Bennett Environmental Inc.
TSX : BEV

Bennett Environmental Inc.

May 15, 2008 18:37 ET

BEI Announces First Quarter 2008 Results and Update to a Previously Announced Claim

OAKVILLE, ONTARIO--(Marketwire - May 15, 2008) - Bennett Environmental Inc. (TSX:BEV) (the "Company" or "BEI") today announced its first quarter 2008 results for the period ending March 31, 2008. In commenting on the results Mr. Christopher Wallace, Chairman, expressed his confidence stating that "The Company's management is continuing to move the Company in the correct direction. The improvement in results over the previous quarter and over the same quarter for the previous year clearly show this. The Company continues to seek increased revenue as required to return to profitability."

Mr. Jack Shaw, President and CEO of the Company, added the following comments on the results. "We processed material at our Saint Ambroise facility during the month of March, and as always there was a positive impact on our financial results. The quality of our operating team and the strength of our technology are demonstrated in each of our campaign burns. Our challenge continues to be to source adequate volume at appropriate prices for the facility." In looking to the rest of the year Mr. Shaw made the following observations, "At this time we are not planning on operating Saint Ambroise during the second quarter. Consistent with our results in 2007 we expect that the majority of our planned volume will be received and processed in the third and fourth quarter. It is also important to note that while we have numerous proposals outstanding we have not yet entered into new contracts. This too is consistent with our 2007 experience where our new contracts were not entered into until near the end of the second quarter. We are actively bidding work for both our Cornwall and Kirkland Lake facilities as well and we continue to believe that the regulation change anticipated at the end of June with respect to the storage and management of PCB's will positively impact our overall business."

The Company also issued the following update to a previous announcement made May 2, 2008 regarding a lawsuit initiated against the Company and others by the prime contractor for the Federal Creosote project. The Company has been advised that the prime contractor intends to withdraw the separate claim against BEI and others and intends to proceed with this claim by way of amending a previously initiated claim against one of the other parties. The Company has been advised that the plaintiff seeks damages of $3.1 U.S. million as opposed to the $5.3 U.S. million previously announced. 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. Should the claim ultimately be served on the Company management intends to contest it vigorously.

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,
2008 2007
----------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,671,391 $ 3,872,569
Restricted cash 922,223 888,316
Amounts receivable 2,320,481 4,872,752
Current portion of long-term receivables
(note 3) 85,155 87,465
Inventory 58,533 117,845
Deferred transportation costs 129,074 732,657
Prepaid expenses and other 609,930 594,436
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8,796,787 11,166,040
Long-term receivables (note 3) - 42,000
Property, plant and equipment 16,135,913 16,744,677
Other assets 3,430,711 3,464,252
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$ 28,363,411 $ 31,416,969
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----------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 6,519,881 $ 7,479,833
Income taxes payable 1,187,327 1,072,416
Deferred revenue 889,923 1,510,125
Current portion of long-term liabilities
(note 4) 2,173,580 2,196,890
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10,770,711 12,259,264
Long-term liabilities (note 4) 1,995,616 1,945,773
Deferred gain 84,415 126,415

Shareholders' equity:
Share capital (note 5) 71,733,963 71,733,963
Contributed surplus 4,035,129 3,999,179
Share purchase warrants 429,056 429,056
Deficit (60,685,479) (59,076,681)
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15,512,669 17,085,517
Future operations (note 1)
Contingencies (note 10)

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$ 28,363,411 $ 31,416,969
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See accompanying notes to interim consolidated financial statements.




BENNETT ENVIRONMENTAL INC.
Interim Consolidated Statements of Operations and Comprehensive Loss
(Expressed in Canadian dollars)

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---------------------------------------------------------------------------
Three months ended
March 31,
2008 2007
---------------------------------------------------------------------------
(Unaudited)

Sales $ 3,546,538 $ 1,731,321

Expenses:
Operating costs 3,006,729 1,867,630
Administration and business development 1,421,581 1,901,284
Depreciation and amortization 647,009 767,445
Foreign exchange 141,811 (2,645)
Interest 33,558 26,357
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5,250,688 4,560,071
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Loss before the undernoted (1,704,150) (2,828,750)

Other income, including interest 95,352 181,175
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Loss before income taxes (1,608,798) (2,647,575)

Income taxes:
Future - 7,335
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- 7,335
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Net loss and comprehensive loss for the period $ (1,608,798) $ (2,654,910)
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Loss per share: (note 6)
Basic and diluted $ (0.06) $ (0.11)
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See accompanying notes to interim consolidated financial statements.




BENNETT ENVIRONMENTAL INC.
Interim Consolidated Statements of Shareholders' Deficit
(Express in Canadian dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31,
2008 2007
----------------------------------------------------------------------------
(Unaudited)

Shareholders' deficit, beginning of period $ (59,076,681) $(41,312,875)

Net loss and comprehensive loss for the period (1,608,798) (2,654,910)

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Shareholders' deficit, end of period $ (60,685,479) $(43,967,785)
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See accompanying notes to interim consolidated financial statements.




BENNETT ENVIRONMENTAL INC.
Interim Consolidated Statements of Cash Flows
(Express in Canadian dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31,
2008 2007
----------------------------------------------------------------------------
(Unaudited)
Cash provided by (used in):
Operations:
Loss for the period $ (1,608,798) $ (2,654,910)
Items not involving cash:
Depreciation and amortization 647,009 767,445
Stock-based compensation 35,950 172,409
Department of Justice investigation contingency 101,533 -
Deferred gain (42,000) (41,785)
Future income taxes - 7,335
Change in non-cash operating working capital:
Amounts receivable 2,552,271 249,610
Deferred transportation costs 603,583 (730,061)
Prepaid expenses and other (15,494) 67,479
Inventory 59,312 (27,118)
Accounts payable and accrued liabilities (959,952) 84,315
Income taxes receivable/payable 114,911 3,162,054
Deferred revenue (620,202) (56,750)
Severance payable - 1,340
Severance payments (75,000) -
Change in restricted cash (33,907) (682,114)
----------------------------------------------------------------------------
759,216 319,249

Financing:
Repayments of long-term liabilities - (263,793)
Issuance of share capital, net of share issue
costs - 3,911,132
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- 3,647,339

Investments:
Decrease in note receivable 44,310 227,421
Proceeds on disposal of property, plant and
equipment - 1,000
Purchase of property, plant and equipment (4,704) (24,141)
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39,606 204,280
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Increase in cash and cash equivalents 798,822 4,170,868
Cash and cash equivalents, beginning of period 3,872,569 2,870,358
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Cash and cash equivalents, end of period $ 4,671,391 $ 7,041,226
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----------------------------------------------------------------------------

Supplemental cash flow information:
Interest paid $ 28,156 $ 2,680
Income taxes paid - 70,548
Income tax refund 123,386 3,232,601
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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, 2008 and 2007

(Unaudited)

1. Future operations:

These interim 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 $1,608,798 during the three months ended March 31, 2008. The Company has an accumulated deficit of $60,685,479 at March 31, 2008. The Company did not operate the RSI facility in Quebec for 64 days during the three months ended March 31, 2008 in an attempt to build up production volumes for more efficient operations. The Company reopened the RSI facility from March 3, 2008 to March 29, 2008. The Belledune facility has not yet commenced operations.

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. This includes being able to secure sufficient sales volumes at profitable sales prices and to continue with cost reduction strategies implemented during 2006 and 2007.

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 2009.

The interim 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, 2008 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, 2007 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, 2008 and 2007.

(c) Change in accounting policies

On January 1, 2008, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3862, "Financial Instruments -- Disclosures" and Section 3863, "Financial Instruments -- Presentation". The adoption of these new standards resulted in additional disclosures with regard to financial instruments and their impact on the Company's financial position and performance, including disclosures identifying the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the Company manages those risks. These new standards relate to disclosure and presentation only and did not have an impact on the Company's consolidated financial results. Refer to note 7 for further details.

On January 1, 2008, the Company adopted CICA Handbook Section 3031, Inventory which establish standards for the measurement and disclosure of inventories. The main features of the new recommendations include the measurement of inventories at the lower of cost and net realizable value, with guidance on the determination of cost, including allocation of overheads and other costs to inventories. The Company adopted this new standard prospectively. The adoption of the standard did not have a significant impact on the opening inventory of the Company. The Company values inventories at the lower of cost and net realizable value. Costs include the costs that are directly incurred to bring the inventories to their present condition. The Company estimates net realizable value as the amounts the inventories are expected to be sold less estimated costs to make the sale. When circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in selling price the amount of the write-down previously recorded is reversed. For the three months ended March 31, 2008, cost of inventory sales, which have been included as part of operating expenses totalled $315,000. Sales of inventory items for the period totalled $370,000.

On January 1, 2008, the Company adopted CICA Handbook Section 1535, Capital Disclosures, which provides standards for disclosures regarding a company's capital and how it is managed. Enhanced disclosure with respect to the objectives, policies and processes for managing capital and quantitative disclosures about what a company regards as capital are required. This new standard relates to disclosure and presentation only and did not have an impact on the Company's consolidated financial results. See note 8 for further details.

(d) Recent accounting pronouncements

The Canadian Accounting Standards Board will require all public companies to adopt International Financial Reporting Standards ("IFRS") for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Companies will be required to provide IFRS comparative information for the previous fiscal year. The convergence from Canadian GAAP to IFRS will be applicable for the Company for the first quarter of 2011 when the Company will prepare both the current and comparative financial information using IFRS. The Company expects the transition to IFRS to impact financial reporting, business processes and information systems. The Company will assess the impact of the transition to IFRS and will invest in training and resources throughout the transition period to facilitate a timely conversion.



3. Long-term receivables:

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----------------------------------------------------------------------------
Long-term
amount Promissory Note
receivable note receivable Total
----------------------------------------------------------------------------
(i)

Balance, December 31, 2007 $ 5,037,611 $ 129,465 $ 184,184 $ 5,351,260
Received - (42,000) - (42,000)
Accrued interest - (2,310) - (2,310)
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Balance, March 31, 2008 5,037,611 85,155 184,184 5,306,950
Less current portion - (85,155) - (85,155)
Less allowance for doubtful
amounts (5,037,611) - (184,184) (5,221,795)
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Long-term receivables $ - $ - $ - $ -
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(i) The promissory note of $129,465 bears interest at 5.5% per annum,
compounded semi-annually and has a term of three years. Principal
payments of $42,000 are due on January 1 and July 1 of each year,
together with accrued and unpaid interest. The promissory note
receivable, related to the sale of the odorant business, is secured by
a first charge against substantially all of the assets sold and a
personal guarantee of $100,000 by the purchaser.

The allowance for doubtful accounts remains unchanged from December 31,
2007.




4. Long-term liabilities:

Long-term liabilities comprise the following:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Department of
Justice
Investigation
Tenure Severance Contingent
agreement payable Liability Total
----------------------------------------------------------------------------
(note 10(c) note 10(b))
(iv))

Balance December 31, 2007 $ 746,359 $ 646,304 $ 2,750,000 $ 4,142,663
Foreign exchange - - 101,533 101,533
Paid - (75,000) - (75,000)
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746,359 571,304 2,851,533 4,169,196
Less current portion (150,586) (571,304) (1,451,690) (2,173,580)

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Balance March 31, 2008 $ 595,773 $ - $ 1,399,843 $ 1,995,616
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5. 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, 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, 2008 27,007,175 $ 71,733,963
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(c) Stock option activity for the three months ended March 31, 2008 is as follows:



---------------------------------------------------------
---------------------------------------------------------

---------------------------------------------------------
Weighted
average
exercise
Options price
---------------------------------------------------------

Outstanding,
December 31, 2007 881,000 $ 2.71
Granted - -
Exercised - -
Cancelled - -

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Outstanding, March 31, 2008 881,000 $ 2.71
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---------------------------------------------------------


The following table summarizes information relating to outstanding and exercisable options at March 31:



Range of Number
exercise prices of options
2008 2007
---------------------------------------------------------

$ 0.67 - $ 1.73 730,000 1,200,000
$ 2.67 - $ 3.55 6,000 446,000
$ 4.11 - $ 7.10 50,000 220,000
$ 7.20 - $ 9.10 - 100,000
$14.29 - $22.05 95,000 125,000

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881,000 2,091,000
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---------------------------------------------------------


No stock options were issued during the three months ended March 31, 2008.

At March 31, 2008, the Company has 1,080,000 outstanding warrants (2007 -- 1,080,000) which are exchangeable into common shares of the Company at the holder's option on a one-for-one basis, at ay 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.

6. Loss per share:

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



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----------------------------------------------------------------------------
Three months ended
March 31,
2008 2007
----------------------------------------------------------------------------

Loss for the period -- basic and diluted $ (1,608,798) $ (2,654,910)

Loss per common share -- basic and
diluted $ (0.06) $ (0.11)
Weighted average number of
shares - basic and diluted 27,007,175 23,404,585
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Options aggregating 881,000 (2007 -- 2,091,000) and warrants aggregating 1,080,000 (2007 -- 1,080,000) have not been included in the computation of diluted loss per share as they are considered anti-dilutive.

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, 2008, two customers represented 28% and 15% (December 31, 2007 -- 48% and 21%) 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.

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 parties allowing for an offset in the event of non-performance. Management does not believe there is a significant risk of non-performance by the counterparties because the portions with and the credit ratings of such counterparties are monitored.

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



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---------------------------------------------------------
March 31, December 31,
2008 2007
---------------------------------------------------------

Cash and cash equivalents $ 4,671,391 $ 3,872,569
Restricted cash 922,223 $ 888,316
Accounts receivable 2,320,481 4,872,752
Deferred transportation costs 129,074 732,657
Long-term receivables 85,155 129,465

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Total $ 8,128,324 $ 10,495,759
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The aging of accounts receivable at the reporting date was:

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-----------------------------------------------------------------
March 31, December 31,
2008 2007
-----------------------------------------------------------------

Current $ 1,335,944 $ 4,289,885
Past due 31-90 days 928,305 560,366
Past due greater than 90 days 69,855 36,124
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Gross accounts receivable 2,334,104 4,886,375
Less: Allowance for doubtful accounts (13,623) (13,623)
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Total accounts receivable, net $ 2,320,481 $ 4,872,752
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-----------------------------------------------------------------


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

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.

Foreign exchange risk:

The Company is a net seller of U.S. dollars with U.S. dollar receipts from sales exceeding U.S. dollar denominated purchases. As a net seller of U.S. funds, the Company is negatively affected by a strong Canadian currency. However, this is somewhat reduced by the favourable effect of a strong Canadian dollar on the Company's transportation costs in U.S. dollars. The Company 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. Basis of fair value of contracts represents the amount to be paid (or received) with the counterparty should the contract be settled at March 31, 2008.

As of March 31, 2008 the Company has entered into foreign exchange contracts to sell approximately $1.6 million U.S., at various dates in April through May 2008 with rates from $0.9898 U.S. to $1.0001 U.S. The fair value of these contracts at March 31, 2008 was an unrealized loss of $52,205 (December 31, 2007 - $13,705 gain) which is recorded as an accrued liability on the balance sheet and 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 March 31, 2008:



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

Cash, restricted cash and cash equivalents $ 1,013,890
Accounts receivable 1,359,204
Accounts payable and accrued liabilities (3,349,911)
--------------------------------------------------------------

Total $ (976,817)
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--------------------------------------------------------------


A 10% strengthening (weakening) of the Canadian dollar against the U.S. dollar would have increased (decreased) earnings from operations by $240,803 as at March 31, 2008.

The following summary illustrates the fluctuations in the exchange rates applied during the period ended March 31, 2008:



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

Opening exchange rate 0.9913
Closing exchange rate 1.0279
Average exchange rate 1.0041
-----------------------------------
-----------------------------------


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, 2008, the Company has a cash and cash equivalents balance of $4,671,391. While the Company has negative working capital of $1,973,924 at March 31, 2008, management has the ability to negotiate the deferral of certain current liabilities.

Of the $922,223 held in restricted cash, $644,910 will be returned to the Company in the next six months and will be available to pay financial liabilities.

The Company had no bank borrowings outstanding at March 31, 2008 or December 31, 2007.

Fair values:

The Company's financial instruments consist of cash and cash equivalents, restricted cash, amounts receivable, deferred transportation costs, note receivable and promissory note, 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 note receivable and promissory note approximate their fair values due to the interest rates on the note receivable and promissory note being comparable to market rates.

The carrying values of long-term liabilities approximate their fair values since the interest rates are based on market rates of interest for similar debt securities.

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, 2008 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
In less than 6 months and year and 2 years and 5
months 1 year years years
----------------------------------------------------------------------------

Accounts Payable and
accrued liabilities and
Long-term liabilities $6,519,881 $2,173,580 $ 139,000 $ 2,094,844
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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. 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:



----------------------------------------------------------------
----------------------------------------------------------------
Three months ended
March 31,
2008 2007
----------------------------------------------------------------

Sales by country:
Customers domiciled in the United States $1,678,390 $ 23,353
Customers domiciled in Canada 1,868,148 1,707,968
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$3,546,538 $ 1,731,321
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----------------------------------------------------------------


(b) Major customers:

For the quarter ended March 31, 2008, revenues from two customers represented approximately 25% and 20% (2007 - 15% and 9%), respectively, of total revenues.

10. Contingencies:

(a) Federal Creosote project

Subsequent to the end of the first quarter of 2008, the prime contractor on the Federal Creosote project filed a complaint against the Company in a US 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. The Company has not been served with the complaint and, as such, litigation has not formally commenced. On a joint and several basis, the complaint seeks approximately $3.1 million US in damages from the Company, other parties unrelated to the Company and the director, officer and senior manager formerly with 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.

On April 25, 2008 the plaintiff informed the US court that it intends to withdraw its complaint. The Company believes this change to be procedural and expects the plaintiff to file an amended complaint making similar claims as described above.

(b) Department of Justice Investigation:

The Company has been involved in several phases of the Federal Creosote project in New Jersey. During 2007 the Company received, what it believes, are the final shipments of soil requiring thermal remediation from this site. This has been a multi-year project involving multiple phases and bids. Some of the bid awards have been challenged by unsuccessful bidders resulting in high levels of scrutiny of the bidding process.

In September, 2006 the Company, among others, received a Grand Jury subpoena from the United States Department of Justice ("DOJ") to preserve all documents dated on or after January 1, 2001 pertaining to the Federal Creosote Superfund contract. The Company has complied with the subpoena and cooperated in the investigation of potential anti trust violations in the environmental services industry. The Company has estimated that its liability with respect to this matter to be $2,750,000 and has recorded this amount in 2007. During the quarter ended March 31, 2008, the unrealized foreign exchange on this liability amounted to $101,533. No current officer or director was at the Company at the time when the matters giving rise to this contingency occurred. It is the Company's intention to continue to cooperate with agencies of the United States government concerning these matters and to preserve its good standing with the Environmental Protection Agency.

The Company anticipates that the amounts will be payable over a six year period (note 4).

(c) Other:

(i) During 2005, the Company was served with a claim in the amount of $5,000,000 by a consultant retained by a 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. The Company believes that it has adequately provided for and expensed amounts related to this claim.

(ii) During 2005, a former employee filed a wrongful dismissal suit against the Company claiming damages in the amount of $270,000. In 2005, the Company expensed $46,000 as its best estimate of potential loss based on its initial offer to settle. During the first quarter of 2008, the Company settled the claim for $105,701. The Company has accrued the settlement in its 2007 consolidated financial statements and expensed the additional cost of approximately $60,000.

(iii) The Company has filed a formal claim in the Ontario Superior Court of Justice against Defence Construction Canada ("DDC") of $9.0 million plus punitive damages to receive the amounts incurred related to the Saglek contract.

(iv) During 2006, the Company was served with a claim by a former CEO claiming breach of contract alleging that the Company was required to establish a secure pension. The Company acknowledges that it has a pension obligation due to the former CEO pursuant to a contract and currently has $746,359 recorded in long-term liabilities. During 2007, the Company and the former CEO agreed to secure the pension obligation with a charge against certain of the Company's fixed assets.

(v) 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.

(vi) 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 Ontario Securities Commission. As well, the judgment indicates that the former CEO was entitled to indemnification and that the amounts offset against pension and consulting liabilities as described in (v) are to be paid. This amount was accrued and expensed in the Company's 2007 consolidated financial statements. The Company has reviewed the decision and believes that the former CEO's acknowledgement of violating the Securities Act precludes him from being eligible for indemnification. The Company is appealing the Court's decision.

(vii) 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.

(viii) During a routine audit, the Ministry of Revenue of Quebec ("MRQ") identified in a letter received in 2005 that the Company's subsidiary in Quebec has incorrectly deducted input tax credits for Quebec sales tax ("QST") related to utilities. QST legislation denies such input tax credits for a service-type business. A proposed adjustment letter was received by the Company in 2005 requiring the Company to pay $1.1 million. After various meetings with the MRQ during 2006, management has negotiated a settlement with the MRQ on the ineligible portion of the input tax credits providing for payment by the Company, in the amount of $0.6 million, including interest and penalties, which was accrued in the 2006 consolidated financial statements. After reviewing the situation during the first quarter of 2007 an additional $0.1 million was accrued and expensed. The Company has settled with the MRQ and paid its liability. No additional adjustments or accrual was required during the balance of 2007.

(ix) In the ordinary course of business, 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.

11. Disposition of odorant assets:

On April 13, 2006, the Company entered into an agreement to sell certain assets associated with its odorant business for $322,000 to Midland Resource Recovery Inc. in exchange for a promissory note (note 3).

Upon the sale, the Company recorded a deferred gain which will be recognized as the promissory note is collected. During the period ended March 31, 2008, the Company collected against the note and recorded a gain on the disposition of $42,000 (three months ended March 31, 2007 - $42,000), thereby decreasing the deferred gain balance to $84,415 at March 31, 2008 (2007 - $126,415).

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