UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        DC 20549
 
 
 **FORM
        10-Q**
 
 x QUARTERLY
        REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 For
        the
        Quarterly Period Ended March 31, 2006
 
 **OR**
 
 o TRANSITION
        REPORT
        PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 For
        the
        transition period from
        ____________________________to____________________________
 
 
 Commission
        File Number 0-11688
 
 **AMERICAN
        ECOLOGY CORPORATION**
 **(Exact
        name of registrant as specified in its charter)**
 
 DELAWARE
              
              95-3889638(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification Number)Lakepointe
                  Centre I,300
                  E. Mallard, Suite 300Boise,
                  Idaho
              
              83706(Address
                  of principal executive offices)
              
              (Zip
                  Code)
 
 (208)
        331-8400
 (Registrant’s
        telephone number, including area code)
 
 Indicate
        by check mark whether the Registrant (1) has filed all reports required to
        be
        filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months, and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x No o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 Large
                  accelerated filero
              Accelerated
                  filerx
              Non-accelerated
                  filero
 
 Indicate
        by check mark if the Registrant is a shell company (as defined in Rule 12b-2
        of
        the Act). Yes o No x
 
 At
        May 1,
        2006 Registrant had outstanding 18,112,016 shares of its Common
        Stock.
 
 
 
 
 **AMERICAN
        ECOLOGY CORPORATION**
 **Quarterly
        Report on Form 10-Q for the**
 **Three
        Months Ended March 31, 2006**
  
 **TABLE
        OF CONTENTS**
 
 
 **Part
        I. Financial Information**
  PAGEItem
                  1.
              Financial
                  StatementsConsolidated
                  Balance Sheets (Unaudited)
              4Consolidated
                  Statements of Operations
                  (Unaudited)
              5Consolidated
                  Statements of Cash Flows
                  (Unaudited)
              6Notes
                  to Consolidated Financial Statements
              7Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and
                  Results of Operations
              12Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              19Item
                  4.
              Controls
                  and Procedures
              19
 
 
 **Part
        II. Other Information**
  
 Item
                  1.
              Legal
                  Proceedings
              19Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              19Item
                  3.
              Defaults
                  Upon Senior Securities
              19Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              19Item
                  5.
              Other
                  Information
              20Item
                  6.
              Exhibits
              20Signatures
              20
  2
 
 **OFFICERS**
              **CORPORATE
                  OFFICE**Stephen
                  A. Romano
              Lakepointe
                  Centre I*Chief
                  Executive Officer, President and*
              American
                  Ecology Corporation*Chief
                  Operating Officer*
              300
                  East Mallard Drive, Suite 300Boise,
                  Idaho 83706Simon
                  G. Bell
              (208)
                  331-8400*Vice
                  President and Director of Hazardous Waste*
              (208)
                  331-7900 (fax)*Operations*
              www.americanecology.comJohn
                  M. Cooper*Vice
                  President and Chief Information Officer*Michael
                  J. Gilberg
              **COMMON
                  STOCK***Vice
                  President and Controller, Chief Accounting*
              American
                  Ecology Corporation's common stock*Officer,
                  Secretary and Treasurer*
              trades
                  on the Nasdaq National Market under thesymbol
                  ECOL.Steven
                  D. Welling*Vice
                  President of Sales & Marketing***FINANCIAL
                  REPORTS**A
                  copy of American Ecology Corporation**DIRECTORS**
              Annual
                  and Quarterly Reports, as filed on Form 10-KEdward
                  F. Heil, Chairman
              and
                  10-Q with the Securities and Exchange*Independent
                  Businessman*
              Commission,
                  may be obtained by writing:Lakepointe
                  Centre IRotchford
                  L. Barker
              300
                  E. Mallard, Suite 300*Independent
                  Businessman*
              Boise,
                  Idaho 83706or
                  atwww.americanecology.comRoy
                  C. Eliff*Independent
                  Businessman*Kenneth
                  C. Leung*Managing
                  Director, Sanders Morris Harris***TRANSFER
                  AGENT**Richard
                  Riazzi
              American
                  Stock Transfer & Trust Company*Independent
                  Businessman*
              59
                  Maiden LaneNew
                  York, New York 10038Stephen
                  A. Romano
              (718)
                  921-8289*Chief
                  Executive Officer, President and Chief*
              or
                  atwww.amstock.com*Operating
                  Officer*General
                  Jimmy D. Ross*U.S.
                  Army, Retired***AUDITOR**General
                  Richard T. Swope
              Moss
                  Adams LLP*U.S.
                  Air Force, Retired*
              1001
                  Fourth Avenue, Suite 2900Seattle,
                  WA 98154
  3
 *Table
            of Contents*
  **AMERICAN
        ECOLOGY CORPORATION**
 **CONSOLIDATED
        BALANCE SHEETS**
 **($
        in 000’s) (Unaudited)**
 
 
 March
                  31, 2006
              
              December
                  31, 2005ASSETSCurrent
                  Assets:Cash
                  and cash equivalents
              
              $
              5,027
              
              $
              3,641Short
                  term investments
              
              
              12,263
              
              
              16,214Receivables,
                  net
              
              
              14,134
              
              
              13,573Insurance
                  receivable
              
              
              157
              
              
              157Prepayments
                  and other
              
              
              2,576
              
              
              3,183Income
                  tax receivable
              
              
              1,248
              
              
              1,248Deferred
                  income taxes
              
              
              5,560
              
              
              6,714Total
                  current assets
              
              
              40,965
              
              
              44,730Property
                  and equipment, net
              
              
              47,992
              
              
              40,896Other
                  assets
              
              
              706
              
              
              822Deferred
                  income taxes
              
              
              1,871
              
              
              3,021Total
                  assets
              
              $
              91,534
              
              $
              89,469LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCurrent
                  Liabilities:Current
                  portion of long term debt
              
              $
              6
              
              $
              --Accounts
                  payable
              
              
              2,938
              
              
              3,665Deferred
                  revenue
              
              
              1,541
              
              
              1,261State
                  burial fees payable
              
              
              1,565
              
              
              1,454Management
                  incentive plan payable
              
              
              587
              
              
              1,272Customer
                  advances
              
              
              1,912
              
              
              1,535Customer
                  refunds
              
              
              1,144
              
              
              1,062Accrued
                  liabilities
              
              
              1,096
              
              
              1,337Accrued
                  closure and post closure obligation, current portion
              
              
              999
              
              
              1,127Total
                  current liabilities
              
              
              11,788
              
              
              12,713Long
                  term debt
              
              
              28
              
              
              --Long
                  term accrued liabilities
              
              
              565
              
              
              485Long
                  term customer advances
              
              
              1,374
              
              
              1,752Accrued
                  closure and post closure obligation, excluding current
                  portion
              
              
              10,577
              
              
              10,560Total
                  liabilities
              
              
              24,332
              
              
              25,510Commitments
                  and contingenciesShareholders’
                  equity:Convertible
                  preferred stock, 1,000,000 shares authorizedCommon
                  stock, $.01 par value, 50,000,000 authorized, 18,064,116 and 17,742,420
                  shares issued and outstanding
              
              
              180
              
              
              177Additional
                  paid-in capital
              
              
              54,935
              
              
              53,213Retained
                  earnings
              
              
              12,087
              
              
              10,569Total
                  shareholders’ equity
              
              
              67,202
              
              
              63,959Total
                  Liabilities and Shareholders’ Equity
              
              $
              91,534
              
              $
              89,469
  4
 *Table
            of Contents*
  **AMERICAN
        ECOLOGY CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **($
        in 000’s except per share amounts) (Unaudited)**
 
 
 Three
                  Months EndedMarch
                  31, 2006
              
              March
                  31, 2005Revenue
              
              $
              21,522
              
              $
              12,554Transportation
                  costs
              
              
              5,057
              
              
              3,213Other
                  direct operating costs
              
              
              6,755
              
              
              5,500Gross
                  profit
              
              
              9,710
              
              
              3,841Selling,
                  general and administrative expenses
              
              
              3,483
              
              
              2,514Business
                  interruption insurance claim
              
              
              --
              
              
              (41
              )Operating
                  income
              
              
              6,227
              
              
              1,368Interest
                  income
              
              
              188
              
              
              85Interest
                  expense
              
              
              1
              
              
              47Other
                  income
              
              
              284
              
              
              17Income
                  before income tax
              
              
              6,698
              
              
              1,423Income
                  tax expense
              
              
              2,519
              
              
              567Net
                  income
              
              $
              4,179
              
              $
              856Basic
                  earnings per share
              
              $
              .23
              
              $
              .05Diluted
                  earnings per share
              
              $
              .23
              
              $
              .05Dividends
                  paid per common share
              
              $
              .15
              
              $
              --
  5
 *Table
            of Contents*
  **AMERICAN
        ECOLOGY CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **($
        in 000’s) (Unaudited)**
 
 
 Three
                  Months Ended March 31,2006
              
              2005Cash
                  flows from operating activities:Net
                  income
              
              $
              4,179
              
              $
              856Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation,
                  amortization, and accretion
              
              
              1,854
              
              
              1,376Non-cash
                  stock option transactions
              
              
              246
              
              
              130Deferred
                  income taxes
              
              
              2,304
              
              
              432Changes
                  in assets and liabilities:Receivables
              
              
              (561
              )
              
              221Other
                  assets
              
              
              719
              
              
              345Closure
                  and post closure obligation
              
              
              (380
              )
              
              (260
              )Accounts
                  payable and accrued liabilities
              
              
              (1,101
              )
              
              (465
              )Net
                  cash provided by operating activities
              
              
              7,260
              
              
              2,635Cash
                  flows from investing activities:Capital
                  expenditures
              
              
              (8,652
              )
              
              (2,529
              )Proceeds
                  from the sale of assets
              
              
              9
              
              
              222Transfers
                  between cash and short term investments, net
              
              
              3,951
              
              
              644Net
                  cash used by investing activities
              
              
              (4,692
              )
              
              (1,663
              )Cash
                  flows from financing activities:Payments
                  of indebtedness
              
              
              --
              
              
              (364
              )Dividends
                  paid
              
              
              (2,661
              )
              
              --Stock
                  options exercised
              
              
              1,479
              
              
              152Net
                  cash used by financing activities
              
              
              (1,182
              )
              
              (212
              )Increase
                  in cash and cash equivalents
              
              
              1,386
              
              
              760Cash
                  and cash equivalents at beginning of year
              
              
              3,641
              
              
              2,160Cash
                  and cash equivalents at end of quarter
              
              $
              5,027
              
              $
              2,920Supplemental
                  disclosures of cash flow information:Cash
                  paid during the year for:Interest
                  expense
              
              $
              1
              
              $
              47Income
                  taxes paid
              
              
              31
              
              
              4Non-cash
                  investing and financing activities:Acquisition
                  of equipment with notes/capital leases
              
              
              34
              
              
              --
  6
 *Table
            of Contents*
  **AMERICAN
        ECOLOGY CORPORATION**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Note
        1.**  **Basis of Presentation**
 
 In
        the
        opinion of management, the accompanying unaudited consolidated financial
        statements contain all adjustments and disclosures necessary to present fairly
        the financial position, results of operations, and cash flows of American
        Ecology Corporation and its wholly-owned subsidiaries (the “Company”). These
        financial statements and notes should be read in conjunction with the financial
        statements and notes included in the Company’s Annual Report on Form 10-K for
        the year ended December 31, 2005, filed with the Securities and Exchange
        Commission.
 
 Certain
        reclassifications of prior quarter amounts have been made to conform with
        current quarter presentation, none of which affect previously recorded net
        income.
 
 **Note
        2. Earnings Per Share**
 
 Basic
        earnings per share are computed based on net income available to common
        shareholders and the weighted average number of common shares outstanding
        during
        the quarter. Diluted earnings per share reflect the assumed issuance of common
        shares for outstanding options. The computation of diluted earnings per share
        would not assume exercise or conversion of securities whose exercise price
        is
        greater than the average common share market price, as the assumed conversion
        of
        these securities would increase earnings per share. The computation of diluted
        loss per share would not assume exercise or conversion of any securities
        as the
        assumed conversion of securities would decrease loss per share.
  Three
                    Months Ended March 31,($
                    in thousands except per share amounts)
                
                2006
                
                2005Net
                    income available to common shareholders
                
                $
                4,179
                
                $
                856Weighted
                    average shares outstanding-Common
                    shares
                
                
                17,877
                
                
                17,410Effect
                    of dilutive stock options
                
                
                174
                
                
                540Average
                    shares
                
                
                18,051
                
                
                17,950Basic
                    earnings per share
                
                $
                .23
                
                $
                .05Diluted
                    earnings per share
                
                $
                .23
                
                $
                .05
  **Note
        3. Equity**
 
 On
        January 2 and April 3, 2006, the Company declared dividends of $0.15 per
        common
        share to stockholders of record on January 2, and April 14, 2006, respectively,
        which were paid out of cash on hand. The Company also intends that shareholders
        of record on July 14, 2006 and October 13, 2006 will receive a $0.15 per
        share
        dividend, subject to certain conditions such as continued compliance with
        bank
        covenants.
 
 **Note
        4. Line of Credit**
 
 At
        March
        31, 2006 and 2005, the outstanding balance on the revolving line of credit
        was
        $0 and the availability under the line of credit was $10,000,000 and $3,000,000,
        respectively, with $5,000,000 of line of credit availability restricted for
        the
        outstanding standby letters of credit utilized as collateral for the Company’s
        financial assurance policies. The Company has continued to borrow on, and
        repay
        the line of credit according to business demands and availability of
        cash.
  7
 *Table
            of Contents*
  **Note
        5. Operating Segments**
 
 The
        Company operates within two segments, Operating Disposal Facilities and
        Non-Operating Disposal Facilities, based on its internal reporting structure
        and
        nature of services offered. The Operating Disposal Facility segment represents
        facilities accepting hazardous and radioactive waste. The Non-Operating Disposal
        Facility segment represents facilities that are no longer accepting hazardous
        and/or radioactive waste or formerly proposed new disposal facilities.
 
 Income
        taxes are assigned to Corporate, but all other items are included in the
        segment
        where they originated. Inter-company transactions have been eliminated from
        the
        segment information and are not significant between segments.
 
 Summarized
        financial information concerning the Company’s reportable segments is shown in
        the following table:
  ($
                  in thousands)
              
              Operating
                  Disposal Facilities
              
              Non-Operating
                  Disposal Facilities
              
              Corporate
              
              TotalThree
                  months ended March 31, 2006Revenue
              
              $
              21,518
              
              $
              4
              
              $
              --
              
              $
              21,522Transportation
                  costs
              
              
              5,057
              
              
              --
              
              
              --
              
              
              5,057Other
                  direct operating cost
              
              
              6,664
              
              
              91
              
              
              --
              
              
              6,755Gross
                  profit (loss)
              
              
              9,797
              
              
              (87
              )
              
              --
              
              
              9,710S,G&A
              
              
              1,330
              
              
              --
              
              
              2,153
              
              
              3,483Income
                  (loss) from operations
              
              
              8,467
              
              
              (87
              )
              
              (2,153
              )
              
              6,227Interest
                  income/(expense), net
              
              
              10
              
              
              --
              
              
              177
              
              
              187Other
                  income/(expense)
              
              
              (15
              )
              
              --
              
              
              299
              
              
              284Income
                  (loss) before income
              
              
              8,462
              
              
              (87
              )
              
              (1,677
              )
              
              6,698Income
                  tax expense
              
              
              --
              
              
              --
              
              
              2,519
              
              
              2,519Net
                  income (loss)
              
              $
              8,462
              
              $
              (87
              )
              $
              (4,196
              )
              $
              4,179Depreciation
                  and accretion
              
              $
              1,758
              
              $
              90
              
              $
              6
              
              $
              1,854Capital
                  Expenditures
              
              $
              8,603
              
              $
              49
              
              $
              --
              
              $
              8,652Total
                  Assets
              
              $
              63,258
              
              $
              88
              
              $
              28,188
              
              $
              91,534Three
                  months ended March 31, 2005Revenue
              
              $
              12,537
              
              $
              17
              
              $
              --
              
              $
              12,554Transportation
                  costs
              
              
              3,213
              
              
              --
              
              
              --
              
              
              3,213Other
                  direct operating cost
              
              
              5,394
              
              
              106
              
              
              --
              
              
              5.500Gross
                  profit (loss)
              
              
              3,930
              
              
              (89
              )
              
              --
              
              
              3,841S,G&A
              
              
              1,107
              
              
              5
              
              
              1,402
              
              
              2,514Business
                  interruption insurance claim
              
              
              (41
              )
              
              --
              
              
              --
              
              
              (41
              )Income
                  (loss) from operations
              
              
              2,864
              
              
              (94
              )
              
              (1,402
              )
              
              1,368Interest
                  income/(expense), net
              
              
              10
              
              
              --
              
              
              28
              
              
              38Other
                  income
              
              
              17
              
              
              --
              
              
              --
              
              
              17Income
                  (loss) before income tax
              
              
              2,891
              
              
              (94
              )
              
              (1,374
              )
              
              1,423Income
                  tax expense
              
              
              --
              
              
              --
              
              
              567
              
              
              567Net
                  income (loss)
              
              $
              2,891
              
              $
              (94
              )
              $
              (1,941
              )
              $
              856Depreciation
                  and accretion
              
              $
              1,273
              
              $
              95
              
              $
              8
              
              $
              1,376Capital
                  Expenditures
              
              $
              2,529
              
              $
              --
              
              $
              --
              
              $
              2,529Total
                  Assets
              
              $
              38,732
              
              $
              6,531
              
              $
              32,289
              
              $
              77,552
 
 8
 *Table
            of Contents*
 
 **Note
        6. Stock Option Plans**
 
 The
        Company has two stock-based compensation plans, which were accounted for
        under
        the recognition and measurement principles of APB Opinion No. 25, *Accounting
        for Stock Issued to Employees* and
        related Interpretations through December 31, 2005, and under SFAS No. 123R,
        "Share Based Payment" as of January 1, 2006. Under SFAS No. 123R, the Company
        has recognized the following compensation expense for options vesting in
        the
        quarter ended March 31, 2006 :
 
 ($
                  in thousands)
              
              Compensation
                  ExpenseFair
                  value of options earned during the first quarter of 2006
              
              $
              47
 
 As
        of
        March 31, 2006, all outstanding options are vested and no further option
        compensation expense will be recognized unless additional options are
        issued.
 
 The
        following table illustrates the effect on net income and earnings per share
        by
        applying the fair value recognition provisions of FASB Statement No. 123R,
        *Share Based Payment* ,
        to
        stock-based compensation for the quarter ended March 31, 2005:
 
 ($
                  in thousands, except per share amounts)
              
              2005Net
                  income (loss), as reported
              
              $
              856Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards, net of related tax
                  effects
              
              
              (133
              )Pro
                  forma net income (loss)
              
              $
              723**Earnings
                  (loss) per share:**Basic
                  - as reported
              
              $
              .05Basic
                  - pro forma
              
              $
              .04Diluted
                  - as reported
              
              $
              .05Diluted
                  - pro forma
              
              $
              .04
 
 The
        stock
        option plan summary and changes during quarters ended March 31 are as
        follows:
 
 2006
              
              2005Options
                  outstanding, beginning of quarter
              
              
              567,320
              
              
              913,708Granted
              
              
              --
              
              
              7,500Exercised
              
              
              (321,696
              )
              
              (42,800
              )Canceled
              
              
              --
              
              
              --Options
                  outstanding, end of quarter
              
              
              245,624
              
              
              878,408Weighted
                  average exercise price of options, beginning of quarter
              
              $
              4.84
              
              $
              4.40Weighted
                  average exercise price of options granted
              
              $
              --
              
              $
              11.53Weighted
                  average exercise price of options exercised
              
              $
              4.60
              
              $
              3.54Weighted
                  average exercise price of options canceled
              
              $
              --
              
              $
              --Weighted
                  average exercise price of options, end of quarter
              
              $
              5.17
              
              $
              4.50Options
                  exercisable at end of quarter
              
              
              245,624
              
              
              725,496Options
                  available for future grant at end of quarter
              
              
              188,976
              
              
              492,176
 
 The
        following table summarizes information about the stock options outstanding
        under
        the Company’s option plans as of March 31, 2006:
  9
 *Table
            of Contents*
 
 Range
                  of exerciseprice
                  per share
              
              Weighted
                  average remaining contractual life(years)
              
              Numberoutstanding
              
              Weighted
                  average exercise priceper
                  share
              
              Numberexercisable
              
              Weighted
                  average exercise priceper
                  share$1.00
                  - $1.47
              
              
              1.4
              
              
              27,500
              
              $
              1.26
              
              
              27,500
              
              $
              1.26$2.13
              
              
              3.1
              
              
              20,000
              
              $
              2.13
              
              
              20,000
              
              $
              2.13$2.42
                  - $3.50
              
              
              5.7
              
              
              30,000
              
              $
              2.56
              
              
              30,000
              
              $
              2.56$3.75
                  - $4.50
              
              
              4.8
              
              
              35,629
              
              $
              3.86
              
              
              35,629
              
              $
              3.86$6.50
              
              
              6.9
              
              
              97,495
              
              $
              6.50
              
              
              97,495
              
              $
              6.50$9.20
                  - $12.15
              
              
              8.3
              
              
              35,000
              
              $
              9.83
              
              
              35,000
              
              $
              9.83245,624
              
              
              
              
              
              245,624
 
 As
        of
        March 31, 2006, the 1992 Stock Option Plan for Employees had options outstanding
        to purchase 103,424 common shares with 188,976 shares remaining available
        for
        issuance under option grants.
 
 Effective
        March 28, 2005, the Company’s Board of Directors terminated the 1992 Amended and
        Restated Outside Director Stock Option Plan, except for option grants then
        outstanding. As of March 31, 2006, the 1992 Outside Director Stock Option
        Plan
        had options outstanding to purchase 142,200 common shares.
 
 No
        options were granted during the quarter ended March 31, 2006. For grants
        during
        the quarter ended March 31, 2005, the fair value of each option grant is
        estimated using the Black-Scholes option-pricing model with the following
        weighted-average assumptions:
  2006
              
              2005Expected
                  volatility
              
              
              --
              
              
              50
              %Risk-free
                  interest rates
              
              
              --
              
              
              4.1
              %Expected
                  lives
              
              
              --
              
              
              10
                  yearsDividend
                  yield
              
              
              --
              
              
              2.7
              %Weighted-average
                  fair value of options granted during the quarter
                  (Black-Scholes)
              
              
              --
              
              $
              5.28
 
 
 **Note
        7. 2005 Non-Employee Director Compensation Plan**
 
 The
        2005
        Non-Employee Director Compensation Plan (“Plan”) was approved by shareholders at
        the Company’s May 25, 2005 Annual Meeting. The Plan provides for Non-Employee
        Directors to be paid an annual retainer of $16,000 in cash plus $25,000 in
        restricted stock with a one year vesting period from the date of grant. The
        Plan
        also provides for each Non-Employee Director to be paid a meeting fee of
        $750 or
        $1,000 for each Committee or Board meeting that they attend, as well as an
        additional payment, when appointed, of $4,000 for each standing committee
        Chairman and $20,000 to the Chairman of the Board. The current Chairman waived
        the chairman’s fee for 2005.
 
 As
        of
        March 31, 2006, 14,700 shares of restricted stock had been issued to the
        Non-Employee Directors and 185,300 shares of stock remain available for issuance
        under the Plan.
 
 **Note
        8. Litigation**
 
 There
        is
        no material litigation outstanding.
  10
 *Table
            of Contents*
 
 **Note
        9. Commitments and Contingencies**
 
 Effective
        January 1, 2003, the Company established the American Ecology Corporation
        2003
        Management Incentive Plan (“MIP”). The Plan provides for specified executive
        participants to receive bonuses based on pre-tax operating income levels.
        Plan
        bonuses are to be paid out over three years with a maximum in any one year
        of
        $1,125,000 if pre-tax operating income exceeds $12,000,000 including all
        MIP
        costs.
  Effective
        January 1, 2006, the Company established the 2006 Management Incentive Bonus
        Plan which provides for selected management participants not included in
        the
        2003 MIP to receive bonuses tied to meeting objective performance criteria.
        Bonuses under the plan are to be paid up to 45% of the participant’s salary with
        maximum aggregate payments of approximately $331,000 due if all objective
        performance criteria are met during 2006.
  The
        Company has accrued for the 2003 and 2006 MIP as follows:
  
 Three
                  Months Ended March 31,($
                  in thousands)
              
              2006
              
              20052003
                  MIP expense included in SG&A
              
              $
              354
              
              $
              --2006
                  MIP expense included in SG&A
              
              $
              83
              
              $
              --
  The
        Company intends that shareholders of record on July 14, 2006 and October
        13,
        2006 will receive a $0.15 per share dividend subject to compliance with
        applicable Bank covenants.
 
 **Note
        10. Closure and Post Closure Obligations**
 
 Closure
        and post closure obligations are recorded when environmental assessments
        and/or
        remedial efforts are probable and the costs can be reasonably estimated
        consistent with Statement of Financial Accounting Standards (“SFAS”) No. 5, with
        the liability calculated in accordance with SFAS No. 143. The Company performs
        periodic reviews of both non-operating and operating facilities and revises
        accruals for estimated post-closure, remediation and other costs when necessary.
        The Company’s recorded liabilities are based on best estimates of current costs
        and are updated periodically to reflect existing environmental conditions,
        current technology, laws and regulations, inflation and other economic factors.
 
 Changes
        to reported closure and post closure obligations were as follows ($ in
        thousands):
 
 Accrued
                  Closure andPost
                  Closure ObligationDecember
                  31, 2005 obligation
              
              $
              11,687Accretion
                  of obligation
              
              
              269Payment
                  of obligation
              
              
              (247
              )Adjustment
                  of obligation
              
              
              (133
              )March
                  31, 2006 obligation
              
              $
              11,576
 
 At
        March
        31, 2006, none of the Company’s assets were legally restricted for purposes of
        settling the closure and post closure obligation. On April 3, 2006 the Company
        funded $4.5 million in trust accounts using cash on hand to guarantee closure
        and post closure obligations at its non-operating sites in Texas and
        Illinois.
 
 **Note
        11. Honeywell International Contract**
 
 On
        June
        8, 2005, the Company entered into a contract with Honeywell International,
        Inc.
        to transport, treat, and dispose of an estimated one million tons of chromite
        ore processing residue over an estimated four to five year period. Waste
        disposal at the Company’s Grand View, Idaho facility began in July 2005. A
        $3,500,000 advance payment was received from, and will be credited back to
        Honeywell during the contract term. The contract provides that the Company
        will
        receive 99% of the material shipped off-site for disposal and provides for
        deficiency fees when Honeywell is unable to provide specified
        minimum waste volumes to the Company, or the Company is unable to take
        sufficient waste volumes when offered. Similar contract terms were also entered
        into by the Company and its primary subcontractor.
  11
 *Table
            of Contents*
  On
        October 6, 2005, Honeywell filed a motion in U.S. District Court, District
        of
        New Jersey to reduce the amount of material removed from the site by 53%.
        On
        January 3, 2006 the U.S. District Court disqualified Honeywell’s expert witness
        and certain attorneys supporting this motion. On February 17, 2006 the U.S.
        Court of Appeals for the Third Circuit denied Honeywell’s petition for
        permission to appeal. The Company is not aware of any other motions to reduce
        the scope of the Honeywell project
 
 On
        November 16, 2005, Honeywell notified the Company that it had filed a brief
        with
        the U.S. District Court to resume waste excavation and offsite shipments
        in the
        March 2006 timeframe. The Company has assessed Honeywell deficiency fees
        and was
        assessed deficiency fees by its subcontractors up to April 3, 2006, when
        waste
        shipments resumed.
 
 **Note
        12. Partial Service Interruption at Robstown, Texas Hazardous Waste
        Facility**
 
 Waste
        treatment at the Company’s Robstown Texas facility was suspended following a
        July 1, 2004 fire in the facility’s waste treatment building. Prior to the fire,
        treatment revenue represented approximately 50% of facility revenue. Direct
        disposal operations, which continued without interruption after the fire,
        generated the balance of the facility’s revenue. While the Company is insured
        for business interruption, operational upgrades and reduced customer business
        adversely impacted 2004 and 2005 financial performance. Differences between
        the
        costs incurred and amounts recognized by the Company may adversely impact
        2006
        financial performance. The Texas facility restored limited treatment services
        in
        December 2004 and full treatment services on August 8, 2005.
 
 As
        of
        March 31, 2006, the Company had filed approximately $2,200,000 in business
        interruption insurance claims with its insurance carrier, of which $1,332,000
        has been recognized and $1,175,000 has been received. The Company has a
        receivable for $157,000 of incremental costs due to the fire and is working
        with
        its insurer to resolve its remaining claim. No assurance can be given that
        the
        Company will collect any additional funds for this claim.
 
 **Note
        13. Subsequent Events**
 
 On
        January 2, 2006 and April 3, 2006, the Company declared dividends of $0.15
        per
        common share. Dividends were paid out of cash on hand on January 13, 2006
        and
        April 21, 2006, of $2,661,000 and $2,714,000, respectively.
 
 On
        April
        3, 2006, the Company self funded $4.5 million of non-operating disposal site
        closure and post-closure obligations, replacing the insurance policy which
        previously provided financial assurance for those sites. The insurance policy
        remains in effect through December 19, 2008, at a reduced annual premium,
        for
        financial assurance obligations at operating facilities.
 
 **Item2.**  **Management’s Discussion and Analysis of Financial Condition and Results of
        Operations.**
 
 Statements
        and information included in this Form 10-Q that are not purely historical
        are
        forward-looking statements within the “safe harbor” provisions of the Private
        Securities Litigation Reform Act of 1995. Forward-looking statements include
        statements regarding the Company’s expectations, intentions, beliefs and
        strategies regarding the future including sales, earnings per share, cost
        structure, market position, market growth opportunities and new services.
        The
        Company may make other forward-looking statements from time to time, including,
        but not limited to press releases, public conferences, public investor
        conference calls and webcasts. All forward-looking statements are based on
        information available to the Company at the time the statements are made,
        and
        the Company assumes no obligation to update any forward-looking statements.
        Actual results are subject to a number of risks and uncertainties that could
        cause actual results to differ materially from those included in the
        forward-looking statements. Some of these risks and uncertainties are discussed
        below.
  12
 *Table
            of Contents*
 
 The
        reader should carefully consider the following risk factors. The risks and
        uncertainties described below are not the only ones the Company may face.
        Additional risks and uncertainties *Not
        Known* to us or
        that we now think are *Immaterial* may also
        impair the Company’s business operations. *General* risks
        that apply to most businesses also apply to the Company such as general economic
        conditions, availability of employees or other resources, inflation,
        seasonality, access to capital, natural disasters, acts of God, war, or terror.
        While not specified below, the *Not
        Known, Immaterial, or General Risks* could
        cause actual results to differ materially from those included in the
        forward-looking statements just as significantly as the risks specified
        below.
 
 If
        any of
        the following specified risks were to occur, the Company’s business, financial
        condition and results of operations could be materially and adversely affected.
        If that occurs, the trading price of the Company’s common stock could decline,
        and investors may lose all or part of their investment.
 
 **Access
        to Cost Effective Transportation Services**
 
 Revenue
        at each of the Company’s facilities is subject to potential risks from
        disruptions in rail or truck transportation services which are relied upon
        to
        deliver waste to these facilities. Events such as increases in fuel costs,
        strikes, natural disasters and other acts of God, war, or terror could delay
        shipments and reduce both volumes and revenues. In addition, transportation
        services may be limited by economic conditions, including increasing demand
        for
        rail or trucking services, resulting in sustained periods of slower service.
        No
        assurance can be given that we can procure transportation services at historic
        rates. Such factors could limit the Company’s ability to implement its growth
        plan and increase revenues.
 
 **Ability
        and Willingness to Pay Dividends**
 
 The
        Company’s ability to pay dividends is subject to certain conditions such as
        continued compliance with bank covenants and the Board of Director’s approval of
        any such dividend declaration or payment. Numerous events or situations could
        cause the Company to no longer be in compliance with bank covenants, or cause
        the Board of Directors to no longer approve the payment of
        dividends.
 
 **Risks
        Described in December 31, 2005 Form 10-K**
 
 Compliance
        and Changes with Applicable Laws and Regulations
 Exposure
        to Litigation
 Access
        to
        Insurance and Financial Assurances
 Implementation
        of New Technologies
 Competitive
        Environment
 Economic
        Conditions affecting the Company’s Customers
 Potential
        Loss of Major Contracts
 Potential
        Fires or Other Incidents Limiting Operations
 Access
        to
        Cost Effective Rail Transportation Service
 Utilization
        of Net Operating Loss Carryforwards
 Ability
        to Perform Contracts as Required
 Significant
        Sales by the Selling Stockholders May Cause the Market Price of the Company’s
        Stock to Decline
 
 **Introduction**
 
 The
        Company is a hazardous, PCB, industrial and radioactive waste management
        company
        providing transportation, treatment and disposal services to commercial and
        government entities including, but not limited to nuclear power plants,
        refineries, chemical manufacturing plants, steel mills, the U.S. Department
        of
        Defense, biomedical facilities, universities and research institutions. The
        majority of its revenues are derived from fees charged at the Company’s four
        fixed waste disposal facilities. The Company and its predecessors have been
        in
        business for 53 years.
  13
 *Table
            of Contents*
  A
        significant portion of the Company’s revenue is attributable to discrete waste
        clean-up projects (“Event Business”) which vary substantially in size and
        duration. The one-time nature of Event Business necessarily creates variability
        in revenue and earnings. Moreover, the types and amounts of waste received
        from
        recurring (“Base Business”) customers also varies quarter to quarter. These
        variations in service mix are difficult to forecast with precision, and can
        produce large quarter to quarter swings in revenue, gross profit, gross margin
        and operating profit. Management’s strategy is to continue expanding its
        recurring customer business while simultaneously securing both short term
        and
        extended duration Event Business projects. When the Company’s Base Business
        covers the Company’s fixed costs, a significant portion of the Event Business
        revenue generally falls through to the bottom line. This strategy takes
        advantage of the operating leverage inherent to the largely fixed cost nature
        of
        the waste disposal business.
 
 **Critical
        Accounting Policies**
 
 In
        preparing the financial statements, management makes many estimates and
        assumptions that affect the Company’s financial position and results of
        operations. Accounting for the July 1, 2004 Texas Fire, Disposal Facility
        Accounting, and Litigation involve subjective judgments, estimates and
        assumptions that would likely produce a materially different financial position
        and result of operations if different judgments, estimates, or assumptions
        were
        used. These matters are discussed below.
 
 **Accounting
        for the July 1, 2004 Texas fire**
 
 A
        July 1,
        2004 fire in the Robstown, Texas facility’s waste treatment building resulted in
        an insurance claim for Property and Equipment damaged in the fire. As of
        March
        31, 2006, the Company had fully impaired the $679,000 in book value of assets
        damaged in the fire, and recognized and received $905,000 of property insurance
        proceeds. As of March 31, 2006, the Company had filed approximately
        $2,200,000 in business interruption insurance claims with its insurance carrier
        of which $1,332,000 has been recognized and $1,175,000 has been received.
        The
        Company has a receivable for $157,000 of incremental costs due to the fire
        and
        is working with its insurer to resolve its remaining claim. No assurance
        can be
        given that the Company will collect any additional funds for this claim.
  **Disposal
        Facility Accounting**
 
 In
        general terms, a disposal cell development asset exists for the cost of building
        usable disposal space and a closure liability exists for closing, maintaining
        and monitoring the disposal unit once this space has been filled. Major
        assumptions and judgments used to calculate cell development assets and closure
        liabilities are as follows:
 
 §
              Personnel
                  and equipment costs incurred to construct disposal cells are capitalized
                  as a cell development asset.
 
 §
              The
                  cell development asset is amortized as each available cubic yard
                  of
                  disposal space is filled. Periodic independent engineering survey
                  and
                  inspection reports are used to determine the remaining volume available.
                  These reports take into account waste volume, compaction rates
                  and space
                  reserved for capping filled cells. Additionally, changes in the
                  estimated
                  useful lives of the cells or related expansion plans have a direct
                  effect
                  on the amortization expense related to those cells during future
                  periods.
 
 §
              The
                  closure liability is the present value based on a current cost
                  estimate
                  prepared by an independent engineering firm of the costs to close,
                  maintain and monitor filled disposal units. Management estimates
                  the
                  timing of payment, accretes the current cost estimate by an estimated
                  cost
                  of living (1.5%), and then discounts (9.3%) the accreted current
                  cost
                  estimate back to a present value. The final payments of the closure
                  liability are estimated as being paid in 2056 based upon current
                  permitted
                  capacity and estimated annual usage.
 
 **Litigation**
  The
        Company is periodically involved in litigation requiring estimates of timing
        and
        loss potential whose disposition is controlled by the judicial process or
        other
        factors. The Company is not presently involved in any material litigation;
        however litigation that we currently believe to be immaterial or are unaware
        of,
        may ultimately prove to be material.
  14
 *Table
            of Contents*
  **Overall
        Company Performance**
 
 The
        Company’s financial performance for the three months ended March 31, 2006 was
        substantially improved over the first three months of 2005. This quarter
        to
        quarter difference primarily reflects an increased volume as well as a more
        favorable waste service mix during the three months ended March 31, 2006
        as
        discussed below.
 
 **Results
        of Operations**
 
 The
        following table presents, for the periods indicated, the operating costs
        as a
        percentage of revenues in the consolidated income statement:
 
 Three
                  Months Ended($
                  in 000’s)
              
              March
                  31, 2006
              
              March
                  31, 2005$
              
              %
              
              $
              
              %Revenue
              
              
              21,522
              
              
              
              
              
              12,554Transportation
                  costs
              
              
              5,057
              
              
              23.5
              %
              
              3,213
              
              
              25.6
              %Direct
                  operating costs
              
              
              6,755
              
              
              31.4
              %
              
              5,500
              
              
              43.8
              %Gross
                  profit
              
              
              9,710
              
              
              45.1
              %
              
              3,841
              
              
              30.6
              %SG
                  & A
              
              
              3,483
              
              
              16.2
              %
              
              2,514
              
              
              20.0
              %Business
                  interruption insurance claim
              
              
              --
              
              
              --
              %
              
              (41
              )
              
              (0.3
              )%Operating
                  income
              
              
              6,227
              
              
              28.9
              %
              
              1,368
              
              
              10.9
              %Interest
                  income
              
              
              188
              
              
              0.9
              %
              
              85
              
              
              0.7
              %Interest
                  expense
              
              
              1
              
              
              0.0
              %
              
              47
              
              
              0.4
              %Other
                  income
              
              
              284
              
              
              1.3
              %
              
              17
              
              
              0.1
              %Net
                  income before income taxes
              
              
              6,698
              
              
              31.1
              %
              
              1,423
              
              
              11.3
              %Income
                  tax expense
              
              
              2,519
              
              
              11.7
              %
              
              567
              
              
              4.5
              %Net
                  income
              
              
              4,179
              
              
              19.4
              %
              
              856
              
              
              6.8
              %
 
 **Comparison
        of Three Months Ended March 31, 2006 and 2005**
 
 Unless
        otherwise described, changes discussed relate to the increase or decrease
        from
        the three month period ended March 31, 2005 to the three month period ended
        March 31, 2006.
 
 **Revenue** ****
 For
        the
        three months ended March 31, 2006, the Company reported consolidated revenue
        of
        $21,522,000, a 71% increase from the $12,554,000 reported for the same period
        in
        2005. All four operating disposal sites generated higher revenue during the
        first quarter of 2006. The
        higher quarterly revenue resulted from a combination of higher waste volumes
        as
        well as average selling prices (“ASP”) for the Company’s treatment and disposal
        services. At the three hazardous waste disposal facilities, volumes increased
        42% and ASP increased 8% over the same quarter last year. The increase in
        waste
        volume resulted from shipments to the Company’s Idaho and Texas facilities
        during the 2006 quarter which were lower during the 2005 quarter due to weather
        and other factors for customers of the Idaho facility and reduced waste
        treatment volumes at the Texas facility due to the July 1, 2004 fire. The
        increase in ASP reflected a change in the mix of treatment and direct disposal
        services. During the three months ending March 31, 2006 and 2005, revenue
        from a
        contract with the U.S. Army Corps of Engineers accounted for $5,056,000 and
        $2,650,000 or 24% and 21% of revenue, respectively.
 
 Operating
        Disposal Facilities
 Richland,
        Washington LLRW disposal facility revenue increased 128% for the three months
        ended March 31, 2006 versus the same period in 2005. This increase was due
        to a
        130% increase in rate-regulated wastes and a 127% increase in non rate-regulated
        waste receipt. For 2006, the Washington Utilities and Transportation Commission
        has approved a revenue requirement of $5,629,000 for the Richland facility’s
        rate-regulated low-level radioactive waste business, of which $1,602,000
        was
        recorded in the three months ended March 31, 2006. Management currently expects
        the Richland facility to reach its approved 2006 revenue
        requirement.
  15
 *Table
            of Contents*
  At
        the
        Grand View, Idaho disposal facility, 55% higher waste volumes were partially
        offset by 6% lower ASP. Total revenue increased 64%, however, from the same
        quarter last year. Management expects the Honeywell contract will represent
        a
        significant amount of the facility’s volume starting in May 2006.
 
 At
        the
        Beatty, Nevada hazardous treatment and disposal facility, total revenue
        increased 39% for the three months ended March 31, 2006 from the same period
        in
        2005. The increased revenue was due to an 8% waste volume increase and a
        31%
        increase in ASP. The increased volume was primarily from increased shipments
        from recurring base business. The higher ASP resulted from a higher percentage
        of waste from higher priced treatment services.
 
 At
        the
        Robstown, Texas hazardous treatment and disposal facility, revenue increased
        120% for the three months ended March 31, 2006 from the same period in 2005.
        The
        increased revenue reflected a higher priced mix of wastes received at the
        site
        (ASP increased by 50%), and a 39% increase in waste volume. Following a July
        1,
        2004 fire, the Texas facility resumed limited treatment operations on December
        1, 2004 and full treatment services in a new building on August 8,
        2005.
 
 **Direct
        Operating Costs**
 
 For
        the
        three months ended March 31, 2006, consolidated direct operating costs increased
        36% to $11,812,000 (55% of revenue) compared to $8,713,000 (69% of revenue)
        for
        the same period in 2005. This was primarily caused by increased use of railroad
        services to transport wastes. The Company continues its efforts to control
        direct costs through operational improvements and efficiencies such as improved
        reagent purchasing and usage at the three hazardous facilities.
 
 Operating
        Disposal Facilities
 
 Direct
        costs at each of the three hazardous operating facilities increased from
        the
        same quarter last year. This increase in consolidated direct operating costs
        was
        driven by an increase in direct costs at the Grand View, Idaho facility of
        $2,185,000 related to rail transportation, an increase in direct costs at
        the
        Robstown, Texas, facility of $185,000 in depreciation expense related to
        higher
        disposal volumes, and $343,000 in fees for waste brokered to other companies
        for
        treatment. While most of a facility’s direct costs are fixed, transportation,
        third party service fees, and treatment reagents are substantially variable.
 
 Non
        Operating Disposal Facilities
 
 Non
        Operating Disposal Facilities incur current period expenses for the accretion
        of
        engineering, laboratory and other contractor expenses and labor costs required
        to meet the Company’s obligations subsequent to operational use. For the three
        months ended March 31, 2006 and 2005, the Company reported $-0- and $14,000
        of
        expenses on proposed development projects, and $91,000 and $106,000 of costs
        in
        2006 and 2005 to remediate or close facilities subsequent to use.
 
 **Gross
        Profit**
 
 Higher
        revenue compounded by a lower percentage of direct costs resulted in a 153%
        increase in gross profit. Quarterly gross profit reached $9,710,000 compared
        with a gross profit of $3,841,000 for the same quarter last year. Increased
        disposal revenue at all four operating disposal facilities produced more
        fall
        through to the bottom line due to the largely fixed cost nature of the business.
        Gross margin increased from 31% to 45% of revenue.
 
 **Selling,
        General and Administrative Costs (SG&A)**
 
 For
        the
        three months ended March 31, 2006, the Company reported SG&A of $3,483,000
        (16% of revenue), a 39% increase from the $2,514,000 (20% of revenue) for
        the
        first three months of 2005. This increase primarily resulted from a $560,000
        increase in sales commissions and management bonuses including a $437,000
        accrual in 2006 for the Management Incentive Plans that were not accrued
        in
        2005. The Company will continue to accrue Management Incentive Plan costs
        provided that objective operating income targets are achieved.
  16
 *Table
            of Contents*
  Operating
        Disposal Facilities
  During
        the quarter ended March 31, 2006, Operating Disposal Facilities SG&A
        increased $223,000 due to increased costs from a variety of sources, including
        payroll, insurance, bad debts, and legal support.
  Corporate
  During
        the quarter ended March 31, 2006, Corporate SG&A increased $751,000 due to
        increases in payroll of $110,000; commissions and bonuses of $560,000; and
        related payroll taxes of $58,000. $437,000 of the increase in commissions
        and
        bonuses is due to the accrual for the Management Incentive Plans for which
        no
        accrual was made in the quarter ended March 31, 2005.
 
 Non
        Operating Disposal Facilities
 
 Non
        Operating Disposal Facilities incurred primarily legal costs to recover the
        Company’s investment in formerly proposed disposal site development projects in
        Ward Valley, California and Butte, Nebraska. For the three months ended March
        31, 2006 and 2005, the Company reported $-0- and $5,000 of such SG&A
        expenses, respectively. Due to the final resolution of both formerly proposed
        projects, no significant SG&A expenses are expected for Non operating
        disposal facilities in the future.
 
 **Interest
        Income**
 
 For
        the
        three months ended March 31, 2006, the Company earned $188,000 of interest
        income, an increase from $85,000 in the first quarter of 2005 due to higher
        cash
        balances and higher interest rates available on short term investments. Interest
        income is earnings on cash balances, short-term investments, and notes
        receivable for which income is a function of prevailing market rates. Based
        on
        current interest rates, the Company anticipates approximately $60,000 a month
        of
        interest income during 2006.
 
 **Interest
        Expense**
 
 For
        the
        three months ended March 31, 2006, the Company reported interest expense
        of
        $1,000, a decrease of $46,000 from the corresponding period in 2005. The
        primary
        cause of this decrease was the payoff of the term loan with Wells Fargo Bank
        during December 2005. At March 31, 2006, the line of credit had a zero balance
        and the only interest bearing debt was incurred on a capital lease for office
        equipment.
 
 **Other
        Income (Loss)**
 
 Other
        Income is composed of the following ($ in thousands):
 
 Three
                  Months Ended March 31,2006
              
              2005Reimbursed
                  legal fees
              
              $
              299
              
              $
              --Gain/(loss)
                  for sale or rent of property rights
              
              
              (8
              )
              
              17Other
                  miscellaneous income, net
              
              
              (7
              )
              
              --Total
                  other income (loss)
              
              $
              284
              
              $
              17
 
 **Income
        Taxes**
 
 The
        components of the income tax provision were as follows ($ in
        thousands):
  17
 *Table
            of Contents*
  Three
                  Months Ended March 31,2006
              
              2005Federal
                  tax expense
              
              $
              2,314
              
              $
              521State
                  tax expense
              
              
              205
              
              
              46Income
                  tax expense
              
              $
              2,519
              
              $
              567
 
 The
        tax
        effects of temporary differences between income for financial reporting and
        income taxes give rise to deferred tax assets and liabilities. The potential
        realization of a significant portion of net deferred tax assets is based
        in part
        on the Company’s estimates of the timing of reversals of certain temporary
        differences and on the generation of taxable income before such reversals.
 
 The
        net
        operating loss carry forward at March 31, 2006 was approximately $13,000,000
        and
        expires at various dates between 2019 and 2023. Due to the Company’s net
        operating loss carry forwards, 2006 income tax expense of approximately 8%
        of
        pretax income is expected to be paid in cash. The other approximately 30%
        of
        income tax expense will be offset against the net operating loss carry
        forwards.
 
 The
        Company will continue to assess the deferred tax asset for utilization as
        needed
        but at least annually.
 
 **Seasonal
        Effects**
 
 Operating
        revenues are generally lower in the winter months than warm weather months
        when
        more short duration, one-time remediation projects tend to occur. While both
        disposal and processing revenue are generally more affected by market conditions
        than seasonality, weather related clean-up project delays had a significant
        adverse impact on the first quarter of 2005.
 
 **CAPITAL
        RESOURCES AND LIQUIDITY**
 
 At
        March
        31, 2006, cash and short term investments totaled $17,290,000, a decrease
        of
        $2,565,000 from December 31, 2005. During the quarter, profitability was
        more
        than offset by capital expenditures and dividend payments.
 
 The
        Company's days sales outstanding (“DSO”) increased to 60 days at March 31, 2006,
        compared to 53 days at December 31, 2005. The Company expects DSO to increase
        in
        2006 due to the 60 day payment terms set forth in its contract with Honeywell
        International, Inc.
 
 As
        of
        March 31, 2006 the Company’s liquidity, as measured by the current ratio, was
        3.5 to 1.0. The debt to equity ratio, or total liabilities divided by
        stockholders equity, decreased to 0.4:1.0 at March 31, 2006. The Company
        expects
        the current ratio to decrease during 2006 due to funding $4,500,000 in
        restricted trust accounts, increased accounts payable from the Honeywell
        project, and expected usage of the current portion of its deferred tax
        asset.
 
 **Sources
        of Cash**
 
 On
        December 13, 2005, the Company amended its line of credit with Wells Fargo
        Bank
        for a maximum amount available of $15,000,000 and a maturity date of June
        15,
        2008. The line of credit is unsecured. Monthly interest only payments are
        required based on a pricing grid, under which the interest rate decreases
        or
        increases based on the Company’s ratio of funded debt to earnings before
        interest, taxes, depreciation and amortization. The Company can elect to
        borrow
        monies utilizing the Prime Rate or the offshore London Inter-Bank Offering
        Rate
        (“LIBOR”) plus an applicable spread.
  Company
        operations produced an average of almost $5,000,000 a quarter in cash flow
        over
        the past three years. Management expects 2006 quarterly cash flow from
        operations to be higher, on average. The $17,290,000 in cash and short term
        investments at March 31, 2006 was comprised of short term investments which
        were
        not required for operations of $12,263,000, cash immediately available for
        operations of $6,730,000, and a net checks outstanding amount of
        ($1,703,000).
  18
 *Table
            of Contents*
  **Uses
        of Cash**
  Management
        currently expects capital spending of approximately $12,000,000 in 2006.
        Major
        projects include new railcars, new track and rail-to-truck transload facilities
        and related heavy equipment in Texas and Idaho, and a new treatment building
        in
        Nevada.
 
 On
        April
        3, 2006, the Company deposited $4.5 million into interest bearing trust accounts
        to guarantee its non-operating disposal site closure and post-closure
        obligations. This replaced the insurance policy which previously provided
        financial assurance for those sites. The insurance policy remains in effect
        through December 19, 2008, at a reduced premium, for financial assurance
        obligations at operating facilities.
 
 The
        Company paid $0.15 quarterly dividends on January 13, 2006 and April 21,
        2006
        out of cash on hand and currently intends to pay additional $0.15 quarterly
        dividends on July 21, 2006 and October 20, 2006 subject to certain conditions
        including continued compliance with bank covenants. The line of credit agreement
        allows for dividends on any of the Company’s outstanding capital stock as long
        as an event of default has not occurred, and will not occur as a result of
        the
        dividend.
 
 The
        Company believes that cash on hand and cash flow from operations, augmented
        if
        needed by periodic borrowings under the line of credit, will be sufficient
        to
        meet the Company’s cash needs for the foreseeable future.
 
 **Item
        3. Quantitative and Qualitative Disclosures about Market
        Risk.**
 
 The
        Company does not maintain equities, commodities, derivatives, or any other
        instruments for trading or any other purposes, and does not enter into
        transactions denominated in currencies other than the U.S. Dollar.
 
 The
        Company has minimal interest rate risk on investments or other assets due
        to the
        Company’s preservation of capital approach to investments. At March 31, 2006,
        approximately $17,300,000 was held in cash or short term investments at terms
        ranging from overnight to three months. Together, these items earned interest
        at
        approximately 4% and comprised 19% of assets.
 
 **Item
        4. Controls and Procedures.**
 
 (a)
        As of
        the end of the period covered by this quarterly report, Company management,
        under the direction of the Chief Executive Officer and Chief Accounting Officer,
        carried out an evaluation of the effectiveness of the design and operation
        of
        the Company’s disclosure controls and procedures pursuant to Rule 13a-14 of the
        Securities Exchange Act of 1934 (Exchange Act). Based upon that evaluation,
        the
        Chief Executive Officer and Chief Accounting Officer believe that the Company’s
        disclosure controls and procedures are effective in timely alerting them
        to
        material information required to be disclosed in the Company’s Exchange Act
        filings ***.***
 
 (b)
        The
        Company maintains a system of internal controls that are designed to provide
        reasonable assurance that its records and filings accurately reflect the
        transactions engaged in. For the quarter ending March 31, 2006, there were
        no
        changes to internal controls or in other factors that could materially affect
        these internal controls.
 
 
 **Part
        II OTHER INFORMATION.**
 
 **Item
        1.**  **Legal Proceedings.**
 
 The
        Company is not presently involved in any material litigation.
 
 **Item
        2.**  **Unregistered
        Sales of Equity Securities and Use of Proceeds.**
 
 None
  19
 *Table
            of Contents*
  **Item
        3.** **Defaults
        Upon Senior Securities.**
 
 None
 
 **Item4.**  **Submission of Matters to a Vote of Security Holders.**
 
 None
 
 **Item
        5.**  **Other
        Information.**
  The
        Company received a Nasdaq Staff Deficiency Letter on April 26, 2006 indicating
        that it fails to comply with the Independent Director approval of Executive
        Compensation requirements for continued listing set forth in Marketplace
        Rule
        4350(c)(3).  Mr.
        Ken
        Leung, current Chairman of the Compensation Committee, ceased being an
        Independent Director on March 29, 2006, when Sanders Morris Harris (where
        Mr.
        Leung serves as a Managing Director) entered an agreement with the Company
        for
        financial advisory services. Consistent with prior plans, Mr. Leung will
        decline
        reappointment to the Compensation Committee when the newly elected Board
        of
        Directors meets and sets committee membership following the Company’s May 25,
        2006 annual shareholders meeting. The Compensation Committee has not met
        since
        March 29, 2006 and will not meet prior to May 25, 2006.
 
 **Item
        6.**  **Exhibits.**
 
 The
        following exhibits are filed as part of this report:
 
 Exhibit
                  No.
              
              Description31.1
              
              Certifications
                  of March 31, 2006 Form 10-Q by Chief Executive Officer dated May
                  1,
                  200631.2
              
              Certifications
                  of March 31, 2006 Form 10-Q by Chief Accounting Officer dated May
                  1,
                  200632.1
              
              Certifications
                  of March 31, 2006 Form 10-Q by Chief Executive Officer dated May
                  1,
                  200632.2
              
              Certifications
                  of March 31, 2006 Form 10-Q by Chief Accounting Officer dated May
                  1,
                  2006
 
 
 SIGNATURES
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 
 
 AMERICAN
                  ECOLOGY CORPORATION*(Registrant)*Date:
                  May 1, 2006
              By:/s/
                  Stephen A. RomanoStephen
                  A. RomanoPresident,
                  Chief Executive Officer and Chief Operating OfficerDate:
                  May 1, 2006
              By:/s/
                  Michael J. GilbergMichael
                  J. GilbergVice
                  President and Controller, Chief Accounting Officer, Secretary and
                  Treasurer
  20
 *Table
            of Contents*
 
 **EXHIBIT
                  INDEX**Exhibit
              Description31.1
              Certifications
                  of March 31, 2006 Form 10-Q by Chief Executive Officer dated May
                  1,
                  200631.2
              Certifications
                  of March 31, 2006 Form 10-Q by Chief Accounting Officer dated May
                  1,
                  200632.1
              Certifications
                  of March 31, 2006 Form 10-Q by Chief Executive Officer dated May
                  1,
                  200632.2
              Certifications
                  of March 31, 2006 Form 10-Q by Chief Accounting Officer dated May
                  1,
                  2006


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