10-Q

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 September 30, 2006

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.

(Exact name of registrant as specified in its charter)

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

1122 International Blvd., Suite 601, Burlington, Ontario, Canada L7L 6Z8
(Address of principal executive offices) (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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer o      Accelerated Filer þ      Non-accelerated filer o

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

     The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at November 1, 2006 was 36,067,346 (assuming exchange of 6,317,882 exchangeable shares of Waste Services (CA) Inc. not owned by Capital Environmental Holdings Company for 2,105,960 shares of the registrant’s common stock).

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005		2
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005		3
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2006		4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		43
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		43
Item 1A. Risk Factors		43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 3. Defaults upon Senior Securities		43
Item 4. Submission of Matters to a Vote of Security Holders		44
Item 5. Other Information		44
Item 6. Exhibits		44
Signatures		45
EX-10.1 Credit Agreement
EX-31.1 Section 302 Chief Executive Officer Certification
EX-31.2 Section 302 Principal Financial Officer Certification
EX-32.1 Section 906 Chief Executive Officer & Principal Financial Officer Certification

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WASTE SERVICES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	September 30,			December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	1,696		$	8,886
Accounts receivable (net of allowance for doubtful accounts of $415 and $672 as of September 30, 2006 and December 31, 2005, respectively)		54,463			45,381
Prepaid expenses and other current assets		6,339			10,063
Current assets of discontinued operations		4,033			5,252
Total current assets		66,531			69,582
Property and equipment, net		142,372			119,485
Landfill sites, net		183,840			156,498
Goodwill and other intangible assets, net		335,217			307,869
Other assets		9,380			23,816
Non-current assets of discontinued operations		49,944			51,139
Total assets	$	787,284		$	728,389
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,619		$	25,959
Accrued expenses and other current liabilities		48,034			39,065
Short-term financing and current portion of long-term debt		1,680			1,365
Current liabilities of discontinued operations		2,491			1,827
Total current liabilities		76,824			68,216
Long-term debt		314,805			284,850
Accrued closure, post-closure and other obligations		34,040			25,651
Cumulative mandatorily redeemable Preferred Stock (net of discount of nil and $2,347 as of September 30, 2006 and December 31, 2005, respectively)		99,384			84,971
Non-current liabilities of discontinued operations		311			210
Total liabilities		525,364			463,898
Shareholders’ equity:
Common stock $0.01 par value; 166,666,666 and 500,000,000 (pre-reverse split) shares authorized at September 30, 2006 and December 31, 2005, respectively; 33,960,275 shares issued and outstanding at September 30, 2006; 93,685,889 shares (pre-reverse split) issued and 93,185,889 shares (pre-reverse split) outstanding at December 31, 2005		340			937
Additional paid-in capital		411,637			383,618
Treasury stock at cost; 500,000 shares (pre-reverse split)		—			(1,235	)
Accumulated other comprehensive income		42,880			35,673
Accumulated deficit		(192,937	)		(154,502	)
Total shareholders’ equity		261,920			264,491
Total liabilities and shareholders’ equity	$	787,284		$	728,389

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

2

WASTE SERVICES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Revenue	$	104,932		$	94,535		$	295,079		$	266,294
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		71,022			67,981			203,400			192,795
Selling, general and administrative expense (exclusive of depreciation, depletion and amortization)		14,906			12,795			44,507			40,383
Deferred acquisition costs		—			—			5,612			—
Settlement with sellers of Florida Recycling		—			(4,120	)		—			(4,120	)
Depreciation, depletion and amortization		10,990			10,797			30,860			29,854
Foreign exchange loss (gain) and other		(92	)		844			2,074			659
Income from operations		8,106			6,238			8,626			6,723
Interest expense		7,919			7,274			22,799			21,272
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		4,256			5,392			14,793			15,348
Loss from continuing operations before income taxes		(4,069	)		(6,428	)		(28,966	)		(29,897	)
Income tax provision		4,045			3,252			8,386			8,582
Net loss from continuing operations		(8,114	)		(9,680	)		(37,352	)		(38,479	)
Net income (loss) from discontinued operations		(479	)		269			(1,083	)		287
Net loss	$	(8,593	)	$	(9,411	)	$	(38,435	)	$	(38,192	)
Basic and diluted loss per share:
Loss per share — continuing operations		(0.22	)		(0.29	)		(1.08	)		(1.18	)
Loss per share — discontinued operations		(0.02	)		0.01			(0.03	)		0.01
Basic and diluted loss per share	$	(0.24	)	$	(0.28	)	$	(1.11	)	$	(1.17	)
Weighted average common shares outstanding — basic and diluted		36,066			33,138			34,534			32,782

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

3

WASTE SERVICES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2006

(In thousands)

													Accumulated
	Waste Services, Inc.									Treasury			Other					Total
	Common Stock						Additional			Stock			Comprehensive		Accumulated			Shareholders’
	Shares			Amount			Paid-in Capital			at Cost			Income		Deficit			Equity
Balance, December 31, 2005		93,686		$	937		$	383,618		$	(1,235	)	$	35,673	$	(154,502	)	$	264,491
Common shares issued		8,154			82			25,265			1,235			—		—			26,582
Exercise of options and warrants		28			—			86			—			—		—			86
Stock-based compensation		—			—			2,918			—			—		—			2,918
Conversion of exchangeable shares		8			—			—			—			—		—			—
Share reimbursement agreement		—			—			(929	)		—			—		—			(929	)
Foreign currency translation adjustment		—			—			—			—			7,207		—			7,207
Effect of reverse stock split		(67,916	)		(679	)		679			—			—		—			—
Net loss		—			—			—			—			—		(38,435	)		(38,435	)
Balance, September 30, 2006		33,960		$	340		$	411,637		$	—		$	42,880	$	(192,937	)	$	261,920

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

4

WASTE SERVICES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2006			2005
Cash flows from operating activities:
Net loss	$	(38,435	)	$	(38,192	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Net loss (income) from discontinued operations		1,083			(287	)
Depreciation, depletion and amortization		30,860			29,854
Non-cash component of settlement with sellers of Florida Recycling		—			(4,120	)
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		14,793			15,348
Amortization of debt issue costs		1,172			1,057
Deferred income tax provision		8,298			8,582
Non-cash stock-based compensation expense		2,918			1,079
Deferred acquisition costs expensed		5,173			—
Foreign exchange loss		2,001			630
Other non-cash items		536			729
Changes in operating assets and liabilities (excluding the effects of acquisitions):
Accounts receivable		(4,959	)		(5,424	)
Prepaid expenses and other current assets		(544	)		2,657
Accounts payable		(5,216	)		(1,256	)
Accrued expenses and other current liabilities		8,457			3,749
Net cash provided by continuing operations		26,137			14,406
Net cash provided by discontinued operations		2,909			2,222
Net cash provided by operating activites		29,046			16,628
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(28,973	)		(4,470	)
Capital expenditures		(38,335	)		(23,462	)
Proceeds from asset sales and business divestitures		4,939			1,735
Share reimbursement agreement		(929	)		—
Deposits for business acquisitions and other		—			(793	)
Net cash used in continuing operations		(63,298	)		(26,990	)
Net cash used in discontinued operations		(1,707	)		(6,062	)
Net cash used in investing activities		(65,005	)		(33,052	)
Cash flows from financing activities:
Proceeds from issuance of debt and draws on revolving credit facility		40,532			6,908
Principal repayments of debt and capital lease obligations		(11,861	)		(4,171	)
Sale of common shares and warrants		—			7,125
Proceeds from the exercise of options and warrants		86			521
Fees paid for financing transactions		(149	)		—
Net cash provided by financing activities — continuing operations		28,608			10,383
Effect of exchange rate changes on cash and cash equivalents		161			73
Decrease in cash and cash equivalents		(7,190	)		(5,968	)
Cash and cash equivalents, beginning of period		8,886			8,476
Cash and cash equivalents, end of period	$	1,696		$	2,508

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

5

WASTE SERVICES, 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”) 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. Our operating strategy is disposal-based, whereby we enter geographic markets with attractive growth or positive competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. Our operations are located in the United States and Canada. Our U.S. operations are located in Florida, Texas and Arizona and our Canadian operations are located in Eastern Canada (Ontario) and Western Canada (Alberta, Saskatchewan and British Columbia). Due to a pending sale, our Arizona operations are presented as discontinued operations.

     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. Except for the adoption of FASB Statement No. 123(R), Share-Based Payment (“SFAS 123(R)”), which is more fully described in Note 3, the accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2005, 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, 2005. Income taxes during these interim periods have been provided 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.

     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, goodwill and other intangible assets, liabilities for landfill capping, closure and post-closure obligations, insurance reserves, liabilities for potential litigation and deferred taxes.

     As a portion of our operations is 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, the reported results of our 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 are 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 are 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. 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.

     On June 30, 2006, we effected a reverse one for three split of our common stock. As a result of the reverse split, each holder of three outstanding shares of common stock is entitled to one share of common stock. No fractional shares of common stock are issuable in connection with the reverse stock split. In lieu of such fractional shares, stockholders will receive a cash payment equal to the product obtained by multiplying the fraction of common stock by $9.15. Corresponding amendments have been made to the exchangeable shares of Waste Services (CA) Inc., so that each one exchangeable share will entitle the holder to one-third of one share of our common stock, without regard to any fractional shares. The reverse split has been retroactively applied to all per share information to the earliest period presented, unless otherwise noted as being “pre-reverse split”.

     Basic earnings (loss) per share is calculated by dividing income (loss) by the weighted average number of common shares outstanding for the period, including exchangeable shares of Waste Services (CA) not owned by us on an as exchanged basis. Diluted earnings (loss) per share is calculated based on the weighted average shares of common stock outstanding, including the exchangeable

6

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

shares, during the period plus the dilutive effect of common stock purchase warrants and stock options using the treasury stock method. Contingently issuable shares are included in the computation of basic earnings (loss) per share when issuance of the shares is no longer contingent. Due to the net losses for the three and nine months ended September 30, 2006 and 2005, basic and diluted loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive. Basic and diluted earnings (loss) per share have been retroactively restated to reflect the one for three split to the earliest period presented.

     Potentially dilutive securities not included in the diluted loss per share calculation, due to net losses, are as follows, giving effect to the reverse one for three split to the earliest period presented (unaudited) (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2006		2005		2006		2005
Common Shares issuable under exercisable options		—		23		—		17
Common Shares issuable under exercisable warrants		219		817		190		753
Dilutive securities		219		840		190		770

     For purposes of computing net income (loss) per common share – basic and diluted, for the three and nine months ended September 30, 2006, the weighted average number of shares of common stock outstanding includes the effect of 6,323,959 and 6,326,067 exchangeable shares of Waste Services (CA), respectively (exchangeable for 2,107,986 and 2,108,689 shares of our common stock, respectively), as if they were shares of our outstanding common stock from July 31, 2004, the date our migration transaction was completed. For the three and nine months ended September 30, 2005, the weighted average number of shares of common stock outstanding includes the effect of 6,492,594 and 6,513,857 exchangeable shares of Waste Services (CA), respectively (exchangeable for 2,164,198 and 2,171,285 shares of our common stock, respectively), as if they were shares of our outstanding common stock from July 31, 2004.

2. Discontinued Operations

     On July 20, 2006, we announced the execution of definitive agreements with Allied Waste Industries, Inc. (“Allied Waste”) whereby we will (i) purchase Allied Waste’s hauling, transfer station and recycling operations in Miami, Florida for $61.0 million with an additional contingent payment of $2.0 million due upon the successful renewal of a certain municipal recycling contract and (ii) sell our Arizona hauling, transfer station and landfill operations to Allied Waste for $53.0 million. Accordingly, we have presented the net assets and operations of Arizona as discontinued operations for all periods presented. Revenue from discontinued operations was $6.9 million and $7.2 million for the three months ended September 30, 2006 and 2005, respectively, and $21.5 million and $19.8 million for the nine months ended September 30, 2006 and 2005, respectively. Pre-tax net income (loss) from discontinued operations was $(0.5) million and $0.3 million for the three months ended September 30, 2006 and 2005, respectively, and $(1.1) million and $0.3 million for the nine months ended September 30, 2006 and 2005, respectively. Net assets related to discontinued operations are as follows (unaudited):

7

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	September 30,		December 31,
	2006		2005
Accounts receivable	$	3,617	$	4,202
Prepaid expenses and other current assets		416		1,050
Current assets of discontinued operations		4,033		5,252
Property and equipment		12,255		13,777
Landfill sites		16,092		15,630
Goodwill and other intangible assets		21,475		21,602
Other assets		122		130
Non-current assets of discontinued operations		49,944		51,139
Total assets of discontinued operations	$	53,977	$	56,391
Accounts payable	$	333	$	192
Accrued expenses and other current liabilities		2,158		1,635
Current liabilities of discontinued operations		2,491		1,827
Accrued closure, post closure and other obligations		311		210
Non-current liabilities of discontinued operations		311		210
Total liabilities of discontinued operations	$	2,802	$	2,037
Net assets of discontinued operations	$	51,175	$	54,354

3. Share-Based Payments

     We have a 1997 Stock Option Plan and a 1999 Stock Option Plan, which are described in our consolidated financial statements for the year ended December 31, 2005 filed on Form 10-K. Employee stock options are denominated in U.S. and Canadian dollars. Prior to January 1, 2006 we accounted for our stock-based compensation plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). Stock-based employee compensation cost (benefit) is recognized as a component of selling, general and administrative expense in the Statement of Operations. For the years ended December 31, 2005 and 2004, stock-based employee compensation expense was $0.3 million and $(1.4) million, respectively. For the three and nine months ended September 30, 2005, stock-based compensation expense for employees was $0.1 million and $0.3 million, respectively. Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123(R), using the modified prospective transition method. Under that transition method, employee compensation cost recognized in 2006 includes: (i) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123 and (ii) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

     As a result of adopting SFAS 123(R) on January 1, 2006, our net loss and loss before income taxes for the three and nine months ended September 30, 2006, is approximately $0.2 million and $1.5 million higher, respectively, than if we had continued to account for share-based compensation under APB 25. The adoption of this standard had no impact on our provision for income taxes because of: (i) the valuation allowance for our U.S. deferred tax assets due to our lack of operating history relative to our U.S. operations and (ii) the non-deductibility of options issued to our Canadian employees.

     Prior to the adoption of SFAS 123(R), we presented all tax benefits, if any, of tax deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. As a result of adopting SFAS 123(R), tax benefits resulting from tax deductions in excess of the compensation cost recognized for options (excess tax benefits) are classified as financing cash flows.

     The following table illustrates the effect on net loss and loss per share if we had applied the fair value recognition provisions of SFAS 123 to options granted to employees under our stock option plans during the three and nine months ended September 30, 2005 (unaudited):

8

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months			Nine Months
Net loss as reported	$	(9,411	)	$	(38,192	)
Add: Employee compensation expense for equity awards included in the determination of net loss as reported		86			258
Less: Stock based employee compensation expense for equity awards determined by the fair value based method prescribed under SFAS 123		(2,467	)		(7,475	)
Pro forma net loss	$	(11,792	)	$	(45,409	)
Basic and diluted loss per share:
As reported	$	(0.28	)	$	(1.17	)
Pro forma	$	(0.36	)	$	(1.39	)

     The above pro forma disclosures are provided for 2005 because employee stock options were not accounted for using the fair-value method during that period. No pro forma disclosure has been presented for the three and nine months ended September 30, 2006 as share-based payments to employees have been accounted for under SFAS 123(R)’s fair-value method for such periods.

     During the nine months ended September 30, 2006 and 2005, we granted 165,000 (pre-reverse split) options and 815,000 (pre-reverse split) options, respectively, to certain employees with option exercise prices equal to the market value of our common stock on the date of the grant. The weighted-average grant-date fair value of these option grants was $2.12 (pre-reverse split) and $1.77 (pre-reverse split), respectively. The 2006 grants were made in the first quarter of 2006. The fair value of options granted is estimated using the Black-Scholes option pricing model using the following assumptions:

	Three months ended September 30,				Nine months ended September 30,
	2006		2005		2006			2005
Annual dividend yield		N/A		N/A		—			—
Weighted-average expected life (years)		N/A		N/A	3.0		years	2.8		years
Risk-free interest rate		N/A		N/A		4.83	%	2.57% to 4.62		%
Expected volatility		N/A		N/A		38	%		74	%

     Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for the most recent three years. We believe this method produces an estimate that is representative of our expectations of the future volatility over the expected term of our options. We currently have no reason to believe future volatility over the expected life of these options is likely to differ materially from historical volatility. The weighted-average expected life is based upon share option exercises, pre and post vesting terminations and share option term expiration. The risk-free interest rate is based on the U.S. treasury security rate estimated for the expected life of the options at the date of grant.

     SFAS 123(R) requires the estimation of forfeitures when recognizing compensation expense and that this estimate of forfeitures be adjusted over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment, which is recognized in the period of change and which impacts the amount of unamortized compensation expense to be recognized in future periods.

     During the nine months ended September 30, 2006, no employee options were exercised, 543,500 (pre-reverse split) options were forfeited and 1,301,500 (pre-reverse split) options expired. During the nine months ended September 30, 2005, 15,000 (pre-reverse split) employee options were exercised, 564,270 (pre-reverse split) options were forfeited and 92,694 options (pre-reverse split) expired. As of September 30, 2006, $0.6 million of total unrecognized compensation cost related to employee stock options is expected to be recognized over a weighted average period of approximately 0.5 year. Additional information relative to our employee options outstanding at September 30, 2006 is summarized as follows (unaudited):

9

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Options		Options
	Outstanding		Exercisable
Number of U.S. dollar denominated options		6,388,500		5,581,500
Number of Canadian dollar denominated options		4,495,000		4,495,000
Total number of options		10,883,500		10,076,500
Aggregate intrinsic value of options	$	—	$	—
Weighted average remaining contractual term (years)		2.1		2.0
Weighted average exercise price — U.S. dollar denominated options	$	4.51	$	4.66
Weighted average exercise price — Canadian dollar denominated options	C$	6.47	C$	6.47

     All option amounts and exercise prices in the above table are before giving effect to the reverse one for three split of our common stock. The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the third quarter of 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2006. As of September 30, 2006, we have not provided for forfeitures relative to our unvested employee stock options due to the relatively short vesting period remaining on these options and the de minimus nature of potential future forfeitures for these options.

4. Business Combinations and Significant Asset Acquisitions

     We believe the primary value of an acquisition is the opportunities made available to vertically integrate operations or increase market presence within a geographic market.

     In April 2006 we completed the acquisition of a materials recovery facility and solid waste transfer station in Taft, Florida (“Taft Recycling”). The purchase price for the facility consisted of $11.3 million in cash and the issuance of 1,269,841 (pre-reverse split) shares of our common stock valued at approximately $3.9 million. In addition, upon the issuance of the final operating permit on June 15, 2006, we paid $1.5 million in cash and delivered an additional 1,269,842 (pre-reverse split) shares of our common stock valued at approximately $3.7 million, of which 769,842 (pre-reverse split) shares were newly issued and 500,000 (pre-reverse split) shares were transferred from treasury. The acquisition of Taft Recycling will allow us greater access to third party waste volumes that can be disposed of at our JED Landfill in Osceola County, Florida.

     In May 2006, we completed the acquisition of Liberty Waste, LLC (“Liberty Waste”) in Tampa, Florida. The purchase price for Liberty Waste consisted of $8.0 million in cash and the issuance of 1,155,116 (pre-reverse split) shares of our common stock valued at approximately $3.6 million. We had previously paid a deposit of $6.0 million in cash and issued 946,372 (pre-reverse split) shares of our common stock valued at approximately $2.9 million. Liberty Waste is a collection operation based in Tampa with two transfer stations, one located in Tampa and the other in Clearwater. The transfer stations are both permitted to accept construction and demolition and Class III waste volumes.

     In June 2006, we completed the acquisition of Sun Country Materials, LLC (“Sun Country Materials”) in Hillsborough County, Florida. The purchase price for Sun Country Materials consisted of $5.0 million in cash and the issuance of 4,013,378 (pre-reverse split) shares of our common stock valued at approximately $12.4 million. Sun Country Materials owns a construction and demolition landfill located in Hillsborough County, Florida, which has recently been issued an expansion permit.

     Details of the net assets acquired and cash used in asset and business acquisitions for the nine months ended September 30, 2006 are as follows (unaudited):

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

				Liberty Waste
	Taft			and Sun Country			Other
	Recycling			Materials			Acquisitions		Total
Purchase price:
Cash	$	13,300		$	20,652		$	2,528	$	36,480
Common stock		7,645			18,937			—		26,582
Total purchase price		20,945			39,589			2,528		63,062
Allocated as follows:
Working capital assumed:
Cash and cash equivalents		125			488			—		613
Accounts receivable		952			2,126			—		3,078
Prepaid expenses and other current assets		10			591			—		601
Accounts payable		(462	)		(2,724	)		—		(3,186	)
Accrued expenses and other current liabilities		(252	)		(787	)		—		(1,039	)
Net working capital		373			(306	)		—		67
Property and equipment		3,237			10,926			675		14,838
Landfill sites		—			23,290			—		23,290
Debt		—			(396	)		—		(396	)
Accrued closure, post-closure and other obligations assumed		(73	)		(3,093	)		—		(3,166	)
Net book value of assets acquired and liabilities assumed		3,537			30,421			675		34,633
Excess purchase price to be allocated	$	17,408		$	9,168		$	1,853	$	28,429
Allocated as follows:
Goodwill	$	17,408		$	4,686		$	1,672	$	23,766
Other intangible assets		—			4,482			181		4,663
Total allocated	$	17,408		$	9,168		$	1,853	$	28,429

     The above table includes cash deposits and acquisition related costs of $6.9 million, which relate to the Liberty Waste and Sun Country Materials acquisitions that were paid or deposited prior to 2006 and were capitalized as part of the cost of these acquisitions during 2006. We expect goodwill generated from these acquisitions to be deductible for income tax purposes.

     The purchase price allocations are considered preliminary until we have obtained all required information to complete the allocation. Although the time required to obtain the necessary information will vary with circumstances specific to an individual acquisition, the “allocation period” for finalizing purchase price allocations generally does not exceed one year from the date of consummation of an acquisition. Adjustments to the allocation of purchase price may decrease those amounts allocated to goodwill and, as such, may increase those amounts allocated to other tangible or intangible assets, which may result in higher depreciation or amortization expense in future periods. Assets acquired in a business combination that will be sold are valued at fair value less cost to sell. Results of operating these assets are recognized currently in the period in which those operations occur. The value of shares issued in connection with an acquisition is based upon the average market price of our common stock during the five day period consisting of the period two days before, the day of and the two days after the terms of the acquisition are agreed to and/or announced. Contingent consideration is valued as of the date the contingency is resolved.

     The following unaudited condensed consolidated pro forma statement of operations data shows the results of our operations for the three and nine months ended September 30, 2006 and 2005 as if completed acquisitions had occurred at the beginning of the respective periods (in thousands except per share amounts):

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2006			2005			2006			2005
Revenue	$	104,932		$	101,407		$	305,717		$	286,946
Net loss	$	(8,593	)	$	(9,822	)	$	(39,101	)	$	(39,624	)
Basic and diluted net loss per common share	$	(0.24	)	$	(0.27	)	$	(1.08	)	$	(1.11	)
Basic and diluted pro forma weighted average number of common shares outstanding		36,066			36,023			36,066			35,667

     These unaudited pro forma condensed consolidated results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of the beginning of the respective periods, or of the results of our future operations. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the acquisitions.

5. Allowance for Doubtful Accounts

     We maintain an allowance for doubtful accounts based on the expected collectibility of our accounts receivable. We perform credit evaluations of significant customers and establish an allowance for doubtful accounts based on the aging of receivables, payment performance factors, historical trends and other information. In general, we reserve a portion of those receivables outstanding more than 90 days and 100% of those outstanding more than 120 days. We evaluate and revise our reserve on a monthly basis based upon a review of specific accounts outstanding and our history of uncollectible accounts.

     The changes to the allowance for doubtful accounts for the nine months ended September 30, 2006 and 2005 are as follows (unaudited):

	2006			2005
Balance, beginning of period	$	672		$	545
Provisions		386			498
Bad debts charged to reserves, net of recoveries		(924	)		(563	)
Increase due to acquisitions		275			—
Impact of foreign exchange rate fluctuations		6			3
Balance, end of period	$	415		$	483

6. Prepaid Expenses and Other Current Assets

     Prepaid expenses and other current assets consist of the following (unaudited):

	September 30,		December 31,
	2006		2005
Prepaid expenses	$	3,138	$	2,357
Deferred income taxes		22		4,763
Parts and supplies		1,772		1,673
Other current assets		1,407		1,270
	$	6,339	$	10,063

7. Property and Equipment

     Property and equipment consist of the following (unaudited):

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	September 30,			December 31,
	2006			2005
Land and buildings	$	34,978		$	24,596
Vehicles		113,128			96,492
Containers, compactors and landfill and recycling equipment		74,796			64,547
Furniture, fixtures, other office equipment and leasehold improvements		10,210			9,393
Total property and equipment		233,112			195,028
Less: Accumulated depreciation		(90,740	)		(75,543	)
Property and equipment, net	$	142,372		$	119,485

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

Landfill Sites

     Landfill sites consist of the following (unaudited):

	September 30,			December 31,
	2006			2005
Landfill sites	$	227,564		$	189,280
Less: Accumulated depletion		(43,724	)		(32,782	)
Landfill sites, net	$	183,840		$	156,498

     The changes in landfill sites for the nine months ended September 30, 2006 and 2005 are as follows (unaudited):

	2006			2005
Balance, beginning of period	$	156,498		$	159,385
Acquisitions		23,290			—
Additional landfill site costs		12,140			6,180
Additional asset retirement obligations		1,529			1,253
Depletion		(10,027	)		(9,322	)
Effect of foreign exchange rate fluctuations		410			304
Balance, end of period	$	183,840		$	157,800

Accrued Closure, Post-Closure and Other Obligations

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

	September 30,		December 31,
	2006		2005
Accrued closure and post-closure obligations	$	13,503	$	9,074
Deferred income tax liability		19,898		16,206
Other obligations		639		371
	$	34,040	$	25,651

     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 in accrued closure and post-closure obligations for the nine months ended September 30, 2006 and 2005 are as follows (unaudited):

	2006		2005
Balance, beginning of period	$	9,074	$	6,385
Acquisitions		2,037		—
Accretion		608		537
Additional asset retirement obligations		1,529		1,253
Effect of foreign exchange rate fluctuations		255		213
Balance, end of period	$	13,503	$	8,388

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Goodwill and Other Intangible Assets

     Goodwill and other intangible assets consist of the following (unaudited):

	September 30,			December 31,
	2006			2005
Other intangible assets subject to amortization:
Customer relationships and contracts	$	39,177		$	34,768
Non-competition agreements and other		2,920			2,744
		42,097			37,512
Less: Accumulated amortization:
Customer relationships and contracts		(15,789	)		(12,128	)
Non-competition agreements and other		(2,284	)		(1,761	)
Other intangible assets subject to amortization, net		24,024			23,623
Goodwill		311,193			284,246
Goodwill and other intangible assets, net	$	335,217		$	307,869

     The changes in goodwill for the nine months ended September 30, 2006 and 2005 are as follows (unaudited):

	Nine Months Ended September 30, 2006
	Florida			Canada		Total
Balance, beginning of period	$	199,377		$	84,869	$	284,246
Acquisitions		22,094			1,672		23,766
Purchase price allocation adjustments for prior acquisitions		(258	)		—		(258	)
Effect of foreign exchange rate fluctuations		—			3,439		3,439
Balance, end of period	$	221,213		$	89,980	$	311,193

	Nine Months Ended September 30, 2005
	Florida		Canada		Total
Balance, beginning of period	$	174,629	$	85,255	$	259,884
Acquisitions		—		162		162
Purchase price allocation adjustments for prior acquisitions		24,748		—		24,748
Effect of foreign exchange rate fluctuations		—		2,898		2,898
Balance, end of period	$	199,377	$	88,315	$	287,692

10. Other Assets

     Other assets consist of the following (unaudited):

	September 30,		December 31,
	2006		2005
Debt and redeemable Preferred Stock issue costs, net of accumulated amortization of $3,456 and $4,761 as of September 30, 2006 and December 31, 2005, respectively	$	8,025	$	9,428
Acquisition deposits and deferred acquisition costs		—		13,815
Other assets		1,355		573
	$	9,380	$	23,816

     In April 2006, we ceased being actively engaged in 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. During the first quarter of 2006, we recognized an expense related to these previously deferred acquisition costs of approximately $5.6 million.

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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Debt

     Debt consists of the following (unaudited):

	September 30,			December 31,
	2006			2005
Senior Secured Credit Facilities:
Revolving credit facility, floating interest rate at 9.3% as of September 30, 2006, due April 2009	$	8,000		$	—
Term loan facility, floating interest rate at 8.6% and 7.9% as of September 30, 2006 and December 31, 2005, respectively, due $370 per quarter to March 2010, $35,020 per quarter thereafter, due March 2011		145,260			123,250
Senior Subordinated Notes, fixed interest rate at 9.5%, due 2014		160,000			160,000
Other notes payable, interest at 4.3% to 6.7%, due through June 2025		3,225			2,965
		316,485			286,215
Less: Current portion		(1,680	)		(1,365	)
Long-term portion	$	314,805		$	284,850

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 operations 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 including Waste Services (CA), are pledged to secure obligations under the Credit Facilities. As of September 30, 2006, there was $8.0 million outstanding on the revolving credit facility and an additional $22.3 million of capacity was used to support outstanding letters of credit.

     On December 28, 2005, we entered into an amendment to the Credit Facilities, which provided for the incurrence of up to $50.0 million of additional term loans under a new term loan tranche, as provided for under the terms of our existing Credit Facilities. We drew $25.0 million of this facility at close to refinance amounts then outstanding under our existing revolving credit facility. We drew another $23.0 million of this facility during the second quarter of 2006, which was used for the financing of acquisitions that are otherwise permitted under the terms of the Credit Facilities. Availability under this amendment expired in May 2006.

     On June 20, 2006, we amended our Credit Facilities to provide us with more flexible terms, including the ability to increase our Canadian revolving facility from $15.0 million to $25.0 million in the future, and to allow for the potential redemption of our mandatorily redeemable preferred stock.

     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. The covenants and restrictions limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital.

Senior Subordinated Notes

     On April 30, 2004, we completed a private offering of 9 ¹/2% 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 ratably 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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

12. 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, (the “Subscription Agreement”), at a price of $1,000 per share. We also issued to Kelso warrants to purchase 7,150,000 (pre-reverse split) shares of our common stock for $3.00 (pre-reverse split) 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 ³/4% per annum compounding and accruing quarterly in arrears. The Preferred Stock entitles the holders 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 share as of any date of determination. The liquidation preference approximated $99.4 million as of September 30, 2006.

     As we are not permitted to declare and pay cash dividends pursuant to the terms of our Credit Facilities, the dividend payments accrue. The Preferred Stock, including all accrued and unpaid dividends, must be redeemed in full by no later than May 6, 2015. 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 to redeem approximately $156.1 million of principal and accrued dividends, on terms acceptable to our board consistent with the exercise of their fiduciary duties. Pursuant to an amendment to the Certificate of Designations of Waste Services 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 Senior Subordinated Notes issued on April 30, 2004, 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 Senior Subordinated Notes (April 15, 2014); (ii) the date on which our Credit Facilities and the Senior 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 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 day has been delayed, then we are not required to pay this increased liquidation amount until the delayed sale date.

     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 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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. 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.

     As reported in our Form 10-Q for the second quarter of 2006, during the second quarter of 2006 we resolved the litigation commenced by Waste Management, Inc. (“Waste Management”) against our President and Chief Operating Officer, Charles A. Wilcox, for breach of his employment contract and against us, claiming, among other things, tortious interference with contractual relations. In the settlement, we and Mr. Wilcox agreed to a final judgment entered in favor of Waste Management and to pay Waste Management the sum of $0.1 million. As a result of the settlement, Mr. Wilcox is no longer subject to any restrictions on his employment activities for us.

     In March 2005, we filed a Complaint against Waste Management in the U.S. 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 could be liable for treble damages, or in excess of $75.0 million.

     Except for the settlement previously described, 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 service 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 September 30, 2006 and December 31, 2005, we had provided customers, our insurers and various regulatory authorities with such bonds and letters of credit amounting to approximately $72.9 million and $65.5 million, respectively, to collateralize our obligations.

     Our domestic 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 September 30, 2006, and included in the $72.9 million of bonds and letters of credit previously discussed, we have posted a letter of credit with our U.S. insurer of approximately $9.3 million to secure the liability for losses within the deductible limit.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     The changes in insurance reserves for our U.S. operations for the nine months ended September 30, 2006 and 2005 are as follows (unaudited):

	Nine Months Ended September 30,
	2006			2005
Balance, beginning of period	$	4,356		$	2,426
Provisions		3,630			3,282
Payments		(2,754	)		(1,184	)
Favorable claim development related to prior periods		(107	)		(279	)
Balance, end of period	$	5,125		$	4,245

Disposal Agreement

     We have entered into a put or pay disposal agreement with RCI Environment 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, which has now expired. On January 17, 2006, Waste Management drew C$0.3 million against the letter of credit posted by us to secure RCI’s obligations, as such we provided for the draw as of December 31, 2005. The companies within the RCI group are controlled by a director of ours and/or individuals related to that director. Details of these agreements are further described in our annual financial statements for the year ended December 31, 2005, as filed on Form 10-K.

Other Contractual Arrangements

     During December 2003, we issued 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 (pre-reverse split) per share. During the first quarter of 2006, we received a claim for reimbursement under the agreement of $0.9 million, which was charged to additional paid-in capital.

     From time to time and in the ordinary course of business we may enter into certain acquisitions whereby we will also enter into a royalty agreement. These agreements are usually based upon the amount of waste deposited at our landfill sites or in certain instances our transfer stations. Royalties are expensed as incurred and recognized as a cost of operations.

14. Authorized Capital Stock and Migration Transaction

Total Shares

     As of September 30, 2006, we were authorized to issue a total of 171,666,666 shares of capital stock consisting of:

• 166,666,666 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 has the rights, preference, and limitations set forth in the Amended Certificate of Designation of Special Voting Preferred Stock. One share of Special Voting Preferred Stock is presently outstanding.

Migration Transaction

18

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Effective July 31, 2004, we entered into a migration transaction by which our corporate structure was reorganized so that Waste Services became the ultimate parent company of our corporate group. Prior to the migration transaction, we were a subsidiary of Waste Services (CA) Inc (“Waste Services (CA)”). After the migration transaction, 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: (i) the exchange of 87,657,035 common shares of Waste Services (CA) for 87,657,035 (pre-reverse split) shares of our common stock; and (ii) the conversion of the remaining 9,229,676 common shares of Waste Services (CA) 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 our 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, who will vote on the instructions of the holders of the exchangeable shares (one-third of one vote for each exchangeable share). As such, the exchangeable shares are classified as part of our equity.

     Upon the occurrence of certain events, such as the liquidation of Waste Services (CA), or after the redemption date, our Canadian holding company, Capital Environmental Holdings Company will have the right to purchase each exchangeable share for one-third of a share of our common stock, plus all declared and unpaid dividends on the exchangeable share and payment for any fractional shares resulting from the reverse stock split of our common stock, on the same basis as holders of our common stock received payment for their fractional shares. 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, on the basis of one-third of a share of common stock for each one exchangeable share.

15. Comprehensive Income (Loss)

     Comprehensive income (loss) includes the effects of foreign currency translation. Comprehensive income (loss) for the three and nine months ended September 30, 2006 and 2005 is as follows (unaudited):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Net loss	$	(8,593	)	$	(9,411	)	$	(38,435	)	$	(38,192	)
Foreign currency translation adjustment		(194	)		10,314			7,207			6,703
Comprehensive income (loss)	$	(8,787	)	$	903		$	(31,228	)	$	(31,489	)

16. 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” (“SFAS 131”). 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, Texas and Arizona. As previously discussed, we have entered into a definitive agreement whereby we plan to divest of our Arizona operations, as such the results of our Arizona operations are presented as discontinued operations and are not included in the segment data presented below.

     We believe our Canadian geographic segments meet the “Aggregation Criteria” set forth in SFAS 131 for the following reasons: (i) these segments are economically similar, (ii) the nature of the service, waste collection and disposal, is the same and transferable across locations; (iii) the type and class of customer is consistent among regions/districts; (iv) 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 (v) the

19

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

regulatory environment is consistent within Canada. We do not have significant (in volume or dollars) inter-segment related transactions. We have reflected both of our domestic corporate and Canadian corporate offices as “Corporate.”

     Summarized financial information concerning our reportable segments for the three and nine months ended September 30, 2006 and 2005 is as follows:

	Three Months Ended September 30, 2006
					All Other
	Florida		Canada		Operations			Corporate			Total
Revenue	$	51,910	$	51,829	$	1,193		$	—		$	104,932
Depreciation, depletion and amortization		6,091		4,155		388			356			10,990
Income (loss) from operations		7,072		8,902		(58	)		(7,810	)		8,106
Capital expenditures		7,261		5,459		66			35			12,821

	Three Months Ended September 30, 2005
					All Other
	Florida		Canada		Operations			Corporate			Total
Revenue	$	47,865	$	45,766	$	904		$	—		$	94,535
Depreciation, depletion and amortization		5,147		4,907		293			450			10,797
Income (loss) from operations		2,163		7,120		(188	)		(2,857	)		6,238
Capital expenditures		5,534		979		190			215			6,918

	Nine Months Ended September 30, 2006
					All Other
	Florida		Canada		Operations			Corporate			Total
Revenue	$	152,940	$	138,763	$	3,376		$	—		$	295,079
Depreciation, depletion and amortization		16,946		11,635		1,165			1,114			30,860
Income (loss) from operations		19,860		21,281		(290	)		(32,225	)		8,626
Capital expenditures		17,521		18,637		1,328			849			38,335

	Nine Months Ended September 30, 2005
					All Other
	Florida		Canada		Operations			Corporate			Total
Revenue	$	141,425	$	123,044	$	1,825		$	—		$	266,294
Depreciation, depletion and amortization		14,800		13,299		682			1,073			29,854
Income (loss) from operations		8,004		16,939		(854	)		(17,366	)		6,723
Capital expenditures		14,494		6,872		588			1,508			23,462

17. 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 Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any. Presented below are our Condensed Consolidating Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005 and the related Unaudited Condensed Consolidating Statements of Operations for the three and nine months ended September 30, 2006 and 2005 and the Unaudited Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 of our guarantor subsidiaries, our U.S. operating and reporting segments (“Guarantors”), and the subsidiaries which are not guarantors, our Canadian operating and reporting segments (“Non-guarantors”):

20

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	September 30, 2006
			Non-
	Guarantors		Guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	367	$	1,329	$	—		$	1,696
Accounts receivable, net		24,337		30,126		—			54,463
Prepaid expenses and other current assets		2,431		3,908		—			6,339
Current assets of discontinued operations		4,033		—		—			4,033
Total current assets		31,168		35,363		—			66,531
Property and equipment, net		66,352		76,020		—			142,372
Landfill sites, net		172,729		11,111		—			183,840
Goodwill and other intangible assets, net		244,265		90,952		—			335,217
Other assets		9,380		—		—			9,380
Due from affiliates		—		11,734		(11,734	)		—
Investment in subsidiary		187,311		—		(187,311	)		—
Non-current assets of discontinued operations		49,944		—		—			49,944
Total assets	$	761,149	$	225,180	$	(199,045	)	$	787,284
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,286	$	10,333	$	—		$	24,619
Accrued expenses and other current liabilities		34,113		13,921		—			48,034
Short-term financing and current portion of long-term debt		1,680		—		—			1,680
Current liabilities of discontinued operations		2,491		—		—			2,491
Total current liabilities		52,570		24,254		—			76,824
Long-term debt		314,805		—		—			314,805
Accrued closure, post-closure and other obligations		20,425		13,615		—			34,040
Cumulative mandatorily redeemable Preferred Stock		99,384		—		—			99,384
Due to affiliates		11,734		—		(11,734	)		—
Non-current liabilities of discontinued operations		311		—		—			311
Total liabilities		499,229		37,869		(11,734	)		525,364
Shareholders’ equity:
Common stock of Waste Services, Inc.		340		—		—			340
Other equity		261,580		187,311		(187,311	)		261,580
Total shareholders’ equity		261,920		187,311		(187,311	)		261,920
Total liabilities and shareholders’ equity	$	761,149	$	225,180	$	(199,045	)	$	787,284

21

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31, 2005
			Non-
	Guarantors		Guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	3,680	$	5,206	$	—		$	8,886
Accounts receivable, net		21,236		24,145		—			45,381
Prepaid expenses and other current assets		1,969		8,094		—			10,063
Current assets of discontinued operations		5,252		—		—			5,252
Total current assets		32,137		37,445		—			69,582
Property and equipment, net		53,576		65,909		—			119,485
Landfill sites, net		146,398		10,100		—			156,498
Goodwill and other intangible assets, net		221,674		86,195		—			307,869
Other assets		10,263		13,553		—			23,816
Due from affiliates		—		2,295		(2,295	)		—
Investment in subsidiary		177,882		—		(177,882	)		—
Non-current assets of discontinued operations		51,139		—		—			51,139
Total assets	$	693,069	$	215,497	$	(180,177	)	$	728,389
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,473	$	11,486	$	—		$	25,959
Accrued expenses and other current liabilities		26,276		12,789		—			39,065
Short-term financing and current portion of long-term debt		1,365		—		—			1,365
Current liabilities of discontinued operations		1,827		—		—			1,827
Total current liabilities		43,941		24,275		—			68,216
Long-term debt		284,850		—		—			284,850
Accrued closure, post-closure and other obligations		12,311		13,340		—			25,651
Cumulative mandatorily redeemable Preferred Stock		84,971		—		—			84,971
Due to affiliates		2,295		—		(2,295	)		—
Non-current liabilities of discontinued operations		210		—		—			210
Total liabilities		428,578		37,615		(2,295	)		463,898
Shareholders’ equity:
Common stock of Waste Services, Inc.		937		—		—			937
Other equity		263,554		177,882		(177,882	)		263,554
Total shareholders’ equity		264,491		177,882		(177,882	)		264,491
Total liabilities and shareholders’ equity	$	693,069	$	215,497	$	(180,177	)	$	728,389

22

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended September 30, 2006
				Non-
	Guarantors			Guarantors			Eliminations			Consolidated
Revenue	$	53,103		$	51,829		$	—		$	104,932
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		35,832			35,190			—			71,022
Selling, general and administrative expense (exclusive of depreciation, depletion and amortization)		9,241			5,665			—			14,906
Depreciation, depletion and amortization		6,491			4,499			—			10,990
Foreign exchange gain and other		(62	)		(30	)		—			(92	)
Equity earnings in investees		(3,848	)		—			3,848			—
Income from operations		5,449			6,505			(3,848	)		8,106
Interest expense		7,855			64			—			7,919
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		4,256			—			—			4,256
Income (loss) from continuing operations before income taxes		(6,662	)		6,441			(3,848	)		(4,069	)
Income tax provision		1,452			2,593			—			4,045
Net income (loss) from continuing operations		(8,114	)		3,848			(3,848	)		(8,114	)
Net loss from discontinued operations		(479	)		—			—			(479	)
Net income (loss)	$	(8,593	)	$	3,848		$	(3,848	)	$	(8,593	)

23

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended September 30, 2005
				Non-
	Guarantors			Guarantors		Eliminations			Consolidated
Revenue	$	48,769		$	45,766	$	—		$	94,535
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		37,975			30,006		—			67,981
Selling, general and administrative expense (exclusive of depreciation, depletion and amortization)		7,220			5,575		—			12,795
Settlement with sellers of Florida Recycling		(4,120	)		—		—			(4,120	)
Depreciation, depletion and amortization		5,498			5,299		—			10,797
Foreign exchange loss and other		35			809		—			844
Equity earnings in investees		(2,152	)		—		2,152			—
Income from operations		4,313			4,077		(2,152	)		6,238
Interest expense		7,238			36		—			7,274
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		5,392			—		—			5,392
Income (loss) from continuing operations before income taxes		(8,317	)		4,041		(2,152	)		(6,428	)
Income tax provision		1,363			1,889		—			3,252
Net income (loss) from continuing operations		(9,680	)		2,152		(2,152	)		(9,680	)
Net income from discontinued operations		269			—		—			269
Net income (loss)	$	(9,411	)	$	2,152	$	(2,152	)	$	(9,411	)

24

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Nine Months Ended September 30, 2006
				Non-
	Guarantors			Guarantors		Eliminations			Consolidated
Revenue	$	156,316		$	138,763	$	—		$	295,079
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		108,223			95,177		—			203,400
Selling, general and administrative expense (exclusive of depreciation, depletion and amortization)		27,040			17,467		—			44,507
Deferred acquisition costs		439			5,173		—			5,612
Depreciation, depletion and amortization		18,142			12,718		—			30,860
Foreign exchange loss and other		78			1,996		—			2,074
Equity earnings in investees		(1,856	)		—		1,856			—
Income from operations		4,250			6,232		(1,856	)		8,626
Interest expense		22,518			281		—			22,799
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		14,793			—		—			14,793
Income (loss) from continuing operations before income taxes		(33,061	)		5,951		(1,856	)		(28,966	)
Income tax provision		4,291			4,095		—			8,386
Net income (loss) from continuing operations		(37,352	)		1,856		(1,856	)		(37,352	)
Net loss from discontinued operations		(1,083	)		—		—			(1,083	)
Net income (loss)	$	(38,435	)	$	1,856	$	(1,856	)	$	(38,435	)

25

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Nine Months Ended September 30, 2005
				Non-
	Guarantors			Guarantors		Eliminations			Consolidated
Revenue	$	143,250		$	123,044	$	—		$	266,294
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		110,275			82,520		—			192,795
Selling, general and administrative expense (exclusive of depreciation, depletion and amortization)		23,257			17,126		—			40,383
Settlement with sellers of Florida Recycling		(4,120	)		—		—			(4,120	)
Depreciation, depletion and amortization		15,608			14,246		—			29,854
Foreign exchange loss and other		34			625		—			659
Equity earnings in investees		(3,844	)		—		3,844			—
Income from operations		2,040			8,527		(3,844	)		6,723
Interest expense		21,082			190		—			21,272
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		15,348			—		—			15,348
Income (loss) from continuing operations before income taxes		(34,390	)		8,337		(3,844	)		(29,897	)
Income tax provision		4,089			4,493		—			8,582
Net income (loss) from continuing operations		(38,479	)		3,844		(3,844	)		(38,479	)
Net income from discontinued operations		287			—		—			287
Net income (loss)	$	(38,192	)	$	3,844	$	(3,844	)	$	(38,192	)

26

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Nine Months Ended September 30, 2006
				Non-
	Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	7,020		$	22,026		$	—		$	29,046
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(26,445	)		(2,528	)		—			(28,973	)
Capital expenditures		(19,038	)		(19,297	)		—			(38,335	)
Proceeds from asset sales and business divestitures		4,366			573			—			4,939
Share reimbursement agreement		(929	)		—			—			(929	)
Intercompany		—			(4,345	)		4,345			—
Net cash used in continuing operations		(42,046	)		(25,597	)		4,345			(63,298	)
Net cash used in discontinued operations		(1,707	)		—			—			(1,707	)
Net cash used in investing activities		(43,753	)		(25,597	)		4,345			(65,005	)
Cash flows from financing activities:
Proceeds from issuance of debt and draws on revolving credit facility		37,000			3,532			—			40,532
Principal repayments of debt and capital lease obligations		(7,862	)		(3,999	)		—			(11,861	)
Proceeds from the exercise of options and warrants		86			—						86
Fees paid for financing transactions		(149	)		—			—			(149	)
Intercompany		4,345			—			(4,345	)		—
Net cash provided by (used in) financing activities		33,420			(467	)		(4,345	)		28,608
Effect of exchange rate changes on cash and cash equivalents		—			161			—			161
Decrease in cash and cash equivalents		(3,313	)		(3,877	)		—			(7,190	)
Cash and cash equivalents, beginning of period		3,680			5,206			—			8,886
Cash and cash equivalents, end of period	$	367		$	1,329		$	—		$	1,696

27

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Nine Months Ended September 30, 2005
				Non-
	Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	(7,699	)	$	24,327		$	—		$	16,628
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(3,987	)		(483	)		—			(4,470	)
Capital expenditures		(15,097	)		(8,365	)		—			(23,462	)
Proceeds from asset sales and business divestitures		1,382			353			—			1,735
Deposits for business acquisitions and other		(58	)		(735	)		—			(793	)
Intercompany		—			(15,318	)		15,318			—
Net cash used in continuing operations		(17,760	)		(24,548	)		15,318			(26,990	)
Net cash used in discontinued operations		(6,062	)		—			—			(6,062	)
Net cash used in investing activities		(23,822	)		(24,548	)		15,318			(33,052	)
Cash flows from financing activities:
Proceeds from issuance of debt and draws on revolving credit facility		6,500			408			—			6,908
Principal repayments of debt and capital lease obligations		(3,373	)		(798	)		—			(4,171	)
Sale of common shares and warrants		7,125			—			—			7,125
Proceeds from the exercise of options and warrants		521			—						521
Intercompany		15,318			—			(15,318	)		—
Net cash provided by (used in) financing activities		26,091			(390	)		(15,318	)		10,383
Effect of exchange rate changes on cash and cash equivalents		—			73			—			73
Decrease in cash and cash equivalents		(5,430	)		(538	)		—			(5,968	)
Cash and cash equivalents, beginning of period		6,192			2,284			—			8,476
Cash and cash equivalents, end of period	$	762		$	1,746		$	—		$	2,508

28

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, 2005, as filed with the Securities and Exchange Commission, including the factors set forth in the section titled “Disclosure Regarding Forward-Looking Statements” and factors affecting future results 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. Our operating strategy is disposal-based, whereby we enter geographic markets with attractive growth or positive competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. Our operations are located in the United States and Canada. Our U.S. operations are located in Florida, Texas and Arizona and our Canadian operations are located in Eastern Canada (Ontario) and Western Canada (Alberta, Saskatchewan and British Columbia). Due to a pending sale, our Arizona operations are presented as discontinued operations.

Sources of Revenue

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

     We derive our collection revenue from services provided to commercial, industrial and residential customers. Collection services 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 through subscription arrangements with individual homeowners. Our contracts with municipalities are typically for a term of three to ten years and contain a formula, generally based on a predetermined published price index, for 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 cubic 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.

     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. We may also manage our exposure to commodity price fluctuations through the use of commodity brokers who will arrange for the sale of recyclable materials from our collection operations to third party purchasers.

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Expense Structure

     Our cost of operations primarily includes tipping fees and related disposal costs, labor and related benefit costs, equipment maintenance, fuel, vehicle, liability 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 third party landfill or transfer station operators. We believe that internalization provides us with a competitive advantage by allowing us to be a low cost provider in our markets. We expect that our internalization will gradually increase over time as we develop our network of transfer stations and maximize delivery of collection volumes to our landfill sites.

     In markets where we do not have our own landfills, we seek to secure 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 competitive 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 that the age and condition of our vehicle 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 that this enables us to best control our repair and maintenance costs, safety and insurance costs and employee turnover related costs.

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

     Depreciation, depletion and amortization 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 from 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 to current 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.

Recent Developments

     On July 20, 2006, we announced the execution of definitive agreements with Allied Waste Industries, Inc. (“Allied Waste”) whereby we will (i) purchase Allied Waste’s hauling, transfer station and recycling operations in Miami, Florida for $61.0 million with an additional contingent payment of $2.0 million due upon the successful renewal of a certain municipal recycling contract and (ii) sell our Arizona hauling, transfer station and landfill operations to Allied Waste for $53.0 million. Accordingly, we have presented the net assets and operations of Arizona as discontinued operations for all periods presented. Revenue from discontinued operations was $6.9 million and $7.2 million for the three months ended September 30, 2006 and 2005, respectively, and $21.5 million and $19.8 million for the nine months ended September 30, 2006 and 2005, respectively. Pre-tax net income (loss) from discontinued operations was $(0.5) million and $0.3 million for the three months ended September 30, 2006 and 2005, respectively, and $(1.1) million and $0.3 million for the nine months ended September 30, 2006 and 2005, respectively. The decrease in pre-tax net income (loss) from discontinued operations is primarily attributable to retention bonuses granted to employees at our Arizona operations during the third quarter of 2006.

     In June 2006, we completed the acquisition of Sun Country Materials, LLC (“Sun Country Materials”) in Hillsborough County, Florida. The purchase price for Sun Country Materials consisted of $5.0 million in cash and the issuance of 4,013,378 (pre-reverse split) shares of our common stock valued at approximately $12.4 million. Sun Country Materials owns a construction and demolition landfill located in Hillsborough County, Florida, which has recently been issued an expansion permit.

     In May 2006, we completed the acquisition of Liberty Waste, LLC (“Liberty Waste”) in Tampa, Florida. The purchase price for Liberty Waste consisted of $8.0 million in cash and the issuance of 1,155,116 (pre-reverse split) shares of our common stock valued at

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approximately $3.6 million. We had previously paid a deposit of $6.0 million in cash and issued 946,372 (pre-reverse split) shares of our common stock valued at approximately $2.9 million. Liberty Waste is a collection operation based in Tampa with two transfer stations, one located in Tampa and the other in Clearwater. The transfer stations are both permitted to accept construction and demolition and Class III waste volumes.

     The Liberty Waste and Sun Country Materials acquisitions will compliment our existing operations in the Tampa market. In addition, with the acquisition of Sun County Materials we will be able to internalize our existing construction and demolition waste volumes and those of Liberty Waste into the acquired landfill.

     In April 2006 we completed the acquisition of a materials recovery facility and solid waste transfer station in Taft, Florida (“Taft Recycling”). The purchase price for the facility consisted of $11.3 million in cash and the issuance of 1,269,841 (pre-reverse split) shares of our common stock valued at approximately $3.9 million. In addition, upon the issuance of the final operating permit on June 15, 2006, we paid $1.5 million in cash and delivered an additional 1,269,842 (pre-reverse split) shares of our common stock valued at approximately $3.7 million, of which 769,842 (pre-reverse split) shares were newly issued and 500,000 (pre-reverse split) shares were transferred from treasury. The acquisition of Taft Recycling will allow us greater access to third party waste volumes that can be disposed at our JED Landfill in Osceola County, Florida.

Results of Operations for the Three and Nine Months Ended September 30, 2006 and 2005

     Certain of our operations are domiciled in Canada; as such, for each reporting period we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, the reported results of our 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 are 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 are 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 nine months ended September 30, 2006 and 2005 are as follows (in thousands):

	Three Months Ended September 30, 2006
	US					Canada					Total
Revenue	$	53,103		100.0	%	$	51,829		100.0	%	$	104,932		100.0	%
Operating expenses:
Cost of operations		35,832		67.5	%		35,190		67.9	%		71,022		67.7	%
Selling, general and administrative expense		9,241		17.4	%		5,665		10.9	%		14,906		14.2	%
Depreciation, depletion and amortization		6,491		12.2	%		4,499		8.7	%		10,990		10.5	%
Foreign exchange gain and other		(62	)	-0.1	%		(30	)	-0.1	%		(92	)	-0.1	%
Income from operations	$	1,601		3.0	%	$	6,505		12.6	%	$	8,106		7.7	%

	Three Months Ended September 30, 2005
	US					Canada				Total
Revenue	$	48,769		100.0	%	$	45,766	100.0	%	$	94,535		100.0	%
Operating expenses:
Cost of operations		37,975		77.9	%		30,006	65.6	%		67,981		71.9	%
Selling, general and administrative expense		7,220		14.8	%		5,575	12.2	%		12,795		13.5	%
Settlement with sellers of Florida Recycling		(4,120	)	-8.4	%		—	0.0	%		(4,120	)	-4.4	%
Depreciation, depletion and amortization		5,498		11.3	%		5,299	11.6	%		10,797		11.5	%
Foreign exchange gain and other		35		0.0	%		809	1.7	%		844		0.9	%
Income from operations	$	2,161		4.4	%	$	4,077	8.9	%	$	6,238		6.6	%

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	Nine Months Ended September 30, 2006
	US				Canada				Total
Revenue	$	156,316	100.0	%	$	138,763	100.0	%	$	295,079	100.0	%
Operating expenses:
Cost of operations		108,223	69.2	%		95,177	68.6	%		203,400	68.9	%
Selling, general and administrative expense		27,040	17.3	%		17,467	12.6	%		44,507	15.1	%
Deferred acquisition costs		439	0.3	%		5,173	3.7	%		5,612	1.9	%
Depreciation, depletion and amortization		18,142	11.7	%		12,718	9.2	%		30,860	10.5	%
Foreign exchange loss and other		78	0.0	%		1,996	1.4	%		2,074	0.7	%
Income from operations	$	2,394	1.5	%	$	6,232	4.5	%	$	8,626	2.9	%

	Nine Months Ended September 30, 2005
	US					Canada				Total
Revenue	$	143,250		100.0	%	$	123,044	100.0	%	$	266,294		100.0	%
Operating expenses:
Cost of operations		110,275		77.0	%		82,520	67.1	%		192,795		72.4	%
Selling, general and administrative expense		23,257		16.2	%		17,126	13.9	%		40,383		15.2	%
Settlement with sellers of Florida Recycling		(4,120	)	-2.9	%		—	0.0	%		(4,120	)	-1.5	%
Depreciation, depletion and amortization		15,608		11.0	%		14,246	11.6	%		29,854		11.2	%
Foreign exchange loss and other		34		0.0	%		625	0.5	%		659		0.2	%
Income (loss) from operations	$	(1,804	)	-1.3	%	$	8,527	6.9	%	$	6,723		2.5	%

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     Revenue

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

	Three Months Ended September 30,										Nine Months Ended September 30,
	2006					2005					2006					2005
Collection	$	84,317		72.3	%	$	77,832		75.1	%	$	241,165		73.8	%	$	221,887		76.5	%
Landfill disposal		15,224		13.1	%		12,906		12.4	%		41,801		12.8	%		30,972		10.7	%
Transfer station		13,477		11.5	%		9,702		9.4	%		34,490		10.6	%		27,484		9.5	%
Material recovery facilities		3,110		2.7	%		2,563		2.5	%		8,206		2.5	%		8,200		2.8	%
Other specialized services		472		0.4	%		668		0.6	%		915		0.3	%		1,686		0.5	%
		116,600		100.0	%		103,671		100.0	%		326,577		100.0	%		290,229		100.0	%
Intercompany elimination		(11,668	)				(9,136	)				(31,498	)				(23,935	)
	$	104,932				$	94,535				$	295,079				$	266,294

					All Other		Total
Three Months Ended September 30,	Florida		Canada		Operations		Revenue
2006	$	51,910	$	51,829	$	1,193	$	104,932
2005		47,865		45,766		904		94,535

					All Other		Total
Nine Months Ended September 30,	Florida		Canada		Operations		Revenue
2006	$	152,940	$	138,763	$	3,376	$	295,079
2005		141,425		123,044		1,825		266,294

     Revenue was $104.9 million and $94.5 million for the three months ended September 30, 2006 and 2005, respectively, an increase of $10.4 million or 11.0%. The increase in revenue for our Florida operations for the three months ended September 30, 2006 of $4.0 million or 8.5% was driven by price increases of $3.0 million, of which $0.9 million related to fuel surcharges, increased volume at our landfill sites of $2.5 million and acquisitions net of dispositions of $0.7 million. Offsetting these increases were net decreases of $2.2 million, primarily related to the expiration or assignment of certain lower margin residential collection contracts.

     The increase in revenue for our Canadian operations for the three months ended September 30, 2006 of $6.1 million or 13.2% was due to price increases of $2.5 million, of which $0.5 million related to fuel surcharges, other organic volume growth of $1.5 million, acquisitions of $0.5 million and the favorable effects of foreign exchange movements of $3.5 million. Offsetting these increases were decreases at our landfill sites, primarily due to special waste projects in 2005 that did not recur in 2006 of $1.4 million and decreases primarily related to the expiration of certain contracts of $0.5 million.

     The increase in revenue for our other operating segments for the three months ended September 30 2006 of $0.3 million or 32.0% was due to increased volume at our landfill sites of $0.2 million and other organic volume growth of $0.1 million.

     Revenue was $295.1 million and $266.3 million for the nine months ended September 30, 2006 and 2005, respectively, an increase of $28.8 million or 10.8%. The increase in revenue for our Florida operations for the nine months ended September 30, 2006 of $11.5 million or 8.1% was driven by price increases of $9.8 million, of which $3.5 million related to fuel surcharges, increased volume at our landfill sites of $8.9 million, other organic volume growth of $1.3 million, acquisitions net of dispositions of $0.2 million and other increases of $1.2 million. Offsetting these increases were net decreases of $9.9 million, primarily related the expiration or assignment of certain lower margin residential collection contracts and dispositions net of acquisitions of previously acquired operations.

     The increase in revenue for our Canadian operations for the nine months ended September 30, 2006 of $15.7 million or 12.8% was due to price increases of $8.3 million, of which $1.8 million related to fuel surcharges, other organic volume growth of $3.4 million, acquisitions of $1.1 million and the favorable effects of foreign exchange movements of $10.4 million. Offsetting these increases were

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decreases at our landfill sites, primarily due to special waste projects in 2005 that did not recur in 2006 of $4.1 million and decreases primarily related to the expiration of certain contracts of $3.4 million.

          The increase in revenue for our other operating segments for the nine months ended September 30 2006 of $1.6 million or 85.0%, was due to increased volume at our landfill sites of $0.8 million and other organic volume growth of $0.8 million.

     Cost of Operations

          Cost of operations was $71.0 million and $68.0 million for the three months ended September 30, 2006 and 2005, respectively, an increase of $3.0 million or 4.5%. As a percentage of revenue, cost of operations was 67.7% and 71.9% for three months ended September 30, 2006 and 2005, respectively.

          The decrease in cost of operations for our U.S. operations for the three months ended September 30, 2006 of $2.2 million or 5.6% was driven by lower costs for third party disposal due to increased internalization, of $1.8 million and lower labor costs, primarily due to our Florida operations exiting certain lower margin residential collection contracts, of $1.1 million, offset by other increases of $0.2 million. Acquisitions in our Florida operations net of dispositions, increased cost of operations by $0.5 million. As a percentage of revenue, cost of operations for our domestic operations was 67.5% and 77.9% for the three months ended September 30, 2006 and 2005, respectively. The improvement in our domestic gross margin is primarily due to increased volumes at our domestic landfill sites, increased internalization and the expiration of certain lower margin residential collection contracts in Florida. Separately, during the three months ended September 30, 2006 and 2005, we reduced our domestic self insurance reserve by $0.9 million and $0.5 million, respectively, which relates to favorable development, primarily in the current year’s insurance layer.

          The increase in cost of operations for our Canadian operations for the three months ended September 30, 2006 of $5.2 million or 17.3% was due to increased labor costs of $1.3 million, increased disposal volumes, rates and sub-contractor costs of $1.2 million, increased fuel costs of $0.3 million and the unfavorable effects of foreign exchange movements of $2.4 million. Cost of operations as a percentage of revenue increased to 67.9% from 65.6% for the three months ended September 30, 2006 and 2005, respectively. The decrease in margin is primarily due to lower overall landfill volumes.

          Cost of operations was $203.4 million and $192.8 million for the nine months ended September 30, 2006 and 2005, respectively, an increase of $10.6 million or 5.5%. As a percentage of revenue, cost of operations was 68.9% and 72.4% for the nine months ended September 30, 2006 and 2005, respectively.

          The decrease in cost of operations for our U.S. operations for the nine months ended September 30, 2006 of $2.1 million or 1.9% was driven by lower costs for third party disposal due to increased internalization, of $3.6 million and lower labor costs, primarily due to our Florida operations exiting certain lower margin residential collection contracts, of $1.5 million. Dispositions in our Florida operations, net of acquisitions completed in the second quarter of 2006, decreased cost of operations by $1.0 million. Offsetting these cost decreases were higher insurance costs of $2.0 million, fleet and facility repair and maintenance increases of $1.0 million, increased fuel costs of $0.8 million and higher landfill operating costs related to increased host and royalty fees from increased disposal volumes of $0.2 million. As a percentage of revenue, cost of operations for our domestic operations was 69.2% and 77.0% for the nine months ended September 30, 2006 and 2005, respectively. The improvement in our domestic gross margin is primarily due to increased volumes at our domestic landfill sites, increased internalization and the expiration of certain lower margin residential collection contracts in Florida.

          The increase in cost of operations for our Canadian operations for the nine months ended September 30, 2006 of $12.7 million or 15.3% was due to increased disposal volumes, rates and sub-contractor costs of $2.7 million, increased labor costs of $1.9 million, increased fuel costs of $0.8 million, fleet and facility repair and maintenance increases of $0.5 million and the unfavorable effects of foreign exchange movements of $7.1 million, offset by other decreases of $0.3 million. Cost of operations as a percentage of revenue increased to 68.6% from 67.1% for the nine months ended September 30, 2006 and 2005, respectively. The decline in margin is primarily due to lower overall landfill volumes.

     Selling, General and Administrative Expense

          Selling, general and administrative expense was $14.9 million and $12.8 million for the three months ended September 30, 2006 and 2005, respectively, an increase of $2.1 million or 16.5%. As a percentage of revenue, selling, general and administrative expense was 14.2% and 13.5% for the three months ended September 30, 2006 and 2005, respectively. The overall increase in selling, general and administrative expense is due to increased legal fees of $1.7 million, primarily related to litigation with Waste Management,

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which is more fully described in the notes to the unaudited condensed consolidated financial statements included elsewhere in this report, increased stock-based compensation expense, inclusive of employees and consultants, of $1.4 million and the unfavorable effects of foreign exchange movements of $0.4 million. Offsetting these increases were decreases in accounting and other professional fees of $0.8 million, decreased insurance costs of $0.4 million and other net decreases of $0.2 million. As of January 1, 2006 we adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified prospective transition method.

     Selling, general and administrative expense was $44.5 million and $40.4 million for the nine months ended September 30, 2006 and 2005, respectively, an increase of $4.1 million or 10.2%. As a percentage of revenue, selling, general and administrative expense was 15.1% and 15.2% for the nine months ended September 30, 2006 and 2005, respectively. The overall increase in selling, general and administrative expense is due to increased legal fees of $3.0 million, primarily related to litigation with Waste Management, which is more fully described in the notes to the unaudited condensed consolidated financial statements included elsewhere in this report, increased stock-based compensation expense, inclusive of employees and consultants of $1.8 million, relocation and transition costs of $0.7 million relative to our U.S. corporate office move from Scottsdale, Arizona to Boca Raton, Florida, the unfavorable effects of foreign exchange movements of $1.3 million and other net increases of $0.9 million, primarily related to increased wages. Offsetting these increases were decreases in accounting and other professional fees of $2.3 million, primarily related to the re-audit of the Florida Recycling financial statements in 2005 and decreased insurance costs of $1.3 million.

Deferred Acquisition Costs

     In April 2006, we ceased being actively engaged in 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. During the first quarter of 2006, we recognized an expense related to these previously deferred acquisition costs of approximately $5.6 million.

Settlement with sellers of Florida Recycling

     In April 2004, we completed the acquisition of the issued and outstanding shares of Florida Recycling Services, Inc. (“Florida Recycling”). Shortly after the acquisition, the performance of the operations of Florida Recycling was below our expectations and we engaged an independent third party to conduct a review of Florida Recycling’s business. Based on the results of this review, the 2003 financial statements of Florida Recycling, provided by the sellers, contained misstatements and could not be relied upon. During the first half of 2005 these financial statements were re-audited by our independent auditors. During September of 2004 we reached an agreement with the selling shareholders of Florida Recycling to adjust the purchase price paid for Florida Recycling whereby in October of 2004 the selling shareholders paid us $7.5 million in cash and returned 500,000 shares of our common stock. In the third quarter of 2005 and as part of the September 2004 settlement, we received title to the Sanford Recycling and Transfer Station in Sanford, Florida. The facility is valued at the cost incurred to acquire the property and construct the facility to its percentage of completion at such date. The gain recognized on the settlement in the third quarter of 2005 approximated $4.1 million.

Depreciation, Depletion and Amortization

     Depreciation, depletion and amortization was $11.0 million and $10.8 million for the three months ended September 30, 2006 and 2005, respectively, an increase of $0.2 million or 1.8%. As a percentage of revenue, depreciation, depletion and amortization was 10.5% and 11.5% for the three months ended September 30, 2006 and 2005, respectively. After considering the unfavorable effects of foreign exchange rate movements of $0.3 million, the overall decrease in depreciation, depletion and amortization is primarily attributable to lower volumes at our Canadian landfills coupled with a decrease in overall weighted average depletion rates, offset by increased disposal volumes at our domestic landfills. Landfill depletion rates for our U.S. landfills ranged from $4.00 to $7.68 per ton and $3.84 to $8.10 per ton during the three months ended September 30, 2006 and 2005, respectively. Landfill depletion rates for our Canadian landfills ranged from C$2.70 to C$11.82 per tonne and C$2.57 to C$17.80 per tonne during the three months ended September 30, 2006 and 2005, respectively.

     Depreciation, depletion and amortization was $30.9 million and $29.9 million for the nine months ended September 30, 2006 and 2005, respectively, an increase of $1.0 million or 3.4%. As a percentage of revenue, depreciation, depletion and amortization was 10.5% and 11.2% for the nine months ended September 30, 2006 and 2005, respectively. The overall increase in depreciation, depletion and amortization is primarily attributable to increased disposal volumes at our domestic landfills, offset by lower volumes at our Canadian landfills coupled with a decrease in the overall weighted average depletion rates. The unfavorable effects of foreign exchange movements increased depreciation, depletion and amortization by $0.9 million. Landfill depletion rates for our U.S.

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landfills ranged from $4.00 to $7.68 per ton and from $3.84 to $8.10 per ton during the nine months ended September 30, 2006 and 2005, respectively. Landfill depletion rates for our Canadian landfills ranged from C$2.70 to C$11.82 per tonne and C$2.57 to C$17.80 per tonne during the nine months ended September 30, 2006 and 2005, respectively.

Foreign Exchange Loss (Gain) and Other

     Foreign exchange loss and other was $(0.1) million and $0.8 million for the three months ended September 30, 2006 and 2005, respectively. The foreign exchange loss relates to the re-measuring of U.S. dollar denominated monetary accounts into Canadian dollars. The increase in loss is primarily due to an increase in a U.S. monetary note receivable due from our U.S. parent to our Canadian subsidiary. Other items primarily relate to gains on sales of equipment.

     Foreign exchange loss (gain) and other was $2.1 million and $0.7 million for the nine months ended September 30, 2006 and 2005, respectively. The foreign exchange loss (gain) relates to the re-measuring of U.S. dollar denominated monetary accounts into Canadian dollars. Other items primarily relate to gains on sales of equipment. The increase in loss is primarily due to an increase in a U.S. monetary note receivable due from our U.S. parent to our Canadian subsidiary. Other items primarily relate to gains on sales of equipment.

Interest Expense

     The components of interest expense, including cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs, for the three and nine months ended September 30, 2006 and 2005 are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Preferred Stock dividends and amortization of issue costs	$	4,256	$	5,392	$	14,793	$	15,348
Credit facility and Subordinated Note interest		7,217		6,565		20,337		19,083
Amortization of debt issue costs		396		351		1,172		1,057
Other interest expense		306		358		1,290		1,132
	$	12,175	$	12,666	$	37,592	$	36,620

     Interest expense was $12.2 million and $12.7 million for the three months ended September 30, 2006 and 2005, respectively, a decrease of $0.5 million or 3.9%. Cash interest expense increased $0.6 million for the three months ended September 30, 2006 due to higher prevailing short-term interest rates and higher balances outstanding under our Credit Facilities, offset by the elimination of penalty interest payable on our Subordinated Notes and lower amended rates on our Credit Facilities. The decrease in Preferred Stock dividends and amortization of issue costs was due to issue costs becoming fully amortized during the second quarter of 2006, offset by higher principal amounts outstanding. The weighted average interest rate on Credit Facility borrowings was 8.8% and 8.2% for the three months ended September 30, 2006 and 2005, respectively.

     Interest expense was $37.6 million and $36.6 million for the nine months ended September 30, 2006 and 2005, respectively, an increase of $1.0 million or 2.7%. Cash interest expense increased $1.4 million for the nine months ended September 30, 2006 due to higher prevailing short-term interest rates, higher balances outstanding under our Credit Facilities and commitment fees paid on the new term loan tranche available under our Credit Facilities, offset by the elimination of penalty interest payable on our Subordinated Notes and lower amended rates on our Credit Facilities. The decrease in Preferred Stock dividends and amortization of issue costs was due to issue costs becoming fully amortized during the second quarter of 2006, offset by higher principal amounts outstanding. The weighted average interest rate on Credit Facility borrowings was 8.4% and 7.7% for the nine months ended September 30, 2006 and 2005, respectively.

Income Tax Provision

     The provision for income taxes was $4.0 million and $3.3 million for the three months ended September 30, 2006 and 2005, respectively and $8.4 million and $8.6 million for the nine months ended September 30, 2006 and 2005, 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.

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Liquidity and Capital Resources

     Our principal capital requirements are to fund capital expenditures, and to fund 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 operations guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Separately, 65% of the common shares of Waste Services’ first tier foreign subsidiaries including Waste Services (CA), are pledged to secure obligations under the Credit Facilities. As of September 30, 2006, there was $8.0 million outstanding on the revolving credit facility and an additional $22.3 million of capacity used to support outstanding letters of credit. As of November 1, 2006, there was $15.0 million outstanding on the revolving credit facility and an additional $22.3 million of capacity used to support outstanding letters of credit.

     As of June 30, 2004, we failed to meet certain of the financial covenants contained in the Credit Facilities. On October 4, 2004, we entered into an amendment to the credit agreement 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 interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Euro dollar loans. Until we met certain target leverage ratios, as defined, availability under the amended revolving credit facility was reduced to $50.0 million, up to $12.5 million of which was available for our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.4 million to our lenders. 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 (pre-reverse split) shares of common stock and 264,085 (pre-reverse split) common stock purchase warrants for net proceeds of approximately $6.8 million in satisfaction of this covenant.

     On October 26, 2005, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amendment, among other items, decreases the current interest rate on our term loan by 125 basis points to 325 basis points over Eurodollar loans. In addition, the amendment restored access under the revolving credit facility to $60.0 million, up to $15.0 million of which is available to our Canadian operations.

     On December 28, 2005, we entered into another amendment to the Credit Facilities, which provided for the incurrence of up to $50.0 million of additional term loans under a new term loan tranche, as provided for under the terms of our existing Credit Facilities. We drew $25.0 million of this facility at close to refinance amounts then outstanding under our existing revolving credit facility. We drew another $23.0 million of this facility during the second quarter of 2006, which was used for the financing of acquisitions that are otherwise permitted under the terms of the Credit Facilities. Availability under this amendment expired in May 2006.

     On June 20, 2006, we amended our Credit Facilities to provide us with more flexible terms, including the ability to increase our Canadian revolving facility from $15.0 million to $25.0 million in the future, and to allow for the potential redemption of our mandatorily redeemable preferred stock.

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

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			Maximum Consolidated
	Maximum Consolidated		Senior Secured		Minimum Consolidated
Fiscal Quarter	Leverage Ratio		Leverage Ratio		Interest Coverage Ratio
FQ3 2006		5.00:1.00		2.25:1.00		2.00:1.00
FQ4 2006		4.75:1.00		2.25:1.00		2.25:1.00
FQ1 2007		4.75:1.00		2.25:1.00		2.25:1.00
FQ2 2007		4.50:1.00		2.25:1.00		2.25:1.00
FQ3 2007		4.25:1.00		2.25:1.00		2.25:1.00

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.

     In April 2004, we entered into a Registration Rights Agreement with the initial purchaser of the Senior Subordinated Notes in which we agreed to file a registration statement for the exchange of the Senior Subordinated Notes for registered notes with identical terms and have such registration statement declared effective within specified time frames. Prior to the third quarter of 2005 we were required to pay liquidated damages to the holders of the notes, as we had not yet complied with these registration requirements. These liquidated damages were expensed as incurred and were payable in cash at the same time as interest payments were due under the notes. During the third quarter of 2005, the registration statement was filed and declared effective, and the exchange offer was commenced and consummated. As of September 28, 2005 we were no longer required to pay liquidated damages.

Equity Placement

     During the first nine months of 2006, we issued 8,654,549 (pre-reverse split) shares of our common stock in connection with the Taft Recycling, Liberty Waste and Sun Country Materials acquisitions.

Cumulative Mandatory Redeemable Preferred Stock

     In May 2003, we issued 55,000 shares of cumulative mandatorily 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 (pre-reverse split) shares of our common stock for $3.00 (pre-reverse split) 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 $99.4 million as of September 30, 2006.

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 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: (i) the exchange of 87,657,035 common shares of Capital for 87,657,035 (pre-reverse split) shares our of common stock and (ii) 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.

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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 September 30, 2006, we had provided customers, our insurers and various regulatory authorities with such bonds and letters of credit amounting to approximately $72.9 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. As of September 30, 2006 and included in the $72.9 million of bonds and letters of credit discussed previously, we have posted a letter of credit with our U.S. insurer of approximately $9.3 million to secure 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 nine months ended September 30, 2006 and 2005.

Cash Flows from Operating Activities

     Cash provided by operating activities of our continuing operations was $26.1 million and $14.4 million for the nine months ended September 30, 2006 and 2005, respectively. The increase in cash provided by operating activities is primarily due to increased cash generated from our operations, which primarily relates to improved operating margins in both of our major segments, offset by investments in working capital.

Cash Flows from Investing Activities

     Cash used in investing activities of our continuing operations was $63.3 million and $27.0 million for the nine months ended September 30, 2006 and 2005, respectively. The increase in cash used in investing activities is primarily due to increased capital expenditures and business acquisitions. Company-wide capital expenditures were $40.5 million and $27.4 million for the nine months ended September 30, 2006 and 2005, respectively. The increase in capital expenditures was primarily driven by landfill development costs. We expect our capital expenditures to range from $57.0 million to $60.0 million for all of 2006. Cash used in business acquisitions of $29.0 million for the first nine months of 2006 primarily relates to the acquisitions of Taft Recycling, Liberty Waste and Sun Country Materials.

Cash Flows from Financing Activities

     Cash provided by financing activities of our continuing operations was $28.6 million and $10.4 million for the nine months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006, cash flows from financing activities relate to the additional $23.0 million draw on our term loan facility and $8.0 million net draw on our revolving credit facility in 2006. For 2005, cash flows from financing activities primarily relate to the equity private placement that occurred during the first quarter of 2005.

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 Environment 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

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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, which has now expired. On January 17, 2006, Waste Management drew C$0.3 million against the letter of credit posted by us to secure RCI’s obligations, as such we provided for the draw as of December 31, 2005. Waste Management has commenced arbitration proceedings in Quebec, Canada seeking to require the top-up of the letter of credit by the C$0.3 million drawn by them in January, 2006. The companies within the RCI group are controlled by a director of ours and/or individuals related to that director. Details of these agreements are further described in our annual financial statements for the year ended December 31, 2005, as filed on Form 10-K.

Landfill Sites

     The following table summarizes the changes in our operating landfill capacity at our continuing operations for the nine months ended September 30, 2006 (in thousands of cubic yards):

	September 30, 2006
	Balance,
	Beginning of				Airspace			Balance, End of
	Period		Landfills Acquired		Consumed			Period
United States
Permitted Capacity		70,840		17,024		(1,939	)		85,925
Probable expansion capacity		18,300		—		—			18,300
Total available airspace		89,140		17,024		(1,939	)		104,225
Number of landfill sites		3		1		—			4
Canada
Permitted Capacity		11,878		—		(313	)		11,565
Probable expansion capacity		—		—		—			—
Total available airspace		11,878		—		(313	)		11,565
Number of landfill sites		3		—		—			3
Total
Permitted Capacity		82,718		17,024		(2,252	)		97,490
Probable expansion capacity		18,300		—		—			18,300
Total available airspace		101,018		17,024		(2,252	)		115,790
Number of landfill sites		6		1		—			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

     In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No.109” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. We do not expect the adoption of FIN 48 to have a material effect on our financial position, results of operations or disclosures.

     In September 2006 the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No 108 (SAB 108) “Considering the effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. SAB 108 addresses the best practice approaches for quantifying misstatements in financial statements. SAB 108 is effective for any report for an interim period of the first fiscal period ending after November 15, 2006. We do not expect the adoption of SAB 108 to have a material effect on our financial position, results of operations or disclosures.

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

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Disclosure Regarding Forward-Looking Statements and Factors Affecting Future Results

     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.

     Such statements reflect our current views regarding future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause our 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:

• our substantial indebtedness and the significant restrictive covenants in our various credit facilities and our ability to finance acquisitions with cash on hand, debt or equity offerings;

• our ability to implement a refinancing plan for our mandatorily redeemable preferred stock and to achieve the expected benefits;

• our ability to maintain and perform our financial assurance obligations;

• 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 at favorable rates;

• our ability to enhance profitability of certain aspects of our operations in markets where we are not internalized through either divestiture or asset swaps;

• 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, 2005, included under Item 1A. of the annual report, “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.

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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, the reported results of our 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 are 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 are 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 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 nine months ended September 30, 2006, 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 approximately $0.3 million.

     As of September 30, 2006, 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 $0.3 million for the nine months ended September 30, 2006.

Item 4. Controls and Procedures

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 and Principal Financial Officer, 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 Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective. The conclusions of the Chief Executive Officer and Principal Financial Officer 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 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 13, “Commitments and Contingencies” to our Unaudited Condensed Consolidated Financial Statements contained herein.

Item 1A. Risk Factors

     There have been no material changes in risk factors previously disclosed in our Form 10-K for the year ended December 31, 2005.

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

     None

Item 3. Defaults upon Senior Securities

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     None

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

     None

Item 5. Other Information

     None

Item 6. Exhibits

Exhibit 10.1 —	Eighth Amendment to Amended and Restated Credit Agreement dated as of October 16, 2006
Exhibit 31.1 —	Section 302 Certification of David Sutherland-Yoest, Chief Executive Officer
Exhibit 31.2 —	Section 302 Certification of Brian A. Goebel, Principal Financial Officer
Exhibit 32.1 —	Section 1350 Certification of the Chief Executive Officer and Principal Financial Officer

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SIGNATURES

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

		Waste Services, Inc.
Date: November 9, 2006
	By:	/s/ DAVID SUTHERLAND-YOEST
		David Sutherland-Yoest
		Chairman of the Board,
		Chief Executive Officer and Director
	By:	/s/ BRIAN A. GOEBEL
		Brian A. Goebel
		Vice President, Controller, Chief Accounting Officer and Principal Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
Exhibit 10.1	Eighth Amendment to Amended and Restated Credit Agreement dated as of October 16, 2006
Exhibit 31.1	Section 302 Certification of David Sutherland-Yoest, Chief Executive Officer
Exhibit 31.2	Section 302 Certification of Brian A. Goebel, Principal Financial Officer
Exhibit 32.1	Section 1350 Certification of the Chief Executive Officer and Principal Financial Officer

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EX-10.1

EIGHTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 16, 2006

     This EIGHTH AMENDMENT TO THE AMENDED AND RESTATED CREDIT AGREEMENT (together with all Exhibits, Schedules and Annexes hereto, this “Amendment”) is among WASTE SERVICES (CA) INC., an Ontario corporation formerly known as CAPITAL ENVIRONMENTAL RESOURCE INC./RESSOURCES ENVIRONNEMENTALES CAPITAL INC. (“WSCI”), WASTE SERVICES, INC., a Delaware corporation (the “Borrower”), and LEHMAN COMMERCIAL PAPER INC., as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).

PRELIMINARY STATEMENTS:

     A. The Borrower, WSCI, the Lenders, the Administrative Agent, Lehman Brothers Inc., as Arranger, CIBC World Markets Corp., as Syndication Agent, Bank of America, N.A., as Documentation Agent, and Canadian Imperial Bank of Commerce, as Canadian Agent, entered into an Amended and Restated Credit Agreement, dated as of April 30, 2004 (as amended, restated, modified or supplemented prior to the date hereof, and together with all Annexes, Exhibits and Schedules thereto, the “Credit Agreement”; capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement).

     B. The Borrower and WSCI have advised the Administrative Agent and the Lenders that they desire to amend the Credit Agreement to permit the Allied Waste Asset Swap (as defined herein) and allow for the add-back of certain legal expenses to Consolidated EBITDA as more specifically set forth herein and each of the Administrative Agent and the Required Lenders are, on the terms and conditions stated below, willing to grant such request.

     NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. AmendmentUpon the terms and subject to the conditions set forth herein and in reliance on the representations and warranties of the Loan Parties set forth herein, the Credit Agreement is hereby amended as follows:

          (a) The following new definitions are hereby added to Section 1.1 of the Credit Agreement in the appropriate alphabetical order:

     ‘“Allied Waste Asset Swap”: the substantially simultaneous consummation of the acquisition by the Borrower of certain south Florida operations of Allied Waste Industries, Inc., substantially on the terms set forth in that certain Asset Purchase Agreement, dated as of July 19, 2006, between Waste Services, Inc. and Allied

Waste Industries, Inc. for $61,000,000 in cash (with a potential future payment of $2,000,000) and the sale by the Borrower of its Arizona operations to Allied Waste Industries, Inc., substantially on the terms set forth in that certain Asset Purchase Agreement dated as of July 19, 2006, between Waste Services, Inc. and Allied Waste Industries, Inc. for $53,000,000 in cash.”

          (b) The definition of “Consolidated EBITDA” set forth in Section 1.1 of the Credit Agreement is hereby amended to (i) replace the “and” immediately preceding clause (k) with a “,” and (ii) add the following clause immediately following the end of clause (k): “and (l) one-time charges and expenses incurred after June 30, 2006 and prior to March 31 2007, not to exceed $6,000,000, in respect of fees and expenses incurred in connection with litigation involving Waste Management, Inc.”.

          (c) Section 7.5 of the Credit Agreement is hereby amended to (i) delete the word “and” at the end of clause (g), (ii) re-letter clause (h) as clause (i) and (iii) add the following new clause (h): “(h) Allied Waste Asset Swap; and”.

2. Conditions to Effectiveness.

     The effectiveness of the amendments contained in Section 1 hereof is conditioned upon satisfaction of the following conditions precedent (the date on which all such conditions have been satisfied being referred to herein as the “Amendment Effective Date”):

          (a) the Administrative Agent shall have (i) executed this amendment and shall have received signed, written authorization from the Required Lenders to execute this Amendment on behalf of each such Lender, (ii) received counterparts of this Amendment signed by each of WSCI and the Borrower, and (iii) received counterparts of the consent of the Guarantors attached hereto as Annex 1 (the “Consent”) executed by each of the Guarantors;

          (b) each of the representations and warranties in Section 3 below shall be true and correct in all material respects on and as of the Amendment Effective Date;

          (c) the Administrative Agent shall have received payment in immediately available funds of all expenses incurred by the Administrative Agent (including, without limitation, legal fees) reimbursable under the Credit Agreement and for which invoices have been presented; and

          (d) the Administrative Agent shall have received such other documents, instruments, certificates, opinions and approvals as it may reasonably request.

3. Representations and WarrantiesEach of WSCI and the Borrower represent and warrants jointly and severally to the Administrative Agent and the Lenders as follows:

          (a) Authority. Each of WSCI and the Borrower has the requisite corporate or other organizational power and authority to execute and deliver this Amendment and to perform

2

its obligations hereunder and under the Credit Agreement (as amended hereby). Each of the Guarantors has the requisite corporate or other organizational power and authority to execute and deliver the Consent. The execution, delivery and performance by each of WSCI and the Borrower of this Amendment and by the Guarantors of the Consent, and the performance by each of WSCI, the Borrower and each other Loan Party of the Credit Agreement (as amended hereby) and each other Loan Document to which it is a party, in each case, have been authorized by all necessary corporate or other organizational action of such Person, and no other corporate or other organizational proceedings on the part of each such Person is necessary to consummate such transactions.

          (b) Enforceability. This Amendment has been duly executed and delivered on behalf of each of WSCI and the Borrower. The Consent has been duly executed and delivered by each of the Guarantors. Each of this Amendment, the Consent and, after giving effect to this Amendment, the Credit Agreement and the other Loan Documents, (i) is the legal, valid and binding obligation of each Loan Party party hereto and thereto, enforceable against such Loan Party in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and (ii) is in full force and effect. Neither the execution, delivery or performance of this Amendment or of the Consent or the performance of the Credit Agreement (as amended hereby), nor the performance of the transactions contemplated hereby or thereby, will adversely affect the validity, perfection or priority of the Administrative Agent’s Lien on any of the Collateral or its ability to realize thereon. This Amendment is effective to amend the Credit Agreement as provided therein.

          (c) Representations and Warranties. After giving effect to this Amendment, the representations and warranties contained in the Credit Agreement and the other Loan Documents (other than any such representations and warranties that, by their terms, are specifically made as of a date other than the date hereof) are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof.

          (d) No Conflicts. Neither the execution and delivery of this Amendment or the Consent, nor the consummation of the transactions contemplated hereby and thereby, nor the performance of and compliance with the terms and provisions hereof or of the Credit Agreement (as amended hereby) by any Loan Party will, at the time of such performance, (a) violate or conflict with any provision of its articles or certificate of incorporation or bylaws or other organizational or governing documents of such Person, (b) violate, contravene or materially conflict with any Requirement of Law or Contractual Obligation (including, without limitation, Regulation U), except for any violation, contravention or conflict which could not reasonably be expected to have a Material Adverse Effect or (c) result in or require the creation of any Lien (other than those permitted by the Loan Documents) upon or with respect to its properties. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the transactions contemplated hereby.

          (e) No Default. Both before and after giving effect to this Amendment, no event has occurred and is continuing that constitutes a Default or Event of Default.

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4. Reference to and Effect on Credit Agreement

          (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified hereby. This Amendment is a Loan Document.

          (b) Except as specifically modified above, the Credit Agreement and the other Loan Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Security Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations under and as defined therein, in each case as modified hereby.

          (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Secured Party under any of the Loan Documents, nor, except as expressly provided herein, constitute a waiver or amendment of any provision of any of the Loan Documents.

5. CounterpartsThis Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment.

6. SeverabilityAny provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

7. Governing LawThis Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

[Remainder of page intentionally left blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.

WASTE SERVICES, INC., as Borrower
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Executive Vice President, General Counsel & Secretary

WASTE SERVICES (CA) INC.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President & Secretary

LEHMAN COMMERCIAL PAPER INC., as Administrative Agent
By:	/s/ Ritam Bhalla
	Name:	Ritam Bhalla
	Title:	Authorized Signatory

[Signature Page]

Annex 1

CONSENT OF GUARANTORS

Each of the undersigned is a Guarantor of the Obligations of the Borrower and/or of WSCI under the Credit Agreement and hereby (a) consents to the foregoing Amendment, (b) acknowledges that notwithstanding the execution and delivery of the foregoing Amendment, the obligations of each of the undersigned Guarantors are not impaired or affected and all guaranties given to the holders of Obligations and all Liens granted as security for the Obligations continue in full force and effect, and (c) confirms and ratifies its obligations under each of the Loan Documents executed by it. Capitalized terms used herein without definition shall have the meanings given to such terms in the Amendment to which this Consent is attached or in the Credit Agreement referred to therein, as applicable.

          IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Consent of Guarantors as of the 16^th day of October 2006.

[Signature pages follow]

WASTE SERVICES OF ARIZONA, INC.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

CACTUS WASTE SYSTEMS, LLC
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Manager

WASTE SERVICES OF FLORIDA, INC.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

JACKSONVILLE FLORIDA LANDFILL, INC.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

JONES ROAD LANDFILL AND RECYCLING, LTD.,      by Jacksonville Florida Landfill, Inc., its General Partner
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

[Signature Page]

LIBERTY WASTE, LLC
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

OMNI WASTE OF OSCEOLA COUNTY LLC
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Manager

SANFORD RECYCLING AND TRANSFER, INC.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

SUN COUNTRY MATERIALS, LLC
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

TAFT RECYCLING, INC.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

WASTE SERVICES LIMITED PARTNER, LLC
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Manager

WS GENERAL PARTNER, LLC,      by Waste Services, Inc., its Sole Member
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Executive Vice President, General Counsel and Secretary

FORT BEND REGIONAL LANDFILL LP
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

RUFFINO HILLS TRANSFER STATION LP
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

WSI WASTE SERVICES OF TEXAS LP
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

WASTE SERVICES OF ALABAMA, INC.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

CAPITAL ENVIRONMENTAL HOLDINGS COMPANY
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

RAM-PAK COMPACTION SYSTEMS LTD.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

6045341 CANADA INC.
By:	/s/ Ivan R. Cairns
	Name:	Ivan R. Cairns
	Title:	Vice President and Secretary

EX-31.1

Exhibit 31.1

CERTIFICATION

I, David Sutherland-Yoest, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Waste Services, Inc.

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

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

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

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

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

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

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

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

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

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

	By:	/s/ DAVID SUTHERLAND-YOEST
		David Sutherland-Yoest
Date: November 9, 2006		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brian A. Goebel, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Waste Services, Inc.

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

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

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

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

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

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

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

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

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

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

	By:	/s/ BRIAN A. GOEBEL
		Brian A. Goebel
Date: November 9, 2006		Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the quarterly report of Waste Services, Inc. (“the Company”) on Form 10-Q for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, David Sutherland-Yoest, Chief Executive Officer, and Brian A. Goebel, Principal Financial Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ DAVID SUTHERLAND-YOEST
		David Sutherland-Yoest
		Chief Executive Officer
	By:	/s/ BRIAN A. GOEBEL
		Brian A. Goebel
Date: November 9, 2006		Principal Financial Officer