UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2005

or

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

For the transition period from to

Commission File Number: 000-25955

Waste Services, Inc.

(Successor registrant of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
(Exact name of registrant as specified in its charter)

Delaware	01-0780204
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1122 International Blvd., Suite 601, Burlington, Ontario, Canada L7L 6Z8
(Address of principal executive offices and zip code)

(905) 319-1237
(Registrant’s telephone number, including area code)

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

     The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at July 29, 2005 was 99,730,201 (assuming exchange of all exchangeable shares not held by Waste Services, Inc.).

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		2
Condensed Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004		2
Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2005		3
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2005		4
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3. Quantitative and Qualitative Disclosures About Market Risk		38
Item 4. Controls and Procedures		39
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 3. Defaults upon Senior Securities		39
Item 4. Submission of Matters to a Vote of Security Holders		39
Item 5. Other Information		39
Item 6. Exhibits		40
Signatures		41
Section 302 Chief Executive Officer Certification
Section 302 Chief Financial Officer Certification
Section 906 CEO & CFO Certification

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	June 30,			December 31,
	2005			2004
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,890		$	8,507
Accounts receivable (net of allowance for doubtful accounts of $951 and $1,264 as of June 30, 2005 and December 31, 2004, respectively)		46,945			47,856
Prepaid expenses and other current assets		8,752			10,940
Total current assets		60,587			67,303
Property and equipment, net		124,789			130,467
Landfill sites, net		169,734			169,616
Goodwill and other intangible assets, net		331,628			327,756
Other assets		23,269			25,441
Total assets	$	710,007		$	720,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	23,744		$	25,949
Accrued expenses and other current liabilities		44,400			42,533
Short-term financing and current portion of long-term debt		1,172			1,166
Total current liabilities		69,316			69,648
Long-term debt		275,627			276,214
Accrued closure, post-closure and other obligations		15,815			10,974
Cumulative mandatorily redeemable Preferred Stock (net of discount of $5,543 and $8,426 as of June 30, 2005 and December 31, 2004, respectively)		74,456			64,971
Total liabilities		435,214			421,807
Commitments and contingencies
Shareholders’ equity:
Common stock $0.01 par value; 500,000,000 shares authorized; 93,237,607 and 90,358,196 shares issued and outstanding as of June 30, 2005 and December 31, 2004, respectively		933			904
Additional paid-in capital		352,757			345,904
Treasury stock at cost; 500,000 shares as of June 30, 2005 and December 31, 2004		(1,235	)		(1,235	)
Options, warrants and deferred stock-based compensation		29,809			28,282
Accumulated other comprehensive income		25,522			29,133
Accumulated deficit		(132,993	)		(104,212	)
Total shareholders’ equity		274,793			298,776
Total liabilities and shareholders’ equity	$	710,007		$	720,583

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenue	$	95,384		$	72,626		$	184,369		$	122,943
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		69,319			51,444			133,809			85,848
Selling, general and administrative expense		14,679			12,785			30,146			23,111
Depreciation, depletion and amortization		10,599			7,809			20,148			13,281
Foreign exchange gain and other		1			(283	)		(237	)		(373	)
Income from operations		786			871			503			1,076
Interest expense		7,173			12,266			13,998			18,582
Changes in fair value of warrants		—			421			—			421
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		5,114			4,290			9,956			8,309
Loss before income taxes		(11,501	)		(16,106	)		(23,451	)		(26,236	)
Income tax provision		3,013			2,509			5,330			3,338
Loss before cumulative effect of change in accounting principle		(14,514	)		(18,615	)		(28,781	)		(29,574	)
Cumulative effect of change in accounting principle, net of provision for income taxes of $132 for the six months ended June 30, 2004		—			—			—			225
Net loss	$	(14,514	)	$	(18,615	)	$	(28,781	)	$	(29,349	)
Basic and diluted loss per share:
Basic and diluted loss per share before cumulative effect of change in accounting principle	$	(0.15	)	$	(0.21	)	$	(0.29	)	$	(0.37	)
Cumulative effect of change in accounting principle		—			—			—			—
Loss per share — basic and diluted	$	(0.15	)	$	(0.21	)	$	(0.29	)	$	(0.37	)
Weighted average common shares outstanding — basic and diluted		99,072			88,855			97,801			79,736

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, 2005

(In thousands)

														Accumulated
											Options, Warrants			Other
								Treasury			and Deferred			Comprehensive						Total
	Common Stock				Additional			Stock			Stock-Based			Income			Accumulated			Shareholders’
	Shares		Amount		Paid-in Capital			at Cost			Compensation			(Loss)			Deficit			Equity
Balance, December 31, 2004		90,358	$	904	$	345,904		$	(1,235	)	$	28,282		$	29,133		$	(104,212	)	$	298,776
Common shares and warrants issued		2,641		26		6,111			—			630			—			—			6,767
Exercise of options and warrants		161		2		769			—			(250	)		—			—			521
Deferred stock-based compensation		—		—		—			—			1,147			—			—			1,147
Conversion of exchangeable shares		78		1		(1	)		—			—			—			—			—
Other paid-in capital		—		—		(26	)		—			—			—			—			(26	)
Foreign currency translation adjustment		—		—		—			—			—			(3,611	)		—			(3,611	)
Net loss		—		—		—			—			—			—			(28,781	)		(28,781	)
Balance, June 30, 2005		93,238	$	933	$	352,757		$	(1,235	)	$	29,809		$	25,522		$	(132,993	)	$	274,793

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net loss	$	(28,781	)	$	(29,349	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation, depletion and amortization		20,148			13,281
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		9,956			8,309
Amortization of debt issue costs		705			9,616
Deferred income tax provision		5,063			3,338
Non-cash stock-based compensation (benefit)		1,147			(1,034	)
Other non-cash items		427			63
Changes in operating assets and liabilities (excluding the effects of acquisitions):
Accounts receivable		475			(2,594	)
Prepaid expenses and other current assets		1,746			(2,243	)
Accounts payable		(2,232	)		5,901
Accrued expenses and other current liabilities		1,438			2,793
		10,092			8,081
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(775	)		(161,439	)
Capital expenditures		(19,562	)		(22,606	)
Proceeds from asset sales and business divestitures		636			9,983
Deposits for business acquisitions and other		(691	)		(542	)
		(20,392	)		(174,604	)
Cash flows from financing activities:
Proceeds from issuance of debt		—			266,000
Principal repayments of debt and capital lease obligations		(830	)		(181,639	)
Sale of common shares and warrants		7,125			53,600
Proceeds from release of restricted cash and release of collateral supporting letters of credit		—			22,617
Proceeds from the exercise of options and warrants		521			1,041
Fees paid for financing transactions		—			(12,999	)
		6,816			148,620
Effect of exchange rate changes on cash and cash equivalents		(133	)		(204	)
Decrease in cash and cash equivalents		(3,617	)		(18,107	)
Cash and cash equivalents, beginning of period		8,507			21,062
Cash and cash equivalents, end of period	$	4,890		$	2,955

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization of Business and Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements include the accounts of Waste Services, Inc. (“Waste Services”), successor to Capital Environmental Resource Inc. now known as Waste Services (CA) Inc. (“Capital”, “Waste Services (CA)” or the “Canadian operations”) and its wholly owned subsidiaries (collectively, “we,” “us” or “our”). We are a multi-regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers in the United States and Canada. In 2003, we initiated a disposal-based growth strategy to enter the United States solid waste market and establish leading, vertically integrated market positions. Under this strategy, we enter geographic markets with attractive growth or competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. As part of our business strategy to expand into the United States, we entered into a migration transaction, which was completed effective July 31, 2004. Under the migration transaction, our corporate structure was reorganized so that Waste Services, a Delaware company, is the ultimate parent company of our corporate group. Prior to the migration transaction, Waste Services was a subsidiary of Capital. After the migration transaction, Capital became Waste Services’ subsidiary. Effective with the completion of the migration transaction on July 31, 2004, the historical equity balances of Capital were reclassified into the equity of Waste Services.

     These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. All significant intercompany transactions and accounts have been eliminated. All figures are presented in thousands of U.S. dollars, except share and per share data, or except where expressly stated as being in Canadian dollars (“C$”) or in millions. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted. The accounting policies followed in the preparation of these interim condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2004, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with our Form 10-K for the year ended December 31, 2004. Income taxes during these interim periods have been provided for based upon our anticipated annual effective income tax rate. Certain reclassifications have been made to the prior period financial statement amounts to conform to the current presentation. Due to the seasonal nature of our business, operating results for interim periods are not necessarily indicative of the results for full years. These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto appearing in our annual report on Form 10-K for the year ended December 31, 2004.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts, depletion of landfill development costs, intangible assets, goodwill, liabilities for landfill capping, closure and post-closure obligations, insurance reserves, potential liabilities in connection with outstanding litigation and deferred taxes.

     A portion of our operations are domiciled in Canada; for each reporting period, we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet dates, and revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in

6

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operations are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates.

     Basic earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period including the effect of currently outstanding exchangeable shares of Waste Services (CA) (not held by Waste Services) that are the functional and economic equivalent of our outstanding common shares. Diluted earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period plus the dilutive effect of common stock purchase warrants and stock options using the treasury stock method. Due to the net losses for the three and six months ended June 30, 2005 and 2004, basic and diluted loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive. Dilutive securities not included in the diluted loss per share calculation are as follows (unaudited) (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Options to purchase common shares		82		999		49		1,378
Warrants to purchase common shares		2,608		5,285		2,144		6,064
Dilutive securities		2,690		6,284		2,193		7,442

     For purposes of computing net income (loss) per common share — basic and diluted, for the three and six months ended June 30, 2005, the weighted average number of shares of common stock outstanding includes the effect of 6,501,594 and 6,524,662, respectively, exchangeable shares of Waste Services (CA) as if they were shares of our outstanding common stock from July 31, 2004, the date our migration transaction was completed.

2. New Accounting Pronouncements

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), Shares-Based Payment, (“SFAS No. 123(R)”), which amends SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires compensation expense to be recognized for all share-based payments made to employees based on the fair value of the award at the date of grant, eliminating the intrinsic value alternative allowed by SFAS No. 123. Generally, the approach to determining fair value under the original pronouncement has not changed. However, there are revisions to the accounting guidelines, such as accounting for forfeitures, that will change our accounting for stock-based awards in the future.

     The original effective date of SFAS No. 123(R) was the first interim or annual reporting period beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission amended Rule 4-01(a) of Regulation S-X in order to delay the effective date of SFAS No. 123(R). The amendment requires that public entities apply the provisions of SFAS No. 123(R) beginning with the first annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. As a result of the amendment, SFAS No. 123(R) will be effective for us at the beginning of the first quarter of 2006. The statement allows companies to adopt its provisions using either of the following transition alternatives:

(i) The prospective method, which results in the recognition of compensation expense using SFAS No. 123(R) for all share-based awards granted after the effective date and the recognition of compensation expense using SFAS No. 123 for all previously granted share-based awards that remain unvested at the effective date; or

(ii) The retrospective method, which results in applying the prospective method and restating prior periods by recognizing the financial statement impact of share-based payments in a matter consistent with the pro forma disclosure requirements of SFAS No. 123.

7

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     We have not yet determined either the method of adoption or the impact that the new standard is expected to have on our financial statements.

3. Property and Equipment

     Property and equipment consist of the following:

	June 30,			December 31,
	2005			2004
	(Unaudited)
Land and buildings	$	21,093		$	18,872
Vehicles		95,532			101,215
Containers, compactors and landfill and recycling equipment		65,803			61,550
Furniture, fixtures, other office equipment and leasehold improvements		9,755			8,562
Total property and equipment		192,183			190,199
Less: Accumulated depreciation		(67,394	)		(59,732	)
Property and equipment, net	$	124,789		$	130,467

4. Landfill Sites, Accrued Closure, Post-Closure and Other Obligations

Landfill Sites

     Landfill sites consist of the following:

	June 30,			December 31,
	2005			2004
	(Unaudited)
Landfill sites	$	193,975		$	188,616
Accumulated depletion		(24,241	)		(19,000	)
Landfill sites, net	$	169,734		$	169,616

     The changes in landfill sites for the six months ended June 30, 2005 and 2004 are as follows (unaudited):

	2005			2004
Balance, beginning of period	$	169,616		$	117,541
Acquisitions		—			41,982
Additional landfill site costs		5,081			7,938
Additional asset retirement obligations		731			312
Depletion		(5,513	)		(2,774	)
Divestitures		—			(154	)
Capitalized interest		—			178
Purchase price allocation adjustments for prior acquisitions and other		99			5,905
Effect of foreign exchange rate fluctuations		(280	)		(389	)
Change in accounting principle		—			(2,474	)
Balance, end of period	$	169,734		$	168,065

Accrued Closure, Post-Closure and Other Obligations

     Accrued closure, post-closure and other obligations consist of the following:

8

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	June 30,		December 31,
	2005		2004
	(Unaudited)
Accrued closure and post-closure obligations	$	7,394	$	6,390
Deferred income tax liability		7,978		3,984
Other obligations		443		600
	$	15,815	$	10,974

     Accrued closure and post-closure obligations include costs associated with obligations for closure and post-closure of our landfills. The anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill as well as the duration of the post-closure monitoring period. The changes to accrued closure and post-closure obligations for the six months ended June 30, 2005 and 2004 are as follows (unaudited):

	2005			2004
Balance, beginning of period	$	6,390		$	7,737
Acquisitions		—			52
Accretion		358			224
Additional asset retirement obligations		731			312
Divestitures		—			(146	)
Purchase price allocation adjustments for prior acquisitions		—			(92	)
Effect of foreign exchange rate fluctuations		(85	)		(94	)
Change in accounting principle		—			(2,831	)
Balance, end of period	$	7,394		$	5,162

5. Goodwill and Other Intangible Assets

     Goodwill and other intangible assets consist of the following:

	June 30,			December 31,
	2005			2004
	(Unaudited)
Other intangible assets subject to amortization:
Customer relationships and contracts	$	35,282		$	50,495
Non-competition agreements and other		3,225			4,126
		38,507			54,621
Less: Accumulated amortization:
Customer relationships and contracts		(9,069	)		(5,913	)
Non-competition agreements and other		(1,777	)		(1,782	)
Other intangible assets subject to amortization, net		27,661			46,926
Goodwill		303,967			280,830
Goodwill and other intangible assets, net	$	331,628		$	327,756

     The changes in goodwill for the six months ended June 30, 2005 and 2004 are as follows (unaudited):

9

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2005								2004
	U.S.		Canada			Total			Total
Balance, beginning of period	$	195,575	$	85,255		$	280,830		$	144,544
Acquisitions		9		—			9			142,671
Divestitures		—		—			—			(8,645	)
Effect of foreign exchange rate fluctuations		—		(1,620	)		(1,620	)		(2,207	)
Purchase price allocation adjustments for prior acquisitions		24,748		—			24,748			(6,108	)
Balance, end of period	$	220,332	$	83,635		$	303,967		$	270,255

     During the first half of 2005, we revised our estimate of the fair value of customer relationships, non-compete arrangements and certain vehicles and containers acquired as part of the acquisition of Florida Recycling.

6. Other Assets

     Other assets consist of the following:

	June 30,		December 31,
	2005		2004
	(Unaudited)
Debt and redeemable Preferred Stock issue costs, net of accumulated amortization of $3,494 as of June 30, 2005 and $2,271 as of December 31, 2004	$	9,757	$	10,833
Acquisition deposits and deferred acquisition costs		12,870		12,576
Deferred income taxes		—		1,202
Other assets		642		830
	$	23,269	$	25,441

7. Debt

     Debt consists of the following:

	June 30,			December 31,
	2005			2004
	(Unaudited)
Senior Secured Credit Facilities:
Revolving credit facility due March 2009, floating interest rate at 7.78% as of June 30, 2005 and 6.71% as of December 31, 2004	$	15,000		$	15,000
Term loan facility due March 2011, floating interest rate at 7.68% as of June 30, 2005 and 6.78% as of December 31, 2004		98,750			99,250
Senior Subordinated Notes due 2014, fixed interest rate at 9.5% as of June 30, 2005 and December 31, 2004		160,000			160,000
Other subordinated promissory notes payable due 2017, interest at 6.67%		3,049			3,130
		276,799			277,380
Less: Current portion		(1,172	)		(1,166	)
Long-term portion	$	275,627		$	276,214

10

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Senior Secured Credit Facilities

     On April 30, 2004, we entered into new Senior Secured Credit Facilities (the “Credit Facilities”) with a syndicate of lenders. The Credit Facilities consist of a five-year revolving credit facility in the amount of $60.0 million, up to $15.0 million of which is available to our Canadian operations, and a seven-year term loan facility in the amount of $100.0 million. The term loan requires quarterly installments of $0.25 million due each March 31, June 30, September 30, and December 31 through March 31, 2010 and quarterly installments of $23.5 million due thereafter through to March 31, 2011. The Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined, at our option. The Credit Facilities are secured by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian restricted subsidiaries guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Additionally, 65% of the common shares of Waste Services’ first tier foreign subsidiaries are pledged to secure obligations under the Credit Facilities.

     Our Credit Facilities, as amended, contain certain financial and other covenants that restrict our ability to, among other things, make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions. Our financial covenants include: (i) minimum consolidated interest coverage; (ii) maximum total leverage; and (iii) maximum senior secured leverage.

     On October 4, 2004, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amendment included changes to certain of the financial and other covenants contained in the Credit Facilities and increased the current interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Eurodollar loans. Until we meet certain target leverage ratios, as defined, availability under the amended facility is reduced to $50.0 million, up to $12.5 million of which is available to our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.5 million to our lenders. As of June 30, 2005, $15.1 million of capacity remained under the facility. Currently, we are in compliance with the financial covenants, as amended, and we expect to continue to be in compliance in future periods.

     The amendment also required us to receive an equity investment of at least $7.5 million prior to March 28, 2005. On March 28, 2005, we issued 2,640,845 shares of common stock and 264,085 warrants to Mr. Michael G. DeGroote for net proceeds of approximately $6.8 million. The warrants to purchase 264,085 shares of common stock are at an exercise price of $2.84 per share and are exercisable until March 28, 2010.

Senior Subordinated Notes

     On April 30, 2004, we completed a private offering of 9¹/2% Senior Subordinated Notes (“Subordinated Notes”) due 2014 for gross proceeds of $160.0 million. The Subordinated Notes mature on April 15, 2014. Interest on the Subordinated Notes is payable semi annually on October 15 and April 15. The Subordinated Notes are redeemable, in whole or in part, at our option, on or after April 15, 2009, at a redemption price of 104.75% of the principal amount, declining rateably in annual increments to par on or after April 15, 2012, together with accrued interest to the redemption date. In addition, prior to April 15, 2007, we may redeem up to 35.0% of the aggregate principal amount of the Subordinated Notes with the proceeds of certain equity offerings, at a redemption price equal to 109.5% of the principal amount. Upon a change of control, as such term is defined in the Indenture, we are required to offer to repurchase all the Subordinated Notes at 101.0% of the principal amount, together with accrued interest and liquidated damages, if any, and obtain the consent of our senior lenders to such payment or repay our indebtedness of our Credit Facilities.

     The Subordinated Notes are unsecured and are subordinate to our existing and future senior secured indebtedness, including our Credit Facilities, structurally subordinated to existing and future indebtedness of our non-guarantor subsidiaries, rank equally with any unsecured senior subordinated indebtedness and senior to our existing and future subordinated indebtedness. Our obligations with respect to the Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any, are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by all of our existing and future domestic restricted subsidiaries. Our Canadian operations are not guarantors under the Subordinated Notes.

     The Subordinated Notes contain certain covenants that, in certain circumstances and subject to certain limitations and qualifications, restrict, among other things: (i) the incurrence of additional debt; (ii) the payment of dividends and repurchases of stock; (iii) the issuance of preferred stock and the issuance of stock of our subsidiaries; (iv)

11

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

certain investments; (v) the repurchase of our Preferred Stock; (vi) transactions with affiliates; and (vii) certain sales of assets.

     We also entered into a Registration Rights Agreement with the initial purchaser of the Subordinated Notes in which we agreed to (i) file a registration statement with respect to the Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28, 2004), pursuant to which we will offer to exchange the Subordinated Notes for registered notes with terms identical to the Subordinated Notes; (ii) have such registration statement declared effective within 210 days of the issuance date; (iii) maintain the effectiveness of such registration statement for minimum periods specified in the agreement; and (iv) file a shelf registration statement in the circumstances and within the time periods specified in the agreement. As we have yet to comply with (i), (ii) and (iii) above, we were required to pay liquidated damages, in cash, in the amount equal to $0.05 per week per $1,000 in principal amount of the unregistered Subordinated Notes, for each week that the default continued for the first 90-days following default (approximately $8,000 per week). The amount of liquidated damages will increase by an additional $0.05 per week per $1,000 in principal amount of unregistered Subordinated Notes for each subsequent 90-day period until all defaults have been cured, to a maximum of $0.50 per week per $1,000 in principal amount of unregistered Subordinated Notes outstanding. These liquidated damages are payable at the same time as interest payments due under the Subordinated Notes. Currently, our interest penalty approximates $32,000 per week until August 24, 2005, when it will increase to $40,000 per week.

8. Cumulative Mandatorily Redeemable Preferred Stock

     In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the “Preferred Stock”) to Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively “Kelso”), pursuant to the terms of an agreement dated as of May 6, 2003, as amended in February and June 2004 at a price of $1,000 per share. We also issued to Kelso warrants to purchase 7,150,000 shares of common stock for $3.00 per share. The warrants are exercisable at any time until May 6, 2010. The issuance of the Preferred Stock resulted in proceeds of approximately $49.5 million, net of fees of approximately $5.5 million. The shares of Preferred Stock are non-voting.

     The Preferred Stock entitles the holders to cash dividends of 17.75% per annum compounding and accruing quarterly in arrears and to a liquidation preference of $1,000 per share, adjusted for any stock dividend, stock split, reclassification, recapitalization, consolidation or similar event affecting the Preferred Stock, plus the amount of any accrued but unpaid dividends on such shares as of any date of determination. The liquidation preference approximated $80.0 million as of June 30, 2005.

     As we are not permitted to declare and pay cash dividends pursuant to the terms of our Credit Facilities, the dividend payments will accrue. The Preferred Stock, including all accrued and unpaid dividends, must be redeemed in full by no later than May 6, 2015. Until May 6, 2006, we may redeem all or any part of the Preferred Stock on payment of the sum of $1,000 per share plus accrued and unpaid dividends calculated as if the Preferred Stock were redeemed on May 6, 2006, or approximately $92.7 million. If we do not exercise our option to redeem all of the Preferred Stock by May 6, 2009, Kelso may require us to initiate a sale of our assets on terms acceptable to our board consistent with the exercise of their fiduciary duties. Pursuant to an amendment to the Certificate of Designations dated April 30, 2004, if we determine, after conducting a sale process, that any such sale would not yield sufficient proceeds to repay in full the indebtedness then outstanding under our Credit Facilities and the redemption amount of our Subordinated Notes issued on April 30, 2004, or at least $320.0 million, then we may elect to delay such sale. The sale date may be delayed until the earliest to occur of (i) the final maturity date of the Subordinated Notes (April 15, 2014); (ii) the date on which our Credit Facilities and the Subordinated Notes are fully repaid or otherwise satisfied; or (iii) a sale of our assets to a third party. We refer to this date as the delayed sale date. If we do not initiate and complete a sale of our assets within 20 months of initiation of the sale process by the holders of the Preferred Stock, then on notice from the holders of the Preferred Stock, all outstanding Preferred Stock will become due and payable on the first anniversary of the date on which the holders of the Preferred Stock gave notice requiring the initiation of a sale process, for a liquidation amount of 1.20 times the liquidation preference of $1,000 per share. If the sale date has been delayed, then we are not required to pay this increased liquidation amount until the delayed sale date.

12

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Also pursuant to the Amended Certificate of Designations, if we become subject to a liquidation or insolvency event (as such terms are defined in our Amended and Restated Credit Agreement dated April 30, 2004) or in the event of a change of control (as such term is defined in the Amended Certificate of Designations), all payments and other distributions to holders of Preferred Stock will be subordinate to the repayment in full of our Credit Facilities. This provision does not prohibit any accrual or increase in the dividend rate or in the liquidation preference of the Preferred Stock as provided for in the Amended Certificate of Designations, or the distribution of additional shares or other equity securities to the holders of the Preferred Stock, so long as such additional shares or other equity securities are subject to at least equivalent subordination provisions. In addition, the Amended Certificate of Designations prohibits us from making any payment or distribution to the holders of Preferred Stock in the event of a sale of our assets, or the exercise by the holders of the Preferred Stock of their right to require payment of the liquidation amount of their shares as a result of the failure to consummate a sale of our assets as described in the preceding paragraph, unless such payment or distribution is expressly permitted pursuant to the terms of the agreement then governing our Credit Facilities.

9. Commitments and Contingencies

Environmental Risks

     We are subject to liability for environmental damage that our solid waste facilities may cause, including damage to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, including damage resulting from conditions existing prior to our acquisition of such facilities. Pollutants or hazardous substances whose transportation, treatment, or disposal was arranged by us or our predecessors, may also subject us to liability for any off-site environmental contamination caused by these pollutants or hazardous substances.

     Any substantial liability for environmental damage incurred by us could have a material adverse effect on our financial condition, results of operations or cash flows. As of the date of these condensed consolidated financial statements, we estimate the range of reasonably possible losses related to environmental matters to be insignificant and we are not aware of any such environmental liabilities that would be material to our operations or financial condition.

Legal Proceedings

     In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we may periodically become subject to various judicial and administrative proceedings involving federal, state, provincial or local agencies. In these proceedings, an agency may seek to impose fines on us or revoke or deny renewal of an operating permit or license held by us. From time to time, we may also be subject to actions brought by citizens’ groups, adjacent landowners or residents in connection with the permitting and licensing of transfer stations and landfills or allegations related to environmental damage or violations of the permits and licenses pursuant to which we operate.

     In addition, we may become party to various claims and suits for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of a waste management business. We are currently involved in pending litigation with Waste Management of Canada Corporation (formerly Canadian Waste Services Inc.), which is more fully described in our annual report for the year ended December 31, 2004 as filed on Form 10-K. There have been no material developments in these claims in the first half of 2005.

     Our President and Chief Operating Officer, Charles A. Wilcox, is a defendant in a breach of contract suit filed by Waste Management, Inc. which is more fully described in our annual report for the year ended December 31, 2004 as filed on Form 10-K. Mr. Wilcox is subject to a temporary order restraining him from engaging in certain activities adverse to the interests of Waste Management. In April 2005, Waste Management filed an amended petition and application for injunction naming us as a defendant to the suit, claiming, among other things, tortious interference with contractual relations and seeking compensatory damages from us. We intend to vigorously defend this claim both with respect to liability and damages.

13

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     In March 2005, we filed a Complaint against Waste Management, Inc. in the United States District Court in the Middle District of Florida (Orlando). The Complaint alleges that Waste Management sought to prevent us from establishing ourselves as an effective competitor to Waste Management in the State of Florida, by tortiously interfering with our business relationships and committing antitrust violations under both federal and Florida law. We are seeking in excess of $25.0 million in damages against Waste Management. If we are successful in our suit under antitrust laws, Waste Management would be liable for treble damages, or in excess of $75.0 million.

     No provision has been made in these financial statements for the above matters. We do not currently believe that the possible losses in respect of all or any of these matters would have a material adverse impact on our business, financial condition, results of operations or cash flows.

Surety Bonds, Letters of Credit and Insurance

     Municipal solid waste services contracts and permits and licenses to operate transfer stations, landfills and recycling facilities may require performance or surety bonds, letters of credit or other means of financial assurance to secure contractual performance. As of June 30, 2005 and December 31, 2004, we had provided customers and various regulatory authorities with such bonds and letters of credit amounting to approximately $73.0 million and $67.7 million, respectively, to collateralize our obligations.

     Our U.S.-based automobile, general liability and workers’ compensation insurance coverage is subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per claim, plus claims handling expense under our workers’ compensation and our auto and general liability insurance programs, respectively. Claims in excess of such deductible levels are fully insured subject to our policy limits. However, we have a limited claims history for our U.S. operations and it is reasonably possible that recorded reserves may not be adequate to cover future payments of claims. Adjustments, if any, to our reserves will be reflected in the period in which the adjustments are known. As of June 30, 2005 and included in the $73.0 million of bonds and letters of credit discussed previously, we have posted a letter of credit with our U.S. insurer of approximately $8.4 million to secure the liability for losses within the deductible limit.

Other Contractual Arrangements

     During December 2003, we issued 600,000 Common Shares as part of the purchase price of an acquisition. In connection with this acquisition, we entered into a reimbursement agreement whereby for a period of one year after the second anniversary of the closing date, we will reimburse the seller for the loss on sale of shares below $4.75 per share.

10. Authorized Capital Stock and Migration Transaction

Total Shares

     We are authorized to issue a total of 505,000,000 shares of capital stock consisting of:

• 500,000,000 shares of common stock, par value 0.01 per share; and

• 5,000,000 shares of preferred stock, par value 0.01 per share, of which 100,000 shares have been designated as Series A Preferred Stock and one share has been designated as Special Voting Preferred Stock.

Preferred Stock

     The Series A Preferred Stock with a par value of $0.01 per share and a liquidation preference of $1,000.00 per share, have the powers, preferences and other special rights and the qualifications, limitations and restrictions that are set forth in the Certificate of Designations of Series A Preferred Stock as amended. 55,000 shares of Series A Preferred Stock are currently outstanding. The Special Voting Preferred Stock have the rights, preference, and limitations set forth in the Certificate of Designation of Special Voting Preferred Stock. One share of Special Voting Preferred Stock is presently outstanding.

14

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Migration Transaction

     As part of our business strategy to expand into the United States, we entered into a migration transaction effective July 31, 2004. Under the migration transaction, our corporate structure was reorganized so that Waste Services, a Delaware company, is the ultimate parent company of our corporate group. Prior to the migration transaction, Waste Services was a subsidiary of Capital. After the migration transaction, Capital, now Waste Services (CA), became our subsidiary.

     The migration transaction occurred by way of a plan of arrangement under Section 182 of the Business Corporations Act (Ontario) and consisted primarily of: (i) the exchange of 87,657,035 common shares of Capital for 87,657,035 shares of common stock of Waste Services and (ii) the conversion of the remaining 9,229,676 common shares of Capital held by non-U.S. residents who elected to receive exchangeable shares into 9,229,676 exchangeable shares of Waste Services (CA). The transaction was approved by the Ontario Superior Court of Justice on July 30, 2004 and by our shareholders at a special meeting held on July 27, 2004.

     The terms of the exchangeable shares of Waste Services (CA) are the economic and functional equivalent of our common stock. Holders of exchangeable shares: (i) will receive the same dividends as holders of shares of common stock; and (ii) will be entitled to vote on the same matters as holders of shares of our common stock. Such voting is accomplished through the one share of Special Voting Preferred Stock held by Computershare Trust Company of Canada as trustee, which will vote on the instructions of the holders of the exchangeable shares (one vote for each exchangeable share). As such, the exchangeable shares are included as additional paid-in capital.

     Upon the occurrence of certain events, such as the liquidation of Waste Services (CA), or after the redemption date, our Canadian holding company, Capital Holdings will have the right to purchase each exchangeable share for a share of our common stock, plus all declared and unpaid dividends on the exchangeable share. Unless certain events occur, such redemption date will not be earlier than December 31, 2016. Holders of exchangeable shares also have the right at any time at their option, to exchange their exchangeable shares for shares of our common stock.

11. Employee and Director Stock Option Plans and Option Grants

     We account for our stock-based plans under the recognition and measurement principles of Accounting Principles Board Opinion (“APB”) No. 25 Accounting for Stock Issued to Employees, and related interpretations. Pro forma information regarding the impact of stock-based compensation on net income and earnings per share is required by SFAS No. 123 Accounting for Stock-Based Compensation and SFAS No. 148 Accounting for Stock-Based Compensation-Transition and Disclosure. Such unaudited pro forma information, determined as if we had accounted for our employee stock options under the fair value recognition provisions of SFAS No. 123, is illustrated in the following table (unaudited):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net loss as reported	$	(14,514	)	$	(18,615	)	$	(28,781	)	$	(29,349	)
Stock-based employee compensation expense pursuant to SFAS No. 123		(2,399	)		(2,419	)		(4,763	)		(4,708	)
Pro forma net loss	$	(16,913	)	$	(21,034	)	$	(33,544	)	$	(34,057	)
Basic and diluted loss per share:
As reported	$	(0.15	)	$	(0.21	)	$	(0.29	)	$	(0.37	)
Pro forma	$	(0.17	)	$	(0.24	)	$	(0.34	)	$	(0.43	)

     The fair value of options granted is estimated using the Black-Scholes option pricing model using the following assumptions:

15

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Annual dividend yield		—		—		—		—
Weighted-average expected life (years)	2.8 years		3.0 years		2.8 years		3.0 years
Risk-free interest rate	2.57% to 4.62%		2.57% to 4.62%		2.57% to 4.62%		2.57% to 4.62%
Volatility		74%		53%		74%		53%

     Our 1997 and 1999 Stock Option Plans are described in our consolidated financial statements for the year ended December 31, 2004 filed on Form 10-K. Our options are denominated in U.S. and Canadian dollars. During the six months ended June 30, 2005, 815,000 options to purchase shares of our common stock were granted at exercise prices equal to the quoted market price on the date of grant. As of June 30, 2005, the weighted average exercise price for options outstanding was $4.52 and C$6.41 for U.S. and Canadian dollar denominated options, respectively. During the six months ended June 30, 2005, 15,000 options were exercised and 112,194 options expired or were forfeited. As of June 30, 2005, the aggregate number of options outstanding entitled holders to purchase 13,333,770 shares of common stock at prices ranging from $2.70 to $6.25 and C$4.05 to C$18.05 for U.S. and Canadian dollar denominated options, respectively.

12. Comprehensive Loss

     Comprehensive loss includes the effects of foreign currency translation. Comprehensive loss for the three and six months ended June 30, 2005 and 2004 are as follows (unaudited):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net loss	$	(14,514	)	$	(18,615	)	$	(28,781	)	$	(29,349	)
Foreign currency translation adjustment		(2,385	)		(3,249	)		(3,611	)		(5,415	)
Comprehensive loss	$	(16,899	)	$	(21,864	)	$	(32,392	)	$	(34,764	)

13. Segment Information

     We have determined our operating and reporting segments pursuant to the requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. In making this determination, we considered our organization/reporting structure and the information used by our chief operating decision makers to make decisions about resource allocation and performance assessment. We are organized along geographic locations or regions within the U.S. and Canada. Our Canadian operations are organized between two regions, Eastern and Western Canada while the U.S. is organized into Florida (North, Central and Gulf), Texas and Arizona. We believe our domestic U.S. and our Canadian geographic segments meet the “Aggregation Criteria” set forth in SFAS No. 131 for the following reasons: (i) the nature of the service, waste collection and disposal is economically the same and transferable across locations; (ii) the type and class of customer is consistent among regions/districts; (iii) the methods used to deliver services are essentially the same (e.g. containers collect waste at market locations and trucks collect and transfer waste to landfills); and (iv) the regulatory environment is consistent within Canada and the U.S., respectively. For further information regarding our segments see Note 14.

16

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. Condensed Consolidating Financial Statements

     Waste Services is the primary obligor under the Subordinated Notes, however Waste Services has no independent assets or operations, and the guarantees of our domestic restricted subsidiaries are full and unconditional and joint and several with respect to the Senior Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any. Our Canadian operations are not guarantors under the Senior Subordinated Notes. Prior to the migration, Waste Services (CA), currently a non-guarantor, was our parent (see Note 10). Presented below are our Condensed Consolidating Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004 and the related Unaudited Condensed Consolidating Statements of Operations for the three and six months ended June 30, 2005 and 2004 and the Unaudited Condensed Consolidating Statements of Cash Flows for the six months ended June 30, 2005 and 2004 of our guarantor subsidiaries, our U.S. operating and reporting segment, (“Guarantors”) and the subsidiaries which are not guarantors, our Canadian operating and reporting segment, (“Non-guarantors”):

17

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	June 30, 2005
	Guarantors		Non-Guarantors		Eliminations			Consolidated
			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,182	$	2,708	$	—		$	4,890
Accounts receivable, net		23,099		23,846		—			46,945
Prepaid expenses and other current assets		4,884		3,868		—			8,752
Total current assets		30,165		30,422		—			60,587
Property and equipment, net		59,669		65,120		—			124,789
Landfill sites, net		158,007		11,727		—			169,734
Goodwill and other intangible assets, net		246,465		85,163		—			331,628
Other assets		10,647		12,622		—			23,269
Investment in subsidiary		191,096		—		(191,096	)		—
Due from affiliate		—		15,333		(15,333	)		—
Total assets	$	696,049	$	220,387	$	(206,429	)	$	710,007
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,334	$	11,410	$	—		$	23,744
Accrued expenses and other current liabilities		33,285		11,115		—			44,400
Short-term financing and current portion of long-term debt		1,172		—		—			1,172
Total current liabilities		46,791		22,525		—			69,316
Long-term debt		275,627		—		—			275,627
Accrued closure, post-closure and other obligations		9,049		6,766		—			15,815
Due to affiliate		15,333		—		(15,333	)		—
Cumulative mandatorily redeemable Preferred Stock, net		74,456		—		—			74,456
Total liabilities		421,256		29,291		(15,333	)		435,214
Common stock		933		—		—			933
Other equity		273,860		191,096		(191,096	)		273,860
Total shareholders’ equity		274,793		191,096		(191,096	)		274,793
Total liabilities and shareholders’ equity	$	696,049	$	220,387	$	(206,429	)	$	710,007

18

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31, 2004
	Guarantors		Non-Guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	6,223	$	2,284	$	—		$	8,507
Accounts receivable, net		24,509		23,347		—			47,856
Prepaid expenses and other current assets		6,440		4,500		—			10,940
Total current assets		37,172		30,131		—			67,303
Property and equipment, net		64,805		65,662		—			130,467
Landfill sites, net		155,710		13,906		—			169,616
Goodwill and other intangible assets, net		240,578		87,178		—			327,756
Other assets		12,105		13,336		—			25,441
Investment in subsidiary		192,115		—		(192,115	)		—
Due from affiliate		—		8,869		(8,869	)		—
Total assets	$	702,485	$	219,082	$	(200,984	)	$	720,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,757	$	10,192	$	—		$	25,949
Accrued expenses and other current liabilities		31,104		11,429		—			42,533
Short-term financing and current portion of long-term debt		1,166		—		—			1,166
Total current liabilities		48,027		21,621		—			69,648
Long-term debt		276,214		—		—			276,214
Accrued closure, post-closure and other obligations		5,628		5,346		—			10,974
Due to affiliate		8,869		—		(8,869	)		—
Cumulative mandatorily redeemable Preferred Stock, net		64,971		—		—			64,971
Total liabilities		403,709		26,967		(8,869	)		421,807
Common stock		904		—		—			904
Other equity		297,872		192,115		(192,115	)		297,872
Total shareholders’ equity		298,776		192,115		(192,115	)		298,776
Total liabilities and shareholders’ equity	$	702,485	$	219,082	$	(200,984	)	$	720,583

19

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended June 30, 2005
	Guarantors			Non-Guarantors			Eliminations			Consolidated
		(Unaudited)
Revenue	$	54,250		$	41,134		$	—		$	95,384
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		41,834			27,485			—			69,319
Selling, general and administrative expense		8,924			5,755			—			14,679
Depreciation, depletion and amortization		5,791			4,808			—			10,599
Foreign exchange gain and other		29			(28	)		—			1
Income (loss) from operations		(2,328	)		3,114			—			786
Equity earning investees		(1,417	)		—			1,417			—
Interest expense (income)		7,126			47			—			7,173
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		5,114			—			—			5,114
Income (loss) before income taxes		(13,151	)		3,067			(1,417	)		(11,501	)
Income tax provision		1,363			1,650			—			3,013
Net income (loss)	$	(14,514	)	$	1,417		$	(1,417	)	$	(14,514	)

20

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended June 30, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
				(Unaudited)
Revenue	$	38,231		$	34,395		$	—		$	72,626
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		28,234			23,210			—			51,444
Selling, general and administrative expense		7,269			5,516			—			12,785
Depreciation, depletion and amortization		4,133			3,676			—			7,809
Foreign exchange gain and other		—			(283	)		—			(283	)
Income (loss) from operations		(1,405	)		2,276			—			871
Equity loss investees		—			21,020			(21,020	)		—
Interest expense (income)		14,402			(2,136	)		—			12,266
Changes in fair value of warrants		—			421			—			421
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		4,290			—			—			4,290
Loss before income taxes		(20,097	)		(17,029	)		21,020			(16,106	)
Income tax provision		923			1,586			—			2,509
Net loss	$	(21,020	)	$	(18,615	)	$	21,020		$	(18,615	)

21

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Six Months Ended June 30, 2005
	Guarantors			Non-Guarantors			Eliminations			Consolidated
	(Unaudited)
Revenue	$	107,091		$	77,278		$	—		$	184,369
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		81,401			52,408			—			133,809
Selling, general and administrative expense		18,489			11,657			—			30,146
Depreciation, depletion and amortization		11,201			8,947			—			20,148
Foreign exchange gain and other		(53	)		(184	)		—			(237	)
Income (loss) from operations		(3,947	)		4,450			—			503
Equity earning investees		(1,692	)		—			1,692			—
Interest expense (income)		13,844			154			—			13,998
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		9,956			—			—			9,956
Income (loss) before income taxes		(26,055	)		4,296			(1,692	)		(23,451	)
Income tax provision		2,726			2,604			—			5,330
Net income (loss)	$	(28,781	)	$	1,692		$	(1,692	)	$	(28,781	)

22

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Six Months Ended June 30, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
	(Unaudited)
Revenue	$	58,231		$	64,712		$	—		$	122,943
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		41,738			44,110			—			85,848
Selling, general and administrative expense		12,666			10,445			—			23,111
Depreciation, depletion and amortization		6,159			7,122			—			13,281
Foreign exchange gain and other		—			(373	)		—			(373	)
Income (loss) from operations		(2,332	)		3,408			—			1,076
Equity loss investees		—			33,391			(33,391	)		—
Interest expense (income)		21,174			(2,592	)		—			18,582
Changes in fair value of warrants		—			421			—			421
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		8,309			—			—			8,309
Loss before income taxes		(31,815	)		(27,812	)		33,391			(26,236	)
Income tax provision		1,576			1,762			—			3,338
Loss before cumulative effect of change in accounting principle		(33,391	)		(29,574	)		33,391			(29,574	)
Cumulative effect of change in accounting principle, net of provision for income taxes of $132		—			225			—			225
Net loss	$	(33,391	)	$	(29,349	)	$	33,391		$	(29,349	)

23

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Six months ended June 30, 2005
	Guarantors			Non-Guarantors			Eliminations			Consolidated
	(Unaudited)
Cash flows from operating activities:	$	(5,002	)	$	15,094		$	—		$	10,092
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(775	)		—			—			(775	)
Capital expenditures		(12,381	)		(7,181	)		—			(19,562	)
Proceeds from business divestitures		314			322			—			636
Deposits for business acquisitions and other		23			(714	)		—			(691	)
Intercompany		—			(6,715	)		6,715			—
		(12,819	)		(14,288	)		6,715			(20,392	)
Cash flows from financing activities:
Principal repayments of debt		(581	)		(249	)		—			(830	)
Sale of common shares and warrants		7,125			—			—			7,125
Proceeds from the exercise of options and warrants		521			—			—			521
Intercompany		6,715			—			(6,715	)		—
		13,780			(249	)		(6,715	)		6,816
Effect of exchange rate changes on cash and cash equivalents		—			(133	)		—			(133	)
Increase (decrease) in cash and cash equivalents		(4,041	)		424			—			(3,617	)
Cash and cash equivalents, beginning of period		6,223			2,284			—			8,507
Cash and cash equivalents, end of period	$	2,182		$	2,708		$	—		$	4,890

24

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Six month ended June 30, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
	(Unaudited)
Cash flows from operating activities:	$	(5,994	)	$	14,075		$	—		$	8,081
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(160,315	)		(1,124	)		—			(161,439	)
Capital expenditures		(13,640	)		(8,966	)		—			(22,606	)
Proceeds from business divestitures		9,983			—			—			9,983
Deposits for business acquisitions and other		1,433			(1,975	)		—			(542	)
Intercompany		—			(70,823	)		70,823			—
		(162,539	)		(82,888	)		70,823			(174,604	)
Cash flows from financing activities:
Proceeds from issuance of debt		266,000			—			—			266,000
Principal repayments of debt		(180,953	)		(686	)		—			(181,639	)
Sale of common shares and warrants		—			53,600			—			53,600
Proceeds from release of restricted cash and release of collateral supporting letters of credit		14,433			8,184			—			22,617
Proceeds from the exercise of options and warrants		—			1,041			—			1,041
Fees paid for financing transactions		(10,076	)		(2,923	)		—			(12,999	)
Intercompany		70,823			—			(70,823	)		—
		160,227			59,216			(70,823	)		148,620
Effect of exchange rate changes on cash and cash equivalents		—			(204	)		—			(204	)
Decrease in cash and cash equivalents		(8,306	)		(9,801	)		—			(18,107	)
Cash and cash equivalents, beginning of period		8,843			12,219			—			21,062
Cash and cash equivalents, end of period	$	537		$	2,418		$	—		$	2,955

25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere herein as well as our annual report on Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission, including the factors set forth in the section titled “Disclosure Regarding Forward-Looking Statements” as well as our other filings made with the Securities and Exchange Commission.

Overview

     We are a multi-regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers in the United States and Canada. In 2003, we initiated a disposal-based growth strategy to enter the United States solid waste market and establish leading, vertically integrated market positions. Under this strategy, we enter geographic markets with attractive growth or competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. As part of our business strategy to expand into the United States, we entered into a migration transaction which was completed effective July 31, 2004. Under the migration transaction, our corporate structure was reorganized so that Waste Services, a Delaware company and former subsidiary of Capital Environmental Resource Inc. (now Waste Services (CA) Inc.) became the ultimate parent company of our corporate group.

Sources of Revenue

     Our revenue consists primarily of fees charged to customers for solid waste collection, landfill disposal, transfer and recycling services.

     We derive a substantial portion of our collection revenue from services provided to commercial, industrial and residential customers that are generally performed under service agreements or pursuant to contracts with municipalities. We recognize revenue when services are rendered. Amounts billed to customers prior to providing the related services are reflected as deferred revenue and reported as revenue in the periods in which the services are rendered.

     We provide collection services for commercial and industrial customers generally under one to five year service agreements. We determine the fees we charge our customers based on a variety of factors, including collection frequency, level of service, route density, the type, volume and weight of the waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing and prices charged by competitors for similar services. Our contracts with commercial and industrial customers typically allow us to pass on increased costs resulting from variable items such as disposal and fuel costs and surcharges. Our ability to pass on cost increases is however, sometimes limited by the terms of our contracts.

     We provide residential waste collection services through a variety of contractual arrangements, including contracts with municipalities, owners and operators of large residential complexes, mobile home parks and homeowners associations or subscription arrangements with individual homeowners. Our contracts with municipalities are typically for a term of up to five years and contain a formula, generally based on a predetermined published price index, for automatic adjustments to fees to cover increases in some, but not all, of our operating costs. Certain of our contracts with municipalities contain renewal provisions. The fees we charge for residential solid waste collection services provided on a subscription basis are based primarily on route density, the frequency and level of service, the distance to the disposal or processing facility, the cost of disposal or processing and prices we charge in the market for similar services.

     We charge our landfill and transfer station customers a tipping fee on a per ton or per yard basis for disposing of their solid waste at our transfer stations and landfills. We generally base our landfill tipping fees on market factors and the type and weight of, or volume of the waste deposited. We generally base our transfer station tipping fees on market factors and the cost of processing the waste deposited at the transfer station, the cost of transporting the waste to a disposal facility and the cost of disposal.

26

     Material recovery facilities generate revenue from the sale of recyclable commodities. In an effort to reduce our exposure to commodity price fluctuations on recycled materials, where competitive pressures permit, we charge collection or processing fees for recycling volume collected from our customers.

Expense Structure

     Our cost of operations primarily includes tipping fees and related disposal costs, labor and related benefit costs, equipment maintenance, fuel, vehicle and workers compensation insurance and landfill capping, closure and post-closure costs. Our strategy is to create vertically integrated operations where possible, using transfer stations to link collection operations with our landfills to increase internalization of our waste volume. Internalization lowers our disposal costs by allowing us to eliminate tipping fees otherwise paid to an independent landfill or transfer station operator. We believe internalization provides us with a competitive advantage by allowing us to be a low cost provider in our markets. Historically our internalization has been relatively low, but as a result of our new landfills in Florida and Arizona, we expect our internalization will gradually increase over time as we develop our network of transfer stations and maximize delivery of our collection volumes to these landfill sites.

     In markets where we do not have our own landfills, we seek to secure long-term disposal arrangements with municipalities or private owners of landfills or transfer stations. In these markets, our ability to maintain competitive prices for our collection services is generally dependent upon our ability to secure low cost disposal pricing. If owners of third party disposal sites discontinue our arrangements, we would have to seek alternative disposal sites which could impact our profitability and cash flow. In addition, if third party disposal sites increase their tipping fees and we are unable to pass these increases on to our collection customers, our profitability and cash flow would be negatively impacted.

     We believe the age and condition of a fleet has a significant impact on operating costs including, but not limited to, repairs and maintenance, insurance and driver training and retention costs. Through capital investment, we seek to maintain an average fleet age of approximately six years. We believe this enables us to minimize our repair and maintenance costs, safety and insurance costs and employee turnover related costs.

     Selling, general and administrative expense includes managerial costs, information systems, sales force, administrative expenses and professional fees.

     Depreciation, depletion and amortization expense includes depreciation of fixed assets over their estimated useful lives using the straight-line method, depletion of landfill costs, including capping, closure and post-closure obligations using the units-of-consumption method, and amortization of intangible assets including customer relationships and contracts and covenants not-to-compete, which are amortized over the expected life of the benefit to be received by such intangibles.

     We capitalize certain third party costs related to pending acquisitions or development projects. These costs remain deferred until we cease to be engaged on a regular and ongoing basis with completion of the proposed acquisition, at which point they are charged currently to earnings. In the event that the target is acquired, these costs are incorporated in the cost of the acquired business. We expense indirect and internal costs including executive salaries, overhead and travel costs related to acquisitions as they are incurred.

Factors that Might Affect Future Results

     In 2004, we commenced operations at three large municipal solid waste landfill sites in the United States that we believe will materially affect our revenue, profitability and cash flow going forward.

     The following summarizes our operations at these three landfills:

• JED Landfill — a municipal solid waste landfill with 23.7 million cubic yards of initial permitted capacity, which opened for operation in the first quarter of 2004. The landfill, which is located approximately 20 miles south of metropolitan Orlando, is well positioned to serve the Orlando metropolitan area and the surrounding counties and will allow us to internalize waste from our central Florida operations with the recent opening of transfer stations located in Sanford and Taft, Florida. In May 2005, we began delivering

27

	Class 1 municipal sold waste to the Taft transfer station and recycling facility, located south of Orlando. This facility is owned and operated by a third party with whom we have entered into a 10-year disposal agreement, and the facility has a permit allowing it to accept an average of 1,000 tons of Class I and Class III solid waste combined per day. Actual operating rates may vary depending upon business conditions. In June 2005, we began delivering Class I and Class III municipal solid waste to the Sanford transfer station and recycling facility, also known as the Ice House facility. This facility is fully permitted to accept an average of 4,000 cubic yards per day of Class I and III municipal solid waste. Ownership of the Sanford facility will be transferred to us in the third quarter pursuant to the terms of our settlement agreement with the former owners of Florida Recycling.
•	Cactus Regional Landfill — a municipal solid waste landfill with 224.0 million cubic yards of initial permitted capacity with expected utilization of 196.0 million cubic yards, located in Pinal County, Arizona. The landfill is located between Phoenix and Tucson, Arizona and is well-positioned to serve both markets. The facility opened for operation in the third quarter of 2004. Also in the second and third quarters of 2004, we began operations at our two newly constructed transfer stations in the Phoenix market area.
•	Fort Bend Regional Landfill — a municipal and industrial solid waste landfill with 47.6 million cubic yards of initial permitted capacity, located in Fort Bend County, Texas. The landfill is located approximately 15 miles southwest of metropolitan Houston and is well-positioned to serve the Houston metropolitan area, including Fort Bend County. The facility opened for operation in the third quarter of 2004. We have constructed a transfer station in Houston, which is permitted to accept up to 850 tons per day of municipal solid waste and began operations in January 2005.
•	We expect to continue to make strategic acquisitions which we intend to finance through cash on hand, our Senior Secured Credit Facilities subject to the limitations on our investing activities set out in the Credit Facilities Agreement, as amended and/or the issuance of other debt and equity financings. We expect that we will continue to rationalize certain aspects of our operations in markets where we are not internalized through either divestiture or asset swap transactions in order to enhance density and/or internalization opportunities in existing markets where we are vertically integrated.

Results of Operations for the Three and Six Months Ended June 30, 2005 and 2004

     Certain of our operations are domiciled in Canada; as such, we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet dates, and revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operations are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates.

     Our consolidated results of operations for the three and six months ended June 30, 2005 and 2004 by geographic segment are as follows (in thousands):

28

	Three Months Ended June 30,
	2005
	U.S.					Canada					Total
Revenue	$	54,250		100.0	%	$	41,134		100.0	%	$	95,384	100.0	%
Operating expenses:
Cost of operations		41,834		77.1			27,485		66.8			69,319	72.7
Selling, general and administrative expense		8,924		16.4			5,114		12.4			14,038	14.7
Stock-based compensation expense		—		—			641		1.6			641	0.7
Depreciation, depletion and amortization		5,791		10.7			4,808		11.7			10,599	11.1
Foreign exchange loss and other		29		0.1			(28	)	-0.1			1	—
Income (loss) from operations	$	(2,328	)	-4.3	%	$	3,114		7.6	%	$	786	0.8	%

						Three Months Ended June 30,
	2004
	U.S.					Canada					Total
Revenue	$	38,231		100.0	%	$	34,395		100.0	%	$	72,626		100.0	%
Operating expenses:
Cost of operations		28,234		73.9			23,210		67.5			51,444		70.8
Selling, general and administrative expense		7,243		18.9			5,185		15.1			12,428		17.1
Stock-based compensation expense		26		0.1			331		0.9			357		0.5
Depreciation, depletion and amortization		4,133		10.8			3,676		10.7			7,809		10.8
Foreign exchange loss and other		—		—			(283	)	-0.8			(283	)	-0.4
Income (loss) from operations	$	(1,405	)	-3.7	%	$	2,276		6.6	%	$	871		1.2	%

						Six Months Ended June 30,
	2005
	U.S.					Canada					Total
Revenue	$	107,091		100.0	%	$	77,278		100.0	%	$	184,369		100.0	%
Operating expenses:
Cost of operations		81,401		76.0			52,408		67.8			133,809		72.6
Selling, general and administrative expense		18,489		17.3			10,510		13.6			28,999		15.7
Stock-based compensation expense		—		—			1,147		1.5			1,147		0.6
Depreciation, depletion and amortization		11,201		10.5			8,947		11.6			20,148		10.9
Foreign exchange loss and other		(53	)	-0.1			(184	)	-0.3			(237	)	-0.1
Income (loss) from operations	$	(3,947	)	-3.7	%	$	4,450		5.8	%	$	503		0.3	%

29

	Six Months Ended June 30,
	2004
	U.S.					Canada					Total
Revenue	$	58,231		100.0	%	$	64,712		100.0	%	$	122,943		100.0	%
Operating expenses:
Cost of operations		41,738		71.7			44,110		68.2			85,848		69.8
Selling, general and administrative expense		12,640		21.7			11,505		17.8			24,145		19.6
Stock-based compensation expense (benefit)		26		—			(1,060	)	-1.7			(1,034	)	-0.8
Depreciation, depletion and amortization		6,159		10.6			7,122		11.0			13,281		10.8
Foreign exchange loss and other		—		0.0			(373	)	-0.6			(373	)	-0.3
Income (loss) from operations	$	(2,332	)	-4.0	%	$	3,408		5.3	%	$	1,076		0.9	%

Revenue

     A summary of our revenue is as follows (in thousands):

	Three Months Ended June 30,										Six Months Ended June 30,
	2005					2004					2005					2004
Collection	$	79,796		76.9	%	$	60,688		78.7	%	$	155,136		77.9	%	$	101,079		77.4	%
Landfill disposal		10,407		10.0			5,290		6.9			18,130		9.1			9,436		7.2
Transfer stations		9,718		9.4			6,266		8.1			18,446		9.3			11,175		8.5
Material recovery facilities		2,835		2.7			2,510		3.3			5,637		2.8			4,813		3.7
Other specialized services		977		1.0			2,314		3.0			1,821		0.9			4,241		3.2
		103,733		100.0	%		77,068		100.0	%		199,170		100.0	%		130,744		100.0	%
Intercompany elimination		(8,349	)				(4,442	)				(14,801	)				(7,801	)
	$	95,384				$	72,626				$	184,369				$	122,943

     Revenue was $95.4 million and $72.6 million for the three months ended June 30, 2005 and 2004, respectively, an increase of $22.8 million or 31.3%. The increase in revenue for the three months ended June 30, 2005 for our U.S. operations of $16.0 million or 41.9% was driven by acquisitions of $8.8 million, increased volume at our landfill sites of $2.0 million, internal growth of $2.4 million, pricing increases of $2.1 million, of which $0.6 million related to fuel surcharges, and other increases of $0.7 million. The increase in revenue for our Canadian operations of $6.7 million or 19.6% was due to increased volume at our landfill sites, primarily due to special waste projects, of $1.5 million, internal growth of $0.2 million, pricing increases of $1.8 million, of which $0.9 million related to fuel surcharges, other decreases of $(0.2) million and the favorable effects of foreign exchange movements of $3.4 million.

     Revenue was $184.4 million and $122.9 million for the six months ended June 30, 2005 and 2004, respectively, an increase of $61.5 million or 50.0%. The increase in revenue for the six months ended June 30, 2005 for our U.S. operations of $48.9 million or 83.9% was driven by acquisitions of $34.3 million, increased volume at our landfill sites of $3.7 million, internal growth of $4.9 million, pricing increases of $4.0 million, of which $1.4 million related to fuel surcharges, and other increases of $2.0 million. The increase in revenue for our Canadian operations of $12.6 million or 19.4% was due to increased volume at our landfill sites, primarily due to special waste projects, of $2.3 million, internal growth of $1.4 million, pricing increases of $3.3 million, of which $1.4 million related to fuel surcharges, other decreases of $(0.3) million and the favorable effects of foreign exchange movements of $5.9 million.

     We expect that we will not renew our lower margin residential contracts, as such our domestic collection revenue may decline in future quarters on a sequential basis.

30

Cost of Operations

     Cost of operations was $69.3 million and $51.4 million for the three months ended June 30, 2005 and 2004, respectively, an increase of $17.9 million or 34.7%. As a percentage of revenue, cost of operations was 72.7% and 70.8% for the three months ended June 30, 2005 and 2004, respectively.

     The increase in cost of operations for our U.S. operations of $13.6 million or 48.2% was primarily driven by a full period of cost related to acquisitions made during the second quarter of 2004, the opening of our domestic transfer stations and landfill operations, as well as increased fuel costs. As a percentage of revenue, cost of operations in our domestic operations was 77.1% and 73.9% for the three months ended June 30, 2005 and 2004, respectively. The decline in our domestic gross margin is primarily due to the acquisition of lower margin collection operations. Our lower margins in the United States, as compared to Canada, are primarily driven by a higher mix of lower margin collection revenue in the United States. We expect that our domestic operating margins will improve as we increase internal and external volumes at our new landfill and transfer station sites and implement operational improvements.

     The increase in cost of operations for our Canadian operations of $4.3 million or 18.4% was due to increased fuel costs of $0.6 million or 2.4%, increased labor costs of $0.5 million or 2.1%, increased volumes for disposal and sub-contractor costs of $0.3 million or 1.3%, increased equipment, rent, building and other costs of $0.6 million or 2.7% and the unfavorable effects of foreign exchange movements of $2.3 million or 9.9%. Cost of operations as a percentage of revenue improved to 66.8% from 67.5% for the three months ended June 30, 2005 as compared to the same period in the previous year. The increase in gross margin is due to an increased percentage of higher margin landfill business, primarily due to special waste projects, offset by increased fuel costs.

     Cost of operations was $133.8 million and $85.8 million for the six months ended June 30, 2005 and 2004, respectively, an increase of $48.0 million or 55.9%. As a percentage of revenue, cost of operations was 72.6% and 69.8% for the six months ended June 30, 2005 and 2004, respectively.

     The increase in cost of operations for our U.S. operations of $39.7 million or 95.0% was primarily driven by a full period of cost related to acquisitions made during the second quarter of 2004 coupled with the opening of our domestic transfer stations and landfill operations. As a percentage of revenue, cost of operations in our domestic operations was 76.0% and 71.7% for the six months ended June 30, 2005 and 2004, respectively. The decline in our domestic gross margin is primarily due to the acquisition of lower margin collection operations. Our lower margins in the United States, as compared to Canada, are primarily driven by a higher mix of lower margin collection revenue in the United States.

     The increase in cost of operations for our Canadian operations of $8.3 million or 18.8% was due to increased volumes for disposal and sub-contractor costs of $1.3 million or 2.9%, increased fuel costs of $0.9 million or 2.0%, increased labor costs of $0.7 million or 1.6%, increased equipment, rent, building costs and other operating costs of $1.4 million or 3.1% and the unfavorable effects of foreign exchange movements of $4.0 million or 9.2%. Cost of operations as a percentage of revenue improved to 67.8% from 68.2% for the six months ended June 30, 2005 as compared to the same period in the previous year. The increase in gross margin is due to an increased percentage of higher margin landfill business, offset by increased fuel costs.

Selling, general and administrative expense

     Selling, general and administrative expense, excluding stock-based compensation expense, was $14.0 million and $12.4 million for the three months ended June 30, 2005 and 2004, respectively, an increase of $1.6 million or 13.0%. As a percentage of revenue, selling, general and administrative expense was 14.7% and 17.1% for the three months ended June 30, 2005 and 2004, respectively. The overall increase in selling, general and administrative expense is primarily due to acquisitions completed during the second quarter of 2004. Due to the failure to meet our internal expectations, we reversed $0.5 million of excess bonus accrual during the second quarter of 2005, $0.2 million of which was accrued in the first quarter of 2005. During the second quarter of 2005, we incurred professional fees related to the re-audit of the Florida Recycling financial statements, litigation with Waste Management and severance payments of approximately $1.3 million. For the remainder of 2005, we expect to incur additional professional fees relative to the Waste Management litigation, which will be expensed as services related to these matters are rendered. The unfavorable effects of foreign exchange movements increased selling, general and administrative expense by $0.4 million. Separately, in June 2005 we announced the closure and

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relocation of our corporate offices in Arizona to Florida. As such, we expect we will incur certain severance and relocation expenses in the third and fourth quarters of 2005. We expect to continue to review our overhead in order to optimize cost saving opportunities.

     Selling, general and administrative expense, excluding stock-based compensation expense, was $29.0 million and $24.1 million for the six months ended June 30, 2005 and 2004, respectively, an increase of $4.9 million or 20.1%. As a percentage of revenue, selling, general and administrative expense was 15.7% and 19.6% for the six months ended June 30, 2005 and 2004, respectively. The overall increase in selling, general and administrative expense in our U.S. operations is primarily due to acquisitions coupled with increased overhead relative to our domestic expansion and migration to the U.S. Additionally during the first half of 2005, we incurred professional fees related to the re-audit of the Florida Recycling financial statements, litigation with Waste Management and severance payments of approximately $2.1 million. Selling, general and administrative expenses at our Canadian operations declined primarily due to cost saving initiatives coupled with overhead costs being shifted to the domestic corporate office. The unfavorable effects of foreign exchange movements increased selling, general and administrative expense by $0.8 million.

Stock-based compensation expense (benefit)

     Stock-based compensation expense (benefit) relates to warrants issued to an executive officer in 2001 for which variable accounting applies and options or warrants issued to non-employees for services rendered. Stock-based compensation expense (benefit), which is partially based on changes in our stock price, was $0.6 million and $0.4 million for the three months ended June 30, 2005 and 2004, respectively, and was $1.1 million and $(1.0) million for the six months ended June 30, 2005 and 2004, respectively.

Depreciation, depletion and amortization

     Depreciation, depletion and amortization was $10.6 million and $7.8 million for the three months ended June 30, 2005 and 2004, respectively, an increase of $2.8 million or 35.7%. As a percentage of revenue, depreciation, depletion and amortization remained relatively flat at 11.1% and 10.8% for the three months ended June 30, 2005 and 2004, respectively. The overall increase in depreciation, depletion and amortization for the three months ended June 30, 2005, as compared to the same period in the prior year, is primarily due to our domestic acquisitions and the opening of our landfill and transfer station sites. Landfill depletion rates ranged from C$2.57 to C$17.80 and C$3.31 to C$15.88 per tonne for our operating Canadian landfills during the three months ended June 30, 2005 and 2004, respectively. Landfill depletion rates ranged from $1.07 to $8.10 and $4.98 to $7.73 per ton for our operating U.S. landfills during the three months ended June 30, 2005 and 2004, respectively.

     Depreciation, depletion and amortization was $20.1 million and $13.3 million for the six months ended June 30, 2005 and 2004, respectively, an increase of $6.8 million or 51.7%. As a percentage of revenue, depreciation, depletion and amortization remained relatively flat at 10.9% and 10.8% for the six months ended June 30, 2005 and 2004, respectively. The overall increase in depreciation, depletion and amortization for the six months ended June 30, 2005, as compared to the same period in the prior year, is primarily due to our U.S. acquisitions and the opening of our landfill and transfer station sites. Landfill depletion rates ranged from C$2.57 to C$17.80 and C$3.31 to C$15.88 per tonne for our operating Canadian landfills during the six months ended June 30, 2005 and 2004, respectively. The change in depletion per tonne was primarily due to changes in engineering estimates. Landfill depletion rates ranged from $1.07 to $8.10 and $4.98 to $7.73 per ton for our operating U.S. landfills during the six months ended June 30, 2005 and 2004, respectively. The change in depletion rate per ton was primarily due to the opening of our Arizona and Texas landfills as well as changes in engineering estimates.

Foreign exchange loss (gain) and other

     Foreign exchange (gain) loss and other was nil and $(0.3) million for the three months ended June 30, 2005 and 2004, respectively, and $(0.2) million and $(0.4) million for the six months ended June 30, 2005 and 2004, respectively. The foreign exchange loss and other relates primarily to the re-measuring of U.S. dollar denominated cash balances into Canadian dollars. Other items primarily relate to gains on sales of equipment.

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Interest expense

     The components of interest expense, including cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs, for the three and six months ended June 30, 2005 and 2004 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004			2005		2004
Preferred Stock and amortization of issue costs	$	5,114	$	4,290		$	9,956	$	8,309
Credit facility and Senior Subordinated Note interest		6,444		4,863			12,517		8,763
Amortization of debt issue costs		360		7,406			705		9,616
Capitalized interest		—		(178	)		—		(178	)
Other interest expense		369		175			776		381
	$	12,287	$	16,556		$	23,954	$	26,891

     Interest expense was $12.3 million and $16.6 million for the three months ended June 30, 2005 and 2004, respectively, a decrease of $4.3 million or 25.8%. Interest expense was $24.0 million and $26.9 million for the six months ended June 30, 2005 and 2004, respectively, a decrease of $2.9 million or 10.9%. The decrease in interest expense is primarily due to the amortization of debt issue costs, which included a $6.5 million charge for the three and six months ended June 30, 2004 as a result of the refinancing that occurred in April 2004. The overall decrease in interest expense is offset by increased interest on our Credit Facilities and senior subordinated notes of $1.6 million and $3.8 million for the three and six months ended June 30, 2005, respectively. The increase in the Preferred Stock dividends is primarily due to compounding and accretion. The weighted average interest rate on secured credit facility borrowings was 7.68% and 6.73% for the three months ended June 30, 2005 and 2004, respectively and 7.44% and 7.80% for the six months ended June 30, 2005 and 2004, respectively. As is discussed further in Liquidity and Capital Resources we have incurred penalties relative to the delay in the registration of our Senior Subordinated Notes, and will continue to incur penalties until such time as the registration statement is declared effective.

Income tax provision

     The provision for income taxes was $3.0 million and $2.5 million for the three months ended June 30, 2005 and 2004, respectively, and $5.3 million and $3.3 million for the six months ended June 30, 2005 and 2004, respectively. We recognize a provision for income taxes despite our pre-tax loss due to the tax effect of the non-deductible dividends on our cumulative mandatorily redeemable preferred stock and provisions for foreign taxes. Additionally, due to the lack of operating history relative to our U.S. operations, we have provided a valuation allowance for our net operating loss carry-forwards generated in the U.S.

Liquidity and Capital Resources

     Our principal capital requirements are to fund capital expenditures, and to fund business debt service and asset acquisitions. Significant sources of liquidity are cash on hand, working capital, borrowings from our Credit Facilities, and proceeds from debt and/or equity issuances. The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere herein.

Senior Secured Credit Facilities

     On April 30, 2004, we entered into new Senior Secured Credit Facilities (the “Credit Facilities”) with a syndicate of lenders. The Credit Facilities consist of a five-year revolving credit facility in the amount of $60.0 million, up to $15.0 million of which is available to our Canadian operations, and a seven-year term loan facility in the amount of $100.0 million. The Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined, at our option. The Credit Facilities are secured by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian restricted subsidiaries guarantee and pledge all of their assets only in support of the portion of the

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revolving credit facility available to them. Additionally, 65% of the common shares of our first tier foreign subsidiaries are pledged to secure obligations under the Credit Facilities.

     On October 4, 2004, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amendment included changes to certain of the financial and other covenants contained in the Credit Facilities and increased the current interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Eurodollar loans. Until we meet certain target leverage ratios, as defined, availability under the amended facility is reduced to $50.0 million, up to $12.5 million of which is available to our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.5 million to our lenders. As of July 28, 2005, $14.3 million of capacity remained under the facility. Currently, we are in compliance with the financial covenants, as amended, and we expect to continue to be in compliance in future periods.

     The following table sets forth our financial covenant levels for the current and each of the next four quarters:

			Maximum Consolidated
	Maximum Consolidated		Senior		Minimum Consolidated
Fiscal Quarter	Leverage Ratio		Secured Leverage Ratio		Interest Coverage Ratio
FQ2 2005		6.50:1.00		2.75:1.00		1.75:1.00
FQ3 2005		5.75:1.00		2.50:1.00		1.75:1.00
FQ4 2005		5.25:1.00		2.50:1.00		2.00:1.00
FQ1 2006		5.25:1.00		2.25:1.00		2.00:1.00
FQ2 2006		5.25:1.00		2.25:1.00		2.00:1.00

Senior Subordinated Notes

     On April 30, 2004, we completed a private offering of 9 1/2% Senior Subordinated Notes due 2014 for gross proceeds of $160.0 million. The Subordinated Notes mature on April 15, 2014. Interest on the Subordinated Notes is payable semiannually on October 15 and April 15.

     We also entered into a Registration Rights Agreement with the initial purchaser of the Subordinated Notes in which we agreed to (i) file a registration statement with respect to the Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28, 2004), pursuant to which we will offer to exchange the Subordinated Notes for registered notes with terms identical to the Subordinated Notes; (ii) have such registration statement declared effective within 210 days of the issuance date; (iii) maintain the effectiveness of such registration statement for minimum periods specified in the agreement; and (iv) file a shelf registration statement in the circumstances and within the time periods specified in the agreement. As we have yet to comply with (i), (ii) and (iii) above, we were required to pay liquidated damages, in cash, in the amount equal to $0.05 per week per $1,000 in principal amount of the unregistered Subordinated Notes, for each week that the default continued for the first 90-days following default (approximately $8,000 per week). The amount of liquidated damages will increase by an additional $0.05 per week per $1,000 in principal amount of unregistered Subordinated Notes for each subsequent 90-day period until all defaults have been cured, to a maximum of $0.50 per week per $1,000 in principal amount of unregistered Subordinated Notes outstanding. These liquidated damages are payable at the same time as interest payments due under the Subordinated Notes. Currently, our interest penalty approximates $32,000 per week until August 24, 2005, when it will increase to $40,000 per week.

Equity Placement

     As previously discussed, during the first quarter of 2005, we issued 2,640,845 shares of our common stock and 264,085 common stock purchase warrants for net proceeds of approximately $6.8 million. In the second quarter of 2005, a warrant holder exercised 146,250 warrants for proceeds of approximately $0.5 million.

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Cumulative Mandatory Redeemable Preferred Stock

     In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the “Preferred Stock”) to Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively “Kelso”), pursuant to the terms of an agreement dated as of May 6, 2003, as amended in February and June 2004 at a price of $1,000 per share. We also issued to Kelso warrants to purchase 7,150,000 shares of our common stock for $3.00 per share. The warrants are exercisable at any time until May 6, 2010. The issuance of the Preferred Stock resulted in proceeds of approximately $49.5 million, net of fees of approximately $5.5 million. The shares of Preferred Stock are non-voting.

     The Preferred Stock entitles the holders to cash dividends of 17.75% per annum compounding and accruing quarterly in arrears, and to a liquidation preference of $1,000 per share, adjusted for any stock dividend, stock split, reclassification, recapitalization, consolidation or similar event affecting the Preferred Stock, plus the amount of any accrued but unpaid dividends on such shares as of any date of determination. The liquidation preference approximated $80.0 million as of June 30, 2005.

Migration Transaction

     As part of our business strategy to expand into the United States, we entered into a migration transaction that became effective July 31, 2004. Under the migration transaction, our corporate structure was reorganized so that Waste Services, Inc., a Delaware company, became the ultimate parent company of our corporate group. Prior to the migration transaction, we were a subsidiary of Capital. After the migration transaction, Capital, now Waste Services (CA), became our subsidiary.

     The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and consisted primarily of: (1) the exchange of 87,657,035 common shares of Capital for 87,657,035 shares our of common stock and (2) the conversion of the remaining 9,229,676 common shares of Capital held by non-US residents who elected to receive exchangeable shares into 9,229,676 exchangeable shares of Waste Services (CA). The transaction was approved by the Ontario Superior Court of Justice on July 30, 2004 and by our shareholders at a special meeting held on July 27, 2004.

Surety Bonds, Letters of Credit and Insurance

     Municipal solid waste services contracts and permits and licenses to operate transfer stations, landfills and recycling facilities may require performance or surety bonds, letters of credit or other means of financial assurance to secure contractual performance. As of June 30, 2005, we had provided customers and various regulatory authorities with such bonds and letters of credit amounting to approximately $73.0 million to collateralize our obligations. The majority of these obligations are renewed on an annual basis.

     Our U.S.-based automobile, general liability and workers’ compensation insurance coverage is subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per claim, plus claims handling expense under our workers’ compensation and our auto and general liability insurance programs, respectively. Claims in excess of such deductible levels are fully insured subject to our policy limits. However, we have a limited claims history for our U.S. operations and it is reasonably possible that recorded reserves may not be adequate to cover future payments of claims. Adjustments, if any, to our reserves will be reflected in the period in which the adjustments are known. In the second quarter of June 2005, we received an insurance premium refund of approximately $0.4 million which served to reduce our cost of operations for the quarter. As of June 30, 2005 and included in the $73.0 million of bonds and letters of credit discussed previously, we have posted a letter of credit with our U.S. insurer of approximately $8.4 million to cover the liability for losses within the deductible limit.

Cash Flows

     The following discussion relates to the major components of the changes in cash flows for the six months ended June 30, 2005 and 2004.

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Cash Flows from Operating Activities

     Cash provided by operating activities was $10.1 million and $8.1 million for the six months ended June 30, 2005 and 2004, respectively. The increase in cash provided by operating activities is primarily due to cash generated from our operations as well as improvements in working capital.

Cash Flows used in Investing Activities

     Cash used in investing activities was $20.4 million and $174.6 million for the six months ended June 30, 2005 and 2004, respectively. The decrease in cash used in investing activities is primarily due to the various business acquisitions we completed during the first half of 2004 coupled with lower capital expenditures as compared to the same period in the prior year. We intend to finance capital expenditures and business acquisitions through operating cash flow, borrowings under our Credit Facilities, subject to the limitations on our investing activities set out in the Credit Facilities Agreement, and the issuance of additional debt and/or equity securities. We expect our capital expenditures to range from $37.0 to $38.0 million for all of 2005. Cash used in deposits for business acquisitions primarily relates to ongoing negotiations with Lucien Rémillard, one of our directors, concerning the potential acquisition of the solid waste collection and disposal business assets owned by a company controlled by Mr. Rémillard in Quebec, Canada. In connection with these negotiations, we have reimbursed Mr Rémillard’s company for services provided by third parties in connection with preparing audited financial statements of the businesses to be acquired and with ongoing efforts to expand the capacity of a solid waste landfill.

Cash Flows from Financing Activities

     Cash provided by financing activities was $6.8 million and $148.6 million for the six months ended June 30, 2005 and 2004, respectively. The decrease in cash flows from financing activities is due to our debt offering and private placement financing transaction that were completed during the second quarter of 2004, offset by the proceeds from the sale of our common stock and common stock purchase warrants. In the first half of 2004, we received $22.6 million from the release of restricted cash for the acquisition of certain Allied assets and the release of collateral for letters of credit.

Off-Balance Sheet Financing

     We have no off-balance sheet debt or similar obligations, other than our letters of credit and performance and surety bonds discussed previously, which are not debt. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position. We do not guarantee any third party debt. We have entered into a put or pay disposal agreement with RCI Environnement Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM Environnement Inc. (collectively the “RCI Companies”) and Intersan Inc. pursuant to which we have posted a letter of credit for C$4.0 million to secure our obligations and those of the RCI Companies to Intersan Inc. Concurrently with the put or pay disposal agreement with the RCI Companies, we entered into a three year agreement with Waste Management of Canada Corporation (formerly Canadian Waste Services Inc.) to allow us to deliver non-hazardous solid waste to their landfill in Michigan. Details of these agreement are further described in our annual financial statements for the year ended December 31, 2004, as filed on Form 10-K.

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Landfill Sites

     The following table summarizes the changes in our operating landfill capacity for the three months ended June 30, 2005 (in thousands of cubic yards):

	Balance,		Changes in						Balance,
	Beginning		Engineering			Airspace			End
	of Period		Estimates			Consumed			of Period
United States
Permitted capacity		268,883		(414	)		(771	)		267,698
Probable expansion capacity		18,300		—			—			18,300
Total available airspace		287,183		(414	)		(771	)		285,998
Number of sites		4								4
Canada
Permitted capacity		11,642		1,115			(403	)		12,354
Total available airspace		11,642		1,115			(403	)		12,354
Number of sites		3								3
Total
Permitted capacity		280,525		701			(1,174	)		280,052
Probable expansion capacity		18,300		—			—			18,300
Total available airspace		298,825		701			(1,174	)		298,352
Number of sites		7								7

Trend Information

Seasonality

     We expect the results of our Canadian operations to vary seasonally, with revenue typically lowest in the first quarter of the year, higher in the second and third quarters, and lower in the fourth quarter than in the third quarter. The seasonality is attributable to a number of factors. First, less solid waste is generated during the late fall, winter and early spring because of decreased construction and demolition activity. Second, certain operating costs are higher in the winter months because winter weather conditions slow waste collection activities, resulting in higher labor costs, and rain and snow increase the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis. Also, during the summer months, there are more tourists and part-time residents in some of our service areas, resulting in more residential and commercial collection. Consequently, we expect operating income to be generally lower during the winter. The effect of seasonality on our results of operations from our U.S. operations, which are located in warmer climates than our Canadian operations, is less significant than that of our Canadian operations.

New Accounting Pronouncements

     Refer to the Notes to the Unaudited Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements.

Disclosure Regarding Forward-Looking Statements

     This Form 10-Q contains certain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Some of these forward-looking statements include forward-looking phrases such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “foresees,” “intends,” “may,” “should” or “will continue,” or similar expressions or the negatives thereof or other variations on these expressions, or similar terminology, or discussions of strategy, plans or intentions. These statements also include descriptions in connection with, among other things:

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• our anticipated revenues, capital expenditures, future cash flows and financing requirements, and those of companies or assets we acquire;

• the implementation of our business strategy;

• descriptions of the expected effects of our competitive strategies; and

• the impact of actions taken by our competitors and other third parties, including courts and other governmental authorities.

     Such statements reflect our current views regarding future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements to be materially different from any future results, performance or achievements that forward-looking statements may express or imply, including, among others:

• significant restrictive covenants in our various credit facilities;

• changes in regulations affecting our business and costs of compliance;

• revocation of existing permits and licenses or the refusal to renew or grant new permits and licenses, which are required to enable us to operate our business or implement our growth strategy;

• our ability to successfully implement our corporate strategy and integrate any acquisitions we undertake;

• our ability to negotiate renewals of existing service agreements;

• costs and risks associated with litigation;

• changes in general business and economic conditions, changes in exchange rates and in the financial markets;

• changes in accounting standards or pronouncements; and

• construction, equipment delivery or permitting delays for our transfer stations or landfills.

     Some of these factors are discussed in more detail in our annual report on Form 10-K, as filed with the Securities and Exchange Commission for the year ended December 31, 2004, included under Item 1. of the annual report, “Business — Risk Factors”. If one or more of these risks or uncertainties affects future events and circumstances, or if underlying assumptions do not materialize, actual results may vary materially from those described in this Form 10-Q and our annual report as anticipated, believed, estimated or expected, and this could have a material adverse effect on our business, financial condition and the results of our operations. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     A portion of our operations are domiciled in Canada; as such, we translate the results of our operations and financial condition of our Canadian operations into U.S. dollars. Therefore, our reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar our revenue is favorably affected and conversely our expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet date, and revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian

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operation are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates. For the three and six months ended June 30, 2005 and 2004, we estimate that a 5.0% increase or decrease in the relationship of the Canadian dollar to the U.S. dollar would increase or decrease operating profit from our Canadian operations by less than $0.2 million and $0.1 million, respectively.

     As of June 30, 2005, we were exposed to variable interest rates under our Credit Facilities, as amended. The interest rates payable on our revolving and term facilities are based on a spread over base rate or Eurodollar loans as defined. A 25 basis point increase in base interest rates would increase cash interest expense by approximately $0.2 million for the six months ended June 30, 2005.

Item 4. Controls and Procedures

Disclosure Controls and Procedures/Evaluation of Disclosure Controls and Procedures

     We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported accurately within the time periods specified in the Securities and Exchange Commission’s rules and forms. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (pursuant to Exchange Act Rule 13a-15). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective. The conclusions of the CEO and CFO from this evaluation were communicated to the Audit Committee.

Changes in Internal Controls Over Financial Reporting

     There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that would have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     Information regarding our legal proceedings may be found under the “Legal Proceedings” section of Note 9, “Commitments and Contingencies” to our Unaudited Condensed Consolidated Financial Statements contained herein.

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

     None

Item 3. Defaults upon Senior Securities

     None

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

     None

Item 5. Other Information

     None

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Item 6. Exhibits

Exhibit 31.1 — Section 302 Certification of David Sutherland — Yoest, Chief Executive Officer

Exhibit 31.2 — Section 302 Certification of Mark A. Pytosh, Chief Financial Officer

Exhibit 32.1 — Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer

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SIGNATURES

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

Date: August 2, 2005

By:	/s/ DAVID SUTHERLAND-YOEST
	David Sutherland-Yoest
	Chairman of the Board,
	Chief Executive Officer, and Director
By:	/s/ MARK A. PYTOSH
	Mark A. Pytosh
	Executive Vice President and
	Chief Financial Officer

41

EXHIBIT INDEX

Exhibit No.		Description
Exhibit 31.1	—	Section 302 Certification of David Sutherland-Yoest, Chief Executive Officer
Exhibit 31.2	—	Section 302 Certification of Mark A. Pytosh, Chief Financial Officer
Exhibit 32.1	—	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer