UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

Commission file number 000-25955

Waste Services, Inc.

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

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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                    No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)

Yes þ                    No o

     The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2004 was $345.9 million based upon the closing price of the Registrant’s Common Shares as quoted on the Nasdaq National Market as of that date.

     The number of Common Shares of the Registrant outstanding as of March 1, 2005 was 99,593,680. (assuming exchange of 6,569,910 exchangeable shares of Waste Services (CA) Inc. not owned by Waste Services, Inc.)

INDEX TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004

PART I

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS

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

	•	our anticipated revenue, capital expenditures, future cash flows and financing requirements, and those of companies we acquire;
	•	the implementation of our business strategy;
	•	descriptions of the expected effects of our competitive strategies; and
	•	the impact of actions taken by our competitors and other third parties, including courts and other governmental authorities.

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

	•	significant restrictive covenants in our various credit facilities;
	•	changes in regulations affecting our business and costs of compliance;
	•	revocation of existing permits and licenses or the refusal to renew or grant new permits and licenses, which are required to enable us to operate our business or implement our growth strategy;
	•	our ability to successfully implement our corporate strategy and integrate any acquisitions we undertake;
	•	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 this annual report, including under “Item 1. Business — Risk Factors”. If one or more of these risks or uncertainties affects future events and circumstances, or if underlying assumptions do not materialize, actual results may vary materially from those described in this 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 1. Business

Overview

     We are a multi-regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers in the United States and Canada. We operate on a decentralized basis while financial controls and information systems are controlled centrally. We currently have operations in five geographic markets — Florida, Arizona, Texas and Eastern and Western Canada. We currently service approximately 5.5 million customers and own and operate seven landfills.

     Our parent company was incorporated in Delaware in 2003 under the name Omni Waste, Inc. In 2003, its name was changed to Waste Services, Inc. (“Waste Services”). Waste Services is the successor to Capital Environmental Resource Inc. (“Capital”) now Waste Services (CA) Inc., by a migration transaction completed effective July 31, 2004. The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and was approved by the Ontario Superior Court of Justice. Pursuant to the plan of arrangement, holders of Capital Common Shares received shares of our common stock unless they elected to receive exchangeable shares of Capital. The terms of the exchangeable shares of Capital are the functional and economic equivalent of our common stock. As a result of the migration Capital became our indirect subsidiary and we became the parent company. Our corporate offices are located at 1122 International Blvd., Suite 601 Burlington, Ontario L7L 6Z8. Our telephone number is (905) 319-1237.

     We are organized along geographic locations or regions within the U.S. and Canada. Our Canadian operations are organized between two regions, Eastern and Western Canada while the U.S. is organized into Florida (North, Central, Gulf), Texas and Arizona. We believe that our geographic segments within Canada and the United States meet the “Aggregation Criteria” set forth in SFAS 131 for the following reasons: (i) the nature of the service, waste collection and disposal, is economically the same and transferable across locations; (ii) the type and class of customer is consistent among regions/districts; (iii) the methods used to deliver services are essentially the same (e.g. containers collect waste at market locations and trucks collect and transfer waste to landfills); and (iv) the regulatory environment within each country is consistent. Accordingly, we have two reportable segments, United States and Canada. We re-entered the United States in May 2003 with the acquisition of the JED Landfill in Osceola County, Florida. We do not have significant (in volume or dollars) inter-segment operation-related transactions. For more information regarding our segments refer to Note 17 of our Consolidated Financial Statement.

     We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the SEC. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The internet address is www.sec.gov.

     You may request a copy our filings, at no cost, by writing or telephoning us at: Waste Services, Inc., 1122 International Blvd., Suite 601, Burlington, Ontario L7L 6Z8, Attention: Corporate Secretary or call (905) 319-1237. You also may obtain them through our website. Our website address is www.wasteservicesinc.com. Information on our website does not form a part of this annual report.

Our Business Strategy

     Our goal is to be a highly profitable, multi-regional solid waste services company in North America with leading market positions in each of the markets we serve. In order to achieve this goal, we intend to:

Maximize Density and Vertical Integration of Operations. We believe that achieving a high degree of density and vertical integration of operations leads to higher profitability and returns on invested capital. In each of our local markets, we seek to maximize the density of our collection routes, which allows us to leverage our facilities and vehicle fleet by increasing the number of customers served and revenue generated by each route. In addition, we seek to vertically integrate our operations where possible, using transfer stations to link collection operations with our landfills to increase internalization of waste volume. By securing and controlling the solid waste stream from collection through disposal, we are able to achieve cost savings for our collection operations, while at the same time providing our landfills with more stable and predictable waste volume and enhancing returns on the capital invested in these facilities. In our efforts to maximize vertical integration, we periodically evaluate markets where we are not internalized for

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possible divestiture or asset swap transactions to enhance density and/or internalization in existing markets where we are vertically integrated.

     Provide Consistent, Superior Customer Service. Our long-term growth and profitability will be driven, in large part, by our ability to provide consistent, superior service to our customers. We believe that our local and regional operating focus allows us to respond effectively to customer needs on a local basis, as well as maintain strong relationships with commercial, municipal and residential accounts. In each of our markets, customer retention and new account generation are key areas of focus for our local managers, and are important components of their performance evaluation.

     Maintain a Decentralized Operating Management Structure with Centralized Controls and Information Systems. The solid waste industry is a local and regional business by nature, where we believe that asset investment, customer relationships, pricing and operational productivity are most effectively managed on a local and regional basis. We have structured our operating management team on a geographically decentralized basis, because we believe that talented, experienced and incentivized local management are in the best position to make effective, profitable decisions regarding local operations and to provide strong customer service. Our senior management team provides significant oversight and guidance for our local management, developing operating goals and standards tailored to each market, but does not impose corporate directives regarding local operating decisions, such as pricing.

     While our operating management structure is decentralized, all of our operations adhere to uniform corporate policies and financial controls and utilize integrated information systems. Our information systems provide both corporate and local management with comprehensive, consistent and timely operating and financial data, enabling them to maintain detailed, ongoing visibility of the performance and trends in each of our local market operations.

     Execute a Disciplined, Disposal-Based Growth Strategy. Our growth strategy consists of both new geographic market entries, for which we first secure disposal capacity, and “tuck-in” acquisitions within an existing market, which typically consist of collection operations or transfer stations. In either case, we focus on maximizing cash flow and return on invested capital.

     For new market entries, we only pursue opportunities where we can:

	•	benefit from (i) above-average underlying economic or population growth, or (ii) a changing competitive or regulatory environment that could lead to above-average growth for solid waste services;
	•	establish a leading market position over time in the local markets in which we operate; and
	•	become vertically integrated with the ability to secure significant waste volume that we collect and transfer to our own landfills.

     We believe that each of the new markets we have entered in the United States have met these criteria.

     For tuck-in acquisitions, we only pursue opportunities that:

	•	are complementary to our existing infrastructure, allowing us to increase the density of our collection routes or enhance asset utilization; or
	•	increase the waste volume that can be internalized into our transfer stations and landfills.

Operations

     We provide our services on a geographic basis in three regions in the United States, Florida, Arizona and Texas, and in two regions in Canada, Eastern and Western Canada. For a discussion on the seasonality of our business, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Operating Results — Seasonality.”

Collection Services

     We provide collection services to approximately 87,000 commercial and industrial customers and approximately 5,445,000 residential customers. As of December 31, 2004, we had a front-line collection fleet size of approximately 1,185 vehicles with an average fleet age of approximately six years.

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     Commercial and Industrial Collection. We provide collection services to a variety of commercial and industrial customers in all of our geographic markets where we have collection operations. We perform such services principally under one to five year service agreements, which typically contain provisions for automatic renewal and which prohibit the customer from terminating the agreement prior to its expiration date without incurring a penalty. We provide roll-off containers to customers for temporary services, such as for construction projects, under short-term purchase orders. We also provide stationary compactors to our customers, which allow them to compact their waste at their premises prior to its collection. Commercial and industrial collection vehicles normally require one operator. We provide two to eight cubic yard containers to commercial customers and ten to fifty cubic yard containers to industrial customers, including our roll-off accounts.

     We determine the fees we charge our customers by 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 price increases is sometimes limited by the terms of our contracts.

     Residential Collection. We provide residential waste collection services in all of our geographic markets where we have collection operations through a variety of contractual arrangements, including contracts with municipalities, owners and operators of large residential complexes and mobile home parks, and homeowners associations. We also provide such services through residential subscription arrangements with individual homeowners in certain markets.

     Our contracts with municipalities are typically for a term of up to five years and contain a formula, generally based on a predetermined published price index, for automatic adjustments to fees to cover increases in some, but not all, of our operating costs. Certain of our contracts with municipalities contain renewal provisions.

     The fees we charge for residential solid waste collection services provided on a subscription basis are based primarily on route density, the frequency and level of service, the distance to the disposal or transfer facility, the cost of disposal or transfer and prices we charge in the market for similar services.

Transfer Station Services

     We operate 15 transfer stations, including our transfer station in Houston, Texas which commenced operations in January 2005. As further described below, two transfer stations are currently under development in Central Florida and are scheduled to be operational in the second quarter of 2005. These transfer stations will allow us to internalize existing collection volumes to our JED landfill, located outside Orlando. Our transfer stations receive solid waste from our own operations and from third parties, compact the waste and transfer it for disposal to our own or third-party landfills. We charge third parties fees to dispose of their waste at our transfer stations. Transfer station fees are generally based on the cost of processing, transportation and disposal. We typically subcontract the transportation of waste from our transfer stations to the landfill.

     We believe that the benefits of using our transfer stations include improved utilization of our collection infrastructure and better relationships with municipalities and private operators that deliver waste to our transfer stations, which can lead to additional growth opportunities. We believe that transfer stations will become increasingly valuable as new landfills are opening further away from metropolitan areas and waste needs to travel further for disposal.

Commercial and Residential Recycling Services

     We offer collection and processing services to our municipal, commercial and industrial customers for a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles, fiberboard, and ferrous and aluminum metals. We operate five material recovery facilities in Florida and five in Ontario, Canada. These facilities are used to sort, bale and ship recyclable materials to market. We also deliver recyclable materials that we collect to third parties for processing and resale. 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 believe that recycling will continue to be an important component of municipal solid waste management plans due to the public’s environmental awareness and regulations that mandate or encourage recycling.

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Landfill Disposal Services

     We charge our landfill and transfer station customers a tipping fee on a per ton 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 dispose of the solid waste we collect in one of four ways: (i) at our own landfills; (ii) through our own transfer stations; (iii) at municipally-owned landfills; or (iv) at third-party landfills or transfer stations. In markets where we do not have our own landfills, we seek to secure favorable long-term disposal arrangements with municipalities or private owners of landfills or transfer stations. In those markets, our ability to maintain competitive prices for our collection services is generally dependent upon our ability to secure favorable disposal pricing. In some markets we may enter into put or pay disposal arrangements with third party operators of disposal facilities. These arrangements require us to deliver a minimum tonnage of waste for disposal at a fixed disposal rate, or pay a penalty equal to the number of tons below the required tonnage by that disposal rate. These types of arrangements allow us to fix our disposal costs, but also expose us to the risk that if our tonnage declines and we are unable to deliver the minimum tonnage, we will be required to pay the penalty.

Other Specialized Services

     We offer other specialized services consisting primarily of sales and leasing of compactor equipment and portable toilet services for special events or construction sites.

Local/Regional Operating Structure

     We manage the business on a local/regional basis. Each of our operating regions also has a number of operating districts where the business is managed on a local basis.

     From a management perspective, each region has a general manager who reports to our President and Chief Operating Officer. District managers are responsible for the day-to-day operations of their districts, including supervising their sales force, maintaining service quality, implementing our health and safety and environmental programs and overseeing contract administration. District managers work closely with the region managers to execute business plans and identify business development opportunities. This structure is designed to provide decision-making authority to our district managers who are closest to the needs of the customers they serve in the community. This localized approach allows us to quickly identify and address customer needs, manage local operating dynamics and take advantage of market opportunities.

United States

     We operate in three regions in the United States; Florida, Arizona and Texas.

     Florida Region. Our Florida region is organized into three districts with ten collection operations, two transfer stations, five material recovery facilities and two landfills.

     The Central Florida district, concentrated in the Orlando metropolitan area, has three collection operations and our JED landfill.

     Our JED Landfill is located in Osceola County, Florida (approximately 20 miles south of metropolitan Orlando) and commenced operations in January 2004. This municipal solid waste landfill has initial permitted airspace of approximately 24.0 million cubic yards. The site has an average daily volume limit of 4,000 tons for municipal solid waste and is currently permitted to accept waste from Osceola County and various other counties (which include the Orlando and Tampa/St. Petersburg metropolitan areas) as well as the right to take 2,000 tons per day from other areas of Florida.

     We have two transfer station and recycling facilities under development in Central Florida which, upon completion, will enable us to internalize significant collection volumes into our JED landfill. The Taft transfer station and recycling facility, located south of Orlando, is owned and operated by a third party with whom we have entered into a 10-year disposal agreement. The Taft facility has received a modified permit allowing it to accept up to 1,500 tons of Class I and Class III solid waste combined per day subject to completion of certain building modifications expected to be completed in the second quarter of 2005. The other transfer station and recycling facility, located in Sanford, Florida, is fully permitted to accept up to 2,000 tons per day of Class I municipal solid waste upon completion of construction which is also expected in the second quarter of 2005. Ownership of the Sanford facility, also referred to as the Ice House facility, will be transferred to us upon completion of construction pursuant to the terms of our settlement agreement with the sellers of Florida Recycling.

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     The North Florida district includes the Jacksonville and Daytona market areas and is comprised of two collection operations, two material recovery facilities and the Jones Road Landfill. The Jones Road Landfill is permitted to receive construction and demolition waste and has permitted capacity of approximately 4.48 million cubic yards, with remaining permitted capacity of approximately 2.3 million cubic yards. The landfill has an average daily volume limit of 1,642 tons.

     The Gulf district, concentrated in the Tampa/St. Petersburg, Sarasota and Ft. Myers market areas, has five collection operations, two transfer stations and three material recovery facilities.

     Arizona Region. Our Arizona regional operations are focused in the Phoenix metropolitan area and comprise two collection operations, two transfer stations and our Cactus Regional Landfill. The Cactus Regional Landfill is located in Pinal County (approximately half way between Phoenix and Tucson, Arizona). The landfill began accepting waste in July 2004 and has initial permitted capacity of approximately 224.0 million cubic yards. The site has no daily or annual volume limits. Our transfer station in Mesa, Arizona commenced operations in July of 2004 and our Central Phoenix transfer station began operations in June of 2004. There are no daily or annual volume limits at these transfer stations.

     Texas Region. Our Texas operations include our Fort Bend Regional Landfill and a transfer station serving the Houston market. The Fort Bend Regional Landfill is located in Fort Bend County, which is approximately 15 miles southwest of metropolitan Houston, Texas. It began accepting waste in August 2004 and has initial permitted capacity of 47.6 million cubic yards. The site has no daily or annual volume limits. Additionally, we operate a solid waste transfer station in Houston, Texas, which began operations in January 2005. The site is permitted to accept up to 850 tons per day of municipal and industrial solid waste.

Canada

     We have operations throughout Ontario and in Saskatchewan, Alberta and British Columbia.

     Eastern Canada. Our Eastern Canada operations are based primarily in and around metropolitan areas of southern Ontario. We operate in 16 districts with 14 collection operations, eight transfer stations, five material recovery facilities and one landfill. While our southern Ontario operations, other than Ottawa, do not have internal disposal facilities, we have disposal contracts in place for a majority of our collected volume at rates we believe to be favorable.

     Our Waste Services Landfill is located in Ottawa, Canada. It has estimated remaining capacity of 1.4 million cubic yards. The site has an annual disposal limit of 234,750 metric tons of dry waste. Based on current and projected disposal volumes, we estimate that the site has approximately seven years of remaining capacity. Additionally, we own property that is available for potential future expansions.

     Western Canada. Our Western Canada operations are located in the three most western Canadian provinces: Saskatchewan, Alberta and British Columbia. Our hauling companies are located in and around metropolitan areas of Alberta and British Columbia and our two landfills are located in proximity to the industrial waste markets that they serve. We operate in ten districts with eight collection operations, two transfer stations and two landfills. The two landfills we own and operate in Western Canada primarily serve industrial customers and while we do not have significant internal disposal facilities, we have disposal contracts in place for a majority of our collected volume.

     Our Gap Landfill is located in southern Saskatchewan and is permitted to accept industrial waste. Its primary customer base is the oilfield industry. It has current permitted capacity of approximately 2.4 million cubic yards. The site has no daily or annual volume limits. Based on current disposal volumes, we estimate that the site has a total remaining life of 50 years.

     Our Paintearth Landfill is located in Coronation, Alberta and is permitted to accept non-hazardous solid and industrial wastes, construction and demolition waste and certain special wastes and includes a composting facility, a bio-remediation facility and a material recycling facility. Its primary customer base is currently the oilfield industry. It has an estimated current remaining capacity of 8.9 million cubic yards. Based on current disposal volumes, we estimate that the site has a total remaining life of 40 years.

Sales and Marketing

     We market our services on a decentralized basis principally through our district managers and direct sales representatives. Our

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sales representatives visit customers on a regular basis and call upon potential new customers within a specified territory or service area. These sales representatives receive a portion of their compensation based on meeting certain incentive targets.

     In addition to our sales efforts directed at commercial and industrial customers, we have municipal marketing representatives in our markets in Canada and Florida who are responsible for interfacing with municipalities and communities to which we provide residential service to ensure customer satisfaction. Our municipal representatives organize and handle bids for renewal and new municipal contracts in their service areas.

     We have a diverse customer base, with no single contract or customer representing more than 3.0% of consolidated revenue for the year ended December 31, 2004.

Competition

     The solid waste services industry is highly competitive and fragmented. We compete with large, national solid waste services companies, as well as smaller regional solid waste services companies of varying sizes and resources. Some of our competitors are better capitalized, have greater name recognition and greater financial, operational and marketing resources than we have, and may be able to provide services at a lower cost. We also compete with operators of alternative disposal facilities, and with municipalities that maintain their own waste collection and disposal operations. Public sector operators may have financial advantages over us because of their access to user fees and similar charges as well as to tax revenue.

     The U.S. solid waste industry currently includes three large national waste companies: Waste Management, Inc., Allied Waste Industries, Inc. and Republic Services, Inc.. Waste Management, Inc. operating through its Canadian subsidiary, Waste Management of Canada Corporation and BFI Canada are our significant competitors in Canada.

     We compete for collection, transfer and disposal volume based primarily on the price and quality of services. From time to time, competitors may reduce the prices of their services in an effort to expand their market share or service areas or to win competitively bid municipal contracts. These practices may cause us to reduce the prices of our services or, if we elect not to do so, to lose business.

     Competition exists not only for collection, transfer and disposal volume, but also for acquisition candidates. We generally compete for acquisition candidates with publicly owned regional and large national solid waste services companies.

Governmental Regulation

     We are subject to significant federal, provincial, state and local environmental and land use laws and regulations in the United States and Canada. The enforcement of both U.S. and Canadian environmental laws has become increasingly stringent. We believe that we are currently in substantial compliance with all material applicable environmental laws, permits, orders and regulations, and therefore we do not currently anticipate any significant environmental costs necessary to bring our existing operations into compliance. We anticipate that regulation, legislation and regulatory enforcement actions related to the solid waste services industry will continue to increase and that as they do, the administrative burden and costs of our compliance will increase.

     To transport, manage and accept solid waste for disposition, we must possess and comply with one or more permits from federal, provincial, state or local agencies and government offices. These permits must be periodically renewed and may be modified or revoked by the issuing agency.

     The principal statutes and regulations that affect our operations are described below.

United States Regulation

     The principal laws and regulations that affect our U.S. operations (including those that were sold in 2001 and which could continue to result in liability to us), as well as waste that we export from our Canadian operations to landfills located in the United States are described below.

The Resource Conservation and Recovery Act of 1976

     The Resource Conservation and Recovery Act of 1976, or RCRA, regulates the generation, treatment, storage, handling, transportation and disposal of solid waste and requires states to develop programs to ensure the safe disposal of solid waste. RCRA

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divides solid waste into two groups, hazardous and non- hazardous. Wastes classified as hazardous under RCRA are subject to much stricter regulation than wastes classified as non-hazardous.

     The Subtitle D Regulations, which govern solid waste landfills, include location restrictions, facility design standards, operating criteria, closure and post-closure requirements, financial assurance requirements, groundwater monitoring requirements, methane gas emission control requirements, groundwater remediation standards and corrective action requirements. The Subtitle D Regulations also require new landfill sites to meet more stringent liner design criteria to keep leachate out of groundwater. Each state is required to revise its landfill regulations to meet these requirements or these requirements will be automatically imposed by the Environmental Protection Agency, or EPA, on landfill owners and operators in that state. Each state is also required to adopt and implement a permit program or other appropriate system to ensure that landfills in each state comply with the Subtitle D Regulations. Various states in which we currently operate or in which we may operate in the future have adopted regulations or programs as stringent as, or more stringent than, the Subtitle D Regulations.

The Federal Water Pollution Control Act of 1972

     The Federal Water Pollution Control Act of 1972, or Clean Water Act, regulates the discharge of pollutants from a variety of sources into waters of the United States. If run-off from transfer stations or run-off or collected leachate from landfills that we operate or own were discharged into streams, rivers or other surface waters, the Clean Water Act requires us to obtain a discharge permit, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in the discharge. Also, virtually all landfills are required to comply with the EPA’s storm water regulations issued in November 1990, which are designed to prevent contaminated landfill storm water run-off from flowing into surface waters. Various states have adopted regulations that are more stringent than the federal requirements.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980

     The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, established a regulatory and remedial program intended to provide for the investigation and cleanup of facilities where or from which a release of any hazardous substance into the environment has occurred or is threatened. CERCLA imposes strict joint and several liability for cleanup of facilities on current owners and operators of the site, former owners and operators of the site at the time of the disposal of the hazardous substances, any person who arranges for the transportation, disposal or treatment of the hazardous substances, and the transporters who select the disposal and treatment facilities. CERCLA also imposes liability for the cost of evaluation and remediation of any damage to natural resources.

     The costs of a CERCLA investigation and cleanup can be very substantial. Liability under CERCLA may be based on the existence of small amounts of the more than 700 “hazardous substances” listed by the EPA, many of which can be found in household waste. If we were found to be a responsible party for a CERCLA cleanup, the enforcing agency could hold us, or any other generator, transporter or the owner or operator of the contaminated facility, responsible for all investigative and remedial costs, even if others were also liable. CERCLA gives a responsible party the right to bring a contribution action against other responsible parties for their allocable shares of investigative and remedial costs. Our ability to obtain reimbursement from others for their allocable shares of these costs would be limited by our ability to find other responsible parties and prove the extent of their responsibility and by the financial resources of these other parties.

The Clean Air Act of 1970

     The Clean Air Act of 1970, or Clean Air Act, regulates emissions of air pollutants. The EPA has developed standards that apply to certain landfills depending on the date of the landfill construction, the location of the landfill, the materials disposed of at the landfill and the volume of the landfill emissions. The EPA has also issued standards regulating the disposal of asbestos containing materials under the Clean Air Act. Air permits to construct may be required for gas collection and flaring systems, and operating permits may be required, depending on the estimated volume of emissions.

     All of the federal statutes described above contain provisions authorizing, under certain circumstances, the institution of lawsuits by private citizens to enforce the provisions of the statutes. In addition to a penalty award to the U.S. government, some of those statutes authorize an award of attorneys’ fees to parties successfully advancing such an action.

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The Occupational Safety and Health Act of 1970

     The Occupational Safety and Health Act of 1970 is administered by the Occupational Safety and Health Administration, or OSHA, and in many states by state agencies whose programs have been approved by OSHA. The OSHA Act establishes employer responsibilities for worker health and safety, including the obligation to maintain a workplace free of recognized hazards likely to cause death or serious injury, to comply with adopted worker protection standards, to maintain certain records, to provide workers with required disclosures and to implement certain health and safety training programs. Various OSHA standards may apply to our operations, including standards concerning notices of hazards, the handling of asbestos and asbestos-containing materials and worker training and emergency response programs.

Flow Control/Interstate Waste Restrictions

     Certain permits and approvals, as well as certain state and local regulations, may limit a landfill in accepting waste that originates from specified geographic areas, restrict the importation of out-of-state waste or otherwise discriminate against out-of-state waste. These restrictions, generally known as flow control restrictions, are controversial, and some courts have held that some flow control schemes violate constitutional limits on state or local regulation of interstate commerce. From time to time, federal legislation is proposed that would allow some local flow control restrictions. Although no such federal legislation has been enacted to date, if this federal legislation should be enacted in the future, states could act to limit or prohibit the importation of out-of-state waste or direct that waste be handled at specified facilities. These state actions could adversely affect landfill owners and could also result in higher disposal costs for collection operations.

     Even in the absence of federal legislation, certain state and local jurisdictions may seek to enforce flow control restrictions through local legislation or contract. These restrictions could result in the volume of waste going to landfills being reduced in certain areas, which could affect the landfill owner’s ability to operate the landfills at full capacity or reduce the prices that it can charge for landfill disposal services. Any such restrictions may also result in higher disposal costs for our collection operations.

State and Local Regulation

     Each state has laws and regulations governing the generation, storage, treatment, handling, transportation and disposal of solid waste, occupational safety and health, water and air pollution and, in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of landfills and transfer stations. In addition, many states have adopted statutes comparable to, and in some cases more stringent than, CERCLA. These statutes impose requirements for investigation and cleanup of contaminated sites and liability for costs and damages associated with these sites, and some provide for the imposition of liens on property owned by responsible parties. Furthermore, many municipalities also have ordinances, local laws and regulations that affect the operations of solid waste services companies. These include zoning and health measures that limit solid waste management activities to specified sites or activities, flow control provisions that direct the delivery of solid wastes to specific facilities, laws that grant the right to establish franchises for collection services and then put these franchises out for bid, and bans or other restrictions on the movement of solid wastes into a municipality.

     Permits or other land use approvals with respect to a landfill, as well as state or local laws and regulations, may specify the quantity of waste that may be accepted at the landfill during a given time period, specify the types of waste that may be accepted at the landfill or the areas from which waste may be accepted at a landfill. Once an operating permit for a landfill is obtained, it must generally be renewed periodically.

     There has been an increasing trend at the state and local level in the United States to mandate and encourage waste reduction at the source, and waste recycling, and to prohibit or restrict the disposal of certain types of solid wastes, such as yard wastes, leaves and tires, in landfills. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could affect the ability of transfer station and landfill owners to operate their sites at full capacity.

     Some state and local authorities enforce certain federal laws in addition to state and local laws and regulations. For example, in some states, RCRA, the Occupational Safety and Health Act, parts of the Clean Air Act and parts of the Clean Water Act are enforced by local or state authorities instead of by the EPA, and in some states those laws are enforced jointly by state or local and federal authorities.

Canadian Regulation

     Our Canadian operations are subject to environmental statutes and regulations at each of the federal, provincial and local levels. These laws impose restrictions designed to control air, soil and water pollution and regulate health and safety, zoning and land use and

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the handling of hazardous and non-hazardous wastes, and often empower government officials to issue administrative orders, including orders to cease carrying out a specific activity. This regulatory framework imposes significant compliance burdens and risks. The contravention of these laws may result in substantial fines that could equal or exceed the amount of monetary benefit acquired as a result of the commission of the offense and which could materially affect our business, results of operations and financial condition. In addition, our Canadian operations are subject to federal and provincial legislation regulating the operation of our fleet of vehicles, as well as to provincial occupational health and safety and workers compensation statutes which establish employer responsibilities for worker health and safety. The provisions of these statutes impose compliance burdens and costs and may result in significant penalties for failure to comply.

     The Canadian Environmental Protection Act, 1999 and the regulations passed under the act regulate, among other things, the import and export of waste into and out of Canada. The Transportation of Dangerous Goods Act regulates the transport of wastes across provincial and federal borders.

Ontario

     Ontario’s Environmental Protection Act and the regulations passed under the Act regulate general waste management and new or expanding landfill sites, prescribe the principal standards for the location, maintenance and operation of waste management systems, transfer and disposal sites, require the monitoring and reporting of airborne contamination and create offenses for spills, unlawful contaminant discharges or failure to comply with environmental permits or approvals.

     The operation of a waste management system or a waste transfer or disposal site in Ontario requires a certificate of approval or a provisional certificate of approval issued by the Ministry of the Environment under Part V of the Ontario Environmental Protection Act. We have applied for and obtained Certificates of Approval for the operation of all of our existing waste management systems and waste transfer and disposal sites in Ontario.

     The Ontario Water Resources Act prohibits unlawful discharges into water and regulates wastewater systems in Ontario, including leachate collection, treatment and discharges at landfills.

     In 2003, amendments were passed to the Municipal Act that allow, in certain prescribed circumstances, the formation of municipal businesses to compete directly in a public competitive bidding process with the private sector waste services industry for the collection, transfer, storage, disposal or recycling of residential waste.

Saskatchewan

     The Environment Management and Protection Act of 2002 and the regulations passed under the Act govern waste management activities carried on in Saskatchewan, including the permitting and operation of our Gap Disposal landfill.

Alberta

     The Environmental Protection and Enhancement Act comprehensively regulates the management and control of waste, including hazardous waste, and creates offenses for spills and other matters of non-compliance. The Waste Control Regulation deals in detail with the identification of wastes and requirements for the handling, storage and disposal of waste. Waste management facilities currently permitted under the Alberta Public Health Act, including our landfill in Coronation, Alberta, must be permitted by Alberta Environment no later than 2006 and the permit must be renewed every 10 years thereafter. Renewal of the Coronation, Alberta landfill site permit may result in the imposition of additional permit conditions that may increase the cell development and operating cost above current levels, or may limit the type, quantity or quality of waste that may be accepted. New landfill design standards are being developed by Alberta Environment that may require us to construct or operate future landfill cells and infrastructure to a higher and potentially more costly standard than currently permitted.

British Columbia

     The Environmental Management Act was enacted in July 2004 and introduced a regime which applies a risk-based approach of administrative penalties to be applied as a compliance enforcement tool as an alternative to prosecution. The Act governs waste collection and transfer operations in British Columbia. Various other provincial statutes, such as the Transportation of Dangerous

     Goods Act deal generally with environmental matters and could also impact our operations in British Columbia.

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Municipal Regulation

     Many municipal governments have passed local by-laws, including zoning and health measures by-laws that limit our activities to prescribed sites or activities, control the delivery of solid wastes to prescribed sites, restrict or ban the movement of solid waste into a municipality and regulate discharges into municipal sewers from our solid waste facilities. There has been an increasing trend to mandate and encourage waste reduction and separation at source and waste recycling, and to prohibit or restrict the disposal of certain solid waste, such as yard waste, leaves and tires, in landfills. Such restrictions could affect the ability of our transfer stations and landfills to operate at full capacity.

Employees

     As of December 31, 2004, we employed 2,128 full-time employees, including 176 persons categorized as professionals or managers, 1,808 employees involved in collection, transfer, disposal and recycling operations, and 144 sales, clerical, data processing or other administrative employees.

Risk Factors

Our indebtedness may make us more vulnerable to unfavorable economic conditions and competitive pressures, limit our ability to borrow additional funds, require us to dedicate or reserve a large portion of cash flow from operations to service debt, and limit our ability to take actions that would increase our revenue and execute our growth strategy

     As of December 31, 2004, we had total debt and capital lease obligations of $278.4 million. Our debt is comprised of our senior credit facilities, including a $60.0 million revolving credit facility due in April 2009, ($15.0 million outstanding at December 31, 2004) and a $99.3 million term loan maturing on April 2011, and our $160.0 million senior subordinated notes maturing in April 2014. 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 Capital, are pledged to secure obligations under the Credit Facilities.

     The amount of indebtedness owed under our existing credit facilities and senior subordinated notes may have adverse consequences for us, including making us more vulnerable to unfavorable economic conditions and competitive pressures, limiting our ability to borrow additional funds, requiring us to dedicate or reserve a large portion of cash flow from operations to service debt, limiting our ability to plan for or react to changes in our business and industry and placing us at a disadvantage compared to competitors with less debt in relation to cash flow.

     The credit facilities contain covenants and restrictions that could limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital. Any failure by us to comply with these covenants and restrictions will, unless waived by the lenders, result in an immediate obligation to repay indebtedness. If such events occurred, we would be required to refinance or obtain capital from other sources, including sales of additional debt or equity or the sale of assets, in order to meet our repayment obligations. We may not be successful in obtaining alternative sources of funding to repay these obligations should events of default occur.

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Our business is capital intensive and may consume cash in excess of cash flow from our operations and borrowings

     Our ability to remain competitive, sustain our growth and maintain our operations largely depends on our cash flow from operations and our access to capital. We intend to fund our cash needs through our operating cash flow, borrowings and equity issuances. We may require additional equity or debt financing to fund our growth and debt repayment obligations.

     During 2004, we had capital expenditures of $46.2 million. Separately, we have provided for our liabilities related to our closure and post-closure obligations. As we undertake acquisitions, expand our operations, and deplete our landfills, our cash expenditures will increase. As a result, working capital levels may decrease and require financing. In addition, if we must close a landfill sooner than we currently anticipate, or if we reduce our estimate of a landfill’s remaining available air space, we may be required to incur such cash expenditures earlier than originally anticipated. Expenditures for closure and post-closure obligations may increase as a result of any federal, state or local government regulatory action taken to accelerate such expenditures. These factors could substantially increase our cash expenditures and therefore impair our ability to invest in our existing or new facilities.

     We may need to refinance our existing credit facilities and may need to refinance other debt to pay the principal amounts due at maturity. In addition, we may need additional capital to fund future acquisitions and the integration of the businesses that we acquire. Our business may not generate sufficient cash flow, we may not be able to obtain sufficient funds to enable us to pay our debt obligations and capital expenditures or we may not be able to refinance on commercially reasonable terms, if at all.

We may be unable to obtain or maintain the environmental permits and approvals we need to operate our business, which could adversely affect our earnings and cash flow

     We are subject to significant environmental and land use laws and regulations. To own and operate solid waste facilities, including landfills and transfer stations, we must obtain and maintain licenses or permits, as well as zoning, environmental and other land use approvals. It has become increasingly difficult, costly and time-consuming to obtain required permits and approvals to build, operate and expand solid waste management facilities. The process often takes several years, requires numerous hearings and compliance with zoning, environmental and other requirements and is resisted by citizen, public interest and other groups. The cost of obtaining permits could be prohibitive. We may not be able to obtain and maintain the permits and approvals needed to own, operate or expand our solid waste facilities. Moreover, the enactment of additional laws and regulations or the more stringent enforcement of existing laws and regulations could increase the costs associated with our operations. Any of these occurrences could reduce our expected earnings and cash flow.

     In some markets in which we operate, permitting requirements may be prohibitive and may differ between those required of us and those required of our competitors. Our inability to obtain and maintain permits for solid waste facilities may adversely affect our ability to service our customers and compete in these markets, thereby resulting in reduced operating revenue.

     In addition, stringent controls on the design, operation, closure and post-closure care of solid waste facilities could require us to undertake investigative or remedial activities, curtail operations, close a facility temporarily or permanently, or modify, supplement or replace equipment or facilities at substantial costs resulting in reduced profitability and cash flow.

Any failure to maintain the required financial assurance or insurance to support existing or future service contracts may prevent us from meeting our contractual obligations, and we might be unable to bid on new contracts or retain existing contracts resulting in reduced operating revenue and earnings

     Municipal solid waste services contracts and permits to operate transfer stations, landfills and recycling facilities typically require us to obtain performance bonds, letters of credit or other means of financial assurance to secure our contractual performance. Such contracts and permits also typically require us to maintain adequate insurance coverage. We carry a broad range of insurance coverage and retain certain insurance exposure that we believe is customary for a company of our size. If our obligations were to exceed our estimates, there could be a material adverse effect on our results of operations. Our ability to obtain performance bonds or letters of credit is generally dependent on our creditworthiness. Also, the issuance of letters of credit reduces the availability of our revolving credit facilities for other purposes. Our bonding arrangements are generally renewed annually. If we are unable to renew our bonding arrangements on favorable terms or at all or enter into arrangements with new surety providers, we would be unable to meet our existing contractual obligations that require the posting of performance bonds, and we would be unable to bid on new contracts. This would reduce our operating revenue and our earnings.

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Our acquisition strategy may be unsuccessful if we are unable to identify and complete future acquisitions and integrate acquired assets or businesses and this subjects us to risks that may have a material adverse effect on our results of operations

     Part of our strategy to expand our business and increase our revenue and profitability is to pursue the acquisition of disposal-based and collection assets and businesses. We have identified a number of acquisition candidates, both in the United States and Canada, that we believe are suitable. However, we may not be able to acquire these candidates at prices or on terms and conditions that are favorable to us. Furthermore, we expect to finance future acquisitions through a combination of seller financing, cash from operations, borrowings under our financing facilities or issuing additional equity or debt securities. Our ability to execute our acquisition strategy also depends upon other factors, including our ability to obtain financing on favorable terms, the successful integration of acquired businesses and our ability to effectively compete in the new markets we enter.

     If we are unable to identify suitable acquisition candidates or successfully complete and integrate the acquisitions, we may not realize the expected benefits from our acquisition growth strategy, including any expected benefits from the proposed vertical integration of acquired operations and disposal facilities.

Our business strategy depends in part upon vertically integrating our operations. If we are unable to permit, expand or renew permits for our existing landfill sites or enter into agreements that provide us with access to landfill sites and acquire, lease or otherwise secure access to transfer stations, this may reduce our profitability and cash flow.

     Our ability to meet our business strategy depends in part on our ability to permit, expand or renew permits for our existing landfills, develop new landfill sites in proximity to our operations, enter into agreements that will give us long-term access to landfill sites in our markets and to acquire, lease or otherwise secure access to transfer stations that permit us to internalize our collection volume to our own landfill sites. Permits to expand landfills are often not approved until the remaining permitted disposal capacity of a landfill is very low. We may not be able to purchase additional landfill sites, renew the permits for or expand existing landfill sites, negotiate or renegotiate agreements to obtain a long-term advantage for landfill costs or permit or renew permits for transfer stations that allow us to internalize the waste we collect. If we were to exhaust our permitted capacity at our landfills, our ability to expand internally could be limited, and we could be required to cap and close our landfills and dispose of collected waste at more distant landfills or at landfills operated by our competitors or other third parties. In Alberta, Canada, regulations require landfills to be re-approved every 10 years, thereby providing the regulator an opportunity to add potentially more stringent or costly design or operating conditions to the permit or prevent the renewal of the permit. Our landfill located in Alberta, Canada must complete this re-approval process by October 2006. Any failure by us to secure favorable arrangements (through ownership of landfills or otherwise) for the disposal of collected waste would increase our disposal costs and could result in the loss of business to competitors with more favorable disposal options thereby reducing our profitability and cash flow.

     Changes in legislative or regulatory requirements may cause changes in the landfill site permitting process. These changes could make it more difficult or costly for us to obtain or renew landfill permits. Technical design requirements, as approved, may need modification at some future point in time, which could result in higher development and construction costs than projected. Our current estimates of future disposal capacity may change as a result of changes in design requirements prescribed by legislation, construction requirements and changes in the expected waste density over the life of a landfill site. The density of waste used to convert the available airspace at a landfill into tons may be different than estimated because of variations in operating conditions, including waste compaction practices, site design, climate and the nature of the waste.

Any exposure to environmental liabilities, to the extent not adequately covered by insurance, could result in significant expenses, which would reduce the funds we have available for other purposes, including debt service and reduction and acquisitions

     We could be held liable for environmental damage at solid waste facilities that we own or operate, including damage to neighboring landowners and residents for contamination of the air, soil, groundwater, surface water and drinking water. Our liability could extend to damage resulting from pre-existing conditions and off-site contamination caused by pollutants or hazardous substances that we or our predecessors arranged to transport, treat or dispose of at other locations. We are also exposed to liability risks from businesses that we acquire because these businesses may have liabilities that we fail or are unable to discover, including noncompliance with environmental laws. Our insurance program may not cover all liabilities associated with environmental cleanup or remediation or compensatory damages, punitive damages, fines, or penalties imposed on us as a result of environmental damage caused by our operations or those of any predecessor. The incurring of liabilities for environmental damages that are not fully covered by insurance could adversely affect our liquidity and could result in significant expenses, which would reduce the funds we have available for other purposes, including debt service and reduction and acquisitions.

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We face competition from large and small solid waste services companies and may be unable to successfully compete with other solid waste companies reducing our operating margins

     The markets in which we operate are highly competitive and require substantial labor and capital resources. We compete with large, national solid waste services companies as well as smaller regional solid waste services companies. Some of our competitors are better capitalized, have greater name recognition and greater financial, operational and marketing resources than us, and may be able to provide services at a lower cost.

     We also compete with operators of alternative disposal facilities and municipalities that maintain their own waste collection and disposal operations. Public sector operators may have financial advantages over us because of their access to user fees and similar charges as well as to tax revenue. Responding to this competition may result in reduced operating margins. Further, competitive pressures may make our internal growth strategy of improving service and increasing sales penetration difficult or impossible to execute.

The termination or non-renewal of existing customer contracts, or the failure to obtain new customer contracts, could result in declining revenue

     We derive a portion of our revenue from municipal contracts that require competitive bidding by potential service providers. Although we intend to continue to bid on municipal contracts and to rebid existing municipal contracts, such contracts may not be maintained or won in the future. In the past year, we have found that some municipalities in Canada, for example, have imposed more restrictive bonding requirements as a qualification to bid for some residential waste collection contracts. We may be unable to meet such bonding requirements at a reasonable cost to us or at all. These requirements may limit our ability to bid for some municipal contracts and may favor some of our competitors. If we are unable to compete successfully for municipal contracts because of bonding requirements, we may lose important sources of revenue.

     We also derive a portion of our revenue from non-municipal contracts, which generally have a term of one to five years. Some of these contracts permit our customers to terminate them before the end of the contractual term. Any failure by us to replace revenue from contracts lost through competitive bidding, termination or non-renewal within a reasonable time period could result in a decrease in our operating revenue and our earnings.

We depend on third parties for disposal of solid waste and if we cannot maintain disposal arrangements with them we could incur significant costs that would result in reduced operating margins and revenue

     We currently deliver a substantial portion of the solid waste we collect to municipally owned disposal facilities and to privately owned or operated disposal facilities. If municipalities increase their disposal rates or if we cannot obtain and maintain disposal arrangements with private owners or operators, we could incur significant additional costs and, if we are not able to pass these cost increases on to our customers because of competitive pressures, this could result in reduced operating margins and revenue.

Labor unions may attempt to organize our non-unionized employees, which may result in increased operating expenses

     Some of our employees in Canada have chosen to be represented by unions, and we have negotiated collective bargaining agreements with them. Labor unions may make attempts to organize our non-unionized employees. The negotiation of any collective bargaining agreement could divert management’s attention away from other business matters. If we are unable to negotiate acceptable collective bargaining agreements, we may have to wait through “cooling-off” periods, which are often followed by union-initiated work stoppages, including strikes. Unfavorable collective bargaining agreements, work stoppages or other labor disputes may result in increased operating expenses.

Our operating margins and profitability may be negatively impacted by increased fuel and energy costs

     Although fuel and energy costs account for a relatively small portion of our total operating costs, sustained increases in such costs, which we are unable to pass on to our customers because of competitive pressures, could lower our operating margins and negatively impact our profitability.

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The industry in which we operate is seasonal and decreases in revenue during winter months may have an adverse effect on our results of operations, particularly for our Canadian operations

     Our operating revenue tends to be somewhat lower in the fall and winter months for our Canadian operations, reflecting the lower volume of solid waste generated during those periods. Our first and fourth quarter results typically reflect this seasonality. In addition, particularly harsh weather conditions may result in temporary slowdowns or suspension of certain of our operations or higher labor and operational costs, any of which could have a material adverse effect on our results of operations.

Our Canadian operations subject us to currency translation risk, which could cause our results to fluctuate significantly from period to period

     For the year ended December 31, 2004, a portion of our revenue was derived from our operations in Canada. For each reporting period, we translate the results of our Canadian operations and financial condition into U.S. dollars. Therefore, our reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. As the relationship of the Canadian dollar strengthens against the U.S. dollar our revenue is favorably affected and conversely expenses are unfavorably affected. The effects of translation are reported as a component of other 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). We do not currently hedge our exposure to changes in foreign exchange rates.

Changes to patterns regarding disposal of waste could adversely affect our results of operations by reducing the volume of waste available for collection and thus reducing our earnings

     Waste reduction programs may reduce the volume of waste available for collection in some areas where we operate. Some areas in which we operate offer alternatives to landfill disposal, such as recycling and composting. In addition, state, local, and provincial authorities increasingly mandate recycling and waste reduction at the source and prohibit the disposal of certain types of waste, such as yard waste, at landfills. Any significant adverse change in regulation or patterns regarding disposal of waste could have a material adverse effect on our earnings by reducing the level of demand for our services, resulting in decreased revenue and the earnings we are able to generate.

Limits on export of waste and any disruptions to the cross-border flow of waste may adversely affect our results of operations by increasing our costs of disposal

     There is limited disposal capacity available in Ontario, Canada, a market in which we have significant operations. As a result, a significant portion of the solid waste collected in Ontario is transported to sites in the United States for disposal. Disruptions in the cross-border flow of waste, or periodic closures of the border to solid waste would cause us to incur more costs due to the increased time our trucks may be required to spend at border check-points or increased processing or sorting requirements. Additionally, our trucks might be required to travel further to dispose of their waste in other areas of Ontario. Disruptions in the cross-border flow of waste could also result in a lack of disposal capacity available to our Ontario market at a reasonable price or at all. These disruptions could have a material adverse effect on our operating results by increasing our costs of disposal in the Ontario market and thereby decreasing our operating margins and could result in the loss of business to competitors with more favorable disposal options.

Item 2. Properties

     Our principal executive offices are in leased premises in Burlington, Ontario and in Scottsdale, Arizona. We also have administrative offices in Arizona, Florida, Alberta and Ontario. Our principal property and equipment consist of land, buildings, vehicles and equipment, substantially all of which are encumbered by liens in favor of our lenders under our existing revolving and term loan credit facilities.

     We operate collection businesses from locations in the United States and in Canada, of which 11 are owned and 22 are leased. At 8 of these leased facilities, we also operate transfer stations. We own 3 of the properties from which we operate transfer stations and lease or have operating agreements for 3 other locations. 3 of our 10 material recycling facilities in Canada and the United States are operated on properties which we own.

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     We own and operate four landfills in the United States and three in Canada. For more information regarding our landfills, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Landfill Sites.”

     As of December 31, 2004, we used approximately 1,185 front-line waste collection vehicles in our operations. We believe that our vehicles, equipment and operating properties are adequate for our current operations. However, we expect to continue to make investments in additional equipment and property for expansion, replacement of assets and in connection with future acquisitions.

Item 3. 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, provincial, state 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 that is required for our operations. From time to time, we may also be subject to actions brought by citizens’ groups or adjacent landowners or residents in connection with the permitting and licensing of transfer stations and landfills or alleging environmental damage or violations of the permits and licenses pursuant to which we operate. We may become party to various lawsuits pending 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 solid waste management business.

     In December 2002, Canadian Waste Services Inc., or Canadian Waste, one of our competitors, commenced an action in the Court of Queen’s Bench of Alberta against us and one of our employees in Western Canada who had previously been employed by Canadian Waste. The action alleges breach of the employment contract between the employee and Canadian Waste, and breach of fiduciary duties. The action also alleges that we participated in those alleged breaches. The action seeks damages in the amount of approximately C$14.5 million, and an injunction enjoining the employee from acting contrary to his alleged employment contract and fiduciary duties.

     In February 2003, Canadian Waste commenced an action in the Court of Queen’s Bench of Alberta against us alleging breach of a landfill tipping agreement that we had entered into with Canadian Waste. The action alleges that we have breached the agreement by not paying certain amounts invoiced to us by Canadian Waste relating to increased costs incurred by Canadian Waste in its operation of the Ryley landfill and at which we deposited certain quantities of waste pursuant to the agreement. Canadian Waste seeks damages in the amount of approximately C$1.3 million. The agreement contains an arbitration clause that prohibits court action and requires arbitration with respect to certain disputes.

     In July 2004, Waste Management, Inc. filed a suit in the District Court of Harris County, Texas against Charles A. Wilcox, our President and Chief Operating Officer. The suit is for breach of contract, including breach of a non-competition agreement, and for a temporary and permanent injunction. Mr. Wilcox is subject to a temporary order restraining him from engaging in certain activities adverse to the interests of Waste Management, Inc. Mr. Wilcox intends to vigorously defend this action.

     We intend to vigorously defend these actions both with respect to liability and damages, and no provisions have been made in these financial statements for the above matters.

     As of the date of this report, we do not believe that the reasonably 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.

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

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

     On December 29, 2004, we held an annual meeting of our shareholders. At the meeting, David Sutherland-Yoest and Gary W. DeGroote were re-elected as directors to hold office until the 2007 annual meeting of shareholders.

     The following table sets forth the number of votes cast for or withheld for each director nominee:

Item 4A. Executive Officers of the Registrant

     The following table sets forth information regarding our executive officers as of March 1, 2005.

     Certain biographical information regarding each of our executive officers is set forth below.

     David Sutherland-Yoest has been our Chairman and Chief Executive Officer and a director since September 6, 2001. Mr. Sutherland-Yoest also held the position of Chairman and Chief Executive Officer of H₂O Technologies Ltd., a water purification company, from March 2000 to October 2003 and served as a director of H₂O Technologies Ltd. from March 2000 to January 2004. Mr. Sutherland-Yoest served as the Senior Vice President — Atlantic Area of Waste Management, Inc. from July 1998 to November 1999. From August 1996 to July 1998, he was the Vice Chairman and Vice President — Atlantic Region of USA Waste Services, Inc., or USA Waste and the President of Canadian Waste Services, Inc., which, during such time, was a subsidiary of USA Waste. Prior to joining USA Waste, Mr. Sutherland-Yoest was President, Chief Executive Officer and a director of Envirofil, Inc. Between 1981 and 1992, he served in various capacities at Laidlaw Waste Systems, Inc. and Browning-Ferris Industries, Ltd.

     Charles A. Wilcox was appointed our President and Chief Operating Officer effective July 1, 2004. Prior to joining us, Mr. Wilcox worked for Waste Management, Inc. from December 1994 where he held the positions of Senior Vice President, Market Planning and Development and prior to that Senior Vice President, Eastern Group.

     Ivan R. Cairns was appointed as Executive Vice President, General Counsel, and Corporate Secretary effective January 5, 2004. Prior to joining us, Mr. Cairns served as Senior Vice President and General Counsel at Laidlaw International Inc. and was Senior Vice President and General Counsel at its predecessor, Laidlaw Inc., for over 20 years. In June 2001, Laidlaw Inc., and four of its direct and indirect subsidiaries, filed voluntary petitions for bankruptcy under the U.S. Bankruptcy Code and also commenced Canadian insolvency proceedings. In June 2003, these companies emerged from bankruptcy and the Canadian insolvency proceedings.

     Mark A. Pytosh was appointed Executive Vice President effective February 23, 2004. Prior to joining us, Mr. Pytosh was a Managing Director in Investment Banking at Lehman Brothers where he focused on working with clients in the industrial sector, including leading the firm’s banking efforts in the solid waste industry. Before joining Lehman Brothers in 2000, Mr. Pytosh had 15 years of investment banking experience at Donaldson, Lufkin & Jenrette and Kidder, Peabody.

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     Ronald L. Rubin was appointed as our Executive Vice President and Chief Financial Officer effective September 2, 2003. Prior to joining us, Mr. Rubin, a Certified Public Accountant, held the position of Vice President, Chief Accounting Officer and Controller for Paxson Communications Corporation which owns and operates a broadcast television distribution system in the United States and the PAX TV network. Prior to joining Paxson, Mr. Rubin held the position of Vice President, Controller for AutoNation Inc., a Fortune 100 company and the former parent of Republic Services, Inc., a provider of solid waste collection, transfer and disposal services in the United States.

     Brian A. Goebel was appointed as our Vice President, Chief Accounting Officer and Corporate Controller effective October 1, 2003. From December 1999 until joining us, Mr. Goebel, a Certified Public Accountant, held the position of Assistant Controller, ANC Rental Corporation, which owned Alamo and National Car Rental. From January 1997 to December 1999, Mr. Goebel was a Director of Corporate Accounting for AutoNation, Inc. Prior to joining AutoNation, Inc., Mr. Goebel spent eight years in the Business Assurance practice of Coopers & Lybrand, LLP.

PART II

Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters

Market Information

     Since March 8, 2004, our Common Shares have been traded on the Nasdaq National Market. From September 22, 2000 through March 7, 2004, our Common Shares were traded on the Nasdaq SmallCap Market. The following table provides high and low common share price information for each quarter within our last two fiscal years:

Holders

     As at March 1, 2005, there were approximately 150 holders of record of our Common Shares (including holders of exchangeable shares).

Dividends

     We have not paid cash dividends on our Common Shares to date. The terms of our senior secured credit facilities prohibit us from paying cash dividends without the consent of our lenders. See Item 7 — Management Discussion and Analysis of Financial Condition — Liquidity and Capital Resources — Senior Secured Credit Facilities.

     We currently intend to retain our future earnings, if any, to finance the growth, development and expansion of our business and repayment of indebtedness. Accordingly, we do not intend to declare or pay any cash dividends on our Common Shares in the immediate future. The declaration, payment and amount of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors. These factors include our financial condition, results of operations, cash flows from operations, current and anticipated capital requirements and expansion plans, the income tax laws then in effect and the requirements of applicable laws.

Recent Sales of Unregistered Securities

     In February 2004, we issued warrants to purchase 200,000 shares of common stock valued at approximately $0.4 million in a private placement transaction in connection with the acquisition of the Fort Bend Regional Landfill site. This issuance of warrants

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was exempt from the registration requirements pursuant to Section 4 (2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that it did not involve a public offering. The warrants vest over a three year period, one-third on each of the first, second and third anniversary of the warrant issue date and are exercisable for a period of 5 years from the warrant issue date at an exercise price of $5.75 per share, being the closing market price of our common stock on the date the warrant was issued.

     In October 2004, we issued 40,000 shares of common stock valued at approximately $0.2 million in a private placement transaction as an earn-out payment in connection with an acquisition in Arizona which was completed in March 2004. This stock issuance was exempt from the registration requirements pursuant to Section 4 (2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that it did not involve a public offering.

Item 6. Selected Financial Data

     The following tables set forth our selected consolidated financial data for the periods indicated and are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and the notes thereto, which are included elsewhere in this annual report, especially Note 3 as it relates to our business combinations, significant asset acquisitions and dispositions and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” The financial data as of December 31, 2004, 2003, 2002, 2001 and 2000 for the years then ended have been derived from our audited Consolidated Financial Statements. The selected consolidated financial data as of December 31, 2004, 2003, 2002, 2001 and 2000 and for each of the years then ended have been prepared in accordance with accounting principles generally accepted in the United States. All financial information presented in the tables is in thousands of dollars except per share data or as otherwise indicated.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion is based on, and should be read in conjunction with Item 6. “Selected Financial Data” and our Consolidated Financial Statements and Notes thereto contained in this annual report.

Overview

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

     We operate on a decentralized basis, while financial controls and information systems are controlled centrally. Our business is managed through five operating regions comprised of Florida (including our Central, North, and Gulf districts) Arizona, Texas, and Eastern and Western Canada.

     We had many accomplishments in 2004, including the completion and integration of significant business acquisitions in the U.S. and the opening of our three new large municipal solid waste landfill sites in Florida, Arizona and Texas. The JED landfill, located outside Orlando, opened in January 2004, the Cactus Regional Landfill, serving the Phoenix market, opened in July 2004, and the Fort Bend Regional Landfill, serving the Houston market, opened in August 2004. In Central Florida, two transfer stations are in the final stages of construction. Their completion expected in the second quarter of 2005, will allow us to internalize significant volumes into our JED landfill. In Arizona, we opened two transfer stations in the Phoenix market, which allow us to internalize a majority of our collected volumes into our Cactus Regional Landfill. In January 2005, we opened a transfer station in the Houston market. We look forward to improving margins and cash flow in 2005 as we increase internal and external waste volumes at each of these disposal facilities. We have also taken steps to improve operating performance at our newly acquired collection operations in Florida and Arizona through pricing initiatives, cost controls, safety programs, workforce reductions and consolidation of purchasing in areas such as fuel and parts. We expect these initiatives will also lead to improved financial performance in 2005. Our Canadian operations continue to perform according to our expectations and provide a consistent source of operating income and cash flow. We have introduced operating and cost control initiatives to improve the performance of our Canadian operations. We expect to continue to rationalize certain aspects of our operations in markets where we are not internalized for possible divestiture or asset swap transactions to enhance density and/or internalization opportunities in existing markets where we are vertically integrated and earn our highest returns.

     While we had many accomplishments in 2004, we also experienced setbacks as we failed to meet certain of our second quarter debt covenants in part because of delays in the opening of the Florida transfer stations and the under performance of the operations acquired from Florida Recycling relative to the historical results represented by the sellers. We were able to negotiate a settlement with the former owners of Florida Recycling and negotiate an amendment to our senior credit facilities. As a result of these negotiations, we believe we are well positioned to meet our future covenants. We have also instituted a strict discipline in our cash and working capital management. As a result, we have had limited borrowings under our revolving credit facility since our October bank amendment. With the expected opening of the Florida transfer stations in the second quarter of 2005, we believe that our operating cash flow, availability under our revolving credit facilities and the $7.5 million March 2005 equity infusion required under our credit agreement will provide us with more than sufficient liquidity to execute our business plan in 2005.

Sources of Revenue

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

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

     We provide collection services for commercial and industrial customers generally under one to five year service agreements. We determine the fees we charge our customers based on a variety of factors, including collection frequency, level of service, route

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density, the type, volume and weight of the waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing and prices charged by competitors for similar services. Our contracts with commercial and industrial customers typically allow us to pass on increased costs resulting from variable items such as disposal and fuel costs and surcharges. Our ability to pass on cost increases is however sometimes limited by the terms of our contracts.

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

     We charge our landfill and transfer station customers a tipping fee on a per ton 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.

Expense Structure

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

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

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

     Selling, general and administrative expense includes managerial costs, information systems, sales force, administrative expenses and professional fees. We have made a significant investment in information systems and in assembling our management team to support our growth strategy. We expect selling, general and administrative expense to decline as a percentage of revenue in 2005 as we spread our overhead costs over a larger revenue base.

     Depreciation, depletion and amortization expense includes depreciation of fixed assets over their estimated useful lives using the straight-line method, depletion of landfill costs, including capping, closure and post-closure obligations using the units-of-consumption method, and amortization of intangible assets including customer relationships and contracts and covenants not-to-compete which are amortized over the expected life of the benefit to be received by such intangibles. As further discussed in Note 2 to

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the Consolidated Financial Statements, effective January 1, 2004, we changed our method of accounting for asset retirement obligations.

     We capitalize certain third party costs related to pending acquisitions or development projects. These costs remain deferred until we cease to be engaged on a regular and ongoing basis with completion of the proposed acquisition, at which point they are charged currently in 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 Acquisitions

     During July 2003, we purchased the site for our Cactus Regional Landfill. During May 2004, we received the permits and authorizations necessary for the operation of the landfill. As a condition of the purchase, we issued 1,250,000 Common Shares valued at $5.5 million to the sellers during the second quarter of 2004. Additionally, the sellers are entitled to contingent payments based upon the landfill achieving certain defined average tons of waste per day. Should the landfill achieve a maximum 5,000 tons per day, the total contingent payments would not exceed $18.0 million.

     In November 2003, we entered into an agreement to acquire the assets of Allied Waste Industries, Inc.’s (“Allied”) northern and central Florida operations (the “Allied Assets”) for a purchase price of approximately $120.0 million, subject to an adjustment for working capital. The primary metropolitan areas served by the Allied Assets are Tampa, Sarasota and Jacksonville, Florida. On December 31, 2003, we completed the first phase of the Allied Assets acquisition. During the first six months of 2004, we completed the acquisition of the remaining Allied Assets. In the second quarter of 2004, we divested certain landfill and related assets and liabilities acquired from Allied in exchange for a collection operation in the metropolitan Orlando area and cash proceeds of $10.0 million. Proceeds in excess of net assets exchanged reduced goodwill from the original Allied Assets acquisition by $8.6 million.

     In February 2004, we acquired a permitted undeveloped municipal solid waste landfill in Fort Bend County, Texas (the “Fort Bend Regional Landfill”). The landfill commenced operations during August of 2004. The purchase price was comprised of $5.1 million in cash, a seller financed promissory note of $5.0 million which has since been repaid and the issuance of 4,375,000 Common Shares valued at approximately $25.0 million. Fort Bend Regional Landfill, which serves the metropolitan Houston area, is approximately 2,600 acres and has an initial permitted capacity of 47.6 million cubic yards.

     In April 2004, we completed the acquisition of the shares of Florida Recycling Services, Inc. (“Florida Recycling”) for an aggregate purchase price of approximately $99.0 million in cash, working capital of approximately $2.2 million, and the issuance of 9,250,000 Common Shares valued at approximately $51.4 million. Florida Recycling operations are based in central Florida, primarily serving the Orlando, Daytona, Fort Myers, and Tampa markets. Following our acquisition, the performance of the operations of Florida Recycling was below our expectations and we conducted a review of Florida’s Recycling business in an effort to identify the factors contributing to the lower than expected level of performance. Based on the results of this review, it appeared that the 2003 financial statements of Florida Recycling, provided by the sellers, contained misstatements and could not be relied upon. As such, we have begun a re-audit of the historical financial statements of Florida Recycling. On September 24, 2004, we reached an agreement with the selling shareholders of Florida Recycling to adjust the purchase price paid for the shares of Florida Recycling whereby, in October 2004, the selling shareholders paid us $7.5 million in cash and returned 500,000 shares of our common stock. The cash and the shares received (valued at their quoted market price as of September 24, 2004), with a total value of approximately $8.6 million, are recorded as income. As part of the settlement and upon its completion, we will receive title to a 2,000 ton per day recycling and transfer facility in Sanford, Florida.

     We expect to continue to make strategic acquisitions which we intend to finance through cash on hand, our Senior Secured Credit Facilities subject to the limitations on our investing activities set out in the Credit Facilities Agreement, as amended, and/or the issuance of other debt and equity financings. We expect that we will continue to rationalize certain aspects of our operations in markets where we are not internalized through either divestiture or asset swap transactions in order to enhance density and/or internalization opportunities in existing markets where we are vertically integrated.

Factors that Might Affect Future Results

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

     The following summarizes our three recently acquired landfills:

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	•	JED Landfill — a municipal solid waste landfill with 24.0 million cubic yards of initial permitted capacity, located in Osceola County, Florida. The landfill is located approximately 20 miles south of metropolitan Orlando and is well positioned to serve the Orlando metropolitan area and the surrounding counties. The facility opened for operation in the first quarter of 2004. Part of our strategy is to maximize the internalization of waste volumes to our JED Landfill. The execution of this strategy is dependent partly upon the opening of two transfer stations in central Florida. The Taft transfer station and recycling facility, located south of Orlando, is owned and operated by a third party with whom we have entered into a 10-year disposal agreement. The Taft facility has received a modified permit allowing it to accept up to 1,500 tons of Class I and Class III solid waste combined per day, subject to completion of certain building modifications expected to be completed in the second quarter of 2005. The other transfer station and recycling facility, located in Sanford, Florida, is fully permitted to accept up to 2,000 tons per day of Class I municipal solid waste upon completion of construction which is also expected in the second quarter of 2005. Ownership of the Sanford facility also referred to as the Ice House facility, will be transferred to us upon completion of construction pursuant to the terms of our settlement agreement with the former owners of Florida Recycling. We had previously expected that these transfer stations would be operational by the fourth quarter of 2004.
	•	Cactus Regional Landfill — a municipal solid waste landfill with 224.0 million cubic yards of initial permitted capacity, located in Pinal County, Arizona. The landfill is located between Phoenix and Tucson, Arizona and is well-positioned to serve both markets. The facility opened for operation in the third quarter of 2004. Also in the second and third quarters of 2004, we began operations at our two newly constructed transfer stations in the Phoenix market area.
	•	Fort Bend Regional Landfill — a municipal and industrial solid waste landfill with 48.0 million cubic yards of initial permitted capacity, located in Fort Bend County, Texas. The landfill is located approximately 15 miles southwest of metropolitan Houston and is well-positioned to serve the Houston metropolitan area, including Fort Bend County. The facility opened for operation in the third quarter of 2004. We have constructed a transfer station in Houston, which is permitted to accept up to 850 tons per day of municipal solid waste and began operations in January 2005.

Critical Accounting Policies

General

     Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, including those related to areas that require a significant level of judgments or are otherwise subject to an inherent degree of uncertainty. These areas include allowances for doubtful accounts, landfill airspace, intangible and long-lived assets, closure and post-closure liabilities, revenue recognition, income taxes and commitments and contingencies. We base our estimates on historical experience, our observance of trends in particular areas, information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated.

     We believe that of our significant accounting policies (refer to Note 2 of the Notes to Consolidated Financial Statements contained elsewhere in this annual report) the following may involve a higher degree of judgment and complexity:

Revenue Recognition

     We recognize revenue when services, such as providing collection services or accepting waste at our disposal facilities, are rendered. Amounts billed to customers prior to providing the related services are reflected as deferred revenue and reported as revenue in the period in which the services are rendered.

Accounts Receivable and Allowance for Doubtful Accounts

     We maintain an allowance for doubtful accounts based on their expected collectibility. We perform credit evaluations of our significant customers and establish an allowance for doubtful accounts based on the aging of our 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 over 120 days. We evaluate and revise our reserve on a monthly basis based upon a review of specific

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accounts outstanding and our history of uncollectible accounts.

Business Acquisitions and Goodwill

     We account for business acquisitions using the purchase method of accounting. The total cost of an acquisition is allocated to the underlying net assets based on their respective estimated fair values. As part of this allocation process, management must identify and attribute values and estimated lives to the intangible assets acquired. Such determinations involve considerable judgment, and often involve the use of significant estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives. These determinations will affect the amount of amortization expense recognized 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.

     We have fully adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” and test goodwill for impairment using the two-step process. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The first step of the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. In determining the fair value, we may utilize: (i) discounted future cash flows; (ii) operating results based upon a comparative multiple of earnings or revenues; (iii) offers from interested investors, if any; or (iv) appraisals. Significant estimates used in the fair value calculation utilizing discounted future cash flows include, but are not limited to: (i) estimates of future revenue and expense growth by reporting unit (ii) future estimated effective tax rates, which we estimate to range between 37% and 40%; (iii) future estimated rate of capital expenditures as well as future required investments in working capital; (iv) estimated average cost of capital, which we estimated to range between 8.0% and 10.0%; and (v) the future terminal value of our reporting unit, which is based upon its ability to exist into perpetuity. Significant estimates used in the fair value calculation utilizing market value multiples include but are not limited to: (i) estimated future growth potential of the reporting unit; (ii) estimated multiples of revenue or earnings a willing buyer is likely to pay; and (iii) estimated control premium a willing buyer is likely to pay.

     Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of the acquired businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with the acquired businesses is impaired. Additionally, as the valuation of identifiable goodwill requires significant estimates and judgment about future performance, cash flows and fair value, our future results could be affected if these current estimates of future performance and fair value change. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

     Acquisition deposits and deferred acquisition costs include capitalized incremental direct costs associated with proposed business combinations that are currently being negotiated. 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 earnings. In the event that the target is acquired, these costs are incorporated in the cost of the acquired business. Indirect and internal costs, including executive salaries, overhead and travel costs related to acquisitions, are expensed as incurred.

Long-Lived Assets

     We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment, or other long-lived assets including amortizing intangible assets, should be evaluated for possible impairment. Instances that may lead to an impairment include: (i) a significant decrease in the market price of a long-lived asset group; (ii) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group; (v) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or (vi) a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

     Upon recognition of an event, as previously described, we use an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long-lived assets in assessing their recoverability. We measure

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impairment loss as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). We primarily employ two methodologies for determining the fair value of a long-lived asset: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties or (ii) the present value of estimated expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows.

     Costs associated with arranging financing are deferred and expensed over the related financing arrangement using the effective interest method. Should we repay an obligation earlier then its contractual maturity, any remaining deferred financing costs are charged to earnings.

Landfill Sites

     Landfill sites are recorded at cost. Capitalized landfill costs include expenditures for land, permitting costs, cell construction costs and environmental structures. Capitalized permitting and cell construction costs are limited to direct costs relating to these activities, including legal, engineering and construction costs associated with excavation, liners and site berms, leachate management facilities and other costs associated with environmental management equipment and structures.

     Costs related to acquiring land, excluding the estimated residual value of un-permitted, non-buffer land, and costs related to permitting and cell construction are depleted as airspace is consumed using the units-of-consumption method. Environmental structures, which include leachate collection systems, methane collection systems and groundwater monitoring wells, are charged to expense over the shorter of their useful life or the life of the landfill.

     Capitalized landfill costs may also include an allocation of the purchase price paid for landfills. For landfills purchased as part of a group of several assets, the purchase price assigned to the landfill is determined based upon the discounted expected future cash flows of the landfill relative to the other assets within the acquired group. If the landfill meets our expansion criteria, the purchase price is further allocated between permitted airspace and expansion airspace based upon the ratio of permitted versus probable expansion airspace to total available airspace. Landfill sites are amortized using the units-of-consumption method over the total available airspace including probable expansion airspace where appropriate.

     We assess the carrying value of our landfill sites in accordance with the provisions of SFAS No. 144. These provisions, as well as possible instances that may lead to impairment, are addressed in “—Long-Lived Assets”. There are certain indicators previously discussed that require significant judgment and understanding of the waste industry when applied to landfill development or expansion.

     We identified three sequential steps that landfills generally follow to obtain expansion permits. These steps are as follows: (i) obtaining approval from local authorities; (ii) submitting a permit application to state or provincial authorities; and (iii) obtaining permit approval from state or provincial authorities.

     Before expansion airspace is included in our calculation of total available disposal capacity, the following criteria must be met: (i) the land associated with the expansion airspace is either owned by us or is controlled by us pursuant to an option agreement; (ii) we are committed to supporting the expansion project financially and with appropriate resources; (iii) there are no identified fatal flaws or impediments associated with the project, including political impediments; (iv) progress is being made on the project; (v) the expansion is attainable within a reasonable time frame; and (vi) based upon senior management’s review of the status of the permit process to date we believe it is more likely than not the expansion permit will be received within the next five years. Upon meeting our expansion criteria, the rates used at each applicable landfill to expense costs to acquire, construct, close and maintain a site during the post-closure period are adjusted to include probable expansion airspace and all additional costs to be capitalized or accrued associated with the expansion airspace.

     Once expansion airspace meets the criteria for inclusion in our calculation of total available disposal capacity, management continuously monitors each site’s progress in obtaining the expansion permit. If at any point it is determined that an expansion area no longer meets the required criteria, the probable expansion airspace is removed from the landfill’s total available capacity and the rates used at the landfill to expense costs to acquire, construct, close and maintain a site during the post-closure period are adjusted accordingly.

     The following table reflects landfill capacity activity for permitted landfills owned by us for the years ended December 31, 2004, 2003 and 2002 (in thousands of cubic yards).

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Accrued Closure and Post-Closure Obligations

     On January 1, 2003, we adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 143 “Accounting for Asset Retirement Obligations.” SFAS No. 143 required us to change our methodology used to record liabilities related to final capping, closure and post-closure of our landfill operations. Under the provisions of the new statement, we recognize, as an asset, the fair value of the liability for an asset retirement obligation. The asset is then depleted, consistent with other capitalized landfill costs, over the remaining useful life of the site based upon units of consumption as airspace in the landfill is consumed. Additionally, we recognize a liability for the present value of the estimated future asset retirement obligation. The liability will be adjusted for (i) additional liabilities incurred or settled, (ii) accretion of the liability to its future value and (iii) revisions in the estimated cash flows relative to closure and post-closure costs. As further discussed in Note 2 to the consolidated financial statements, effective January 1, 2004 we changed our methodology used to define an obligating event.

     Accrued closure and post-closure obligations represent an estimate of the future obligation associated with closure and post-closure monitoring of the solid waste landfills owned by us. Site-specific closure and post-closure engineering cost estimates are prepared for the landfills we own. The impact of changes in estimates, based on an annual update, is accounted for on a prospective basis. We calculate closure and post closure liabilities by estimating the total future obligation in current dollars, inflating the obligations based upon the expected date of the expenditure using an inflation rate of 2.0% and discounting the inflated total to its present value using an 8.5% credit-adjusted risk-free discount rate. For 2005, we expect our inflation rate to approximate 2.5% and discount rate to approximate 9.5%. Accretion of discounted cash flows associated with the closure and post closure obligations is accrued over the estimated life of the landfill.

Accounting for Income Taxes

     We use the asset and liability method to account for income taxes. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. In preparing the Consolidated Financial Statements, we are required to estimate the income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, property, plant and equipment and losses for tax and accounting purposes. These differences result in deferred tax assets, which include tax loss carry-forwards, and liabilities, which are included within the consolidated balance sheet. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. To the extent a valuation allowance is established or increased in a period, we include an expense within the tax provision of the consolidated statement of operations.

Risk Management

     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. We have collateral requirements that are set by the insurance companies which underwrite our insurance programs. Collateral requirements may change from time to time, based on, among other things, the size of our business, our claims experience, financial performance or credit quality and retention levels. As of December 31, 2004 we have posted letters of credit with our U.S. insurer of approximately $3.0 million to cover the liability for losses within the deductible limit. During the first quarter of 2005, we increased this letter of credit to $8.4 million. Provisions for retained claims are made by charges to expense based upon periodic evaluations by management of the estimated ultimate liabilities on reported and unreported claims. Adjustments, if any, to the estimated reserves resulting from ultimate claim payments will be reflected in operations in the periods in which such adjustments become known.

Translation and remeasurement of foreign currency

     Certain of our operations are domiciled in Canada; as such, we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet dates, and

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revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operations are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates.

Operating Results

Results of Operations for each of the Three Years Ended December 31, 2004, 2003 and 2002

     The following tables sets forth our consolidated results of operations for each of the three years ended December 31, 2004, 2003 and 2002 (in thousands):

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Revenue

     A summary of our revenue for each of the three years ended December 31, 2004, 2003 and 2002 is as follows (in thousands):

     Revenue was $310.8 million for the year ended December 31, 2004 and $126.8 million for the year ended December 31, 2003, an increase of $184.0 million or in excess of 100%. The increase in revenue for our United States operations of $166.3 million or in excess of 100% was primarily driven by acquisitions of $147.9 million, volume at our new landfills of $7.8 million and internal growth of $10.6 million. Our internal growth in the U.S. was driven primarily by hurricane related collection volumes in Florida during 2004. The increase in revenue for our Canadian operations of $17.7 million or 14.2% is primarily due to increased volume of $4.2 million or 3.4%, pricing increases of $3.7 million or 3.0%, and acquisitions of $0.4 million or 0.3%. In addition, the favorable effects of foreign exchange movements increased Canadian revenue by $9.4 million or 7.5%.

     Revenue was $126.8 million for the year ended December 31, 2003 and $98.8 million for the year ended December 31, 2002, an increase of $28.0 million or 28.2%. The favorable effects of foreign exchange movements increased revenue by 14.0%, reflecting the strengthening of the Canadian dollar versus the U.S. dollar during 2003. Increased collection and landfill disposal volumes increased revenue by 8.0%, which was primarily due to new residential waste collection agreements in our Canadian operations. New acquisitions increased revenue by 5.1% and pricing increases increased revenue by 1.1%.

Cost of Operations

     Cost of operations was $219.9 million for the year ended December 31, 2004 and $83.6 million for the year ended December 31, 2003, an increase of $136.3 million or in excess of 100%. As a percentage of revenue, cost of operations was 70.8% for the year ended December 31, 2004 and 65.9% for the year ended December 31, 2003. The increase in cost of operations for our United States operations of $122.2 million or in excess of 100% was primarily driven by acquisitions and an increase in landfill operating costs at our recently opened landfill sites. As a percentage of revenue, cost of operations in our United States operations was 73.5% for the year ended December 31, 2004 and 73.7% for the year ended December 31, 2003. Our lower margins in the United States, as compared to Canada, are primarily driven by the higher mix of lower margin collection revenue in the United States. We expect that our U.S. operating margins will improve as we increase internal and external volumes at our new landfill and transfer station sites.

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     The increase in cost of operations for 2004 in Canada is primarily due to disposal and sub-contractor costs of $3.0 million or 3.6%, increased labor of $3.0 million or 3.6%, and fuel and other operating costs of $1.3 or 1.5%. The unfavorable effects of foreign exchange movements increased cost of operations by $6.8 million or 8.1%. The increase in disposal, subcontractor, and labor costs in aggregate dollars and as a percentage of revenue is due to increased disposal volumes as well as higher transportation and fuel costs in our Canadian operations coupled with a higher mix of lower margin collection revenue.

     Cost of operations was $83.6 million for the year ended December 31, 2003 and $64.4 million for the year ended December 31, 2002. As a percentage of revenue, cost of operations was 65.9% for the year ended December 31, 2003, and 65.2% for the year ended December 31, 2002. The increase in cost of operations as a percentage of revenue was primarily related to higher costs of labor on lower margin residential contracts that were in place during 2003. The overall increase in cost of operations of 29.7% was primarily due to the effects of foreign currency movements, 13.5%, increased costs of disposal, 7.5%, increased labor costs, 6.6%, and labor and disposal costs at our newly acquired U.S. operations, 2.1%. The increase in Canadian operating costs was primarily the result of new waste collection agreements.

Selling, General and Administrative Expense

     Selling, general and administrative expense, excluding stock-based compensation expense, was $55.5 million for the year ended December 31, 2004 and $28.9 million for the year ended December 31, 2003, an increase of $26.6 million or in excess of 100%. As a percentage of revenue, selling, general and administrative expense was 17.9% for the year ended December 31, 2004 and 22.8% for the year ended December 31, 2003. The overall increase in selling, general and administrative expense is primarily due to acquisitions in the U.S., and to increased salaries, systems and other overhead costs incurred in connection with our expansion into the U.S. In connection with our migration transaction, we incurred legal and professional fees of $0.8 million for the year ended December 31, 2004. Concurrent with our bank amendment, we incurred approximately $0.8 million of legal and professional fees that were currently expensed. During 2004, our compliance efforts with Sarbanes-Oxley increased our overhead spending on third party professionals by approximately $0.9 million. Separately, during the third quarter of 2004 and as part of our cost reduction initiatives, we reduced our workforce by approximately 55 employees and incurred approximately $2.7 million, of which $1.7 million related to our former President, in severance charges and other related costs. As a result of the workforce reduction, we expect an annual savings of $3.2 million in salary and related costs. The unfavorable effects of foreign exchange movements increased selling, general and administrative expense by $1.5 million or 5.2%. We expect selling, general and administrative expense as a percentage of revenue to decline in 2005 as compared to 2004 due to having a full year impact from our 2004 acquisitions and revenue generated by our newly opened landfills.

     Selling, general and administrative expense, excluding stock-based compensation expense, was $28.9 million for the year ended December 31, 2003 and $15.2 million for the year ended December 31, 2002. As a percentage of revenue, selling, general and administrative expense was 22.8% for the year ended December 31, 2003 and 15.4% for the year ended December 31, 2002. The overall increase in selling, general and administrative expense of 89.4%, as well as the increase as a percentage of revenue, was primarily due to increased salaries, systems and other overhead costs to build our infrastructure and enable us to execute our acquisition strategy as well as increased professional and legal fees relative to our Migration Transaction. The unfavorable effects of foreign exchange movements were 12.7%.

Stock-based compensation expense (benefit)

     Stock-based compensation expense (benefit) relates to warrants issued to an executive officer in 2001 for which variable accounting applies and options or warrants issued to non-employees for services rendered. Stock-based compensation expense (benefit) is partially based on changes in our stock price.

Depreciation, Depletion and Amortization

     Depreciation, depletion and amortization was $34.2 million for the year ended December 31, 2004 and $14.9 million for the year ended December 31, 2003, an increase of $19.3 million or in excess of 100%. As a percentage of revenue, depreciation, depletion and amortization was 11.0% and 11.8% for the years ended December 31, 2004 and 2003, respectively. The overall increase in depreciation, depletion and amortization was due to our acquisitions in the United States coupled with depletion at our three newly opened landfills, $17.7 million, and increased depreciation on our vehicle fleet, related equipment and other increases, $0.5 million. The unfavorable effects of foreign exchange movements increased depreciation, depletion and amortization by $1.1 million. As a percentage of revenue, depreciation, depletion and amortization decreased in 2004 as compared to 2003 due to an increased mix of

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collection revenue. Landfill depletion rates ranged from $1.14 to $7.73 per ton for our landfills in the United States and C$3.31 to C$15.88 per tonne for our landfills in Canada.

     Depreciation, depletion and amortization was $14.9 million for the year ended December 31, 2003 and $10.7 million for the year ended December 31, 2002. As a percentage of revenue, depreciation, depletion and amortization was 11.8% for the year ended December 31, 2003 and 10.8% for the year ended December 31, 2002. The increase in depreciation, depletion and amortization of $4.2 million or 39.3% was due to unfavorable effects of foreign exchange movements of 15.2%, depreciation on our trucks and containers of 10.7%, depletion of approximately 10.5%, depreciation at our newly acquired U.S. operations of 1.9% and amortization and other of 1.0%. Depreciation of our trucks and containers increased primarily due to an increase in our fleet size and number of containers. Depletion increased primarily due to increased disposal volumes as well as depletion related to our closure and post-closure obligations. Landfill depletion rates during the year ended December 31, 2003 for our two Canadian operating landfills ranged from C$4.00 to C$14.06 per tonne. We had no operating landfills in the United States during 2003. For the year ended December 31, 2002, landfill depletion rates ranged from C$3.00 to C$11.19 per tonne.

Foreign Exchange Loss (Gain) and Other

      The foreign exchange loss in 2004 and 2003 was the result of re-measuring U.S. dollar denominated cash balances into Canadian dollars. The foreign exchange gains in 2002 were the result of re-measuring our U.S. dollar denominated debt balances into Canadian dollars. As part of the June 2002 refinancing of our senior credit facility, our U.S. dollar denominated debt was repaid.

Interest Expense

     The components of interest expense, including cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs, for the years ended December 31, 2004, 2003 and 2002 are as follows:

     The increase in interest expense is due primarily to (i) increased amortization of debt issue costs, which includes a $6.5 million charge for the remaining unamortized debt issue costs associated with the repayment of our 364-day Credit Facility in April 2004, (ii) increased interest expense relative to our senior credit facilities and 9 1/2% Subordinated Notes and (iii) increased non-cash dividends and amortization of issue costs relative to our cumulative mandatorily redeemable preferred stock. The weighted average interest rate on credit facility borrowings was 7.11%, 6.54%, and 6.74%, for the years ended December 31, 2004, 2003 and 2002, respectively.

Changes in fair value of warrants pending registration

     Due to the nature of certain financial penalties within the registration rights agreement in our April 2004 private placement, the Common Shares, warrants and related proceeds from this offering were classified outside of shareholders’ equity until the registration was declared effective during August of 2004. Such amounts were reclassified to permanent equity during the third quarter of 2004.

Income Tax Provision (Benefit)

     The income tax provision (benefit) was $7.6 million for the year ended December 31, 2004, $(0.6) million for the year ended December 31, 2003 and $1.7 million for the year ended December 31, 2002. The provision (benefit) is in excess of amounts at the combined federal and state/provincial statutory rates due to the non-deductible nature of dividends accrued on our preferred shares coupled with valuation allowances on our net operating losses in the United States.

     As of December 31, 2004, we had $75.3 million of gross net-operating loss carry-forwards, of which, $45.6 million related to U.S.

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operations. Refer to Note 14 of our Consolidated Financial Statements for the amount of net operating loss carry-forwards expiring in each future year. We have determined that the realization of the future tax benefit related to the Canadian loss carryforwards totaling $29.7 million is more likely than not and accordingly, have not provided a tax valuation allowance against the benefit of these tax loss carryforwards as they are expected to be utilized through future operations and certain tax planning strategies. Due to the start-up nature of our U.S. operations, we have provided a valuation allowance for our net operating loss carryforwards generated in the United States. Separately, changes in our ownership structure may result in limitations on the utilization of loss carry-forwards, as imposed by Section 382 of the U.S. Internal Revenue Code.

Liquidity and Capital Resources

     Our principal capital requirements are to fund capital expenditures, debt service and business and asset acquisitions. Significant sources of liquidity are cash on hand, working capital, borrowings from our Senior Credit Facilities and proceeds from debt and equity issuances.

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 our first tier foreign subsidiaries, including Capital, are pledged to secure obligations under the Credit Facilities. As of December 31, 2004, $15.0 million was drawn under the revolving credit facility and $13.3 million was 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 Facilities with the administrative agent for the lenders. The amendment includes changes to certain of the financial and other covenants contained in the Credit Facilities and increases the current interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Euro dollar loans. Until we meet certain target leverage ratios, as defined, availability under the amended facility is reduced to $50.0 million, up to $12.5 million of which is available for our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.4 million to our lenders. As of December 31, 2004, we are in compliance with the financial covenants, as amended, and we expect to continue to be in compliance in future periods. The amendment also requires us to receive an equity investment of at least $7.5 million prior to March 28, 2005. On September 30, 2004, we entered into a standby purchase agreement with Michael G. DeGroote pursuant to which we may require Mr. DeGroote to purchase shares of our common stock for a purchase price of $7.5 million on or before March 28, 2005. As of March 4, 2005, we exercised our rights under the purchase agreement thereby requiring Mr. DeGroote to purchase such shares.

     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.

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

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 semiannually on October 15 and April 15. The Subordinated Notes are redeemable, in whole or in part, at our option, on or after April

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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 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. The 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.

     We also entered into a Registration Rights Agreement with the initial purchasers of the Subordinated Notes in which we agreed to (i) file a registration statement with respect to the Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28, 2004), pursuant to which we will exchange the Subordinated Notes for registered notes with terms identical to the Subordinated Notes; (ii) have such registration statement declared effective within 210 days of the issuance date; (iii) maintain the effectiveness of such registration statement for minimum periods specified in the agreement and (iv) file a shelf registration statement in the circumstances and within the time periods specified in the agreement. As we need to file our re-audited Florida Recycling financial statements and pro forma financial statements prior to filing the registration statement, we have not filed the registration statement with respect to the Subordinated Notes and, therefore, we are required to pay liquidated damages, in cash, in an amount equal to $0.05 per week per $1,000 in principal amount, of the unregistered Subordinated Notes, for each week that the default continues for the first 90-days following default (approximately $8,000 per week.) Thereafter, the amount of liquidated damages increases by an additional $0.05 per week per $1,000 in principal amount of unregistered Subordinated Notes for each subsequent 90-day period until all defaults have been cured, to a maximum of $0.50 per week per $1,000 in principal amount of unregistered Subordinated Notes outstanding. These liquidated damages are payable at the same time as interest payments due under the Subordinated Notes. Currently, our interest penalty approximates $24,000 per week until May 26, 2005 when it will increase to $32,000 per week.

Equity Placement

     On April 30, 2004, we raised approximately $50.7 million, after deducting expenses of approximately $2.9 million, from the sale of 13,400,000 Common Shares and warrants to purchase 1,340,000 Common Shares in private placement transactions to certain investors. Sanders Morris Harris Inc. acted as the placement agent for the issuance and was paid a placement agent fee of approximately $2.7 million. Don A. Sanders, a director of ours at the time of such issuance, is a principal of Sanders Morris Harris Inc.

     On March 4, 2005, we exercised our put rights under our standby purchase agreement with Michael DeGroote, thereby requiring Mr. DeGroote to purchase shares of our common stock for $7.5 million on or before March 28, 2005. Pursuant to the standby purchase agreement, the price per share will be equal to 85% of the average of the closing price of our common stock during the ten trading days ending on the second trading day preceding the closing of the transaction. Mr. DeGroote will also receive warrants to purchase our common stock equal to 10% of the shares issued with an exercise price equal to the purchase price for the Common Shares. Upon closing the transaction, Mr. DeGroote will receive a $375,000 commitment fee, which is in addition to the $375,000 fee upon execution of the standby purchase agreement. This equity infusion was required as a condition to our amended credit facility and will provide additional liquidity for us.

Cumulative Mandatory Redeemable Preferred Stock

     In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the “Preferred Stock”) to Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively “Kelso”), pursuant to the terms of an agreement dated as of May 6, 2003, as amended in February and June 2004 (the “Subscription Agreement”), at a price of $1,000 per share. We also issued to Kelso warrants to purchase 7,150,000

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shares of our common stock (on a one-for-one basis) for $3.00 per share. The warrants are exercisable at anytime 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. The liquidation preference approximated $73.4 million as of December 31, 2004. 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.

     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. Until May 6, 2006, we may redeem all or any part of the Preferred Stock on payment of the sum of $1,000 per share plus accrued and unpaid dividends calculated as if the Preferred Stock were redeemed on May 6, 2006, or approximately $92.7 million. If we do not exercise our option to redeem all of the Preferred Stock by May 6, 2009, Kelso may require us to initiate a sale of our assets on terms acceptable to our board consistent with the exercise of their fiduciary duties. Pursuant to an amendment to the Certificate of Designations dated April 30, 2004, if we determine, after conducting a sale process, that any such sale would not yield sufficient proceeds to repay in full the indebtedness then outstanding under our Credit Facilities and the redemption amount of our Subordinated Notes issued on April 30, 2004, or at least $320.0 million, then we may elect to delay such sale. The sale date may be delayed until the earliest to occur of (i) the final maturity date of the Subordinated Notes (April 15, 2014); (ii) the date on which our Credit Facilities and the Subordinated Notes are fully repaid or otherwise satisfied or (iii) a sale of our assets to a third party. We refer to this date as the delayed sale date. If we do not initiate and complete a sale of our assets within 20 months of initiation of the sale process by the holders of the Preferred Stock, then on notice from the holders of the Preferred Stock, all outstanding Preferred Stock will become due and payable on the first anniversary of the date on which the holders of 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.

Migration Transaction

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

     The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and consisted primarily of: (1) the exchange of 87,657,035 Common Shares of Capital for 87,657,035 shares of our common stock; and (2) the conversion of the remaining 9,229,676 Common Shares of Capital held by non-US residents who elected to receive exchangeable shares into 9,229,676 exchangeable shares of Capital (now Waste Services (CA) Inc.). 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 Capital are the economic and functional equivalent of our common stock. Holders of exchangeable shares (1) will receive the same dividends as holders of shares of our common stock and (2) will be entitled to vote on the same matters as holders of shares of our common stock. Such voting is accomplished through the one (1) 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 vote for each exchangeable share). As such, the exchangeable shares are a component

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of our common equity.

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

Surety Bonds and Letters of Credit

     Municipal solid waste services contracts, 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 December 31, 2004, we had provided customers and various regulatory authorities with such bonds and letters of credit amounting to approximately $67.7 million to collateralize our obligations. The majority of these obligations expire over the next year and will need to be renewed.

Cash Flows

     The following discussion relates to the major components of the changes in cash flows for the years ended December 31, 2004 and 2003.

Cash Flows from Operating Activities

     Cash provided by operating activities were $24.7 million for the year ended December 31, 2004 and $9.4 million for the year ended December 31, 2003. The increase in cash provided by operating activities is primarily due to cash generated from our Canadian operations and domestic acquisitions as well as improvements in working capital.

     Cash provided by operating activities were $9.4 million for the year ended December 31, 2003, and $13.7 million for the year ended December 31, 2002. The decrease in cash provided by operating activities is primarily due to increased overhead spending, as previously discussed, partly offset by increased cash from our working capital.

Cash Flows used in Investing Activities

     Cash used in investing activities was $198.2 million for the year ended December 31, 2004 and $195.6 million for the year ended December 31, 2003. The increase in cash used in investing activities is primarily due to the various business acquisitions we completed during 2004 and increased capital expenditures. Capital expenditures were $46.2 million for the year ended December 31, 2004. We expect our capital expenditures to range from $37.0 to $38.0 million for all of 2005. Proceeds from business divestures of $14.2 million primarily related to the sale of non-core assets acquired as part of the Allied and Florida Recycling transactions. We intend to finance future capital expenditures and business acquisitions through operating cash flow, borrowings under our existing credit facilities, proceeds from asset sales and the issuance of equity and/or other debt securities.

     Cash used in investing activities was $195.6 million for the year ended December 31, 2003, and $39.8 million for the year ended December 31, 2002. The increase in cash used in investing activities during 2003 was primarily due to our acquisition activity. During the year ended December 31, 2003, we purchased certain assets from Allied for $81.1 million in cash, all the membership interests in the entity which owns the JED Landfill for $68.1 million in cash, and we acquired a number of smaller companies for an aggregate cash purchase price of approximately $12.2 million. Capital expenditures also increased by $12.3 million for the year ended December 31, 2003 versus 2002 primarily due to increased spending related to landfill development, and in the prior year, approximately $1.8 million in capital expenditures was financed with capital leases. In addition, cash deposits for pending business acquisitions increased $9.9 million over the prior year.

Cash Flows from Financing Activities

     Cash provided by financing activities was $160.7 million for the year ended December 31, 2004 and $205.1 million for the year ended December 31, 2003. The decrease in cash flows from financing activities is due to overall lower equity offerings and related proceeds offset by releases of cash collateral supporting outstanding letters of credit.

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     Cash provided by financing activities was $205.1 million for the year ended December 31, 2003, and $25.4 million for the year ended December 31, 2002. As previously discussed, the increase in cash flows from financing activities is primarily due to proceeds from our Credit Facilities and the issuance of Series 1 preferred shares, Preferred Stock, and our Common Shares, the proceeds of which were primarily used to finance acquisitions and repay our previous senior secured credit facility.

New Accounting Pronouncements

     On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

     Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on July 1, 2005.

     Statement 123(R) permits public companies to adopt its requirements using one of two methods:

1.

A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

2.

A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

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

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.

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 Environment Inc. (collectively the “RCI Companies”) and Intersan Inc. pursuant to which we have posted a letter of credit for C$4.0 million to secure our obligations and those of the RCI Companies to Intersan Inc. Concurrently with the put or pay disposal agreement with the RCI Companies, we entered into a three year agreement with Waste Management of Canada Corporation (formerly Canadian Waste Services Inc.) to allow us to deliver non-hazardous solid waste to their landfill in Michigan. Details of these agreements are further described in Note 12 of our annual financial statements for the year ended December 31, 2004.

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Tabular Disclosure of Contractual Obligations

     We have various commitments primarily related to funding of short-term debt, our Preferred Stock, closure and post-closure obligations and capital and operating lease commitments. You should also read our discussion regarding “Liquidity and Capital Resources” contained herein. The following table provides details regarding our contractual obligations and other commercial commitments subsequent to December 31, 2004 (in thousands):

Other Contractual Arrangements

     In connection with a certain acquisition in December 2003 and the issuance of the 600,000 Common Shares, 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 any loss on sales of shares below $4.75 per share.

     In the normal course of our business, we have other commitments and contingencies relating to environmental and legal matters. For a further discussion of commitments and contingencies, see Note 12 to our Consolidated Financial Statements contained elsewhere in this annual report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     A portion of our operations are domiciled in Canada; as such, we translate the results of our operations and financial condition of our Canadian operations into U.S. dollars. Therefore, our reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar our revenue is favorably affected and conversely our expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet date, and revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian 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 each of the three years ended December 31, 2004, 2003 and 2002 we estimate that a 5.0% increase or decrease in the relationship of the Canadian dollar to the U.S. dollar would increase or decrease operating profit from our Canadian operations by less than $0.4 million.

     As of December 31, 2004, 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 Eurodollar loans as defined. A 25 basis point increase in base interest rates would increase annual cash interest expense by approximately $0.3 million.

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Item 8. Financial Statements and Supplementary Data

     All financial statements and supplementary data that are required by this Item are listed in Part IV, Item 15 of this annual report, are presented beginning on Page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     PricewaterhouseCoopers LLP (“PwC”), Toronto, Ontario audited our Consolidated Financial Statements for the year ended December 31, 2002. In February 2003, PwC informed us that they declined to stand for reelection as our independent accountants. The report of PwC on our consolidated financial statements as of and for the year ended December 31, 2002 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle.

     In connection with their audit for the year ended December 31, 2002 and for the interim period through the filing date of this report, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PwC, would have caused them to make reference thereto in their report on the financial statements for such year. During the year ended December 31, 2002, there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K with respect to us.

     On October 7, 2003, the Audit Committee of our Board of Directors approved the engagement of the firm BDO Dunwoody LLP (“BDO”), Toronto, Ontario to act as our new independent accountants to audit our financial statements for the year ending December 31, 2003. During the years ended December 31, 2001 and 2002 and through October 7, 2003, we did not consult with BDO regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was either the subject of a disagreement, as contemplated by Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

     As a result of our migration transaction, the Audit Committee of the Board of Directors on July 27, 2004 appointed the U.S. member firm of BDO world wide, BDO Seidman LLP, as our principal independent auditor for the year ended December 31, 2004. BDO, the Canadian member firm of BDO world wide, will continue to provide audit, audit-related and tax services as we continue to have significant operations located in Canada. BDO Dunwoody LLP’s audit report on our Financial Statements for the year ended December 31, 2003, did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle.

     For the year ended December 31, 2003 and through the filing date of this report, there have been no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to BDO’s satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their report. For the years ended December 31, 2003, and through July 27, 2004, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.

     During the years ended December 31, 2003, and through July 27, 2004, we did not consult BDO Seidman, LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or any other matters or reportable events as defined in Item 304(a)(1)(v) of Regulation S-K, other than in connection with carrying out the review procedures required under Appendix K of the SEC Practice Section rules (subsequently adopted by the PCAOB).

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Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control 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.

Management's Report on Internal Control Over Financial Reporting

     The report is included in Item 8 of this annual report.

Attestation Report of Registered Public Accounting Firm

     The report is included in Item 8 of this annual report.

Item 9B. Other Information

     None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors

     The following table sets forth certain information with respect to our directors as of March 1, 2005:

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     Biographical information regarding each of our directors is set forth below:

     David Sutherland-Yoest has been Chairman and Chief Executive Officer and a director since September 6, 2001. Mr. Sutherland- Yoest also held the position of Chairman and Chief Executive Officer of H₂O Technologies Ltd., a water purification company, from March 2000 to October 2003 and served as a director of H₂O Technologies Ltd. from March 2000 to January 2004. Mr. Sutherland-Yoest served as the Senior Vice President — Atlantic Area of Waste Management, Inc. from July 1998 to November 1999. From August 1996 to July 1998, he was the Vice Chairman and Vice President — Atlantic Region of USA Waste Services, Inc., or USA Waste and the President of Canadian Waste Services, Inc., which, during such time, was a subsidiary of USA Waste. Prior to joining USA Waste, Mr. Sutherland-Yoest was President, Chief Executive Officer and a director of Envirofil, Inc. Between 1981 and 1992, he served in various capacities at Laidlaw Waste Systems, Inc. and Browning-Ferris Industries, Ltd.

     Gary W. DeGroote has been a director since September 6, 2001. Mr. DeGroote has been the President and sole director of GWD Management Inc., a private investment holding company since 1981. From 1991 to 1995, Mr. DeGroote was President and a director of Republic Environmental Systems Ltd. From 1976 through 1989, Mr. DeGroote served in various positions at Laidlaw Waste Systems Ltd. and its affiliates, including as Vice President and served as a member of the board of directors of Laidlaw Inc. from 1983 to 1989. Mr. DeGroote also serves as a director of Century Business Services, Inc.

     Lucien Rémillard has been a director since September 6, 2001. Mr. Rémillard has been the President and Chief Executive Officer of RCI Environnement Inc., a waste management company, since 1997. From 1981 to 1995, Mr. Rémillard was the President and Chief Executive Officer of Intersan, Inc., a waste management company. Mr. Rémillard has also served as a director of the Greater Montreal Area Comite Paritaire des Boueurs, the organization regulating labor relations for the Montreal solid waste removal industry, since 1983. Mr. Rémillard is also Chairman of the board of directors of Remstar Corporation, an independent distribution and film production company.

     Jack E. Short became a director on July 28, 2004. In July 2001, Mr. Short was appointed by the Federal Bankruptcy court for Northern Oklahoma to act as plan agent in the consolidated bankruptcy of Manchester Gas Storage, Inc., and MGL, Inc. In March 2004, a court order was given to close the case and discharge the plan agent. In June 2002, Mr. Short was appointed to the board of T.D. Williamson, Inc. and serves on the finance and audit committees of that company. In July 2004, Mr. Short was appointed to the board of AAON, Inc. and serves on the audit and governance committees. Mr. Short was a partner at PricewaterhouseCoopers LLP from 1976 to 1981 and was readmitted to the partnership in 1987 and was a partner until his retirement in 2001. From 1981 to 1987, Mr. Short was in private industry. In 1994, Mr. Short was appointed for a five-year term to the Oklahoma Board of Accountancy, serving as its chairman for two of those years.

     Wallace L. Timmeny became a director on July 28, 2004. Mr. Timmeny has been a partner in the law firm of Dechert LLP since 1996. Mr. Timmeny is a past chairman of the Executive Council of the Securities Law Committee of the Federal Bar Association. From 1965 to 1979, Mr. Timmeny was an attorney with the U.S. Securities and Exchange Commission and ultimately the deputy director of its Division of Enforcement. Mr. Timmeny serves on the board of directors for Quanta Capital Holdings Ltd. and Friedman, Billings, Ramsey Group, Inc.

     Michael J. Verrochi became a director on July 28, 2004. Mr. Verrochi is currently Chairman and Chief Executive Officer of Verrochi Realty Trust and Chairman and Chief Executive Officer of Monadnock Mountain Spring Water. Mr. Verrochi served in senior executive positions, including Executive Vice-President, with Browning-Ferris Industries, Inc., a solid waste management company, and as a member of its board of directors.

     George E. Matelich has been a director since May 6, 2003. Mr. Matelich has been a Managing Director of Kelso & Company since 1990. Mr. Matelich has been affiliated with Kelso & Company since 1985. Mr. Matelich serves as a director of Optigas, Inc. and as a Trustee of the University of Puget Sound. Mr. Matelich is a nominee to the Board of Directors of Kelso Investment Associates VI, L.P. and KEP VI, LLC, affiliates of Kelso & Company, as holders of our Preferred Stock.

     Michael B. Lazar has been a director since May 6, 2003. Mr. Lazar is a Managing Director at Kelso & Company. Mr. Lazar joined Kelso in 1993 and has been involved in the firm’s private equity transactions since that time. Prior to joining Kelso &

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Company, Mr. Lazar worked in the Acquisition Finance Group at Chemical Securities, Inc. (predecessor to JP Morgan Securities, Inc.). Mr. Lazar started his career in the Corporate Finance and Structured Finance Groups at Chemical Bank as an Investment Banking Analyst. Mr. Lazar is also a director of Endurance Business Media, Inc. Mr. Lazar is a nominee to the Board of Directors of Kelso Investment Associates VI, L.P. and KEP VI, LLC, affiliates of Kelso & Company, as holders of our Preferred Stock.

     We have a separately designated standing Audit Committee. On August 11, 2004, following completion of the migration transaction pursuant to which we became the parent company of Waste Services (CA) Inc. (the “Migration”), Jack E. Short, Wallace L. Timmeny and Michael J. Verrochi were appointed to the Audit Committee and Jack E. Short was named the Chair. Our board of directors determined at that time that we have at least one audit committee financial expert serving on the Audit Committee, Jack E. Short, who is an independent director.

     Prior to the Migration, the members of the Audit Committee of Waste Services (CA) Inc. were George E. Matelich, Gary W. DeGroote and Don A. Sanders. George E. Matelich was the Chair and was designated by the board of directors of Waste Services (CA) Inc. as the audit committee financial expert.

Section 16 (a) Beneficial Ownership Reporting Compliance

     Based solely on a review of reports of ownership, reports of changes of ownership and written representations under Section 16 (a) of the Exchange Act that were furnished to us during fiscal 2004 for persons who were, at any time during fiscal 2004, our directors or executive officers or beneficial owners of more than 10% of the outstanding shares of our common stock, all filing requirements for reporting persons were met except by Larry D. Henk who filed one late report with respect to one transaction and by Westbury Bermuda Limited which filed one late report with respect to one transaction.

Code of Ethics

     We have adopted a Code of Business Conduct and Ethics which applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer and Corporate Controller. A copy of the Code of Business Conduct and Ethics may be accessed on our website http://www.wasteservicesinc.com.

Item 11. Executive Compensation

Compensation Paid to Named Executive Officers

     The following table provides information relating to compensation for our last three years for each person who served as the Chief Executive Officer during fiscal 2004 and our four other most highly compensated executive officers serving at the end of 2004. The amounts shown include compensation for services in all capacities that were provided to us and our direct and indirect subsidiaries and predecessors.

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Summary Compensation Table

     The following table summarizes options granted to the named executive officers during 2004:

Option/SAR Grants in Last Year

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Year-End Option/SAR Values

     The following table shows the value of unexercised options held by the named executive officers at the end of 2004. No options were exercised by the named executive officers during 2004.

Directors’ Compensation

     The Board of Directors has determined that the outside directors will receive the following compensation for acting as directors effective from July 31, 2004:

	•	$15,000 as an annual retainer for each Director
	•	$20,000 as additional annual retainer for Chair of the Audit Committee
	•	$15,000 as an additional retainer for members of the Audit Committee
	•	$5,000 as an additional annual retainer for Chair of the Compensation Committee
	•	$5,000 as additional annual retainer for the Chair of the Corporate Governance Committee
	•	$1,500 or $500 per meeting participation in person or by telephone, respectively.

Employment Agreements

     David Sutherland-Yoest. Mr. Sutherland-Yoest is employed as our Chairman and Chief Executive Officer pursuant to an employment agreement enter into on September 7, 2001. The agreement had an initial term of three years, which term has automatically extended and will continue until notice is given that the employment term will not be extended. Under this employment agreement, Mr. Sutherland-Yoest is entitled to a base salary as determined from time to time by the Board of Directors on the recommendation of the Compensation Committee, plus an annual bonus of up to 100% of his base salary, subject to satisfaction of annual performance objectives mutually agreed upon by the Board of Directors and Mr. Sutherland-Yoest at the beginning of each year. The employment agreement provides for the following benefits upon termination: (a) if the agreement is terminated upon death or total disability or by Mr. Sutherland-Yoest within six months following a change of control, Mr. Sutherland-Yoest or his beneficiaries will be paid his base salary for a period of three years from the effective date of termination plus a lump sum payment equal to three times the average of the cash bonuses paid to him in each of the two most recently completed years, he will receive company benefits for a period of three years, and any stock options granted will continue to vest as if Mr. Sutherland-Yoest were still employed; (b) if the agreement is terminated for cause, Mr. Sutherland-Yoest will be entitled to receive all accrued but unpaid base salary, expenses and any earned benefits; (c) if the agreement is terminated by Mr. Sutherland-Yoest voluntarily, Mr. Sutherland-Yoest will be entitled to receive any accrued but unpaid base salary, expenses and any earned benefits; and (d) if the agreement is terminated without cause, Mr. Sutherland-Yoest will continue to receive his base salary and will receive company benefits until the first anniversary of the effective date of termination, and any stock options will vest and be exercisable until the end of the option term as set out in the option grant. Mr. Sutherland-Yoest’s employment agreement also provides for other customary benefits and perquisites and prohibits him from competing with us during the term of his employment and for a specified period following termination.

     Charles A. Wilcox. Mr. Wilcox is employed as our President and Chief Operating Officer pursuant to the terms of an employment agreement entered into as of July 1, 2004. The employment agreement is for an indefinite term. Mr. Wilcox is entitled to a base salary of $450,000 and a discretionary cash bonus of up to 75% of his base salary in fiscal 2004 and thereafter of up to 100% of his base salary. Mr. Wilcox received a one-time bonus of $125,000 at the time of entering into his employment agreement. His employment agreement provides for the following termination benefits: (a) upon Mr. Wilcox’s death or if we terminate Mr. Wilcox’s employment by reason of his total disability, Mr. Wilcox or his beneficiaries are entitled to continue to receive his base salary for three years and is entitled to payment of his average bonus paid in the prior three years (or where Mr. Wilcox has been employed for less than three years, his full bonus entitlement in the immediately preceding fiscal year) in monthly installments over thirty-six months and all of his options then outstanding vest immediately and continue to be exercisable for the balance of their term; (b) upon termination of the agreement by us without cause or by Mr. Wilcox for good reason, Mr. Wilcox is entitled to continue to receive his base salary for a period three years and to payment of his average bonus in the prior three years (or where Mr. Wilcox has been

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employed for less than three years, his full bonus entitlement in the immediately preceding fiscal year), in equal installments over thirty-six months and all of Mr. Wilcox’s options then vest and continue to be exercisable for the balance of their term. If Mr. Wilcox’s employment is terminated by us without cause or by him for good reason and a change of control has occurred with the two years preceding or the one year after the effective date of his termination, then Mr. Wilcox is entitled to receive a lump sum payment of three times both his base salary and his average bonus. If Mr. Wilcox terminates his employment voluntarily or if his employment is terminated for cause, Mr. Wilcox is only entitled to receive any accrued by unpaid base salary, expenses and any unearned benefits. Mr. Wilcox’s employment agreement also provides for other customary benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Wilcox from competing against us during the term of his employment and for a specified period following his termination..

     Ivan R. Cairns. Mr. Cairns is employed as our Executive Vice-President, General Counsel and Corporate Secretary pursuant to an employment agreement effective January 5, 2004. The term of Mr. Cairns’ employment is indefinite. Mr. Cairns is entitled to a base salary of $330,000 and a discretionary annual cash bonus of up to 100% of his base salary. The employment agreement provides for the following termination benefits: (a) upon Mr. Cairns’ death or if the agreement is terminated by us by reason of Mr. Cairns’ total disability, Mr. Cairns or his beneficiaries are entitled to continue to receive his base salary for three years and is entitled to payment of his average bonus paid in the prior three years (or where Mr. Cairns has been employed for less than three years, his full bonus entitlement in the immediately preceding fiscal year) in monthly installments over thirty-six months and all of his options then outstanding vest immediately and continue to be exercisable for the balance of their term; (b) upon termination of the agreement by us without cause or by Mr. Cairns for good reason, Mr. Cairns is entitled to continue to receive his base salary for a period two years and to payment of his average bonus in the prior two years, in equal installments over twenty-four months and all of Mr. Cairns’ options then vest and continue to be exercisable for the balance of their term. If however, Mr. Cairns’ employment is terminated by us without cause or by him for good reason and a change of control has occurred with the two years preceding or the one year after the effective date of his termination, then Mr. Cairns is entitled to receive a lump sum payment of three times his base salary and his average bonus. If Mr. Cairns terminates his employment voluntarily or if his employment is terminated for cause, Mr. Cairns is only entitled to receive any accrued by unpaid base salary, expenses and any unearned benefits. Mr. Cairns’ employment agreement also provides for other customary benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Cairns from competing against us during the term of his employment and for a specified period following his termination.

     Mark A. Pytosh. Mr. Pytosh entered into an employment agreement with us effective February 23, 2004. The employment agreement is for an indefinite term. By the terms of his employment agreement, Mr. Pytosh is entitled to a base salary of $400,000 and a discretionary cash bonus of up to 100% of his base salary. The employment agreement provides for the following termination benefits: (a) upon Mr. Pystosh’s death or if we terminate Mr. Pytosh’s employment by reason of his total disability, Mr. Pytosh or his beneficiaries are entitled to continue to receive his base salary for three years and is entitled to payment of his average bonus paid in the prior three years (or where Mr. Pytosh has been employed for less than three years, his full bonus entitlement in the immediately preceding fiscal year) in monthly installments over thirty-six months and all of his options then outstanding vest immediately and continue to be exercisable for the balance of their term; (b) upon termination of the agreement by us without cause or by Mr. Pytosh for good reason, Mr. Pytosh is entitled to continue to receive his base salary for a period of two years and to payment of his average bonus in the prior two years (or where Mr. Pytosh has been employed for less than two years, his full bonus entitlement in the immediately preceding fiscal year), in equal installments over twenty-four months and all of Mr. Pytosh’s options then vest and continue to be exercisable for the balance of their term. If Mr. Pytosh’s employment is terminated by us without cause or by him for good reason and a change of control has occurred with the two years preceding or the one year after the effective date of his termination, then Mr. Pytosh is entitled to receive a lump sum payment of three times both his base salary and his average bonus. If Mr. Pytosh terminates his employment voluntarily or if his employment is terminated for cause, Mr. Pytosh is only entitled to receive any accrued by unpaid base salary, expenses and any unearned benefits. Mr. Pytosh’s employment agreement also provides for other customary benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Pytosh from competing against us during the term of his employment and for a specified period following his termination

     Ronald L. Rubin entered into an employment agreement with us effective September 2, 2003. The agreement is for an initial term of two years and automatically renews thereafter for successive one year terms. Mr. Rubin is entitled to receive a base salary of $300,000 and a discretionary annual cash bonus of up to 80% of his base salary. Mr. Rubin also received a one-time payment of $150,000 on signing his employment agreement. The employment agreement provides for the following termination benefits: (a) if the agreement is terminated upon Mr. Rubin’s death or total disability or by us without cause or by Mr. Rubin for good reason, Mr. Rubin or his beneficiaries will continue to be paid his base salary for the remainder of his employment term and all outstanding options granted to Mr. Rubin prior to his termination shall vest and be exercisable in accordance with the terms of the stock option plan pursuant to which the options were granted; (b) if the agreement is terminated by us without cause or by Mr. Rubin for good reason and a change of control has occurred within the two year period preceding or within the one year period following the effective date of

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termination, Mr. Rubin is entitled to receive a lump sum payment equal to his base salary then in effect immediately upon termination and Mr. Rubin’s options will vest as described above; (c) if the agreement is terminated for cause or by Mr. Rubin voluntarily and without good reason, Mr. Rubin is entitled to receive any accrued but unpaid base salary, expenses and any unearned benefits. The employment agreement also provides for other customary benefits and perquisites and prohibits Mr. Rubin from competing with us during the term of his employment and for a specified period following termination.

Compensation Committee Interlocks and Insider Participation

     Effective August 11, 2004, the Compensation Committee was established following completion of the Migration. Wallace L. Timmeny, Chair, Gary W. DeGroote and Michael B. Lazar were appointed to the Compensation Committee at that time. None of the members of our Compensation Committee currently serve as our officers or employees or of any of our subsidiaries nor are any of the current members former officers of ours or any of our subsidiaries. Prior to the Migration, Don A. Sanders, Gary W. DeGroote and Lucien Rémillard served on the compensation committee of Waste Services (CA) Inc. No member of the Waste Services (CA) Inc. Compensation Committee was an officer or employee or former officer of Waste Services (CA) Inc. or any of its subsidiaries.

     In April 2004, we entered into a placement agent agreement with Sanders Morris Harris Inc., or SMH, pursuant to which we agreed to pay SMH a fee for the private placement of 1,340,000 shares of our common stock sold through SMH to certain investors We paid SMH a fee of approximately $2.7 million pursuant to the agreement. Don A. Sanders is a principal of SMH and was a director and a member of our Compensation Committee at the time of the payment to SMH.

     In November 2002, we entered into a Put or Pay Disposal Agreement with RCI Environnement Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM Environnement Inc., collectively the RCI Companies, and Intersan Inc., or Intersan, a subsidiary of Canadian Waste Services Inc (now Waste Management of Canada Corporation.), pursuant to which we and the RCI Companies agreed to deliver to certain of Intersan’s landfill sites and transfer stations in Quebec, Canada, over the first five-year term of the Agreement, 850,000 metric tons of waste per year, and for the next two years after the expiration of the first five-year term, 710,000 metric tons of waste per year at a fixed disposal rate set out in the Put or Pay Disposal Agreement. If we and the RCI Companies fail to deliver the required tonnage, we are jointly and severally required to pay to Intersan, C$23.67 per metric ton for every metric ton below the required tonnage. If a portion of the annual tonnage commitment is not delivered to a specific site, we are also required to pay C$8.00 per metric ton for every metric ton below the site specific allocation. Our obligations to Intersan are secured by a letter of credit for C$4.0 million. No payments were made or required to be made to Intersan pursuant to the Put or Pay Disposal Agreement in the period from January 1, 2004 to December 31, 2004. Lucien Rémillard is also a director of and controls the RCI Companies and is a director and was a member of our Compensation Committee for part of our 2004 fiscal year.

     Concurrently with the Put or Pay Disposal Agreement, we entered into a three-year agreement with Waste Management, Inc. to allow us to deliver up to 75,000 metric tons of non-hazardous waste in the first year and up to 100,000 metric tons in years two and three of the Agreement to Waste Management’s landfill in Michigan at negotiated fixed rates per ton.

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, conducted ongoing negotiations with Lucien Rémillard with respect to our potential acquisition of the solid waste collection and disposal assets owned by Mr. Rémillard in Quebec. In connection with these negotiations, we have reimbursed Mr. Rémillard’s company for expenses in the aggregate amount of approximately C$2.2 million for services provided by third parties to December 31, 2004 in connection with preparing audited financial statements of the business and with ongoing efforts to expand the capacity of a solid waste landfill. There is no assurance that an acquisition of the business will be completed and, if not, we will not be reimbursed for the expenses we incurred.

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, used the services of an aircraft owned by Gary W. DeGroote at a total cost of C$0.2 million. This amount was based upon the fixed and operating expenses of the aircraft.

     During 2004, we entered into a lease of office premises in an office tower in Burlington, Ontario owned by Westbury International (1991) Corporation, a property development company controlled by Michael H. DeGroote, Gary W. DeGroote’s brother. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10.5 years, with a right to extend for a further five years. Base rent escalates from Cdn. $0.1 million to Cdn.$0.2 million per year in increments over the term of the lease.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The following table sets forth information regarding the beneficial ownership of our shares of common stock and exchangeable shares as of March 1, 2005, by each person or entity that is known by us to own more than 5% of the shares of common stock and exchangeable shares. As of such date, the number of issued and outstanding shares in our capital stock was 99,593,680, including exchangeable shares of Waste Services (CA) Inc. not owned directly or indirectly by us. Unless otherwise indicated, the address of each beneficial holder listed below is c/o Waste Services, Inc., 1122 International Blvd., Suite 601, Burlington, Ontario L7L 6Z8.

     Information regarding share ownership as of March 1, 2005 of our directors and named executive officers is set forth below:

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Securities Authorized for Issuance under Equity Compensation Plans

     The following table summarizes securities authorized for issuance under our existing equity compensation plans as at December 31, 2004:

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Item 13. Certain Relationships and Related Transactions

     Other than those listed in this section, we have not entered into any material transactions during the period beginning on January 1, 2004 through March 1, 2005 in which any of our directors, officers or holders of more than 5% of our common stock, or any member of the immediate family of any such director or officer or shareholder has or had any interest.

Advisory Services

     In February 2004, we paid Kelso & Company, L.P. a $0.5 million fee in connection with services related to the arrangement of the senior secured credit facilities that were entered into on December 31, 2003. Two of our directors are nominees to the Board of Kelso & Company, L.P. and are affiliates of Kelso & Company, L.P. George E. Matelich is a Managing Director of Kelso & Company, L.P., and Michael B. Lazar is a Managing Director of Kelso & Company, L.P.

Placement Agent Fees

     Sanders Morris Harris Inc. or SMH acted as placement agent on the issuance of 1,340,000 Common Shares and were paid a placement agent fee of approximately $2.7 million on April 30, 2004. SMH is a beneficial owner of our common stock and Don A. Sanders, a director at the time that the payments were made, is a principal of SMH.

Lease of Premises

     In 2003, we purchased furnishings and leasehold improvements from H₂O Technologies, Ltd. for $0.3 million and assumed a lease of premises from David Sutherland-Yoest. David Sutherland-Yoest, our Chairman and Chief Executive Officer served, until October of 2003, as Chairman and Chief Executive Officer of H₂O Technologies, Ltd. and, until January 2004, as a director of H₂O Technologies, Ltd. The purchase price was determined based on an appraisal. The lease expires on March 31, 2005 with annual rent and operating costs of less than $0.1 million.

Florida Recycling Acquisition

     On April 30, 2004, we acquired from. Larry Henk, our then President and Chief Operating Officer, 3% of the total issued common stock of Florida Recycling Services, Inc., or FRS which Mr. Henk had acquired prior to his commencing his employment with us. Mr. Henk was paid approximately $3.0 million in cash and was issued 277,500 Common Shares as consideration. Under an agreement with the sellers of FRS entered into prior to Mr. Henk’s employment, Mr. Henk was paid a fee of approximately $2.5 million by the sellers following the closing of our acquisition of the shares of FRS. In September, 2004 pursuant to an agreement with the sellers of FRS, Mr. Henk agreed to repay $22,500 of the proceeds he received and return 15,000 Common Shares to us.

Standby Purchase Agreement

     On September 30, 2004 we entered into a standby purchase agreement with Michael G. DeGroote, Gary W. DeGroote’s father, pursuant to which we may require him to purchase shares of our common stock having an aggregate purchase price of $7.5 million on March 28, 2005. On March 4, 2005, we exercised our put rights under the standby purchase agreement. The shares will be purchased at 85% of the average of the closing prices of our common stock during the period from the eleventh trading day through the second trading day preceding the closing of the transaction, on March 28, 2005. Mr. DeGroote will also receive warrants to purchase our common stock equal to 10% of the shares issued with an exercise price equal to the purchase price for the Common Shares. We paid Mr. DeGroote a commitment fee of $375,000 at the time of entering into the agreement and will pay him a further commitment fee of $375,000 on March 28, 2005.

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Other Transactions

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, used the services of an aircraft owned by Gary W. DeGroote at a total cost of C$0.2 million. This amount was based upon the fixed and operating expenses of the aircraft.

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, conducted ongoing negotiations with Lucien Rémillard with respect to the potential acquisition by Waste Services of the solid waste collection and disposal assets owned by Mr. Rémillard in Quebec. In connection with these negotiations, Waste Services has reimbursed Mr Rémillard’s company for expenses in the aggregate amount of approximately C$2.2 million for services provided by third parties to December 31, 2004 in connection with preparing audited financial statements of the business and with ongoing efforts to expand the capacity of a solid waste landfill. There is no assurance that an acquisition of the business will be completed and, if not, Waste Services will not be reimbursed for the expenses it has incurred.

     During 2004, we entered into a lease of office premises in an office tower in Burlington, Ontario owned by Westbury International (1991) Corporation, a property development company controlled by Michael H. DeGroote, Gary W. DeGroote’s brother. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10.5 years, with a right to extend for a further five years. Base rent escalates from Cdn. $0.1 million to Cdn.$0.2 million per year in increments over the term of the lease.

Item 14. Principal Accountant Fees and Services

Audit Fees

     Audit fees billed or expected to be billed for the 2004 audit by BDO Seidman, LLP approximate $1.278 million. Audit fees billed and paid for 2004 quarterly review and 2003 audit by BDO Dunwoody, LLP approximated $134,000 and $596,000, respectively.

     Audit fees were $366,000 in 2003 for PricewaterhouseCoopers LLP (related to the 2002 audit).

Audit-Related Fees

     Audit-related fees billed for 2004 by BDO Seidman, LLP approximate $5,500. Audited-related fees billed and paid for 2004 and 2003 by BDO Dunwoody, LLP approximated $259,000 and $73,000, respectively. The BDO Dunwoody, LLP fees primarily related to certain financing transactions which were closed during the first quarter of 2004. Audit related fees were $534,000 in 2003 for PricewaterhouseCoopers LLP.

Tax Fees

     Tax related fees were approximately $40,000 for 2004 by BDO Seidman, LLP. Tax fees were $17,000 in 2004 for BDO Dunwoody LLP. Tax fees were $92,000 in 2003 for PricewaterhouseCoopers LLP. These fees primarily relate to the preparation of our tax returns and related consulting services.

All Other Fees

     All other fees were nil in 2004 and 2003 for BDO Seidman, LLP, BDO Dunwoody, LLP, and PricewaterhouseCoopers LLP.

Pre-Approval Policies and Procedures

     The audit committee approves all audit, audit-related services, tax services and other services provided by BDO Seidman LLP. Any services provided by BDO Seidman LLP that are not specifically included within the scope of the audit must be pre-approved by the audit committee in advance of any engagement. Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve certain fees for audit-related services, tax services and other services pursuant to a de minimus exception prior to the completion of an audit engagement. In 2004, none of the fees paid to BDO Seidman LLP were approved pursuant to the de minimus exception.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

Consolidated Financial Statements

(a)(1) Consolidated Financial Statements

Management’s Report on Internal Controls over Financial Reporting
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

     Schedule II — Valuation and Qualifying Accounts schedule has been omitted as the required information is included in the Notes to Consolidated Financial Statements included herewith.

     All other schedules have been omitted because they are not applicable.

(3) Exhibits

     Documents filed as exhibits to this report or incorporated by reference:

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