BioteQ Environmental Technologies Inc.
2006 Annual Report
Global Operations
North Mine
Britannia
Wellington Oro
La Jojoba
Lluvia de Oro
Pueblo Viejo
Raglan
Cariboo
Blackwell
Bisbee
Codelco Andina
Operations
Developing Projects
Dexing
Mt. Gordon
BioteQ 2006 ANNUAL REPORT
Contents
04
08
22
23
24
46
President’s Message
Management’s Discussion and Analysis
Management’s Report to Shareholders
Auditors’ Report
Consolidated Financial Statements
Corporate Information
President’s Message
Dear Shareholder:
It is my pleasure to update you on BioteQ’s successes and aspirations
in this annual letter.
Fiscal 2006 was full of many accomplishments, several of which will
begin to bear fruit during 2007. The past year was a busy one for BioteQ,
where we solidified BioteQ’s foundation for future growth. We did so by
achieving an operating profit from our existing plants and entering into
five new agreements for development projects, with mining companies
from China, Mexico, Australia, and South America, creating a truly global
organization.
BioteQ 2006 ANNUAL REPORT
Most important to our company this past year was achieving our first profit, after all corporate costs, in the third
quarter. This is a major accomplishment and we expect more consistent results given the various projects that are
planned to commence in 2007. More importantly, profitability truly validates the Company’s business model and
reveals the financial leverage that just a handful of existing projects can contribute to the bottom line.
Our second major accomplishment in 2006 was our ability to increase the number of projects in our pipeline from
around the world. BioteQ is currently conducting business on four continents: North America, South America, Asia,
and Australia. Not only does this show geographic diversification, but also exposes the need for our technology on a
global basis. Here is a brief overview of some of the key regions where BioteQ has development projects:
China
Dear Shareholder:
We began 2006 by entering into a commercial agreement with Jiangxi Copper Corporation (“JCC”) in China
It is my pleasure to update you on BioteQ’s successes and aspirations in
and capped the year off by expanding upon that relationship by entering into a definitive joint venture agreement,
encompassing a total of six sites. Our first project with JCC at their Dexing Mine is currently under construction
this annual letter.
and expected to begin operation in 2007. We are very excited about this opportunity on many fronts. Firstly, we are
grateful that we have begun building our presence in China with its largest copper producer, a major endorsement for
BioteQ. Secondly, this opportunity will provide a commercial demonstration of sustainable water treatment for the
entire Chinese mining industry – a large market opportunity for us.
Fiscal 2006 was full of many accomplishments, several of which will
Similar to our other customers, JCC is a leader in its industry. It is China’s largest copper producer, it is also
begin to bear fruit during 2007. The past year was a busy one for BioteQ,
an important producer of sulphur, gold and silver and is one of the state supported key enterprises. JCC, based
in Guixi City, has over 30,000 employees and is involved in all aspects of mining including exploration, mining,
where we solidified BioteQ’s foundation for future growth. We did so by
milling, smelting and refining. We believe that partnering with such large companies validates our business model and
provides for stable growth in the future.
achieving an operating profit from our existing plants and entering into
five new agreements for development projects, with mining companies
Chile
from China, Mexico, Australia, and South America, creating a truly global
BioteQ has been in discussions for several years with Codelco Chile, the largest copper producer in the world,
having approximately 20% of the total global copper reserves. During 2006 we signed a development agreement for
organization.
a project at the Andina Division, a major step for BioteQ in entering the market in Chile. Currently, testwork is being
conducted to evaluate our technology for application at Andina. If the testwork is successful, then a larger scale
demonstration of our technology would be carried out. We are highly encouraged by the results so far and remain
optimistic about a definitive project in the future. Although the sales cycle on this project is longer than most, due to
Most important to our company this past year was achieving our first
the potential scale of operation, it is important to remember that the potential economic benefit of this project could
be significantly larger than current BioteQ projects in operation.
profit, after all corporate costs, in the third quarter. This is a major
accomplishment and we expect more consistent results given the various
projects that are planned to commence in 2007. More importantly,
profitability truly validates the Company’s business model and reveals the
financial leverage that just a handful of existing projects can contribute to
Mexico
We currently have two development agreements in place with Columbia Metals Corporation Limited, both of
which are undergoing testwork and development engineering. One of the important factors with this relationship
is that although the project economics are based on copper recovery, Columbia is in the business of mining gold.
Many of the known large gold deposits in the world are complexed with copper, which can lead to inefficient and
costly processing for gold recovery by cyanide leaching. BioteQ has developed a new process, by combining our core
technology with the SART technology developed jointly by SGS Lakefield and TeckCominco, offering a cost effective
method to recover copper from the cyanide leach solution. At the same time, the cyanide can be recovered for recycle
to the gold leaching operation. This cyanide, which had been associated with the copper, would have previously
been lost. This technology development has the potential to overcome the technical, environmental and economic
impediments to the development of some of the world’s large copper-gold systems.
We are very excited about these two opportunities in Mexico and we believe the new technology could be a fertile
source of new projects for BioteQ, both in Mexico and globally. We expect the first plant to be constructed by the
end of 2007.
Australia
Australia is a new geographic market for BioteQ. We ended 2006 by signing a definitive agreement for a water
treatment plant that includes copper and cobalt recovery for a subsidiary of Aditya Birla Minerals Limited. The
copper-cobalt recovery plant, located in Queensland, Australia, will be built, owned and operated by BioteQ, and will
be similar in size to our Raglan operation in Quebec. We anticipate plant construction and operation in 2007.
Development Pipeline
As many of these and other development projects get closer to becoming operating plants, it is very important
to make sure the Company has sufficient funds to react to opportunities as they develop. Adequate capitalization is
a key item to our negotiation process when proposing new ventures. As a result, in order to bolster BioteQ’s balance
sheet, we returned to the equity markets in December and raised $20 million. Not only does this give the Company
the necessary funding but it has also broadened our shareholder base.
The combined cash on hand and the equity financing that closed in December gave the Company $27 million in
cash in the treasury at the year-end. These funds provide the management team the financial flexibility for the next
growth phase of the business. The current operations provide an excellent foundation and the new capital will ensure
the financial strength required to complete our construction and ongoing sales objectives in 2007 and into 2008.
Currently there are five construction projects underway, with three expected to begin operation during the second
half of 2007. Specifically, we are expecting the Dexing project for Jiangxi Copper, the Wellington Oro site for the
U.S. Environmental Protection Agency (EPA), and the Mt. Gordon project in Australia for Aditya Birla all to be
operational by the end of 2007. In addition we expect substantial completion of the Lluvia de Oro project with
Columbia Metals in Mexico and the North Mine project with Inco this fiscal year for operation in 2008. Looking a
little further out, we have identified development projects, such as the Codelco project, that we expect to advance
toward construction in 2008 for operation in 2009.
BioteQ 2006 ANNUAL REPORT
The Company is continuing to build momentum with new projects and it is important to understand that our
philosophy is quality over quantity. We are a small, yet fast growing Company, we like to focus our resources, both
personnel and capital, on a few quality projects per year, and make sure those get off the ground smoothly, rather
than undertake too many projects and exhaust our resources. That being said, our goal is to construct three or more
projects annually. Simultaneously, in addition to overseeing the construction of projects, we continue to develop our
project pipeline for the future. We are now focused on prioritizing our pipeline to meet corporate goals and to meet
the environmental needs of our customers over the next five years.
While on the subject of potential business, BioteQ is working on a new growth initiative which incorporates a
new process and has the potential to enable the Company to monetize the value of treated water, and not limit our
economics solely to resalable metals from acid drainage sources. We believe this new application will be an additional
contributor to both revenue and earnings fairly quickly because it can be applied to hundreds of sites worldwide and
is not restricted to mining. We have initiated development of this new process with our existing customers and the
feedback to date has been very positive.
As the Company continues to build its footprint in the water treatment business globally, one thing is for certain,
the value of water continues to gain momentum and we believe BioteQ is in position to benefit from this growth.
I am pleased with the Company’s progress in 2006. Our future outlook is very promising thanks to a solid
foundation of existing operations and developing projects, the dedication of our employees and the support of our
business partners and customers to make water a priority for the future. We appreciate the continued support from
our Board of Directors and from our shareholders and hope to build value as we execute our business plan in 2007
and beyond.
On behalf of the Board of Directors,
Brad Marchant
President and CEO
Management’s Discussion and Analysis March 9, 2007
(all figures expressed in Canadian dollars unless otherwise noted)
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 a majority of independent directors, 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, 2006, which has been prepared in accordance with Generally Accepted
Accounting Principles in Canada (“Canadian GAAP”). Certain statements contained in 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. The Company’s Annual Information Form (“AIF”) may also be found on SEDAR.
BioteQ 2006 ANNUAL REPORT
Description of Business
BioteQ Environmental Technologies Inc. (“BioteQ”) is an industrial process technology company headquartered
in Vancouver, British Columbia, Canada. BioteQ has developed technologies for water treatment, sludge processing
and sulphide reagent production. BioteQ’s process plants allow the treatment of acid contaminated water with
concurrent recovery of saleable metals from the water and reduction of total dissolved solids. Water from the process
plants meets mandated discharge water quality criteria. In addition, biogenic sulphide reagent can be produced on
demand to replace more expensive chemical reagents.
Technologies
BioteQ’s core technologies include the BioSulphide® Process, which can utilize either Sulphur Reduction or Sulphate
Reduction, and are applied in a number of situations in mining and other industrial sectors. The ChemSulphide™
Process is used in place of the BioSulphide® Process where the production of biological sulphide is not warranted.
Applications of BioteQ’s sulphide technologies include treatment of acid drainage or industrial wastewater and
groundwater for the selective recovery of valuable metals to provide a revenue source from the water. In addition,
sulphide technologies can be used to replace or augment lime based treatment facilities to reduce or eliminate waste
sludge production and the associated liabilities. The biological technology that is an integral part of the BioSulphide®
Process can be utilized commercially to generate sulphide reagent on demand for other industrial purposes.
BioteQ has also developed technology for the conversion of some forms of waste sludge into value-added
construction materials, again to eliminate the potential long-term liability of sludge products and create a revenue
source from the waste products. BioteQ’s Sulf-IX™ technology is a recent development using ion-exchange to meet
new regulations for the reduction of the sulphate content of treated water and produce water acceptable for industrial,
agricultural and residential use.
Business Models
BioteQ will finance, build and operate or provide turn-key plants for the treatment of acid mine drainage and
other acidic/metal effluents using its commercially proven technology. Typical business models for BioteQ’s projects
include:
• Build, Own and Operate - Where BioteQ provides the capital and operating costs for the treatment plant and
charges a fee for water treatment and/or retains the metals recovered from the water. After capital payback, the
metal revenues are shared with the property owner.
• Joint Venture - Where BioteQ shares the capital and operating costs with the property owner, operates the
plant, and shares in the process benefits and metals recovered.
• Turn-Key Plant - Where BioteQ designs, builds and operates the plant on a fee basis.
In all cases BioteQ will provide a process guarantee. Potential revenue streams are plant sales, recovered metals,
water treatment fees, process license fees and the sale of value-added co-products and treated water.
Projects
BioteQ has several projects at various stages: operational, construction and developmental. The following chart
summarizes the major projects:
Company
OPeRAtiONS
Blue Note Metals
(now operating 2 lime plants only)
Phelps Dodge
Falconbridge/Xstrata
CONStRuCtiON PROJeCtS
Phelps Dodge
(built, awaiting client infrastructure)
Aditya Birla
Breckenridge/Summit County/uS ePA
Jiangxi Copper
Columbia Metals
DeVeLOPMeNt PROJeCtS**
inco
Columbia Metals
ePCOR
Codelco/iM2
Barrick Gold
Jiangxi Copper
Location
Name
First Year of Operation*
New Brunswick
Arizona
Northern Quebec
Caribou
Bisbee
Raglan
Oklahoma
Australia
Colorado
Jiangxi, China
Mexico
Blackwell
Mt Gordon
Wellington Oro
Dexing
Lluvia de Oro
Ontario
Mexico
Britannia, BC
Chile
Dominican Republic
China
North Mine
La Jojoba
Britannia
Andina
Pueblo Viejo
Five sites tBA
2002
200
200
200/
200
200
200
200/
200
200
200
200
2010
various
* future dates based on current project estimates
** potential projects, construction contracts not finalized
BioteQ has constructed and commissioned commercial treatment plants using its sulphide technology at three
sites: Bisbee, Arizona (Phelps Dodge), Raglan in northern Quebec (Falconbridge/Xstrata) and the Caribou Mine in
New Brunswick (acquired by Blue Note Metals Inc. on August 1, 2006 from Breakwater Resources Ltd.). A fourth
treatment plant was commissioned in 2005 at the Caribou site to reprocess 50,000 tonnes of tailings annually for
metals removal and final tailings disposal. With the change of ownership in 2006, this plant was sold to the new owner
and BioteQ’s sulphide plant was removed from the site. The Company continues to manage two lime treatment
plants at the Caribou site. A fifth BioteQ plant (its second with Phelps Dodge) has been completed and is ready for
installation and commissioning in Blackwell, Oklahoma, subject to completion of site infrastructure and permitting
by Phelps Dodge.
The Company also has several new projects currently in the construction/development schedule. The Company
has engineered a plant for construction at a Superfund site in Colorado (Wellington Oro), which was approved by
the U.S. Environmental Protection Agency (“US EPA”), and which is now in the initial stages of procurement and
construction engineering. The Company also completed an engineering study for Inco (now CVRD-INCO) for a
water treatment plant at Sudbury, Ontario and is currently working on the construction engineering, subject to a final
operating agreement. The joint venture with Jiangxi Copper has been formed and the first project, at their Dexing
mine site, is scheduled for completion this fiscal year. The definitive joint venture, which was signed in November
10
BioteQ 2006 ANNUAL REPORT
2006, includes an additional five sites for BioteQ to evaluate. The Company also signed agreements for preliminary
engineering of a new application of BioteQ’s technology for two gold mines in Mexico with Columbia Metals
Corporation Ltd, which is based in Toronto. A recent agreement anticipates construction of the first plant Lluvia
de Oro, in Sonora, Mexico, for completion in late 2007. BioteQ has also advanced its relationship with Codelco
Chile, one of the world’s largest copper producers, through their wholly owned subsidiary IM2, for the development
of water treatment and metal recovery technologies for the Andina division. BioteQ has also entered into a new
geographic market recently by signing a definitive agreement for a water treatment plant in Australia with Birla Mt
Gordon, a subsidiary of Aditya Birla. The copper-cobalt recovery plant, to be located near Mt Isa in Queensland,
will be built, owned and operated by BioteQ and is expected to be in operation in 2007. Work has continued on the
Britannia project in 2006 to evaluate the potential for expansion of the existing lime treatment plant to include a novel
method of producing saleable construction products from lime sludge. An internal pilot plant and feasibility study
was completed in early 2007. A decision to proceed to the next stage is expected in 2007 for possible construction in
2008. Engineering and pilot work on the Pueblo Viejo project with Barrick Gold Corporation, has been completed
and BioteQ awaits Barrick’s decision on the progress of their gold project, which if approved, could involve BioteQ
in a future year.
Operations
Overall Performance
three-Year Comparative information - $
Revenues
Operating costs
General and administrative and other
Net loss
Net loss per share (basic and diluted)
total assets
Total long-term financial liabilities
total liabilities
Shareholders’ equity
Comparison of the years
200
200
,1,2
2,,1
3,00,131
1,,1
0.0
33,33,31
0
1,31,
32,31,2
2,,0
3,220,0
2,32,1
2,0,
0.10
11,0,022
3,02
1,3,00
,0,22
200
1,03,12
,12
1,2,023
1,1,23
0.0
,,03
33,2
,0
,13,0
Until fiscal 2003, the Company was developing its BioSulphide process. During the three years 2004 to 2006,
the Company’s existing sulphide plants commenced operations (in late 2004) and matured into steady producers
for BioteQ. The Caribou site water management contract also started in the fourth quarter of 2004. Therefore, the
results for 2005 represent the first full year of operations and the 2004 revenues, operating costs and net losses are
not directly comparable. In 2005, revenues were lower and operating costs and losses were higher than budget, due
largely to mechanical issues at the Bisbee site and extraordinarily high costs at Caribou due to record precipitation.
Revenue improvements in 2006 and lower operating costs produced a much improved net operating result. The
increase in revenues was very largely due to Bisbee and Raglan. Copper revenues at Bisbee increased from $614,000
in 2005 to $1,966,000 in 2006. Copper production was 41% higher due to mechanical improvements made in 2005
11
and early 2006, coupled with the benefit of increased operating experience. Copper prices also contributed greatly,
with an average price 80% higher in 2006. Raglan revenues increased from $832,000 in 2005 to $1,208,000 in 2006.
The improvement was very largely due to an increase of 60% in water volumes being processed and a price increase
of 5.7% on treatment fees charged.
General and administrative and other costs increased in 2006 due largely to an increase in marketing and development
costs, stock-based compensation charges and general and administrative costs. Marketing and development increased
by $586,000 in 2006, the largest part being due to a royalty due on government grants received some years ago.
The 2% royalty is based on revenues, which increased in the year, resulting in payments of $39,000 in development
costs. In addition, an accounting accrual of $251,000 was made at the year-end to record the unpaid balance of the
grants received, on the basis of reasonable certainty of future revenue streams, considering the increased stability of
the Company. Marketing costs also were higher in 2006 due to three particular areas of emphasis. Australia, China
and South America developments incurred costs of $221,000 in the year, however, two projects for construction in
2007 have resulted. Marketing and development costs in 2006 also include an amount of $66,000 relating to a large
development project from 6 years ago. The supplier’s claim for reimbursement was only recently documented to
properly support their claim.
Stock based compensation charges increased by $352,000 in 2006, reflecting the fair value charges for stock
options granted in 2006. These charges are calculated using the Black-Scholes option pricing model and, due to
BioteQ’s historical stock performance, indicate current fair values which are considerably higher than in the past.
New options issued were higher in 2006 due to a 50% increase in the number of employees and also due to directors
and officers old options, which had been issued in 2001, reaching the end of their five year life. They were exercised
before expiry and new options were issued. These charges will continue to be high in 2007 for the same reasons, as
the vesting periods are reached.
General and administrative costs increased by $489,000 over 2005. This increase was largely due to an increase in
employees, an increase in legal and professional services and general office expense. More information is provided
below with the table-“Schedule of general and administrative costs”.
Assets increased largely due to an equity financing in late 2006 for net proceeds of $18.4 million and the exercise
of warrants and options during the year, which resulted in additional cash of $5.1 million. Total liabilities and long-
term financial liabilities have reduced in 2006 due to the conversion of Series ‘A’ debentures with a face value of
$400,000 to common shares. Shareholder equity changes in 2006 are the result of the above-mentioned financing
and warrant and option exercises, stock based compensation charges of $429,168 and the net loss for the year.
The Company did not achieve the small profit expected for 2006, although it did record a profitable third quarter.
Two projects, Blackwell and Wellington Oro, which were budgeted for 2006 were delayed until 2007 by the clients
and the Bisbee plant did not achieve consistent operations until the third quarter. New projects are underway which
are expected to start contributing to revenues in 2007 and, with existing operations, the Company is forecasting a
profitable 2007.
At December 31, 2006, the Company had 33 full time employees and one part-time employee, compared to
22 full time and one part time employee at the end of 2005. The increase in full time staff is the result of hiring a
Controller and project/marketing assistance in the Vancouver head office, 6 extra personnel at operating plants (3 of
which were just new to the BioteQ payroll), a construction manager, a new engineer for the China project and one
laboratory technician.
12
BioteQ 2006 ANNUAL REPORT
Operating Results
Financial data for the last eight quarters (unaudited)
Quarter ended
Dec 0
Sept 0
Jun 0
Mar 0
Dec 0
Sept 0
Jun 0
Mar 0
total revenues ($000’s)
Plant & other operating
expenses ($000’s)
Net income(loss) before G&A,
Amortization & other($000’s)
General & administrative,
amortization & other ($000’s)
Net income (loss) ($000’s)
Loss per share
1,1
1,313
1,2
3
3
1,3
(0)
$0.02
3
$0.00
32
(31)
$0.01
1
1
1,13
1
1
(2)
11
(12)
0
(03)
$0.02
(1,131)
$0.0
3
(22)
$0.02
()
$0.02
0
2
3
()
$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.
Revenues have increased every quarter in 2006 over 2005. Generally, this reflects improved performance at both
the Raglan and Bisbee plants, but also an improved copper price for Bisbee concentrate. Caribou revenues were similar
to 2005. The quarters’ revenues vary due to the Raglan seasonal operation from approximately May to October, due
to sub-arctic conditions in Northern Quebec. Operating expenses decreased in the third and fourth quarters of
2006, due to the changing contract for Caribou, and Raglan operations being only one month in the fourth quarter.
Amortization of property plant and equipment was very similar each quarter and year.
General & administrative expenses, amortization & other in the fourth quarter of 2006 show an increase of
$649,000 over the third quarter, of which approximately $400,000 could be considered unusual expenditures. The
accrual for payment of royalties on future sales contributed $251,000 (part of marketing and development costs,
referred to previously) and general and administrative costs were higher by $205,000 (see details below). Higher stock
based compensation charges of $330,000, referred to previously, was incurred in Q4 and these costs will continue
into 2007.
Schedule of general and administrative expenses (unaudited)
Management and office services
Rent
Legal, audit and professional
travel
investor relations
Directors fees and expenses
Office and other expenses
3 months ended Dec 31
200
200
Year ended Dec 31
200
200
2,0
3,31
111,33
,2
3,0
22,000
,
201,31
23,3
,03
3,1
21,
2,
,1
1,22
11,1
31,31
10,020
,1
,31
3,1
2,
,23
10,3
121,110
1,1
,
221,0
total for the periods
$2,02
$2,
$1,1,
$1,3,1
The increase in general and administrative costs for the year over 2005 is largely due to the following. Management
and office services increased in 2006 due to the addition of a Controller early in 2006 and a project manager in mid
year. The last quarter was high due to the payment of year-end bonuses. Rent increased due to a full year of a renewed
13
office lease at higher rates and somewhat more space. New laboratory space in 2007 will increase the rental costs by
15%. Legal, audit and professional increased over 2005 due particularly to higher legal fees for off-shore and other
agreements and also for extra costs in the last quarter related to the December 2006 financing, including one-time
reviews of past quarters financial results. Investor relations costs increased due to the engagement of a US firm in
the fourth quarter. Office and other expenses increased as a result of higher Quebec capital taxes by $60,000, due to
the increased capital from the December financing. Also, advertising, insurance and transfer agent, and AGM costs
all increased in 2006. We expect general and administrative costs in 2007 to be less than 2006.
Fourth Quarter
A summary of the fourth quarter plant operating results by project is shown below:
Bisbee
Raglan
Caribou
Other
total
Revenues
3,000
23,000
2,000
20,000
$1,1,000
Plant Operating Costs
Plant Operating Profit
3,000
12,000
21,000
(2,000)
$3,000
2,000
1,000
1,000
,000
$3,000
Bisbee plant operating costs were approximately $85,000 higher than normal due to preventative maintenance
and property tax charges in December. Raglan operations are seasonal and revenues include only five weeks of water
treatment activity. Operating costs include seasonal shutdown costs and a year-end bonus. Caribou results reflect the
first full quarter of the new operating agreement with Blue Note Metals.
Operating Projects
During the year, the Company’s principle operations were the Bisbee and Raglan plants built by BioteQ and also
the two lime treatment plants under contract at Caribou.
The Phelps Dodge Project – Bisbee, Arizona
In August 2004, the Company completed commissioning of a copper recovery plant using the BioSulphide®
Process at the Bisbee site in a joint venture with Phelps Dodge Corporation. The plant was designed and built by
BioteQ and is owned and operated by the joint venture company, Copreco LLC. BioteQ has operating responsibility
for the plant which is designed to recover copper selectively from circulating water from existing low-grade stockpiles.
The design capacity of the plant is approximately 2.7 million pounds per year of copper recovered, depending on
water availability and the amount of copper and other metals contained therein. Revenues and expenses are shared
equally between the joint venture members.
Operating statistics
Operations
Qtr 200
Operations
Qtr 200
Operations
Year 200
Operations
Year 200
Water treated (millions of gallons)
Mechanical availability (%)
Copper produced (pounds in concentrate)
Copper recovery
232
20,000
>%
2
11,000
>%
1
1,20,000
>%
30
1
3,000
>%
1
BioteQ 2006 ANNUAL REPORT
Copper production at the site during the year was 40% better than the previous year. Mechanical performance
improved radically in the second half of the year and produced over double the amount of copper than 2005.
Process consistency with the production of hydrogen sulphide from the bioreactor was also much improved in the
second half of the year. Both these improvements can be related to the efforts of the operating personnel under new
leadership at the site.
The lower copper grades previously reported continued through the fourth quarter and reduced the copper
grade by approximately 15% over the first half of the year and also 2005. To our advantage, there was also lower
ferric iron in the water, which consumes less sulphide and reduces operating costs. It also avoids the need for a ferric
removal stage being built into the process, which had been discussed previously. BioteQ believes that grades will
improve with more attention to water distribution on the low-grade stockpile, which will be addressed in 2007.
The expected plant production for 2007 is 1.5 million pounds of copper, producing revenue for BioteQ’s share
of approximately $2,000,000. Revenue for 2006 met expectations of almost $2,000,000 through a copper shortfall
being offset by price increases.
The Falconbridge/Xstrata Project – Raglan Mine, Quebec
BioteQ’s Raglan plant located in Northern Quebec at the Raglan Mine, which is owned by Falconbridge/Xstrata,
was designed, built and is operated by BioteQ for fees, to recover nickel from mine wastewater using BioteQ’s
ChemSulphide™ process. The nickel concentrate produced by the plant is shipped with other nickel concentrate
produced at the mine. In 2006, over 11,600 kilograms of nickel was removed from the wastewater, which allowed
discharge of treated water directly into the environment. No sludge is created for storage, as in a conventional
lime treatment plant. The plant was commissioned and reported limited operations in 2004. The first year of full
operation, which is seasonal from May to October, was in 2005.
Preparations for the 2006 operating season started in March, the plant began discharging clean water at the end
of April, approximately 3 weeks earlier than in 2005.
Operating statistics (seasonal)
(discharge commenced in 200 in late April and in
200 on May 20). Both years ended early November.
Operations
Qtr 200
Operations
Qtr 200
Operations
Year 200
Operations
Year 200
Water treated (cubic meters)
Days operated (some partial)
Nickel recovery
10,000
3
>%
11,000
3
>%
1,000
1
>%
0,000
10
>%
The plant finished its operating season successfully with 60% more water treated than 2005 and 15% more
than the volume target from the client. BioteQ had been requested to increase the plant’s throughput in 2006 to
700,000 cubic meters of water, from 500,000 treated in 2005. With some relatively minor plant upgrades, the plant
exceeded the client’s target. Discharged water was significantly below the allowable discharge quality limits. After a
start-up period in April, process availability was approximately 87%, the same as in 2005. Operating costs were close
to expectations and included expenditures on improving operating procedures by the documentation of health,
safety and management standards to become ISO 14001 compliant. The independent verification of procedures and
systems was completed in 2006 and will form the basis of improving systems reliability at all BioteQ’s sites.
1
Revenues of $1,100,000 were expected in 2006 for both the fixed fees and water treatment fees and were actually
$1,208,000. Revenues for 2007 are expected to be higher, in the range of $1,290,000, for processing a similar quantity
of water as in 2006.
The Caribou Mine Project, New Brunswick
BioteQ commenced operating all mine dewatering, water collection and treatment at both the Caribou and
Restigouche sites owned by CanZinco Ltd, a subsidiary of Breakwater Resources Ltd, in New Brunswick in late 2004,
under a contract for fees and retention of any metals recovered, which replaced previous agreements for the Caribou
sites. BioteQ controls all collection and treatment of acidic mine drainage and management of sludge products
through CanZinco’s two lime plants. BioteQ’s own biological plant, which was designed and built in 2001, had not
been operating, pending expansion engineering, for possible treatment of old tailings with elevated metal content
or zinc recovery from the mine drainage. The change in ownership to Blue Note Metals Inc. in August 2006 caused
a termination in the CanZinco contract and a new one-year deal for similar services with Blue Note, who intend to
return both sites to producing zinc mines. At the same time, BioteQ was paid out for its capital investment in the
sites, with the exception of the BioSulphide plant which has been retained by BioteQ. This small plant is maintained
to provide a critical back-up supply of biomass for the existing Bisbee plant and will be used as the start-up supply
of biomass for future BioSulphide plants.
BioteQ had been improving the water treatment capacity at the two lime plant sites during 2005 through a number
of process changes. A new high density sludge circuit had been built, as well as installing a new lamella clarifier to
produce a higher density sludge for more economic handling, and an improvement to water quality. The changes
have allowed the plants to treat double the amount of water in 2006, with discharge water meeting all regulatory
standards. The water treatment contract is now on a cost plus 10% basis, which produces lower revenue, but assures
a small profit.
General
Disclosure Controls and Procedures
As at the financial year ended December 31, 2006, an evaluation was carried out under the supervision of and
with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure
controls and procedures were effective as at December 31, 2006 to provide reasonable assurance that material
information relating to the Company and its consolidated subsidiaries would be made known to them by others
within those entities.
Financial Instruments
Effective January 1, 2007, the following new accounting pronouncements came into effect: CICA Handbook
section 1530 “Comprehensive Income” and CICA Handbook Section 3855 “Financial Instruments-Recognition and
Measurement”. CICA Handbook Section 3855 introduces new requirements for the recognition and measurement
of financial instruments. CICA Handbook section 1530 introduces a new requirement to temporarily present certain
gains and losses outside net income in a location called “Other Comprehensive Income”. The Company will adopt
these standards effective January 1, 2007 and does not expect the adoption of these standards to have a material
impact on the Company’s financial statements.
1
BioteQ 2006 ANNUAL REPORT
Related party transactions
At December 31, 2005, a director held $100,000 of the Company’s convertible debentures issued on September
5, 2002. All the outstanding debentures were converted to common shares of the Company during 2006, of which
the director received 153,846 shares.
Risks and uncertainties
Companies operating in the process technology sector face many and varied risks. While the company strives to
manage such risks to the extent possible and practical, risk management cannot eliminate risk totally. Following are
the risk factors which the Company’s management believes are most important in the context of the Company’s
business. It should be noted that this list may not be exhaustive and other risks may apply. An investment in the
Company may not be suitable for all investors.
Dependence on Key Personnel
The Company is substantially dependent upon a number of key employees and consultants. The loss of any
one or more of the Company’s key employees or consultants could have a material adverse effect on its business.
Additionally, the Company’s ability to develop, manufacture and market its products and compete with current and
future competitors depends, in large part, on its ability to attract and retain qualified personnel. Competition for
qualified personnel in the Company’s industry may prove to be intense, and it may have to compete for personnel
with companies that have substantially greater financial and other resources than it does. Failure to attract and retain
qualified personnel could have a material adverse effect on the Company’s business operating results and financial
condition.
Securities of the Company and Dilution
The Company anticipates generating cash flow from all plants built, but not sufficient cash flow to provide for all
future financing requirements. It is anticipated that each project built will be financed largely by presently available
resources and debt, but some equity may be required. There can be no assurance that such financings will be available
if needed or that, if available, on terms satisfactory to the Company. The issuance of common shares in the capital
of the Company in the future could result in further dilution to the Company’s shareholders.
Competition
Although the Company is not currently aware of any competitors, there is a possibility that other companies will
compete with the Company and such competitors may possess greater financial resources and technical facilities.
Increased competition could result in significant price competition, reduced profit margins or loss of market share.
The Company may not be able to compete successfully with existing or future competitors and cannot ensure that
competitive pressures will not materially and adversely affect its business, operating results and financial condition.
Uncertain Profitability of Commercial Application
The Company believes there are many sites which can benefit from the Company’s process. The Company has
built three significant commercial plants, one is awaiting installation and commissioning and several more are in
the engineering stage or at the start of construction. Until the Company has completed these revenue generating
plants the Company’s success cannot be assured. The Company currently derives its revenue from a limited number
of sources (contracts). The loss of any one contract could result in a materially adverse effect on the Company’s
financial condition.
1
Technology Risk
The Company has completed the construction and commissioning of a number of plants. The operating and
engineering data from these plants is used in estimates for new projects under evaluation and/or in the design
engineering stage. Notwithstanding the foregoing, each new commercial venture undertaken by the Company has
the inherent technical risk of any continuous biological and/or chemical process, which could include the loss of the
biological feedstock.
Intellectual Property Protection
The Company cannot provide any assurance that any further intellectual property applications will be approved.
Even if they are approved, such patents, trademarks or other intellectual property registrations may be successfully
challenged by others or invalidated. The success of the Company and its ability to compete are substantially
dependent on its internally developed technologies and processes which the Company will need to protect through a
combination of patent, copyright, trade secret and trademark law.
The trademark, copyright and trade secret positions of the Company’s business are uncertain and involve complex
and evolving legal and factual questions. In addition, there can be no assurance that competitors will not seek to apply
for and obtain trademarks and trade names that will prevent, limit or interfere with the Company’s BioSulphide®,
ChemSulphide®, or Sulf-IX™ processes. Litigation or regulatory proceedings, which could result in substantial cost
and uncertainty to the Company, may also be necessary to enforce the intellectual property rights of the Company or
to determine the scope and validity of other parties’ proprietary rights. There can be no assurance that the Company
will have the financial resources to defend its patents, trademarks and copyrights from infringement or claims of
invalidity.
The patent positions of emerging companies can be highly uncertain and involve complex legal and factual
questions. Thus, there can be no assurance that any patent applications made by or on behalf of the Company will
result in the issuance of patents, that the Company will develop additional proprietary products that are patentable,
that any patents issued or licensed to the Company will provide the Company with any competitive advantages or
will not be challenged by any third parties, that the patents of others will not impede the ability of the Company
to do business or that third parties will not be able to circumvent the patents assigned or licensed to the Company.
Furthermore, there can be no assurance that others will not independently develop similar products, duplicate any of
the Company’s products or, if patents are issued and licensed to the Company, design around the patented product
developed for the benefit of the Company.
Since patent applications are maintained in secrecy for a period of time after filing, and since publication of
discoveries in the scientific or patent literature often lags behind actual discoveries, the Company cannot be certain
that the investors of the patents were the first creators of inventions covered by pending applications, or that it was
the first to file patent applications for such inventions. There can be no assurance that the Company’s patents, if
issued, would be valid or enforceable by a court or that a competitor’s technology or product would be found to
infringe such patents.
The Company is not currently aware of any claims asserted by third parties that the Company’s intellectual
property infringes on their intellectual property. However, in the future, a third party may asset a claim that the
Company infringes on their intellectual property. If the Company is forced to defend against these claims, which may
be with or without any merit or whether they are resolved in favour or against the Company, the Company may face
1
BioteQ 2006 ANNUAL REPORT
costly litigation and diversion of management’s attention and resources. As a result of such a dispute, the Company
may have to develop costly non-infringement technology or enter into license agreements which may not be available
at favourable terms.
Access to Proprietary Information
The Company generally controls access to and distribution of its technologies, documentation and other
proprietary information. Despite efforts by the Company to protect its proprietary rights from unauthorized use or
disclosure, parties may attempt to disclose, obtain or use its solutions or technologies. There can be no assurance
that the steps the Company has taken or will be taking will prevent misappropriation of its solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may not protect proprietary rights as fully
as in the United States or Canada.
Commodity Prices
On occasion, the Company will be selling recovered metals obtained from treated water to generate revenue.
These recovered metals face commodity pricing risks and thus their prices may vary based on world supply and
demand. There can be no assurance that the price of metals will maintain at current buying rates.
Currency Risk
Commodities are priced in United States dollars. Therefore, any devaluation of the United States dollar would
adversely affect the Company’s future revenues. Further, since a significant portion of the Company’s expenses are
in Canadian and other currencies, a significant increase in the value of such currencies relative to the United States
dollar coupled with unstable or declining base metal prices could have an adverse affect on the Company’s results of
operations to the extent that sales of base metals are not hedged.
Environmental Regulation
The Company’s business and operations are subject to environmental regulation in various jurisdictions in which
it operates. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the
Company’s business and operations.
Management of Growth
The Company could experience growth that could put a significant strain on each of the Company’s managerial,
operational and financial resources. The Company must implement and constantly improve its operational and
financial systems and expand, train and manage its employee base to manage growth. The Company might also
establish additional water treatment facilities which would create additional operational and management complexities.
In addition, the Company expects that it’s operational and management systems will face increased strain as a result
of the expansion of the Company’s technologies and services. The Company might not be able to effectively manage
the expansion of its operations and systems, and its procedures and controls might not be adequate to support its
operations. In addition, management might not be able to make and execute decisions rapidly enough to exploit
market opportunities for the expansion of the Company’s technologies and services. If the Company is unable to
manage its growth effectively, its business, results of operations and financial condition will suffer.
1
Conflicts of Interest
Certain of the directors, officers and other members of management of the Company and its subsidiaries, Biomet
and BioteQ Arizona, Inc. serve (and may in the future serve) as directors, officers, promoters and members of
management of other companies and therefore it is possible that a conflict may arise between their duties as a
director, officer or member of management of the Company or Biomet or BioteQ Arizona, Inc. and their duties as
a director, officer, promoter or member of management of such other companies.
The directors and officers of the Company are aware of the existence of laws governing accountability of
directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the
Company will rely upon such laws in respect of any directors’ and officers’ conflicts of interest or in respect of any
breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers
in accordance with the Business Corporations Act (British Columbia) and they will govern themselves in respect
thereof to the best of their ability in accordance with the obligations imposed upon them by law.
Possible Volatility of Share Price
The market price of the Company’s common shares could be subject to wide fluctuations in response to, and may
be adversely affected by, quarterly variations in operating results, announcements of technological innovations or new
products by the Company or its competitors, changes in financial estimates by securities analysts, or other events or
factors. In addition, the financial markets have experienced significant price and volume fluctuations. This volatility
has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their
operating performance. Broad market fluctuations or any failure of the Company’s operating results in a particular
quarter to meet market expectations may adversely affect the market price of the Company’s common shares.
Lack of Dividends
No dividends have been paid to date on the Company’s common shares. The Company anticipates that for the
foreseeable future the Company’s earnings, if any, will be retained for use in its business and that no cash dividends
will be paid on the common shares.
Possible Loss of Investment
There can be no assurance of the Company’s success and, therefore, any investors in securities of the Company
could potentially lose their entire investment.
Dilution
There are a number of outstanding securities and agreements pursuant to which common shares of the Company
may be issued in the future which will result in dilution to the Company’s shareholders.
20
BioteQ 2006 ANNUAL REPORT
Liquidity and Capital Resources
At the year-end, the Company had 59,770,025 (fully diluted-68,235,171) common shares issued and outstanding,
compared to 42,368,727 (fully diluted-52,937,444) for 2005. During the year, there was one equity financing which
resulted in 11,478,571 shares being issued for cash proceeds (net) of $18,378,037. The financing was completed
at a price of $1.75 per share, with issue costs of $2,103,263, including 7% cash commission to the agent, and also
1,142,857 warrants to buy the same number of common shares for 2 years at $1.75 per share. The net cash proceeds
of the financing amounted to approximately $18.3 million and is to be used for general working capital purposes,
including the development of new business opportunities and capital assets. Additional cash was received during the
year from options and warrants which were exercised to issue 5,307,343 shares, for cash proceeds of $5,063,665. An
additional 615,384 shares were issued in the conversion of Series A debentures to common shares. At the current date
of March 9, 2007, the issued shares are 60,365,169 and fully diluted are 68,513,371. There were 4,295,970 warrants
and 3,852,232 options outstanding to buy the same numbers of common shares. The increase in the number of
issued shares in 2007 is due to the exercise of 353,333 options for cash of $256,649 and the exercise of 241,811
warrants for cash of $406,820. New options totaling 278,200 were granted subsequent to the year-end.
At December 31, 2006, the Company had cash and short-term investments, consisting of major bank paper, of
$27,199,914, an increase of $21,481,339 from December 31, 2005. Equity issues noted above were responsible for
new cash of $23,441,702, The Company used its cash resources to fund its 2006 operating loss of $852,334, net
of non-cash items, changes in non-cash working capital of $504,974 and to fund property, plant & equipment and
intangible asset changes of $424,410.
Working capital at the year-end was $27,042,022, which had increased from December 31, 2005 by $22,163,958.
The change was caused by substantially the same factors as affected cash, noted above. Additional funds of $6.2
million may be available from the exercise of outstanding warrants, which are all in the money at the present time. Of
these resources, approximately $10 million has been committed to the construction of three new projects in 2007,
the Dexing, Lluvia de Oro and Mt. Gordon projects. In addition, $50,000 has been committed to a basic engineering
study. The balance is largely uncommitted, with the exception of a commitment to repay the HSBC 3 year bank loan
by payments of $17,200 per month until January 2009 and commitments for office and laboratory lease payments
of approximately $13,000 per month until 2008. Also the Company is committed to repayment of government
assistance in the form of a 2% royalty on corporate gross revenues. The maximum amount that could become payable
is $460,297. The Company expects its existing and new operations, some of which are planned to be contributing
before the end of the year, to provide the necessary cash flow in 2007 to fund other corporate expenditures such as
general and administrative, marketing and development expenses and interest costs.
Management believes that the current working capital, together with the cash flow from operations, is sufficient to
support the Company’s operating requirements and new project capital in the foreseeable future. In the longer term,
the Company expects it will continue to grow through developing new projects, which will likely require additional
equity or debt financing, depending on project scope and commercial terms. Management believes such funding
will be available if its existing projects are proven to be successful, but recognizes the market uncertainty of such
arrangements.
21
Management’s Repor t 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,
the majority 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.
The consolidated financial statements have been independently audited by PricewaterhouseCoopers LLP. Their
report outlines the nature of their audits and expresses their opinion on the consolidated financial statements of the
Company.
P. Bradley Marchant
President and Chief Executive Officer
John C. York
Chief Financial Officer
22
BioteQ 2006 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, 2006 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, 2006 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.
March 9, 2007
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.
23
BioteQ Environmental Technologies Inc.
Consolidated Balance Sheets
As at December 31, 2006 and 2005
Assets
Current assets
Cash
Short-term investments
Trade receivables
Receivable from joint venture partner
Taxes receivable
Inventory (note 6)
Prepaid expenses
Other
Property, plant and equipment (note 7)
Intangible asset (note 8)
Deferred financing costs
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue
Bank loan (note 9)
Liability component of Series A debentures (note 10)
Shareholders’ Equity
Capital stock, warrants and contributed surplus (note 11)
2006
$
2005
$
1,914,068
25,285,846
521,273
64,790
186,447
251,652
120,246
89,164
28,433,486
5,042,592
224,542
32,771
5,718,575
-
227,631
-
-
20,230
88,990
117,096
6,172,522
5,263,521
-
67,979
33,733,391
11,504,022
992,794
-
398,670
607,502
110,641
576,315
1,391,464
1,294,458
-
359,042
1,391,464
1,653,500
43,834,716
19,498,592
Equity component of Series A debentures (note 10)
-
96,128
Deficit
Commitments (note 16)
Subsequent events (note 17)
Approved by the Board of Directors
(11,492,789)
(9,744,198)
32,341,927
9,850,522
33,733,391
11,504,022
“George W. Poling”
“Clement A. Pelletier”
George W. Poling, Director
Clement A. Pelletier, Director
2
BioteQ Environmental Technologies Inc.
Consolidated Statements of Operations and Deficit
For the years ended December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
Revenue
Operating expenses
Plant and other operating costs
Amortization of property, plant and equipment
Amortization of intangible asset
Amortization of deferred financing costs
General and administrative expenses
Stock-based compensation charge
Marketing and development costs
Loss on disposal of plant
Loss from operations
Interest income
Interest expense
Foreign exchange (gain) loss
Loss for the year
Deficit - Beginning of year
Deficit - End of year
Loss per share - basic and diluted
2006
$
2005
$
4,519,728
2,755,970
2,868,188
391,377
23,228
36,208
1,981,987
429,168
842,434
6,192
3,220,047
377,321
-
21,029
1,493,415
77,658
256,153
-
6,578,782
5,445,623
2,059,054
2,689,653
(348,852)
(36,295)
55,183
(16,794)
75,881
61,556
1,748,591
2,790,795
9,744,198
6,953,403
11,492,789
9,744,198
(0.04)
(0.10)
Weighted average number of shares outstanding
39,842,920
29,036,609
2
BioteQ Environmental Technologies Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2006 and 2005
Cash flows from operating activities
Loss for the year
Items not affecting cash
Amortization of property, plant and equipment
Amortization of intangible asset
Amortization of deferred financing costs
Accretion of Series A debentures (note 10)
Stock-based compensation charge
Loss on disposal of plant
Change in non-cash working capital items
Cash flows from financing activities
Issuance of common shares and warrants
Share issuance costs
Proceeds from exercise of warrants and options
Repayment of bank loan
Deferred financing costs
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of short-term investments
Purchase of intangible assets
(Decrease) increase in cash
Cash - Beginning of year
Cash - End of year
Supplemental cash flow information
Interest paid
Withholding taxes paid and receivable
Non-cash financing and investing activities
Debenture converted to common shares (note 10)
Warrants issued in settlement of issue costs (note 11)
Units issued in settlement of issue costs (note 11)
2
2006
$
2005
$
(1,748,591)
(2,790,795)
391,377
23,228
36,208
10,084
429,168
6,192
377,321
-
21,029
24,580
77,658
-
(852,334)
(504,974)
(2,290,207)
380,214
(1,357,308)
(1,909,993)
19,999,999
(1,621,962)
5,063,664
(177,645)
(1,000)
5,749,999
(542,384)
442,950
576,315
(7,445)
23,263,056
6,219,435
(596,486)
419,847
(25,285,846)
(247,770)
(516,025)
-
-
-
(25,710,255)
(516,025)
(3,804,507)
3,793,417
5,718,575
1,925,158
1,914,068
5,718,575
45,099
186,447
465,254
393,801
87,500
51,301
-
-
205,580
103,500
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
1 Company operations
BioteQ Environmental Technologies Inc. (BioteQ or the company) and its wholly owned subsidiary Biomet
Mining Corporation (Biomet), have acquired and developed processes to treat metal-laden, sulphate-rich
waste water streams for acid neutralization and metal recovery. Three commercial scale plants have been
built using its patented BioSulphide® or Chemsulphide™ technology and others are in progress.
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
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.
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 represent investment in banker’s acceptances with maturity dates of more than 90
days. Short-term investments are carried at cost which approximates fair value.
(1)
2
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
Inventory
Work-in-progress and inventory of copper concentrate are recorded at the lower of cost and net realisable
value. Spare parts are valued at the lower of cost or replacement cost. Work in progress and concentrate
inventory includes all direct costs incurred in production, including direct labour, materials and directly
attributable overhead costs.
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
Vehicle
Pilot plants
Water treatment plants
5 years straight-line
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.
Revenue
Revenue from the company’s water treatment plants varies depending on the company’s agreements with
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;
(2)
(cid:120)
(cid:120)
(cid:120)
2
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
(cid:120)
(cid:120)
(cid:120)
revenue from construction and sale of plants recognized on a percentage of completion basis, based on
performance as services are provided or contract milestones are met. If it is determined during the
performance of the contract that a loss will result, a provision for the estimated loss is immediately
recognized;
revenue from contracts with multiple deliverables requires the identification of separate units of
accounting and revenue is allocated among the separate units based on their relative fair values. The
amount allocated to each unit is recognized when each unit or service is delivered, provided all other
revenue recognition criteria are met;
Contingent revenue attributable to the achievement of developmental milestones is recognized only on
the achievement of the applicable milestone.
Fees from engineering services are recognized as the services are rendered.
Development costs
The company expenses all costs associated with development activities in the statements 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 statements 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 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.
(3)
2
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
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 except when the effect would be anti-dilutive. For the years ended December 31, 2006 and 2005, the
company excluded potential common share equivalents of 2,180,037 and 912,803 respectively, from the loss
per share calculation as they were considered anti-dilutive.
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 awards to employees and non-employees granted after January 1,
2001 using the fair value based method prescribed under the Canadian Institute of Chartered Accountants
(CICA) Handbook Section 3870, “Stock-Based Compensation and Other Stock-Based Payments”. Under this
method, stock-based awards are measured at the fair value of the equity instrument issued and stock-based
compensation expense is recorded over the period that the services are provided. Contributed surplus is
credited when stock-based compensation expense is recorded in the consolidated statement of operations
and deficit. The fair value of stock-based awards to non-employees is periodically remeasured until the
services are provided, or the options vest, and any change therein is recognized over the period.
Intangible assets
The costs of acquiring intangible assets from arm’s length third parties are capitalized. Costs are amortized on
a straight-line basis over the intangible assets’ estimated useful lives. Intangible assets are tested for
impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable, in which case the intangible assets are tested for impairment by comparing the estimate of future
expected cash flows directly associated with their use to their net carrying amount. If the expected future
cash flows are not sufficient to recover the intangible assets, an estimate of fair value is computed. When the
net carrying amount of the intangible assets exceeds their fair value, an impairment loss is recorded in the
consolidated statement of operations and deficit for an amount equal to the excess.
30
(4)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
Financial Instruments
Effective January 1, 2007, the following new accounting pronouncements came into effect: CICA Handbook
Section 1530 “Comprehensive Income” and CICA Handbook Section 3855 “Financial Instruments -
Recognition and Measurement”. CICA Handbook Section 3855 introduces new requirements for the
recognition and measurement of financial instruments. CICA Handbook Section 1530 introduces a new
requirement to temporarily present certain gains and losses outside net income in a location called “Other
Comprehensive Income”. The company will adopt these standards effective January 1, 2007 and does not
expect the adoption of these standards to have a material impact on the company’s financial statements.
3 Agreements
The company has a number of revenue generating agreements. The most significant are as follows:
Raglan agreement
On April 15, 2003, the company entered into a 10-year agreement to construct and operate a water
treatment plant to remove nickel from mine water at the Raglan mine owned by Xstrata plc 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. In
addition, an operating fee is charged of $1.06 per cubic meter of water treated, increasing up to a maximum
of 3% per annum. In 2006, the fee was increased to $1.12 per cubic meter. The operating fee was chargeable
when the plant reached certain operating criteria, which occurred in July 2004. The fees are subject to certain
conditions and performance criteria that must be met by either Xstrata plc or by the company. After 63
months from installation of the plant, Xstrata plc 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. At December 31, 2006, the cost of the plant, including commissioning
costs, amounted to $1,983,825 (2005- $1,959,434) and net book value after accumulated depreciation,
amounted to $1,692,667 (2005 - $1,766,774).
Caribou agreement
In 2004, the company signed a six-year agreement to control all aspects of water management at the Caribou
sites with Canzinco Ltd. (a wholly owned subsidiary of Breakwater Resources Ltd). The agreement provided
for the operation of mine dewatering, water collection and treatment at both the Caribou and Restigouche
sites in New Brunswick, as well as a tailings handling process to allow treatment of tailings concurrently with
acidic mine drainage. The agreement replaced all previous agreements regarding the Caribou site. The small
BioteQ Biosulphide plant had not been operated since 2002, pending decisions regarding site water
management.
(5)
31
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
In August 2006, the assets of Canzinco Ltd. (Canzinco) were sold to Blue Note Metals Inc. (Blue Note) who
plan to return both sites to operation. As a result of the transaction, BioteQ’s contract with Canzinco was
terminated and a new operating contract was signed with Blue Note. On termination of the Canzinco
contract, BioteQ received a payment of $419,847 to recover capital costs for fixed capital equipment
provided by BioteQ at the sites, amounting to $511,708, which had a net book value of $426,039. BioteQ
chose to retain ownership of its BioSulphide® plant, which has a net book value of $231,154 at December 31,
2006.
The new contract with Blue Note provides for a similar scope of services at the two sites and is for an initial
term of one year. The payment terms in the new contract are such that BioteQ charges a monthly amount
based on the actual cost to treat water plus a 10% fee.
Dexing agreement
During 2006, BioteQ signed a definitive joint venture agreement with Jiangxi Copper Corporation (“JCC”) for
the operation of a water treatment facility located at JCC’s Dexing mine in Jiangxi Province, China. The joint
venture agreement which forms an equal share joint venture company between BioteQ and JCC will be called
JCC-BioteQ Environmental Technologies Co. Ltd., and will build and operate water treatment plants using
BioteQ’s technology. The agreement includes a license contract whereby BioteQ will provide its patented
technology on a royalty-free basis to the joint venture company for use at the Dexing project, which has
begun the construction phase for operation in 2007 as well as five additional sites owned and operated by
JCC. At December 31, 2006, $56,061 had been spent by BioteQ on plant engineering and is included in
property, plant and equipment.
4
Interest in Joint Venture
During 2003, the company signed agreements with Phelps Dodge Corporation (PD) for the construction and
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 waste-water stream. The plant was constructed by BioteQ and
commissioning completed in August 2004. The plant was operational from that date, with one half of revenues
and costs being recorded in the statements of operations.
The original and ongoing cost of the plant before accumulated amortization amounted to $3,152,972 and the
net book value amounted to $2,807,149 (2005 - $2,852,088).
32
(6)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
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 (loss)
Net income (loss)
Consolidated statements of cash flows
Operating activities
Investing activities
Financing activities
5 Government assistance
2006
$
2005
$
85,000
1,896,000
36,000
1,966,000
910,000
735,000
870,000
(129,000)
(741,000)
-
1,941,000
-
614,000
(446,000)
(587,000)
(412,000)
(14,000)
381,000
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 3I, 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. During 2006, based on gross revenues for the year, the total
repayment made or accrued was $90,395 (2005 - $55,122). Of these amounts, $30,129 (2005 - $33,624) was
recorded as an increase in property, plant and equipment and $60,266 (2005 - $21,498) was recorded as an
increase in development expenses. At December 31, 2006, an additional $251,410 was accrued with respect
to repayment of IRAP contributions.
(7)
33
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
6
Inventory
Work in progress
Inventory of spare parts
Inventory of copper concentrate
7 Property, plant and equipment
Pilot plants
Office equipment
Vehicle
Water treatment plants - net
Construction in progress
Pilot plants
Office equipment
Vehicle
Water treatment plants - net
2006
$
145,769
20,628
85,255
251,652
Cost
$
351,193
152,271
21,020
5,442,991
365,653
Accumulated
amortization
$
351,193
85,204
6,306
847,833
-
2005
$
2,126
18,104
-
20,230
2006
Net
$
-
67,067
14,714
4,595,158
365,653
6,333,128
1,290,536
5,042,592
Cost
$
351,193
120,894
21,020
5,770,205
Accumulated
amortization
$
351,193
61,070
2,103
585,425
2005
Net
$
-
59,824
18,917
5,184,780
6,263,312
999,791
5,263,521
3
(8)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
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 and $73,469 has been repaid subsequently and charged
back to the plant costs.
Amortization expense for the year ended December 31, 2006 amounted to $391,377 (2005 - $377,321).
8
Intangible asset
Cost
$
Accumulated
amortization
$
Net
$
Intellectual property
247,770
23,228
224,542
BioteQ had a continuing obligation to pay royalties under a cooperative development agreement which
expired. The agreement was replaced in March 2006 with a new marketing and royalty agreement under
which BioteQ has paid a one time lump sum of $247,770 for the use of certain technology. The one time
payment allows BioteQ to build one plant each year until 2014 using this technology. The payment has been
capitalized as an intangible asset, and will be amortized over 8 years.
Under the old agreement, royalties of $57,541 were paid during 2005, based on the plants capacity and were
only made for specific technology if used in plants built by the company. The one time payments were
accounted for depending on the nature of the contracts. During 2005, $36,274 was charged to plant assets.
9 Bank loan
In October 2003, the company signed a financing agreement for a $800,000 demand non-revolving loan to be
used as working capital for the development of new plants.
The first advance of $200,000 was received on February 23, 2004 and has been repaid. The second advance of
$600,000 was received on September 23, 2005 when the Raglan plant achieved certain performance criteria.
Interest is calculated at the fixed rate of 6.66% per annum and repayment will be over 39 months through
payments of $17,200 per month. The capital amount repaid during 2006 was $173,533. Capital repayments in
2007 will be $185,449, in 2008, $198,183 and $15,038 in 2009.
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 Xstrata plc as security for the monthly repayment to the lender.
As this loan is demand in nature, the full amount outstanding has been classified as current.
(9)
3
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
10 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.
During 2006, all outstanding debentures, at the holders option, were converted to 615,384 common shares of
BioteQ, at a price of $0.65 per common share. The remaining liability and equity components of the
debentures were transferred to capital stock, after accretion of interest on the liability component to the date
of conversion.
Previously, the debentures were accounted for in accordance with their substance and were presented in the
financial statements in their component parts, measured at their respective fair values at the time of issue.
The liability component was 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 at December 31,
2005
$
400,000
(277,109)
122,891
(26,763)
96,128
277,109
81,933
359,042
Interest expense on the liability component is $16,344 (2005 - $64,580), of which $10,084 (2005 - $24,580)
represents accretion of the liability component.
3
(10)
BioteQ 2006 ANNUAL REPORT
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
11 Capital stock, warrants and contributed surplus
Authorized
100,000,000 common shares without par value
Issued and outstanding
Common shares Warrants
surplus
Contributed
Number of
shares
Amount
$
Amount
$
Amount
$
Total
$
Balance - December 31, 2004
35,320,339
11,716,119
1,388,623
665,627
13,770,369
Stock-based compensation
Exercise of warrants
Exercise of options
Private placement for cash
Share issuance costs
Units issued in settlement of issue costs
Warrants issued in settlement of issue
costs
-
454,500
90,000
6,388,888
-
115,000
-
462,415
69,150
5,299,060
(784,689)
88,447
-
(72,465)
-
450,939
(66,775)
15,053
77,658
-
(16,150)
-
-
-
77,658
389,950
53,000
5,749,999
(851,464)
103,500
-
-
205,580
-
205,580
Balance - December 31, 2005
42,368,727
16,850,502
1,920,955
727,135
19,498,592
Stock-based compensation
Debentures
Exercise of warrants
Exercise of options
Shares issued for cash
Share issuance costs
Units issued in settlement of issue costs
Warrants issued in settlement of issue
costs
-
615,384
2,948,408
2,358,935
11,428,571
-
50,000
-
465,254
3,773,155
1,866,197
19,999,999
(2,103,263)
87,500
-
-
(269,268)
-
-
-
-
429,168
-
-
(306,419)
-
-
-
429,168
465,254
3,503,887
1,559,778
19,999,999
(2,103,263)
87,500
-
-
393,801
-
393,801
Balance - December 31, 2006
59,770,025
40,939,344
2,045,488
849,884
43,834,716
On December 7, 2006 the company completed a short-form prospectus financing at $1.75 per share for gross
proceeds of $19,999,999. Issue costs were $2,103,263 of which $393,801 was settled with the issue of
1,142,857 warrants and $87,500 was settled with the issue of 50,000 common shares.
(11)
3
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
On December 8, 2005, the company completed a private placement of 6,388,888 units at $0.90 per unit for
gross proceeds of $5,749,999, of which $5,299,060 was attributable to the common shares and $450,939 was
attributable to the transferable common share purchase warrants. Issue costs were $851,464 of which
$103,500 was settled with the issue of 115,000 units and $205,580 was settled with the issue of 638,888
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
$1.25. 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. On May 1, 2006
at the company’s annual and special meeting, the shareholders approved a new 10% rolling stock option
plan. Under the new plan, the company may grant stock options to purchase shares up to 10% of the
company’s issued and outstanding share capital from time to time and at December 31, 2006, 5,977,003
options are available for issue, of which 3,927,365 have been issued. Options vest at the rate of 33%
every six months from award and have a maximum term of five years from the date of the grant. Vesting
rules remain unchanged. A summary of the change in the company’s stock option plan for the year is as
follows:
Outstanding - January 1
Options exercised
Options granted
Options forfeited
Number
3,610,000
(2,358,935)
2,818,000
(141,700)
Outstanding - December 31
3,927,365
Exercisable at December 31
2,137,828
2006
Weighted
average
exercise
price
$
0.69
0.66
1.58
1.04
1.34
1.11
2005
Weighted
average
exercise
price
$
0.66
0.59
0.93
0.72
0.69
0.66
Number
3,725,000
(90,000)
400,000
(425,000)
3,610,000
3,183,500
Available for future grant pursuant
to company’s stock option
plan at December 31
2,049,638
815,714
3
(12)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
The following table summarizes information about common share options outstanding at December 31:
2005
2006
Range of
exercise
prices
$
0.50 - 1.00
0.50 - 1.00
1.00 - 1.50
1.50 - 2.00
Number
outstanding
at
December
31
Weighted
average
remaining
contractual
life
(years)
3,610,000
1,134,365
800,000
1,993,000
3,927,365
1.7
0.71
1.34
1.70
1.34
Weighted
average
exercise
price
$
0.69
1.53
4.27
4.47
3.60
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)
2006
0%
32%
4.23%
3
2005
0%
45%
3.79%
3
The weighted average fair value and weighted average exercise price of options granted in the years
indicated were as follows:
2005
2006
Weighted
average fair
value
$
Weighted
average
exercise
price
$
0.90
0.45
0.93
1.58
$40,000 of the total stock-based compensation charge which amounted to $429,168 for the year relates
to stock options granted to non-employees.
(13)
3
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
b) Warrants
As at December 31, 2006, the following warrants were outstanding:
2006
Weighted
average
exercise
price
$
Number
Number
Outstanding - January 1
6,343,332
1.20
9,617,104
Issued
Exercised
Cancelled
1,142,857
(2,948,408)
-
1.75
1.19
-
3,948,332
(454,500)
(6,767,604)
Outstanding - December 31
4,537,781
1.37
6,343,332
Warrants expire as follows:
December 8, 2007
December 8, 2007
December 7, 2008
Number
119,959
3,274,965
1,142,857
4,537,781
2005
Weighted
average
exercise
price
$
0.97
1.19
0.86
0.90
1.20
Exercise
price
$
0.90
1.25
1.75
On December 7, 2006 the company issued the agent for a prospectus financing, common share purchase
warrants to buy 1,142,857 shares at a price of $1.75 for 2 years from the issue date. The company has
treated these costs as share issue costs based on their fair value. The fair value of the warrants granted
was estimated on the date of grant using Black-Scholes option pricing model with the same assumptions
than used for stock options granted during the year, with only one exception, estimated useful life of
warrants was two years.
On December 8, 2005, the company granted the agent for a private placement, common share purchase
warrants to buy 638,888 common shares at a price of $0.90 for two years from the grant date. The
company has treated these costs as share issue costs based on their fair value. The fair value of the
warrants granted was estimated on the date of grant using Black-Scholes option pricing model with the
same assumptions than used for stock options granted during the year, with only one exception; the
estimated useful life of warrants was two years.
0
(14)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
c)
Escrow shares
The common shares issued include 7,000,000 (2005 - 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 Toronto Venture 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 on December 20, 2000 will be cancelled and returned to the
company’s treasury.
12 Related party transactions and balances
At December 31, 2005, a director held $100,000 of the convertible debentures (note 10) issued on
September 5, 2002. The debentures were converted to common shares of the company during 2006.
13 Income taxes
As at December 31, 2006, 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 $10,096,000 for Canadian income tax purposes which
may be deducted in the calculation of taxable income in future years. The losses expire as follows:
2007
2008
2009
2010
2014
2015
2026
$
466,000
1,036,000
1,145,000
1,310,000
1,440,000
2,283,000
2,416,000
10,096,000
In addition, BioteQ has available US tax losses from 2004 and 2005 of $1,240,000 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.
(15)
1
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
As at December 31, 2006, 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
2006
$
(74,000)
619,000
370,000
3,959,000
4,874,000
(4,874,000)
2005
$
(94,000)
294,000
365,000
3,291,000
3,856,000
(3,856,000)
-
-
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 34.12% (2005 - 34.87%) statutory tax rate, at December 31 is:
Income tax recovery at statutory rates
Change in valuation allowance
Share issue costs
Non-deductible expenses
Tax rate differences
Other
14 Financial instruments
Fair value of financial instruments
2006
$
(597,000)
612,000
(542,000)
154,000
375,000
(2,000)
2005
$
(973,000)
1,144,000
(195,000)
40,000
(17,000)
1,000
-
-
The company’s financial instruments include cash, short-term investments, trade receivables, receivable from
joint venture partner, taxes receivable, accounts payable and accrued liabilities and bank loan. Given the
short-term nature of these items, the fair values of these financial instruments approximate their carrying
values.
2
(16)
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
BioteQ 2006 ANNUAL REPORT
Credit risk exposure
Financial instruments that potentially subject the company to a significant concentration of credit risk consist
primarily of cash, short-term investments and trade receivables. The company limits its exposure to credit
loss by depositing its cash and short-term investments with high quality financial institutions. The credit risk
on trade receivables is generally the carrying value net of any provision for doubtful debts. The company has
adopted a policy of dealing only with credit worthy counterparties and where appropriate obtaining sufficient
collateral or other security, as a means of mitigating the risk of financial loss from any defaults.
Interest rate exposure
The bank loan bears interest at a fixed rate. The bank loan’s fair value approximates its carrying value.
15 Segmented information
The company currently has one operating segment (see note 1). Geographic disclosures are as follows:
Revenue
Canada
U.S.
Property, plant and equipment
Canada
U.S.
Other
2006
$
2005
$
2,399,293
2,120,435
1,920,961
835,009
4,519,728
2,755,970
2,215,656
2,770,875
56,061
2,411,434
2,852,087
-
5,042,592
5,263,521
During 2006, revenue was derived from three clients which was individually greater than 10% of total
revenues. These three clients contributed: $1,965,927, $1,208,239 and $694,465.
During 2005, revenue was derived from three clients which was individually greater than 10% of total
revenues. These three clients contributed: $1,068,295, $832,666 and $614,466.
(17)
3
BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
16 Commitments
The company has commitments of $234,655 ($156,580 in 2007 and $78,075 in 2008) under operating leases
for office and laboratory premises.
The company is committed to repayment of government assistance in the form of a quarterly 2% royalty on
corporate gross revenues. The maximum remaining to be paid is $460,297 of which $251,410 has been
accrued at December 31, 2006.
The company has committed approximately $2,000,000 to capital expenditures on the new Dexing joint
venture project.
The company has committed to spend a maximum amount of $100,000 for a basic engineering study for a
potential new project. The customer will contribute 50% of the amount spent on the study
17 Subsequent events
In January and February 2007, 178,200 stock options were granted for the purchase of 178,200 common
shares and 353,333 options were exercised for the issue of 353,333 common shares for cash consideration of
$256,649. Warrants were exercised for the issue of 241,811 shares for cash consideration of $406,820.
In February 2007, the company signed a definitive agreement with Columbia Metals Corporation Limited for
the construction and operation of a copper recovery and water treatment plant. BioteQ’s cost of the plant is
expected to be approximately $5,300,000.
In January 2007, BioteQ agreed to construct a water treatment plant for Birla Mt Gordon Pty Ltd at the Mt.
Gordon site in Queensland, Australia, with an expected cost of $2,700,000.
(18)
BioteQ 2006 ANNUAL REPORT
Corporate Information
Directors
P. Bradley Marchant 4
President & CEO of the Company
Vancouver, British Columbia
George W. Poling 1,4
Chairman of the Board of Directors of the Company
Independent Consultant and Professor Emeritus
University of British Columbia
Vancouver, British Columbia
Kelvin P.M. Dushnisky 1,2,3
Senior Vice-President, Corporate Affairs
Barrick Gold Corporation
Toronto, Ontario
Clement A. Pelletier 2,4
President & CEO
Rescan Environmental Services Ltd.
Vancouver, British Columbia
Ian W. Telfer 1,3
Chairman of the Board of Directors
Goldcorp Inc.
Vancouver, British Columbia
Kenneth F. Williamson 2,3
Independent Consultant
Dwight, Ontario
Officers
George W. Poling
Chairman of the Board
P. Bradley Marchant
President & CEO
Richard W. Lawrence
Executive Vice President
John C. York
Chief Financial Officer and Secretary
David Kratochvil
Vice President, Projects
1 – member, Audit Committee
2 – member, Compensation Committee
3 – member, Corporate Governance Committee
4 – member, Technical Committee
BioteQ 2006 ANNUAL REPORT
Banker
HSBC Bank Canada
Vancouver, British Columbia
Transfer Agent
Pacific Corporate Trust Company
Vancouver, British Columbia
Stock Exchange
TSX Venture Exchange
Symbol: BQE
Annual Meeting
2pm, April 23, 2007
The Conference Centre
Second Floor
888 Dunsmuir St.
Vancouver, British Columbia
Head Office
Suite 1700, 355 Burrard Street
Vancouver, British Columbia
Canada, V6C 2G8
Telephone: 604-685-1243
Fax: 604-685-7778
Email: bioteq@bioteq.ca
www.bioteq.ca
Investor Relations
Telephone: 1-800-537-3073
Email: investor@bioteq.ca
Legal Counsel
McCullough O’Connor Irwin
Vancouver, British Columbia
Auditors
PricewaterhouseCoopers
Vancouver, British Columbia
BioteQ
Suite 100, 3 Burrard Street
Vancouver, British Columbia
Canada, VC 2G
telephone: 0--123
Fax: 0--
email: bioteq@bioteq.ca
www.bioteq.ca