014-09 on the Consolidated Financial Statements as ofJanuary 1, 2018. In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that deferred tax assets andliabilities be classified as noncurrent on the consolidated balance sheet. ASU 2015-17 was effective for annual periods beginning afterDecember 15, 2016, including interim periods within those annual periods. Upon adoption, ASU 2015-17 may be applied either prospectively orretrospectively. The Company adopted the standard prospectively in the first quarter of 2017 and noted no material impact from the adoption onthe Consolidated Financial Statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, to improve financial reporting about leasing transactions. This ASU will requireorganizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms ofmore than twelve months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basisand a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASUsimplify the accounting for sale and leaseback transactions. This ASU leaves the accounting for the organizations that own the leased assetslargely unchanged except for targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts withCustomers. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscalyears. Early adoption is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases)must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparativeperiod presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases thatexpired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. TheCompany is evaluating the potential impact of ASU 2016-02 on the Consolidated Financial Statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which provides guidance to improve financial reporting byrequiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company is evaluating thepotential impact of ASU 2016-13 on the Consolidated Financial Statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments, whichprovides guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, includinginterim periods within those annual periods. Early adoption is permitted as of the beginning of an interim or annual reporting period. Uponadoption, ASU 2016-15 should be applied retrospectively. The Company is evaluating the potential impact of ASU 2016-15 on the ConsolidatedFinancial Statements as early adoption was not elected, but does not expect a material impact from the adoption of ASU 2016-15 on theConsolidated Financial Statements. F - 14Table of Contents NOTE 2 - MANAGEMENT SERVICES AGREEMENT WITH ALGAR, INC. On December 2, 2013, the Company and Algar entered into a Management Services Agreement (the “Management Agreement”). The term ofthe Management Agreement was effective December 1, 2013 with a contractual term expiring on December 31, 2016, subject to earlier terminationupon mutual agreement or upon circumstances set forth in the agreement. On September 30, 2016 (the "Termination Effective Date"), theCompany and Algar mutually agreed to terminate the Management Agreement pursuant to the Termination Agreement. See the details below. Under the Management Agreement, Algar provided the Company with day-to-day senior executive level operating management services. Algaralso provided business, financial, and organizational strategy and consulting services, as the Company’s board of directors reasonablyrequested from time to time. The Management Agreement gave Algar the right to appoint the Company’s President and one additional executive officer of the Company.The Management Agreement also provided that the Company’s board of directors be increased up to seven members. The Company and Algaralso agreed that Algar, subject to certain limitations and Nasdaq listing requirements, could cause the appointment of up to two members to theboard of directors, one of whom will serve as Vice Chairman. The Company appointed Sean Garber to the Company’s board of directors on October 15, 2014. Mr. Garber was also appointed Vice Chairman atthat time. On December 2, 2013, in connection with the Management Agreement, the Company’s board of directors appointed Mr. Garber asPresident. Mr. Garber replaced Orson Oliver who had been serving as interim President. As of December 31, 2017, Mr. Oliver continues to serveas the Company’s Chairman and interim Chief Executive Officer. Mr. Garber, Algar’s Chairman and Chief Executive Officer, formerly served as the Company’s President from 1997 to 2000. Mr. Garber is alsoAlgar’s largest shareholder. Algar is located in Louisville, Kentucky and specializes in the procurement and sale of new and used auto parts aswell as automotive and metal recycling. Effective September 30, 2016, pursuant to the Termination Agreement, Mr. Garber resigned from all positions with the Company, including asPresident, and the Board appointed Todd Phillips as President. Mr. Phillips has been the Company's CFO since December 31, 2014 and willcontinue to serve in that role. The Company was required to reimburse Algar on a monthly basis for its pre-approved expenses, as defined in the Management Agreement,including expenses associated with the salaries of its executive appointees and employees. Under the Management Agreement, through theTermination Effective Date, the Company reimbursed Algar for the portion of Mr. Garber’s salary that was attributable to Algar’s services underthe Management Agreement in an amount not exceeding $20.8 thousand per month, or $250.0 thousand per year plus other expenses. Also,under the Management Agreement, Algar was to be paid a bonus in an amount equal to 10.0% of any year-over-year increase in the Company’sadjusted pre-tax income during the term. See Note 9 - Related Party Transactions for discussion of amounts. Subject to shareholder approval and restrictions on exercisability set forth in a Stock Option Agreement entered into on December 2, 2013between the Company and Algar (the “Stock Option Agreement”), the Company granted Algar an option to purchase a total of 1.5 millionshares of Company common stock at an exercise price per share of $5.00. The Company's shareholders approved the Algar Options on October15, 2014. On September 30, 2016, the Company and Algar mutually agreed to terminate the Management Agreement. As part of the agreementto terminate the Management Agreement, the Stock Option Agreement was also terminated. None of the options were exercised. In connection with the Management Agreement, Mr. Garber and Orson Oliver, the Company’s interim Chief Executive Officer and Chairman ofthe Board of Directors, received an Irrevocable Proxy from each of Harry Kletter, K & R, LLC (K&R) and the Harry Kletter Family LimitedPartnership (collectively, “Kletter”), which provided Mr. Oliver and Mr. Garber joint voting authority over the shares owned by Kletter,approximately 27.0% of the Company’s issued and outstanding common stock. As of December 31, 2013, Kletter was the Company’s largestshareholder. Messrs. Oliver and Garber entered into a separate agreement in which, among other things, they agreed to vote their proxies infavor of matters approved by the Company’s board of directors. Mr. Garber and Mr. Oliver terminated the Irrevocable Proxies that were receivedin connection with the Management Agreement as of the Termination Effective Date. F - 15Table of Contents NOTE 3 - LONG-TERM DEBT AND NOTES PAYABLE TO BANK Summary: On February 29, 2016, the Company entered into a Loan Agreement (the "2016 Loan") with MidCap and paid off all remaining amounts due tothe Company's previous lender Wells Fargo. Additionally on February 29, 2016, the Company converted certain amounts payable to relatedparties into unsecured term notes payable to the same related parties as more fully described in Note 9 - Related Party Transactions. On March31, 2017, the Company entered into an amendment to increase the line of credit, subject to the satisfaction of certain borrowing base restrictions(which have been satisfied), and extend the maturity date more fully described below. On June 23, 2017, in connection with the purchase ofequipment to be used in the operation of the Company's business, the Company issued notes totaling $129.0 thousand principal amount due toa related party. See Note 9 - Related Party Transactions. MidCap: On February 29, 2016, the Company entered into the 2016 Loan which, as initially entered into, provided a $6.0 million senior, secured asset-based line of credit with MidCap. The Company could borrow up to the sum of (a) 85% of the value of its eligible domestic accounts receivable;(b) the lesser of (i) $2.5 million, and (ii) 75% of the net orderly liquidation value of eligible inventory; and (c) the lesser of (i) $500,000, and (ii)40% of appraised net forced liquidation value of eligible fixed assets (the "Equipment Sublimit"). The Equipment Sublimit amortizes monthly ona straight line basis over sixty (60) months with no reduction to the overall line of credit availability. As described below, the 2016 Loan wasamended March 31, 2017. Proceeds from this loan were used to pay transaction expenses, pay off and close the remaining balance on the Wells Fargo revolving line ofcredit and fund working capital requirements. The interest rate on the 2016 Loan is equal to the prime rate (4.50% as of December 31, 2017) plus 250 basis points (2.50%). In the Event of aDefault (as defined in the 2016 Loan Agreement), the interest rate will increase by 300 basis points (3.00%). The 2016 Loan also has a monthlycollateral-monitoring fee equal to 27.5 basis points (0.275%) of the average daily balance outstanding, an annual facility fee of 100 basis points(1.00%) and an unused line fee equal to an annual rate of 50 basis points (0.50%) of the average undrawn portion of the 2016 Loan. The 2016 Loan has a maturity date of February 28, 2020 based on the amendment described below. The borrowings under the revolving creditagreement are classified as short-term obligations under GAAP as the agreement with MidCap contains a subjective acceleration clause andrequires the Company to maintain a lockbox arrangement with the lender. The Company was subject to a prepayment fee of $120.0 thousand if the 2016 Loan was terminated or prepaid prior to the one year anniversaryof the loan. The Company is subject to a prepayment fee of $60.0 thousand if the 2016 Loan is terminated or prepaid subsequent to the oneyear anniversary of the loan, but prior to the maturity date. The $60.0 thousand fee is reduced to zero if the 2016 Loan is refinanced by an FDICinsured institution after eighteen months from February 29, 2016. F - 16Table of Contents NOTE 3 - LONG-TERM DEBT AND NOTES PAYABLE TO BANK, Continued Interest and monthly fees under the 2016 Loan are payable monthly in arrears. The 2016 Loan Agreement contains a minimum line availability covenant equal to $350.0 thousand. This covenant may be replaced by a FixedCharge Coverage Ratio ("FCCR") covenant once the Company has achieved an FCCR of 1.0x on an annualized basis. The Company granted MidCap a first priority security interest in all of the assets of ISA pursuant to the terms of a Security Agreement. The Company is allowed to sell or refinance up to $3.0 million in fair market value of real property provided (i) the proceeds from such refinanceor sale remain with the Company; and (ii) no event of default exists at the time of such refinance or sale. On March 31, 2017, the Company and each of its wholly-owned subsidiaries entered into an amendment to the 2016 Loan with MidCap ("FirstAmendment"). The First Amendment increased the line of credit from $6.0 million to $8.0 million and extended the maturity date to February 28,2020. As amended, the line of credit permits the Company to borrow an amount under the 2016 Loan equal to the lesser of (A) $8.0 million; and(B)(i) 85% of the value of the Company’s eligible domestic accounts receivable, plus (ii) the lesser of (x) $2.5 million and (y) 75% of the netorderly liquidation value of eligible inventory, plus (iii) the lesser of (x) $400,000 and (y) 40% of appraised net forced liquidation value of eligiblefixed assets, plus (iv) the lesser of (x) $1.75 million and (y) 45% of the appraised value of certain properties owned by the Company (subject toMidCap's receipt of any third-party or internal approvals it may require in its discretion), minus (v) any amount which MidCap may require fromtime to time, pursuant to terms of the agreement, in order to secure amounts owed to MidCap under the agreement. The First Amendment contains a minimum line availability covenant equal to $350.0 thousand, the same as the 2016 Loan. This covenant maybe replaced by a Fixed Charge Coverage Ratio ("FCCR") covenant once the Company has achieved an FCCR of 1.1x on an annualized basis. The Company paid underwriting fees of $20.0 thousand at closing.On April 26, 2017, certain borrowing base restrictions were satisfied with MidCap which resulted in an increase in availability of $1.75 million. The 2016 Loan had availability of $1.3 million as of December 31, 2017. F - 17Table of Contents NOTE 3 - LONG-TERM DEBT AND NOTES PAYABLE TO BANK, Continued Long term debt as of December 31, 2017 and 2016 consisted of the following: 2017 2016 (in thousands)Revolving credit facility with MidCap, see above description for additional details$5,018 $2,942 7100 Grade Lane, LLC related party note (See Note 9 - Related Party Transactions)884 884 K&R, LLC related party notes (See Note 9 - Related Party Transactions)716 620 6,618 4,446 Less current maturities5,082 2,942 $1,536 $1,504 The annual contractual maturities of long-term debt, in thousands, for the next five years and thereafter as of December 31, 2017 are as follows: 2018$64 201932 20206,522 2021— 2022— Total long-term debt$6,618 The Company paid and capitalized loan fees in the amount of $124.9 thousand and $240.5 thousand during the years ended December 31, 2017and 2016, respectively. Amounts owed to K&R, LLC and 7100 Grade Lane LLC are more fully described in Note 9 - Related Party Transactions. F - 18Table of Contents NOTE 4 - LEASE COMMITMENTS Operating Leases: The Company leased a portion of its Louisville, Kentucky facility from a related party (see Note 9 - Related Party Transactions) under anoperating lease that was due to expire December 31, 2017 (the "7100 Prior Lease"). The lease amount was $53.8 thousand per month. EffectiveOctober 1, 2017, the Company entered into a new lease agreement with a related party for the same property (the "7100 Lease") that terminatedand replaced the 7100 Prior Lease. The lease is for a period of seven years with rent payments of $37.5 thousand per month for the first fiveyears. For each of the following one year periods, the annual rent increases the lesser of (a) the percentage change in the CPI over thepreceding twelve months, or (b) 2% of the previous year's annual rent. The Company has the option to extend the lease for two additionalconsecutive terms, each such extended term to be for a period of five years. In addition, the Company is responsible for real estate taxes,insurance, utilities and maintenance expense. The Company signed a lease, effective December 1, 2014, to lease a facility in the Seymour, Indiana area. This lease is for a period of threeyears. The Company has the option to extend the lease for three (3) additional three (3) year periods. Rent is $8.0 thousand per month andincreases each year by $0.2 thousand per month. In the event ISA exercises the option to renew the lease for a second three year term, at theend of the second three year term, ISA has the option to purchase the property. The Company signed a lease, effective October 1, 2014, to lease three cranes for $28.9 thousand per month (the "Crane Lease"). This lease isfor a period of five years. On May 1, 2016, the Company entered into an amendment to the Crane Lease, whereby the lease converted from anoperating lease to a capital lease. See details below in Capital Leases section.The Company previously leased equipment from a related party (see Note 9 - Related Party Transactions) under an operating lease for amonthly payment of $5.0 thousand. The lease expired in May 2016. The Company leased a lot in Louisville, Kentucky for a term that commenced in March 2012 and ended in February 2016. The monthly paymentamount from March 2012 through February 2014 was $3.5 thousand. Beginning March 2014, the monthly payment amount increased to $3.8thousand for the remaining term. As of August 31, 2015, the Company entered into a settlement to abandon the leased property and pay theremaining balance of scheduled payments over a 19 month period, ending March 31, 2017. This amount was fully repaid in 2017.On April 30, 2015, the Company entered into a lease agreement with LK Property (see Note 9 - Related Party Transactions), for a portion of the4.4 acre parcel of real estate located at 6709 Grade Lane, Louisville, Kentucky in the amount of $3.0 thousand per month. The lease terminates onApril 14, 2019, but the Company has the right to terminate the lease and vacate the leased premises upon 90 days notice. The Company isrequired to reimburse the lessor for 40% of the property taxes on the parcel during the term. Future minimum lease payments for operating leases for the next five years ending December 31 of each year, in thousands, as of December 31,2017 are as follows: RelatedParty Other Total 2018$486 $ 96 $582 2019 460 96 556 2020 450 96 546 2021 450 — 450 2022 450 — 450 2023 and thereafter 788 — 788 Future minimum lease payments$3,084 $288 $3,372 Total rent expense for the years ended December 31, 2017 and 2016 was $770.7 thousand and $982.2 thousand, respectively. F - 19Table of Contents NOTE 4 - LEASE COMMITMENTS, Continued Capital Leases: On May 1, 2016, the Company entered into an amendment to the Crane Lease, whereby the lease is extended through April 30, 2021. Paymentsare $14.5 thousand per month for the first twelve months following the amendment date, followed by monthly payments of $31.3 thousandthereafter for the reminder of the lease term. There is no bargain purchase option associated with the Crane Lease. Based on the new leaseterms, the Company classified the Crane Lease as a capital lease. At inception, the Company recorded a capital lease obligation of $1.3 million.The Company used a weighted average cost of capital of 9.3% to calculate the capital lease obligation. For the year ended December 31, 2017,the Company recorded $257.0 thousand in depreciation expense and $109.8 thousand in interest expense related to the Crane Lease. The netbook value and the related accumulated depreciation of the Crane Lease were $1.0 million and $428.3 thousand, respectively, at December 31,2017. For the year ended December 31, 2016, the Company recorded $171.3 thousand in depreciation expense and $78.7 thousand in interestexpense related to the Crane Lease. The net book value and the related accumulated depreciation of the Crane Lease were $1.1 million and$171.3 thousand, respectively, at December 31, 2016. The Company entered into a capital lease, effective June 2017, to lease two pieces of equipment (the "Forklift Lease"). The lease is for a periodof six years and the payments are $1.4 thousand per month. The Company has the option to purchase the equipment for a purchase price of$1.00 per item of equipment upon the expiration of the lease. At inception, the Company recorded a capital lease obligation of $75.2 thousand.The Company used a weighted average cost of capital of 10.0% to calculate the capital lease obligation. For the year ended December 31, 2017,the Company has recorded $7.3 thousand in depreciation expense and $4.3 thousand in interest expense related to the Forklift Lease. The netbook value and the related accumulated depreciation of the Forklift Lease were $69.7 thousand and $7.3 thousand, respectively, at December 31,2017.Future minimum lease payments for the capital lease for the next five years ending December 31 of each year, in thousands, as of December 31,2017 are as follows: Total Principal Interest2018$392 $300 $92 2019 392 329 63 2020 392 361 31 2021 111 106 5 2022 17 15 2 2023 8 8 — Total$1,312 $1,119 $193 NOTE 5 - EMPLOYEE RETIREMENT PLAN The Company maintains a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code which covers substantially allemployees. Eligible employees may contribute up to 100.0% of their annual salary up to the IRS limits. Under the plan, the Company matches25.0% of each eligible employee’s voluntary contribution up to 6.0% of their gross salary. The Company also offers an additional discretionarymatch for eligible employees who contribute 7.0% - 10.0% of their weekly wages. In an effort to decrease expenses, the Company suspended theemployee match under the plan for an undetermined period of time effective March 1, 2014. There was no expense under the plan for the yearsended December 31, 2017 and 2016. F - 20Table of Contents NOTE 6 - INCOME TAXES The income tax provision (benefit), in thousands, consists of the following for the years ended December 31, 2017 and 2016: 2017 2016Federal Current$— $— Deferred— — — — State and Local Current12 11 Deferred— 69 12 80 $12 $80 A reconciliation of income taxes at the statutory rate to the reported provision (benefit), in thousands, is as follows: 2017 2016Federal income tax at statutory rate$(380) $(1,071)State and local income taxes, net of federal income tax effect(52) (48)Permanent differences2 902 Tax reform legislation 1,736 — (Decrease) Increase in deferred tax asset valuation allowance(1,258) 408 Other differences(36) (111) $12 $80 F - 21Table of Contents NOTE 6 - INCOME TAXES, Continued Significant components of the Company’s deferred tax liabilities and assets, in thousands, as of December 31, 2017 and 2016 are as follows: 2017 2016Deferred tax liabilities Property and equipment$(300) $(935)Gross deferred tax liabilities(300) (935)Deferred tax assets Intangibles and goodwill1,178 2,038 Accrued property taxes6 53 Allowance for doubtful accounts16 14 Inventory capitalization72 110 Stock options424 605 Federal net operating loss carry forward3,901 4,706 State net operating loss carry forward1,787 1,658 State recycling equipment tax credit carry forward4,590 4,593 Inventory valuation reserve— 60 Accrued expenses160 187 Other8 11 Gross deferred tax assets12,142 14,035 Valuation allowance(11,815) (13,073)Net deferred tax assets$27 $27 At December 31, 2017, the Company had deferred recycling equipment state tax credit carry forwards of $4.6 million relating to our shredderpurchase which do not expire. This tax credit is limited to our Kentucky state income tax liability which includes the Limited Liability Entity Tax,which is based on gross receipts or gross profits. The Company used the available state tax credits of $6.0 thousand and $3.0 thousand in 2017and 2016, respectively. At December 31, 2017, the Company had a Federal net operating loss ("NOL") carry forward of $14.4 million which expires beginning in 2034.The Company also has state NOL carry forwards of $28.9 million as of December 31, 2017. The majority of the state NOL carry forwards relatesto losses in Kentucky and expire beginning in 2032. A deferred tax asset valuation allowance is established if it is “more likely than not” that the related tax benefits will not be realized. Indetermining the appropriate valuation allowance, the Company considers the projected realization of tax benefits based on expected levels offuture taxable income, considering recent operating losses, available tax planning strategies, reversals of existing taxable temporary differencesand taxable income in the state and carry back provisions. As of December 31, 2017, management determined that only the state recyclingequipment tax credit carry forwards would be realized to the extent of $27 thousand and reserved all other net deferred tax assets by increasingthe related valuation allowance. The state tax credit carry forwards have been reduced to their net realizable value based upon estimates offuture gross profits and utilization of the credit in the foreseeable future.On December 22, 2017, the President of the United States signed the Tax Cuts and Jobs Act tax reform legislation into law. This legislationmakes significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards andcarrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the rate of 35 percentto 21 percent. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities. This revaluation resulted inan addition of $1.7 million to income tax expense in continuing operations before change to the valuation allowance and a correspondingreduction in the deferred tax asset. The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the ConsolidatedFinancial Statements. F - 22Table of Contents NOTE 6 - INCOME TAXES, Continued The recorded valuation allowance, in thousands, consisted of the following at December 31, 2017 and 2016: Year Ended December 31, 2017 2016Valuation allowance, beginning of year $13,073 $12,665 (Decrease) Increase in deferred tax asset valuation allowance (1,258) 408 Valuation allowance, end of year $11,815 $13,073 NOTE 7 - CASH AND STOCK DIVIDENDS Under the previous Wells Fargo and the current MidCap loan agreements, the Company covenants that so long as the lender remainscommitted to make any advance or extend any other credit to us, or any obligations remain outstanding, the Company will not declare or payany dividend or distribution (either in cash or any other property in respect of any stock) or redeem, retire, repurchase or otherwise acquire anyof our stock, other than dividends and distributions by subsidiaries of parent to parent. In 2017 and 2016, the Board of Directors did not declare a cash or stock dividend. NOTE 8 - PER SHARE DATA The computation for basic and diluted loss per share is as follows: 2017 2016(in thousands, except per shareinformation)Basic loss per share Net loss$(1,131) $(3,230)Weighted average shares outstanding8,078 8,048 Basic loss per share$(0.14) $(0.40)Diluted loss per share Net loss$(1,131) $(3,230)Weighted average shares outstanding8,078 8,048 Add dilutive— — Diluted weighted average shares outstanding8,078 8,048 Diluted loss per share$(0.14) $(0.40) F - 23Table of Contents NOTE 9 - RELATED PARTY TRANSACTIONS During the period ended December 31, 2017 and 2016, the Company was involved in various transactions with related parties. A summary oftransactions and related balances are as follows. The table at the end of this note should be used in referencing all below paragraphs. K&R, LLC ("K&R") and 7100 Grade Lane, LLC ("7100 LLC"): The Company is involved in various transactions with K&R and 7100 LLC, which are wholly-owned by Kletter Holdings LLC, the sole memberof which was Harry Kletter, the Company's founder and former Chief Executive Officer. After Mr. Kletter's passing in January 2014, theCompany's Chairman of the Board and interim Chief Executive Officer, Orson Oliver, assumed the roles of executor of Mr. Kletter’s estate andPresident of Kletter Holdings LLC. As of December 31, 2017, Mr. Kletter’s estate, K&R and the Harry Kletter Family Limited Partnershipcollectively, beneficially own in excess of 20% of the Company's issued and outstanding shares. The Company leases a portion of the Louisville, Kentucky facility from 7100 LLC (previously from K&R) under an operating lease, the"7100 Prior Lease," expiring December 2017. Effective October 1, 2017, the Company entered into a new lease agreement with 7100 LLC for thesame property (the "7100 Lease") that terminates and replaces the 7100 Prior Lease. Additionally, the Company leased equipment from K&Runder operating leases that expired May 2016. See Note 4 - Lease Commitments for additional information relating to the rent and leaseagreements with K&R. During 2015 and continuing into 2017, the Company deferred a portion of these lease payments. A portion of this deferral was converted into aterm note during 2016 as described below. The remaining portion of this deferral was converted into a promissory note effective October 1, 2017as described below. On September 13, 2013, K&R made a $500.0 thousand refundable, non-interest bearing deposit with the Company related to K&R's potentialpurchase of the Company's formerly owned real property located at 1565 East 4th Street in Seymour, Indiana. The Company was permitted andused the deposited funds for general corporate purposes. K&R did not acquire the property. Under the Company's lending arrangements, arefund of the deposit to K&R would have to be approved by the Company's lenders. This amount was converted into a term note during 2016as described below. As of December 31, 2017 and 2016, the Company had balances related to K&R and 7100 LLC pertaining to refundable lease and propertydeposits due to and from the Company, rents payable from the Company, notes payable due from the Company, accrued interest due from theCompany, interest expense, and rent expense. On February 29, 2016, K&R assigned its interest in the 7100 Lease to another entity, 7100 LLC, also controlled by Mr. Kletter’s estate. At thattime, the total amount due to the estate’s various entities, which amounted to approximately $1.5 million and is inclusive of the $500.0 thousandnoted above, became a subordinated, unsecured debt (the "Kletter Notes") owed by the Company. A portion of the amount, approximately$620.3 thousand, is owed to K&R, with the remaining amount, approximating $883.8 thousand, owed to 7100 LLC. Interest will accrue monthly ata per annum rate of 5.0%. Interest accrued until April 30, 2017, at which time interest is paid as due. Until maturity on December 31, 2020, theKletter Notes are subject to intercreditor agreements between the respective Note holder and MidCap. This amount of $1.5 million represents allnet amounts due to Kletter estate entities as of February 29, 2016 with the exception of a $32.0 thousand deposit owed by K&R to the Company.If the Company sells property it owns at 7110 Grade Lane in Louisville, Kentucky, the Company shall make a principal payment to K&R of $500.0thousand. Otherwise, all remaining principal is due at maturity. On June 23, 2017, the Company entered into two agreements (referred to as the "Handler Agreement" and the "Crane Agreement") with K&R,each for the purchase of equipment to be used in the operation of the Company's business. Under the Handler Agreement, the Company purchased a hydraulic scrap handler from K&R for a purchase price of $90.0 thousand, with a $9.0thousand down payment and a 24-month promissory note ("Handler Note") in the face principal amount of the remaining $81.0 thousand. TheHandler Note is interest free and provides for payments in equal monthly installments of $3.4 thousand. Under the Handler Note, paymentscommenced on July 1, 2017. Upon a default, the Handler Note will bear interest at 1% per annum. Under the Crane Agreement, the Company purchased a 2011 Komatsu crane from K&R for a purchase price of $60.0 thousand, with a $12.0thousand down payment and a 24-month promissory note ("Crane Note") in the face principal amount of the remaining $48.0 thousand. TheCrane Note is interest free and provides for payments in equal monthly installments of $2.0 thousand. Under the Crane Note, paymentscommenced on July 1, 2017. Upon a default, the Crane Note will bear interest at 1% per annum. The Crane Note and the Handler Note are each secured by a security interest in the subject equipment and proceeds the Company derives fromthe equipment.The Company entered into an agreement and promissory note (the "Back Rent Agreement"), effective October 1, 2017, to pay 7100 LLC $345.8thousand for back rent past due and owed under the 7100 Prior Lease with an initial payment of $100.0 thousand paid at the signing of the BackRent Agreement with six consecutive monthly payments of $41.0 thousand each, beginning November 1, 2017. F - 24Table of Contents NOTE 9 - RELATED PARTY TRANSACTIONS, Continued Algar, Inc. ("Algar"): Management Services Agreement with Algar: On December 2, 2013, the Company and Algar entered into a Management Services Agreement (the “Management Agreement”). On September30, 2016 (the "Termination Effective Date"), the Company and Algar mutually agreed to terminate the Management Agreement pursuant to theTermination Agreement. See the details below. Under the Management Agreement, Algar provided the Company with day-to-day senior executive level operating management services. Algaralso provided business, financial, and organizational strategy and consulting services, as the Company’s board of directors reasonablyrequested from time to time. In connection with the Management Agreement, the Company's board of directors appointed Sean Garber as President and as a member of theboard of directors. Under the Management Agreement, the Company reimbursed Algar for the portion of Mr. Garber’s salary that was attributable to Algar’sservices under the Management Agreement in an amount not exceeding $20.8 thousand per month, or $250.0 thousand per year plus otherexpenses. Also, under the Management Agreement, Algar was to be paid a bonus in an amount equal to 10.0% of any year-over-year increasein the Company’s adjusted pre-tax income during the term. The term of the Management Agreement was effective December 1, 2013 andoriginally expired on December 31, 2016, subject to earlier termination upon mutual agreement or upon circumstances set forth in the agreement.On September 30, 2016, the Company and Algar mutually agreed to terminate the Management Agreement. For the year ended December 31, 2014, Algar earned a bonus of $428.0 thousand that was accrued by ISA. This amount was reduced by $50.0thousand related to the real estate sale to SG&D described below. The bonus payable was further reduced on August 5, 2015, in 2015 when theCompany entered into a Stock Purchase Agreement with Algar, whereby the Company issued 50.7 thousand shares of its common stock toAlgar for aggregate consideration equal to $189.0 thousand based on the fair value of the Company's common stock. The consideration waspayable in the form of a reduction of the Company’s $378.0 thousand accrued but unpaid bonus compensation due to Algar as of August 5,2015. During the year ended December 31, 2016, the Company paid Algar the remaining $189.0 thousand related to the accrued but unpaidbonus compensation related to the bonus earned in 2014. As of the Termination Effective Date, the Company and Algar mutually terminated the Management Agreement. The Termination Agreementprovided that in satisfaction of all amounts owed to Algar under the Management Agreement, the Company paid Algar: (i) $20,880 on theTermination Effective Date, (ii) an aggregate amount equal to $50,000, paid in three equal monthly installments on the last day of October,November and December 2016 (full amount accrued at September 30, 2016), and (iii) an amount equal to ten percent of the decrease, if any, inreported “Loss before income taxes” for the nine months ended September 30, 2016 as reported on the Condensed Consolidated Statements ofOperations in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, (the “3Q 2016 Form 10-Q”) as filed withthe U.S. Securities and Exchange Commission, over the Company’s reported “Loss before income taxes” for the nine months ended September30, 2015 as reported in the 3Q 2016 Form 10-Q (the "Accrued Bonus Payment"). The Company paid the Accrued Bonus Payment in the amountof $180.0 thousand on March 31, 2017. The Termination Agreement also provided for the cancellation of the Stock Option Agreement as of theTermination Effective Date. Mr. Garber and Mr. Oliver terminated the Irrevocable Proxies that were received in connection with the ManagementAgreement as of the Termination Effective Date. Mr. Garber resigned all offices with the Company and his director position as of theTermination Effective Date. Other transactions with Algar: During 2016, the Company participated in various other transactions with Algar. The Company sold scrap to Algar, bought scrap from Algar,and provided logistical and IT services to Algar. Related to these transactions, the Company has accounts receivable balances from Algar, anaccounts payable balance to Algar, along with related income and expense during 2016. Board of Directors' fees and consulting fees: The Company pays board and committee fees to non-employee directors. Related to these transactions, the Company has accounts payablebalances to the Board of Directors for fees and consulting fees, along with related expense at and as of December 31, 2017 and 2016. LK Property Investments, LLC: On April 30, 2015, the Company entered into a lease agreement with LK Property, for a portion of the 4.4 acre parcel of real estate located at 6709Grade Lane, Louisville, Kentucky in the amount of $3.0 thousand per month. The lease terminates on April 14, 2019, but the Company has theright to terminate the lease and vacate the leased premises upon 90 days notice. The Company is required to reimburse the lessor for 40% of theproperty taxes on the parcel during the term. F - 25Table of Contents NOTE 9 - RELATED PARTY TRANSACTIONS, Continued Metal X, LLC: During 2017 and 2016, the Company sold scrap material to MetalX and held accounts receivables balances from MetalX related to scrap sales.For additional information regarding MetalX, see Note 12 - Financing and Related Matters. Related party balances as of and for the years ended December 31, 2017 and 2016 are as follows, in thousands: 2017 2016K&R, LLC and 7100 LLC: Deposit amounts owed to the Company by related parties(1) $42 $42 Prepaid expenses to related parties (1) 43 — Notes payable to related parties(3) 1,600 1,504 Accrued interest to related parties(2) — 63 Facility rent payable to related parties(2) 123 176 Equipment rent payable to related parties(2) — 15 Facility rent expense to related parties(4) 597 646 Equipment rent expense to related parties(4) — 25 Interest expense to related parties (4) 75 63 Algar, Inc.: Bonus payable to Algar(2), (5) — 180 Revenue from scrap sales to Algar(4), (6) — 7 Revenue from logistical services to Algar(4), (6) — 48 Revenue from IT services to Algar(4), (6) — 16 Scrap material purchases from Algar(4), (6) — 1,204 Management fee expense(4), (6) — 238 Bonus expense to Algar(4), (6) — 180 Net rental income from Algar (4), (6) — 16 Other expenses to Algar(4), (6) — 14 Board of Directors: * Accounts payable to the Board of Directors for fees(2) $50 $144 Board of director fee expense(4) 200 251 LK Property Investments, LLC: Lease deposit to LK Property(1) $3 $3 Prepaid expenses to related parties (1) 3 — Rent expense to LK Property**(4) 36 36 Metal X, LLC: Accounts receivable from Metal X(1) $1 $105 Revenue from product sales to Metal X(4) 188 246 F - 26Table of Contents NOTE 9 - RELATED PARTY TRANSACTIONS, Continued * Excludes insignificant amount of travel reimbursement. **Excludes amounts reimbursed to LK Properties for utilities and property tax.(1)Included in receivable and other assets from related parties on the Consolidated Balance Sheets; balances are as of December 31, 2017 and2016.(2) Included in payables and accrued expenses to related parties on the Consolidated Balance Sheets; balances are as of December 31, 2017and 2016.(3)Included in current maturities of long-term debt, related parties and long-term debt related parties on the Consolidated Balance Sheets;balance is as of December 31, 2017 and 2016.(4)Included in the Consolidated Statements of Operations; balances are for the year ended December 31, 2017 and 2016.(5)The 2016 balance includes the bonus payable amount at December 31, 2016 as this amount was earned on September 30, 2016 while Algarwas a related party. The bonus payable was paid on March 31, 2017. (6)The Company excluded all 2017 balances related to Algar as the related party relationship ended on September 30, 2016. NOTE 10 - SHARE-BASED COMPENSATION AND OTHER COMPENSATION AGREEMENTS Following is a summary of stock option activity and number of shares reserved for outstanding options for the years ended December 31, 2017and 2016: Total Options Number of shares(in thousands) WeightedAverage ExercisePrice per Share WeightedAverageRemainingContractualTerm Weighted AverageGrant Date FairValueOutstanding at December 31, 2015 2,172 $5.02 1.70 years $2.24 Cancelled (1,670) 5.10 — 2.18 Outstanding at December 31, 2016 502 $4.78 2.07 years $2.43 Cancelled (30) 5.40 — 2.85 Expired (90) $4.94 — $1.71 Outstanding at December 31, 2017 382 $4.70 1.41 years $2.57 Exercisable at December 31, 2017 382 $4.70 1.41 years $2.57 Securities available for grant at December 31,2017* 1,784 *Securities available for grant include securities available for stock option grants and RSUs.Following is a summary of the nonvested options issued and outstanding: Number of shares Weighted Average GrantNon-Vested Options (in thousands) Date Option Fair ValueOutstanding at January 1, 2016 870 $2.22 Cancelled (870) 2.22 Outstanding at December 31, 2016 — $— Outstanding at December 31, 2017 — $— F - 27Table of Contents NOTE 10 - SHARE-BASED COMPENSATION AND OTHER COMPENSATION AGREEMENTS, Continued Option Grants: As described in Note 1 - Summary of Significant Accounting Policies and General and Note 9 - Related Party Transactions, as of December 1,2013, subject to shareholder approval (which was received during 2014) and vesting provisions, the Company granted options to purchase atotal of 1.5 million shares of its common stock to Algar at a per share exercise price of $5.00 pursuant to the Management Agreement. At theannual meeting of shareholders of the Company on October 15, 2014, shareholders approved the issuance of these options. The first 375.0thousand share options vested and became exercisable on December 1, 2014. The second 375.0 thousand share options vested and becameexercisable after the market price of the Company's common stock reached $6.00 per share during 2014. The third 375.0 thousand share optionswould have vested and become exercisable only if and after the market price of the Company's common stock reached $8.00 per share orCompany revenue following an acquisition increased by $90.0 million. The fourth 375.0 thousand share options would have vested and becomeexercisable only if and after the market price of the Company's common stock reached $9.00 per share or Company revenue following anacquisition increases by $120.0 million. On September 30, 2016, the Company and Algar mutually agreed to terminate the ManagementAgreement between them dated as of December 1, 2013. In connection with the termination of the Management Agreement, the Stock OptionAgreement was also terminated. See Note 2 - Management Services Agreement with Algar, Inc. for additional information relating to theManagement Agreement and the related Stock Option Agreement. In January 2015, the Company awarded options to purchase 20.0 thousand shares of the Company's common stock to its Chief Financial Officer("CFO"). These options were scheduled to vest over a three year period, with 1/3 vesting on the first anniversary of the grant dateand 1/6 vesting every six months thereafter until the three year anniversary of the grant date. The exercise price per share of the optionswas $5.71, the fair value of the underlying common stock as of the grant date. These options were cancelled on June 15, 2016. See below forfurther details.There were no stock options awarded in 2017 and 2016. Restricted Stock Unit Grants: On March 25, 2016, our Compensation Committee granted 32.0 thousand restricted stock units (“RSUs”) to the Company’s CFO, under the LTIPpursuant to a Restricted Stock Unit Grant Agreement (the “RSU Agreement”). The RSUs were granted to the CFO in lieu of other compensationand as partial payment of the CFO’s bonus related to certain milestone accomplishments during 2015 and early 2016. The grant date fair value isbased on the Company's closing common stock price on the day immediately prior to the date of grant. The grant date fair value was $90.2thousand and has been recognized as expense in the accompanying Consolidated Statement of Operations. Each RSU vested on April 1, 2016and represented the right to receive one share of the Company’s common stock upon the vesting of the RSU, subject to the terms andconditions set forth in the RSU Agreement and the Plan. On March 29, 2016, the Compensation Committee granted 11.4 thousand RSUs to an employee under the LTIP pursuant to an RSU agreement.The grant date fair value is based on the Company's closing common stock price on the day immediately prior to the date of grant. The grantdate fair value was $32.0 thousand and will be recognized as expense beginning in the second quarter of 2016. Each RSU vests on March 29,2018 and represents the right to receive one share of the Company's common stock upon the vesting of the RSU, subject to the terms andconditions set forth in the RSU Agreement and the Plan. F - 28Table of Contents NOTE 10 - SHARE-BASED COMPENSATION AND OTHER COMPENSATION AGREEMENTS, Continued On June 15, 2016, at the Company's annual meeting, the Company's shareholders approved a one-time stock option exchange for the CFO as analternative to a direct repricing of options previously granted to the CFO. The stock option exchange allowed the Company to cancel 170.0thousand stock options, including 20.0 thousand granted in January 2015, previously granted to the CFO in exchange for the grant of 90.0thousand RSUs to the CFO. The RSUs vest as follows if and to the extent that the CFO remains employed by the Company through each of thefollowing dates: (i) on July 1, 2016, 50.00% (45,000) of the RSUs vested and became nonforfeitable; (ii) on December 31, 2016, 12.50% (11,250) ofthe RSUs vested and became nonforfeitable; (iii) on June 30, 2017, 12.50% (11,250) of the RSUs vested and became nonforfeitable; (iv) onDecember 31, 2017, 12.50% (11,250) of the RSUs vested and became nonforfeitable; and (v) on June 15, 2018, 12.50% (11,250) of the RSUs vestand become nonforfeitable. Each RSU represents the right to receive one share of the Company's common stock upon the vesting of the RSU,subject to the terms and conditions set forth in the RSU Agreement and the Plan. The CFO has continued his employment by the Companythrough December 31, 2017 and the related 78.8 thousand RSUs vested and became nonforfeitable. Following is a summary of RSU activity: Restricted Stock UnitsNumber ofshares (inthousands) WA RemainingContractualTerm WA GrantDate FairValueOutstanding at December 31, 2015— — $— Granted133.4 0.35 years 2.32 Vested(88.3) — 2.36 Outstanding at December 31, 201645.1 1.05 years $2.23 Vested(22.5) — 2.36 Outstanding at December 31, 201722.6 0.35 years $2.37 Non-Equity Transactions: Under a retention agreement with the Company's CFO dated March 25, 2016, the Company will pay the CFO bonuses of $100.0 thousand and$125.0 thousand on each of December 31, 2016 and December 31, 2017, respectively, as long as he remains employed with the Company onthose dates. The December 31, 2016 retention bonus of $100.0 thousand was paid in 2017. The CFO remained employed with the Company as ofDecember 31, 2017 and the Company accrued $125.0 thousand related to the 2017 retention bonus as of December 31, 2017. The Company paidthe December 31, 2017 retention bonus in 2018. On September 30, 2016, the Company entered into retention agreements ("Retention Agreements") with certain management employees(individually "Staff Member"). Under the Retention Agreement, if the Staff Member remains continuously employed by the Company throughand including the date which is the first to occur of: (a) the date of a change in control of the Company; (b) the date the Staff Member isterminated without cause; and (c) December 31, 2017, the Company will pay the Staff Member a bonus in an amount equal to 25% of the StaffMember's then-current annual base salary. At September 30, 2016, the Company estimated this liability to be $132.7 thousand. As ofDecember 31, 2017 the Company accrued $132.7 thousand. Each Staff Member remained employed with the Company as of December 31, 2017and the Company paid the amounts associated with the Retention Agreements in 2018. Other: As of December 31, 2017 and 2016, we had unrecognized share-based compensation cost related to non-vested RSU awards in the amount of$14.9 thousand and $142.0 thousand, respectively. Stock compensation charged to operations relating to stock options and RSU awards was $0.1 million and $0.4 million for the years endedDecember 31, 2017 and 2016, respectively. F - 29Table of Contents NOTE 11 - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS The Company has litigation from time to time, including employment-related claims, none of which the Company currently believes to bematerial. The Company's operations are subject to various environmental statutes and regulations, including laws and regulations addressing materialsused in the processing of products. In addition, certain of the Company's operations are subject to federal, state and local environmental lawsand regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storageand disposal of solid and hazardous wastes. Failure to maintain or achieve compliance with these laws and regulations or with the permitsrequired for operations could result in substantial operating costs and capital expenditures, in addition to fines and civil or criminal sanctions,third party claims for property damage or personal injury, cleanup costs or temporary or permanent discontinuance of operations. Certain of theCompany's facilities have been in operation for many years and, over time, the Company and other predecessor operators of these facilitieshave generated, used, handled and disposed of hazardous and other regulated wastes. Environmental liabilities in material amounts could exist,including cleanup obligations at these facilities or at off-site locations where the Company disposed of materials from its operations, whichcould result in future expenditures that the Company cannot currently estimate and which could reduce its profits. The Company recordsliabilities for remediation and restoration costs related to past activities when its obligation is probable and the costs can be reasonablyestimated. Costs of future expenditures for environmental remediation are not discounted to their present value. Recoveries of environmentalremediation costs from other parties are recorded as assets when their receipt is deemed probable. Costs of ongoing compliance activitiesrelated to current operations are expensed as incurred. Such compliance has not historically constituted a material expense to the Company. NOTE 12 - FINANCING AND RELATED MATTERS Securities Purchase Agreement On June 13, 2014, the Company issued 857,143 shares of the Company's common stock pursuant to a Securities Purchase Agreement (the"Securities Purchase Agreement") to RCP, an investment entity principally owned by Daniel M. Rifkin, the founder and CEO of MetalX, for anaggregate purchase price of $3.0 million. Pursuant to the Securities Purchase Agreement, the Company also issued to RCP a five year warrant topurchase 857,143 additional shares of the Company's common stock, exercisable 6 months after the date of the Securities Purchase Agreementfor an exercise price of $5.00 per share and expiring June 13, 2019. The net proceeds were allocated between common stock and warrants basedon the relative fair value of the common stock and the warrants. The Securities Purchase Agreement provides RCP with preemptive rights and aright of first refusal with respect to future securities offerings by the Company. The Company used the proceeds from the Securities PurchaseAgreement for general corporate purposes including debt reduction, growth initiatives, capital expenditures, and review of potentialacquisitions. On June 13, 2014, in connection with the Securities Purchase Agreement, the Company and the Investor entered into a Registration RightsAgreement (the "Registration Rights Agreement"), under which the Company (a) prepared and filed a registration statement no later thanDecember 12, 2014 and (b) caused the registration statement to be declared effective by the Securities and Exchange Commission no later thanFebruary 1, 2015 for (i) agreed to resales of the common stock issued to the Investor under the Securities Purchase Agreement, and (ii) agreedto resales of any shares of common stock issuable upon exercise of the warrant. The Registration Rights Agreement requires the Company to pay the Investor a loss of liquidity fee for certain periods after February 1, 2015when the registration statement is not effective or its use is suspended. The Registration Rights Agreement contains customaryrepresentations, warranties and covenants, and customary provisions regarding rights of indemnification between the parties with respect tocertain applicable securities law liabilities. Director Designation Agreement On June 13, 2014, in connection with the Securities Purchase Agreement, the Company and RCP entered into a Director Designation Agreement(the "Director Designation Agreement") pursuant to which RCP will have the right to designate, and require the Company's Board to appoint,up to two directors (each, a "Designated Director"). As of the date of this report, RCP had the right to designate one director. A DesignatedDirector will hold office until (i) his or her term expires and such Designated Director's successor designated by RCP has been appointed or (ii)such Designated Director's earlier death, disability, disqualification, resignation or removal, and RCP shall have the right to appoint anysuccessor to such Designated Director. RCP's designation rights terminate at such time that RCP and its affiliates collectively hold less than 5%of the Company's outstanding common stock. Pursuant to the Director Designation Agreement, the Company and RCP agreed that thedesignation and appointment of the Designated Director nominees will not violate applicable law and will not cause the Company to becomedelisted from any securities exchange or other trading market. F - 30 EXHIBIT 21 INDUSTRIAL SERVICES OF AMERICA, INC.LIST OF SUBSIDIARIESAS OF DECEMBER 31, 2017 NAME OF ENTITYSTATE OF INCORPORATION ISA Indiana, Inc.Indiana ISA Indiana Real Estate, LLCIndiana ISA Logistics LLCKentucky ISA Real Estate, LLCKentucky 7021 Grade Lane LLCKentucky 7124 Grade Lane LLCKentucky 7200 Grade Lane LLCKentucky EXHIBIT 23Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-200652) of Industrial Servicesof America, Inc. (the "Company") of our report dated March 26, 2018, relating to our audit of the consolidated financial statementsof the Company, which appears in the Annual Report on Form 10-K of the Company for the fiscal year ended December 31,2017./s/ MCM CPAs & Advisors LLP Louisville, KentuckyMarch 26, 2018 Exhibit 31.1CERTIFICATIONSI, Orson Oliver, certify that:1.I have reviewed this Form 10-K for the year ended December 31, 2017 of Industrial Services of America, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in thisreport;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ActRules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and(d)Disclosed in the report any change in the registrant's internal control over financial reporting that occurred during theregistrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing theequivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financialinformation; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant's internal control over financial reporting.March 26, 2018 /s/ Orson OliverDateOrson Oliver, Chairman of the Board and Interim Chief Executive Officer (Principal Executive Officer) Exhibit 31.2CERTIFICATIONSI, Todd L. Phillips, certify that:1.I have reviewed this Form 10-K for the year ended December 31, 2017 of Industrial Services of America, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in thisreport;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ActRules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and(d)Disclosed in the report any change in the registrant's internal control over financial reporting that occurred during theregistrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing theequivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financialinformation; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant's internal control over financial reporting. March 26, 2018 /s/ Todd L. PhillipsDateTodd L. Phillips, President and Chief Financial Officer (Principal Financial and Accounting Officer) Exhibit 32.1CERTIFICATIONS Orson Oliver, being the Chairman of the Board and Interim Chief Executive Officer, and Todd L. Phillips, being the President and Chief FinancialOfficer, of Industrial Services of America, Inc., hereby certify as of this 26th day of March, 2018, that the Form 10-K for the year endedDecember 31, 2017, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the informationcontained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Industrial Services ofAmerica, Inc. /s/ Orson Oliver Orson Oliver, Chairman of the Board and Interim Chief Executive Officer /s/ Todd L. Phillips Todd L. Phillips, President and Chief Financial Officer

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