BIOTEQ
ENVIRONMENTAL TECHNOLOGIES INC.
ANNUAL REPORT
2004
Company Profile
BioteQ is a Canadian industrial process company that has developed the patented the BioSulphide
ProcessTM for water treatment and sulphide reagent production. BioteQ is currently focused on
applications of its technology in the mining industry where BioteQ’s process plants allow the
treatment of acid contaminated water with concurrent recovery of saleable metals from the water.
Water from our process plants can be discharged to the environment or recycled for industrial re-
use. In addition, chemical grade sulphide reagent can be produced on demand from BioteQ’s
process. Potential revenue streams from BioteQ’s water treatment technologies are plant sales,
recovered metals, treatment fees, and sulphide reagent sales.
BioteQ’s process plants can treat metal-laden acid contaminated water, including acid rock
drainage (ARD), contaminated surface and ground waters, metallurgical bleed streams and
sulphate-rich municipal and industrial water. BioteQ is currently focused on metal contaminated
mine drainage, one of the most significant challenges facing the mining industry worldwide.
BioteQ’s technologies can offer significant environmental and economic benefits when compared
with conventional lime addition to treat the same acid waste streams, including:
•
•
reduction or elimination of metal-laden sludge by-products,
sale of valuable contained metals which can off-set treatment costs or, in some
cases, result in a profit from the water treatment plant,
• overall reduction of long term water treatment costs and environmental liability.
BioteQ’s business plan is to focus on its core water treatment technologies in the development,
construction and operation of waste water treatment plants. The company can operate on three
commercial bases: design, build, own and operate; design, build and transfer; and third party
process license. The company has built and owns three commercial water treatment plants in the
US and Canada – at the Caribou Mine in New Brunswick (Breakwater Resources Ltd.), the
Raglan Mine in northern Quebec (Falconbridge Limited), and at the Copper Queen Mine in
Bisbee, Arizona (joint venture with Phelps Dodge Corporation). Our fourth plant is currently
under construction, also with Phelps Dodge Corp, and is located in the city of Blackwell,
Oklahoma.
BioteQ is based in Vancouver, Canada with a branch office in Montreal. The company is listed
on the TSX Venture Exchange under the symbol BQE.
Annual Meeting
The Annual General Meeting of the Shareholders will be held on April 21, 2005, at 2pm at the
Conference Centre, Second Floor, 888 Dunsmuir Street, Vancouver, BC, Canada.
Contents
Company Profile
President's Message
Management’s Discussion and Analysis
Management's Report to Shareholders
Auditors' Report
Consolidated Financial Statements
Corporate Information
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
PRESIDENT’S MESSAGE – 2004 Annual Report
2004 Highlights
During 2004 the company operated water treatment plants at three sites: Caribou in New
Brunswick (Breakwater Resources), the Raglan Mine in northern Quebec (Falconbridge) and the
Copreco joint venture with Phelps Dodge Corp in Bisbee, Arizona. Operation of these plants
during 2004 demonstrated the revenue potential of our technologies, as well as confirmed the
dedication of our employees towards safe and profitable water treatment operations. In 2004, our
financial statements show that we were cash flow positive from the operations, a significant
milestone in our long term business plan.
Expectations for 2005
We expect to complete the construction of our fourth plant, at Blackwell, Arizona, which is our
second plant built with Phelps Dodge Corp, and will complete an expansion at Caribou to allow
treatment of tailings sands concurrently with acid water treatment at the Caribou site. In addition,
we expect to begin detailed engineering and construction on a fifth plant during 2005. Our current
cash position, debt facilities available and cash flow from operations will allow continued new
growth in 2005 using our existing financial capacity.
Safety
While the company continued to grow during 2004 and maintained three operating sites as well
as construction projects, we had only one safety incident reported. Our objective in 2005 is to
maintain our growth in operations and new plants while reducing reported safety incidents to
zero.
Personnel
The continued success of the company depends on the continued success of our highly
professional and dedicated personnel. We made one significant addition to our staff in late 2004,
Bruce Chamberlain, a chemical engineer recently with Noranda operations, joined us as Manager,
Operations.
I would like to thank our employees, directors and business partners for their dedication and
accomplishments during 2004. I look forward to continued growth during 2005 and invite you to
attend our Annual General Meeting on April 21, 2005, at 2pm at the Conference Centre, Second
Floor, 888 Dunsmuir Street, Vancouver. B.C.
On behalf of the Board of Directors
Brad Marchant
President & CEO
Vancouver, Canada
March 11, 2005
BioteQ has elected to minimize the costs of preparing and distributing hard copies of our annual report.
As a result, we have enclosed a copy of our audited financial statements and MD&A report and have
updated our website, www.bioteq.ca , with further information to provide a more dynamic means to
communicate with our shareholders. We are in the process of revamping our website which we intend to
revise more frequently with production results, technologies and developing projects.
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC.
Management’s Discussion and Analysis
Annual Report 2004
(Expressed in Canadian dollars unless otherwise noted)
March 11, 2005
The following Management’s Discussion and Analysis provides information that management believes is
relevant to an assessment and understanding of the Company’s consolidated results of operations and financial
condition. Management has prepared this document in conjunction with its broader responsibilities for the
accuracy and reliability of the financial statements, the development and maintenance of appropriate information
systems and internal controls to ensure that the financial information is complete and reliable. The Audit
committee of the Board of Directors, consisting of independent directors only, has reviewed this document and
all other publicly reported financial information, for integrity, usefulness, reliability and consistency.
This discussion should be read in conjunction with the consolidated financial statements and accompanying
notes for the year ended December 31,2004. Certain statements contained in the Management’s Discussion and
Analysis constitute forward-looking statements. Such forward-looking statements involve a number of known
and unknown risks, uncertainties and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on
these forward looking statements, which speak only as of the date the statements were made and readers are
advised to consider such forward-looking statements in light of the risks.
Additional information may be found on the Company’s website www.bioteq.ca and also on SEDAR at
www.sedar.com
Description of Business
BioteQ is a Canadian industrial process technology company located in Vancouver, BC, Canada, that has
developed the patented BioSulphide® Process for water treatment and sulphide reagent production. BioteQ’s
process plants allow the treatment of acid contaminated water with concurrent recovery of saleable metals from
the water. Water from the process plants meets discharge water quality criteria. In addition, chemical grade
sulphide reagent can be produced on demand
BioteQ has constructed and commissioned 3 commercial treatment plants using its technology as well as
managing two lime treatment plants under contract. A fourth BioteQ plant construction is in progress and is
scheduled for commissioning in 2005. The first BioteQ plant was constructed at the Caribou Mine in New
Brunswick for selective copper and zinc recovery, which successfully demonstrated the technology. Construction
of treatment plants for Falconbridge Limited in northern Quebec and in joint venture with Phelps Dodge
Corporation in southern Arizona were completed during 2004 and both plants are generating revenue from their
operations. As a result, BioteQ considers that it is out of the development stage effective January 1, 2004.
BioteQ is evaluating several potential commercial projects in North America and elsewhere for possible
application of its metal recovery process. In addition, the biological technology that is an integral part of the
BioSulphide® Process can be utilized commercially to generate sulphide reagent on demand and can also be
modified to remove sulphate from contaminated water, and both are potential future markets for the Company.
BioteQ will operate on three commercial bases: design, build, own and operate; design, build and transfer with a
service contract; or third party license. Potential revenue streams are plant sales, recovered metals, treatment fees
and process licenses.
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC.
Management’s Discussion and Analysis
Annual Report 2004
(Expressed in Canadian dollars unless otherwise noted)
March 11, 2005
Operations
Overall Performance
Three-Year Comparative Information
Revenues
Operating costs
Net loss
Total assets
Total long-term financial liabilities
Total liabilities
Shareholders’equity
2004
1,034,182
686,412
1,614,253
7,589,703
334,462
676,609
6,913,094
2003
89,239
25,550
1,174,305
6,848,858
309,882
1,372,702
5,476,156
2002
-
-
1,081,034
2,535,111
285,302
551,748
1,983,363
During the years until 2003, the company was developing its process. In 2003, the company commenced
construction of two sizable water treatment plants, which became operational in the third quarter of 2004,
approximately 3 months later than anticipated last year-end. Funds to construct the plants were raised through
equity financings. The Company’s growth is predicated on new projects being developed. Currently, one new
project is underway, one is subject to our internal evaluation and a number are believed to be close to a decision
by the property owner. With its current projects, the Company is forecasting a small profit from its 2005
operations after covering all administrative and other costs, before depreciation and other non cash charges.
At December 31, 2004, the Company had 18 full time employees, including 3 who work on a seasonal basis,
compared to 10 employees at the end of 2003. The increase is due to operating personel required for the newly
commenced operations.
Operating Results
Financial data for the last eight quarters
Quarter ended
Total revenues ($000’s)
Operating expenses($000’s)
Net loss ($000’s)
Loss per share
Dec 04
564
458
545
$0.02
Sept-04
283
190
401
$0.01
Jun-04 Mar-04 Dec-03
89
26
283
$0.01
73
7
332
$0.01
114
31
336
$0.01
Sep-03
0
0
286
$0.02
Jun 03 Mar 03
0
0
291
$0.02
0
0
314
$0.02
There were no discontinued or extraordinary items. Fully diluted earnings (loss) per share are not presented as the exercise of warrants or
stock options would be anti-dilutive.
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC.
Management’s Discussion and Analysis
Annual Report 2004
(Expressed in Canadian dollars unless otherwise noted)
March 11, 2005
Revenues and operating expenses are not comparable due to the start-up of operations during the latter half of
2004 of two significant commercial plants. Prior to that period, revenues were largely from the fixed monthly
fees from the Raglan plant. During the third quarter, revenues commenced from water treatment at the Raglan
and Bisbee plants. Both experienced some difficulties, which resulted in less than anticipated production,
although both enjoyed sustained periods of good results. The Raglan plant in the north of Quebec is a seasonal
operation and shut down at the beginning of November due to winter conditions. In addition, in the fourth
quarter BioteQ assumed operating responsibility for water treatment at the Caribou and Restigouche sites of
Breakwater Resources Ltd and commenced charging fees.
The net loss increased in the last two quarters due to non-operating expenditures. In the third quarter,
development and marketing costs were particularly high by approximately $100,000, due largely to unrecovered
engineering and pilot test work on the Britannia project. Although unrecoverable, this expenditure may generate
some benefit in the future. In the fourth quarter, additional administrative labour costs and audit and other year-
end accruals increased costs by over $160,000. For 2005, general and administrative expenses are expected to be
slightly higher than 2004, averaging about $100,000 a month, due largely to the addition of a Manager of
Operations at the start of the year.
Marketing and development costs averaged approximately $22,000 per month in 2004 and are expected to
reduce to $12,000 per month in 2005, due to lower unrecoverable costs. Whenever possible, the Company
charges for engineering, laboratory and pilot testing on development projects.
Amortization of property plant and equipment has significantly increased due to the new operating plants in the
last two quarters. Charges in 2005 are expected to amount to approximately $70,000 per quarter, compared to an
average of $46,000 for 2004. The Company adopted the CICA recommendation to expense stock options
commencing January 1, 2004 which resulted in significant stock based compensation charges averaging
approximately $65,000 per quarter. These charges were largely the result of options granted in 2003 with
vesting periods, and consequent charges, throughout 2004 (ending in the fourth quarter). Stock based
compensation charges are currently expected to reduce to approximately $20,000 per quarter in 2005.
Schedule of general and administrative expenses
Management and office services
Rent
Legal and audit
Travel
Transfer agent, filing fees and AGM
Insurance
Investor relations
Directors fees and expenses
Office and other expenses
Total for the periods
3 months ended Dec 31
Year ended Dec 31
2004
190,902
16,117
61,562
15,310
-1,517
23,075
15,864
15,680
61,023
398,016
2003
83,334
14,310
55,750
31,394
2,610
14,060
15,200
20,524
45,109
2004
530,170
85,783
142,435
67,614
30,506
86,739
55,871
60,555
100,478
282,291
1,160,151
2003
376,571
73,915
124,575
86,176
20,506
70,064
62,427
66,917
104,301
985,452
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC.
Management’s Discussion and Analysis
Annual Report 2004
(Expressed in Canadian dollars unless otherwise noted)
March 11, 2005
The increase in the year and period costs for general and administrative expenses is largely due to management
and office services. Pay increases occurred at the start of 2004, one additional person was added in accounting
support for the last quarter and additional administrative cost was incurred in the last half of the year with the
start up of operations.
Projects
During the year, the Company commissioned both the Bisbee and Raglan plants. Two new contracts were signed
late in the year. The Company is providing its technology for a water treatment plant located in Blackwell,
Oklahoma, which is a second plant for Phelps Dodge Corp and will recover zinc and cadmium from
groundwater. The plant is scheduled for commissioning in late 2005. The other new project is at the Caribou site
and is referred to below. In addition, the company was part of a bid team that was awarded a contract to design,
build and operate a water treatment plant at the Britannia minesite in British Columbia. The lead proponent,
EPCOR Water Services, is currently constructing a conventional lime treatment plant as a first stage at Britannia,
with BioteQ providing senior design review, while BioteQ evaluates further potential applications of its
BioSulphide® technology at the Britannia site.
The Breakwater Resources Project – Caribou Mine, New Brunswick
The Company’s plant has not operated since late 2002, due to the site owner shutting down mine water collection
and treatment while underground workings were filled with contaminated water. Treatment through their lime
plant was recommenced by the site owner during 2004
Earlier in the year, the company initiated a new agreement for the operation of mine dewatering, water collection
and treatment at both the Caribou and Restigouche sites owned by CanZinco in New Brunswick, which replaces
previous agreements with respect to the Caribou site. The detailed operating agreement commenced on October
1, 2004 and BioteQ now controls all collection and treatment of acidic mine drainage and management of sludge
products. The existing employees at the sites were hired by BioteQ.
The six year contract for all water management will simplify operation of the BioteQ plant for metal recovery.
The new contract also deals with the treatment of tailings, stored at the Caribou site by a previous operator, for
which additional fees will be charged. It is anticipated that tailings treatment will commence in 2005. Based on
the result of a test recovery of 1000 tonnes of material and preliminary process engineering, plans indicate
processing 50,000 tonnes of tailings annually. However this would require some modifications to the biological
reduction plant to enable treatment of the mine drainage in conjunction with the tailings. Detailed engineering
and cost estimation must be finalized prior to the project obtaining approval to proceed by BioteQ’s board. All
metals recovered in the BioteQ plant would be owned by BioteQ. Total revenues expected during 2005 from the
contract with CanZinco is $1,100,000.
The Phelps Dodge Project – Bisbee, Arizona
In August 2003, the Company initiated construction of a copper recovery plant at the Bisbee site in a joint
venture with Phelps Dodge Corporation. The joint venture company, Copreco LLC, operates the plant at Bisbee
to recover copper selectively from circulating water from existing stockpiles. The design capacity of the plant is
approximately 2.7 million pounds per year of copper recovered, depending on water availability and metal
content.
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC.
Management’s Discussion and Analysis
Annual Report 2004
(Expressed in Canadian dollars unless otherwise noted)
March 11, 2005
During the third quarter, there was official acceptance by Copreco of the finished plant and commissioning of the
plant was completed on August 31, 2004.
Since September 1, 2004, operations and costs of the plant are equally shared with Phelps Dodge. The plant
suffered from two production interruptions in the months of September and October which lost 28 days. The lost
production time related to a construction deficiency identified during a planned maintenance shutdown. Repairs
were completed and the plant started up again on October 24. From November to January the Bisbee plant
reported excellent operating results with 94% availability, over 99% copper recovery with the best daily
production of 6,200 pounds of copper reached during January. The process plant was taken off-line again in
February to make more permanent repairs to the deficiency identified in October. The plant has since returned to
normal operation.
The plant production is limited by the availability of water and the copper and other metal content. Since start-up
in September the copper grade has been above expectations, but the water availability has been well below plant
design. The joint venture is considering changes to the low-grade stockpile operation to increase both water flow
and grade. The expected plant production for 2005 is presently 2,000,000 pounds copper. The joint venture is
currently concentrating on personnel training and reducing operating costs. The joint venture is also exploring the
possibility of making use of excess bioreactor capacity to produce additional sulphide that could be sold or used
to recover other metals.
Operating statistics in 2004
Operations Qtr 3
(September only)
Operations Qtr 4
Water treated (millions of gallons)
Days operated (some partial)
Copper produced (pounds, in concentrate)
Copper recovery
11.6
21
35,300
>99%
93
67
297,000
>99%
The total capital cost of the Bisbee plant, including commissioning, is US$3,214,000. BioteQ’s contract for
construction of the plant included a capital cost guarantee of US$1,900,000 to our joint venture partner, Phelps
Dodge, resulting in their maximum contribution of US$950,000. BioteQ has incurred the extra costs of
US$1,288,000 (net of additional shared costs of $26,000). BioteQ’s excess contribution of US$644,000 has been
included in property, plant and equipment, with the result that BioteQ now has Can$2,990,000 invested in the
plant. The overrun of costs was due to construction management and indirect costs, as well as a longer period
for plant commissioning. Based on recent performance, the company expects to receive $250,000 in revenue per
quarter from its operations at Bisbee during 2005.
The Falconbridge Project – Raglan Mine, Quebec
BioteQ’s treatment plant at the Raglan Mine in Northern Quebec owned by Falconbridge Limited was largely
completed in late 2003. Under the terms of the contract, payment of a monthly fixed fee of $24,500 commenced
in November 2003. Due to the normal winter freeze-up, the plant was not operated until the second quarter of
2004.
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC.
Management’s Discussion and Analysis
Annual Report 2004
(Expressed in Canadian dollars unless otherwise noted)
March 11, 2005
The plant started the commissioning process with the availability of spring run-off water on June 16 and
discharge grade performance was achieved on July 16. From that time until winter shutdown in early November
production was affected by plant availability, the sources of which have been identified and addressed. During
July, 30,000 cubic meters of treated water were produced, which met the stringent water quality discharge
regulations at the Raglan site. This water was treated in a closed loop without discharge to the environment,
pending permit approval. The Ministry of Environment issued a Certificate of Authorization to Falconbridge for
discharge to the environment on August 16, 2004. Since that time plant performance and availability has been
hampered by various process upsets, such that only 63,000 cubic meters of water were treated to discharge
criteria in the third quarter. The plant has been running well since process modifications were completed during
September/October, however minor short-term process upsets have continued and, although solved quickly, have
limited production.
Water treatment in the 2004 operating season totaled 78,589 cubic meters for which payment was received,
compared to the expected 530,000 cubic meters. These results are very disappointing, however there were
sufficient periods of excellent operations to show that the process works and provides a superior water treatment
solution, eliminates production of sludge and produces a high grade nickel concentrate product. The process
upsets we encountered during this short start-up year have been addressed for 2005 operations. During the year,
the company has received the continuing fixed monthly fee of $24,500 and treatment fees have been charged at
the rate of $1.06 cubic meter of water treated.
Total costs incurred in 2004, including minor completion capital and plant commissioning, were $256,000,
giving a total plant cost of $1,826,000. Activities at the site are scheduled to commence during March 2005 for
minor plant modifications followed by operator training and plant restart during April/May. The Company has
increased the manpower budget for the project for 2005 to ensure operating reliability. BioteQ is expecting the
plant to contribute revenues of $800,000 for 2005, with an operating season of June to November.
Risks and uncertainties
The Company’s growth is dependant on being able to develop new projects for its technology and being
competitive and innovative in its area of expertise. To achieve growth, the Company must be able to find or train
people with the necessary skills, and be able to retain them.
Any new commercial application of the BioSulphide® Process will have certain construction and process risks
associated with building and operating a new plant. Revenue will depend on the successful operation of the
plants and may fluctuate with the price of the commodities being recovered and variable exchange rates. Over
25% of the Company’s revenue in 2005 is expected to fluctuate with the price of copper and the US $ exchange
rate. Operating costs will be largely dependent on the cost of consumables, labour and power, which may
fluctuate.
The economics of some projects under review by the Company are based largely on estimates of the prices for
the metals to be recovered from treating water. Although there is often a significant amount of data upon which
estimates can be based, there can never be absolute certainty as to the continuity of flow of water to be treated
and the concentrations of all metals contained.
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC.
Management’s Discussion and Analysis
Annual Report 2004
(Expressed in Canadian dollars unless otherwise noted)
March 11, 2005
Liquidity and Capital Resources
During the years until 2003, the company was developing its process. In 2003, the company commenced
construction of two sizable water treatment plants, which became operational in the third quarter of 2004. Funds
to construct the plants were raised through equity financings.
At the year-end, the Company had 35,320,339 (fully diluted-49,277,828) common shares issued and outstanding,
compared to 31,351,685 (fully diluted-46,546,443) for 2003. During the year, there was an equity financing and
4,650,000 warrants expired At the current date of March 11, 2005, the issued shares are 35,578,539 and fully
diluted are 48,455,028. The increase in the number of issued shares in 2005 is due to the exercise of 258,200
warrants for $0.75 each.
At December 31, 2004, the Company had cash of $1,925,158, a decrease of $873,068 from December 31, 2003.
During the year, the Company received $2,752,722 (net) from a new equity financing (3,800,000 units at $0.80)
and also received $36,375 from the exercise of warrants. The Company used its cash resources to fund its 2004
operating loss of $1,120,155, net of non-cash items (2003-$1,067,663), and to fund the building of water
treatment plants with expenditures in 2004 of $2,046,055 (2003-$2,831,601). The 2004 expenditures related to
completing construction of the Bisbee and Raglan plants. Non-cash working capital changes in the current period
absorbed $467,444 of cash flow, due largely to the reduction in accounts payable as construction projects were
completed. The comparable figure for 2003 was a contribution of $331,356, due to the creation of construction
accounts payable.
Working capital at the year-end was $2,041,176, which had decreased from December 31, 2003 by $405,624.
These resources are largely uncommitted at present. The Company has no long-term debt with the exception of
convertible debentures, which if unconverted into common shares, mature for repayment of $400,000 in October
2007. Annual interest amounts to $40,000. The only other corporate commitments are for office lease payments
of $6,600 per month until August 2006 and repayment of government assistance in the form of a 2% royalty on
corporate gross revenues. The maximum remaining to be repaid is $605,814. The Company expects its existing
operations to provide the necessary cash flow in 2005 to fund other corporate expenditures such as general and
administrative and marketing and development expenses. Additional funds amounting to $600,000 are available
on a 3 year term HSBC Bank loan, subject to satisfactory performance of the Raglan plant. Also, through HSBC
Bank USA, BioteQ has arranged project financing of US$800,000 based on performance of the Bisbee plant.
This financing is subject to completion of documentation and ongoing plant performance.
Management believes that the current working capital, together with the cash flow from operations, is sufficient
to support the Company’s normal operating requirements on an ongoing basis. New projects could require
additional equity or debt financing, depending on project scope and commercial terms.
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
Management’s Report to the Shareholders
The accompanying consolidated financial statements, management’s discussion and analysis and
all information in the Annual Report have been prepared by management and approved by the
Audit Committee and the Board of Directors of the Company. The consolidated financial
statements were prepared in accordance with Canadian generally accepted accounting principles
and, where appropriate, reflect management’s best estimates and judgements. Management is
responsible for the accuracy, integrity and objectivity of the consolidated financial statements and
management’s discussion and analysis within reasonable limits of materiality and for the
consistency of financial data included in the text of the Annual Report with that contained in the
consolidated financial system.
To assist management in the discharge of these responsibilities, the Company maintains a system
of internal controls designed to provide reasonable assurance that its assets are safeguarded; that
only valid and authorized transactions are executed; and that accurate, timely and comprehensive
financial information is prepared.
The Company’s Audit Committee is appointed annually by the Board of Directors and is
comprised of Directors, all of whom are neither employees nor officers of the Company. The
Audit Committee meets with management as well as with external auditors to satisfy itself that
management is properly discharging its financial reporting responsibilities and to review the
consolidated financial statements, the independent auditors’ report and the management’s
discussion and analysis. The Audit Committee reports its findings to the Board of Directors for
consideration in approving the consolidated financial statements and management discussion and
analysis for presentation to the shareholders. The external auditors have direct access to the
Audit Committee of the Board of Directors.
consolidated
The
by
PricewaterhouseCoopers LLP. Their report outlines the nature of their audits and expresses their
opinion on the consolidated financial statements of the Company.
independently
statements
financial
audited
have
been
(signed) “P. Bradley Marchant”
____________________________
P. Bradley Marchant
President and Chief Executive Officer
(signed) “John C. York”
___________________________
John C. York
Chief Financial Officer
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT
PricewaterhouseCoopers LLP
Chartered Accountants
PricewaterhouseCoopers Place
250 Howe Street, Suite 700
Vancouver, British Columbia
Canada V6C 3S7
Telephone +1 604 806 7000
Facsimile +1 604 806 7806
Auditors’ Report
To the Shareholders of
BioteQ Environmental Technologies Inc.
We have audited the consolidated balance sheets of BioteQ Environmental Technologies Inc. as at
December 31, 2004 and 2003 and the consolidated statements of operations and deficit and cash flows
for the years then ended. These financial statements are the responsibility of the company’s
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the
financial position of the company as at December 31, 2004 and 2003 and the results of its operations
and its cash flows for the years then ended in accordance with Canadian generally accepted accounting
principles.
Chartered Accountants
Vancouver, B.C.
February 18, 2005
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity.
BioteQ Environmental Technologies Inc.
Consolidated Balance Sheets
As at December 31, 2004 and 2003
Assets
Current assets
Cash
Trade receivables
Receivable from joint venture partner
Other
Property, plant and equipment (note 8)
Deferred financing costs
Liabilities
Current liabilities
Accounts payable and accrued liabilities
2004
$
2003
$
1,925,158
172,981
173,020
112,164
2,798,226
56,362
424,009
231,023
2,383,323
3,509,620
5,124,817
3,261,804
81,563
77,434
7,589,703
6,848,858
342,147
1,062,820
Liability component of Series A debentures (note 9)
334,462
309,882
676,609
1,372,702
Shareholders’ Equity
Capital stock, warrants and contributed surplus (note 10)
13,770,369
10,373,161
Equity component of Series A debentures (note 9)
96,128
96,128
Deficit
Going concern (note 2)
Commitments (note 15)
Subsequent events (note 16)
(6,953,403)
(4,993,133)
6,913,094
5,476,156
7,589,703
6,848,858
Approved by the Board of Directors
“A.T. Kana”
“P. B. Marchant”
___________________________________ Director
___________________________________ Director
BioteQ Environmental Technologies Inc.
Consolidated Statements of Operations and Deficit
For the years ended December 31, 2004 and 2003
Revenue
Operating expenses
Operating costs
Amortization of property, plant and equipment
Amortization of deferred financing costs
General and administrative expenses
Stock-based compensation charge
Marketing and development costs
Loss from operations
Interest income
Interest expense
Foreign exchange loss
Loss for the year
Deficit - Beginning of year
As reported
Stock-based compensation charge (notes 4 and 10)
As restated
Deficit - End of year
Loss per share - basic and diluted
2004
$
2003
$
1,034,182
89,239
686,412
183,042
24,382
1,160,151
262,094
265,213
25,550
22,390
11,914
985,452
-
187,208
2,581,294
1,232,514
1,547,112
1,143,275
(32,313)
69,528
29,926
(36,393)
67,423
-
1,614,253
1,174,305
4,993,133
346,017
3,818,828
-
5,339,150
3,818,828
6,953,403
4,993,133
(0.06)
(0.06)
Weighted average number of shares outstanding
26,224,825
18,408,647
BioteQ Environmental Technologies Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2004 and 2003
Cash flows from operating activities
Loss for the year
Items not affecting cash
Amortization of property, plant and equipment
Amortization of deferred financing costs
Accretion of Series A debentures (note 9)
Stock-based compensation
Other
Change in non-cash working capital items
Cash flows from financing activities
Issuance of common shares and warrants
Share issuance costs
Exercise of warrants and options
Financing costs
Cash flows from investing activities
Purchase of property, plant and equipment
(Decrease) increase in cash
Cash - Beginning of year
Cash - End of year
Supplemental cash flow information
Interest paid
Non-cash financing and investing activities
Share capital issued in exchange for settlement of accounts payable
Units issued in settlement of issue costs (note 10)
Warrants issued in settlement of issue costs (note 10)
2004
$
2003
$
(1,614,253)
(1,174,305)
183,042
24,382
24,580
262,094
-
85,979
11,914
24,580
-
(15,831)
(1,120,155)
(467,444)
(1,067,663)
331,356
(1,587,599)
(736,307)
3,040,000
(287,278)
36,375
(28,511)
5,105,299
(568,370)
71,500
(18,752)
2,760,586
4,589,677
(2,046,055)
(2,831,601)
(873,068)
1,021,769
2,798,226
1,776,457
1,925,158
2,798,226
44,948
42,843
-
92,000
35,719
58,669
228,695
153,546
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
1 Company operations
BioteQ Environmental Technologies Inc. (BioteQ or the company) acquired, through its wholly owned
subsidiary Biomet Mining Corporation (Biomet), a patent from related parties in 1997 for a process to treat
metal-laden, sulphate-rich waste water streams for acid neutralization and metal recovery. After further process
development, the result is the BioSulphide® Process (the Process), which has been developed to the stage of
building three commercial scale plants. As a result, and with revenues now being generated from commercial
operations, the company considers it is out of the development stage commencing January 1, 2004.
The principal operations of the company will be to build process plants and earn revenues from plant sales,
recovered metals, treatment fees and process licenses.
2 Going concern
The company may require further capital to continue the commercialization and marketing of the Process.
These consolidated financial statements have been prepared on a going concern basis, which assumes that the
company will be able to meet its commitments, continue its operations and realize its assets and discharge its
liabilities in the normal course of business. These financial statements do not reflect adjustments to carrying
values of assets and liabilities that may be necessary should the company be unable to achieve sufficient cash
flows to continue as a going concern. Such adjustments could be material.
The company’s ability to carry on as a going concern is dependent upon its ability to achieve cash flows from
operations and arrange additional financing through equity and/or debt to establish process plants and maintain
general operations. The company has raised working capital through the sale of equity and issuance of debt, but
may require additional project financing to establish process plants. There is no assurance that this financing, or
cash flow from operations, will be available to the company; accordingly, there is doubt about the company’s
ability to continue as a going concern.
3 Significant accounting policies
Generally accepted accounting principles
These consolidated financial statements are prepared in accordance with generally accepted accounting
principles in Canada.
Principles of consolidation
The consolidated financial statements include the accounts of BioteQ and its wholly owned subsidiaries,
Biomet and BioteQ Arizona, Inc. The accounts of the joint venture in which the company holds an interest are
proportionately consolidated. All intercompany transactions and balances have been eliminated.
(1)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates.
Cash
Cash consists of cash on deposit and term deposits with maturities at the date of acquisition of three months or
less.
Short-term investments
Short-term investments are recorded at the lower of cost or net realizable value.
Property, plant and equipment
Expenditures on property, plant and equipment are stated at cost, net of grants and contractual amounts
received under feasibility studies. Amortization has been provided for in the financial statements using the
following rates and methods:
Office equipment
Pilot plants
Water treatment plants
5 years straight-line
5 years straight-line
10 - 20 years straight-line
Costs relating to property, plant and equipment in the course of construction are capitalized. Upon
commissioning, these costs will be amortized over the useful life of the asset.
The company evaluates the carrying value of property, plant and equipment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. The company recognizes an impairment
loss when it is probable that estimated future non-discounted cash flows of the underlying asset will be less
than the carrying value of the asset.
Financing costs
Costs incurred to obtain debt financing are deferred and amortized over the terms of the underlying debt. Costs
incurred to obtain equity financing are applied against the proceeds when the related shares are issued.
(2)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
Revenue
Revenue from the company’s water treatment plants varies depending on the company’s agreement with the
various mining companies and can include:
•
•
•
revenue from managing and operating the plants recognized as the services are performed
revenue from concentrate sales recognized when the title of the concentrate passes to the customer and
collection of proceeds is reasonably assured
lease revenue on the plants recognized over the term of the lease contract.
Fees from engineering services are recognized as the services are rendered.
Development costs
The company expenses all costs associated with development activities in the statement of operations in the
period in which they are incurred, unless the criteria for deferral of development costs have been met.
Government assistance
Government assistance is recorded when reasonable assurance exists that the company has complied with the
terms and conditions of the approved grant program. Government assistance is either recorded as a reduction of
the cost of the applicable property, plant and equipment or credited in the statement of operations as determined
by the nature of the assistance. Where assistance is contingently repayable, the repayment of these funds is
treated as either an increase in the cost of the asset or an increase to expense, in the year it is incurred, as
determined by the original accounting treatment of the assistance.
Foreign currency translation
The company’s foreign subsidiaries and joint venture are considered to be integrated foreign operations.
Foreign denominated monetary assets and liabilities of the Canadian and foreign operations are translated in
Canadian dollars at the rates of exchange prevailing at the balance sheet dates. Other assets and liabilities are
translated at the exchange rates prevailing when the assets were acquired or the liabilities incurred. Revenues
and expenses are translated at the average exchange rate prevailing during the year, except for depreciation and
amortization which are translated at the same rates as those used in the transition of the corresponding assets.
Foreign exchange gains and losses are included in the determination of net earnings or net loss.
Loss per share
Loss per share is calculated using the weighted average number of shares outstanding during the period,
excluding performance based escrow shares, and diluted loss per share is calculated to reflect the dilutive effect
of exercising outstanding stock options, warrants or equivalents by application of the treasury stock method.
For the years ended December 31, 2004 and 2003, the company excluded potential common share equivalents
from the loss per share calculation as they were considered anti-dilutive.
(3)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
Future income taxes
The company accounts for income taxes using the liability method of tax allocation. Future income taxes are
recognized for the future income tax consequences attributable to differences between the carrying values of
assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are measured
using substantively enacted income 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 rates is included in income in the period that includes the enactment date. Future
income tax assets are recorded in the financial statements if realization is considered more likely than not.
Stock-based compensation
The company accounts for all stock-based payments using the fair value based method. Under the fair value
based method, stock-based payments are measured at the fair value of the equity instruments issued.
4 Change in accounting policy
Stock-based compensation
Effective January 1, 2004, the company adopted the amended recommendations of the Canadian Institute of
Chartered Accountants (CICA) Handbook Section 3870, “Stock-based compensation and other stock-based
payments”, which require that the fair value of all stock-based compensation is estimated using the
Black-Scholes model at the date of grant and is recorded in the statement of operations over the vesting periods.
Upon adopting this new standard, the company elected to retroactively adjust retained earnings without
restatement of the prior period retained earnings. On January 1, 2004, the company increased the deficit by
$346,017 and increased contributed surplus by the same amount.
Asset retirement obligations
In March 2003, the CICA issued Handbook Section 3110, “Asset Retirement Obligations”, which addresses
financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development or normal life of the assets. The standard
requires an entity to record the fair value of a liability for an asset retirement obligation in the period in which it
is incurred and when a reasonable estimate of fair value can be made. The standard defines fair value as the
amount at which the liability could be settled in a current transaction between willing parties, other than in a
forced or liquidation transaction.
An entity is required to capitalize the amount of the asset retirement obligation as part of the cost of the related
property, plant and equipment, and amortize it over its useful life. The company adopted these new
recommendations as of January 1, 2004. The effect of adopting the new recommendations did not have any
impact on the consolidated financial statements as at the initial adoption date.
(4)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
5 Agreements
Raglan agreement
On April 15, 2003, the company entered into a 10-year agreement to construct and operate a BioSulphide®
plant at the Raglan mine owned by Falconbridge Limited (Falconbridge) in northern Quebec.
The contract provides for a plant with a design capacity to treat at least 530,000 cubic meters of water per year.
Construction of the plant was largely completed in November 2003, but was not operated until the spring thaw
in June 2004. Under the contract, the company charges a fixed monthly fee of $24,500 and an operating fee of
$1.06 per cubic meters of water treated, escalatable by up to a maximum of 3% per annum. The operating fee is
chargeable when the plant reaches certain operating criteria, which occurred in July. The fees are subject to
certain conditions and performance criteria that must be met by either Falconbridge or by the company. After
63 months from installation of the plant, Falconbridge has the option to purchase the plant at BioteQ’s cost, less
straight-line depreciation at 5% per annum, in which case the contract would cease and BioteQ would be
entitled to an ongoing technology fee. The cost of the plant, including commissioning costs, amounted to
$1,827,000 at December 31, 2004.
Caribou agreement
In 2001, the company entered into a development agreement with Breakwater Resources Ltd. (Breakwater).
The agreement provided for the installation of a BioSulphide® plant at Breakwater’s Caribou mine in New
Brunswick. Construction of the plant was completed in 2001 and commissioned in 2002.
During 2003, the BioSulphide® plant was not operated due to the site owner shutting down minewater
collection and treatment while underground workings were filled with contaminated water. On January 26,
2004, the company signed a new agreement to control all aspects of water management at the site. As a result, a
definitive Operating Agreement was signed with CanZinco Ltd. (a wholly owned subsidiary of Breakwater),
dated October 1, 2004, which provides for the operation of mine dewatering, water collection and treatment at
both the Caribou and Restigouche sites in New Brunswick, as well as treatment of tailings concurrently with
acidic mine drainage for selective metal recovery. Recovered metals are owned by BioteQ. The agreement
replaces all previous agreements regarding the Caribou site. The contract is for an initial term of six years and
is renewable on mutual consent.
The SOQUEM Inc. Partnership
In March 2003, the company signed a memorandum of understanding with SOQUEM Inc., a wholly owned
subsidiary of SGF Mineral Inc., to build and operate BioSulphide® plants in Quebec. During 2004, the
company incurred costs of $8,429 (2003 - $33,694) in researching potential plant sites in Quebec. If results of
the research are positive, the company and SOQUEM Inc. will form a partnership to build and operate the
plants.
(5)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
Debt financing agreement
In October 2003, the company signed a financing agreement for a $800,000 demand non-revolving loan.
Proceeds from the loan will be used to refinance the Raglan plant.
The first advance of $200,000 was received on February 23, 2004 and has been repaid. The second advance of
$600,000 is receivable when the Raglan plant commences operations and meets certain performance criteria.
Interest will be charged, at the company’s option, at the prime rate plus 1.5% or at the bank’s fixed cost of
funds plus 3%. Repayment will be over 39 months from the date of the advance.
As security for the loan, the company has provided a first charge over all its property in Quebec and a general
security interest in all personal property of the company. The company has also assigned the monthly fixed fee
payments from Falconbridge as security for the monthly repayment to the lender.
6
Interest in Joint Venture
In June 2003, the company signed an operating agreement with Phelps Dodge Corporation (PD) for the
operation of a 50:50 joint venture water processing project at PD’s Bisbee property in southern Arizona. The
plant recovers copper from a low-grade process stream. The operating and capital costs of the project will be
shared equally; however, the company provided a capital cost guarantee to PD that PD’s contribution would not
exceed 50% of US$1,900,000, the estimated capital cost before contingency.
During July 2003, the company completed a construction contract with the joint venture operating company,
Copreco, LLC, for the construction, management and commissioning of the Bisbee plant. The company
managed the project during construction and also manages the operation of the plant during the first year. The
construction of the plant has been completed at a total cost, including commissioning, of US$3,214,000. The
funding limit for PD resulted in BioteQ incurring all the extra costs of $1,288,000 (net of additional shared
costs of $26,000). BioteQ’s excess contribution of $644,000 has been included with property, plant and
equipment. In July 2004, construction of the plant was accepted by the joint venture members and
commissioning was accepted on August 31 2004. The plant is operational from that date, with one half of
revenues and costs being recorded in the statement of operations.
(6)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
The 50% interest in the joint venture in the consolidated financial statements is as follows:
Consolidated balance sheets
Current assets
Long-term assets
Current liabilities
Consolidated statements of operations
Sales
Operating income
Net earnings (loss)
Consolidated statements of cash flows
Operating activities
Investing activities
Financing activities
7 Government assistance
2004
$
2003
$
42,000
2,095,000
8,000
-
1,211,000
424,000
242,000
15,000
(29,000)
-
-
-
(20,000)
(1,355,000)
1,410,000
-
(787,000)
787,000
In June 2001, the company entered into an agreement with the National Research Council Canada, Industrial
Research Assistance Program (IRAP) to provide funds to assist in developing and operating the process plant at
the Caribou mine.
By the year ended December 31, 2003, the total IRAP contribution received was finalized at $417,774, of
which, $253,257 (61% of the total funds) was recorded as a reduction of property, plant and equipment and
$164,517 (39% of the total funds) was recorded as a reduction of development expenses.
The IRAP contribution is repayable in the form of a royalty at 2% of all gross revenues of the company
commencing from April 1, 2004. This repayment is calculated and paid quarterly until April 1, 2010. The
maximum repayment will be $626,661. For the period of April 1 to December 31, 2004, the total repayment
made or accrued was $20,847 of which $12,716 was recorded as an increase in property, plant and equipment
and $8,131 was recorded as an increase in development expenses.
(7)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
8 Property, plant and equipment
Pilot plants
Office equipment
Water treatment plants - net
Water treatment plant in progress
Pilot plants
Office equipment
Water treatment plants - net
Water treatment plant in progress
Cost
$
351,193
87,400
5,308,694
-
5,747,287
Cost
$
351,193
73,939
2,044,071
1,228,960
3,698,163
Accumulated
amortization
$
351,193
42,490
228,787
-
622,470
Accumulated
amortization
$
351,193
28,652
56,514
-
436,359
2004
Net
$
-
44,910
5,079,907
-
5,124,817
2003
Net
$
-
45,287
1,987,557
1,228,960
3,261,804
To date, the company has received $258,537 from third parties and $22,764 in investment tax credits which are
offset against the cost of the pilot plants. Government assistance of $221,414 has been offset against the cost of
the water treatment plant at the Caribou Mine. Amortization expense for the year ended December 31, 2004
amounted to $183,042 (2003 - $85,979). In 2003, $63,589 related to the amortization of the pilot plants and the
Caribou Mine water treatment plant and was included within development costs on the statement of operations.
9 Series A debentures
On September 5, 2002, the company completed a private placement of unsecured Series A debentures
(debentures) of $400,000 to fund working capital and plant construction. After deducting issue costs of
$86,329, the proceeds of the issue amounted to $313,671. Each debenture matures on October 31, 2007 and
bears interest at the rate of 10% per annum, payable semi-annually. The principal is convertible at the option of
the holder into common shares of BioteQ at $0.65 per common share. Under the terms of the Trust Indenture,
the conversion price is adjusted if the company declares and pays a stock dividend, subdivides its outstanding
common shares into a greater number of common shares, or consolidates its outstanding common shares into a
lesser number of common shares. The conversion price will also be adjusted when the company fixes a record
date for dividend distribution or the issuance of equity instruments with exercise prices less than the fair value
at the grant date. After two years from the issuance date, the company may redeem the debentures if the
common shares have traded for 30 consecutive days at 200% of the conversion price.
(8)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
The debentures are being accounted for in accordance with their substance and are presented in the financial
statements in their component parts, measured at their respective fair values at the time of issue. The liability
component has been calculated as the present value of the required interest payments discounted at a rate
approximating the interest rate that would have been applicable to non-convertible debt at the time the
debentures were issued.
Issue price in 2002
Less: Liability component
Shareholders’ equity component
Less: Issue costs applicable to shareholders’ equity component
Net amount classified as shareholders’ equity at issuance in 2002
Convertible debenture
Accretion from inception
Total liability component Series A debentures
$
400,000
(277,109)
122,891
(26,763)
96,128
277,109
57,353
334,462
Interest expense on the liability component is $64,580 (2003 - $64,580), of which $24,580 (2003 - $24,580)
represents accretion of the liability component. All cash interest incurred to date related to the debentures has
been paid.
10 Capital stock, warrants and contributed surplus
Authorized
100,000,000 common shares without par value
Issued and outstanding
Common stock
Warrants
Contributed
surplus
Number of
shares
Amount
$
Amount
$
Amount
$
Total
$
Balance - December 31, 2003
31,351,685
9,109,346
1,206,299
57,516
10,373,161
Stock-based compensation adjustment
(notes 4 and 10(a))
Stock-based compensation
Exercise of warrants
Private placement for cash
Share issuance costs
Units issued in settlement of issue costs
Warrants issued in settlement of issue
costs
-
-
53,654
3,800,000
-
115,000
-
-
36,375
2,880,827
(393,268)
82,839
-
-
-
159,173
(21,729)
9,161
346,017
262,094
-
-
-
-
346,017
262,094
36,375
3,040,000
(414,997)
92,000
-
-
35,719
-
35,719
Balance - December 31, 2004
35,320,339
11,716,119
1,388,623
665,627
13,770,369
(9)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
On July 14, 2004, the company completed a “bought deal” private placement of 3,800,000 units at $0.80 per
unit for gross proceeds of $3,040,000, of which $2,880,827 was attributable to the common shares and
$159,173 was attributable to the transferable common share purchase warrants. Issue costs were $414,997 of
which $92,000 was settled with the issue of 115,000 units and $35,719 was settled with the issue of 380,000
warrants. Each unit comprises one common share and one half of one transferable common share purchase
warrant. Each whole warrant will entitle the holder to acquire one additional common share at a price of $1.15
during the first year and $1.25 in the second year. All securities issued in connection with this private
placement carry a four month hold period.
a) Stock options
The company has a stock option plan available to directors, employees and consultants. Under the plan,
4,540,714 shares are available for issue (2003 - 3,790,714). Options vest at the minimum rate of 33%
every six months from award and have a maximum term of five years from the date of the grant. A
summary of the change in the company’s stock option plan for the year is as follows:
2004
Weighted
average
exercise
price
$
0.64
0.83
-
0.66
0.64
2003
Weighted
average
exercise
price
$
0.61
0.72
0.65
0.64
0.63
Number
2,600,000
850,000
(200,000)
3,250,000
2,000,000
Number
3,250,000
475,000
-
3,725,000
3,341,667
815,714
540,714
Outstanding - January 1
Options granted
Options cancelled
Outstanding - December 31
Exercisable at December 31
Available for future grant
pursuant to company’s
stock option plan at
December 31
The following table summarizes information about common share options outstanding at December 31:
Range of
exercise
prices
$
Number
outstanding
at
December 31
Weighted
average
remaining
contractual
life
(years)
2003
2004
0.50 - 0.72
0.50 - 0.93
3,250,000
3,725,000
3.1
2.2
Weighted
average
exercise
price
$
0.64
0.66
(10)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
The fair value of stock options granted is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of options (years)
2004
0%
48%
3.08%
3
2003
0%
73%
3.90%
3
The weighted fair value average price and weighted average exercise price of options granted in the years
indicated were as follows:
2003
2004
b) Warrants
As at December 31, 2004, the following warrants were outstanding:
Weighted
fair value
average price
$
Weighted
average
exercise price
$
0.72
0.77
0.72
0.83
2004
Weighted
average
exercise
price
$
Number
0.84
0.90
0.69
0.75
4,845,154
7,229,604
-
(130,000)
0.97
11,944,758
2003
Weighted
average
exercise
price
$
0.74
0.90
-
0.50
0.84
Number
11,944,758
2,395,000
(63,654)
(4,659,000)
9,617,104
Outstanding - January 1
Granted
Exercised
Cancelled
Outstanding - December 31
On January 15, 2003, the company granted the agent for a private placement, common share purchase
warrants to buy 94,000 common shares at a price of $0.65 within the first year and $0.75 within the second
year from the grant date. The company has treated these costs as share issue costs based on their fair value.
In October and November 2003, the company granted the agent for the private placement, common share
purchase warrants to buy 376,471 common shares at a price of $0.85 within the first year and $1.00 within
the second year from the grant date. The company has treated these costs as share issue costs based on
their fair value.
(11)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
On November 18, 2003, the company granted the agent for the public offering, common share purchase
warrants to buy 285,714 common shares at a price of $0.85 within the first year and $1.00 within the
second year from the grant date. The company has treated these costs as share issue costs based on their
fair value.
On July 14, 2004, the company granted the agent for the private placement, common share purchase
warrants to buy 380,000 common shares at a price of $1.15 within the first year and $1.25 within the
second year from the grant date. The company has treated these costs as share issue costs based on their
fair value.
c) Escrow shares
The shares issued at December 31, 2004 include 7,000,000 performance shares which will be released
from escrow based upon the cash flow performance of the company determined annually in accordance
with the policies of the exchange. The company must generate a cash flow of $0.30 for each performance
share to be released from escrow. Any performance shares that have not been released within 10 years
from issuance will be cancelled and returned to the company’s treasury.
11 Related party transactions and balances
At December 31, 2004, a director holds $100,000 of the convertible debentures (note 9) issued on September 5,
2002.
12 Income taxes
As at December 31, 2004, the company has approximately $919,000 of research and development expenditures
available for unlimited carry-forward, and $86,000 of investment tax credits, expiring 2008 to 2010, all of
which may be used to reduce future Canadian income taxes otherwise payable.
The company has accumulated losses of approximately $5,699,000 for Canadian income tax purposes which
may be deducted in the calculation of taxable income in future years. The losses expire as follows:
2005
2007
2008
2009
2010
2011
$
312,000
466,000
1,036,000
1,145,000
1,310,000
1,430,000
5,699,000
(12)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
In addition, BioteQ incurred a US tax loss in 2004 of $416,000 from its US branch operations. These losses can
be carried forward for 20 years from the year incurred, to offset against future US taxable income.
As at December 31, 2004, the company’s future tax assets and liabilities were as follows:
Property, plant and equipment
Financing costs
Research and development expense carry-forwards
Non-capital loss carry-forwards
Valuation allowance
Total future tax assets
2004
$
22,000
239,000
366,000
2,085,000
2003
$
78,000
272,000
372,000
1,577,000
2,712,000
(2,712,000)
2,299,000
(2,299,000)
-
-
No income tax benefits related to the future tax assets have been recognized in the accounts as their realization
does not meet the requirements of “more likely than not” under the liability method of tax allocation.
The reconciliation of income tax attributable to operations computed at the statutory tax rates to income tax
expense (recovery), using a 35.62% (2003 - 37.62%) statutory tax rate, at December 31 is:
Income tax recovery at statutory rates
Change in valuation allowance
Share issue costs
Difference between current and future tax rates
Non-deductible expenses
Tax rate differences in other jurisdictions
Other
13 Financial instruments
Fair value of financial instruments
2004
$
(574,907)
413,000
(112,484)
-
106,792
30,989
136,610
2003
$
(441,774)
586,624
(209,321)
45,980
18,491
-
-
-
-
The company’s financial instruments include cash, short-term investments, trade receivables, receivable from
joint venture partner, government grant receivable, sales tax receivable and other, and accounts payable and
accrued liabilities. Given the short-term nature of these items, the fair values of these financial instruments
approximate their carrying values.
(13)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
Credit risk exposure
The company’s exposure to credit risk is as indicated by the carrying value of its receivables. The company
mitigates this risk by reviewing and monitoring these balances.
Interest rate exposure
The Series A debentures bear interest at a fixed rate. Management considers that no events have occurred
subsequent to the issuance of these debentures that would indicate that the fair value differs substantially from
the carrying value.
14 Segmented information
The company currently has one operating segment (see note 1). Geographic disclosures are as follows:
Revenue
Canada
U.S.
Other
Property, plant and equipment
Canada
U.S.
2004
$
693,205
320,728
20,249
1,034,182
2003
$
49,000
10,169
30,070
89,239
2,176,220
2,948,597
2,032,844
1,228,960
5,124,817
3,261,804
During 2004, the company’s first year out of the development stage, revenue was derived from four clients
which was individually greater than 10% of total revenues. These four clients contributed: $377,304, $241,802,
$199,266 and $114,132.
(14)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
15 Commitments
The company has the following minimum commitments under operating leases for premises and office
equipment:
2005
2006
16 Subsequent events
$
80,000
53,000
133,000
Subsequent to the year-end, 258,200 warrants were exercised for cash consideration of $193,650 and 822,800
warrants were cancelled.
(15)
Corporate Information
Head
Office
355 Burrard Street, Suite 1700
Vancouver, B.C., Canada
V6C 2G8
Tel: 604-685-1243
Fax: 604-685-7778
Email: bioteq@bioteq.ca
Montreal
Office
1010 Sherbrooke Street W., Suite 1800
Montreal, Quebec
H3A 2R7
Tel: 514-849-7559
Fax: 514-221-3308
Investor
Relations
Tel: 1-800-537-3073
Email: investor@bioteq.ca
Legal
Counsel
McCullough O’Connor Irwin
Vancouver, B.C.
Auditors
PricewaterhouseCoopers
Vancouver, B.C.
Transfer
Agent
Pacific Corporate Trust
Vancouver, B.C.
Stock
Exchange
Toronto Venture Exchange
Symbol: “BQE”
Website
www.bioteq.ca
Directors
P. Bradley Marchant
President & CEO of the Company
Vancouver, B.C.
George W. Poling
Chairman of the Board
President and Chief Executive Officer
Trigon Exploration Canada Ltd.
Kelowna, B.C.
Kelvin P.M. Dushnisky
Vice President, Regulatory Affairs
Barrick Gold Corporation
Toronto, Ontario
Anthony T. Kana
Chartered Accountant
Retired
Vancouver, B.C.
Clement A. Pelletier
President & CEO
Rescan Environmental Services Ltd.
Vancouver, B.C.
Ian W. Telfer
President & CEO
Goldcorp Inc..
Vancouver, B.C.
Kenneth F. Williamson
Independent Consultant
Dwight, Ontario
Officers and
Management
P. Bradley Marchant
President & CEO
Richard W. Lawrence
Executive Vice President
John C. York
Chief Financial Officer
David Kratochvil
Manager, Engineering and Development
Bruce Chamberlain
Manager, Operations
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC. 2004 ANNUAL REPORT