SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
(Check One)
|_| Registration statement pursuant to Section 12 of the Securities Exchange
Act of 1934
or
|X| Annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended 12/31/02 Commission File Number 0-30946
BENNETT ENVIRONMENTAL INC.
(Exact Name of Registrant as Specified in its Charter)
Federally Incorporated in Canada
(Province or Other Jurisdiction of Incorporation or Organization)
Suite 208 -- 1540 Cornwall Road
Oakville, Ontario, Canada L6J 7W5
(905) 339-1540
(Address and Telephone Number of Registrant's Principal Executive Offices)
Susan K. Shapiro, Esq.
Perkins, Smith & Cohen, LLP
One Beacon Street, Boston, MA 02108
(617) 854-4000
(Name, Address and Telephone Number of Agent for Service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Shares Without Par Value American Stock Exchange
Toronto Stock Exchange
Frankfurt Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares Without Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
N/A
(Title of Class)
For annual reports, indicate by check mark the information filed with this Form:
|X| Annual information form |X| Audited annual financial statements
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
16,508,739 Common Shares without Par Value
Indicate by check mark whether the Registrant by filing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
(the "Exchange Act"). If "Yes" is marked, indicate the filing number assigned to
the Registrant in connection with such Rule.
YES |_| NO |X|
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES |X| NO |_|
Documents Filed as Part of This Report
1. Annual Information Form of the Company for the year ended December 31,
2002.
2. Management's Discussion and Analysis of the Company for the year ended
December 31, 2002.
3. Audited Financial Statements of the Company for the years ended December
31, 2002, 2001 and 2000, together with the auditor's report thereon (Note
15 to the Audited Financial Statements relates to differences between
Canadian and United States Generally Accepted Accounting Principles).
BENNETT ENVIRONMENTAL INC.
Suite 208, 1540 Cornwall Road
Oakville, Ontario
L6J 7W5
Annual Information Form
For the year ended December 31, 2002
Dated as of May 17, 2003
TABLE OF CONTENTS
INTERPRETATION.................................................................i
INCORPORATION..................................................................1
THE CORPORATION.............................................................1
SUBSIDIARIES................................................................1
GENERAL DEVELOPMENT OF THE BUSINESS............................................2
GENERAL.....................................................................2
HISTORY AND GENERAL DEVELOPMENT.............................................2
TRENDS......................................................................3
DESCRIPTION OF THE BUSINESS....................................................3
PRODUCTS AND SERVICES.......................................................3
COMPETITION.................................................................8
APPLICABLE GOVERNMENT REGULATION...........................................10
EMPLOYEES..................................................................12
FACILITIES.................................................................12
RISK FACTORS...............................................................13
SELECTED CONSOLIDATED FINANCIAL INFORMATION...................................18
ANNUAL INFORMATION.........................................................18
QUARTERLY INFORMATION......................................................19
DIVIDEND POLICY............................................................20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.....................................................20
MARKET FOR SECURITIES.........................................................20
DIRECTORS AND OFFICERS........................................................21
ADDITIONAL INFORMATION........................................................22
CAUTION REGARDING FORWARD-LOOKING STATEMENTS..................................22
GLOSSARY OF TECHNICAL TERMS...................................................24
INTERPRETATION
In this Annual Information Form, references to "BEI" are to Bennett
Environmental Inc. and references to the "Corporation" are to BEI and its
subsidiaries, Bennett RemTech Ltd., Bennett Remediation Services Ltd., Recupere
Sol Inc. and Material Resource Recovery S.R.B.P. Inc., as a group. The meanings
of certain technical terms used in this Annual Information Form are set out
below under the heading "Glossary of Technical Terms".
In this Annual Information Form, unless otherwise stated, all references to
dollar amounts are to Canadian dollars and the information is current as of May
17, 2003.
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INCORPORATION
The Corporation
Bennett Environmental Inc. ("BEI") was incorporated under the Canada Business
Corporations Act on July 29, 1992. On April 4, 1996, BEI amended its articles to
consolidate its issued and outstanding common shares on a one for four basis,
and on July 9, 2002, BEI amended its articles to subdivide its issued and
outstanding common shares on a three for two basis. BEI's head and principal
office is located at Suite 208, 1540 Cornwall Road, Oakville, Ontario, Canada
L6J 7W5. The Corporation also maintains offices in British Columbia, Canada, and
Quebec, Canada. BEI's registered and records office and address for service in
British Columbia is Suite 900, 200 Burrard Street, Vancouver, British Columbia,
Canada V7X 1T2.
Subsidiaries
BEI carries on business through four wholly-owned operating subsidiaries -
Bennett RemTech Ltd. ("BRT"), Bennett Remediation Services Ltd. ("BRS"),
Recupere Sol Inc. ("RSI") and Material Resources Recovery S.R.B.P. Inc. ("MRR").
BRS was formed for the purpose of establishing, either alone or through its
subsidiaries or with partners, remediation facilities utilizing equipment
manufactured by BRT. Currently, BEI has no plans to establish remediation
facilities through BRT. RSI operates the Corporation's thermal treatment
facility in St. Ambroise, Quebec, Canada. MRR operates a thermal treatment
facility in Cornwall, Ontario, Canada. In addition, BEI also has two
subsidiaries which are currently inactive - Bennett Environmental U.S. Inc. and
Bennett Environmental U.S.A. Inc.
Additional information regarding BEI's subsidiaries is set out in the table
below.
Percentage Jurisdiction
Name of Subsidiary Ownership (1) of Incorporation
Bennett RemTech Ltd. 100% British Columbia, Canada
Bennett Remediation Services Ltd. 100% British Columbia, Canada
Bennett Environmental U.S. Inc. 100% Washington State, U.S.A.
Bennett Environmental U.S.A Inc. 100% Delaware, U.S.A.
Recupere Sol Inc. 100% (2) Quebec, Canada
Material Resources Recovery S.R.B.P. Inc. 100% (3) Ontario, Canada
----------
(1) Ownership of outstanding voting and non-voting securities.
(2) BEI's interest in RSI is held directly (34%) and indirectly through BRS
(66%).
(3) BEI's interest in MRR is held indirectly through RSI.
GENERAL DEVELOPMENT OF THE BUSINESS
General
The Corporation is engaged in the business of remediating contaminated soil,
contaminated construction debris and mercaptan contaminated gas equipment. BEI's
wholly-owned subsidiary, RSI, owns and operates a soil remediation facility in
St. Ambroise, Quebec, Canada and BEI's indirect wholly-owned subsidiary, MRR,
owns and operates a treatment facility in Cornwall, Ontario for the treatment of
contaminated construction debris and mercaptan equipment. The Corporation also
designs, manufactures and markets thermal oxidizing equipment and other
pollution control equipment for the remediation of contaminated soils and the
incineration of waste materials.
The Corporation's immediate objectives are to market the services of, and
operate, the remediation facilities in St. Ambroise, Quebec and in Cornwall,
Ontario, and to establish additional facilities in North America.
History and General Development
The Corporation's business utilizes thermal oxidation technology, which was
initially developed by Aqua-Guard Technologies Inc. ("AGT"). John Bennett, the
Chief Executive Officer of BEI, and his family (collectively, the "Bennett
Family"), founded AGT in 1979 for the purpose of manufacturing and selling oil
spill control equipment. AGT developed thermal oxidation technology from 1984 to
1992 and this technology forms the basis of the Corporation's current products.
In 1992, the management of AGT decided to separate AGT's oil spill control
business from its thermal oxidation business. To accomplish this, BEI was formed
to acquire the shares of AGT and the oil spill response business was sold by AGT
to Aqua-Guard Spill Response Inc., a private Corporation owned by the Bennett
Family. AGT was subsequently wound-up.
On August 29, 2000, BEI entered a strategic alliance with Onyx Environmental
Services L.L.C. ("OES"), a subsidiary of the French multi-national corporation
Vivendi that provides waste management services to companies in North America.
As a part of this alliance, OES agreed to provide the Corporation with access to
OES's sales network in the United States. In addition, the Corporation agreed to
arrange training programs for OES's sales teams, assist on customer calls if
required, and serve as specialized sales support to OES's sales team. The
Corporation also agreed to provide OES with access to the Corporation's soil
remediation facility for contaminated soils from the United States.
In September 2000, BEI entered into two separate agreements with IT Corporation
("IT"), a site remediation Corporation based in the United States. Under the
first agreement, the Corporation agreed to reserve for IT 150,000 metric tonnes
of soil treatment capacity over a five-year term (30,000 metric tonnes per
year). IT has committed to either deliver a minimum of 100,000 metric tonnes
(with minimum quarterly and annual targets) over the term of this agreement, or
compensate the Corporation for up to U.S.$3 million over the five-year period,
for not utilizing the reserved treatment capacity. In March 2001, the
Corporation received the first purchase order from IT for the treatment of soils
from a site in New Jersey. This purchase order was for U.S.$3 million. Under the
second agreement with IT, the Corporation agreed to purchase all of IT's surplus
North American thermal treatment equipment for U.S.$3 million. The Corporation
has used this equipment to upgrade the equipment at the St. Ambroise, Quebec
facility and intends to
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use the remainder of the equipment in the construction of the proposed facility
in Belledune, New Brunswick and Kirkland Lake, Ontario. Any unused equipment
will be sold.
Effective January 9, 2002, IT filed for bankruptcy, an asset sale was held by
the trustee and substantially all the assets have been sold. These agreements
are still in place with IT and as no shipments of soil have been made by IT
since the bankruptcy protection on January 9, 2002, BEI has not had to make
payments for the equipment since that time.
On May 16, 2002, RSI signed a new five-year labor agreement with the union that
represents approximately 23 unionized employees at the Corporation's treatment
facility in St. Ambroise, Quebec. This agreement will extend from January 1,
2002 until December 31, 2006.
On October 17, 2002, BEI signed a five-year contract with a manufacturing
corporation for the treatment of PCB impacted materials. It is expected that the
major part of this contract will be made up of soil and much of this will come
from sites in Ontario and Quebec.
Effective September 30, 2002, RSI purchased 100% of the common shares of MRR
based in Cornwall, Ontario for $61,621 in an arms length transaction from a
group of private investors. At the time of the acquisition, MRR was being
administered by an Ontario Court appointed Trustee and was under protection from
creditors according to the Bankruptcy and Insolvency Act.. MRR specializes in
the thermal destruction of PCB contaminated construction debris (e.g. wood,
concrete and metal) and other contaminated plastics and metals. In addition, MRR
thermally treats mercaptan contaminated gas distribution equipment. MRR also has
the equipment and required permits to treat contaminated water.
Trends
As at the date of this Annual Information Form, there are no trends,
commitments, events or uncertainties presently known to management of the
Corporation that management reasonably expects to have a material effect on the
Corporation's business, financial condition or results of operations. A
discussion of various factors that could affect the Corporation's business is
set out below under "Risk Factors."
DESCRIPTION OF THE BUSINESS
Products and Services
The business of the Corporation is characterized by two main business segments -
contaminated materials remediation, and equipment sales. These two business
segments build upon the thermal oxidation technology developed by the
Corporation as a method of soil remediation.
Thermal Oxidizers
Thermal oxidizers, or incinerators, are specifically designed to remediate waste
materials such as contaminated soils, and certain types of chemical wastes and
sludge. The Corporation has spent and expensed approximately $2.2 million on
research and development of its thermal oxidizer technology.
The Corporation's Mark IV Thermal Oxidizer removes contaminants by vaporizing
and then combusting the undesirable elements at high temperatures. The Mark IV
Thermal Oxidizer utilizes a rotary kiln, giving it the ability to accept
virtually any type of organic waste in a number
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of physical forms. Rotary kilns operate using either "thermal desorption"
systems or "thermal oxidation" systems. Thermal desorption systems operate at
low temperatures and will not remove and destroy all contaminants. Thermal
oxidation systems, on the other hand, operate at higher temperatures to extract
the hydrocarbons from the soil via heat desorption, and subsequently oxidize the
carbon-hydrogen bonds. The Corporation's rotary kiln is a thermal oxidizer that
operates at high temperatures and is capable of processing waste with high
hydrocarbon content. The design of the Corporation's thermal oxidizer technology
can be adapted to handle municipal household waste.
The Corporation believes that the Mark IV Thermal Oxidizer is a cost-effective
solution for the disposal and remediation of high-content hydrocarbon and
chlorinated hydrocarbon contaminated soils and wastes. The system is typically
priced at $2.0 to $5.0 million depending on the configuration.
The Mark IV Thermal Oxidizer can handle up to 20 metric tonnes of material per
hour, including soils contaminated with low to high concentrations of
hydrocarbons. The throughput rate depends on the level and type of hydrocarbon
contamination, and the nature of the soil. Management of the Corporation expects
that the Mark IV Thermal Oxidizer used at its soil remediation facility in St.
Ambrose, Quebec, Canada will operate at an average of ten tonnes per hour for
soils contaminated with chlorinated hydrocarbons, including PCB and PCP, on a
24-hour basis for 280 days per year, allowing the remaining days for maintenance
and unplanned downtime.
The Corporation's thermal oxidizers have successfully processed wastes for
various multinational companies, including Esso, in Saskatchewan, Canada; Exxon,
in Aruba; and Chevron and other major oil companies, in Alberta, Canada and
Alaska, United States.
The thermal process that is used at the MRR facility to treat contaminated
debris is a batch process whereby contaminated material is placed in a kiln and
heated to specific temperatures for a period of time to allow for the
volatilization of contaminants.
Waste Remediation Facilities
St. Ambroise, Quebec
The Corporation owns and operates a thermal oxidation facility located in St.
Ambroise, Quebec, Canada through its wholly-owned subsidiary RSI.
Site Development
The Corporation started construction of the facility in 1996 when it installed a
rotary kiln and certain other ancillary equipment. Throughout 1996, the
Corporation made improvements to the site including the addition of a central
building and storage pads.
In 1997, the Corporation applied to the Quebec Ministry of Environment (the
"Quebec MOE") to upgrade its permit allowing it to treat
hydrocarbon-contaminated soil to include the treatment of soil contaminated with
chlorinated hydrocarbons, including PCBs. The Corporation incurred expenditures
of approximately $2,285,547 to improve the site and the facility to comply with
the requirements of the upgraded permit. Improvements included the construction
of a soil storage building, the construction of several additional storage pads,
and the addition of material handling equipment, ventilation systems and a
wastewater treatment system.
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Before the Quebec MOE would issue the upgraded permit to the Corporation, the
Corporation's thermal oxidizer had to undergo test burns to demonstrate the
equipment's ability to destroy chlorinated hydrocarbons, including PCBs. The
test results showed that the Corporation's treatment facility achieved a
destruction and removal efficiency of better than 99.9999% and a combustion
efficiency of approximately 100%. The results confirmed that the equipment was
able to meet and better the applicable regulatory standards.
The Corporation received its permit to treat PCB contaminated soil in October
1997. The issuance of this type of permit often creates a negative public
response. Even though the test results bettered the governmental standards and
RSI had fully-complied with all of the steps in the permitting process, the
Corporation was faced with community opposition to its facility. The Corporation
participated in several public forums and conducted an educational campaign to
inform area residents of the merits and safety of the facility. In March 1998,
to satisfy some concerned local residents, the Quebec MOE and RSI jointly paid
for a new test burn. The results of this second test burn confirmed the validity
of the previous test and re-confirmed the facility's ability to destroy the
organic contaminants and to treat the wastes. Subsequently, annual test burns
have been conducted, and the results of these subsequent tests have re-confirmed
the facility's ability to meet and better the regulatory standards.
Operations
The Corporation's operations occur almost exclusively at its St. Ambroise
facility. The St. Ambroise facility commenced commercial operations in February
1998 and since that time the facility has provided services to Philips Services
Ltd., to thermally treat PCB contaminated soil from a site in the Province of
Ontario; government departments and government-owned corporations, including the
Province of Nova Scotia, Manitoba Hydro and Dorval Airport (located in Montreal,
Quebec); environmental agencies, including the U.S. Environmental Protection
Agency and to Desco, Inc., to transport, treat and dispose of contaminated
soils.
Customer contracts are project-based or one-time contracts and seldom last more
than one month from the time soil is received at the plant until all the
contaminated soil from the project is treated and invoiced back to the customer.
Some of the larger contaminated sites have several remediation phases and
contracts are awarded for each phase. In 2001, BEI was awarded a $25 million
contract to treat 40,000 tonnes of material from the Federal Creosote Superfund
Project in New Jersey. This contract took from May 2001 until March 2002 to
complete. In 2002, BEI was awarded a contract for phase 2 of the project for $50
million and 65,000 tonnes. Shipments were first received in July 2002 and this
phase is expected to be completed by July 2003.
Over the past 5 years, the Corporation has been successively upgrading the
operating capacity of the St. Ambroise facility. In 1999, the facility treated
approximately 40,000 metric tonnes of contaminated soil representing
approximately 70% of its treatment capacity. In late 2001, the capacity of the
treatment facility was upgraded to 80,000 metric tonnes per year and the
facility treated 46,000 metric tones. In mid 2002, the capacity of the treatment
facility was upgraded again to operate close to 100,000 tonnes per year. During
2002, the St. Ambroise facility treated 55,000 metric tonnes of contaminated
soil. The Corporation has no immediate plans to make further upgrades to the
capacity of the St. Ambroise facility.
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Cornwall, Ontario
Acquisition of Site
Effective September 30, 2002 Bennett Environmental Inc., through it's subsidiary
RSI, purchased MRR, a remediation company based in Cornwall, Ontario. MRR's
facility is comprised of a building estimated to be 20,000 square feet which is
currently used for offices, incineration equipment and work area. MRR has
pre-existing permits to handle and incinerate PCB contaminated materials,
mercaptan contaminated materials and also has the equipment and required permits
to treat contaminated water.
Operations
The MRR treatment facility at Cornwall, Ontario houses a high temperature
incinerator capable of incinerating hazardous materials at 1200 degrees C,
shipping and storage areas and sales and engineering offices. The current
operations that are carried on at the facility are the incineration of PCB
contaminated materials (eg. wood, metals and concrete) and mercaptan
contaminated materials. The Corporation currently has no plans to expand this
business to treat other types of contaminants.
Kirkland Lake, Ontario
The Corporation is proposing to establish a high-temperature thermal treatment
facility in Kirkland Lake, Ontario, Canada to remediate soil contaminated with
chlorinated organic compounds, including PCBs. Kirkland Lake, located in
Northern Ontario, was selected because of its proximity to major markets, its
accessibility by rail and truck transportation, the existence of a skilled local
labor force, the availability of mine sites which can use the clean treated soil
in their land reclamation efforts, and a receptive community.
The Corporation's plans call for the proposed facility to be an upgraded version
of the Corporation's treatment facility in St. Ambroise, Quebec. The Corporation
expects that the facility will be capable of receiving and treating up to
200,000 metric tonnes of contaminated soil per year. It will utilize a high
temperature thermal oxidizer, using technology similar to that used at the
Corporation's Quebec facility. The facility will be designed to directly employ
approximately 35 people, including highly skilled managerial, operational, and
maintenance personnel. In addition, it is estimated that companies that provide
services to the Corporation will employ an additional 25 people. The proposed
facility will require regulatory approval by the Government of Ontario.
In the fall of 1999, the Corporation began to prepare its application under the
Ontario Environmental Protection Act for approval to build and operate the
proposed facility in Kirkland Lake. The Environmental Protection Act sets out
the technical performance standards for such facilities. The Corporation
submitted its application to the Ministry of the Environment for Ontario (the
"Ontario MOE") in April 2000. On May 10, 2000 the Corporation decided to subject
its proposed Kirkland Lake facility to review under the Environmental Assessment
Act.
Based on consultations with members of the Town of Kirkland Lake and the local
municipal council, a Citizens Advisory Committee was formed to provide local
input during the permit approval process. The Corporation has committed not to
accept liquid PCBs or other hazardous liquids for treatment at the proposed
Kirkland Lake facility.
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On June 19, 2002 the Corporation submitted its application to the Province of
Ontario for final approval of its permit to construct an incineration facility
in Kirkland Lake. On November 8, 2002 the Corporation voluntarily withdrew its
application to construct an incineration facility in Kirkland Lake in order to
address concerns raised by the government review committee. The Corporation
intends to resubmit the application in 2004 after adequately addressing all
stakeholder concerns.
Taylor, British Columbia
The Corporation obtained an incineration permit from the British Columbia
Ministry of Environment to build a thermal incineration plant in Taylor, British
Columbia, Canada to treat hydrocarbon contaminated soils. Under the terms of
this permit, the Corporation cannot commence operations until an existing
beehive burner (i.e., a waste wood incinerator) operated in Taylor by a third
party ceases operation. Although, the beehive burner was scheduled to terminate
operation in late 1997, an extension was granted to allow its operator to find
alternative disposal for its waste wood. The development of a thermal treatment
facility in British Columbia is not part of the Corporation's immediate plans.
However, the Corporation continues to monitor the value of business prospects in
British Columbia and determine whether such prospects warrant the Corporation's
continuing efforts in British Columbia.
Port of Belledune, New Brunswick
On January 23, 2003 the Corporation received authorization from the Department
of Environment and Local Government of New Brunswick to proceed with a permit
application to construct and operate a thermal treatment facility in the
Province of New Brunswick. The permit to commence construction is contingent on
the Corporation preparing an Environmental Protection Plan, the establishment of
a Community Environmental Liaison Committee and a requirement to hold and
conduct public information sessions in the Belledune Community. All requirements
have been complied with as of May 2, 2003 and the Corporation expects to receive
a construction permit by June 2003. Subject to Board approval, the Corporation
intends to begin construction by mid 2003.
Equipment Sales
The Corporation has not sold any thermal oxidizers since 1993 and has no current
plans to sell its thermal oxidizers. However, the Corporation may in the future
consider specific requests to design, build and sell its technology.
Revenues
The Corporation's revenues by type and by geographical region for the last two
financial years are as follows (all figures in Canadian dollars):
Fiscal Year Ended December 31, 2001
U.S. Canada Total
Thermal treatment $14,130,155 $ 9,292,419 $23,422,574
Other -- $ 487,377 $ 487,377
----------- ----------- -----------
$14,130,155 $ 9,779,796 $23,909,951
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Fiscal Year Ended December 31, 2002
U.S. Canada Total
Thermal treatment $36,531,708 $11,572,137 $48,103,845
Other -- $ 1,749,799 $ 1,749,799
----------- ----------- -----------
$36,531,708 $13,321,936 $49,853,644
----------
During each year shown, approximately 98% of the Corporation's revenue was
generated from the waste remediation facilities in St. Ambroise, Quebec,
Canada.
Competition
The Corporation's competitive advantage is due in part to the permits that allow
it to treat soils contaminated with chlorinated hydrocarbons, including PCBs.
Obtaining permits is a long and difficult process. The application to build and
operate thermal incinerators normally generates opposition from the public who
seek assurances about the environmental impact and safety of the proposed
facilities. To address public concerns, regulatory authorities who are
responsible for issuing the permits, require the applicants to undergo extensive
public consultations and to conduct environmental assessments before a permit to
build and operate a facility is granted. The permitting process is therefore
lengthy, rigorous and expensive. This creates an effective barrier to entry for
new competitors into the Corporation's market niche. As a result, the
Corporation is able to enjoy limited direct competition from other incineration
service providers.
The Corporation considers its main competition to be:
o landfills in Ontario, Canada;
o multi-purpose incinerators operated throughout North America; and
o alternative treatment methods used in North America (for example,
bioremediation, chemical oxidation and low temperature desorption).
Ontario Landfills
In Canada, the only secure landfill sites permitted to accept hazardous
contaminants are in Ontario. On July 11, 2001, Quebec revised their landfill
laws and restricted the levels of contaminants that can be disposed of in
landfills. These restrictions took place effective January 11, 2002. Quebec
effectively harmonized their landfill laws with those in the United States.
Although Ontario has proposed landfill restrictions similar to those in Quebec
and the United States, Ontario still allows the landfilling of soils containing
certain hazardous chemicals. Ontario hazardous waste landfills market their
services in the United States for soils within the Corporation's market niche.
The largest competitive advantage these establishments have over the Corporation
is their inexpensive prices. Landfilling costs approximately U.S.$120 to $200
per metric tonne, compared to the Corporation's services at approximately
U.S.$350 per metric tonne.
However, in spite of this price advantage, landfills present disadvantages and
potential financial exposure to their clients. Landfills are a temporary storage
solution, and not a permanent solution for the problem of hazardous waste. In
addition, landfill clients may face potential future liability
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due to the potential failure of the landfills' liners. This could lead to the
generators of the hazardous material being required to pay for the clean-up of
the landfills. Landfills continue to attract growing public scrutiny and
opposition, which could serve to restrict their operations and make them less
attractive to potential clients.
Currently, Ontario hazardous waste regulations permit disposal of persistent
organic pollutants in landfills. The Canadian Federal government and some
Provincial governments have stated their intention to amend their regulations to
restrict the landfilling of certain hazardous waste, which might reduce the
hazardous waste market for landfills. Treatment alternatives such as the
Corporation's incineration facility may gain some of this market share. While
the terms of the proposed restrictions are not clear, if the amended regulations
create parity between the Canadian and U.S. environmental regulations, those
U.S. customers who are obliged to treat their soils in the United States but are
instead sending contaminated soils to Canada for disposal, would instead have to
seek treatment alternatives in Canada.
Multi-Purpose Incinerators in North America
There are several other companies operating high temperature incinerators within
North America, including one in Canada. Most of the competing incinerators are
located in the United States, which gives them a perceived advantage over the
Corporation. United States based treatment, storage and disposal facilities,
hazardous waste generators, and consultants often prefer to do business with
U.S. hazardous waste remediation facilities. This is due in part to the
perception by U.S. clients that to export hazardous waste to another country for
treatment is a complicated process. However, as the Corporation continues with
its marketing efforts in the United States, it is securing contracts with
reputable organizations, which has resulted in the Corporation gaining more
acceptance as a suitable service provider within the U.S. market. Under the
North American Free Trade Agreement, if a facility is licensed in one of the
member countries, that license has to be recognized by the other member
countries. U.S. government clients are not permitted to discriminate against the
Corporation's facility because it is Canadian.
The Swan Hills Incinerator, formerly owned and operated by Bovar Waste
Management and now owned by the Province of Alberta, located in Swan Hills,
Alberta, Canada is the Corporation's only competing Canadian thermal
incinerator. Swan Hills is located in Western Canada, which makes it more
readily accessible to contaminated sites in the West. The Corporation does not
compete with Swan Hills for soils originating in Western North America because
of the higher transportation costs to ship the soils to the Corporation's
facility in Quebec, which makes the complete cost (transport and treatment) for
treatment at the Corporation's facility, higher than Swan Hills' complete cost.
However, management believes that the same is true for Swan Hills with respect
to the Corporation's North Eastern and Central North American market because
high transport prices from the Corporation's niche market region to the Swan
Hills facility, make that region economically inaccessible to Swan Hills.
Several of the Corporation's major competing incinerators, including Swan Hills,
treat a wide spectrum of hazardous waste in different physical forms, such as
liquids, sludges, soils and medical wastes. As a result, these facilities
include additional features that have made them more expensive to build and
potentially more expensive to operate. For soil remediation, the competitors'
operational efficiency, in terms of throughput and on-site soil storage, is
reduced as a result of the differences in process and design, thereby increasing
the per unit treatment cost. In contrast, the Corporation's equipment and its
processes were designed to treat only soils. As a result, the equipment was
built at a lower cost and is able to operate at higher throughputs. It can
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therefore operate at a lower cost, allowing the Corporation to offer its
services at a lower price than its competitors.
Alternative Treatment Methods
The Corporation also faces competition from alternative waste treatment methods,
which include bioremediation, chemical oxidation and low temperature thermal
desorption. These alternatives have a cost advantage (due to their ability to
provide onsite remediation thereby avoiding expensive transportation costs) and
the public perceives more environmentally friendly than the thermal treatment
process. However, on-site low temperature thermal desorption for certain wastes
has begun to attract public opposition and permitting concerns, which has made
the option less attractive. Further, bioremediation and chemical oxidation are
effective only for a relatively narrow spectrum of organic products and these
treatment methods are ineffective at destroying the wider spectrum of persistent
organic pollutants. Some of these alternative treatment methods are
unpredictable with respect to the efficiency with which they can destroy certain
highly concentrated contaminants.
Applicable Government Regulation
Regulatory Framework
On December 1, 1997, the Hazardous Materials Regulation (Quebec) was amended to
exclude contaminated soils, including PCB contaminated soils, from the
classification of "hazardous materials" in Quebec. Due to this modification, the
Hazardous Materials Regulation allows companies, including the Corporation, to
establish contaminated soil treatment centers without going through an
Environmental Impact Study which requires a public hearing process and a minimum
two year period prior to obtaining a permit.
In 1998, the Quebec MOE amended its regulations so that in the future, any
corporation treating chlorinated chemicals (including soils contaminated with
PCBs) will have to undergo an Environmental Impact Study before being permitted
to start operations. Management believes that this process will be difficult in
Quebec because of very active environmental groups and significant public
opposition to such facilities.
Before issuing a Certificate of Authorization to operate a treatment center on a
commercial basis, the Quebec government requires a series of tests to validate
the capabilities of the technologies used to treat the materials. The test
results must pass the Quebec government's regulations and standards with respect
to air emissions and soil contamination. For example, in technologies using
thermal destruction, the process unit must be able to destroy 99.9999% of the
contaminants.
Generators of contaminated soil in Ontario are required to register all PCB
contaminated material with the Ontario MOE. For those materials for which a
destruction method is commercially available, a timetable for destruction of
those materials or details justifying continued storage of those materials must
be provided to the Ontario MOE. The Corporation believes it has a solution for
many contaminated soil problems and has approached many of the generators to
inform them that its facilities in St. Ambroise, Quebec and in Cornwall, Ontario
offer an effective treatment solution for their contaminated soil. While the
Corporation understands that Ontario MOE is encouraging companies currently
storing contaminated soil to comply with regulations that compel them to
eliminate the material, to date these regulations have not been enforced. The
Corporation believes that as environmental clean-up becomes more important,
these and other similar regulations will be enforced, and the option of "doing
nothing" will be eliminated.
- 10 -
Many of the problems involved in obtaining a permit to treat contaminated waste
using thermal oxidation methods relate to the perceptions of the public
regarding thermal remediation and not to those methods meeting elimination and
emission requirements. The Corporation attempts to address these issues through
ancillary activities, which include community education programs such as
disseminating information on thermal remediation in the community in which it
wishes to obtain an operating permit. These ancillary activities are an
important part of the strategy of obtaining an operating permit in a timely and
cost-effective manner.
In addition to the regulatory process for the establishment of treatment
facilities, the Corporation's operations and market are governed by various
additional regulations in both the United States and Canada, concerning the
storage, treatment and disposal of hazardous materials. See "Risk Factors"
below.
Differences between Canadian and U.S. hazardous waste regulations have resulted
in significant differences between Canadian and U.S. markets for hazardous
soils. The U.S. EPA considers landfills a form of temporary containment because
they tend to leak over an extended period (30 to 50 years). As a result, the
U.S. EPA instituted landfill disposal restrictions in May 1999 which banned
pentachlorophenol and other persistent organic pollutants, such as dioxins and
furans, from U.S. landfills. As a result, owners of certain U.S. waste sites are
being forced to seek alternative treatment solutions for their hazardous waste.
Current U.S. regulations allow for the disposal of PCB contaminated soils into
landfills or encasement and storage on site. U.S. regulations also restrict PCBs
with concentrations over 50 ppm from crossing the U.S. border. Therefore, the
Corporation does not consider sites in the United States contaminated with PCBs
as part of its market.
Canadian Market
At present, Canadian laws restrict the landfilling of wastes containing PCB
above 50 ppm. All other hazardous waste contaminates, including persistent
organic pollutants, are currently allowed to be disposed of in landfills.
Quebec's new landfill regulations strengthen the Quebec Environmental Quality
Act by imposing strict requirements on the location, design and construction of
contaminated soil landfill sites. In addition, the regulations set out stringent
guidelines on the types of contaminants and levels of contamination that can be
disposed of in landfill sites.
Landfill disposal restrictions, similar to those of the United States, are
expected to be established in Ontario. Ontario's MOE has stated that the
legislative changes under discussion will render Ontario's hazardous waste
regulations compatible with those of the United States, and that they will make
the province's standards much more rigorous than in the past.
The Corporation believes that the introduction and enforcement of landfill
restrictions in Ontario that are similar to those in place in the United States,
could materially improve the Corporation's market position in Canada because
this will enlarge the market of Canadian entities that will require soil
remediation services such as those provided by the Corporation.
Quebec has recently established programs to encourage the clean up of
contaminated sites. For example, the provincial government instituted a new
financial incentive to clean-up contaminated sites within the entire province of
Quebec. The Revi-Sols/Soil Restoration Program provides $50 million in
provincial rebates for the clean-up of sites that will have economic and
development
- 11 -
potential. The program provides for a rebate of up to 70% of the cost of the
clean-up if the restoration involves treatment, and up to 50% if no treatment is
required.
The importation of contaminated soil into Canada requires regulatory approval
from Environment Canada, which is the Canadian authority responsible for federal
environmental policies and programs, as well as from the Ministry of Environment
for the province where the final remediation is completed. For the Corporation,
approval is needed from the province of Quebec for soils imported from the
United States and destined for the Corporation's St. Ambroise facility and in
the Province of Ontario for materials imported from the United States and
destined for the Corporation's Cornwall facility.
Prior to importing soils into Canada, the Corporation completes an import notice
for Environment Canada that describes the waste, where it comes from and when it
is expected to arrive in Canada. Simultaneously, the Corporation informs the
relevant Ministry of Environment of its intention to import soils into the
province. The Corporation supplies the Ministry of Environment with an analysis
of the soils, showing the type of contamination and the level of contamination.
When the Ministry of Environment is satisfied that the analysis presented shows
that the soils can be treated by the Corporation's facility within the terms of
the Corporation's permit, the Ministry of Environment informs the federal
authorities of their agreement with the Corporation's intention to import the
soils. Environment Canada then issues a permit to the Corporation to import the
soils. To date, the Corporation has been successful in its applications to
import all types of organically contaminated soils for treatment in Canada.
The Corporation's permit in Quebec allows the Corporation to treat soils
contaminated with all chlorinated hydrocarbons and non-chlorinated organic
contaminates including, PCB, PCP, creosote, dioxins and pesticides. The permits
for the Cornwall Ontario facility allow for the thermal treatment of PCB
contaminated construction debris, mercaptan contaminated metals and PCB
contaminated water.
To the best of its knowledge, the Corporation complies with all current and
proposed environmental regulations in Canada and the United States, and has no
environmental or related liabilities.
Employees
As at December 31, 2002, the Corporation had 61 employees - 30 in operating
areas, 8 in marketing and business development, and 10 in administration. 25
employees in our treatment facility are represented by a labour union. On May
16, 2002, the Corporation signed a new five-year labour agreement that extends
from January 1, 2002 until December 31, 2006.
Facilities
BEI occupies approximately 2,822 square feet of leased office space at Suite
200, 1130 West Pender Street, Vancouver, British Columbia, Canada, and
approximately 3,000 square feet of leased office space at Suite 208, 1540
Cornwall Road, Oakville, Ontario, Canada.
RSI owns the property where its St. Ambroise facility is located. This property
is located at 80, des Melezes, St. Ambroise, Quebec, Canada.
- 12 -
RSI purchased the common shares of Material Resource Recovery S.R.B.P. Inc.
effective September 30, 2002. The primary assets of MRR include the Cornwall
facility and its 20,000 feet of office space, incineration equipment and work
area. The property is owned by MRR and located at 2425 Industrial Road in
Cornwall, Ontario.
Risk Factors
The Corporation Has a Limited Operating History; Its Future Profits and Cash
Generation Potential Are Uncertain
Although the Corporation is beyond the development stage (since it already has a
product), it is still subject to problems typically encountered in a new
business. The Corporation's business and financial plan focus on a product which
is still gaining market acceptance. Profitable sales levels may not be achieved.
Internal cash generated by operations may not permit the level of research and
development spending required to maintain the stream of product improvements
anticipated and outside financing may not be available. Realization of any of
these factors could result in reduced potential profitability and lower stock
prices for the Corporation.
The Corporation May Encounter Difficulties Competing with Larger, Established
Companies
The Corporation's products and services compete against those of other
established companies, some of which have greater financial, marketing and other
resources than those of the Corporation. Other companies with greater financial
resources than the Corporation may enter the Corporation's market. Competition
will be significantly increased if permits to operate PCB contaminated soil
remediation facilities for chlorinated organics are granted to the Corporation's
competitors.
The Corporation also faces competition from other alternative treatment and
disposal methods currently allowed under applicable regulations. Other
innovative solutions may be developed that provide a more attractive solution to
potential customers, which could reduce the Corporation's market niche. To the
extent that the Corporation's competitors are able to compete successfully with
the Corporation and its products, the Corporation's potential profitability may
be reduced and shareholder value may be affected.
The Corporation Faces Construction Risks Including Delays, Cost Overruns and
Defects
The Corporation contracts with third parties to manufacture its thermal
oxidizers The design and construction of thermal oxidizers for the remediation
of contaminated soils are subject to a variety of risks, including the
availability and costs of material and labor, delay in construction schedules,
cost overruns, additional permitting requirements, changes in applicable codes,
ordinances and regulations, unanticipated additional work due to unforeseeable
conditions, environmental problems, and other similar factors. In addition, the
design, and construction of thermal oxidizers may involve risks of construction
defects, such as design defects, inadequate construction plans and
specifications, poor workmanship or defective materials. Correction of serious
defects can be costly and time consuming. Construction delays may result from
labor disputes, governmental orders or delays, unavailability of materials or
labor, reversals in the financial condition of the construction manager,
contractor or subcontractor, or other factors. Construction delays also could
impair the Corporation's ability to generate revenues from new facilities to
treat contaminated soils. These delays could hinder the Corporation's future
plans and reduce the Corporation's profits.
- 13 -
Inadequate Supplies of Contaminated Soil Could Reduce Throughput and Revenues
The success of any of the Corporation's remediation facilities is dependent upon
there being an adequate supply of contaminated soil available. An adequate
supply may not be available in the vicinity of its facilities. Without soil to
treat, the Corporation's facilities will not operate at full capacity. The
Corporation is subject to shipment schedules that are not always under its
control. Shipments can be delayed for long periods by customers for a variety of
reasons and may result in facilities not having adequate supplies of
contaminated soil for treatment. In addition, customers may cancel their orders.
For example, during 2000, as a result of delays by customers in sending their
soils and by the regulators for the approval of importation of soils, the
utilization rate at the St. Ambroise facility declined to approximately 24% from
a utilization level of approximately 70% in 1999. In 2001, the utilization rate
was 58% based on throughput of 46,000 metric tonnes and an engineered capacity
of 80,000 metric tonnes. In 2002, the capacity utilization was 55% based on
throughput of 55,000 tonnes of material and an engineered capacity of 100,000
metric tonnes.
Current and Prospective Environmental Regulations May Increase Operating Costs,
Potentially Impairing Profitability and Ability to Compete with Larger Companies
Federal, provincial, state and local laws, regulations and policies relating to
the protection of the environment will continue to impact the Corporation and
its businesses. While the Corporation currently complies with existing laws and
regulations, any amendments to these laws, regulations and policies could cause
an increase in the cost of operations, because the Corporation would be required
to comply with potentially costly construction and operating requirements.
Additional costs are incurred because the Corporation must monitor any changes
to legal requirements affecting the Corporation's operations.
Changes in environmental standards pose a risk to the Corporation and its
businesses. The Corporation cannot accurately predict the impact of changes in
environmental standards on the Corporation and its subsidiaries. The Corporation
cannot guarantee that environmental standards or their enforcement will not
become more stringent for the proposed treatment facilities. The Corporation
cannot predict how future laws will impact upon the Corporation and its
businesses, whether future requirements will essentially regulate the
Corporation and its businesses out of existence, whether the technology for
meeting future environmental limitations exists, or whether existing equipment
can be retrofitted in order to comply with more stringent standards.
While the Corporation believes that its market position and profitability could
improve with the implementation of currently proposed regulations in Ontario and
Quebec designed to bring the disposal standards in those jurisdiction in line
with existing U.S. regulations, the proposed regulations may not be implemented,
or the implementation may be delayed or changed. Significant delays or changes
in the implementation of the proposed regulations will hinder the Corporation's
competitiveness in the U.S. market.
In addition, regulators may not enforce strictly existing or proposed
legislation concerning the disposal and destruction of contaminated soils,
resulting in stiffer competition for the available material in the market.
- 14 -
The Corporation May be Unable to Obtain Regulatory Approvals Necessary for
Operating Its Facilities
As discussed above, the Corporation is subject to numerous regulatory
requirements imposed by federal, state and local jurisdictions, relating to the
construction and operation of thermal treatment facilities. The Corporation is
required to obtain governmental approvals with respect to many aspects of its
business. The Corporation is currently seeking the required permits to construct
and operate a new facility in Kirkland Lake, Ontario and Belledune, New
Brunswick. The approval process for the development of a thermal oxidizer
facility is costly and time consuming. The process requires development of the
equipment and the site in accordance with environmental laws, regulations, and
policies, and other regulatory concerns. The Corporation may not be successful
in obtaining any subsequent consents or permits for its development plans as
currently proposed, or if such consents or permits are obtained, they may not be
obtained within the time frame contemplated.
Permits for the operation of thermal oxidizers are very difficult to obtain and
usually involve up to three years to complete. In addition, the required
environmental impact studies can cost up to $3 million. The Canadian
Environmental Assessment Act has recently added another level of regulation to
the permitting process by requiring the Corporation to address additional issues
relating to proposed treatment facilities such as truck traffic and economic
issues including effects on tourism and property values. The Province of British
Columbia has also implemented the Environmental Assessment Act, the Waste
Management Act and related regulations. The Provinces of Ontario and Quebec are
also considering modifications to their environmental laws and regulations,
which could add further expense and time requirements to the permitting process.
Public Concerns about Remediation Issues Could Delay or Limit Operations
Related to the regulatory approval process risks discussed above is the risk
that concerned citizens, environmental groups or other parties may object to the
establishment of the Corporation's remediation facilities. If such challenges
occur, they may cause delays and increase the costs for the establishment and
operation of remediation facilities, including the proposed Kirkland Lake
facility. Delays in receiving regulatory approval and opposition from concerned
citizens could result in reduced potential profitability, affect shareholder
value.
There is a high level of public concern over waste remediation operations,
including the location and operation of transfer, processing, storage and
disposal facilities, and the collection, processing or handling of contaminated
soils, industrial by-products and waste materials, particularly hazardous soils
and materials. Zoning, permit and licensing applications and proceedings and
regulatory enforcement proceedings are all matters open to public scrutiny and
comment. As a result, from time to time, the Corporation has been, and may in
the future be, subject to citizen opposition and publicity, which could force it
to curtail its operations and delay or limit the expansion and development of
operating properties, and thus could potentially harm its operations or
financial condition.
Jurisdictional Restrictions on Waste Transfers Could Limit Throughput,
Utilization of Soil Remediation Facilities
In the past, various U.S. and Canadian federal, provincial, state, county and
municipal governments have attempted to restrict the flow of waste across their
borders, and may seek to do the same in the future. Any such restrictions will
prevent the Corporation from entering into
- 15 -
waste remediation contracts for waste that is subject to these restrictions. The
U.S. government has restricted the flow of PCB contaminated waste from the
United States into Canada. Canada presently allows the importation of PCBs. This
U.S. restriction on the movement of PCB waste across its border has reduced the
potential quantity of PCB contaminated waste available to the Corporation for
remediation. The Corporation has, however, identified a market in the United
States for the treatment of soils contaminated with chlorinated organics (other
than PCBs), including PCPs, pesticides and dioxins. The Corporation has several
U.S. customers that have sought its services for the treatment of such soils. As
noted above, if there is an inadequate supply of contaminated soil to treat, the
Corporation's facility may not operate at full capacity which would reduce the
Corporation's potential profitability.
The Corporation May be Subject to Liability for Environmental Damage
The Corporation may be subject to liability for environmental damage that its
St. Ambroise operations and Cornwall operations may have caused or may cause to
its own property or to nearby landowners, particularly as a result of the
contamination of air, drinking water sources or soil, including damage resulting
from conditions existing prior to the acquisition of such assets or operations.
Liability may also arise from any off-site environmental contamination caused by
pollutants or hazardous substances, the transportation, treatment or disposal of
which was arranged for by the Corporation or any predecessor owners of
Corporation operations or assets.
In the ordinary course of operating its facility in St. Ambroise and Cornwall,
the Corporation may become involved in a variety of legal and administrative
proceedings relating to environmental laws and regulations. These may include
proceedings by federal, provincial, local or foreign agencies seeking to impose
penalties on the Corporation for violations or infractions of such laws and
regulations, or to impose liability on the Corporation under statutes, or to
revoke or deny the issuance of new permits, or the renewal of existing permits.
In addition, actions could be brought by citizens' groups, adjacent landowners
or governmental entities alleging violations of the permits pursuant to which
the Corporation operates or laws or regulations to which the Corporation is
subject; and actions seeking to impose liability on the Corporation for any
environmental impact at its St. Ambroise facility or the Cornwall facility or
damage that the facility may have caused to adjacent landowners or others,
including groundwater or soil contamination. The Corporation has and may in the
future from time to time receive citations or notices from governmental
authorities that its operations are not in compliance with its permits or
certain applicable environmental or land use laws and regulations. The
Corporation generally seeks to work with the authorities to resolve the issues
raised by such citations or notices. The Corporation may not always be
successful in this regard, and any such future citations or notices may require
the Corporation to pay fines, modify plant and equipment, or otherwise make
expenditures that could have a negative impact on the Corporation's financial
position, results of operations or cash flows.
The Corporation will have similar exposure at any future facility that it might
acquire or build.
The Corporation Risks Liability for Exposure of Employees to Contaminated
Materials
The employees of the Corporation may be exposed to contaminated materials. While
the Corporation believes that it takes all required actions to protect its
employees from such exposure, including ongoing education of its employees
concerning the handling of contaminated materials, this exposure may impose
liability on the Corporation and such liability could have a material adverse
effect on the Corporation's financial position, results of operations or cash
flows
- 16 -
To date no instances of employee exposure to contaminates have been detected and
to our knowledge no employee related liability currently exists.
The Corporation's Insurance May Not Cover All Potential Liabilities
If the Corporation were to incur liability for environmental damage, such
liability could harm the Corporation's financial position, results of operations
or cash flows. While the Corporation carries insurance for potential liability,
and notwithstanding that the Corporation believes that it is in substantial
compliance with existing regulatory requirements, even minor regulatory
violations may result in severe fines, which might not be covered under the
Corporation's existing insurance coverage. In addition, claims may arise in the
event of environmental damage at the St. Ambroise facility, Cornwall facility or
any future service facility owned and operated by the Corporation or its
subsidiaries.
The Corporation maintains a policy of comprehensive insurance, including general
liability and extended coverage of a type customarily obtained for similar
businesses. However, the Corporation may not have adequate insurance for all
contingencies and, as is standard for insurance policies, the Corporation's
policies are subject to deductibles and policy limits. Should any such uninsured
or under-insured claim occur, the Corporation might be forced to liquidate or
otherwise cease business activities. To date no insurance claims of any nature
have occurred.
Future Operating Costs May Increase
Management's projections regarding the St. Ambroise facility, the Cornwall
facility, and other proposed projects are based on historical and operating cost
assumptions considered to be reasonable. However, future operating costs may
exceed budgeted or historical costs.
The Corporation Depends on its Key Management Employees
The Corporation is dependent on a relatively small number of key management
employees, the loss of any of whom could have a negative impact on the
Corporation. These employees include John Bennett (CEO and Chairman), Richard
Stern (Chief Financial Officer and Secretary), Danny Ponn (Vice President and
Chief Operating Officer), and Zul Tejpar (Vice President - Business
Development). While the Corporation has employment agreements with each of these
persons, it does not have "key person" insurance with respect to any of them.
The Corporation's Business Plan May be Based on Incorrect Assumptions
The Corporation's internal business plan is based on a number of assumptions,
which may or may not prove valid. Poor market acceptance of the Corporation's
services or other unanticipated events may result in lower revenues than
anticipated, making the planned operational and marketing expenditures
unachievable and may reduce expected future profit. One assumption inherent in
the business plan is that the Canadian and U.S. regulators will be diligent in
the enforcement of environmental clean-up laws. If the regulators do not enforce
clean-up of contaminated soil, then the assumptions on future volumes of soil
coming into the Corporation's facilities for treatment may be at risk.
The marketplace for the Corporation's products and services is constantly
undergoing change. As a result, it is difficult to predict the continued demand
for the Corporation's products and services. A decrease in demand for the
Corporation's products and services could result in reduced potential
profitability and lower stock prices for the Corporation.
- 17 -
The Corporation May Not be Able to Obtain Additional Capital When Needed
The Corporation's future expansion plans may require additional capital. While
the Corporation has been able to generate capital from operations, it may not be
able to continue to do so and may have to attempt to raise funds from outside
sources. Such funds might not be available in sufficient amounts or on terms
acceptable to the Corporation. Failure to raise the necessary funds in a timely
manner will limit the Corporation's growth.
Unpatented Technology Could Be Copied by Competitors
Despite many proprietary design features and other aspects of the Corporation's
thermal oxidizer, the Corporation and its subsidiaries have not patented any of
its technology, relying instead on its permits and early market positioning.
Management believes that applying for patent protection would cause design
information to be made available to the public and potential competitors, and
that defensibility and protection against infringement would likely be difficult
and costly. Consequently, notwithstanding that the Corporation and its
subsidiaries take precautions to protect proprietary designs, there is a risk
that if a competitor obtains proprietary design features, the competitor could
manufacture and market a competing product. Such competition, if successful,
could result in reduced potential profitability and lower stock prices for the
Corporation.
The Corporation Does Not Currently Pay Dividends on Its Stock
The Corporation has not paid dividends in the past and does not anticipate
paying dividends in the near future. The Corporation expects to retain its
earnings to finance further growth and, when appropriate, retire debt. Investors
might prefer to buy stock of companies that pay dividends, which could reduce
demand for the Corporation's stock and therefore cause a decline in stock price.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Annual Information
The table below presents selected historical consolidated financial data of the
Corporation for the periods indicated. This data is derived from the audited
consolidated financial statements of the Corporation. The Corporation's audited
consolidated financial statements are presented in accordance with Canadian
GAAP. The selected historical consolidated financial data should be read in
conjunction with the audited consolidated financial statements of the
Corporation and the notes thereto.
- 18 -
December 31
(audited)
2002 2001 2000 1999 1998
Results of Operations (year ended)
Sales $ 48,104 $ 23,423 $ 7,967 $ 22,053 $ 5,403
Interest income & other $ 1,750 $ 487 $ 741 $ 183 $ 38
Net earnings (loss) $ 12,543 $ 4,727 $ (2,258) $ 6,341 $ 293
Basic earnings (loss) per share $ 0.78 $ 0.31 $ (0.15) $ 0.46 $ 0.03
Fully diluted earnings (loss) per share (1) $ 0.73 $ 0.30 $ (0.15) $ 0.43 $ 0.03
Financial Position (as at)
Net working capital $ 18,206 $ 9,168 $ 5,382 $ 11,089 $ 2,756
Total assets $ 52,385 $ 29,437 $ 19,659 $ 20,504 $ 11,653
Total long-term financial liabilities (2) $ 1,725 $ 3,224 $ 3,049 $ 651 $ 3,163
Shares outstanding (1) 16,508,739 15,544,242 15,054,451 15,260,230 12,209,048
Dividend per share $ 0 $ 0 $ 0 $ 0 $ 0
(1) Earnings per share and outstanding share information has been
retroactively adjusted to reflect the 3 for 2 stock split effective July
9, 2002.
(2) Includes the long-term portion of deferred revenue, long-term debt and
convertible debentures maturing in excess of one year.
Canadian GAAP differs in certain respects from U.S. GAAP. The principal
differences as they relate to the Corporation are: (1) the treatment of
expenditures relating to permitting development costs; (2) the treatment of
stock-based compensation expenses, including expenses in connection with stock
option re-pricing; and (3) the treatment of deferred business development costs
Quarterly Information
The table below contains a summary of certain financial information concerning
the Corporation for each of the eight quarters for the financial years ended
December 31, 2002 and 2001.
Fiscal year ended December 31, 2002
(unaudited)
Three months Three months Three months Three months
ended ended ended ended
March 31, 2002 June 30, 2002 September 30, 2002 December 31, 2002
Sales $13,023 $ 7,594 $ 9,209 $20,028
Net earnings $ 3,661 $ 1,119 $ 2,306 $ 5,457
Basic net earnings per share $ 0.23 $ 0.05 $ 0.14 $ 0.33
Fully diluted net earnings per share $ 0.21 $ 0.04 $ 0.13 $ 0.32
- 19 -
Fiscal year ended December 31, 2001
(unaudited)
Three months Three months Three months Three months
ended ended ended ended
March 31, 2001 June 30, 2001 September 30, 2001 December 31, 2001
Sales $ 2,968 $ 3,931 $ 6,582 $10,429
Net earnings (loss) $ 69 $ 289 $ 1,448 $ 2,921
Basic net earnings per share $ 0.01 $ 0.02 $ 0.10 $ 0.19
Fully diluted net earnings per share $ 0.01 $ 0.02 $ 0.08 $ 0.18
Dividend Policy
For the foreseeable future, BEI intends to retain all earnings, if any, for
general corporate purposes. The payment of dividends in the future will depend
on the earnings and financial conditions of the Corporation and on such other
factors as the Board of Directors of BEI may consider relevant.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained on pages 12
to 19 of BEI's Annual Report for the year ended December 31, 2002, is
incorporated by reference herein.
MARKET FOR SECURITIES
BEI's securities are listed and posted for trading on the Toronto Stock Exchange
under the symbol "BEV", on the American Stock Exchange under the symbol "BEL",
and on the Frankfurt Stock Exchange under symbol "BEW".
- 20 -
DIRECTORS AND OFFICERS
The table below sets forth the name, municipality of residence, position with
BEI and principal occupations within the preceding five years, for each of the
directors and executive officers of BEI, and the period during which each
director has served as a director
Name, Office and
Municipality of Residence Principal Occupation (1) Director Since (2)
------------------------- ------------------------ ------------------
JOHN BENNETT Chief Executive Officer of BEI July, 1992
Chief Executive Officer and Chairman
West Vancouver, British Columbia
PIERRE MEUNIER (3) Partner, Fasken Martineau DuMoulin October, 1997
Director LLP, a law firm
Montreal, Quebec
ADAM LAPOINTE (3) President, Pluri-Capital Inc., a December, 2001
Director venture capital firm
Chicoutimi, Quebec
DAVID WILLIAMS (3) President, Roxborough Holdings Ltd., December, 2001
Director a private investment Corporation
Toronto, Ontario
GEORGE PLODER (3) President of BEI December, 2002
Director
Toronto, Ontario
DANNY C. PONN Vice President and Chief Operating Not applicable
Vice President, Engineering and Officer of BEI
Chief Operating Officer
Oakville, Ontario
RICHARD STERN Chief Financial Officer and Secretary Not applicable
Chief Financial Officer and Secretary of BEI from April 2001 to present;
Toronto, Ontario prior thereto, from 1999
Vice-President and Treasurer of AT&T
Canada, a telecommunications company
ZUL TEJPAR Vice President - Business Development Not applicable
Vice President - Business Development of BEI
Vancouver, British Columbia
----------
(1) Except as otherwise indicated, during the past five years each director
and officer has been engaged in the principal occupations indicated
opposite his name or in other executive capacities with the companies
indicated or with related or affiliated companies.
(2) Each director was elected by the shareholders of the Corporation for a one
year term or until a successor is duly appointed.
(3) Member of Audit Committee.
There are no formal committees of the Board of Directors of BEI other than the
Audit Committee.
- 21 -
As at December 31, 2002, the above directors and executive officers of BEI, as a
group, beneficially owned, directly or indirectly, or exercised control or
direction over an aggregate of 2,246,541 common shares of BEI, representing
approximately 12% of then issued and outstanding common shares, and held
incentive stock options to acquire an 857,100 additional common shares.
ADDITIONAL INFORMATION
One copy of the following documents may be obtained upon request from the
Secretary of Bennett Environmental Inc. at Suite 208, 1540 Cornwall Road,
Oakville, Ontario, Canada L6J 7W5:
(a) this Annual Information Form, together with any document, or the pertinent
pages of any document, incorporated by reference in this Annual
Information Form;
(b) the comparative consolidated financial statements of the Corporation for
its most recently completed financial year for which financial statements
have been filed, together with the accompanying report of the auditors,
and the most recent interim consolidated financial statements of the
Corporation that have been filed, if any, for any period after the end of
the Corporation's most recently completed financial year;
(c) the information circular of the Corporation in respect of its most recent
annual meeting of shareholders that involved the election of directors;
and
(d) any other documents that are incorporated by reference into the
preliminary short form prospectus or the short form prospectus pursuant to
which securities of BEI are in the course of distribution.
Except when securities of BEI are in the course of distribution pursuant to a
short form prospectus or a preliminary short form prospectus, BEI may require
the payment of reasonable charges from persons, other than security holders of
the Corporation, requesting copies of these documents.
Additional information, including directors' and officers' remuneration and
indebtedness to the Corporation, principal holders of the securities of the
Corporation, options to purchase securities and interests of insiders in
material transactions, is contained in BEI's Management Information and Proxy
Circular dated April 7, 2003. Additional financial information is provided in
the Corporation's consolidated financial statements for the year ended December
31, 2002.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Information Form contains certain statements which are
forward-looking, including but not limited to statements which contain words
such as "could", "expect", "believe", "will" and similar expressions and
statements relating to matters that are not historical facts. These
forward-looking statements involve known and unknown risks and uncertainties and
other factors, including those described above under the heading "Risk Factors",
which may cause the actual results, performances or achievements of the
Corporation to be materially different from any future results, performances or
achievements expressed or implied by such forward-looking statements. These
statements include those with respect to the ability of the Corporation to
obtain an adequate supply of contaminated soil for its remediation facilities,
to obtain regulatory
- 22 -
approvals necessary for operating its facilities and to maintain its
intellectual property position, and with respect to anticipated sources and
levels of revenues and expenses. We cannot assure you that we have identified
all the factors that create risks and uncertainties. Readers should not place
undue reliance on forward-looking statements. We have no obligation to publicly
update forward-looking statements we make in this Annual Information Form.
- 23 -
GLOSSARY OF TECHNICAL TERMS
In this Annual Information Form, the following technical terms have the
following meanings:
"bioremediation" - using biological means, such as bacteria or fungus, to clean
contaminants from soil by metabolizing them into simpler compounds.
"chemical oxidation" - using oxidizing chemicals to break down organic
compounds.
"chlorinated hydrocarbons" and "chlorinated organic compounds" - a family of
chemical (hydrocarbon) compounds (including PCBs, PCPs, pesticides and many
solvents) in which hydrogen atoms are replaced with one or more chlorine atoms.
"combustion efficiency" - a measure of how well the Corporation's thermal
oxidizer is converting organic carbon from the contaminant stream into carbon
dioxide.
"destruction and removal efficiency" or "DRE" - a measure of how well the
Corporation's thermal oxidizer is removing and destroying contaminants from the
feed soil.
"dioxins" - a family of cyclic organic compounds with a number of chlorine atoms
ranging from one to 10.
"furans" - a family of organic compounds very similar to dioxins.
"incineration of waste materials" - an incineration process to break down
organic compounds into carbon dioxide and water.
"mercaptan contaminated gas equipment" means equipment used by natural gas
pipeline companies that are contaminated by a pungent, odorous chemical used to
detect natural gas leaks
"organic" - relating to carbon compounds.
"oxidizer" - a term usually taken to mean the loss of electron(s) or oxidation
by combustion.
"PCB" - polychlorinated biphenyl; a group of 10 biphenyl compounds with varying
degrees of chlorination.
"PCP" - penta chloro phenol; a chlorinated organic used for preserving wood.
"ppm" - parts per million.
"retrofitted" - refurbishment of equipment.
"soil remediation" - removal of contaminant(s) found in soil.
"thermal desorption" - low temperature thermal treatment of contaminated soil.
"thermal incineration" - high temperature thermal treatment of contaminated
soil.
"thermal oxidizer" - a proprietary process in which organic contaminants are
oxidized to inert carbon dioxide and water using a thermal process.
- 24 -
"throughput" - thermal oxidizer treatment capacity measured in kilograms per
hour.
- 25 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Years Ended December 31, 2002 and December 31, 2001
ACQUISITION
On September 30, 2002, the Company acquired all of the outstanding common shares
of Material Resource Recovery, Inc. ("MRR"). The financial results of MRR's
operations have been included in the consolidated financial statements since the
date of acquisition. MRR specializes in the destruction of hazardous and
nonhazardous contaminated electrical equipment, construction material and
natural gas storage units. The aggregate purchase price was $61,621. Since
acquisition on September 30, 2002, MRR contributed $1,099,023 to revenue in
2002.
RESULTS OF OPERATIONS
Bennett Environmental Inc. had a net income of $12,542,851 or $0.73 fully
diluted earnings per common share, for the year ended December 31, 2002,
compared to a net income of $4,726,976 or $0.30 fully diluted earnings per
common share for the twelve months ended December 31, 2001. The Company
generated revenues of $48,103,845 for the year ended December 31, 2002, an
increase of $24,681,271 or 105% compared to $23,422,574 in the corresponding
period in 2001. The Company recognizes revenue from short-term soil remediation
and non-hazardous waste disposal contracts when the soil is treated or the
nonhazardous material is received and available for disposal, in accordance with
the terms of the remediation contracts with its customers, which specify the
customer's requirements including treatment and disposal of the soils. Revenue
from long-term, fixed price contracts is recognized on the percentage of
completion method, based on the ratio of costs incurred to date over estimated
total costs.
During 2002, the Company secured sufficient contracts (25 in total) to maintain
the utilization level of the Company's treatment facility in Quebec at a
significantly higher level than the previous year. The Company ended the year
with nearly 55,000 tonnes of soil treated at the facility. The increase in sales
is primarily due to increased sales activity particularly in northeastern United
States and tightening environmental regulations throughout North America. The
Company has invested in its sales and marketing efforts in 2002, and will
continue to invest in this function to establish a stronger presence in the
market. The Company's operating costs during the year ended December 31, 2002
increased by $9,238,008 or 84% from $10,990,627 to $20,228,635 compared to the
corresponding period in the prior year. The majority of this increase in
operating costs can be attributable to the higher utilization of the Company's
treatment facility, due to the increase in sales. The operating margin based on
sales for the year ended December 31, 2002, was 58%, compared to 53% for the
year ended December 31, 2001. The operating margin increased during 2002, as the
Company's fixed costs for non-discretionary expenses such as, plant insurance,
plant salaries and wages for certain operators, and other long-term equipment
rental contracts remained relatively the same, while the volumes of soil
processed at the plant significantly increased. The Company's Business
Development, General and Administration (SG&A) expenses increased by $3,449,582,
or 80%, from $4,337,901 for the year ended December 31, 2001 to $7,787,483 for
the year ended December 31, 2002. This increase in SG&A expenditures during 2002
was a result of the accrual of $1,200,000 for employee incentives in
1
2002 that were not payable in 2001, the consolidation of $383,010 of expenses
from Material Resource Recovery and expenses associated with increased sales and
marketing activities during the year.
LIQUIDITY AND CAPITAL RESOURCES
Operations
At December 31, 2002, the Company had cash and cash equivalents of $19,267,639,
an increase of $16,227,559 compared with $3,040,080 at December 31, 2001. The
Company generated $16,227,559 of cash for its business during the year ended
December 31, 2002, compared with a decrease of cash by ($718,256) during the
corresponding period in 2001. Changes in non-cash working capital balances
increased cash by $7,192,010, during the year ended December 31, 2002, compared
to a cash utilization of ($5,181,200) during the year ended December 31, 2001.
Total working capital including investments at December 31, 2002 was
$19,057,602, compared with $9,293,260 at December 31, 2001.
Investing
The Company utilized cash of $5,531,354 for investment activities during the
year ended December 31, 2002 compared to a cash utilization of $3,878,837 during
the corresponding period of the previous year.
The Company used $3,708,341 of cash for capital expenditures during the year
ended December 31, 2002, compared with a use of cash for capital expenditures of
$2,759,910 in the corresponding period in 2001. The majority of this capital
expenditure was used to increase the size of the storage facilities at the Saint
Ambroise treatment plant in Quebec. This project will be completed during the
first half of 2003. In addition, the Company incurred $1,310,556 of costs
associated with its permitting activities in Kirkland Lake, Ontario and
Belledune, New Brunswick, up from $993,927 incurred in 2001. These permitting
costs for proposed new treatment plants have been capitalized and recorded as
other assets.
During the year investments were made for $300,000 to enter into a joint venture
with Pluri-Capital Inc. for the establishment of a company in Quebec utilizing
an environmentally friendly wood treatment process. In addition, the Company
exercised warrants worth $440,000 to purchase 1,312,000 common shares in
Unisphere Waste Conversion Inc., a tire recycling company in which Bennett has
signed an agreement to purchase fuel by-products.
Financing
The Company announced its intention to renew its Normal Course Issuer Bid on
September 28, 2001. Under the terms of the issuer bid, the Company could
purchase up to 760,210 Common Shares on the Toronto Stock Exchange until October
2, 2002. During the year ended December 31, 2002, the Company repurchased 68,800
common shares for $892,671 from the Normal Course Issuer Bid that has now
expired. The Company has no plans at this time to renew a Normal Course Issuer
Bid program in 2003.
In addition, during the year ended December 31, 2002, the Company decreased its
long-term debt (including current portion) by $1,956,988, compared with a
decrease of long-term debt of $226,936 during the corresponding period in 2001.
The current portion of the outstanding loan from IT Corporation stands at
$1,286,033 and the long-term portion of this non-interest bearing loan is
$829,434. During the year an agreement was signed to settle the loan due to
Western Economic Diversification Canada for $10,000 and the settlement amount
has been recorded as other income.
2
The Company's net working capital position should be sufficient to meet the
Company's obligations and capital requirements for the next twelve months. The
Company has no plans to raise additional capital at this time.
FUTURE INCOME TAXES
The Company became fully taxable as of the end of 2001 and has used all tax loss
carry forwards. In 2000, the Company adopted new recommendations of The Canadian
Institute of Chartered Accountants ("CICA") for the accounting for income taxes.
The new standard requires the use of the assets and liability method for
accounting for income taxes. The future income tax liability has been calculated
at $895,738 for the year. This balance will be paid in future years.
IMPACT OF INFLATION AND CHANGING FUEL PRICES
The Company uses propane as fuel for its incinerator, and is therefore exposed
to fluctuations in fuel prices. During the year 2002, the market price for fuel
(propane) decreased by an average of $0.02 per liter, from an average of $0.26
per liter in 2001 to an average of $0.24 per liter. Towards the end of 2002,
propane prices were on the increase and the Company is contemplating strategies
to hedge against increasing fuel prices and will consider implementing hedging
strategies when appropriate.
Years Ended December 31, 2001 and December 31, 2000
RESULTS OF OPERATIONS
Bennett Environmental Inc. had a net income of $4,726,976 or $0.30 fully diluted
per share, for the year ended December 31, 2001, compared to a net loss of
($2,258,314) or ($0.15) fully diluted loss per share for the twelve months ended
December 31, 2000. The Company generated revenues of $23,422,574 for the year
ended December 31, 2001, an increase of $15,456,000 or 194% compared to
$7,966,574 in the corresponding period in 2000. The Company recognized revenue
when the soil is treated or services are performed in accordance with the terms
of the remediation contracts with its customers, which specify the customer's
requirements including treatment and disposal of the soils.
During 2001, the Company secured sufficient contracts (21 in total) to maintain
the utilization level of the Company's treatment facility in Quebec at a
significantly higher level than the previous year. The Company ended the year
with nearly 18,000 tonnes of untreated soil in backlog at the treatment
facility. This increase in sales is primarily due to strategic partnerships with
leading US environmental site remediation companies and increased focus on the
US market. The Company has invested in its sales and marketing efforts in 2001,
and will continue to invest in this function to establish a stronger presence in
the market.
The Company's operating costs during the year ended December 31, 2001 increased
by $6,107,015, or 125% from $4,883,612 to $10,990,627, compared to the
corresponding period in the prior year. The majority of this increase in
operating costs can be attributable to the higher utilization of the Company's
treatment facility, due to the increase in sales. The operating margin
3
based on sales for the year ended December 31, 2001, was 53%, compared to 39%
for the year ended December 31, 2000. The operating margin increased during
2001, as the Company's fixed costs for non-discretionary expenses such as
insurance, plant salaries and wages for certain operators, and other long-term
equipment rental contracts remained the same, while the volumes of soil
processed at the plant significantly increased. In addition, the operating
margins increased as a result of lower fuel (propane) costs, which decreased by
an average of $0.06 per liter, from an average of $0.32 per liter in 2000 to
$0.26 per liter for 2001.
The Company's Business Development, General and Administration (SG&A) expenses
decreased by $655,539, or 13%, from $4,993,440 for the year ended December 31,
2000 to $4,337,901 for the year ended December 31, 2001. This decrease in SG&A
expenditures during 2001 was a result of write-offs made in 2000 of costs for
potential acquisitions and bad debts and provisions made to accrue for the costs
of moving its corporate head office to Toronto, Ontario from Vancouver, B.C.
During the year ended 2000, the Company wrote off costs associated with
abandoned acquisition costs and bad debts totaling $752,804. The write-offs
included $461,247, written off during 2000 when the Company decided to abandon
its potential acquisitions, included in the write off was $371,163 for costs
associated with the potential acquisition of a site in West Virginia, where the
Company had intended to establish a thermal treatment facility. The Company
decided that due to regulatory hurdles associated with the permitting and
changing the land use for the site, and the current limited market in the U.S.
for the incineration of PCB contaminated soils, it would not proceed with the
acquisition and development of the site. Consequently, the Company wrote off all
capitalized costs associated with that project. In addition, during the year
ended 2000, the Company wrote off $291,557 of its accounts receivable. Included
in the write off was $262,021 owed to the Company by one customer, which was
written off pursuant to a negotiated settlement in the second quarter. As a
result of the decision to move the Company's head office a provision of $280,000
was accrued during 2000 and included in SG&A.
The net increase in SG&A, after one time charges incurred in 2000, was $377,265,
attributable to the significant investment made by the Company to strengthen its
management team and to increase its sales and marketing efforts.
Interest expenses incurred during the year, increased by $165,710 from $62,715
to $228,425 as a result of the use of an imputed interest rate calculated into
the loan due to IT Corp. on vendor financed equipment.
LIQUIDITY AND CAPITAL RESOURCES
Operations
At December 31, 2001, the Company had cash and cash equivalents of $3,040,080, a
decrease of $718,256 compared with $3,758,336 at December 31, 2000. The Company
generated $7,328,299 of cash for its business during the year ended December 31,
2001, compared with ($1,022,073) of cash utilized from operations during the
corresponding period in 2000. Changes in non-cash working capital balances
utilized cash of $5,181,200, during the year ended December 31, 2001, compared
to a cash utilization of $1,888,650 during the year ended December 31, 2000.
Total working capital at December 31, 2001 was $9,168,260, compared with
$5,381,735 at December 31, 2000.
Investing
4
The Company utilized cash of $3,878,837 for investment activities during the
year ended December 31, 2001 compared to a cash utilization of $6,797,020 during
the corresponding period of the previous year.
The Company used $2,759,910 of cash for capital expenditures during the year
ended December 31, 2001, compared with a use of cash for capital expenditures of
$5,925,047 in the corresponding period in 2000. The majority of this capital
expenditure was used to change out the kiln at our treatment facility in Quebec
in October 2001. Of the total capital expenditures during the year ended
December 31, 2000, $ 4,598,240 was used to acquire thermal treatment equipment
from IT Corp. In addition, the Company incurred $993,927 of costs associated
with its permitting activities in Kirkland Lake, Ontario, up from $871,973
incurred in 2000. These permitting costs for Kirkland Lake have been capitalized
and recorded as other assets.
Financing
The Company announced its intention to renew its Normal Course Issuer Bid on
September 28, 2001. Under the terms of the issuer bid, the Company could
purchase up to 760,210 Common Shares on the Toronto Stock Exchange until October
2, 2002. During the year ended December 31, 2001, the Company repurchased 35,200
common shares from the Normal Course Issuer Bid that was announced on July 7,
2000 and expired on July 6, 2001.
In addition, during the year ended December 31, 2001, the Company decreased its
long-term debt (including current portion) by $226,936, compared with an
increase of long-term debt of $3,064,111 during the corresponding period in
2000. The Company repaid long-term debt of $226,936 during the year compared
with a repayment of long-term debt of $425,569 in the previous year. Of the
Company's remaining long-term debt, $116,390 is repayable only if the Company
sells kilns, which the Company currently has no plans to do.
The Company's net working capital position should be sufficient to meet the
Company's obligations and capital requirements for the next twelve months. The
Company has no plans to raise additional capital at this time.
FUTURE INCOME TAXES
The Company became fully taxable as of the end of the year and has used all tax
loss carry forwards. In 2000, the Company adopted new recommendations of The
Canadian Institute of Chartered Accountants ("CICA") for the accounting for
income taxes. The new standard requires the use of the assets and liability
method for accounting for income taxes. The future income tax liability has been
calculated at $1,077,525 for the year. This balance will be paid in future
years.
IMPACT OF INFLATION AND CHANGING FUEL PRICES
The Company uses propane as fuel for its incinerator, and is therefore exposed
to fluctuations in fuel prices. During the year 2001, the market price for fuel
(propane) decreased by an average of $0.06 per liter, from an average of $0.32
per liter in 2000 to an average of $0.26 per liter. The Company has not
implemented any strategies to hedge against increasing fuel prices, but it will
consider implementing hedging strategies when appropriate.
5
Consolidated Financial Statements
(Expressed in Canadian dollars)
BENNETT ENVIRONMENTAL INC.
Years ended December 31, 2002, 2001 and 2000
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The 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 four 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.
/s/ John Bennett /s/ Rick Stern
Chief Executive Officer Chief Financial Officer
January 23, 2003
kpmg
KPMG LLP Telephone (604) 691-3000
Chartered Accountants Telefax (604) 691-3031
Box 10426, 777 Dunsmuir Street www.kpmg.ca
Vancouver BC V7Y 1K3
Canada
AUDITORS' REPORT
To the Board of Directors of Bennett Environmental Inc.
We have audited the consolidated balance sheets of Bennett Environmental Inc. as
at December 31, 2002 and 2001 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three year period ended
December 31, 2002. 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.
With respect to the consolidated financial statements for the year ended
December 31, 2002, we conducted our audit in accordance with Canadian generally
accepted auditing standards. For the years ended December 31, 2001 and 2000, we
conducted our audit in accordance with Canadian generally accepted auditing
standards and auditing standards generally accepted in the United States of
America. 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 consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and the cash flows for each of the
years in the three year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles.
KPMG LLP (signed)
Chartered Accountants
Vancouver, Canada
January 23, 2003
COMMENTS BY AUDITOR ON CANADA - UNITED STATES REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Company's financial statements, such as the changes described in Note
2(a) to the financial statements. Our report to the board of directors dated
January 23, 2003 is expressed in accordance with Canadian reporting standards,
which do not require a reference to such a change in accounting principles in
the auditors' report when the change is properly accounted for and adequately
disclosed in the financial statements.
KPMG LLP (signed)
Chartered Accountants
Vancouver, Canada
January 23, 2003
KPMG LLP, a Canadian owned limited liability partnership
established under the laws of Ontario, is the Canadian member firm
of KPMG International, a Swiss nonoperating association.
BENNETT ENVIRONMENTAL INC.
Consolidated Balance Sheets
(Expressed in Canadian dollars)
December 31, 2002 and 2001
==========================================================================================
2002 2001
------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 19,267,639 $ 3,040,080
Accounts receivable 12,505,945 9,810,018
Work-in-progress 411,051 1,703,057
Prepaid expenses and other 1,177,214 153,222
-------------------------------------------------------------------------------------
33,361,849 14,706,377
Investments (note 3) 851,395 125,000
Property, plant and equipment (note 5) 14,263,408 12,008,247
Other assets (note 6) 3,261,384 1,950,828
Goodwill (note 6) 646,638 646,638
------------------------------------------------------------------------------------------
$ 52,384,674 $ 29,437,090
==========================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 7,978,096 $ 3,266,594
Income taxes payable 5,862,523 1,092,581
Current portion of long-term debt 1,315,023 1,178,942
-------------------------------------------------------------------------------------
15,155,642 5,538,117
Future income tax liability (note 9) 895,738 1,077,525
Long-term debt (note 7) 829,434 2,146,017
Shareholders' equity:
Share capital (note 8) 23,882,001 20,820,249
Retained earnings (deficit) 11,621,859 (144,818)
-------------------------------------------------------------------------------------
35,503,860 20,675,431
------------------------------------------------------------------------------------------
$ 52,384,674 $ 29,437,090
==========================================================================================
Commitments (note 13)
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
/s/ John Bennett Director /s/ David Williams Director
----------------------- -------------------------
1
BENNETT ENVIRONMENTAL INC.
Consolidated Statements of Operations and Retained Earnings (Deficit)
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
==================================================================================================================
2002 2001 2000
------------------------------------------------------------------------------------------------------------------
Sales $ 48,103,845 $ 23,422,574 $ 7,966,574
Expenses:
Operating costs 20,228,635 10,990,627 4,883,612
Administration and business development 7,787,483 4,337,901 4,993,440
Amortization 1,398,449 1,070,499 1,038,943
Interest expense 214,934 228,425 62,715
Foreign exchange -- 86,861 3,993
-------------------------------------------------------------------------------------------------------------
29,629,501 16,714,313 10,982,703
------------------------------------------------------------------------------------------------------------------
Earnings (loss) before undernoted 18,474,344 6,708,261 (3,016,129)
Interest and other income 1,749,799 487,377 741,242
------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 20,224,143 7,195,638 (2,274,887)
Income tax expense (recovery) (note 9):
Current 7,115,875 1,068,919 (13,162)
Future 565,417 1,399,743 (3,411)
-------------------------------------------------------------------------------------------------------------
7,681,292 2,468,662 (16,573)
------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 12,542,851 4,726,976 (2,258,314)
Deficit, beginning of year (144,818) (4,806,590) (1,715,835)
Share purchase in excess of assigned value
(note 8(d)) (776,174) (65,204) (832,441)
------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit), end of year $ 11,621,859 $ (144,818) $ (4,806,590)
==================================================================================================================
Basic earnings (loss) per share (note 11) $ 0.78 $ 0.31 $ (0.15)
==================================================================================================================
Fully diluted earnings (loss) per share (note 11) $ 0.73 $ 0.30 $ (0.15)
==================================================================================================================
See accompanying notes to consolidated financial statements.
2
BENNETT ENVIRONMENTAL INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
======================================================================================================================
2002 2001 2000
----------------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings (loss) $ 12,542,851 $ 4,726,976 $ (2,258,314)
Items not involving cash:
Unrealized foreign exchange gain 304,074 -- --
Loan settlement (note 7(b)) 106,390 -- --
Amortization 1,398,449 1,070,499 1,038,943
Write-off of acquisition costs -- -- 374,808
Equity investment loss 13,605 -- --
Non-employee stock-based compensation 18,113 -- --
Loss on disposal of assets 54,731 17,366 2,696
Future income taxes (181,787) 1,399,743 (3,411)
-----------------------------------------------------------------------------------------------------------------
14,256,426 7,214,584 (845,278)
Changes in non-cash working capital:
Accounts receivable (1,646,264) (6,805,104) (743,382)
Work-in-progress 1,292,006 (1,637,479) (65,578)
Income taxes receivable -- 355,000 (355,000)
Prepaid expenses and other (1,023,992) 59,972 (139,760)
Accounts payable and accrued liabilities 3,800,318 1,753,830 (413,863)
Income taxes payable 4,769,942 1,092,581 (171,067)
-------------------------------------------------------------------------------------------------------------
7,192,010 (5,181,200) (1,888,650)
-----------------------------------------------------------------------------------------------------------------
21,448,436 2,033,384 (2,733,928)
Investments:
Investments (740,000) -- --
Purchase of property, plant and equipment (3,708,341) (2,759,910) (5,925,047)
Increase in deferred business development
costs -- (125,000) --
Increase in permitting costs (1,310,556) (993,927) (871,973)
MRR acquisition, net of cash received of
$289,164 (note 4) 227,543 -- --
-----------------------------------------------------------------------------------------------------------------
(5,531,354) (3,878,837) (6,797,020)
Financing:
Increase in long-term debt -- -- 3,064,111
Repayments of long-term debt (1,956,988) (226,936) (602,364)
Share capital, issued for cash 3,160,136 1,487,273 826,390
Repurchase of share capital (892,671) (133,140) (1,290,362)
-----------------------------------------------------------------------------------------------------------------
310,477 1,127,197 1,997,775
----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 16,227,559 (718,256) (7,533,173)
Cash and cash equivalents, beginning of year 3,040,080 3,758,336 11,291,509
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 19,267,639 $ 3,040,080 $ 3,758,336
======================================================================================================================
Supplementary disclosure of cash flow information:
Cash paid for:
Interest paid $ 71,944 $ 228,425 $ 15,664
Income taxes paid 1,255,117 19,512 261,100
======================================================================================================================
See accompanying notes to consolidated financial statements.
3
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
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. (note 4)
which carries on the business of remediating hazardous and non-hazardous
contaminated electrical equipment, construction material, and natural gas
storage units.
2. Significant accounting policies:
(a) Changes in accounting policies:
(i) Stock-based compensation:
Effective January 1, 2002, the Company adopted the new
recommendations of The Canadian Institute of Chartered
Accountants Handbook Section 3870, Stock-based Compensation
and Other Stock-based Payments. The new recommendations are
applied prospectively to all stock-based payments to employees
and non-employees granted on or after January 1, 2002. The
change in accounting policy did not result in any adjustment
to the Company's opening deficit balance.
The Company accounts for all stock-based payments to
non-employees granted on or after January 1, 2002, 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.
The Company has elected to account for stock options issued to
employees and directors by the settlement method which results
in no compensation expense for the Company's stock-based
employee compensation awards. Consideration paid by employees
on the exercise of stock options is recorded as share capital.
The Company discloses in note 8(e) the pro forma effect of
accounting for stock options awarded to employees as if the
fair value based method had been used.
4
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
2. Significant accounting policies (continued):
(a) Changes in accounting policies (continued):
(ii) Goodwill and other intangible assets:
On January 1, 2002, the Company adopted the provisions of the
new Canadian Institute of Chartered Accountants Handbook
Section 3062 ("CICA 3062"), Goodwill and Other Intangible
Assets. Under CICA 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.
The Company has identified one reporting unit. The Company
performed the transitional and year-end impairment tests on
goodwill. The goodwill was determined not to be impaired as at
January 1, 2002 and December 31, 2002.
(b) Basis of consolidation:
The consolidated financial statements include the accounts of the
Company's wholly-owned subsidiaries, Bennett Remediation Services
Ltd. ("BRS"), Bennett RemTech Ltd. ("BRT"), Bennett Environmental
U.S., Inc. ("BEIUS"), Recupere Sol Inc. ("RSI") and Material
Resource Recovery, Inc. ("MRR"). All material related 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 other assets,
and the valuation of future income tax balances. Other areas
requiring the use of estimates include long-term debt, accrued
liabilities 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.
5
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
2. Significant accounting policies (continued):
(e) Work-in-progress:
Work-in-progress relates to costs incurred to ship untreated soil to
the treatment facility and other treatment costs for soil for which
has treatment is not complete. These amounts will be expensed when
the related treatment of the related soil is complete.
(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 investees. If a permanent impairment in value is determined, a
provision is recognized.
(g) Property, plant and equipment:
Property, plant and equipment are recorded at cost. Amortization is
not taken until the asset has been put into use by the Company. The
Company periodically evaluates the recoverability of its property,
plant and equipment based on expected undiscounted cash flows and
recognizes impairments, if any, when the estimated undiscounted
future cash flows are expected to be less than the carrying value of
the asset. In the year of an impairment in value, the carrying value
of the property, plant and equipment is reduced by a charge to
earnings.
Amortization is provided for using the following methods and annual
rates:
=====================================================================================================
Asset Basis Rate
-----------------------------------------------------------------------------------------------------
Automobiles declining balance 30%
Computer equipment declining balance 30%
Container 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 to 20%
Leasehold improvements straight-line over term of lease term of lease
Software declining balance 100%
Treatment building declining balance 20%
Storage building and pads straight-line 20 years
=====================================================================================================
6
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
2. Significant accounting policies (continued):
(h) Deferred costs:
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.
(i) Revenue recognition:
The Company recognizes revenue from short-term soil remediation and
non-hazardous waste disposal contracts when the soil is treated, or
the non-hazardous material is received and available for disposal,
in accordance with the terms of remediation contracts with its
customers. The Company considers the obligation for the disposal of
the soils or non-hazardous waste as perfunctory, unless a specific
disposal site is indicated in the contract. The Company accrues for
the disposal costs at the time revenue is recognized. If a specific
disposal site is indicated in the contract or the treatment of the
waste relates to environmentally hazardous materials or is otherwise
not considered perfunctory, revenues are deferred until the soil or
hazardous material is disposed.
Revenue from long-term fixed price soil remediation contracts is
recognized on 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 expended costs to be the
best available measure of progress on these contracts. Contract
costs include all direct material and labour costs. Changes in
estimates of contract price, total estimated costs or estimated
losses, if any, are included in the determination of estimated
cumulative revenue and expenses in the period the change is
determined by management.
Deferred revenue represents amounts billed or cash received in
excess of revenue recognized on contracts in progress. Similarly,
accounts receivable include unbilled amounts where revenue
recognized on long-term contracts in progress exceeds the amount
billed to date.
(j) 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.
7
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
2. Significant accounting policies (continued):
(k) Fair value of financial instruments:
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable,
work-in-progress, prepaid expenses, accounts payable and accrued
liabilities and income taxes payable approximate fair values due to
their short maturities. Based on borrowing rates currently available
to the Company for loans with similar terms, the carrying value of
its long-term debt approximates fair value.
(l) Treatment facility costs:
Periodically, the Company conducts a shutdown of its waste
remediation facility to allow for inspection, necessary repairs and
replacements. Estimated non-capital costs associated with these
shutdowns are accrued in the accounts over the term to the next
scheduled shutdown by a charge to operating expenses. Routine
repairs and maintenance are expensed as incurred. Costs are included
in capital assets where they extend the life, increase the capacity,
or improve the safety of an asset.
(m) 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.
(n) Net earnings per share:
Net earnings per share is calculated based on the weighted average
number of common shares outstanding. Fully-diluted earnings per
share is calculated using the treasury stock method.
(o) Comparative figures:
Certain of the comparative figures have been reclassified to conform
with the basis of presentation adopted in the current year.
8
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
3. Investments:
===========================================================================================
2002 2001
-------------------------------------------------------------------------------------------
Investments accounted for using the cost method $440,000 $125,000
Investments accounted for using the equity method, net of
Company's share of net loss 411,395 --
-------------------------------------------------------------------------------------------
$851,395 $125,000
===========================================================================================
4. Acquisition:
On September 30, 2002, the Company acquired all of the outstanding common
shares of Material Resource Recovery, Inc. ("MRR"). The results of MRR's
operations have been included in the consolidated financial statements
since the date of acquisition. MRR specializes in the destruction of
hazardous and non-hazardous contaminated electrical equipment,
construction material, and natural gas storage units. The aggregate
purchase price was $61,621.
The excess of the fair values of the assets and liabilities ("negative
goodwill") acquired over the purchase price was $2,602,940. In accordance
with CICA Handbook Section 1581, Business Combinations, the negative
goodwill was allocated proportionately to eliminate the book value of
certain acquired assets.
The acquisition was accounted for using the purchase method. The following
table summarizes the estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition:
=========================================================================
Cash and cash equivalents $ 289,164
Other current assets 1,163,016
Property, plant and equipment 2,489,586
Future income tax asset 747,204
-------------------------------------------------------------------------
Total assets acquired 4,688,970
Current liabilities 1,278,111
Long-term liabilities 746,298
-------------------------------------------------------------------------
2,024,409
Net assets acquired 2,664,561
Allocation of negative goodwill (2,602,940)
-------------------------------------------------------------------------
$ 61,621
=========================================================================
Consideration:
Cash $ 16
Expenses 61,605
-------------------------------------------------------------------------
$ 61,621
=========================================================================
9
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
5. Property, plant and equipment:
==========================================================================================================================
2002 2001
--------------------------------------------------------------------------------------------------------------------------
Accumulated Net book Accumulated Net book
Cost amortization value Cost amortization value
--------------------------------------------------------------------------------------------------------------------------
Automobiles $ 27,690 $ 16,918 $ 10,772 $ 59,377 $ 44,318 $ 15,059
Computer equipment 314,106 170,165 143,941 275,837 117,672 158,165
Container 1,000,000 166,667 833,333 -- -- --
Furniture and equipment 690,010 301,751 388,259 508,555 238,707 269,848
Kiln - AGT 800,000 687,379 112,621 800,000 659,223 140,777
Kiln - RSI 5,914,085 2,655,865 3,258,220 5,777,063 2,071,784 3,705,279
Kiln - Kirkland 3,145,376 -- 3,145,376 3,108,118 -- 3,108,118
Land 83,579 -- 83,579 43,671 -- 43,671
Land improvements 64,872 23,406 41,466 29,467 18,637 10,830
Leasehold improvements 58,322 46,257 12,065 58,322 37,825 20,497
Software 156,293 116,271 40,022 77,089 67,603 9,486
Treatment building 1,000,406 93,713 906,693 389,999 68,646 321,353
Treatment equipment 2,478,255 1,557,546 920,709 2,490,538 1,376,137 1,114,401
Storage building and pads 4,916,917 550,565 4,366,352 3,500,543 409,780 3,090,763
--------------------------------------------------------------------------------------------------------------------------
$20,649,911 $ 6,386,503 $14,263,408 $17,118,579 $ 5,110,332 $12,008,247
==========================================================================================================================
6. Goodwill and other assets:
=========================================================================
2002 2001
-------------------------------------------------------------------------
Goodwill $ 1,796,210 $ 1,796,210
Accumulated amortization (1,149,572) (1,149,572)
-------------------------------------------------------------------------
Goodwill, net of amortization $ 646,638 $ 646,638
=========================================================================
Other assets:
Deferred permitting costs (note 2(h)) $ 3,261,384 $ 1,950,828
=========================================================================
In accordance with CICA 3062, the Company ceased amortizing goodwill on
January 1, 2002 (note 2(a)(ii)).
10
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
7. Long-term debt:
(a) Long-term debt comprises of the following:
==========================================================================================
2002 2001
------------------------------------------------------------------------------------------
Western Economic Diversification Canada loan, non-interest
bearing, settled during the year $ 10,000 $ 116,390
Note payable, bearing interest at prime rate plus 1%,
payable in monthly instalments of $833, repaid
during the year -- 8,357
Mortgage payable, interest at 7.95%, payable in monthly
instalments of $2,513 including interest, repaid
during the year -- 24,342
Capital lease obligation, payable in monthly instalments
of $609, due in October 2005 18,990 --
Loan due to IT Corp, payable in quarterly amounts of
$151,568 (US$ 100,000) commencing April 1, 2001,
plus $757,840 (US$ 500,000) on or before April 1,
2006 if the Company receives the specified volume
requirements per the thermal treatment agreement
from IT Corp. 2,115,467 2,988,810
Other long-term debt -- 187,060
------------------------------------------------------------------------------------------
2,144,457 3,324,959
Current portion of long-term debt 1,315,023 1,178,942
------------------------------------------------------------------------------------------
$ 829,434 $2,146,017
==========================================================================================
(b) During the year, an agreement was signed to settle the loan due to
Western Economic Diversification Canada for $10,000. The difference
between the balance at December 31, 2001 and the settlement amount
has been recorded as other earnings.
(c) The loan due to IT Corp. is payable in 20 quarterly instalments of
U.S. $100,000, beginning April 1, 2001, and an instalment of U.S.
$500,000 on or before April 1, 2006 once certain conditions are met
by IT Corp. The loan bears no stated interest. The effective
interest rate was determined to be 7% at the inception of the loan.
In 2000, the Company and IT Corp. entered into a contaminated soil
supply agreement. Payments due under the loan may be reduced if IT
Corp. does not meet the terms specified under the supply agreement.
(d) The Company has provided a $100,000 guarantee over certain debts of
a subsidiary.
11
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
8. 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.
(b) On July 9, 2002, pursuant to shareholders' consent received at the
2001 annual general meeting, the Company completed a subdivision of
its common shares on a 3-for-2 basis. All share and per share
figures in these consolidated financial statements have been
restated to give effect to this split.
(c) The issued share capital of the Company is as follows:
============================================================================================
Common Amount
--------------------------------------------------------------------------------------------
Balance at December 31, 1999 15,260,230 $ 19,032,443
Issued during the year ended December 31, 2000 for:
Exercise of options 3,865 10,051
Exercise of warrants 230,156 816,340
Shares repurchased and cancelled (391,650) (396,290)
--------------------------------------------------------------------------------------------
15,102,601 19,462,544
Shares repurchased for cancellation (48,150) (61,632)
--------------------------------------------------------------------------------------------
15,054,451 19,400,912
Issued during the year ended December 31, 2001 for:
Exercise of options 319,385 778,375
Exercise of warrants 223,206 708,898
Shares repurchased and cancelled (52,800) (67,936)
--------------------------------------------------------------------------------------------
Balance at December 31, 2001 15,544,242 20,820,249
Issued during the year ended December 31, 2002 for:
Exercise of options 1,033,297 3,160,136
Shares repurchased and cancelled (68,800) (98,384)
--------------------------------------------------------------------------------------------
Balance at December 31, 2002 16,508,739 $ 23,882,001
============================================================================================
(d) The Company was authorized by its Board of Directors to repurchase
up to 760,211 shares of its outstanding common shares until October
2, 2002. During 2002, the Company repurchased and subsequently
cancelled 68,800 (2001 - 52,800; 2000 - $391,650) of its common
shares. The excess of the purchase price over the weighted average
cost of common shares at the time of repurchase was recorded as an
adjustment to first any paid-in capital and the remainder to
retained earnings. Retained earnings and paid-in capital were
reduced by $776,174 and $18,113 (2001 - $65,204 and nil; 2000 -
$832,441 and nil), respectively.
12
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
8. Share capital (continued):
(e) Stock option plan:
The Company has reserved 5,096,325 common shares for future issuance
under its Stock Option Plan ("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.
Stock option activity for 2002, 2001 and 2000 is presented below:
=========================================================================================================
2002 2001 2000
------------------------ ------------------------ ----------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
---------------------------------------------------------------------------------------------------------
Outstanding,
beginning of
year 2,085,750 $ 3.01 1,761,635 $ 3.15 1,255,500 $ 3.37
Granted 889,500 12.21 849,000 3.30 1,035,000 3.17
Exercised (1,033,297) 2.85 (319,385) 2.44 (3,865) 2.60
Cancelled (522,000) 13.06 (205,500) 3.95 (525,000) 3.33
---------------------------------------------------------------------------------------------------------
Outstanding,
end of year 1,419,953 $ 5.67 2,085,750 $ 3.01 1,761,635 $ 3.15
=========================================================================================================
Exercisable,
end of year 924,218 $ 3.50 1,611,750 $ 3.23 1,555,384 $ 3.03
=========================================================================================================
13
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
8. Share capital (continued):
(e) Stock option plan (continued):
The following table summarizes information concerning outstanding
and exercisable options at December 31, 2002:
=====================================================================================================
Options outstanding Options exercisable
----------------------------------------------- -------------------------
Weighted
average Weighted Weighted
remaining average average
contractual exercise exercise
Range of Number life price Number price
exercise prices outstanding (in years) per share exercisable per share
-----------------------------------------------------------------------------------------------------
$ 2.17 - 3.55 821,453 3.06 $ 2.85 696,718 $ 2.73
$ 4.84 - 7.10 285,000 2.61 5.55 205,000 5.25
$ 9.10 - 12.30 238,500 2.87 11.84 22,500 11.71
$17.00 - 17.50 75,000 1.50 17.43 -- --
-----------------------------------------------------------------------------------------------------
1,419,953 2.36 $ 5.67 924,218 $ 3.50
=====================================================================================================
Had compensation expense for the Company's stock-based employee
compensation plan been determined based on the fair value at the
grant dates, the Company's net earnings and earnings per share would
have been increased to the pro forma amounts indicated below:
=======================================================================
Net earnings - as reported $ 12,542,851
Net earnings - pro forma 10,985,013
Basic earnings per common share - as reported 0.78
Basic earnings per common share - pro forma 0.68
Fully diluted earnings per common share - as reported 0.73
Fully diluted earnings per common share - pro forma 0.69
=======================================================================
The fair value of each option is estimated as at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield 0%, expected volatility
65.4%, risk-free interest rate 3.07% and expected average option
term of 1.7 years. The weighted-average fair value of the options
granted to employees during the year ended December 31, 2002 was
$3.13 per option.
14
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
8. Share capital (continued):
(e) Stock option plan (continued):
The Black-Scholes model, used by the Company to calculate option
values, as well as other accepted option valuation models, was
developed to estimate fair value of freely tradable, fully
transferable options without vesting restrictions, which
significantly differs from the Company's stock option awards. These
models also require four highly subjective assumptions, including
future stock price volatility and expected time until exercise,
which significantly affect the calculated values.
9. Income taxes:
Income tax expense (recovery) varies from the amount that would be
computed by applying the Canadian federal and provincial statutory tax
rate of 38.72% (2001 - 39.62%; 2000 - 45.6%) to earnings before income
taxes as shown in the following table:
=======================================================================================
2002 2001 2000
---------------------------------------------------------------------------------------
Combined Canadian federal and provincial
income taxes at expected rate $ 7,830,788 $ 2,850,912 $(1,014,600)
Provincial tax rate difference (557,476) (230,066) 102,178
Permanent and other differences 408,965 438,935 385,701
Change in valuation allowance (985) (591,119) 510,148
---------------------------------------------------------------------------------------
$ 7,681,292 $ 2,468,662 $ (16,573)
=======================================================================================
The Company's wholly-owned subsidiary, MRR has pre-acquisition non-capital
losses carried forward of approximately $1,866,000, which are available to
reduce future years' income for income tax purposes. The expected value of
these losses have been recorded as an asset at the date of acquisition of
MRR.
Non-capital loss carry forwards of MRR expire in:
--------------------------------------------------------------------------
2004 $ 362,000
2005 369,000
2006 48,000
2007 53,000
2008 1,034,000
--------------------------------------------------------------------------
$ 1,866,000
==========================================================================
15
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
9. Income taxes (continued):
The composition of the future tax assets at December 31 is as follows:
==========================================================================
2002 2001
-------------------------------------------------------------------------
Future tax assets:
Capital assets $ -- $ 14,443
Loss carryforwards 615,947 334
Share issue costs 21,456 67,655
Maintenance reserve -- 71,115
-------------------------------------------------------------------------
Total gross future tax assets 637,403 153,547
Valuation allowance -- (985)
-------------------------------------------------------------------------
Net future tax assets 637,403 152,562
Future tax liabilities:
Capital assets 339,475 407,644
Deferred permitting costs 1,193,666 822,443
---------------------------------------------------------------------
1,533,141 1,230,087
-------------------------------------------------------------------------
Net future income tax assets (liabilities) $ (895,738) $(1,077,525)
==========================================================================
Management believes that realization of the net future tax assets is more
likely than not. The ultimate realization of future tax assets is
dependent upon the generation of future taxable income during the periods
in which temporary differences become deductible. Management considered
projected future taxable income and tax planning strategies in making
their assessment.
10. Related party transactions:
During the year ended December 31, 2002, the Company expensed management
fees of $177,719 (2001 - $189,975; 2000 - $262,867) to a company owned by
a director and officer of the Company.
During the year ended December 31, 2002, the company expensed legal fees
of $75,015 (2001 - $222,503; 2000 - $144,618) to the Company's legal
counsel, of which one of the partners is a director of the Company.
These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
16
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
11. Earnings (loss) per share:
Basic earnings (loss) per share is calculated based upon the weighted
average number of voting common shares outstanding during the year, which
was 16,181,653 (2001 - 15,158,054; 2000 - 15,403,282).
Fully diluted earnings (loss) per share reflects the dilutive effect of
the conversion of the stock options and warrants outstanding at the end of
the year or those items exercised or converted during the year, as if they
had been exercised or converted at the beginning of the year or the date
issued, if later. The number of shares used for the calculation of the
fully diluted earnings (loss) per share is 17,258,607 (2001 - 15,566,712;
2000 - 15,403,282) based on application of the treasury stock method.
The reconciliation of the net earnings and weighted average number of
common shares used to calculate basic and diluted earnings per common
share is as follows:
==================================================================================================================
2002 2001 2000
------------------------------------------------------------------------------------------------------------------
Net Net Net
earnings Number of earnings Number of earnings Number of
(loss) shares (loss) shares (loss) shares
------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $12,542,851 16,181,653 $4,726,976 15,158,054 $(2,258,314) 15,403,282
Dilutive effect of
stock options -- 1,076,954 -- 408,658 -- --
------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss)
per common share $12,542,851 17,258,607 $4,726,976 15,566,712 $(2,258,314) 15,403,282
==================================================================================================================
Options aggregating 75,000 (2001 - 307,500; 2000 - 1,761,635) have not
been included in the computation of diluted earnings per common share as
they were anti-dilutive.
12. Financial instruments:
(a) Foreign exchange risk management:
A substantial amount of the Company's revenues have been recognized
in currencies other than the Canadian dollar, principally the United
States dollar. Fluctuations in the exchange rates between these
currencies and the Canadian dollar could have a material effect on
the Company's business, financial condition and results of
operations. The Company attempts to mitigate some of this risk by
denominating many of its payment obligations in United States
dollars, and, to a lesser extent, through the use of currency
derivative contracts. There were no such derivative contracts in
place at December 31, 2002.
17
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
12. Financial instruments (continued):
(b) Concentration of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. As
at December 31, 2002, two customers represented 76% of outstanding
accounts receivable (2001 - 71%). Management is of the opinion that
any risk of accounting loss is significantly reduced due to the
financial strength of its customers. The Company performs ongoing
credit evaluations of its customers' financial condition and
requires letters of credit or other guarantees whenever deemed
necessary.
13. Commitments:
Future minimum annual rental payments for operating leases are
payable over the next five years and thereafter as follows:
===================================================================
Year ending December 31:
2003 $ 214,719
2004 160,172
2005 129,826
2006 127,788
2007 42,596
Thereafter --
-------------------------------------------------------------------
$ 675,101
===================================================================
14. Segmented information:
(a) Geographic information:
The Company operates and manages its business in a single reporting
operating segment, the business of remediating contaminated soil and
other waste materials. Sales during the year to customers domiciled
in the United States amounted to $36,531,708 (2001 - $14,130,155;
2000 - $5,004,293) and in Canada amounted to $11,572,137 (2001 -
$9,292,419; 2000 - $2,962,281).
(b) Major customers:
For the year ended December 31, 2002, revenues from two customers,
Customer A and Customer B represented approximately 74% and 11%,
respectively of total revenues. (2001 - one customer 54%; 2000 - one
customer 36%).
18
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. United States generally accepted accounting principles ("U.S. GAAP")
reconciliation:
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada ("Canadian GAAP")
which differ in certain respects from those principles and practices that
the Company would have followed had its consolidated financial statements
been prepared in accordance with generally accepted accounting principles
in the United States ("U.S. GAAP") as summarized below:
(a) Earnings (loss) and earnings (loss) per share:
================================================================================================================
2002 2001 2000
----------------------------------------------------------------------------------------------------------------
Net earnings (loss) in accordance with Canadian GAAP $ 12,542,851 $ 4,726,976 $ (2,258,314)
Compensation expense (d) (1,739,752) (731,723) (353,904)
Deferred permitting costs (e) (1,310,556) (909,000) (956,901)
Deferred business development costs (f) -- (125,000) --
Future income tax recovery on U.S. GAAP adjustments (g) 371,223 395,665 391,015
----------------------------------------------------------------------------------------------------------------
Net earnings (loss) in accordance with U.S. GAAP $ 9,863,766 $ 3,356,918 $ (3,178,104)
================================================================================================================
Basic earnings (loss) per share in accordance with U.S. GAAP $ 0.61 $ 0.22 $ (0.21)
================================================================================================================
Diluted earnings (loss) per share in accordance with U.S. GAAP $ 0.57 $ 0.22 $ (0.21)
================================================================================================================
Weighted average shares outstanding (note 11):
Basic 16,181,653 15,158,054 15,403,282
Fully diluted 17,258,607 15,566,712 15,403,282
================================================================================================================
(b) Balance sheet:
The amounts in the consolidated balance sheets that differ
significantly from those reported under Canadian GAAP are as
follows:
============================================================================================
Other
assets and All other Total
investments assets assets
--------------------------------------------------------------------------------------------
Assets in accordance with Canadian
GAAP as at December 31, 2002 $ 4,112,779 $48,271,895 $ 52,384,674
U.S. GAAP adjustments (3,386,384) -- (3,386,384)
--------------------------------------------------------------------------------------------
$ 726,395 $48,271,895 $ 48,998,290
============================================================================================
19
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. United States generally accepted accounting principles ("U.S. GAAP")
reconciliation (continued):
(b) Balance sheet (continued):
=======================================================================================================
Other
assets and All other Total
investments assets assets
-------------------------------------------------------------------------------------------------------
Assets in accordance with Canadian
GAAP as at December 31, 2001 $ 2,075,828 $ 27,361,262 $ 29,437,090
U.S. GAAP adjustments (2,075,828) -- (2,075,828)
-------------------------------------------------------------------------------------------------------
$ -- $ 27,361,262 $ 27,361,262
=======================================================================================================
=======================================================================================================
2002 2001
-------------------------------------------------------------------------------------------------------
Liabilities in accordance with Canadian GAAP
as at December 31, 2002 $ 16,880,814 $ 8,761,659
Future income tax recovery on current year U.S.
GAAP adjustments (g) (1,193,666) (822,443)
-------------------------------------------------------------------------------------------------------
$ 15,687,148 $ 7,939,216
=======================================================================================================
=======================================================================================================
2002 2001
-------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with Canadian GAAP $ 35,503,860 $ 20,675,431
Deferred permitting and business development costs
(e) and (f) (2,192,718) (1,253,385)
-------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with U.S. GAAP $ 33,311,142 $ 19,422,046
=======================================================================================================
=======================================================================================================
2002 2001
-------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with U.S. GAAP
is comprised of:
Share capital $ 27,545,094 $ 23,169,204
Additional paid-in capital (d) and (e) 1,851,107 1,297,263
Deferred compensation expense (d) (227,613) (99,383)
Accumulated retained earnings (deficit) 4,142,554 (4,945,038)
-------------------------------------------------------------------------------------------------------
$ 33,311,142 $ 19,422,046
=======================================================================================================
20
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. United States generally accepted accounting principles ("U.S. GAAP")
reconciliation (continued):
(c) Statement of cash flows:
Under United States GAAP, cash provided by operations would decrease
by $939,933 (2001 - $723,262; 2000 - $480,958), and cash applied to
investing would decrease by $1,310,556 (2001 - $1,118,927; 2000 -
$871,973) for the costs of deferred permitting and business
development, which would be expensed as incurred under United States
GAAP.
(d) Stock-based compensation:
(i) For United States GAAP purposes, the Company accounts for its
employee stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees and
related interpretations. As such, compensation expense under
fixed plans is recorded on the grant date only if the market
price of the Company's stock at that date exceeds the exercise
price. Variable accounting is required to be applied if the
exercise price of outstanding fixed stock options is reduced.
Under variable accounting, the compensation expensed is
remeasured based on the option's intrinsic value at each
reporting date until the date the award is exercised,
forfeited or expires unexercised with changes in the intrinsic
value recorded in the measurement of net income. For Canadian
GAAP purposes the Company accounts for the issuance of stock
options, whether made under a fixed or variable plan, to
employees and directors by the settlement method which results
in no compensation expense for the Company's stock-based
employee compensation awards. Consideration paid by employees
or directors on the exercise of stock options is recorded as
share capital (note 2(a)(i)).
Accounting for employee stock options under U.S. GAAP would
result in additional compensation expense and a corresponding
increase in additional paid-in capital of $1,660,246 (2001 -
$547,225; 2000 - $6,882).
21
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. United States generally accepted accounting principles ("U.S. GAAP")
reconciliation (continued):
(d) Stock-based compensation (continued):
(ii) Under United States GAAP, the issue of stock options and
warrants to non-employees is accounted for under Statement of
Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"). The Company recognizes
compensation expense for stock options, warrants and other
equity instruments issued to non-employees for services
received based upon the fair value of the services received or
the equity instruments issued, whichever is more reliably
determined. During the year ended December 31, 2002, the
Company adopted the new recommendations of the CICA Handbook
section related to stock-based compensation payments (note
2(a)(i)). Under this new policy, stock options issued to
non-employees after December 31, 2001 are accounted for
consistently with United States GAAP. Therefore, for the year
ended December 31, 2002, the only measurement difference for
non-employees are those carried forward from previous periods
as noted below. The fair value of the stock options and
warrants granted to non-employees during the years ended
December 31, 2001 and 2000 was estimated on the date of grant
using the Black-Scholes option-pricing model and the following
weighted-average assumptions:
==============================================================
2001 2000
--------------------------------------------------------------
Expected volatility 74.1% 63.0%
Risk-free interest rate 4.0% 5.8%
Dividend yield -- --
Expected life of options 3 to 5 years 1 to 5 years
==============================================================
The fair value of the options granted before January 1, 2002
ranged between $0.63 to $2.38 per option. The fair value is
recognized as compensation expense over the service period as
determined by vesting period of the related equity
instruments. Accounting for the non-employee options on this
basis would result in recording additional compensation
expense and share capital of $79,506 (2001 - $184,498; 2000 -
$347,022). The assumptions used in the Black-Scholes
option-pricing model to determine the fair value at December
31, 2002 are described in note 8(e).
(e) Deferred permitting costs:
Under Canadian GAAP the expenditures relating to the acquisition of
an operating permit may be deferred and amortized to expense in a
rational and systematic manner. Under U.S. GAAP these expenditures
are charged to expense when incurred.
22
BENNETT ENVIRONMENTAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. United States generally accepted accounting principles ("U.S. GAAP")
reconciliation (continued):
(f) Deferred business development costs:
Under Canadian GAAP, the expenditures relating to the development of
new business may be deferred and amortized to expense in a rational
and systematic manner. Under U.S. GAAP, these expenditures are
charged to expense when incurred.
(g) Income taxes:
Under Canadian GAAP, future tax assets and liabilities are recorded
at substantially enacted tax rates. Under U.S. GAAP, deferred tax
assets and liabilities are recorded at enacted tax rates. Recording
Canadian future income tax assets and liabilities at enacted tax
rates would not change recorded net income (loss) or shareholders'
equity under U.S. GAAP. The future income tax effect of U.S. GAAP
adjustments has been recorded at the enacted tax rate in the period
of adjustment.
(h) Convertible promissory notes:
In a year prior to the periods presented, the Company issued
convertible promissory notes. Under U.S. GAAP, the beneficial
conversion feature, equal to the aggregate excess of the market
value of the Company's common shares at the date of agreement over
the conversion rate, was recorded as a discount and an addition to
paid-in capital and amortized to interest expense over the period to
the first available conversion date. Under Canadian GAAP, the
Company allocated the face value of the debt to the estimated value
of the debt component and assigned the residual value to its equity
component. The value of the debt was then accreted to the face value
of the debt over the term to maturity. The U.S. GAAP adjustments had
no effect on liabilities or shareholders' equity at December 31,
2002 and December 31, 2001. No convertible promissory notes are
outstanding at December 31, 2002 and 2001.
23
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 40-F, the Company's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934 (the "Exchange Act")) are effective to ensure that information required to
be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
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 has previously filed with the Commission a Form F-X in
connection with the filing of its Annual Report on Form 40-F for the year ended
December 31, 2001.
EXHIBITS
The following exhibits are filed as part of this report:
99.1 Consent of KPMG LLP
99.2 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.
99.3 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/ John Bennett
-----------------------------------
Name: John Bennett
Title: Chief Executive Officer and
Chairman
Date: May 14, 2003
CERTIFICATIONS
I, John Bennett, certify that:
1. I have reviewed this annual report on Form 40-F of Bennett Environmental
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (and persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ John Bennett
------------------------------------
John Bennett
Chief Executive Officer and Chairman
CERTIFICATIONS
I, Richard Stern, certify that:
1. I have reviewed this annual report on Form 40-F of Bennett Environmental
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (and persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Richard Stern
-----------------------
Richard Stern
Chief Financial Officer