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Bennett Environmental Inc.: Bennett Environmental Inc. Announces Q1 Results

OAKVILLE, ONTARIO--(Marketwire - May 13, 2009) - Bennett Environmental Inc. (TSX:BEV)(the "Company" or "BEI") today announced its first quarter 2009 results for the period ending March 31, 2009. Mr. Christopher Wallace, Chairman of the Company, had the following comments on the results. "The results are consistent with expectations."

Forward Looking Statements

Certain statements contained in this press release and in certain documents incorporated by reference into this press release constitute forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and "confident" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. BEI believes that the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon. These statements speak only as of the date of this press release. BEI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

About Bennett Environmental Inc.

Bennett Environmental Inc. is a North American leader in high temperature treatment services for the treatment of contaminated soil and has provided thermal solutions to contamination problems throughout Canada and the U.S. Bennett Environmental's technology provides for the safe, economical and permanent solution to contaminated soil. Independent testing has consistently proven that the technology operates well within the most stringent criteria in North America. For information, please visit the Bennett Environmental website at: [ www.bennettenv.com ].

BENNETT ENVIRONMENTAL INC.
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
------------------------------------------------------------------------
------------------------------------------------------------------------
 March 31, December 31,
 2009 2008
------------------------------------------------------------------------
 (Unaudited)
Assets
Current assets:
 Cash and cash equivalents $ 6,474,723 $ 2,602,692
 Restricted cash (note 3) 1,832,828 1,793,708
 Amounts receivable (note 6) 773,819 7,414,973
 Deferred transportation costs 60,157 110,283
 Prepaid expenses and other 502,297 701,976
 -----------------------------------------------------------------------
 9,643,824 12,623,632
Property, plant and equipment 9,251,475 9,664,407
Assets held for sale (note 4) 3,007,284 3,007,284
------------------------------------------------------------------------
 $ 21,902,583 $ 25,295,323
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
 Accounts payable and accrued
 liabilities $ 2,676,261 $ 4,185,212
 Liabilities related to assets held 
 for sale (note 4) 1,575,890 1,551,500
 Income taxes payable 2,174,704 2,363,981
 Deferred revenue 540,984 175,496
 Current portion of long-term
 liabilities (note 9) 991,727 1,019,244
 -----------------------------------------------------------------------
 7,959,566 9,295,433
Long-term liabilities (note 9) 3,571,710 3,460,152

Shareholders' equity:
 Share capital (note 10) 71,733,963 71,733,963
 Contributed surplus 4,241,238 4,085,649
 Share purchase warrants (note 11) 429,056 429,056
 Accumulated deficit (66,032,950) (63,708,930)
 -----------------------------------------------------------------------
 10,371,307 12,539,738
Future operations (note 1)
Contingencies (note 14)
Subsequent events (note 15)
------------------------------------------------------------------------
 $ 21,902,583 $ 25,295,323
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.



BENNETT ENVIRONMENTAL INC.
Interim Consolidated Statements of Operations and Comprehensive Loss 
(Expressed in Canadian dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
 Three months ended
 March 31,
 2009 2008
-------------------------------------------------------------------------
 (Unaudited)

Sales $ 437,185 $ 2,281,022

Expenses:
 Operating costs 903,975 1,888,384
 Administration and business development 1,340,291 1,179,367
 Depreciation and amortization 439,314 605,687
 Foreign exchange (12,107) 146,415
 Interest 41,315 29,725
-------------------------------------------------------------------------
 2,712,788 3,849,578
-------------------------------------------------------------------------

Loss before the undernoted (2,275,603) (1,568,556)

Other income, including interest 19,267 51,944
-------------------------------------------------------------------------

Loss before income taxes (2,256,336) (1,516,612)

Income taxes (recovery):
 Current 67,684 -

Net loss from continuing operations (2,324,020) (1,516,612)

Net loss from discontinued operations 
 (note 5) - (92,186)

Net loss for the year, being 
 comprehensive loss $ (2,324,020) $ (1,608,798)
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-------------------------------------------------------------------------

Net loss from continuing operations 
 per common share
 Basic and diluted (note 12) $ (0.09) $ (0.06)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net loss from discontinued operations 
 per common share
 Basic and diluted (note 12) $ 0.00 $ 0.00
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net loss per common share
 Basic and diluted (note 12) $ (0.09) $ (0.06)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to interim consolidated financial statements.



BENNETT ENVIRONMENTAL INC.
Interim Consolidated Statements of Accumulated Deficit 
(Expressed in Canadian dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
 Three months ended
 March 31,
 2009 2008
---------------------------------------------------------------------------
 (Unaudited)

Accumulated deficit, beginning of period $ (63,708,930) $ (59,076,681)

Net loss for the period (2,324,020) (1,608,798)
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Accumulated deficit, end of period $ (66,032,950) $ (60,685,479)
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---------------------------------------------------------------------------

See accompanying notes to interim consolidated financial statements.



BENNETT ENVIRONMENTAL INC.
Interim Consolidated Statements of Cash Flows 
(Expressed in Canadian dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
 Three months ended
 March 31,
 2009 2008
---------------------------------------------------------------------------
 (Unaudited)
Cash provided by (used in):
Operations:
 Net loss from continuing operations $ (2,324,020) $ (1,516,612)
 Items not involving cash:
 Depreciation and amortization 439,314 605,687
 Stock-based compensation 155,589 35,950
 Foreign exchange related to U.S.
 Department of Justice accrual 100,550 101,533
 Changes in non-cash working capital 5,566,100 1,355,019
 --------------------------------------------------------------------------

 Cash provided by continuing operations 3,937,533 581,577
 Cash provided by discontinued operations - 227,845
 --------------------------------------------------------------------------

 Cash provided by (used) for operating
 activities 3,937,533 809,422

Investments:
 Change in restricted cash (39,120) (33,907)
 Purchase of property, plant and equipment (26,382) -
 --------------------------------------------------------------------------

 Cash used in investing activities (65,502) (33,907)
---------------------------------------------------------------------------

Increase in cash and cash equivalents 3,872,031 775,515
Cash and cash equivalents, beginning 
 of period 2,602,692 3,909,836
---------------------------------------------------------------------------

Cash and cash equivalents, end of period $ 6,474,723 $ 4,685,351
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Supplemental cash flow information:
 Interest paid $ 7,688 $ 27,052
 Income taxes paid 22,676 -
 Income tax refund 168,862 122,929
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---------------------------------------------------------------------------

See accompanying notes to interim consolidated financial statements.


BENNETT ENVIRONMENTAL INC.

Notes to Interim Consolidated Financial Statements
(Expressed in Canadian dollars)

Three months ended March 31, 2009 and 2008
(Unaudited)

1. Future operations:

These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and satisfy its liabilities in the normal course of business. Conditions and events exist that cast substantial doubt on the Company's ability to continue as a going concern. The Company incurred a loss of $2,324,020 from continuing operations during the three month period ended March 31, 2009. The Company has generated negative cash flows from operations over the last four years and has an accumulated deficit of $(66,032,950) at March 31, 2009. The Company operated the RSI facility in Quebec during the quarter for less than 1 week due to a lack of volume to support efficient operations. The RSI facility re-opened on April 6, 2009.

The Company is continuing with its operational reorganization plans and on December 18, 2008 sold its MRR and TCI facilities. The Company has also entered into an agreement to sell the Belledune facility which is not operational.

Continued operations depend on the Company's ability to generate future profitable operations, to obtain sufficient financing to fund future operations and, ultimately, to generate positive cash flows from operating activities. The Company is continuing to focus on securing sufficient sales volumes at profitable sales prices and to maintain the cost reduction strategies implemented during previous years.

The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities as they become due is dependent on the successful completion of the actions taken or planned, some of which are described above, which management believes will mitigate the adverse financial conditions faced by the Company. There is uncertainty as to whether or not these objectives will be achieved. If the Company's strategies are achieved, management believes that the Company will have sufficient cash and working capital to fund operations beyond the first quarter of 2010.

The consolidated financial statements do not reflect adjustments that would be necessary, if the going concern assumption is not appropriate. If the going concern basis is not appropriate for these financial statements, then adjustments would be necessary in the carrying values of assets and liabilities, the reported revenue and expenses and the balance sheet classifications used.

2. Significant accounting policies:

(a) Basis of presentation:

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial statements and accordingly, do not include all disclosures required for annual financial statements. These consolidated financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements except as disclosed in note 2(c) to these interim consolidated financial statements. In the opinion of management, all adjustments, including reclassifications and normal recurring adjustments necessary to present fairly the financial position, results of operations and retained earnings and cash flows at March 31, 2009 and for all periods presented, have been made. Interim results are not necessarily indicative of the results for a full year.

These interim consolidated financial statements should be read in conjunction with the December 31, 2008 annual consolidated financial statements.

(b) Revenue recognition:

The Company provides highly specialized treatment of contaminated materials. In some cases, the Company is also engaged to remove and transport the contaminated materials to its facilities for processing and disposal. The Company recognizes revenue for these activities using the proportional performance method when all of the following criteria are met:

(i) remediation activities are completed for each batch of material or waste stream being treated;

(ii) the Company has confirmed that the contaminants have been destroyed in accordance with the contract terms; and

(iii) collection is reasonably assured.

For those contracts whereby the Company is engaged to transport the contaminated material from the customer's site to the Company's facilities, the transportation costs incurred are deferred until the materials have been treated and the Company has determined that the contaminants have been destroyed in accordance with the contract terms. Transportation costs are reimbursable under the terms of the contract.

All other processing costs are expensed as incurred.

Revenue from long-term fixed-price soil remediation contracts is recognized using the percentage of completion method, based on the ratio of costs incurred to date over estimated total costs. This method is used because management considers costs to be the best available measure of performance on these contracts. Contract costs include all direct material and wages and related benefits. Revenue related to unpriced change orders under the percentage of completion method is recognized to the extent of the costs incurred, if the amount is probable of collection. If it is probable that the contract will be adjusted by an amount that exceeds the costs attributable to the change order and the amount of the excess can be reliably estimated, revenue in excess of the costs attributable to unpriced change orders is recorded when realization is assured beyond a reasonable doubt.

The Company records revenue relating to claims to the extent of costs incurred and only when it is probable that the claim will result in additional contract revenue and the amount can be reasonably estimated. Claims are amounts in excess of the agreed upon contract price that the Company seeks to collect from its customers for customer-caused delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs.

The Company did not have any long-term fixed price contracts in process during the three month period ended March 31, 2009 and 2008.

(c) Change in accounting policies:

On January 1, 2009 the Company adopted the Canadian Institute of Chartered Accountants ("CICA") issued Handbook Section 3064, "Goodwill and Intangible Assets". Section 3064, which replaces Section 3062, "Goodwill and Other Intangible Assets", and Section 3450, "Research and Development Costs". This new standard establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions relating to the definition and initial recognition of intangible assets, including internally generated intangible assets, are equivalent to the corresponding provisions of International Financial Reporting Standard, IAS 38, Intangible Assets. This new standard did not have an impact on the Company's consolidated financial results.

On January 1, 2009, the Company adopted the Emerging Issues Committee (EIC) of the AcSB EIC Abstract 173, "Credit Risk and Fair Value of Financial Assets and Financial Liabilities", which establishes that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments. This new standard did not have an impact on the Company's consolidated financial results.

(d) Recent accounting pronouncement:

In February 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will be required to report under IFRS effective for fiscal periods beginning on or after January 1, 2011. The Company has completed an initial impact assessment process focusing on differences between IFRS and the Company's accounting policies and is in the process of developing a plan to convert its consolidated financial statements to IFRS. The Company has begun to establish a project plan and identify key individuals with an initial focus on the componentization of capital assets. The Company will continue to invest in training and resources required throughout the transition period to ensure a timely conversion. Upon adoption of IFRS, it is likely that changes in accounting policies will be required that may materially impact the Company's consolidated financial statements.

In January 2009, the CICA issued Handbook Section 1601, "Consolidated Financial Statements", which replaces the existing standards. This section establishes the standards for preparing consolidated financial statements and is effective for 2011. Earlier adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

3. Restricted cash:

As at March 31, 2009, the Company had restricted cash of $1,832,828 (2008 - $1,793,708) which includes $10,494 (2008 - $10,442) as required under the Company's corporate credit card agreement; $1,516,119 (2008 - $1,487,634) required for letters of credit and $306,215 (2008 - $295,632) required for foreign exchange hedging agreements.

4. Assets and liabilities held for sale:

The Company has entered into an agreement to sell the net assets of its Belledune facility for total consideration of approximately $1.5 million net of liabilities to be assumed by the purchaser. The transaction is expected to close during the second quarter of 2009. The purchaser, as part of the purchase and sale agreement, will assume the outstanding property taxes and liabilities related to the soil on hand at the facility. As a result, the deferred revenue and accrued liability for the untreated soil will be eliminated upon the sale.

Assets held for sale relate to the Belledune facility are comprised of the following:

Assets held for sale:

Treatment building $ 93,886
Treatment equipment 2,122,526
Kiln 790,872
------------------------------------------------------------

 $ 3,007,284
------------------------------------------------------------
------------------------------------------------------------

Liabilities related to assets held for sale:

Deferred revenue $ 141,700
Accrual for soil treatment 1,065,584
Accrual for property taxes 368,606
------------------------------------------------------------

 $ 1,575,890
------------------------------------------------------------
------------------------------------------------------------

5. Discontinued operations:

On December 18, 2008 the Company sold the shares of its Trans-Cycle Industries, Ltd. and Material Resource Recovery S.R.B.P. Inc. subsidiaries (the "Subsidiaries"). Total consideration, net of working capital adjustments, is estimated to be $197,935 less closing costs of $43,257 resulting in a gain of $88,704 recorded in the December 31, 2008 audited consolidated financial statements. As part of the closing procedures the purchaser arranged to provide financial assurance necessary to replace the Subsidiaries' deposits held by various Government agencies throughout Canada. These deposits were to be repaid to the Company when finally released by these Government agencies. As at March 31, 2009 deposits amounting to $3,081,287 including interest were refunded. Subsequent to the quarter end, the remaining $10,000 in deposits was refunded.

Combined revenue during the first quarter of 2008 for the Subsidiaries was $1,265,516 and the loss before income taxes was $92,186.

Summary of Combined Balance Sheets of Subsidiaries sold:

-------------------------------------------------
Net working capital deficit $ (1,499,686)
Property, plant and equipment 1,458,058
Other assets 150,017
Deferred gain (42,415)
-------------------------------------------------

Net assets $ 65,974
-------------------------------------------------
-------------------------------------------------

6. Amounts receivable:

--------------------------------------------------------------------------
--------------------------------------------------------------------------
 March 31, December 31,
 2009 2008
--------------------------------------------------------------------------

Billed $ 603,838 $ 4,215,701
GST & QST receivable 68,451 16,455
Refundable deposits (note 4) 10,000 3,091,287
Due from purchaser of TCI and MRR (note 4)(i) 91,530 91,530

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 $ 773,819 $ 7,414,973
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--------------------------------------------------------------------------
(i) The amount due from the purchaser is non-interest bearing and is 
 expected to be settled in the second quarter of 2009.

7. Financial instruments:

The Company has exposure to the following risks from its use of financial instruments: credit risk, market risk and liquidity risk. The Board of Directors has responsibility for the review of the Company's risk management framework. The Board of Directors has mandated the Audit Committee to review how management monitors compliance of the Company's risk management policies and procedures and review the adequacy of the risk management policies and procedures.

Credit risk:

Credit risk arises from the potential default of a customer in meeting its financial obligation to the Company. The Company has credit evaluation, approval and monitoring processes to mitigate potential credit risk.

The Company evaluates the collectability of accounts receivable and records an allowance for doubtful accounts which reduces receivables to the amount management reasonably believes will be collected.

The Company is subject to a concentration of credit risk in its amounts receivable. As at March 31, 2009, two customers represented 74% and 2% (December 31, 2008 - 47% and 6%) respectively, of amounts receivable.

Management is of the opinion that any risk of loss due to bad debts is significantly reduced due to the financial strength of its customers. The Company performs ongoing credit evaluations of its customers' financial condition and requires letters of credit or other guarantees whenever deemed necessary.

The aging of amounts receivable at the reporting date was:

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--------------------------------------------------------------------------
 March 31, December 31,
 2009 2008
--------------------------------------------------------------------------

Current $ 73,198 $ 6,713,329
Past due 31-90 days 697,342 701,644
Past due greater than 90 days 5,224 1,911
--------------------------------------------------------------------------
Gross amounts receivable 775,764 7,416,884
Less: Allowance for doubtful accounts (1,945) (1,911)
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Total amounts receivable, net $ 773,819 $ 7,414,973
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--------------------------------------------------------------------------

There was no significant change in the allowance for credit losses in the period.

Credit risk exists in the event of non-performance by a counterparty to forward exchange contracts. The risk is minimized as each contract is with a major chartered bank and represents an exchange between the same party allowing for an offset in the event of non-performance. Management does not believe there is a significant risk of non-performance by the counterparty because the portions with and the credit ratings of such counterparty are monitored.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

--------------------------------------------------------------
--------------------------------------------------------------
 March 31, December 31,
 2009 2008
--------------------------------------------------------------

Cash and cash equivalents $ 6,474,723 $ 2,602,692
Restricted cash 1,832,828 1,793,708
Amounts receivable 773,819 7,414,973
Deferred transportation costs 60,157 110,283
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Total $ 9,141,527 $ 11,921,656
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--------------------------------------------------------------

Market risk:

Market risk is the risk that changes in market prices, such as foreign exchange rates will affect the Company's income or the value of its holding in financial instruments.

(i) Foreign exchange risk:

The Company periodically enters into forward exchange contracts to offset its balance sheet exposure and to hedge the cash flow risk associated with its estimated net foreign currency cash requirements and certain significant transactions.

The Company did not designate its foreign exchange forward contract as a hedge of underlying assets, liabilities, firm commitments or anticipated transactions in accordance with CICA Handbook Section 3865, Hedges, and accordingly did not use hedge accounting. As a result of this, the foreign exchange forward contracts are recorded on the consolidated balance sheet at fair value in current assets when the contracts are in a gain position and in current liabilities when the contracts are in a loss position. Changes in fair value of these contracts are recognized as gains or losses in the statement of operations.

As of March 31, 2009, the Company has no foreign exchange contracts outstanding.

As at March 31, 2008, the Company had contracts outstanding to sell $1.6 million at various rates from $0.9898 U.S. to $1.0001 U.S. for a total of $1,592,435. The contracts expired at various dates in April through May, 2008. The fair value of the contracts as at March 31, 2008 was an unrealized loss of $55,205 which was recorded as an accrued liability on the balance sheet and a foreign exchange loss on the statement of operations and comprehensive loss.

The Company does not utilize financial instruments for speculative purposes.

The Company is exposed to the following currency risk at the reporting date:

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-------------------------------------------------------------------------
 March 31, December 31,
 2009 2008
 U.S. U.S.
-------------------------------------------------------------------------

Cash, restricted cash and cash equivalents $ 2,327,760 $ 1,191,857
Amounts receivable 86,095 4,900
Accounts payable and accrued liabilities (2,611,052) (2,476,891)
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Net exposure in U.S. dollars $ (197,197) $ (1,280,134)
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-------------------------------------------------------------------------

A 10% strengthening of the Canadian dollar against the U.S. dollar would have increased loss from operations by approximately $25,000 as at March 31, 2009 (December 31, 2008 - approximately $4,000).

The following summary illustrates the fluctuations in the exchange rates applied during the period ended March 31, 2009:

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-------------------------------------------------------------------------
 U.S. $
-------------------------------------------------------------------------

Opening exchange rate as at January 1, 2009 1.2180
Closing exchange rate as at March 31, 2009 1.2613
Average exchange rate for the three months ended March 31, 2009 1.2534
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-------------------------------------------------------------------------

(ii) Liquidity risk:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to monitor consolidated cash flow to ensure that there will always be sufficient liquidity to meet liabilities when due.

As described in note 1, management has implemented strategies to generate positive cash flows from operating activities. If these plans are achieved the Company will have sufficient cash flows to meet amounts due. At March 31, 2009, the Company has a cash and cash equivalents balance of $6,474,723 and positive working capital of $1,684,258.

The Company had no bank borrowings outstanding at March 31, 2009 or December 31, 2008.

(iii) Fair values:

The Company's financial instruments consist of cash and cash equivalents, restricted cash, amounts receivable, deferred transportation costs, accounts payable and accrued liabilities, long-term liabilities and foreign exchange contracts.

The carrying value of cash and cash equivalents, restricted cash, amounts receivable, deferred transportation costs, accounts payable and accrued liabilities approximates their fair values due to the immediate or short-term maturity of these financial instruments.

The carrying value of the long-term liabilities approximate fair value because the future cash flows have been discounted using a risk adjusted discount rate.

The table below analyzes the Company's financial liabilities which will be settled into relevant maturity groupings based on the remaining periods at March 31, 2009 to the contractual maturity date. The amounts disclosed in this table are the contractual undiscounted cash flow. Balances within twelve months equal the carrying balance, as the impact of discounting is not significant.

 Payments due:
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---------------------------------------------------------------------------

 Between 6 Between 1 Between 2 Greater
 In less than 6 months and year and 2 years and 5 than 5
 Months 1 year years years years
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Accounts
 payable
 and accrued
 liabilities
 and long-term
 liabilities $ 4,110,658 $ 994,156 $ 331,260 $ 2,963,931 $ 711,000
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8. Capital management:

The Company's objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

Management defines capital as the Company's total shareholders' equity. The Board of Directors does not establish quantitative return on capital criteria for management. The Board of Directors reviews the capital structure on a quarterly basis.

In order to maintain or adjust the capital structure, the Company may purchase shares for cancellation pursuant to normal course issuer bids, issue new shares or warrants, and issue new debt.

There were no changes in the Company's approach to capital management during the period. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

9. Long-term liabilities:

Long-term liabilities comprise the following:

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---------------------------------------------------------------------------
 Tenure Severance U.S. Department
 agreement payable of Justice Total
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Balance December 
 31, 2008 $ 1,079,678 $ 571,304 $ 2,828,414 $ 4,479,396
Addition (reduction) - (16,509) - (16,509)
Foreign exchange charge - - 100,550 100,550
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 1,079,678 554,795 2,928,964 4,563,437
Less current portion 250,167 554,795 186,765 991,727

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Balance March 31, 2009 $ 829,511 $ - $ 2,742,199 $ 3,571,710
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10. Share capital:

(a) The authorized share capital of the Company consists of an unlimited number of common shares and an unlimited number of Series I non-voting redeemable preferred shares. No Series I, non-voting redeemable preferred shares have been issued.

(b) The issued share capital of the Company is as follows:

---------------------------------------------------------------------------
---------------------------------------------------------------------------
 Common
 shares Amount
---------------------------------------------------------------------------

Total issued shares, March 31, 2009 and 
 December 31, 2008 27,018,675 $ 71,805,842
Shares repurchased in 2004 and held in treasury (11,500) (71,879)

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Balance, March 31, 2009 and December 31, 2008 27,007,175 $ 71,733,963
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(c) Stock option plan:

The Company has a stock option plan (the "Plan") where the maximum number of common shares issued under the Plan will be 10% of the issued and outstanding common shares at the time of grant. The Plan provides for the granting of options for the purchase of common shares of the Company at the fair market value of the Company's stock at the grant date. Stock options are granted to both employees and non-employees. The Company's Board of Directors has discretion as to the number of stock options granted, as well as in determining the vesting period and expiry dates.

A total of 1,850,000 stock options were granted during the three months ended March 31, 2009 (2008 - nil).

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model using the following weighted average assumptions:

-----------------------------------
-----------------------------------
 2009
-----------------------------------

Risk-free interest rate 1.95%
Expected option lives 5 years
Expected volatility 159%
Dividend yield Nil%
-----------------------------------

Total fair value of options granted at this date is $395,569 or $0.21 per option. One-third of options vested immediately, and the remaining options will vest equally over the next two years on each anniversary date.

Stock option activity for the three months ended March 31, 2009 is as follows:

-------------------------------------------------------
-------------------------------------------------------
 Weighted
 average
 exercise
 Shares price
-------------------------------------------------------

Outstanding, December 31, 2008 646,000 $ 0.96
Granted 1,850,000 0.24
Exercised - -
Cancelled (6,000) 3.18

-------------------------------------------------------
Outstanding, March 31, 2009 2,490,000 $ 0.42
-------------------------------------------------------
-------------------------------------------------------

The following table summarizes information relating to outstanding and exercisable options at March 31, 2009 and December 31, 2008:

-------------------------------------------
-------------------------------------------
Range of Number 
exercise prices of options
 2009 2008
-------------------------------------------

$ 0.24 1,850,000 -
$ 0.67 - $ 1.73 630,000 630,000
$ 3.18 - 6,000
$ 4.20 10,000 10,000

-------------------------------------------
 2,490,000 646,000
-------------------------------------------
-------------------------------------------

11. Share purchase warrants:

At March 31, 2009, the Company has 1,080,000 outstanding warrants (2008 - 1,080,000) which are exchangeable into common shares of the Company at the holder's option on a one-for-one basis, at any time between March 1, 2008 and March 1, 2010, at a price of $0.77 for the first 540,000 warrants exercised and at $0.87 with respect to the remaining 540,000 warrants. No warrants have been exercised during the period.

12. Loss per share:

The reconciliation of the loss for the year and weighted average number of common shares used to calculate basic and diluted loss per share is as follows:

---------------------------------------------------------------------------
---------------------------------------------------------------------------
 Three months ended March 31,
 2009 2008
---------------------------------------------------------------------------
 Number of Loss for Number of Loss for
 shares the period shares the period
---------------------------------------------------------------------------

Loss from
 continuing
 operations for
 the period 27,007,175 $ (2,324,020) 27,007,175 $ (1,516,612)
Loss from
 discontinued
 operations for 
 the period 27,007,175 nil 27,007,175 (92,186)
Loss for the
 period 27,007,175 (2,324,020) 27,007,175 (1,608,798)
Loss per common
 share from
 continuing
 operations
 basic and
 diluted (0.09) (0.06)
Loss per common
 share from
 discontinued
 operations
 basic and
 diluted 0.00 0.00
Loss per common
 share basic and
 diluted (0.09) (0.06)
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---------------------------------------------------------------------------

Options aggregating 2,490,000 (2008 - 646,000) and warrants aggregating 1,080,000 (2008 - 1,080,000) have not been included in the computation of diluted loss per share as they are considered anti-dilutive.

13. Segmented information:

(a) Geographic information:

The Company operates in one reportable operating segment, which involves the business of remediating contaminated soil and other waste materials. All significant property, plant and equipment are located in Canada. The table below summarizes sales by country:

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 Three months ended
 March 31,
 2009 2008
--------------------------------------------------------------------

Sales by country:
 Customers domiciled in the United States $ 31,134 $ 1,678,390
 Customers domiciled in Canada 406,051 602,632
--------------------------------------------------------------------
 $ 437,185 $ 2,281,022
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(b) Major customers:

For the quarter ended March 31, 2009 revenues from two customers represented approximately 92% and 4% (2008- 38% and 30%), respectively, of total revenues.

14. Contingencies:

(a) Federal Creosote project

During the second quarter of 2008, the prime contractor on the Federal Creosote project filed a complaint against the Company in a U.S. court. The complaint also names a director and officer, an officer and a senior manager who are no longer with the Company. The complaint claims these three individuals colluded with an employee of the prime contractor relating to, among other things, the awarding of the Federal Creosote project during the years 2002 through 2004. On a joint and several basis, the complaint seeks approximately $1.1 million U.S. plus the value of additional gratuities. The majority of the counts within the complaint seek damages on a joint and several basis from multiple defendants, including the Company. The outcome of this matter is not determinable and no amount has been recorded in the Company's financial statements in respect of the complaint. Management intends to defend against this complaint vigorously.

(b) U.S. Department of Justice Civil Litigation

The U.S. Department of Justice Civil Division is investigating whether the Company violated the civil False Claims Act in connection with the Federal Creosote project in New Jersey during the 2002-2004 time period. The outcome of this investigation is not determinable and no amount has been recorded in the Company's financial statements in respect of this investigation. The Company continues to bid on work for various U.S. government entities and does not believe that this matter will affect its eligibility for this work. The Company is cooperating fully with the investigation.

(c) Claim against Company's founder for unlawful activities

The Company has filed a claim against the Company's founder and former CEO for $10,340,550. The claim alleges that he was directly or indirectly responsible for the illegal payments that resulted in the Company pleading guilty to conspiracy to commit fraud as described in note 11(c) of the audited consolidated financial statements for the years ended December 31, 2008 and 2007.

In addition to seeking to recover these illegal payments, the associated fines and legal fees, the claim seeks to recover bonuses which were inappropriately paid and punitive damages. The claim has not yet been defended.

(d) Other:

(i) During 2005, the Company was served with a claim in the amount of $5,000,000 by a consultant retained by the founder and former CEO claiming breach of contract. The claim was submitted to arbitration and $145,000 was recorded as an expense in 2005 as the Company's estimate of its obligation under the arbitrator's decision. Upon appeal by the consultant, the arbitrator's decision was overturned with the Company being liable for additional amounts estimated to be $315,000 which were expensed in 2007. During the fourth quarter of 2008, a payment of $374,091 was made, including recoverable input tax credits of $18,900 and interest of $40,191 leaving an accrual of $100,000 representing the Company's estimate of costs related to the claim. The Company believes that it has adequately provided for and expensed amounts related to this claim.

(ii) During 2006, a former CEO of the Company entered into a settlement agreement with the OSC where he acknowledged, with certain caveats, violating provisions of the Securities Act. Based on a provision of the Canada Business Corporations Act and legal advice, the Company determined that it had the right to recover funds that had been paid for the defense of the former CEO relative to the matter. As a result, the Company deferred payments required under the former CEO's pension agreement and consulting agreement as an offset to monies advanced for his defense.

During 2007, the Company was served with a claim by the same CEO claiming recovery of fines and costs paid pertaining to Ontario Securities Commission ("OSC") matters. The former CEO maintains that he acted appropriately and that the Company is required to indemnify him for the $300,000 paid by him to the OSC, plus $100,000 in punitive damages. As part of this claim the former CEO also maintains that the Company does not have the right of offset discussed above.

During the first quarter of 2008, the Ontario Superior Court of Justice ruled in favour of the former CEO and the Company was ordered to pay $300,000, representing the amount paid by the former CEO to the OSC. As well, the judgment indicates that the former CEO was entitled to indemnification and that the amounts offset against pension and consulting liabilities are to be paid. This amount was accrued and expensed in the Company's 2007 consolidated financial statements. The Company appealed this decision to the Ontario Court of Appeal which ruled in favour of the former CEO in March of 2009. As a result of this ruling the Company has recorded additional costs in the amount of $159,439 during the fourth quarter of 2008 and an additional $14,487 during the first quarter of 2009. Subsequent to the end of the first quarter of 2009, the Company paid these costs as ordered by the court.

(iii) Subsequent to the end of the quarter, a former officer and director requested indemnification from the Company for legal costs incurred in connection with the U.S. Department of Justice anti-trust investigation (note 11(c) to the 2008 annual audited financial statements). As a result the Company has accrued and expensed $152,826, (approximately $121,000 U.S.) in the first quarter of 2009 to administration and business development expenses. This individual and other former officers and directors may seek additional indemnification from the Company for legal fees incurred in connection with this investigation.

(iv) The Company terminated an employment arrangement in 2007 and recorded as an expense $280,000 in accordance with this employee's employment contract in its 2007 consolidated financial statements. In the first quarter of 2008, the Company was served with a claim by this employee claiming breach of contract for $540,000. A formal motion of defense has been filed with the courts. Management will vigorously defend the claim.

(v) In the ordinary course of business, other lawsuits have been filed against and by the Company. In the opinion of management, the outcome of the lawsuits now pending will involve amounts that would not have a material adverse effect on the consolidated position of the Company. However, should any loss result from the resolution of these claims, such loss would be charged against income in the year the claim is resolved.

15. Subsequent events

Subsequent to the end of the first quarter of 2009, the Company paid consulting fees of $275,157 and related interest of $9,297 (2008 - $nil) to a company owned by a former director and officer of the Company pursuant to the termination agreement that was accrued and recorded in expense in 2004.

Subsequent to the end of the first quarter of 2009, the Company paid tenure payments of $190,917 and related interest of $11,792 (2008 - $nil) to a former director and officer of the Company.