SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 40-F/A

(Amendment No. 1)

 

(Check One)

o		Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

þ		Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004

Commission File Number 0-30946

BENNETT ENVIRONMENTAL INC.

(Exact Name of Registrant as Specified in its Charter)

(Address and Telephone Number of Registrant’s Principal Executive Offices)

(Name, Address and Telephone Number of Agent for Service in the United States)

		Name of Each Exchange
Title of Each Class		on Which Registered
Common Shares		American Stock Exchange

þ		Annual information form

þ		Audited annual financial statements

EXPLANATORY NOTE

     During the course of the year end December 31, 2005 audit process, the Company determined there was an error in how it accounted for certain revenue under the percentage-of-completion method of revenue recognition in 2004 and 2003 related to one of its principal contracts, the Saglek contract. In addition, the Company determined that during 2003 and 2004 certain expense items relating to the Saglek contract were recorded in the incorrect period and items of a capital nature were expensed in the period incurred rather than being capitalized. The Company’s Board of Directors approved management’s recommendation to restate its consolidated financial statements for the fiscal years ended December 31, 2004 and December 31, 2003. In accordance with the restatement, the Company is filing this amendment to Form 40-F to include restated Management’s Discussion and Analysis disclosure and restated audited financial statements for these periods.

PRINCIPAL DOCUMENTS

     The following documents of Bennett Environmental Inc. (the “Company”) have been filed as part of this Annual Report on Form 40-F:

1.

Annual Information Form of the Company for the year ended December 31, 2004.*

2.

Restated Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company for the year ended December 31, 2004.

3.

Restated Audited Consolidated Financial Statements of the Company for the years ended December 31, 2004 and 2003, together with the auditor’s report thereon (Note 17 to the Audited Consolidated Financial Statements relates to differences between Canadian and United States Generally Accepted Accounting Principles).

FORWARD LOOKING STATEMENTS

This amended report contains forward-looking statements concerning anticipated developments in the operations of the Company and certain future periods, planned development activities, the adequacy of the Company’s financial resources and other events or conditions that may occur in the future. Forward-looking statements are frequently, but not always, identified by words such as “expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,” “possible” and similar expressions, or statements that events, conditions or results “will,” “may,” “could” or “should” occur or be achieved. Information concerning our operations and related estimates also may be deemed to be forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those principal disclosure documents of the Company included in this amended Annual Report on Form 40-F/A.

The Company’s forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made and the Company assumes no obligation to update such forward-looking statements in the future. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

CONTROLS AND PROCEDURES

A. Disclosure Controls and Procedures

We carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as to the effectiveness, design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2003 and 2004. The evaluation considered the procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer who serves as our principal executive officer and our Chief Financial Officer who serves as our principal financial officer as appropriate to allow timely decisions regarding required disclosure. Included in this evaluation, the Company reevaluated the revenue from claims and change orders it had recognized in connection with the Saglek Contract. During the preparation of the Company’s 2005 financial statements, the Company became aware that certain revenues were inappropriately recognized in 2003 from claims and change orders in connection with the Saglek Contract. These matters are more fully discussed in Note 3 of the restated 2004 financial statements. Accordingly, as part of this report, the Company is restating its previously issued financial statements for fiscal years ended 2003 and 2004 to correct the allocation of revenue recognized from the Saglek Contract in 2003 and 2004. Based on this subsequent review and in light of our restatement for the years ended 2003 and 2004, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2003 and 2004 because of certain material weaknesses including the lack of clear defined disclosure policy and procedures and insufficient review and supervision.

Under new management, the Company has taken several steps to improve its disclosure controls and procedures since late 2004. Disclosure controls were evaluated and improved during 2005. The Company has implemented a formal Disclosure Committee charged with overseeing the Company’s timely disclosure of material information. Certain disclosure controls and procedures have been put in place to ensure that information required to be disclosed by the Company with securities regulatory authorities is recorded, processed, summarized and communicated to management on a timely basis. All mid and senior management were required to participate in a Toronto Stock Exchange sponsored disclosure course in 2005. The Company also implemented a new disclosure policy and requires all mid and senior management to review and acknowledge receipt of such policy. A press release and disclosure checklist was also adopted. In addition the Company plans to provide both management at the corporate office and managers at the Company’s facilities with annual refresher courses on public disclosure issues.

B. Changes in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. In late 2004 and subsequent to the periods covered by this report, during 2005, under new management, the Company took certain steps to improve its internal control over financial reporting. These improvements included:

•		strengthening the accounting and auditing department, including appointing new Chief Financial Officer in September 2004, hiring new corporate controller with external audit and public company experience in January 2005 and adding three new positions to accounting department: accounting manager (2005), financial analyst (2006) and accounts payable clerk (2005);
•		engaging outside independent consultants to assist in the evaluation, design and implementation of improved internal controls;
•		adopting a revised/formal policy on revenue recognition;
•		improving segregation of duties of accounting staff;
•		providing training sessions to accounting staff on applicable accounting guidance;
•		moving the accounting department from Vancouver, British Columbia to the Company’s head office in Oakville, Ontario and centralizing accounting and payroll functions;
•		providing formal review and analysis of quarterly accounting issues and related literature to Audit Committee members;
•		including a formal agenda item on Audit Committee and Board of Director meeting agendas to report on the progress of projects and a summary of variance items on both revenues and costs;
•		implementing new accounting software systems;
•		adopting a monthly budget reporting system for each location and a system of providing monthly financial reporting package per site for review by senior management; and
•		adopting accounting review systems including review and approval of payroll registers, conducting daily bank reconciliations and using a month-end closing checklist.

Other than as discussed above, there was no change in the Company’s internal control over financial reporting that occurred during the periods covered by this report that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

NOTICES PURSUANT TO REGULATION BTR

     None.

AUDIT COMMITTEE FINANCIAL EXPERT

     The Company has an Audit Committee established by the Board of Directors. The members of the Audit Committee are Adam Lapointe, George Ploder and David Williams. The Board has designated George Ploder as the “Audit Committee Financial Expert” as that term is defined under Section 407 of the Sarbanes-Oxley Act of 2002. Mr. Ploder is “independent” as that term is defined under the rules of the American Stock Exchange.

CODE OF ETHICS

     The Company has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees, including its Chief Executive Officer, Chief Financial Officer and principal accounting officer. The Company’s Code of Business Conduct and Ethics is posted on its website, www.bennettenv.com.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The aggregate amounts billed by KPMG LLP to the Company for each of the fiscal years ended December 31, 2004 and 2003 for audit fees, audit-related fees, tax fees and all other fees are set forth below (in ‘000s):

		Year Ended				Year Ended
		December 31, 2004				December 31, 2003
Audit Fees (1)		$	431.2			$	86.2
Audit-Related Fees (2)			10.4				52.0
Tax Fees (3)			102.5				175.2
All Other Fees			—				41.2
Totals		$	544.1			$	354.6

     The Audit Committee has adopted procedures requiring Audit Committee review and approval in advance of all particular engagements for services provided by the Company’s independent auditors. Consistent with applicable laws, the procedures permit limited amounts of services, other than audit, review or attest services, to be approved by one or more members of the Audit Committee pursuant to authority delegated by the Audit Committee, provided the Audit Committee is informed of each particular service. All of the engagements and fees for 2004 were approved by the Audit Committee. The Audit Committee reviews with KPMG LLP whether the non-audit services to be provided are compatible with maintaining the auditors’ independence.

OFF-BALANCE SHEET ARRANGEMENTS

     The Company has no “off-balance sheet arrangements” as that term is defined pursuant to rules promulgated under Section 13(j) of the Exchange Act. Please see discussion under “Off-Balance Sheet Arrangements”, in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

     The required disclosure is included in the section of this Annual Report on Form 40-F entitled “Principal Documents”, in Management’s Discussion and Analysis of Financial Condition and Results of Operations, under “Liquidity and Capital Resources”.

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

A. Undertaking

     The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

B. Consent to Service of Process

     The Registrant filed concurrently with the Commission a Form F-X/A in connection with the filing of its Annual Report on Form 40-F for the year ended December 31, 2005 and this amended Annual Report on Form 40-F/A for the year ended December 31, 2004.

EXHIBITS

     The following exhibits are filed as part of this report:

1.		Consent of KPMG LLP, Independent Registered Public Accounting Firm
2.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
2.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
3.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
3.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

     Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

		BENNETT ENVIRONMENTAL INC.
		Registrant
		By:		/s/ Allan Bulckaert
		Name: Allan Bulckaert
		Title: President and Chief Executive Officer

Date: June 16, 2006

Restated Management’s Discussion and Analysis

May 31, 2006

The following is management’s discussion in respect the results of operations of Bennett Environmental Inc. (“Bennett” or the “Company”) for the year ended December 31, 2004 and comparative statements for December 31, 2003 and should be read in conjunction with the restated audited annual consolidated financial statements and notes for the year ended December 31, 2004 and 2003. The financial statements of the Company are presented in Canadian dollars and in accordance with generally accepted accounting principles in Canada. The following discussion of the financial condition is dated February 28, 2005, except for giving effect to the restatement as described in notes 3 and 18 to the restated consolidated financial statements. Additional information related to the Company, including its Annual Information Form and Management Information Circular and Proxy form is available on SEDAR at www.sedar.com.

RESTATEMENT

The Company determined there was an error in how it accounted for certain revenue under the percentage-of-completion method of revenue recognition in 2004 and 2003 related to the Saglek contract. In addition, the Company determined that during 2003 and 2004 certain expense items relating to the Saglek contract were recorded in the incorrect period and items of a capital nature were expensed in the period incurred rather than being capitalized. The Company’s Board of Directors approved management’s recommendation to restate its consolidated financial statements for the fiscal years ended December 31, 2004 and December 31, 2003.

While the restatement adjustments change the Company’s previously reported results of operations in each of the individual annual reporting periods, the adjustments do not change the cumulative results of operations for the two-year period. The cumulative restated revenue and net earnings (loss) for the two-year period are the same as the previously reported cumulative amounts.

The restatement is described in note 3 to the restated consolidated financial statements.

OVERVIEW

CORPORATE OVERVIEW

Bennett Environmental Inc. is a North American leader in soil remediation services, targeting Canada and the North eastern United States. Our high temperature thermal oxidation process is the industry’s leading technology for rehabilitating contaminated soil.

Our decontamination process heats soils to over 1,000 degrees Celsius, which destroys chemicals and allows soil to be safely returned to the environment. Bennett recently received approval to process dioxins and furans as part of its treatment process.

CORPORATE OVERVIEW (CONTINUED)

Bennett sets itself apart from its competitors by its commitment to the environment and maintaining high emission standards that meet and exceed government-approved levels.
The foundation of our success lies in our highly skilled workforce and our commitment to customer service. We believe in operating a transparent company with strong social corporate responsibility policies and good governance.

STRATEGY

Bennett is embarking on a new long-term strategy focused on building sustainable growth and shareholder value. Our objective is to transform the company into a full-service environmental solutions firm that focuses on more than high temperature soil remediation. We plan to build shareholder value by expanding into new markets and services. In addition to soil remediation, the opportunities we may pursue include:

	•		Project management
	•		Brownfield developments
	•		Landfill, transfer and broker services
	•		Low thermal remediation
	•		Metals remediation
	•		Bioremediation
	•		Waste water treatment
	•		Mobile services

CORE BUSINESS

Bennett’s key market segments, described below, include soil remediation and debris decontamination.

SOIL REMEDIATION

Récupère Sol Inc. (RSI): This is our primary soil remediation facility located in Saint Ambroise, Quebec. RSI is an ISO 14001-certified facility. It treats soils contaminated with hydrocarbons, such as PCBs.

 

SOIL REMEDIATION (CONTINUED)

Belledune: This is our latest state-of-the-art facility, which is nearing start up, and is located in the Renviro Park near the Village of Belledune, New Brunswick. The Belledune facility is situated on 20 acres of land and will operate a Mark IV Thermal Oxidizer. The facility has applied for a permit to treat 100,000 metric tonnes per year of hydrocarbons and creosote impacted soil and will undergo test burns as part of its compliance procedure. Belledune will not begin operations until adequate volumes of soil are received for processing.

CONTAMINATED GOODS

Material Resource Recovery: Using best demonstrated available technology, MRR specializes in the thermal destruction of PCB-contaminated debris, including construction material such as wood, concrete and metal. The Cornwall, Ontario-based plant also processes contaminated plastics and has the equipment and required permits to treat contaminated water.

MRR’s “Turn Key” service program provides clients with a complete and integrated package of services for treating environmentally sensitive materials. Turn Key services include any necessary regulatory notifications and on site, analytical, transportation and destruction services. MRR’s “Turn Key” service is tailored to meet the specialized needs of individual customers and provides them with a cost-effective decontamination program for any size of job.

The year 2004 can be characterized as a transition year for Bennett. The Company took a series of important steps to strengthen its management team, to rebuild its sales organization and to forge new business relationships; particularly in the larger US market.

Bennett undertook an extensive recruitment process and installed a new senior team. In the first quarter, Allan Bulckaert was appointed Chief Executive Officer of the Company to replace John Bennett. In July, Bryan Maskell was appointed Vice President, North American Sales. In September, Andrew Boulanger was appointed Chief Financial Officer replacing Richard Stern and in October, Michael McSweeney was appointed to the new post of Vice President Government Relations and Environmental Affairs. In January 2005, following the resignation of Zul Tejpar as Vice President Business Development, Danny Ponn was appointed Vice President, Engineering and Business Development, and Al Bulckaert assumed line responsibility for Operations.

The Company also encountered other challenges in the year ended December 31, 2004, including a dispute on the New Jersey Federal Creosote contract and the class action in the U.S. as well as related securities regulatory investigations. Details of these developments can be found in the Company’s Annual Information Form for the year ended December 31, 2004.

 

SELECTED ANNUAL INFORMATION

The following sets forth selected financial data for each of the three most recently completed financial years.

		2004				2003				2002
(Cdn $)		(restated 1,2)				(restated 1,2)				(2)
Revenues			30,642,052				64,487,677				48,103,845
Net Earnings (loss)			(13,955,024	)			13,593,244				12,046,276
Earnings per Share — basic			(0.76	)			0.81				0.70
Earnings per Share — diluted			(0.76	)			0.81				0.70
Return of Sales (defined as net earnings (loss) divided by sales)			N/A				21	%			26	%
Working Capital			25,919,525				24,777,605				18,206,207
Long-term liabilities			1,483,045				993,593				829,434
Shareholder’s Equity			80,003,390				54,317,774				35,007,285
Total Assets			90,012,402				70,168,207				52,384,674

RESULTS OF OPERATIONS

CONSOLIDATION FINANCIAL RESULTS

The Consolidated net loss for the year was $14.0 million or a loss of $0.76 per share compared to net earnings of $13.6 million or $0.81 per share for the year ended December 31, 2003. The 2003 results have been restated to include the impact of a change in accounting policy for stock based compensation plans, as described in the section “Change in Accounting Policy”.

SALES

Sales for the year ended December 31, 2004 were $30.6 million compared to $64.5 million for the year ended December 31, 2003. For the year ended December 31, 2004 contribution margins (defined as revenue less operating expenses) were $5.1 million compared to a positive contribution of $30.7 million a year earlier.

During 2004 the Company processed approximately 53,000 tonnes of material compared to 73,000 tonnes for the year ended December 31, 2003. Contribution margins were negatively impacted by the Saglek contract in 2004 as a result of additional costs being incurred for the additional claim.

 

Sales (continued)

The following table summarizes revenues for each facility and for the Saglek Contract for 2004 and for the prior year (expressed in Cdn $ millions):

		2004				2003
St. Ambroise, Quebec		$	15.9			$	35.6
Cornwall, Ontario			3.3				3.6
Landfilling			4.3				0.4
Saglek (restated 1)			7.1				24.9
Total Sales		$	30.6			$	64.5

Included in the Company’s revenue for 2003 is an amount of $4.9 million related to a claim for extra expenses that is being disputed by the customer. In 2004, the Company has submitted a gross claim of $9.1 million to the customer but has left revenue recognized for this claim unchanged at $4.8 million. The amount recorded as revenue in 2003 reflects management’s assessment of the probable recovery of this claim. Management continues to pursue this matter with the customer and while it expects a recovery of the $4.8 million, there is a possibility that the amounts could be settled for more or less that the amounts recorded. Any differences between the final settlement amount and the amount currently recorded will be recorded in the period in which the amounts are settled.

Operating Costs

Operating costs for the year ended December 31, 2004 were $25.6 million compared to $33.7 million a year earlier.

The table below summarizes operating costs for each facility and for the Saglek project (expressed in Cdn $ millions):

		2004				2003
St. Ambroise, Quebec		$	8.3			$	15.1
Cornwall, Ontario			3.3				3.6
Landfilling			4.6				0.4
Saglek (restated 2,)			9.4				14.6
Total Operating Costs		$	25.6			$	33.7

Processing volumes for the year were approximately 53,000 tonnes of which 52,000 tonnes were processed at St. Ambroise and 1,000 were processed in Cornwall. Of the 52,000 tonnes processed in the Company’s Quebec facility 28,000 tonnes related to the Saglek project and the balance was from other customers and projects.

Saglek Contract

In late 2002 the Company was awarded a contract to remediate soil in Saglek, Northern Labrador. The contract was a fixed rate contract to excavate and remediate approximately 21,800 cubic meters of soil. The contract was a first for the Company in that it acted as primary contractor on the site rather than as a sub-contractor. Revenue from this contract was accounted for using the “percentage of completion” method. This method is generally used on long-term contracts and requires the Company to estimate its projected revenue and costs for the project on a quarterly basis and recognize revenue in proportion to the costs incurred. In late September 2004 the Company completed field work on the Saglek contract. As of December 2004, Bennett had completed the work related to the project.

The Company restated its financial statements for the years ended December 31, 2004 and 2003 related to the Saglek project. Refer to note 3 of the consolidated financial statements as at and for the years ended December 31, 2005 and 2004 for further explanation.

 

OTHER INCOME STATEMENTS

Administration and Business Development Costs

Annual Administration and Business Development costs were $15.8 million in 2004 compared to $8.5 million a year earlier. Approximately $3.1 million of this increase relates to severance, pension and costs related to the closure of the Vancouver office. Legal and professional fees were approximately $3.0 million higher in the year than the year before. Stock-based compensation was up approximately $0.4 million higher in the year than the year before as a result of the issuance of options granted to new employees in 2004. Increased insurance costs for directors’ and officers’ insurance of approximately $0.9 million accounted for the balance of the increase in overall administration and business development costs.

Loss from investments

For the year ended December 31, 2004 the Company recorded $0.8 million as a charge to its passive investments compared to $0.1 million for the same period last year.

Amortization and Loss on Asset Impairment

Amortization for 2004 was $3.8 million compared to $1.6 million in 2003. The increase in amortization was a result of accelerated amortization rates on equipment related to the Saglek contract.

During the year the Company recorded a loss from asset impairment of approximately $4.3 million related to a proposed treatment facility in Kirkland Lake, Ontario. Plans related to a third plant in Kirkland Lake have been postponed indefinitely.

Income taxes

For the year ended December 31, 2004, taxes recoverable were $5.7 million on pre-tax loss of $19.6 million. Certain permanent differences, including stock-based compensation, have affected the effective tax recovery rate from the statutory rate of approximately 36.9%.

Cash from operations

For the year ended December 31, 2004 cash used for operating activities before changes in operating working capital amounted to $5.2 million. Cash generated from operating working capital was approximately $0.1 million for a net use of cash from operations of approximately $5.3 million for the year. This compares to cash of $15.1 million being generated from operations other than non-cash working capital and non-cash working capital using approximately $10.1 million for a net of $5.0 million in 2003.

 

SUMMARY OF QUARTERLY RESULTS

The following table discloses certain financial data for the eight most recently completed quarters, expressed in Canadian dollars (millions) (excepts per share data — basic and fully diluted):

		2004 (restated 1,2)																2003 (restated 1,2)
		Q4				Q3				Q2				Q1				Q4				Q3				Q2				Q1
Net Sales			4.9				12.5				5.0				8.2				18.4				21.6				13.2				11.2
Net Income/(Loss)			(5.6	)			(5.9	)			(1.7	)			(0.7	)			4.5				4.9				2.0				2.2
Earnings Per Share — Basic			(0.32	)			(0.33	)			(0.11	)			(0.06	)			0.14				0.16				0.28				0.24
Earnings Per Share — Diluted			(0.32	)			(0.33	)			(0.11	)			(0.06	)			0.13				0.16				0.28				0.23

FOURTH QUARTER RESULTS

The three month ended December 31, 2004 generated a net loss of $8.7 million compared to net income of $4.5 million for the same period in 2003. Revenue in the fourth quarter of 2004 was $4.9 million compared to $18.3 million in the same period in 2003. Total processed tonnage in the quarter was approximately 9,000 tonnes compared to approximately 24,000 tonnes in the fourth quarter of 2003. Volumes were down compared to the prior year because of lower volumes from the Federal Creosote Superfund site. Processed volumes from that site were less than 500 tonnes compared to approximately 11,000 tonnes for the fourth quarter of 2004.

Administration and Business Development costs in the fourth quarter of 2004 were $4.5 million compared to $2.0 million in the same period in 2003. Severance costs accounted for $1.2 million of the difference and higher professional fees related to the on-going class action litigation accounted for $1.0 million.

In the fourth quarter of 2004, the Company issued 3,000,000 common shares on December 30, 2004 for gross proceeds of $12.0 million ($11.1 million after issue costs of $0.9 million). Capital expenditures in the fourth quarter were $5.5 million. During the quarter the Company invested an additional $1.9 million on its Belledune facility and approximately $2.7 million on equipment upgrades to its kiln, new cooling system and material handling equipment in St. Ambroise, Quebec. Approximately $0.9 million was invested in permitting costs.

 

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

At year end Bennett had cash and equivalents of $13.8 million and working capital stood at $25.9 million. The Company believes it has sufficient cash to meet working capital requirements and expects to generate sufficient cash from its accounts receivable and its operations to meet working capital requirements for 2005.
In December 2004, Bennett issued 3,000,000 common shares for gross proceeds of $12 million. The Company also issued 1,000,000 common shares on February 3, 2004 for gross proceeds of $26 million. The common shares issued in February 2004 carried 500,000 warrants exercisable at $30 per share until August 2006. Total gross proceeds from these two share issues were $38.0 million ($37.8 million after issue costs). Proceeds from these issues were used to finance the construction of the Belledune, New Brunswick plant and for general working capital purposes.

CAPITAL EXPENDITURE

For the year ended December 31, 2004 the Company invested approximately $29.7 million in capital assets and permits and other assets in the year compared to $15.3 million a year earlier. The construction of the new facility in Belledune accounted for approximately $23.1 million in 2004 compared to $6.2 million in 2003 bringing the total construction costs to approximately $29.3 million for this facility.

The facility was approximately 30% over budget due to winter construction and scoping facility is now complete and is in the compliance testing phase which is expected to be completed in the third quarter of 2005. In addition the Company spent approximately $6.3 million on its facilities in Quebec primarily on a new soil cooling system ($3.5 million), upgrades to material handling systems ($1.7 million) and upgrades to its kiln ($1.1 million). Approximately $0.47 million was invested at the Company’s Cornwall plant primarily for storage capacity. The Company’s commitments for capital expenditure are less that $3.0 million for 2005 and the Company expects to fund these expenditures out of working capital resources.

LONG-TERM DEBT AND OTHER LONG-TERM COMMITMENTS

The Company has approximately $2.7 million in long term debt. In addition to this amount the Company has certain operating lease obligations that go beyond 2005. The table below summarizes these commitments.

Year ending December 31:		Commitment Amount
2005		$	315,562
2006			188,133
2007			30,806
2008			127,782
2009			127,782
Total:		$	890,065

 

OFF-BALANCE SHEET ARRANGEMENTS

The Company has pledged approximately $1.1 million to collateralize a letter of credit issued to the Ministry of Environment (Ontario). The Ministry of Environment requires financial assurance in the form of a letter of credit for storage capacity at the Company’s Cornwall facility. When the Company obtains its final operating permit for Belledune it will need to provide a letter of credit to the government of New Brunswick of between $2.5 million and $5.0 million depending on the final permitted level of storage capacity.

FINANCIAL AND OTHER INSTRUMENTS

The Company has on occasion used short-term foreign exchange futures contracts to help reduce foreign exchange risk. Management assesses the future foreign exchange risk and if appropriate enters into a hedge arrangement. As of December 31, 2004 the Company had no foreign exchange contracts in place.

PROPOSED TRANSACTIONS

The Company currently does not have any proposed transactions.

 

TRANSACTIONS WITH RELATED PARTIES

JOHN BENNETT

Mr. Bennett was the CEO until February 28, 2004 and Chairman of the Board of Directors until July 2004. In the quarter ended December 31, 2004 the Company expensed management fees to a company owned by Mr. John Bennett of approximately $48,500. In the fourth quarter of 2003 the Company expensed $47,170. For the year ended December 31, 2004, the Company expensed management fees of $0.3 million to a company owned by Mr. John Bennett, compared to $0.4 million in 2003.

PIERRE MEUNIER

During the fourth quarter of 2004, the Company expensed approximately $0.1 million compared to $0.1 million in the same period in 2003 to a law firm of which Mr. Meunier is a partner.
During the year the Company expensed $0.4 million compared to $0.1 million in 2003 to a law firm for which Mr. Meunier is a partner. The increase in legal fees in 2004 is related to the Ministry of Environment (Quebec) investigation into elevated levels of furans and dioxins in the vicinity surrounding the St. Ambroise, Quebec plant.

JAMES BLANCHARD

During the fourth quarter of 2004, the Company expensed $1.2 million to a law firm of which Mr. Blanchard is a partner. In the fourth quarter of 2003 the Company expensed $0.

During the year the Company expensed $1.3 million compared to $0 in 2003 to a law firm for which Mr. Blanchard is a partner. The increase in 2004 is related to legal defence costs for a shareholder class action lawsuit initiated against the Company.

These transactions were incurred in the normal course of operations and represent fair market value for services rendered.

CRITICAL ACCOUNTING ESTIMATES

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada and makes estimates and assumptions that affect the reporting amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. On an on-going basis the Company evaluates its estimates and judgements, including those related to revenue recognition, adequacy of allowance for doubtful accounts, deferred permitting costs, and future income taxes. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from the Company’s estimates. Senior management has discussed, with the Company’s audit committee, the development, selection,

 

CRITICAL ACCOUNTING ESTIMATES (CONTINUED)

and disclosure of accounting estimates used in preparation of our consolidated financial statements.

The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements:

	•		Revenue from the Saglek Labrador long-term, fixed price contract is recognized on the percentage of completion method, based on the ratio of costs incurred to date over estimated total costs. Contract costs include 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 changed orders is recorded when realization is assured beyond a reasonable doubt.
	•		The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any of its customers are unable to make required payments. The company considers factors such as a customer’s credit-worthiness, past transaction history, current economic industry trends and changes in customer payment terms when determining if collection is reasonably assured. If these factors indicate collection is not reasonably assured, revenue is deferred until collection is reasonably assured or the Company may increase its allowance for doubtful accounts.
	•		The Company capitalizes deferred permitting costs during the application process and amortizes these costs over the expected life of the permit. The Company evaluates the carrying costs of these permits on a regular basis to determine whether a change in the carrying value of the deferred permitting costs has occurred. The Company considers factors such as the likelihood of obtaining a final operating permit, market conditions, and changes in environmental legislation to determine if the carrying costs can reasonably be recovered. If these factors indicate that an impairment in the carrying costs of the permitting costs has occurred, the Company may increase the amortization of the deferred permitting costs.
	•		The Company evaluates its future income tax assets to assess whether their realization is more likely than not. If their realization is not considered more likely than not, the Company will provide for a valuation allowance. The ultimate realization of our future tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences or loss carry-forward amounts can be utilized. The Company considers future taxable income and tax planning strategies in making its assessment. If this assessment indicates that the Company’s ability to realize future tax assets changes, it could make an adjustment to these assets that would be charged to income.

 

CHANGES IN ACCOUNTING POLICIES

The Company issues stock options from time to time to its employees, directors and consultants to the Company. Effective January 1, 2004, the Company adopted the amended recommendations of the Canadian Institute of Chartered Accountants (“CICA”) for accounting for stock-based compensation retroactively, with restatement of prior periods. The amended standard requires recognition of an estimate of the fair value of stock-based awards in earnings. Previously, the Company provided note disclosure of pro forma net income as if a fair value based method had been used.

CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

We carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as to the effectiveness, design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2003 and 2004. The evaluation considered the procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported in the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission and communicate to our management as appropriate to allow discussions regarding required disclosure. Upon subsequent review and in light of our restatement for the years ended 2003 and 2004, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2003 and 2004 because of certain material weaknesses including the lack of clear defined disclosure policy and procedures and insufficient review and supervision.

Under new management, the Company has taken several steps to improve its disclosure controls and procedures since late 2004. Disclosure controls were evaluated and improved during 2005. The Company has implemented a formal Disclosure Committee charged with overseeing the Company’s timely disclosure of material information. Certain disclosure controls and procedures have been put in place to ensure that information required to be disclosed by the Company with securities regulatory authorities is recorded, processed, summarized and communicated to management on a timely basis. All mid and senior management were required to participate in a Toronto Stock Exchange sponsored disclosure course in 2005. The Company also implemented a new disclosure policy and requires all mid and senior management to review and acknowledge receipt of such policy. A press release and disclosure checklist was also adopted. In addition the Company plans to provide both management at the corporate office and managers at the Company’s facilities with annual refresher courses on public disclosure issues.

(b) Changes in Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the

 

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. In late 2004 and subsequent to the periods covered by this report, during 2005, under new management, the Company took certain steps to improve its internal control over financial reporting. These improvements included:

•		strengthening the accounting and auditing department, including appointing new Chief Financial Officer in September 2004, hiring new corporate controller with external audit and public company experience in January 2005 and adding three new positions to accounting department: accounting manager (2005), financial analyst (2006) and accounts payable clerk (2005);
•		engaging outside independent consultants to assist in the evaluation, design and implementation of improved internal controls;
•		adopting a revised/formal policy on revenue recognition;
•		improving segregation of duties of accounting staff;
•		providing training sessions to accounting staff on applicable accounting guidance;
•		moving the accounting department from Vancouver, British Columbia to the Company’s head office in Oakville, Ontario and centralizing accounting and payroll functions;
•		providing formal review and analysis of quarterly accounting issues and related literature to Audit Committee members;
•		including a formal agenda item on Audit Committee and Board of Director meeting agendas to report on the progress of projects and a summary of variance items on both revenues and costs;
•		implementing new accounting software systems;
•		adopting a monthly budget reporting system for each location and a system of providing monthly financial reporting package per site for review by senior management; and
•		adopting accounting review systems including review and approval of payroll registers, conducting daily bank reconciliations and using a month-end closing checklist.

Other than as discussed above, there was no change in the Company’s internal control over financial reporting that occurred during the periods covered by this report that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

SHARE CAPITAL

The number of common shares outstanding at December 31, 2004 was 21,427,440, up from 17,145,789 at December 31, 2003 and has increased by 4,000,000 shares in the year due to the share issuance on February 3, 2004 and on December 30, 2004 as noted above in the Liquidity

 

and Capital Resources section. In addition, there were 1,031,451 stock options outstanding as at December 31, 2004 exercisable at prices from $2.17 to $22.90 a share. The February 3, 2004 share issue had warrants attached that can be exercised into 500,000 common shares at a price of $30.00 per share for a period of up to 18 months after the issue date.

The Company announced on April 21, 2004 that it had received Toronto Stock Exchange approval to commence a normal course issuer bid through the facilities of the TSX, permitting the Company to purchase for cancellation up to 900,000 common shares. The earliest the bid can commence was April 26, 2004 and it will run until the earlier of the date on which purchases under the bid have been completed and April 25, 2005. As of March 3, 2005, 11,500 shares have been purchased under the normal course issuer bid. The number of outstanding shares as at February 28, 2005 was 21,427,440 (including 11,500 shares purchased under the normal issuer bid that have not been cancelled).

RISK FACTORS

Information on “Risk Factors” can be found in the Company’s Annual Information Form for the fiscal year ended December 31, 2004.

FORWARD LOOKING STATEMENTS

Certain statements in this management’s discussion and analysis may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this management’s discussion and analysis such statements are such words as “may”, “will”, “expect”, “believe”, “plan”, and other similar terminology. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this management’s discussion and analysis. These forward-looking statements involve a number of risks and uncertainties.

The following are some factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: competition; changes in national and local business and economic conditions; legislation and governmental regulation; accounting policies and practices; and the results of operations and financial condition of the Company. The foregoing list of factors is not exhaustive. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Revised Consolidated Financial Statements
(Expressed in Canadian dollars)

BENNETT ENVIRONMENTAL INC.

Years ended December 31, 2004 and 2003

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The revised consolidated financial statements contained in this annual report have been prepared by management in accordance with Canadian generally accepted accounting principles and have been approved by the Board of Directors. The integrity and objectivity of these financial statements are the responsibility of management. In addition, management is responsible for all other information in this annual report and for ensuring that this information is consistent, where appropriate with the information contained in the financial statements.

In support of this responsibility, management maintains a system of internal controls to provide reasonable assurance as to the reliability of financial information and the safeguarding of assets. The financial statements include amounts, which are based on the best estimates and judgments of management. The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and internal control and exercises this responsibility principally through the Audit Committee. The Audit Committee consists of three directors not involved in the daily operations of the Company. The Audit Committee meets with management and the external auditors to satisfy itself that management’s responsibilities are properly discharged and to review the financial statements prior to their presentation to the Board of Directors for approval.

The shareholders’ auditors, KPMG LLP, have conducted an independent examination of the financial statements. Their examination includes a review of the Company’s system of internal controls and appropriate tests and procedures to provide reasonable assurance that the financial statements are, in all material respects, presented fairly and in accordance with accounting principles generally accepted in Canada.

“Allan Bulckaert”		“Andrew Boulanger”
Allan Bulckaert		Andrew Boulanger
Chief Executive Officer		Chief Financial Officer
May 30, 2006

		KPMG LLP		Telephone		(604) 691-3000
		Chartered Accountants		Fax		(604) 691-3031
		PO Box 10426 777 Dunsmuir Street		Internet		www.kpmg.ca
		Vancouver BC V7Y 1K3
		Canada

AUDITORS’ REPORT TO THE SHAREHOLDERS

We have audited the revised consolidated balance sheets of Bennett Environmental Inc. as at December 31, 2004 and 2003 and the revised consolidated statements of operations and retained earnings and cash flows for years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these revised consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Our previous report dated February 28, 2005, except as to note 16, which is as of March 16, 2005 has been withdrawn and the consolidated financial statements have been revised as explained in note 3.

Chartered Accountants

Vancouver, Canada

February 28, 2005, except
as to note 16 which is
as of March 16, 2005 and
notes 3 and 18 which are
as of May 30, 2006

KPMG LLP, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.

BENNETT ENVIRONMENTAL INC.

Revised Consolidated Balance Sheets
(Expressed in Canadian dollars)

December 31, 2004 and 2003

		2004				2003
		(Restated -				(Restated -
		note 3)				note 2(a)(i)
						and note 3)
Assets
Current assets:
Cash and cash equivalents		$	13,830,570			$	11,552,943
Restricted cash			1,349,490				1,033,410
Accounts receivable (note 4)			14,316,648				22,124,355
Income taxes receivable			3,417,204				—
Prepaid expenses and other			1,531,580				2,306,876
			34,445,492				37,017,584
Future income tax asset (note 11)			891,826				—
Note receivable			315,000				172,500
Investments (note 5)			—				568,193
Property, plant and equipment (note 6)			48,920,377				24,408,889
Other assets (note 7)			4,793,069				7,354,403
Goodwill			646,638				646,638
		$	90,012,402			$	70,168,207
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities		$	6,646,005			$	10,324,724
Income taxes payable			—				1,096,245
Deferred revenue			661,557				814,409
Current portion of long-term liabilities (note 8)			1,218,405				4,601
			8,525,967				12,239,979
Future income tax liability (note 11)			—				2,616,861
Long-term liabilities (note 8)			1,483,045				993,593
Shareholders’ equity:
Share capital (note 9)			67,644,681				28,397,470
Contributed surplus (note 9(f))			1,595,205				1,201,776
Retained earnings			10,763,504				24,718,528
			80,003,390				54,317,774
Contingencies (notes 4 and 17)
Related party transactions (note 12)
Commitments (note 15)
		$	90,012,402			$	70,168,207

See accompanying notes to revised consolidated financial statements.

Approved on behalf of the Board:

“David Williams”		Director		“George Ploder”		Director

BENNETT ENVIRONMENTAL INC.

Revised Consolidated Statements of Operations and Retained Earnings
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

		2004				2003
		(Restated -				(Restated -
		note 3)				note 2(a)(i)
						and note 3)
Sales		$	30,642,052			$	64,487,677
Expenses:
Operating costs			25,568,125				33,744,348
Administration and business development (note 10)			15,780,332				8,542,452
Amortization			3,771,371				1,602,666
Foreign exchange			273,626				544,337
Loss from asset impairment (notes 6 and 7)			4,343,979				—
Interest expense			305,313				156,675
			50,042,746				44,590,478
Earnings (loss) before the undernoted			(19,400,694	)			19,897,199
Gain on debt settlement (note 8)			—				1,316,936
Loss on investments (note 5)			(818,193	)			(133,202	)
Interest and other income			580,280				1,280,629
Earnings (loss) before income taxes			(19,638,607	)			22,361,562
Income taxes (recovery) (note 11):
Current			(2,937,047	)			7,047,195
Future			(2,746,536	)			1,721,123
			(5,683,583	)			8,768,318
Net earnings (loss)			(13,955,024	)			13,593,244
Retained earnings, beginning of year
As previously reported			26,413,905				11,621,859
Restatement for change in accounting policy (note 2(a)(i))			(1,695,377	)			(496,575	)
As restated			24,718,528				11,125,284
Retained earnings, end of year		$	10,763,504			$	24,718,528
Earnings (loss) per share (note 13):
Basic		$	(0.76	)		$	0.81
Diluted			(0.76	)			0.78

See accompanying notes to revised consolidated financial statements.

BENNETT ENVIRONMENTAL INC.

Revised Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

		2004				2003
		(Restated -				(Restated -
		note 3)				note 2(a)(i)
						and note 3)
Cash provided by (used in):
Operations:
Net earnings (loss)		$	(13,955,024	)		$	13,593,244
Items not involving cash:
Gain on debt settlement			—				(1,316,936	)
Amortization			3,771,371				1,602,666
Stock-based compensation			675,176				1,198,802
Loss on investments			818,193				133,202
Loss from asset impairment (notes 6 and 7)			4,343,979				—
Future income taxes			(2,746,536	)			1,721,123
Increase in cash surrender value of insurance			(30,375	)			—
Accretion expense of long-term liabilities			165,000				—
Changes in operating working capital:
Partial redemption of equity investment			—				150,000
Accounts receivable			7,807,707				(9,790,910	)
Prepaid expenses and other			775,296				(718,611	)
Accounts payable and accrued liabilities			(3,928,117	)			2,442,056
Income taxes receivable/payable			(4,513,449	)			(4,766,278	)
Deferred revenue			(152,852	)			718,981
Severance payable (note 8)			1,660,000				—
			(5,309,631	)			4,967,339
Financing:
Repayments of long-term debt			(121,744	)			(405,777	)
Share capital issued for cash net of costs			37,838,129				4,021,868
Shares repurchased and held in treasury			(71,879	)			—
Increase in restricted cash			(316,080	)			(1,033,410	)
			37,328,426				2,582,681
Investments:
Purchase of property, plant and equipment			(28,304,635	)			(11,748,147	)
Increase in note receivable			(142,500	)			—
Increase in license, permits and other assets			(1,294,033	)			(3,516,569	)
			(29,741,168	)			(15,264,716	)
Increase (decrease) in cash and cash equivalents			2,277,627				(7,714,696	)
Cash and cash equivalents, beginning of year			11,552,943				19,267,639
Cash and cash equivalents, end of year		$	13,830,570			$	11,552,943
Supplementary disclosure of cash flow information:
Interest paid		$	20,800			$	16,354
Income taxes paid			385,212				11,813,473
Supplemental disclosure of non-cash transactions:
Stock-based compensation included in deferred permitting			436,461				—

See accompanying notes to revised consolidated financial statements.

BENNETT ENVIRONMENTAL INC.

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

Years ended December 31, 2004 and 2003

1.		Operations:
		The Company was federally incorporated on July 29, 1992 under the Canada Business Corporation Act and primarily carries on the business of remediating chlorinated hydrocarbon contaminated soil. The treatment of soil is performed using the Company’s thermal oxidation technology. In 1997, the Company commenced operations of its remediation site located in St. Ambroise, Quebec.
		In 2002, the Company acquired Material Resource Recovery Inc. (“MRR”) which carries on the business of remediating hazardous and non-hazardous contaminated electrical equipment, construction material, and natural gas storage units.
		In 2004, the Company completed construction of a new facility in Belledune, New Brunswick. This remediation site has not yet received its final operating permit and is in the process of performing compliance tests with the Department of Environment. The Company anticipates the compliance tests to be completed and the Belledune facility to be operating in the later half of 2005.
2.		Significant accounting policies:

(a)

Changes in accounting policies:

	(i)		Stock-based compensation:
			Effective January 1, 2004, the Company adopted the amended recommendations of The Canadian Institute of Chartered Accountants (“CICA”) for accounting for stock-based compensation to employees. The amended standard requires recognition of an estimate of the fair value of employee stock-based awards in earnings. Previously, the Company recorded no compensation expense when employee options were issued and consideration paid by the employees was recorded as share capital. The Company provided note disclosure of pro forma net income as if a fair value based method had been used.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

2.

Significant accounting policies (continued):

The amended recommendations have been applied retroactively, with restatement of prior periods. The restatement at January 1, 2004 resulted in an increase to share capital at December 31, 2003 of $493,601 (2002 — $4,498), contributed surplus of $1,201,776 (2002 - $492,077) and a decrease to retained earnings of $1,695,377 (2002 — $496,575). The adjustments represent the total compensation expense which would have been recorded had a fair value based method been used for stock options granted to employees after January 1, 2002, as adjusted, and adjustments for exercised options. Compensation expense related to employee stock options for the year ended December 31, 2004 is $675,176 (2003 - $1,198,802).

		As previously
		reported				Adjustment				Restated
As at December 31, 2002:
Retained earnings		$	11,621,859			$	(496,575	)		$	11,125,284
Share capital			23,882,001				4,498				23,886,499
Contributed surplus			—				492,077				492,077
As at December 31, 2003:
Retained earnings			26,413,905				(1,695,377	)			24,718,528
Share capital			27,903,869				493,601				28,397,470
Contributed surplus			—				1,201,776				1,201,776

	(ii)		Asset retirement obligation:
			Effective January 1, 2004, the Company adopted CICA Handbook Section 3110, Asset Retirement Obligations (“HB 3110”). The new section is for fiscal years beginning on January 1, 2004. HB 3110 requires an entity to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction, development and (or) normal use of the assets. The Company would also record a corresponding increase to the carrying amount of the related long-lived asset and to depreciate that cost over the life of the asset. The liability is changed at the end of each period to reflect the passage of time and changes in the amount and timing of estimated future cash flows underlying the initial fair value measurement. The Company considered each of its three manufacturing plants and individual permit arrangements. Where applicable, letters of credit have been issued to cover potential costs upon ceasing operations. As at December 31, 2004, no legal liability is estimated to exist; therefore, no obligation has been accrued.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

2.

Significant accounting policies (continued):

	(iii)		Long-lived assets:
			Effective January 1, 2004, the Company adopted CICA Handbook Section 3063, Impairment of Long-Lived Assets (“HB 3063”). HB 3063 requires an entity to evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment, or other long-lived assets, should be evaluated for possible impairment. Instances that may lead to an impairment include: (i) a significant decrease in the market price of a long-lived asset group; (ii) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group; (v) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or (vi) a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
			The Company uses an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long-lived assets in assessing their recoverability. The Company measures impairment loss as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s).
	(iv)		Termination benefits:
			Effective January 1, 2004, the Company adopted the Emerging Issues Committee abstract of issue discussed EIC-134, Accounting for Severance and Termination Benefits, prospectively. This abstract addresses the different accounting treatments of the various types of severance and termination benefits related to the termination of employees’ services prior to normal retirement. During 2004, the Company accounted for severance arrangements in accordance with this abstract.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

2.

Significant accounting policies (continued):

	(b)		Basis of consolidation:
			The revised consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries, Bennett Remediation Services Ltd., Bennett RemTech Ltd., Bennett Environmental U.S., Inc. (“BEIUS”), Récupère Sol Inc. (“RSI”), MRR and Bennett Environmental New Brunswick Inc. All material intercompany transactions and balances have been eliminated on consolidation.
	(c)		Use of estimates:
			The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of estimates relate to the determination of percentage of completion and estimated project costs and revenues for contract revenue recognition, recoverability of accounts receivable, deferred permitting costs, property, plant and equipment and of other assets, the assessment of realization on future income tax balances and estimates of future obligations related to asset retirement obligations and environmental obligations. Actual results could differ from those estimates.
	(d)		Cash and cash equivalents:
			Cash and cash equivalents consist of highly liquid investments having an original term to maturity of three months or less when acquired.
	(e)		Work-in-progress:
			Work-in-progress related to costs incurred to ship untreated soil to the treatment facility and other treatment costs for soil, for which treatment is not complete, are not significant in 2004 and 2003 and are included in prepaid expenses and other assets. These amounts will be expensed when the related treatment of the related soil is complete.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

2.

Significant accounting policies (continued):

	(f)		Investments:
			Investments where the Company has the ability to exercise significant influence are recorded on the equity basis of accounting and the Company’s share of earnings (loss) is included in the computation of earnings.
			Investments where the Company does not exercise significant influence are accounted for under the cost method, under which the investment is carried at cost, and income is reflected only to the extent of dividends received.
			The Company’s management reviews the estimated realizable value of the investments on a regular basis based on established criteria including trading value, anticipated cash flows and profitability of the investee. If an other than temporary impairment in value is determined, a provision is recognized.
	(g)		Property, plant and equipment:
			Property, plant and equipment is recorded at cost. Amortization is not taken until the asset has been put into use by the Company. The Company annually evaluates for long-lived asset impairment in accordance with HB 3063, Impairment of Long-Lived Assets (note 2(a)(iii)). Amortization commences on property, plant and equipment under construction once construction has been completed.
			Amortization is provided for using the following methods and annual rates:

Asset		Basis				Rate
Automobiles		Declining balance					30	%
Computer equipment		Declining balance					30	%
Equipment — ELI Ecologic Inc. (“ELI”)		Straight line				2		years
Kiln — AGT, furniture and equipment and treatment equipment		Declining balance					20	%
Kiln — RSI facility		Straight line				10		years
Land improvements		Declining balance					8% - 20	%
Leasehold improvements		Straight line				Over term of lease
Storage building and pads		Straight line				20		years
Software		Declining balance					100	%
Treatment building		Declining balance					20	%

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

2.

Significant accounting policies (continued):

	(h)		Other assets:
			The Company defers costs incurred related to securing permits to operate their kilns. Deferred permit costs are amortized over ten years, commencing in the year the permit is secured. Costs related to unsuccessful permitting efforts are expensed in the period that this determination is made.
			Operating licenses and other assets related to ELI are amortized over period up to ten years, being the estimated useful lives of the assets and the expected term of the licenses. Any remaining balance related to these assets is expensed in the event the assets are determined to have no value or the licenses and permits are not renewed.
	(i)		Stock-based compensation:
			The Company has a stock-based compensation plan for executives and other key employees. The Company recognizes stock-based compensation expense in accordance with CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments. Beginning January 1, 2004, the Company changed its accounting policy related to employee stock options, and, on a retroactive basis, began to recognize compensation expense for stock or stock option grants to employees, based on the fair value of the stock or stock options issued (note 2(a)(i)). Consideration paid by employees on the purchase of shares and exercise of stock options is recorded as share capital.
			The Company accounts for all stock-based payments to non-employees using the fair value based method. Under the fair value based method, stock-based payments to non-employees are measured at the fair value of the equity instruments issued. The fair value of stock-based payments to non-employees is periodically re-measured during the vesting period, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of paying with or using equity instruments.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

2.

Significant accounting policies (continued):

	(j)		Goodwill:
			The Company accounts for goodwill and intangible assets under the provisions of CICA Handbook Section 3062, Goodwill and Other Intangible Assets (“HB 3062”). Under HB 3062, goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. When the carrying amount of goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess and is presented as a separate line item in the statement of operations. Goodwill is tested for impairment on a reporting unit basis. In the fourth quarter of 2004 and 2003, the Company completed its annual impairment test for goodwill and determined that no impairment has occurred. The Company has identified one reporting unit.
	(k)		Revenue recognition:
			The Company provides high-temperature, highly specialized treatment services 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 its 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. All other processing costs are expensed as incurred.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

2.

Significant accounting policies (continued):

			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.
	(l)		Translation of foreign currency:
			BEIUS, a wholly-owned foreign subsidiary, has a Canadian dollar functional currency since its operations are integrated with those of its parent. The accounts of BEIUS have been translated into Canadian dollars as follows:

	(i)		monetary assets and liabilities at the year-end Canadian dollar rate;
	(ii)		non-monetary assets and liabilities at the historical rate of exchange; and
	(iii)		revenues and expenses at the rate at the time of the transaction.

Translation gains or losses are included in the determination of earnings.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

2.

Significant accounting policies (continued):

	(m)		Fair values of financial instruments:
			Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities approximate fair values due to their short term to maturity. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of its long-term liabilities approximate fair value.
			The carrying value of the note receivable approximates its fair value as the interest rate on the note approximates current market rates.
	(n)		Income taxes:
			The Company follows the asset and liability method of accounting for income taxes. Under this method, future income taxes are recognized for the future income tax consequences attributable to differences between the financial statement carrying values of assets and liabilities and their respective income tax bases (temporary differences). Changes in the net future tax asset or liability are included in earnings. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax rates is included in income in the period that includes the substantial enactment date. Future income tax assets are evaluated and if their realization is not considered “more likely than not”, a valuation allowance is provided.
	(o)		Earnings (loss) per share:
			Earnings (loss) per share are calculated based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share are calculated using the treasury stock method.
	(p)		Comparative figures:
			Certain 2003 figures have been reclassified to conform with the financial statement presentation adopted in 2004.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

3.

Restatements:

	(a)		The Company determined there was an error in how it accounted for certain revenue under the percentage-of-completion method of revenue recognition in 2004 and 2003 related to the Saglek contract. In addition, the Company determined that during 2004 and 2003, certain expense items relating to the Saglek contract were recorded in the incorrect period and items of a capital nature were expensed in the period incurred rather than being capitalized. The Company’s Board of Directors approved management’s recommendation to restate its consolidated financial statements for the fiscal years ended December 31, 2004 and December 31, 2003.
			While the restatement adjustments change the Company’s previously reported results of operations in each of the individual annual reporting periods, the adjustments do not change the cumulative results of operations for the two-year period or the December 31, 2004 consolidated balance sheet. The cumulative restated revenue and net earnings (loss) for the two-year period are the same as the previously reported cumulative amounts.
			Restatement of fiscal 2003:

	(i)		Revenue recognition:
			In September of 2002, the Company entered into a fixed price contract with Defence Construction Canada, a federal government agency, to excavate and treat contaminated soil in a remote northern site (the “Saglek contract”). In accounting for revenue related to the Saglek contract, the Company accounted for revenue under the Saglek contract using the percentage-of-completion method. In August 2003, the Company determined that the nature of the material being excavated and processed was significantly different than that described in the tender documents. As a consequence, the Company incurred additional costs to excavate and process the materials.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

3.

Restatements (continued):

			In calculating contract revenue earned in 2003, the Company inappropriately accounted for the revenue related to additional costs incurred as change orders. The Company recognized revenue in excess of additional costs incurred and revenue for costs incurred that was not probable of recovery of approximately $5.3 million. The Company has now determined that the revenue related to the additional costs incurred should have been accounted for as a claim. Management has determined that the contract provided a legal basis for the claim; the additional costs were caused by circumstances that were unforeseen at the contract date and were not the result of deficiencies in the Company’s performance, the costs associated with the claim were identifiable and reasonable in view of the work performed, and management’s claims submitted in 2004 was objective and verifiable. Accordingly, the Company has recorded a restatement adjustment to reduce revenue for the year ended December 31, 2003 by $5.3 million, and unbilled receivable (included in accounts receivable) as at December 31, 2003 by $5.3 million.
	(ii)		Operating expenses and capital assets:
			In addition, the Company determined that there were certain operating expense items incurred in 2003 that were incorrectly expensed in fiscal 2004 and that there were items of a capital nature that were inappropriately expensed in 2003 that should have been capitalized and amortized over the estimated useful life of the capital asset. A portion of the operating expenses were recovered from the customer, thus accounts receivable is also affected. Accordingly, the Company has recorded a restatement adjustment for the year ended December 31, 2003 to increase operating expenses by $1.3 million and to decrease amortization expense by $0.2 million and to increase capital assets by $0.6 million and to decrease accounts receivable by $1.3 million and to increase accounts payable and accrued liabilities by $0.4 million.

The related income tax effect of the above items of $1.9 million is recorded as a reduction of current tax expense for the year ended December 31, 2003 and a decrease in income taxes payable as at December 31, 2003 by $1.9 million.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

3.

Restatements (continued):

The impact of the restatement on the consolidated statement of operations for the year ended December 31, 2003 is as follows:

		As previously
		reported				Restatement				As restated
Sales		$	69,806,526			$	(5,318,849	)		$	64,487,677
Operating costs			32,419,935				1,324,413				33,744,348
Amortization			1,800,326				(197,660	)			1,602,666
Current income taxes			8,912,582				(1,865,387	)			7,047,195
Net earnings			18,173,459				(4,580,215	)			13,593,244

The impact of the restatement on the consolidated balance sheet as at December 31, 2003 is as follows:

		As previously
		reported				Restatement				As restated
Accounts receivable		$	28,839,675			$	(6,715,320	)		$	22,124,355
Property, plant and equipment			23,779,384				629,505				24,408,889
Accounts payable and accrued liabilities			9,964,937				359,787				10,324,724
Income taxes payable			2,961,632				(1,865,387	)			1,096,245
Retained earnings			29,298,743				(4,580,215	)			24,718,528

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

3.

Restatements (continued):

The impact of the restatement on the consolidated statement of cash flows for the year ended December 31, 2003 is as follows:

		As previously
		reported				Restatement				As restated
Cash flows from (used in) operations:
Net earnings		$	18,173,459			$	(4,580,215	)		$	13,593,244
Amortization			1,800,326				(197,660	)			1,602,666
Accounts receivable			(16,506,230	)			6,715,320				(9,790,910	)
Accounts payable and accrued liabilities			2,082,269				359,787				2,442,056
Income taxes receivable/payable			(2,900,891	)			(1,865,387	)			(4,766,278	)
Cash flows from operations			4,535,494				431,845				4,967,339
Cash flows (used in) investments:
Purchase of property, plant and equipment			(11,316,302	)			(431,845	)			(11,748,147	)
Cash used in investments			(14,832,871	)			(431,845	)			(15,264,716	)

Restatement of fiscal 2004:

(iii)		Revenue recognition:
		The Company continued to incur additional costs related to the remediation of contaminated materials under the Saglek contract. As a consequence of the 2003 restatement adjustments and accounting for the revenue under the contract in accordance with the percentage-of-completion method of accounting, the Company has recorded a restatement adjustment to increase revenue for the year ended December 31, 2004 and to increase accounts receivable during the year ended December 31, 2004 in the amount of $5.3 million.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

3.

Restatements (continued):

			At December 31, 2004, the Company recorded cumulative revenue for the Saglek contract of $37.5 million, (which included 2002 revenue) and cumulative direct costs of $28.6 million (not including the allocation of indirect fixed costs) and had $4.9 million as amounts receivable from the customer at December 31, 2004 relating to the claims (note 4). The Company submitted claims to the customer in the amount of $9.5 million in 2004 but only recorded claim revenue to the extent of the additional costs that are probable of recovery incurred in the amount of $5.4 million in 2003 as noted above. At the time, management was satisfied that such amounts were probable of collection and met the criteria for revenue recognition. Management continues to hold this view and is pursuing collection under the contract.
	(iv)		Operating expenses and capital assets:
			The Company inappropriately recorded expenses and capitalized certain items of a capital nature during the year ended December 31, 2004 that should have been recorded in 2003 as noted above. Accordingly, the Company recorded a restatement adjustment to decrease operating expenses for the year ended December 31, 2004 by $1.1 million, to increase amortization expense by $0.04 million, to increase accounts receivable during the year by $1.3 million, to decrease capital assets during the year by $0.604 million and to decrease accounts payable by $0.4 million. These restatement adjustments of the balance sheet accounts had no effect on the December 31, 2004 balance sheet as previously reported and are a consequence of the 2003 restatement adjustments.

			The related income tax effect of the above adjustments of $1.9 million was recorded as an increase to current income tax expense for the year ended December 31, 2004 and a reduction to income taxes receivable during the year ended December 31, 2004.
			The impact of the restatement on the consolidated statement of operations for the year ended December 31, 2004 is as follows:

		As previously
		reported				Restatement				As restated
Sales		$	25,323,203			$	5,318,849			$	30,642,052
Operating costs			26,736,521				(1,168,396	)			25,568,125
Amortization			3,729,728				41,643				3,771,371
Current income taxes			(4,802,434	)			1,865,387				(2,937,047	)
Loss for the year			(18,535,239	)			4,580,215				(13,955,024	)

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

3.

Restatements (continued):

The impact of the restatement on the consolidated balance sheet as at December 31, 2004 is as follows:

		As previously
		reported				Restatement				As restated
Accounts receivable		$	14,316,648			$	—			$	14,316,648
Property, plant and equipment			48,920,377				—				48,920,377
Accounts payable and accrued liabilities			6,646,005				—				6,646,005
Income taxes receivable			3,417,204				—				3,417,204
Retained earnings			10,763,504				—				10,763,504

The impact of the restatement on the consolidated statement of cash flows for the year ended December 31, 2004 is as follows:

		As previously
		reported				Restatement				As restated
Cash flows from (used in) operations:
Loss for the year		$	(18,535,239	)		$	4,580,215			$	(13,955,024	)
Amortization			3,729,728				41,643				3,771,371
Accounts receivable			14,523,027				(6,715,320	)			7,807,707
Accounts payable and accrued liabilities			(3,568,330	)			(359,787	)			(3,928,117	)
Income taxes receivable/payable			(6,378,836	)			1,865,387				(4,513,449	)
Cash used in operations			(4,721,769	)			(587,862	)			(5,309,631	)
Cash flows from (used in) Investments:
Purchase of property, plant and equipment			(28,892,497	)			587,862				(28,304,635	)
Cash flows from (used in) investments			(30,329,030	)			587,862				(29,741,168	)

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

3.

Restatements (continued):

(b)

The Company has reclassified the restricted cash balance from the cash and cash equivalents balance as at December 31, 2004 and 2003 as the restricted cash represents letters of credit held as security for the MRR facility for the Ministry of Environment. As a result, the cash and cash equivalents balance decreased by $1,349,490 as at December 31, 2004 and by $1,033,410 as at December 31, 2003 and the restricted cash balance increased by the same amount on the consolidated balance sheets. The effect on the consolidated statements of cash flows is as follows:

		As previously
December 31, 2004		reported				Restatement				As restated
Cash used in financing:
Increase in restricted cash		$	—			$	(316,080	)		$	(316,080	)
Cash and cash equivalents, beginning of year			11,552,943				—				11,552,943
Cash and cash equivalents, end of year			15,180,060				(1,349,490	)			13,830,570

		As previously
December 31, 2003		reported				Restatement				As restated
Cash used in financing:
Increase in restricted cash		$	—			$	(1,033,410	)		$	(1,033,410	)
Cash and cash equivalents, beginning of year			19,267,639				—				19,267,639
Cash and cash equivalents, end of year			11,552,943				—				11,552,943

	(c)		The Company has reclassified the note receivable from current assets to long-term assets as the note receivable is repayable in full on July 7, 2007. As a result, the current assets balance as at December 31, 2004 decreased by $315,000 (2003 — $172,500) and long-term assets increased by the same amount on the consolidated balance sheets.
	(d)		In compliance with a response to a comment letter received by the Securities and Exchange Commission in January 2006, the Company has amended its revenue recognition policy as noted in note 2(k).

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

4.

Accounts receivable:

		2004				2003
		(Restated - note 3)
Billed		$	8,139,690			$	11,979,171
Claims			4,900,000				5,384,295
Unbilled			1,276,958				4,760,889
		$	14,316,648			$	22,124,355

		Included in accounts receivable are amounts outstanding from one customer of approximately $12.3 million (2003 — $13.6 million). Included in this receivable are claims for additional work performed pursuant to the contracts which are in dispute with the customer (note 3(a)).
		The ultimate settlement of the claim is expected in the future and may result in a change in the estimated amounts of revenues and receivable recorded on this project. The Company estimates are based on the fact that it has a contractual right to claim for these amounts, has verifiable costs related to this claim and has obtained an opinion from an independent third party to confirm its entitlement to a claim. The Company continues to believe that amounts recorded as revenue will be recovered.
5.		Investments:

		2004				2003
Investment accounted for using the cost method		$	—			$	440,000
Investment accounted for using the equity method, net of Company’s share of net earnings and partial redemption			—				128,193
		$	—			$	568,193

During the year, the value of investments accounted for under the cost method became impaired on an other than temporary basis which resulted in a write off of $540,000. The Company also wrote off the carrying value of its equity accounted investment together with unsecured receivables in 2004 which resulted in a loss of $278,193 due to the losses incurred by the investee and the other than temporary impairment in value during the year. Amounts advanced to this investee and accrued interest which are secured have been recorded as note receivable in the amount of $315,000 (2003 - $172,500).

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

6.

Property, plant and equipment:

						Accumulated				Net book
2004		Cost				amortization				value
Automobiles		$	180,358			$	95,450			$	84,908
Computer equipment			599,862				308,052				291,810
Equipment — ELI (note 7)			534,000				267,000				267,000
Furniture and equipment			1,077,448				519,698				557,750
Kiln — RSI facility			16,312,361				4,704,540				11,607,821
Land			88,228				—				88,228
Land improvements			139,577				41,773				97,804
Leasehold improvements			58,322				58,322				—
Software			301,008				244,753				56,255
Storage building and pads			5,981,467				1,171,468				4,809,999
Treatment building			3,437,471				273,212				3,164,259
Treatment equipment			31,076,295				3,181,752				27,894,543
		$	59,786,397			$	10,866,020			$	48,920,377

						Accumulated				Net book
2003		Cost				amortization				value
Automobiles		$	177,837			$	64,647			$	113,190
Computer equipment			440,222				233,019				207,203
Equipment — ELI (note 7)			534,000				—				534,000
Furniture and equipment			955,014				404,626				550,388
Kiln — RSI facility			11,361,344				3,965,415				7,395,929
Land			83,579				—				83,579
Land improvements			90,103				31,845				58,258
Leasehold improvements			58,322				54,774				3,548
Software			200,671				176,275				24,396
Storage building and pads			5,933,465				791,467				5,141,998
Treatment building			2,506,008				160,601				2,345,407
Treatment equipment			10,057,495				2,106,502				7,950,993
		$	32,398,060			$	7,989,171			$	24,408,889

		At December 31, 2004, property, plant and equipment includes $33,297,946 of assets under construction (2003 — $6,205,736) related to the new remediation site in New Brunswick. No depreciation has been recorded on these assets since they are not available for productive use.
		During the year, capital assets related to the Kirkland Lake project were written-off. The application for permitting of this site was postponed indefinitely (note 7); therefore, related equipment was transferred to other facilities and are being used for alternative purposes. An impairment charge of $921,212 was realized on this equipment.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

7.

Other assets:

		2004				2003
Deferred permitting costs (amortization nil for 2004 and 2003) (note 2(h))		$	3,286,808			$	4,979,081
Operating permits, licenses and other assets — ELI (net of amortization of $899,436; 2003 - nil)			899,436				1,798,872
Cash surrender value of insurance (note 8)			606,825				576,450
		$	4,793,069			$	7,354,403

		The Company is in the process of obtaining a final operating permit for its New Brunswick facility and will commence amortizing the related permitting costs upon obtaining this approval.
		During the year, the Company wrote off permitting costs of $3,422,767 related to its bid to acquire a permit in Kirkland Lake. The Kirkland Lake project has been postponed indefinitely.
		The Company acquired certain operating permits, licenses and other assets from ELI in December 2003 for cash and notes payable (note 8).
8.		Long-term liabilities:
		Long-term liabilities comprise the following:

		2004				2003
Promissory note, unsecured non-interest bearing, due December 31, 2005 (note 7)		$	300,000			$	300,000
Promissory note, non-interest bearing, due upon receipt by the Company of license assignment from two specified licensees (note 7)			—				100,000
Capital lease obligation			—				21,744
Tenure agreement			741,450				576,450
Severance payable			1,660,000				—
			2,701,450				998,194
Less current portion			1,218,405				4,601
		$	1,483,045			$	993,593

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

8.		Long-term liabilities (continued):
		During 2003, the Company concluded a settlement agreement with IT Corp and obtained court approval accepting this settlement in the fourth quarter of 2003. Under the terms of the settlement agreement, the Company’s obligation to IT Corp was extinguished. Accordingly, the Company recorded a gain on debt settlement of $1,316,936 in 2003.
		The Company entered into a tenure agreement with the founder of the Company, Mr. John Bennett, which provides an annual allowance of $69,500 until age 85. The present value of these payments using an interest rate of 5.75% at December 31, 2004 is approximately $741,450 which the Company intends to fund from cash flows and, in part, from the cash surrender value of a life insurance policy it holds on Mr. Bennett. The cash surrender value of this life insurance policy is $606,825 at December 31, 2004 (note 7). An expense of $165,000 (2003 — $65,000) is included in administration and business development with respect to this tenure allowance.
		During the year ended December 31, 2004, plans were approved to close the Vancouver administrative office in 2005. During this period, certain executive employment agreements were also terminated resulting in severance obligation payments over periods ending December 31, 2008. As a result of these terminations, the Company has accrued and expensed administration and business development severance costs of $1,660,000, using an interest rate of 5.75% over the payment term, which will be accreted as interest expense over the payment dates.
		Principal payments on long-term liabilities as at December 31, 2004 are as follows:

2005		$	1,218,405
2006			686,102
2007			256,435
2008			65,721
2009			65,721
Thereafter			409,066
		$	2,701,450

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

9.

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 (none issued).
	(b)		On February 3, 2004, the Company completed a financing arrangement with an Underwriter whereby the Underwriter agreed to purchase 1,000,000 Units, each Unit consisting of one common share and one half common share purchase warrant at $26.00 per Unit for gross proceeds of $26,000,000. Each whole share purchase warrant entitles the holder to purchase one common share of the Company at $30.00 per share for a period of 18 months following the closing date of February 3, 2004. Net proceeds from this financing transaction were $24,700,000. No share purchase warrants have been exercised at December 31, 2004.
	(c)		On December 30, 2004, the Company completed another financing arrangement with an Underwriter whereby the Underwriter agreed to purchase 3.0 million common shares at $4 per common share for gross proceeds of $12,000,000. The common shares issued consist of 2.5 million common shares from the bought deal financing and an additional 500,000 common shares were issued under an option granted to the Underwriter, which the Underwriter has exercised in full. Net proceeds from this financing transaction were $11,329,450.

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

9.

Share capital (continued):

(d)

The issued share capital of the Company is as follows:

		Shares				Amount
						(Restated -
						note 2(a)(i))
Balance, December 31, 2002			16,508,739			$	23,886,499
Issued during the year ended December 31, 2003 for:
Exercise of options			637,050				4,021,868
Stock-based compensation related to exercise of options			—				489,103
Balance, December 31, 2003			17,145,789				28,397,470
Issued during the year ended December 31, 2004 for:
Exercise of options			281,651				2,115,156
Stock-based compensation related to exercise of options			—				718,208
Private placement			1,000,000				26,000,000
Bought deal			3,000,000				12,000,000
Share issue costs							(2,277,027	)
Tax benefits related to share issue costs			—				762,753
Total issued shares			21,427,440				67,716,560
Shares repurchased in 2004 and held in treasury			(11,500	)			(71,879	)
Balance at December 31, 2004			21,415,940			$	67,644,681

	(e)		Stock option plan:
			The Company has reserved 5,096,325 common shares for future issuance under its Stock Option Plan (the “Plan”). 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, vesting period and expiry dates of stock options granted.
			The weighted average fair value of the options granted for the year was $4.55 per share (2003 - $3.67 per share).

BENNETT ENVIRONMENTAL INC.

Notes to Revised Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended December 31, 2004 and 2003

9.

Share capital (continued):

Stock option activity for 2004 and 2003 is presented below:

		2004								2003
						Weighted								Weighted
						average								average
						exercise								exercise
		Shares				price				Shares				price
Outstanding, beginning of year			1,120,602			$	9.21				1,419,953			$	5.67
Granted			210,000				5.19				564,000				18.02
Exercised			(281,651	)			7.51				(636,850	)			6.31
Cancelled			(17,500	)			14.09				(226,501	)			9.95
Outstanding, end of year			1,031,451				8.07				1,120,602				9.21
Exercisable, end of year			711,951			$	8.65				803,500			$	6.99

The following table summarizes information concerning outstanding and exercisable options at December 31, 2004:

												Options outstanding												Options exercisable
																Weighted
																average				Weighted								Weighted
																remaining				average								average
																contractual				exercise								exercise
Range of												Number				life				price				Number				price
exercise prices												of shares				(in years)				per share				exercisable				per share
$	2.17				-			$	3.55				296,501				0.76			$	2.79				296,501			$	2.79
$	4.84				-			$	7.10				350,500				3.10				5.39				125,500				5.54
$	9.10				-			$	14.29				225,450				2.01				12.51				190,450				12.81
$	17.43				-			$	22.90				159,000				3.91				22.06				99,500				22.06
													1,031,451							$	8.07				711,951			$	8.65