BQE Water Inc. Annual Report 2009

FY2009 Annual Report · BQE Water Inc.

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Sustainable water treatment solutions

BioteQ Environmental Technologies Inc.
2009 Annual Report

BioteQ Environmental Technologies Inc.

2009 Annual Report

CORPORATE PROFILE

BioteQ is a water treatment company that applies innovative technologies and operating expertise to solve
challenging water treatment problems in the resource and power generation industries. BioteQ focuses on
delivering lower life cycle costs for industrial wastewater treatment by removing dissolved heavy metals
and sulphate more cost effectively than conventional treatment systems, producing clean water for re-use
or discharge, and recovering valuable metals from waste in the form of saleable products. The Company
earns revenues from water treatment fees, the sale of recovered by-products, engineering fees and plant
sales.

BioteQ’s sustainable water treatment solutions enable customers to comply with environmental
regulations, reduce environmental liabilities, and save money compared to alternative treatment
processes. Current customers include some of the world’s leading resource companies, utility operators,
and regulators.

1 Achievements and Goals

2 CEO’s Message

4 Management’s Report to Shareholders

5 Management’s Discussion and Analysis

29 Auditor’s Report

30 Consolidated Financial Statements

56 Corporate Information

BIOTEQ’S GLOBAL OPERATIONS

Operations
Under construction
First commercial plants

Minto (Capstone) (Fees)
Raglan (Xstrata) (Ni - Fees)
Caribou (Zn, Pb, Cu - Fees)
Caribou Tailings (Zn - Fees)
Wellington Oro (US EPA) (Zn, Cd - Plant Sale)
BioSulphide® Plant, USA (Cu - JV)
Lluvia (NWM Mining) (Cu, CN - Fees)
Dexing (Jiangxi Copper) (Cu - JV)
Mastra (Koza Gold) (Fees)
Mt Gordon (Aditya Birla) (Fees)

ChemSulphide® Plant, USA (Zn, Cd - Plant Sale)
Sulf-IXTM Plant, USA (SO4 - Fees)

BioteQ Environmental Technologies Inc.

2009 Annual Report

BioteQ is diversifying its markets to apply the company’s
BioteQ is diversifying its markets to apply the company’s
technologies in mining, power generation and oil sands,
technologies in mining, power generation and oil sands,
and is developing strategic alliances to jointly target new
and is developing strategic alliances to jointly target new
market opportunities.
market opportunities.

2009 Achievements

Strategic Goals for 2010

(cid:54)

Processed
water

7.25 billion litres of contaminated

Removed over
contaminants from the environment

2 million pounds of metal

Plants delivered

98% mechanical availability

Reduced exposure to commodity risk
by
structuring several contracts to generate
revenue from fees rather than metals recovered

Expanded the business model
ﬂ exible, in response to customer needs

to be more

Secured new fee-based contracts
customers

with new

Received
recognition:

national and international award

(cid:54)

2009 Top 50 Most Socially Responsible
Corporations in Canada (Jantzi Research
& Maclean’s)

2009 Environmental and Social
Responsibility Award (Prospectors &
Developers Association of Canada)

2009 Canada Export Achievement Award
(Export Development Canada & Proﬁ t)

new water treatment projects, including:

Target
(cid:54)

2 “design” projects

(cid:54)

2 “design-supply-operate” projects

2 pilot operations

2 strategic alliances

focus on operations to generate

Continue to
recurring cash ﬂ ow while meeting strict safety
and environmental standards

new fee-based contracts that further

Secure
reduce the company’s exposure to commodity
risk

Diversify the market base
customers in mining, power generation, and oil
sands

to serve new

Retain skilled and talented staff
to ensure that
BioteQ has the human capital needed to drive
growth

BioteQ Environmental Technologies Inc.

2009 Annual Report

CEO’s MESSAGE

To our Shareholders,

Less than one percent of all fresh water resources are available for human use.
- United Nations Environment Program

In industrialized nations, close to 60 percent of available fresh water is used by industry and 30 percent by
agriculture, creating constraints on water supplies, accelerated consumption, and competing demands among
users. As regulators and communities look for ways to protect scarce water resources, many industries are
improving their water conservation strategies and increasing water re-use by adopting new water treatment
technologies. BioteQ is a water treatment company that provides innovative technologies and operating
expertise to solve challenging water treatment problems for the resource and power generation industries.

BioteQ established its ﬁ rst commercial water treatment plant in 2001, applying the company’s patented process
technology to treat metal-contaminated wastewater emanating from a mine site in New Brunswick, Canada.
Since that time, BioteQ has proven the technology, built a strong customer base, expanded the number of
active operations, and delivered reliable water treatment services, with the design, construction, and operation
of nine industrial water treatment plants at sites in Canada, the US, Mexico, Australia, and China. BioteQ works
with international resource companies, utility operators, and regulators, helping customers to comply with
regulations and improve water quality and re-use.

2009 was a year of change for BioteQ – change that positioned the company to weather the economic
downturn in the ﬁ rst half of the year, and position the company for stronger growth in the future.

(cid:129)

First, BioteQ adjusted its revenue model to incorporate more fee-based contracts that provide a stable
revenue stream. While revenue from two operations continue to be tied to commodity prices (Dexing and
Bisbee), the remaining active operating contracts and new contracts have been structured to earn fee-
based revenue. The purpose of this change is to provide a balanced revenue mix and reduce the impact of
commodity price ﬂ uctuations.

Second, BioteQ expanded its business model to include design-supply-operate and design-supply-transfer
projects, where the company provides process design, equipment supply, commissioning and operating
services, and earns fees for each stage of the project. This enables BioteQ to respond to a wider range
of customer opportunities, and at the same time reduce the requirement to provide project capital while
expanding its operating and customer base.

Third, BioteQ began to diversify into new customer markets, targeting the water treatment needs of power
generation and oil sands operations. During 2009, the company carried out research and development
activities to modify existing technologies, and initiated discussions with potential strategic alliance partners
to enter these markets.

1997 - 2000

Research & Development
(cid:129)

Biomet Mining carries out
R&D for metal recovery
process technology

(cid:129)

2001

Get Started

(cid:129)

Biomet goes public and
becomes BioteQ

First commercial contract
secured

2002
Prove the technology

Initial operation proves
the technology can be
used successfully on a
commercial scale

2003

Commercialize technology
(cid:129)

BioteQ secures two new
contracts - Raglan &
Bisbee

(cid:129)

2004

Operating company

BioteQ commissions the
Raglan & Bisbee plants

BioteQ treats about
one-half billion litres of
contaminated water

BioteQ Environmental Technologies Inc.

2009 Annual Report

Looking ahead, we are optimistic that these changes position
BioteQ for growth. The company has set out an aggressive growth
plan for 2010, targeting new water treatment projects and continued
diversiﬁ cation of the company’s markets. To meet these goals,
we have established an important strategic alliance with Newalta
Corporation (TSX:NAL), a leader in industrial waste management
with a network of more than 80 facilities across North America.
Newalta and BioteQ share similar core values about converting
waste into a useful resource, and we believe that both companies
can expand their respective product offerings and customer base by
working together to jointly target new opportunities.

“We expect that 2010 will
bring improved operating
results, new water treatment
projects that contribute
incremental recurring
revenue, and expansion into
new markets.”

Regulations are driving the need for water-intensive industries such as power generation and the resource
sector to re-think their water strategies. At the same time, access to clean water continues to be a critical issue
for the world’s growing population. Together, these factors are driving new opportunities in the water sector.
BioteQ is positioned to beneﬁ t from these opportunities with innovative technologies and a seasoned staff that
have a proven track record of solving challenging water treatment problems.

We expect that 2010 will bring improved operating results, new water treatment projects that contribute
incremental recurring revenue, and expansion into new markets. We thank you for your commitment to BioteQ
as we deliver sustainable water treatment solutions that convert wastewater into a useful resource.

On behalf of the Board of Directors,

Brad Marchant
CEO

2005

Build operating expertise
(cid:129)

BioteQ secures ISO
14001 certiﬁ cation at
Raglan
BioteQ wins bid with
USEPA
BioteQ treats about
2.3 billion litres of
contaminated water

(cid:129)

2006

(cid:129)

Expand customer base
New customers: Jiangxi
Copper, Aditya Birla
Plant operating availability
exceeds 95%
Plants generate positive
cash ﬂ ow from operations
BioteQ treats about
4.2 billion litres of
contaminated water

2007
Invest in growth
Initiate construction of 3
new plants
Develop Sulf-IX™
technology for sulphate
removal
BioteQ treats about
4.5 billion litres of
contaminated water
and removes 1.4 million
pounds of metals

2008
Expand operating base
(cid:129)
Commission 4 new plants
(cid:129)
Apply new SART
technology for gold
mining operations
Successfully pilot the Sulf-
IX™ technology
BioteQ treats about
9.4 billion litres of
contaminated water and
removes 3 million pounds
of metals

(cid:129)

2009
Diversify

(cid:129)

Expand business model

Reduce commodity
exposure

Secure new fee-based
contracts with new
customers

Initiate market
diversiﬁ cation strategy

BioteQ Environmental Technologies Inc.

2009 Annual Report

MANAGEMENT’S REPORT TO 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,
reﬂ ect 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 ﬁ nancial data included in the text
of the Annual Report with that contained in the consolidated ﬁ nancial statements.

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 ﬁ nancial
information is prepared. The Consolidated Financial Statements have been independently audited by
PricewaterhouseCoopers LLP. Their report for 2009 outlines the nature of their audits and expresses their
opinion on the Consolidated Financial Statements of the Company.

The Company’s Audit Committee is appointed annually by the Board of Directors and is comprised of
Directors who are neither employees nor ofﬁ cers of the Company. The Audit Committee meets with
management as well as with external auditors to satisfy itself that management is properly discharging its
ﬁ nancial 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 ﬁ ndings
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 and Management’s Discussion and Analysis have, in
management’s opinion, been properly prepared within reasonable limits of materiality and within the
framework of the accounting policies summarized in Note 2 of the notes to the Consolidated Financial
Statements of the Company.

P. Bradley Marchant
Chief Executive Ofﬁ cer

Paul Kim
Vice President &
Chief Financial Ofﬁ cer

BioteQ Environmental Technologies Inc.

2009 Annual Report

Management’s Discussion and Analysis
(All figures expressed in Canadian dollars unless otherwise noted)

March 16, 2010

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
its broader
responsibilities for the accuracy and reliability of the financial statements, the development and
maintenance of appropriate information systems and internal controls to ensure that the financial
information is complete and reliable. The Audit committee of the Board of Directors, consisting of
independent directors, has reviewed this document and all other publicly reported financial information,
for integrity, usefulness, reliability and consistency.

in conjunction with

this document

This discussion should be read in conjunction with the consolidated financial statements and
accompanying notes for years ended December 31, 2009 and 2008, which were prepared in accordance
with Generally Accepted Accounting Principles in Canada (“Canadian GAAP”). Certain statements
contained in Management’s Discussion and Analysis constitutes 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.

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, sulphate reduction, and lime sludge processing. BioteQ’s process plants treat acid and metal
contaminated water with concurrent recovery of saleable metals from the water and reduction of total
dissolved solids. Water from the process plants can be recycled or discharged to the environment. The
Company is listed on the Toronto Stock Exchange (TSX) under the symbol BQE.

Technologies

BioteQ’s technologies are used in industrial wastewater treatment applications. The BioSulphide®
Process uses biogenic sulphide to selectively recover metals from acid waste water and can be applied 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, industrial wastewater and groundwater for the selective
recovery of valuable metals to provide a revenue source from the water to off-set the cost of water
treatment as well as minimize waste sludge production. Sulphide technologies can be used to replace or
augment lime based treatment facilities to reduce or eliminate waste sludge production and the
associated long term liabilities of metal-laden sludge. 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, such as the application of SART technology for copper-gold ore processing in mining.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

BioteQ’s Sulf-IX™ technology is a recent development using ion-exchange to meet new regulations for
the reduction of the sulphate content in wastewater, producing water acceptable for industrial, agricultural
and residential re-use. There is potential to apply the technology to mining, power generation, and oil
sands applications.

BioteQ has also developed technology for the conversion of some forms of waste sludge into value-
added construction materials, again to minimize the potential long-term liability of sludge products and
create a revenue source from the waste products.

Business Models

BioteQ provides patented water treatment technology and operating expertise to treat industrial effluents.
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 may be 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 cost benefits and metals
recovered.

Design, Supply, and Operate – where BioteQ provides process design, technology,
engineering and operations expertise on a fee basis.

Plant Sale – where BioteQ designs, builds and commissions the plant on a fee basis.

In all cases BioteQ will provide a process guarantee. Potential revenue streams are recovered by-
products, water treatment fees, process license fees, plant sales, engineering fees, and the sale of value-
added co-products and treated water.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Project Summary

The following chart summarizes the major projects BioteQ has completed along with capital costs,
estimates of annual production and operating costs where applicable. Actual results may vary based on
the volume and grade of water treated, and site-specific conditions.

Customer

Project

Business
Model

Revenue
Source

Operating Projects (Based on 2009 actual results)

2009 Actual
Production
(BQE share)

Capital Cost
(BQE Share)

* 2009
Operating
Costs
(BQE Share)

Current Status

Freeport
McMoRan

Bisbee, AZ.

50% Joint
Venture

Copper

152,000 lbs

$3,200,000

$522,000 Operating since 2004;
on furlough as of April
1, 2009

Xstrata

Raglan,Que.

Build, Own,
Operate for
Fees

Fees per
m3 of
water

915,000 m3
(water)

$2,000,000

$454,000 Seasonal operations

since 2004. 2010
operating season
expected to start in
May 2010

Xstrata

Jiangxi
Copper

Spoon -
Raglan, Que.

Operate

Fees

Fixed fees

Owned by
customer

$144,000 Seasonal operation

since 2008

Dexing,
China

50% Joint
Venture

Copper

849,000 lbs

$1,886,000 $1,211,000 Operating since April

1, 2008

HDS Plant -
Dexing,
China

Design

n/a

Owned by
customer

- Operating since April

1, 2009

Aditya Birla Mt. Gordon,

Australia

Build, Own,
Operate

Copper

82,000 lbs

$9,169,000

$547,000 Operations inactive

pending negotiations
with customer

$243,000 Plant sold to customer
under sales type lease
in June 2009

NWM
Mining

Lluvia de
Oro, Mexico

Plant sale

Fees

Lease fees

$6,443,000

US EPA

Wellington
Oro, CO

Plant sale

Fees

n/a

Owned by
customer

- Commissioned in
January 2009

Construction and Development Projects

Minto
Explorations

Minto, Yukon Design,

Fees

Supply, and
Operate

Design

Fees

Koza Gold

Mastra,
Turkey

*Excludes refining costs

n/a

Owned by
customer

- Plant to be

commissioned in
spring, 2010

- SART plant design

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Significant accomplishments for 2009 include:

• BioteQ’s water treatment operations continued to solve challenging water treatment problems for
the resource sector. The company had active operations in Canada, the US, and China in 2009;
these plants treated 7.25 billion liters of contaminated water, and removed 2.2 million pounds of
metal contaminants from the environment.

• BioteQ made operational adjustments to reduce costs and optimize existing operations.

• BioteQ has worked to bring inactive operations back on-line:

o The Bisbee operation in Arizona, which was placed on furlough in Q2 2009, is in the

process of being re-started, with active operations expected to begin in Q2 2010.

In June 2009, BioteQ sold its SART plant at the Lluvia de Oro mine site in Mexico to site
owner, NWM Mining Corp. The plant sale, under a sales type lease, was part of a
consolidation and restructuring of the total loan outstanding from NWM Mining Corp.

o BioteQ re-started temporary operations at the Mt. Gordon site in Australia in November
2009, following a force-majeure shut-down earlier in the year because of extensive
flooding at the mine site. Operations at the site are currently inactive pending
negotiations for future water treatment activities with the site owner.

• BioteQ expanded its business model to include fee-based design-supply-operate projects where
BioteQ provides process design, technology, engineering, and operations expertise for fees. This
adjustment enabled BioteQ to respond to a wider range of customer opportunities and at the
same time preserve capital while expanding its operating base.

• BioteQ secured fee-based contracts with new customers, including projects with Minto

Explorations and Koza Gold.

• BioteQ began to diversify its markets during 2009 to include water treatment applications in
power generation and oil sands. The company carried out research and development activities
with funding support from the Canadian government to modify existing technologies, and initiated
strategic alliances to develop these new markets. A strategic alliance with Newalta Corporation
came into fruition in early 2010. Newalta is a leader in waste management in Canada and the
US, with strong customer relationships in a range of industries including oil and gas.

• BioteQ continues to retain and expand its human capital. While the company reduced staff at the
beginning of the year to preserve cash, new contracts have generated new employment
opportunities in the last half of the year. Human capital continues to be an important asset for
BioteQ’s future development and growth, and BioteQ is enhancing its human resource
management systems to maintain highly qualified personnel.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Outlook

BioteQ expects 2010 to be a year of further growth and market diversification for the company. BioteQ
has established the following goals for the coming year:

• BioteQ is targeting six new water treatment projects for business development and engineering

during 2010, including:

“design” projects where BioteQ expects

two
commissioning services for fees;

to provide process design and

two “design-supply-operate” projects where BioteQ expects to provide complete plant
design and construction services as well as commissioning and operating services for
fees; the first of these projects – at the Minto Mine – is underway;

two pilot operations for fees where BioteQ plans to introduce its technologies into new
markets.

• BioteQ plans to diversify its market base to serve new customers in the mining, oil sands, and
power generation industries. BioteQ will use the recently established strategic alliances with
Newalta and Guangdong Hehei Engineering to jointly develop new market opportunities.

• BioteQ will continue to focus on operations, to ensure reliable and consistent operating results
that deliver recurring, positive cash flow from operations while meeting safety and environmental
standards.

• BioteQ is working to secure new fee-based contracts that further reduce the Company’s exposure

to commodity risk.

• BioteQ will continue to innovate to develop new technology and process solutions for challenging

water treatment problems in existing and new market sectors.

• BioteQ will retain skilled and talented staff. Over the past several years, BioteQ has built a strong
team of experienced engineers and operators – this human capital is an important asset for future
development and growth.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Overall Performance

Three Year Comparative Information
In Canadian $’000 except for per share amounts

Revenues
Plant operating costs

General and administrative expenses
Marketing and development costs
Amortization
Stock-based compensation/escrow shares
Other income - net
Loss before income taxes
Income tax
Loss before extraordinary items
Extraordinary items
Net Loss

Net loss per share (basic and diluted)
Cash flow from (used in) operating
activities before changes in working capital

Total assets
Total long-term financial liabilities
Total liabilities
Shareholders’ equity

2009 Summary

2009

2008

2007

$ 6,395
5,037
1,358
2,773
829
1,109
890
(372)
(3,871)
126
(3,997)
(697)
$ (4,694)

$ 7,762
8,003
(241)
2,429
936
845
1,664
(957)
(5,158)
88
(5,246)
-
$ (5,246)

$ 4,630
2,281
2,349
2,275
749
396
3,931
(834)
(4,168)

(4,168)

-
$ (4,168)

$0.08
(2,695)

$0.09
(2,736)

$0.08
192

34,386
-
1,296
33,090

38,863
-
2,011
36,852

42,479
-
3,098
39,381

BioteQ’s 2009 financial performance reflects results from five water treatment projects – Bisbee, Raglan,
Dexing, Mt. Gordon, and Lluvia de Oro. BioteQ also provided water treatment and engineering services
on a fee basis for projects including Wellington Oro, Raglan-Spoon and Minto.

Revenue for 2009 was $6.4M, a decrease of 18% from 2008 when revenue was $7.8M. The decline was
mainly due to fewer active operations during the year compared to the prior year. Operations at Bisbee
were furloughed in April 2009 with expected restart planned in Q2 2010. Operations at Lluvia de Oro were
inactive during the year and the plant was sold to the site owner in June 2009 under a sales type lease.
Operations at Mt Gordon were inactive under force majeure conditions for most of the year due to heavy
flooding in January 2009. The site resumed temporary operations for the month of November 2009 and
was subsequently shut down for maintenance and pending negotiations for long term water treatment
services with the site owner. The declines in revenue from inactive operations were partially offset by
increases in water treatment activities at the Raglan site, a full year of operations at the Dexing site, and
new service based contracts at the Minto site and Koza Gold site in Turkey.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Plant operating costs were $5M for the year, down $3M from 2008. The decrease in operating costs was
primarily due to fewer operating plants previously noted. Operating costs include all direct expenses for
each site as well as labour costs for design projects and material costs for plant construction services.

General and administrative costs (G&A) increased $344,000 over the prior year. Higher legal costs,
increased sales taxes in the Dexing joint venture, and increased directors’ fees contributed to the
increase.

Marketing and development costs were lower by $107,000 for the year due to restructuring of staff during
Q1 2009 and an increased allocation of labour resources to revenue generating projects.

Other income items include interest income, lease fees and foreign exchange gains and losses. Interest
income from cash and short term investments declined in 2009 compared to 2008 as funds were used for
operating requirements as well as lower market interest rates on investments. In 2009, the Company
recognized $526,000 in accrued lease fees from sale of the plant in Mexico to NWM Mining Corp.
Payments are scheduled to begin in October 2010. The Company experienced foreign exchange losses
during the year primarily due to the strengthening of the Canadian dollar relative to the US Dollar and
Chinese RMB.

Amortization costs were higher for 2009 compared to 2008 due to the completion of the Dexing and Mt
Gordon plants in 2008.

Stock based compensation costs decreased $774,000 from 2008 to the current year.

The income tax charge in 2009 is a result of taxable profits in China. These taxes cannot offset
accumulated tax benefits in other jurisdictions.

During the year, BioteQ recognized a one-time extraordinary item charge of $697,000 due to the write
down of reagent and concentrate inventory damaged during flooding at the Mt. Gordon site in Australia.
These costs will not be covered by the insurance underwriter. BioteQ continues to work with its insurance
company to settle additional claims for damages at the site.

BioteQ posted a net loss of $4.7M for 2009, a decrease of $500,000 compared to the loss of $5.2M in
2008.

Overall in 2009, BioteQ used $2.7M in cash for operating activities before changes in non-cash working
capital items, comparable to 2008.

BioteQ maintained working capital of $7.7 million as of December 31, 2009 with no debt. This working
capital positions BioteQ to maintain its current operations, expand its customer base, develop new
markets, and create new technology.

Current economic and specific site uncertainty may materially affect future revenues and costs, and
annual results are not necessarily indicative of future performance. Changes in commodity prices will
impact projects that generate commodity-based revenues.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Comparison of Quarters

Financial data for the last eight quarters (unaudited)
In Canadian $'000 except per share amounts

Quarters ended

Dec-09

Sep-09

Jun-09 Mar-09

Dec-08

Sep-08

Jun-08 Mar-08

Total revenues
Plant & other operating expenses
Net income before G&A and
amortization & other expenses
General & administrative
Marketing & development costs
Net operating income (loss)
Amortization
Stock based compensation
Other (income) expenses
Income (loss) before taxes
Income taxes
Loss before extraordinary items
Extraordinary items
Net loss
Loss per share

$1,978
1,764
214

$2,280
1,045
1,235

$1,207
710
497

$930
1,518
(588)

$1,269
3,988
(2,719)

$4,171
2,665
1,506

$1,507
914
593

779
185
(750)
243
219
(496)
(716)
(81)
(635)
-
($635)
$0.01

631
231
373
225
195
141
(188)
74
(262)
-
($262)
$0.00

745
255
(503)
323
183
91
(1,100)
96
(1,196)
-
($1,196)
$0.02

618
158
(1,364)
318
293
(108)
(1,867)
37
(1,904)
(697)
($2,601)
$0.04

701
198
(3,618)
256
470
(284)
(4,060)
(93)
(3,967)
-
($3,967)
$0.07

615
318
573
246
387
(170)
110
181
(71)
-
($71)
$0.00

593
292
(292)
242
440
(227)
(747)
-
(747)
-
($747)
$0.01

$815
436
379

520
128
(269)
101
366
(276)
(460)
-
(460)
-
($460)
$0.01

Quarterly revenues can fluctuate based on the number of plants operating in the quarter, variation in the
volume and grade of water treated, and variation in commodity prices. Seasonality at each operation also
impacts timing of revenue. Operations at Raglan typically run from May to November of each year.
Copper production at Dexing increases between April and September of each year and declines during
winter months due to variation in precipitation and annual maintenance needs. In January 2009,
operations at the Mt. Gordon site were suspended due to force majeure conditions created by a large
storm event. Operations at Bisbee were put on furlough in April 2009 pending technical improvements
and cost savings measures. The SART plant in Mexico was sold to site owner NWM in June 2009.

Plant and other operating expenses are comprised of both fixed and variable costs. Variable costs include
the cost of reagent consumables, power, and maintenance. Quarterly costs will vary based on the
number of active operations and changes in variable costs.

General and administrative costs will vary from quarter to quarter based on costs required to support
existing and new operations as well as BioteQ’s compliance and filing requirements as a publicly traded
company. Costs in Q2 2009 included additional expenses related to legal and consulting work. Costs in
Q4 2009 include higher compensation charges and increased legal and consulting work.

Marketing and development costs include costs for business development as well as laboratory research
and engineering activities to support project evaluation and new technologies. In Q1 2009, BioteQ
restructured its marketing and development efforts but costs increased in Q2 2009 due to furlough
activities at the Bisbee site that contributed to additional laboratory costs. Costs in Q3 and Q4 2009
decreased as a result of higher fee-based, revenue generating, engineering projects during the quarter.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Amortization costs vary based on the capital assets of the Company. As BioteQ has built and
commissioned more plants, this non-cash cost has increased. The increase in amortization reflects new
plants coming on-line, and now being subject to amortization. The decrease in amortization in Q3 2009
reflects the impact of the SART plant sale to NWM in June 2009.

Stock-based compensation costs are non-cash costs that reflect the value of stock options issued to
employees, directors, and contractors. The valuation is based on the standard Black-Scholes model,
which is affected by price volatility. Q3 2007 includes a one-time charge for re-valuation of escrow shares
due to a change in the escrow agreement.

“Other” includes interest income or expense and foreign exchange gains or losses. Interest income is
affected by the amount of cash invested and the interest rate. BioteQ has earned interest income from its
loan to NWM and from major bank short-term investments of capital raised in late 2006. This capital was
drawn down as the Company built new plants and funded existing operations. Interest expense is
affected by the amount of the loan and the interest rate; the Company paid off a small bank loan and
debentures as of December 2007. Foreign exchange gains or losses are affected by changes in currency
exchange rates, mainly with the US Dollar, Chinese RMB, Mexican Peso, and Australian Dollar.

Income taxes vary according to the country in which income is earned. Prior to Q3 2008, no income tax
was incurred at any of BioteQ’s operations. As operations in China have become profitable as of Q3
2008, BioteQ has incurred income tax expense that cannot be offset by losses in other jurisdictions.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Operating Results

A summary of annual operating results by project is shown below, followed by results for Q4 and a
discussion for each project:

REVENUES

2009

2008

PLANT OPERATING COSTS
2008

2009

PLANT OPERATING PROFIT

2009

2008

477

1,146
2,171
115
9
2,477

6,395

1,636

1,153
1,625
871
1,707
770

7,762

522

454
1,211
547
243
2,060

5,037

1,291

401
920
2,179
2,685
527

8,003

(45)

692
960
(432)
(234)
417

1,358

345

752
705
(1,308)
(978)
243

(241)

REVENUES

Q4 2009

Q4 2008

PLANT OPERATING COSTS
Q4 2008

Q4 2009

PLANT OPERATING PROFIT
Q4 2008

Q4 2009

385
199
-
-
1,394

1,978

182

126
353
(263)
753
118

1,269

142
434
106
2
1,070

1,764

392

101
370
1,051
2,000
74

3,988

(10)

243
(235)
(106)
(2)
324

214

(210)

25
(17)
(1,314)
(1,247)
44

(2,719)

Bisbee

Raglan
Dexing
Mt. Gordon
Lluvia
Other

Total

Bisbee

Raglan
Dexing
Mt. Gordon
Lluvia
Other

Total

The Bisbee Project, Arizona – Joint-venture with Freeport-McMoRan Copper & Gold

BioteQ operates a BioSulphide® plant to treat wastewater at an inactive mine site near Bisbee, Arizona,
recovering copper from the drainage of a low-grade stockpile. The project, which was commissioned in
2004, is a 50/50 joint venture with Freeport-McMoRan Copper & Gold. The plant was designed and built
by BioteQ, and is owned and operated by the joint venture company Copreco LLC. The capital cost of the
plant was approximately US$3.2 million, which was paid back within three years of initial operations. The
joint venture partners share equally in the ongoing revenues and expenses. BioteQ operates the plant on
behalf of the joint venture. Using BioteQ’s BioSulphide® Process, the plant produces treated water that is
reused at the mine site, and a high-grade copper concentrate, typically containing > 40% copper, which is
shipped to a Freeport-McMoRan smelter where it is processed on commercially competitive terms;
settlement is based on the average price for the month after shipment. The amount of copper recovered
is dependent on the availability of water and the amount of copper and metals dissolved in the water.
BioteQ earns revenue from the plant through the sale of its share of recovered copper.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Plant operating results (total for the JV)

Water treated (thousand cubic meters)
Mechanical availability (%)
Copper produced (pounds)
Copper recovery %

* Reflects activity to start of furlough

2009

-
-
-
-

2008

797
99%
333,000
>99%

Year-to-date

2009*

2008

818
98%
304,000
>99%

2,899
99%
1,274,000
>99%

As of April 1, 2009, BioteQ and Freeport-McMoRan agreed to place the Bisbee operation on furlough, to
initiate technical improvements and cost reduction measures that are expected to improve the profitability
of the joint venture. A reduced complement of BioteQ staff continues to work on site to implement
technical changes and maintain the bioreactor activity at a level that allows a rapid restart. The cost of
power and consumables has been minimal during the furlough period. BioteQ is responsible for the
labour costs associated with BioteQ staff at the joint venture plant while Freeport is responsible for the
labour cost associated with Freeport staff. Freeport has assumed site overhead costs for the joint venture
during the furlough period, and initiated work on assessing various options for improving copper
extraction from the stockpile. In addition, the joint venture is investigating opportunities to increase the
revenue from the high grade copper product recovered. During the furlough period, the stockpile
wastewater is being re-circulated back onto the stockpile.

BioteQ and Freeport-McMoRan regularly review the status of the project, and maintain the plant so that
operations can be re-initiated quickly. Most of the planned technical improvements and cost reduction
measures have now been put in place and restart of the plant is expected by Q2 2010.

The Raglan Project, Quebec – Build-own-operate for Xstrata Nickel

BioteQ operates a seasonal water treatment plant at the Raglan Mine, an active nickel mine in the Arctic
region of northern Quebec, owned by Xstrata Nickel. Because of the harsh winter conditions in the Arctic,
water is not available for processing until the spring thaw; the plant runs seasonally, typically from late
spring to fall. The plant was built in 2004, and uses BioteQ’s ChemSulphide® process to remove
dissolved nickel from wastewater to produce clean water that meets strict water quality criteria for
discharge to the environment. The nickel concentrate produced by the plant is shipped to a refinery with
other nickel concentrate produced at the mine. This is a build-own-operate project, where BioteQ has
provided the $2 million in capital to build the plant and delivers ongoing operating services in return for a
water treatment fee per cubic meter of water treated for the current year ($1.14 per cubic meter for 2009).
The final monthly capital fee of $31,800 was paid in January 2009.

Plant operating results

Water treated (thousand cubic meters)
Days operated (equivalent hours)
Nickel recovery %

2009

318
51
>99%

2008

27
8
>99%

Year-to-date

2009

915
161
>99%

2008

688
165
>99%

Current year operations at the site began in May and finished in mid-November. The plant treated
915,000 cubic meters of water during the season, or a 33% increase over the prior year. The increase in
treated water volume was mainly attributable to record precipitation in the area and improvements in site

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

infrastructure related to the supply of power to the plant. Operating costs decreased during the quarter
due to better efficiencies and reduced labour requirements.

BioteQ will continue to provide an expanded scope of operating activities at the Raglan site with operating
responsibility for Xstrata’s Spoon water treatment plant, based on a “cost-plus” contract. This plant
performs lime treatment and acidification of water that is not treated by BioteQ’s ChemSulphide® plant.
BioteQ is currently in negotiations to continue and expand these services for the 2010 year.

The Dexing Project, China – Joint-venture with Jiangxi Copper Company

BioteQ added a water treatment plant to its operations portfolio in 2008, with a new plant commissioned
as of April 1, 2008 at the Dexing Mine, an active copper mine in China. The plant is a 50/50 joint venture
project with Jiangxi Copper Company (JCC), China’s largest copper producer, using BioteQ’s
ChemSulphide® process to remove dissolved copper from acid mine drainage generated by waste
dumps and low grade stockpiles. The high-grade copper concentrate that is removed from the water is
shipped to JCC’s refinery in Guixi City; price is based on the average metal price during the month that
the concentrate is shipped, less refining costs. The plant was designed by BioteQ, and is operated by the
joint venture company JCC-BioteQ Environmental Technologies Ltd, which is managed jointly where
BioteQ is responsible for technical operations and JCC is responsible for local administrative,
procurement and government activities. The joint venture partners share equally in the revenues and
costs. BioteQ generates revenue from the sale of its share of the recovered copper.

Plant operating results (total for the JV)

Water treated (thousand cubic meters)
Mechanical availability (%)
Copper produced (pounds)
Copper recovery %

2009

730
94%
59,000
94%

2008

1,197
97%
273,000
94%

Year-to-date

2009

2008

5,467
94%
1,699,000
94%

4,449
97%
981,000
95%

Operations at the Dexing plant during the year were successful. High seasonal rainfall, combined with
improvements in the management of acid mine water at the Dexing mine contributed to this success. The
plant produced 1.7M pounds of copper in its first full year of operations. Despite a decrease in copper
prices from 2008, revenues increased 33% over the prior year due to higher sales volumes. Operating
expenses were $1.2M for the year reflecting a full operating year.

During Q4 2009, the plant was closed for four weeks for scheduled annual maintenance. Q4 also had the
lowest levels of water available to treat due to variations in seasonal precipitation in the region.

In connection with the ChemSulphide® plant owned by the joint venture, BioteQ also provided
engineering and technical expertise to JCC to build a High Density Sludge (HDS) plant to treat water for
discharge. This plant, which is owned and operated by JCC, began operations on April 1, 2009. BioteQ
and the joint venture continue to maintain a technical and supervisory role in the operations of the plant.

The Mt. Gordon Project, Australia – Build-own-operate for Aditya Birla

BioteQ added a new water treatment plant to its operations portfolio in 2008 at the Mt. Gordon Mine, an
active copper mine in Queensland, Australia. The mine is owned by Aditya Birla, a large metals
conglomerate based in India. The plant is designed to treat water from mine drainage generated by waste
dumps and low grade stockpiles, removing dissolved metals using BioteQ’s ChemSulphide® process.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

This is a build, own, operate project where BioteQ has provided for all capital costs for the plant, C$ 9.2
million, and earns revenue from metals recovered.

The Mt. Gordon mine site was flooded during an unprecedented storm event in January 2009 that
required the evacuation of all site personnel. BioteQ served notice under force majeure to Aditya Birla to
temporarily shut down water treatment operations, pending review of damage to the water treatment plant
equipment and inventories.

In November 2009, BioteQ restarted the plant on a temporary, modified basis. The restart was initiated to
demonstrate the functionality of the plant and its ability to meet future water treatment needs at the site.
During this period, the plant treated 180,000 cubic meters of water and recovered 82,000 pounds of
copper which was sold to Birla subsequent to year end. In December 2009, operations were shut down
for maintenance and preparations for future upgrades.

Concurrently, BioteQ has been in negotiations with Birla to reach terms on a new long term operating
contract. These negotiations remain ongoing. At this time, there are no assurances that a mutually
acceptable agreement will be reached.

Lluvia de Oro, Mexico – Build-own-operate for NWM Mining

With the completion and commissioning of the Lluvia de Oro plant during 2008, at a cost of $6.4 million,
BioteQ successfully applied its water treatment technology to a new application for gold mining
operations, improving gold yields while removing metal contaminants from the gold extraction process
and regenerating and recycling the gold process reagent. The site represents a strategic investment for
BioteQ, as it is the Company’s first commercial application in the gold mining industry, a market that has
future growth potential for copper-complexed gold deposits. For this reason, BioteQ provided extensive
support to the project, including loans to the site owner NWM Mining, and site management services.

In April 2008, these terms were modified when BioteQ agreed to provide a short-term loan of up to $4
million to NWM to assist the gold project to move into production. The loan was secured by the gold
project assets, and revised operating terms increased BioteQ’s share of net revenues from the project.
BioteQ would also provide ADR services on a cost-plus fee basis. BioteQ completed construction of the
water treatment plant in July 2008, concurrent with the initial gold production at the site.

In October 2008, the Company agreed to manage all operations at the Lluvia site on behalf of NWM, in
exchange for a management fee equivalent to all metals recovered at the site, until repayment of BioteQ’s
capital cost plus 30%, the $4 million loan plus accrued interest, and any additional site development costs
incurred by BioteQ. Commissioning of the water treatment plant was completed in December 2008.

Between July and December 2008, the site had limited operations, producing 1,418 ounces of gold
(including 1,025 ounces credited to BioteQ’s account), and 13,000 pounds of saleable copper.

By December 2008, NWM was unable to meet its debt obligation to BioteQ, putting the loan into default.
BioteQ elected not to exercise its security provisions; instead, BioteQ scaled back operations at the site,
pending additional investment that NWM was working to secure for operating permits and infrastructure
for commercial mining operations.

In March 2009, BioteQ and NWM agreed to terminate the management agreement, with all ongoing
financial and operational obligations associated with the mine site assumed by NWM.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

In June 2009, BioteQ, NWM, and a third party, Renvest Mercantile Bancorp through its Global Resource
Fund (Renvest), entered into an agreement with the following key terms:

• NWM made an immediate repayment of $500,000 CAD to BioteQ against the loan BioteQ had

provided.

• The repayment terms of the remaining loan were restructured. BioteQ will charge NWM an
annualized interest rate of LIBOR + 2%. Payments will be due each month beginning in January
2010.

• BioteQ sold its plant to NWM under a sales type lease arrangement. BioteQ will receive total
lease payments of $9.6M CAD. Payments will be due each month beginning in October 2010.
Revenue from the sales type lease of $3.3M CAD will be recognized over the term of the lease.

• Both the loan and the lease have a fixed minimum repayment schedule. Actual repayments may

be accelerated based on future gold prices or project cash flow.

• Renvest provided NWM with additional capital to resume and expand mining operations at the

site.

• BioteQ agreed to share its first charge over the project assets with Renvest on a pro-rata basis to

secure its loan. BioteQ will retain legal title to its plant until all lease payments are received.

• NWM has assumed responsibility for the operation of BioteQ’s plant and process. BioteQ will

continue to provide management and technical services at commercially competitive rates.

• BioteQ will no longer be directly entitled to any portion of metal sales from the site. However,
BioteQ will receive a copper participation fee and a cyanide regeneration fee over the life of the
entire project.

In Q4 2009, NWM Mining secured close to $4 million in equity financing. BioteQ believes that the
additional capital received by NWM and the new agreements in place for BioteQ’s loan and lease
positions the project to move towards operational and financial stability in order for BioteQ to recover its
investment and realize a profitable return.

During the year, BioteQ recognized $66,000 in interest income on the loan and $526,000 in accrued
lease fees.

Other Operations

BioteQ is involved in several projects that are based on “cost-plus” contracts for plant equipment or for
engineering and operating services. During 2009, the Company was engaged in several contracts of this
nature.

In 2005, BioteQ won an international bid to provide a water treatment plant for a closed silver-zinc mine
site called Wellington Oro, located near the town of Breckenridge, Colorado. The site is administered
under the U.S. Environmental Protection Agency (US EPA) Superfund program, established to address
abandoned hazardous waste sites in the USA. The Wellington Oro project is a plant sale, with BioteQ
responsible for design, engineering, procurement, commissioning, and operator training. The plant has
been designed to process approximately 300 million litres of water annually to remove dissolved cadmium
and zinc from mine drainage. Plant construction was completed during Q3 2008, and commissioning was
completed in Q1 2009. BioteQ continues to provide ongoing engineering support on a fee basis.
Revenues from the project totaled $98,000 in 2009.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

In Q2 2009, BioteQ entered into a contract with Minto Explorations Ltd. (Minto), owner of the Minto Mine
site in the Yukon, to provide engineering services and to operate their existing water treatment plant for
the 2009 operating season (June to September). Revenues from the project totaled $500,000 for the
season. In Q4 2009, BioteQ and Minto entered into an agreement to design and construct a new, long
term water treatment plant at the site and a three year, fee-based operating contract to manage the plant
commencing in the spring of 2010. Minto Explorations has been responsible for all capital costs for the
plant, and will provide all plant operating costs, including process reagents and consumables.

In Q3 2009, BioteQ entered into a contract with Koza Gold to design a SART plant for Koza’s Mastra
gold mine site in Turkey. The work was substantially completed by the end of Q4 2009. BioteQ will
provide Koza with support during construction, and commissioning services in Q2 2010.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Liquidity and Capital Resources

At December 31, 2009, BioteQ had 66,190,308 (fully diluted-71,898,309) common shares issued and
outstanding, compared to 66,126,974 (fully diluted-70,947,342) at December 31, 2008. During the year,
1,125,000 options were granted and total proceeds of $42,234 were received from the exercise of
options.

Subsequent to year end, BioteQ issued 3,636,364 common shares and the same number of warrants for
total proceeds of $4,000,000 in a private placement with Newalta Corporation. Each warrant is
exercisable into a common share for a period of five years, at an exercise price of $1.375 for the first year
and an exercise price of $1.65 thereafter. In addition, 310,000 options were granted to various officers
and employees. At the current date of March 16, 2010, the number of issued shares is 69,851,672, a total
of 5,993,001 options and 3,636,364 warrants are outstanding.

At December 31, 2009, the Company had cash and short-term investments, consisting of major bank
paper, of $5,340,546, a decrease of $3,886,927 from December 31, 2008. Year-to-date, this cash along
with repayment of the loan receivable of $500,000 and proceeds from the exercise of options of $42,234
has funded operating activities of $2,694,820, non-cash working capital items of $1,593,595, and capital
additions of $140,746.

Working capital at the quarter-end was $7,689,250, a decrease from December 31, 2008 of $2,416,715.
The change was caused by substantially the same factors as affected cash, noted above. The balance of
available funds is largely uncommitted. No new capital projects are currently scheduled for 2010.

Management believes that the current working capital is sufficient to support the Company’s operating
requirements 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.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

General

Disclosure Controls and Procedures and Internal Control over Financial Reporting

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe
that any disclosure controls and procedures or internal control over financial reporting, no matter how well
conceived and operated, can provide only reasonable and not absolute assurance that the objectives of
the control system are met. Further, the design of a control system reflects the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, they cannot provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been prevented or detected.

The Company’s management has evaluated the design and effectiveness of the Company’s disclosure
controls and procedures. Based upon the results of that evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report,
the Company’s disclosure controls and procedures were effective to provide reasonable assurance that
the information required to be disclosed in reports it files is recorded, processed, summarized and
reported within the appropriate time periods and forms.

The Company’s management has also evaluated the design and operating effectiveness of the
Company’s internal control over financial reporting as of the end of the period covered by this report. The
risk of a significant error is mitigated by the active involvement of senior management and the board of
directors in all the affairs of the Company; open lines of communication within the Company; the present
levels of activities and transactions within the Company being readily transparent; and the thorough
review of the Company’s financial statements by management and the board of directors. Based on the
result of the assessment, the Company’s Chief Executive Officer and Chief Financial Officer have
concluded that the Company’s internal controls over financial reporting have been adequately designed.
During the current year, the Company’s management implemented a formal testing program on the
operating effectiveness of its controls and concluded that they are also effective.

Critical Accounting Estimates

In preparing financial statements, the Company has to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Based on historical experience and
current conditions, the Company makes assumptions that are believed to be reasonable under the
circumstances. These estimates and assumptions form the basis for judgments about the carrying value
of assets and liabilities and reported amounts for revenues and expenses. Different assumptions would
result in different estimates, and actual results may differ from results based on these estimates. These
estimates and assumptions are also affected by the Company’s application of accounting policies. Critical
accounting estimates are those that affect the consolidated financial statements materially and involve a
significant level of judgment by the Company. The Company’s critical accounting estimates apply to the
assessment for the impairment of property, plant and equipment and the valuation of other assets and
liabilities such as loan receivable.

Property, plant and equipment and long-lived assets

Expenditures on property, plant and equipment are stated at cost, net of grants and contractual amounts
received under feasibility studies. 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.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

The Company evaluates the recoverability of long-lived assets and asset groups whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. When such a situation
occurs, the estimated undiscounted future cash flows anticipated to be generated during the remaining
life of the asset or asset group are compared to its net carrying value. When the net carrying amount of
the asset or asset group is less than the undiscounted future cash flows, an impairment loss is
recognized to the extent by which the carrying amount of long-lived assets or asset group exceeds its fair
value.

Management’s estimates of mineral prices, foreign exchange rates, production levels and operating costs
are subject to risk and uncertainties that may affect the determination of the recoverability of the long-
lived asset groups. It is possible that material changes could occur that may adversely affect
management’s estimates.

Revenue

Revenue from the Company’s water treatment plants varies depending on the Company’s agreements
with various mining and other companies and can include:

•

revenue from managing and operating the plants recognized as the services are performed;

revenue from concentrate sales are recognized when the title of the concentrate passes to the
customer and collection of proceeds is reasonably assured and recorded net of refining costs and
transportation fees. Sales are initially recorded at a provisional price based on prevailing market
prices. Final, or settlement, metal prices are based on a predetermined and defined quotational
period one to four months after the month of shipment. The terms of the contracts result in
embedded derivatives because of the timing difference between the provisional price and the final
settlement price. These embedded derivatives are adjusted to fair value through revenue each
period until the date of final price determination.

fees from engineering services recognized as the services are rendered.

revenue from the sale of materials and components used in the construction of water treatment
plants recognized upon delivery or installation.

Stock-based compensation

The Company accounts for stock options using the fair value method calculated using the Black-Scholes
option pricing model. Under this method, stock-based awards for employees are measured at the fair
value of the equity instrument issued and stock-based compensation expense is recorded over the period
in which the related employee services are provided. The fair value of stock-based awards to non-
employees is measured at the earliest of the date at which the services are provided, the date which a
performance commitment is reached, or the option grant date if the options are fully vested and non-
forfeitable. A corresponding increase in contributed surplus is recorded when stock options are
expensed. When stock options are exercised, capital stock is credited by the sum of the consideration
paid and the related portion previously recorded in contributed surplus. The effects of forfeitures are
accounted for as they occur.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Changes in Accounting Policies

Goodwill and Intangible Assets

The Canadian Institute of Chartered Accountants has issued new accounting recommendations for
goodwill and intangible assets which establish standards for the recognition, measurement, presentation
and disclosure of goodwill and intangible assets (including internally developed intangible assets). These
recommendations are effective for the Company beginning January 1, 2009. Goodwill and intangible
assets that are not assets as defined by GAAP are derecognized and charged to the equity at that date.
Adoption of this section did not have any impact on the Company’s financial statements.

Business Combinations and Related Sections

The CICA has issued new accounting recommendations related to business combinations and minority
interests effective January 1, 2011, with early adoption permitted. This new standard effectively
harmonizes the business combinations standard under GAAP with IFRS. These new standards revise
guidance on the determination of the carrying amount of the assets acquired and liabilities assumed,
goodwill and accounting for non-controlling interests at the time of a business combination.

The CICA concurrently issued new accounting recommendations that provide revised guidance on the
preparation of consolidated financial statements and accounting for non-controlling interests in
consolidated financial statements subsequent to a business combination. The Company is evaluating the
effect of these recommendations on its financial statements.

Transition to International Financial Reporting Standards (IFRS)

In February 2008, the Canadian Accounting Standards Board (“AcSB”) announced that publicly
accountable enterprises in Canada will be required to prepare financial statements in accordance with
International Financial Reporting Standards (“IFRS”) for fiscal periods beginning on or after January 1,
2011. BioteQ’s first annual IFRS financial statements will be for the year ending December 31, 2011 and
will include the comparable period of 2010. Starting in the first quarter of 2011, BioteQ will prepare
unaudited consolidated financial statements in accordance with IFRS including comparative figures for
2010.

IFRS uses a conceptual framework similar to Canadian GAAP but there are significant differences in
recognition, measurement and disclosures. As a result of the transition to IFRS, changes in accounting
policy are likely and may materially impact the consolidated financial statements of BioteQ. In the period
leading up to the changeover, the AcSB will continue to issue accounting standards that are converged
with IFRS, thus mitigating the impact of adopting IFRS at the changeover date. The International
Accounting Standards Board (“IASB”) will also continue to issue new accounting standards during the
conversion period, and as a result, the final impact of IFRS on our consolidated financial statements will
only be measured once all the IFRS applicable at the conversion date are known. Consequently, our
analysis of changes has been made based on our expectations regarding the accounting standards that
we anticipate will be effective at the date of transition.

BioteQ has established an IFRS conversion team to manage the transition made up of management and
external consultants. The team will provide regular updates to the Audit Committee of the Board. BioteQ’s
transition plan addresses the impact of IFRS on accounting policies and implementation decisions,
infrastructure, business activities, and control activities and is being executed, on a priority basis; those
areas which we believe may cause the most significant impact to our consolidated financial statements.
The conversion plan is comprised of three phases: review and assessment; design and implementation.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

The review and assessment phase involves a high-level diagnostic of the major differences between
Canadian GAAP and IFRS. In the assessment, considerations are given to the technical accounting
complexity, the choices for accounting policy selection, the need for conversion resources and the impact
on systems. For those areas that have been identified as significant for the Company, we have entered
the design and implementation phase of the conversion plan. However, the Company has not yet
determined the full accounting effects of adopting IFRS. As we continue to analyze the effects of the
conversion to IFRS, BioteQ will provide updates on the status of key activities for this convergence
project in our quarterly and annual Management’s Discussion and Analysis throughout the convergence
period to January 1, 2011.

Expected Areas of Significance
A number of differences between Canadian GAAP and IFRS have been identified that may impact the
Company’s consolidated financial statements. The list and comments should not be regarded as a
complete list of changes that will result from transition to IFRS. It is intended to highlight those areas we
believe to be most significant; however, analysis of changes is still in process and not all policies are
available. At this stage, the Company is not able to reliably quantify the impacts expected on our
consolidated financial statements for these differences.

First-time adoption of IFRSs
IFRS 1, First Time Adoption of International Financial Reporting Standards (“IFRS 1”), provides entities
adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions, in
certain areas, to the general requirement for full retrospective application of IFRS. The Company is
analyzing the various accounting policy choices available and will implement those determined to be most
appropriate in our circumstances.

Property, plant and equipment
The methodology used to determine if an asset should be impaired is somewhat different under IFRS to
that under Canadian GAAP. The Canadian GAAP rules provide for a two-step approach, with no
impairment being required if the undiscounted future expected cash flows relating to an asset are higher
than the carrying value of that asset. Under IFRS, a one-step approach is used for both testing for and
measurement of impairment, with asset carrying values compared directly with the higher of fair value
less costs to sell and value in use (which uses discounted future cash flows). The difference in
methodology may result in an impairment being recorded under IFRS but not under Canadian GAAP, and
therefore, require an adjustment to the opening balance sheet under IFRS. At this time, we have not
completed our analysis of the impairment testing for the opening balance sheet under IFRS and are
unable to state whether or not the results would differ from our Canadian GAAP impairment tests.

A second difference that may result in an adjustment to the opening balance under IFRS is for the
depreciation of significant component parts of property, plant and equipment. Under IFRS, the cost of an
item of property, plant and equipment made up of significant component parts must be separated into its
component parts and depreciated over the life of these parts. This is not a requirement under Canadian
GAAP. This difference may result in a higher depreciation amount being recorded under IFRS than under
Canadian GAAP.

Joint ventures
Canadian GAAP allows for the use of proportionate consolidation in the accounting for joint ventures. This
is also currently allowed under IFRS; however, the IASB is currently considering an exposure draft that is
intended to modify this standard. It is expected that future changes will remove the option to use

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

proportionate consolidation and require an entity to recognize its interest in a joint venture using the
equity method of accounting. This would affect a number of BioteQ’s balance sheet and income
statement line items as these items would be presented as one line item on each of these statements.

Provisions
Under IFRS, an entity is required to recognize a provision when a contract becomes onerous, that is
when it has a contract in which the unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received from it. Canadian GAAP only requires the
recognition of such a liability in certain situations. As well, the threshold for recognition of provisions under
IFRS is lower than that under Canadian GAAP. Under IFRS, a provision must be recorded where
required payment is “probable”, which is a lower threshold than “likely” under Canadian GAAP.

As a result, there could be recognition of a provision under IFRS that was not previously recognized
under Canadian GAAP. The Company is currently evaluating this standard and cannot yet determine if
there will be an impact to the opening balance sheet under IFRS.

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, 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 for its metal removal process, 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

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

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 processes. The
Company has built eight significant commercial plants, one is awaiting installation and commissioning and
several more are in the engineering stage. 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.

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

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

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 assert
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 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

For some of the Company’s operations, 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

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

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.

Conflicts of Interest

Certain of the directors, officers and other members of management of the Company and its subsidiaries
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 its subsidiaries 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.

Management’s Discussion and Analysis

BioteQ Environmental Technologies Inc.

2009 Annual Report

Auditors’ Report to the Shareholders

To the Shareholders of
BioteQ Environmental Technologies Inc.

We have audited the consolidated balance sheets of BioteQ Environmental Technologies Inc. as at
December 31, 2009 and 2008 and the consolidated statements of operations, comprehensive loss
and deficit and cash flows for the years then ended. These consolidated 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, 2009 and 2008 and the results of its operations and its
cash flows for each of the years then ended in accordance with Canadian generally accepted accounting
principles.

Chartered Accountants

Vancouver, BC
March 15, 2010

BioteQ Environmental Technologies Inc.
Consolidated Balance Sheets
As at December 31, 2009 and 2008

Assets
Current assets

Cash and cash equivalents

Short-term investments

Trade receivables

Receivable from joint venture partners

Current portion of loan receivable (note 7)

Taxes recoverable

Inventory (note 5)

Prepaid expenses

Loan receivable (note 7)

Property, plant and equipment (note 8)

Intangible asset (note 9)

Liabilities
Current liabilities

2009 Annual Report

2009
$

2008
$

2,491,302

2,849,244

2,169,978

47,288

468,424

76,597

658,874

223,302

3,524,777

5,702,696

1,561,640

1,019

56,757

895,909

373,858

8,985,009

12,116,656

10,339,235

14,930,511

131,626

4,413,191

22,170,585

162,598

34,386,381

38,863,030

Accounts payable and accrued liabilities

1,295,759

2,010,691

Shareholders' Equity
Capital stock, warrants and contributed

surplus (note 11)

Deficit

Commitments (note 18)

Subsequent Events (note 19)

Approved by the Board of Directors

58,689,871

(25,599,249)

33,090,622

34,386,381

57,757,637

(20,905,298)

36,852,339

38,863,030

P.B Marchant, Director

G.W. Poling, Director

The accompanying notes are an integral part of these consolidated financial statements

Financial Statements

BioteQ Environmental Technologies Inc.
Consolidated Statement of Operations, Comprehensive Loss and Deficit
For the years ended December 31, 2009 and 2008

2009 Annual Report

2009
$

2008
$

Revenue

6,394,615

7,762,490

Operating expenses

Plant and other operating costs

General and administrative expenses

Marketing and development costs

5,036,999

2,772,584

828,843

8,002,945

2,429,146

935,908

Operating expenses before amortization and stock-based

compensation

8,638,426

11,367,999

Amortization of property, plant and equipment (note 8)

Amortization of intangible assets (note 9)

Stock-based compensation charge (note 11)

1,078,159

30,972

890,000

814,503

30,972

1,663,500

Loss before the under-noted

(4,242,942)

(6,114,484)

Interest income

Other income

Lease fees

Foreign exchange loss

76,930

122,666

526,231

(353,562)

604,385

353,995

(921)

Loss before income taxes

(3,870,677)

(5,157,025)

Income taxes (note 12)

126,236

88,124

Loss before extraordinary items

(3,996,913)

(5,245,149)

Extraordinary items (note 13)

(697,038)

Loss and comprehesive loss for the year

(4,693,951)

(5,245,149)

Deficit - Beginning of year

(20,905,298)

(15,660,149)

Deficit - End of year

Loss per share - basic and diluted (note 11)

Weighted average number of basic and diluted

shares outstanding (note 11)

(25,599,249)

(20,905,298)

(0.08)

(0.09)

62,087,137

60,477,101

The accompanying notes are an integral part of these consolidated financial statements

Financial Statements

BioteQ Environmental Technologies Inc.
Consolidated Statement of Cash Flows
For the years ended December 31, 2009 and 2008

Cash flows from (used in) operating activities

Loss for the year

Items not affecting cash:

Amortization of property, plant and equipment

Amortization of intangible asset

Stock based compensation charge (note 11)

Change in non-cash working capital items (note 14)

Cash flows from (used in) financing activities

Proceeds from exercise of warrants and options

Cash flows from (used in) investing activities

Purchase of property, plant and equipment

Purchase of short-term investments

Proceeds from sale of short-term investments

Decrease (increase) in loan receivable

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents - Beginning of year

2009 Annual Report

2009
$

2008
$

(4,693,951)

(5,245,149)

1,078,159

30,972

890,000

(2,694,820)

(1,593,595)

(4,288,415)

814,503

30,972

1,663,500

(2,736,174)

(979,096)

(3,715,270)

42,234

1,052,815

(140,746)

(12,861,204)

15,714,656

500,000

3,212,706

(1,033,475)

3,524,777

(9,072,146)

(43,022,259)

60,936,084

(4,413,191)

4,428,488

1,766,033

1,758,744

3,524,777

Cash and cash equivalents - End of year

2,491,302

The accompanying notes are an integral part of these consolidated financial statements

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

Company operations

2009 Annual Report

BioteQ Environmental Technologies Inc. (“BioteQ”) has acquired and developed processes to treat metal-laden,
sulphate-rich waste water streams for acid neutralization and metal recovery. Eight commercial scale plants have
been built using its patented BioSulphide® or ChemSulphide® technology.

The principal operations of the Company are to build process plants and earn revenues from recovered metals,
treatment fees, plant sales, engineering fees and process licenses.

The consolidated financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the normal course of business. The Company has curtailed
operations as a result of current economic and business conditions at certain sites and has estimated that it will have
adequate funds from existing working capital to meet corporate, development, administrative and other obligations for
the coming year. However, the Company has not yet realized profitable operations and has relied on non-operational
sources of financing to fund its operations. For the year ended December 31, 2009, the Company incurred a loss of
$4,693,951 (2008 - $5,245,149), had a net decrease in cash and short term deposits of $3,886,927 (2008 -
$16,147,792) and used net cash in operating activities of $4,288,415 (2008 - $3,715,270). The Company’s success
and recoverability of long-lived assets is dependent upon its ability to achieve or sustain profitable operations at
existing sites, secure operating contracts with new customers, and obtain additional funding to accelerate future
growth.

Significant accounting policies

General accepted accounting principles

These consolidated financial statements are prepared in accordance with generally accepted accounting principles in
Canada (“GAAP”) and are presented in Canadian dollars.

Principles of consolidation

The consolidated financial statements include the accounts of BioteQ and its wholly owned subsidiaries, Biomet
Mining Corporation, BioteQ Arizona, Inc., BioteQ Water (Australia) Pty Ltd., Bioteq Water (Chile) SpA and BioteQ
Water Mexico S.A. de C.V. (the “Company”). The accounts of the joint ventures 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 GAAP 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. Assessment of the valuation of stock-based compensation, recoverability of long-lived assets and
recoverability of the loan receivable are significant areas requiring the use of estimates. Actual results could differ
from those estimates.

Cash and cash equivalents

Cash consists of unrestricted bank deposits, some of which are interest bearing and are all classified as held-for-
trading. Cash equivalents consist of banker’s acceptances that are readily convertible to known amounts of cash and
are held to their original maturities within 90 days from their date of purchase.

Short-term investments

The Company’s short-term investments consist of banker’s acceptances and are classified as held-to-maturity for
accounting purposes and carried on the balance sheets at amortized cost using the effective interest method, plus

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

accrued interest. Investments with maturities of greater than 90 days and less than one year are classified as short-
term investments.

Inventories

Inventories of concentrate are valued at the lower of average production cost and net realizable value. Production
costs that are inventoried include the costs directly related to bringing the inventory to its current condition and
location, such as materials, labour, other direct costs (including external services) and related production overheads,
but excludes administrative and finance costs.

Supplies inventories are valued at the lower of cost and net replacement cost which approximates net realizable
value.

Property, plant and equipment and long-lived assets

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 recoverability of long-lived assets and asset groups by plant location whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. When such a situation occurs, the
estimated undiscounted future cash flows anticipated to be generated during the remaining life of the asset or asset
group are compared to its net carrying value. When the net carrying amount of the asset or asset group is less than
the undiscounted future cash flows, an impairment loss is recognized to the extent by which the carrying amount of
long-lived assets or asset group exceeds its fair value. Management’s estimates of mineral prices, foreign exchange
rates, production levels and operating costs are subject to risk and uncertainties that may affect the determination of
the recoverability of the long-lived asset groups. It is possible that material changes could occur that may adversely
affect management’s estimates.

Revenue

Revenue from the Company’s water treatment plants varies depending on the Company’s agreements with its
customers 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 and recorded net of refining costs and transportation fees.
Revenue is initially recorded at a provisional price based on prevailing market prices. Final, or settlement,
metal prices are based on a predetermined and defined quotational period one to four months after the
month of shipment. The terms of the contracts result in embedded derivatives because of the timing
difference between the provisional price and the final settlement price. These embedded derivatives are
adjusted to fair value through revenue each period until the date of final price determination.
fees from engineering services are recognized as the services are rendered.
revenue from the sale of materials and components used in the construction of water treatment plants are
recognized upon delivery or installation.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

Government assistance

2009 Annual Report

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 ventures are considered to be integrated foreign operations. Foreign
denominated monetary assets and liabilities of the Canadian and foreign operations are translated into Canadian
dollars at the rates of exchange prevailing at the balance sheet dates. Non-monetary 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 translation of the corresponding assets.
Foreign exchange gains and losses are included in the determination of net earnings or net loss.

Loss per share

Loss per share is calculated using the weighted average number of shares outstanding during the period, excluding
performance based escrow shares, and diluted loss per share is calculated to reflect the dilutive effect of exercising
outstanding stock options, warrants or equivalents by application of the treasury stock method except when the effect
would be anti-dilutive. For the years ended December 31, 2009 and 2008, the Company excluded potential common
share equivalents 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 (temporary differences) and for the benefits of loss carry-
forwards. 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 tax rates is included in income in the
period that includes the substantial enactment date. Future income tax assets are evaluated, and if realization is not
considered to be more likely than not, a valuation allowance is provided.

Stock-based compensation

The Company accounts for stock options using the fair value method calculated using the Black-Scholes option
pricing model. Under this method, stock-based awards for employees are measured at the fair value of the equity
instrument issued and stock-based compensation expense is recorded over the period in which the related employee
services are provided. The fair value of stock-based awards to non-employees is measured at the earliest of the date
at which the services are provided, the date which a performance commitment is reached, or the option grant date if
the options are fully vested and non-forfeitable. A corresponding increase in contributed surplus is recorded when
stock options are expensed. When stock options are exercised, capital stock is credited by the sum of the
consideration paid and the related portion previously recorded in contributed surplus. The effects of forfeitures are
accounted for as they occur.

Financial instruments

The Company classified all financial assets and liabilities as either: held-to-maturity, held-for-trading, loans and
receivables, available-for-sale, or other financial liabilities. The initial and subsequent recognition of the financial
instrument depends on its initial classification.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

The Company has classified its financial instruments as follows:

a) Cash and cash equivalents: the Company designated its cash and cash equivalents as held-for-trading,

which are measured at fair value.

b) Short-term investments: the Company classified its short-term investments as held-to-maturity which are
measured at amortized cost using the effective interest method. The carrying value of short-term
investments approximates fair value due to their short-term nature.

c) Accounts receivable and loan receivable: the Company classified its trade receivables, receivable from joint
venture partners and loan receivable as loans and receivables, which are initially measured at fair value and
subsequently at amortized cost using the effective interest method.

d) Accounts payable and accrued liabilities: the Company classified these as other financial liabilities, which
are initially measured at fair value and subsequently at amortized cost using the effective interest method.

The Company expenses transaction costs in the period incurred.

New accounting policies

On January 1, 2009, the Company adopted the following CICA accounting standards:

CICA Handbook Section 3064 – Goodwill and Intangible Assets
The CICA has issued new accounting recommendations for goodwill and intangible assets which establish standards
for the recognition, measurement, presentation and disclosure of goodwill and intangible assets (including internally
developed intangible assets). These recommendations are effective for the Company beginning January 1, 2009.
Goodwill and intangible assets that are not assets as defined by GAAP are derecognized and charged to equity at
that date. Adoption of this section did not have any impact on the Company’s financial statements.

Financial Instruments – Disclosures
In June 2009, the CICA amended Section 3862, “Financial Instruments – Disclosures,” to include additional
disclosure requirements about fair value measurement for financial instruments and liquidity risk disclosures. These
amendments require a three level hierarchy that reflects the significance of the inputs used in making the fair value
measurements. Fair values of assets and liabilities included in Level 1 are determined by reference to quoted prices
in active markets for identical assets and liabilities. Assets and liabilities in Level 2 include valuations using inputs
other than quoted prices for which all significant outputs are observable, either directly or indirectly. Level 3
valuations are based on inputs that are unobservable and significant to the overall fair value measurement. The
amendments to Section 3862 are effective for the Company for the annual reporting period ended December 31,
2009. The impact of adopting this standard is disclosed in Note 16.

Future accounting changes

Business Combinations and Related Sections

The CICA has issued new accounting recommendations related to business combinations and minority interests
effective January 1, 2011, with early adoption permitted. This new standard effectively harmonizes the business
combinations standard under GAAP with IFRS. These new standards revise guidance on the determination of the
carrying amount of the assets acquired and liabilities assumed, goodwill and accounting for non-controlling interests
at the time of a business combination.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

subsequent to a business combination. The Company is evaluating the effect of these recommendations on its
financial statements.

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 Nickel 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 and began operations in June 2004. Under the
contract, the Company charges a fixed monthly fee which has increased from $24,500 to $31,860 due to the cost of
increased capacity requested by the client. The final fixed monthly fee of $31,860 was paid in January 2009. In
addition, an operating fee is charged of $1.06 per cubic meter of water treated, increasing up to a maximum of 2%
per annum. In 2009, the fee was increased to $1.142 per cubic meter. The fees are subject to certain conditions and
performance criteria that must be met by either Xstrata Nickel or by the Company. After 63 months from the plant
installation date of November 2003, Xstrata Nickel 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, 2009, the cost of the plant, including commissioning costs, amounted to
$1,987,400 (2008 - $1,987,400) and net book value after accumulated depreciation amounted to $1,398,340 (2008 -
$1,497,709).

Mt Gordon agreement

In May 2007, BioteQ finalized the full scope of an agreement with Birla Mt Gordon Pty Ltd (“Birla”) for the
development and operation of a water treatment plant at Birla’s Mt Gordon copper mine in Queensland, Australia.

The contract provides for a plant to recover copper, cobalt and nickel from contaminated water at the rate of 250
cubic meters per hour. In addition, BioteQ is to provide an evaporation system to treat a minimum of one gigaliter of
water inventory in Birla’s pit annually and also provide sufficient capacity in the system to maintain at least a zero
discharge water balance at the site subject to permitting, infrastructure and site access to be obtained and provided
by the site owner.

The commissioning of certain parts of the plant commenced in 2007. Full commissioning of the copper circuit and
evaporation system and the separate cobalt recovery circuit commenced in 2008. The plant ceased commissioning
and commenced operations on April 1, 2008.

In January 2009, significant rain events flooded the site causing evacuation of all site personnel and damaging a
portion of the Company’s plant equipment. The Company served notice to Birla to cease operations under force
majeure. In November 2009, the Company restarted plant operations on a modified and temporary basis to
demonstrate the functionality of the plant to Birla. In December 2009, operations were shut down to perform plant
maintenance and prepare for modifications to meet long term water treatment needs at the site.

Currently, the force majeure conditions remain at the site and the plant is inactive. The Company is continuing
discussions with Birla to assess the long term water treatment needs and agree on new or modified commercial
terms. See Note 13 – Extraordinary items

At December 31, 2009, the cost of the plant, including commissioning costs, amounted to $9,027,065 (2008 -
$9,077,456) and net book value after accumulated depreciation amounted to $8,236,379 (2008 - $8,736,816).

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

Lluvia agreement

2009 Annual Report

In February 2007, BioteQ signed an agreement with NWM Mining Corporation (formerly Columbia Metals
Corporation) (“NWM”) for the construction of a copper recovery and cyanide regeneration plant at NWM’s mine site in
Sonora, Mexico.

The contract provides for BioteQ to construct a plant to treat the solution from NWM’s gold heap leach operation to
regenerate cyanide and recover copper, prior to gold recovery by NWM. BioteQ will receive a share of all metal
revenues produced at the property, which amounted to approximately 33.33%,until it has recovered an amount equal
to its capital cost plus a return of 30% (“Return on Capital”). After BioteQ has recovered its Return on Capital,
BioteQ’s revenue will accrue in one of two ways, at BioteQ’s option, either by way of a fee per pound of regenerated
cyanide plus copper recovered, or by an operating fee.

Commissioning of the plant commenced in 2008 and it was fully commissioned on December 11, 2008.

On October 1, 2008, the Company entered into a new agreement with NWM for the operations management of the
Lluvia de Oro-Jojoba gold mines. The Company assumed responsibility for all operating activities at the site in
exchange for a management fee from NWM. The agreement would be in place until the Company had recovered all
related operating and development costs, original capital investment plus 30% and loans to NWM. As of October 1,
2008, the results of all operations of the site are reflected as part of the Company’s consolidated results. In March
2009, BioteQ and NWM agreed to terminate the management agreement, with all ongoing financial and operational
obligations associated with the mine site assumed by NWM.

In June 2009, BioteQ, NWM and a third party, Renvest Mercantile Bancorp through its Global Resource Fund entered
into an agreement that superseded all previous agreements, restructured the terms of the existing loan and included
the sale of the plant to NWM under a sales type lease arrangement. See Note 7 – Loan Receivable.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

Inventory

2009 Annual Report

Inventory of chemicals and spare parts

Inventory of metal concentrate

Writedown of metal concentrate

2009

396,160

1,237,382

1,633,542

(974,668)

2008

269,013

950,451

1,219,464

(323,555)

658,874

895,909

Inventory is valued at the lower of cost and net realizable value. A provision for the inventory of metal concentrate
and chemicals was recorded for the Mt. Gordon operations to reflect the inventory at net realizable value (see Note
13 – Extraordinary items).

The cost of inventories recognized as expense and included in “plant and other operating costs” for year ended
December 31, 2009 amounted to $2,958,089 (2008 - $7,041,054). Non-inventory items recorded in plant and other
operating costs include items such as labour, supplies and travel.

Interest in Joint Ventures

Bisbee agreement

During 2003, the Company signed agreements with Freeport-McMoRan Copper & Gold Inc. (“FMI”) (formerly Phelps
Dodge Corporation) for the construction and operation of a 50:50 joint venture water processing project at FMI’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 and has been operational from that date.

As of April 1, 2009, BioteQ and FMI agreed to place the Bisbee operation on furlough, to initiate technical
improvements and cost reduction measures that are expected to improve the profitability of the joint venture. A
reduced complement of BioteQ staff continues to work on site to implement technical changes and maintain the
bioreactor activity at a level that allows a rapid restart. BioteQ is responsible for the labour costs associated with
BioteQ staff at the joint venture plant while FMI is responsible for the labour costs associated with FMI staff. FMI has
assumed site overhead costs for the joint venture during the furlough period and initiated work on assessing various
options for improving copper extraction from the stockpile. In addition, the joint venture is investigating opportunities
to increase the revenue from the high grade copper product recovered. During the furlough period, the stockpile
wastewater is being re-circulated back onto the stockpile.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

The 50% interest in the joint venture in the consolidated financial statements is as follows:

2009

2008

6,800

30,700

1,498,000

1,638,000

477,200

(45,000)

(185,000)

1,636,100

345,200

203,700

(24,900)

348,900

(4,500)

24,900

(344,400)

Consolidated balance sheets

Current assets

Long-term assets

Consolidated statement of operations

Revenue

Operating income (loss)

Net income (loss)

Consolidated statements of cash flows

Operating activities

Investing activities

Financing activities

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 is called JCC-BioteQ
Environmental Technologies Co. Ltd., builds and operates 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 as well as five additional sites owned and operated by JCC.
The plant ceased commissioning and commenced operations on April 1, 2008.

The cost of the plant, including BioteQ’s engineering and site costs, in Water Treatment Plants at December 31, 2009
amounted to $1,998,625 (2008 - $1,845,361) and net book value after accumulated depreciation amounted to
$1,837,469 (2008 - $1,780,002).

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

BioteQ’s 50% of the joint venture in the consolidated financial statements is as follows:

2009

2008

2,085,000

1,302,000

544,000

2,172,000

1,741,000

305,000

1,966,000

1,246,000

608,000

1,625,000

720,000

816,000

288,000

1,033,000

(153,000)

(74,000)

(77,000)

(99,000)

Consolidated balance sheets

Current assets

Long-term assets

Current liabilities

Consolidated statement of operations

Revenue

Expenses

Net income

Consolidated statements of cash flows

Operating activities

Investing activities

Financing activities

Loan receivable

On April 2, 2008, BioteQ agreed to provide $3 million in debt financing to NWM to bring the Lluvia-Jojoba gold and
copper mine into production, to coincide with the completion of BioteQ’s water treatment plant. There was an
extension option for a further $1 million which could be used to finance property payments. The loan has a maximum
term of one year and if unpaid will result in an additional share of all net revenues to BioteQ until all loans are repaid.
The loans are secured on the assets of the project. The loan bears an interest rate of 12% per annum calculated
monthly and 2% per month on amounts used for working capital requirements. Loan amounts are due within one
year of issuance and working capital requirements are due six months from issuance.

In December 2008, NWM was unable to meet the repayment terms of the loans and the loans went into default. The
Company did not exercise its security over the loan at that time and entered into negotiations with NWM to
restructure the repayment terms on the loan as well as reviewing the future of the Company’s plant and operations on
the project site.

In June 2009, the Company, NWM, and a third party, Renvest Mercantile Bancorp through its Global Resource Fund
(Renvest), entered into an agreement with the following key terms:

• NWM made a payment of $500,000 CAD on June 12, 2009 to the Company against the existing loan.
•

The repayment terms of the remaining loan were restructured. BioteQ will charge NWM an annualized
interest rate of LIBOR + 2%. Payments will be due each month beginning in January 2010.
The Company sold its plant to NWM under a sales type lease arrangement. The net book value of the
plant at the time the agreement was entered into was $6,302,661. The Company will receive total lease
payments of $9,621,710 under the agreements. Payments will be due each month beginning in
October 2010.

•

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

• Renvest provided NWM with additional capital to resume and expand mining operations at the site. The
Company agreed to share its first charge over the project assets with Renvest on a pro-rata basis to
secure its loan. The Company will retain legal title to its plant until all lease payments are received.

Below is a summary of the total loan balance:

Loan

Lease

Total

Balance - December 31, 2008

4,413,191

Total additions

Total interest

Total lease fees

Total repayments

6,302,661

65,576

526,231

(500,000)

Balance - December 31, 2009

3,978,767

6,828,892

10,807,659

less: current portion

Long-term portion

468,424

3,510,343

6,828,892

10,339,235

Both the loan and lease have a fixed minimum repayment schedule. Actual repayments may be accelerated based
on future gold prices or project cash flows. Remaining minimum repayments under the loan and lease are:

2010

2011

2012

2013

2014

2015

Loan

Lease

600,000

487,800

1,500,000

1,951,200

1,500,000

1,951,200

378,767

1,951,200

1,329,110

3,978,767

9,621,710

Interest income on the loan will be recognized over the entire term of the loan. Revenue from the sales type lease of
$3,319,049 will be recognized over the term of the lease.

As part of the repayment terms for both the loan and the lease, the Company holds an embedded derivative due to
provisions for accelerated repayments based on future gold prices. At this time, the Company believes that this
derivative does not have any value as this provision is not expected to be triggered over the course of the loan.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

Property, plant and equipment

2009 Annual Report

Pilot plants

Office equipment

Vehicles

Water treatment plants

Construction in progress

Pilot plants

Office equipment

Vehicles

Water treatment plants

Construction in progress

Cost

372,113

279,590

162,464

Accumulated
Amortization

361,631

190,709

77,574

2009

Net

10,482

88,881

84,890

16,517,026

2,777,400

13,739,626

1,006,632

18,337,825

3,407,314

14,930,511

Cost
$

372,113

266,999

162,464

Accumulated
Amortization
$

357,447

156,541

44,837

2008

Net
$

14,666

110,458

117,627

22,694,903

1,925,937

20,768,966

1,158,868

24,655,347

2,484,762

22,170,585

Amortization expense for the year ended December 31, 2009 amounted to $1,078,159 (2008 - $814,503).

During 2009, the Company disposed of $6,302,661 in water treatment plant equipment (see Note 7 – Loan
receivable).

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

Intangible asset

2009 Annual Report

Intellectual property

December 31, 2009

December 31, 2008

Cost

Accumulated
Amortization

Net

247,770

116,144

131,626

247,770

85,172

162,598

BioteQ had a continuing obligation to pay royalties under a cooperative development agreement which expired on
June 2, 2004. 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.

10.

Long-lived assets and measurement uncertainty

The Company regularly reviews the carrying values of its long-lived assets. In light of current economic and site-
specific conditions, including inactive operations as well as the Company's operating performance to date, a review
was conducted for each of the Company's operating plants experiencing possible impairment conditions. The
Company tests for recoverability using a two-step process. The first step involves the assessment of the probability
weighted undiscounted estimated future cash flows on a project by project basis compared to the current carrying
value of each project. When impairment is indicated by the first step, a second step is carried out to measure the
impairment using discounted cash flows to estimate the fair value.

Based on the current review, management believes that there are sufficient opportunities at each project to recover
the current carrying value of long-lived assets. At the Bisbee site, the Company impairment assessment assumes
the technical changes and improvement in the economic environment, specifically copper prices, will allow restart of
operations at the site. At the Mt Gordon site, the Company is continuing negotiations with the site owner and the
impairment assessment assumes there is a high probability that a new long term operating contract will be reached.
However, it is not possible to determine with any certainty the success and adequacy of these initiatives. Changes in
market conditions, reserve estimates, the ability to reach a long term operating contract at Mt Gordon, and other
assumptions used in these estimates may result in future write downs.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

11. Capital stock, warrants and contributed surplus

Authorized

Unlimited common shares without par value

Issued and outstanding

Common shares

Warrants

Contributed
Surplus

Number of

Amount

Total

Balance - December 31, 2007

65,483,883

49,558,272

1,436,015

4,047,035

55,041,322

Stock-based compensation

1,663,500

Exercise of warrants

69,757

146,114

(24,039)

122,075

Expiry of warrants

(1,411,976)

1,411,976

Exercise of options

573,334

1,385,020

(454,280)

930,740

Balance - December 31, 2008

66,126,974

51,089,406

6,668,231

57,757,637

Stock-based compensation

890,000

Exercise of options

63,334

58,974

(16,740)

42,234

Balance - December 31, 2009

66,190,308

51,148,380

7,541,491

58,689,871

Of the total stock-based compensation charge which amounted to $890,000 for the year (2008 - $1,663,500), none of
the charges relate to stock options granted to non-employees (2008 - $61,700).

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

a) Stock options
The Company has a stock option plan available to directors, employees and consultants. Under the 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, 2009, 6,619,031 options are available for issue, of which 5,708,001
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. A summary of the change in the Company’s stock option plan for the year is as
follows:

2009

Weighted
average
exercise price

2.59

0.67

0.56

2.46

Number

4,820,368

(63,334)

1,125,000

(174,033)

Number

4,398,701

(573,334)

1,170,000

(174,999)

Outstanding - January 1

Options exercised

Options granted

Options forfeited

Outstanding - December 31

5,708,001

2.26

4,820,368

Exercisable at December 31

4,433,557

2.54

3,202,713

Available for future grant pursuant
to Company's stock option plan at
December 31

911,030

1,792,329

2008

Weighted
average
exercise price

2.49

1.62

3.00

4.62

2.59

2.22

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

The following table summarizes information about common share options outstanding at December 31:

2009

2008

Range of
exercise prices
$

Number of
outstanding at
December 31

Weighted
average
remaining
contractual life
(years)

Weighted
average
exercise price
$

0.51 - 1.00

1,211,666

1.00 - 1.50

666,667

1.51 - 2.00

1,322,668

2.01 - 2.50

74,934

3.01 - 2.50

1,125,000

4.01 - 4.50

1,307,066

5,708,001

0.51 - 1.00

1.00 - 1.50

191,533

666,667

1.51 - 2.00

1,347,668

2.01 - 2.50

101,534

3.01 - 2.50

1,170,000

4.01 - 4.50

1,342,966

4,820,368

4.2

1.3

1.5

2.0

3.6

2.6

2.5

1.5

2.0

2.5

3.0

4.6

3.6

2.8

0.59

1.34

1.68

2.32

3.00

4.20

2.26

0.91

1.00

1.68

2.31

3.00

4.20

2.59

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:

2009

2008

Expected dividend yield

Expected stock price volatility

80% to 85%

37%

Risk-free interest rates

1.75% - 2.00%

2.75% - 3.00%

Expected life of options (years)

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

The weighted average fair value and weighted average exercise price of options granted in the periods indicated
were as follows:

Year to December 31, 2009

Year to December 31, 2008

Weighted
average fair
value

Weighted
average
exercise price

0.30

0.86

0.56

3.00

b) Escrow shares
At December 31, 2009, the common shares issued include 2,100,000 (2008 – 4,200,000) performance shares which
were to 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. Any performance shares not released within 10 years
from issuance on December 20, 2000 would be cancelled and returned to the Company’s treasury. At the
Company’s annual general meeting on April 23, 2007, the shareholders approved a change in the escrow
arrangement to a time release method. The time release formula would allow release of the escrow shares over a
period of 36 months, on the basis of 10% of the shares on the date specified in the news release announcing the
conversion, and 30% of the original number of the escrow shares every 12 months thereafter. The three time
releases of 30% are also subject to the Company building and operating a total of three new water treatment plants in
each period of 12 months. The new plants are cumulative in qualifying for each release of 30%.

The change in the escrow arrangement was approved by all parties to the original escrow contract and represents a
modification of the escrowed shares, which has resulted in additional stock-based compensation expense of
$2,100,000 during 2007. The first release of 10% (700,000 performance shares) took place in October 2007 and in
2008, the Board of Directors approved the release of 2,100,000 of escrowed shares.

During the year ended December 31, 2009, the Board of Directors approved the release of an additional 2,100,000 of
escrowed shares.

Loss per share, basic and diluted, and weighted average number of basic and diluted shares outstanding excludes
these performance based escrow shares.

c) Option agreement
In June 2007, the Company entered into an option agreement to purchase an engineering and fabricating company
for 1,000,000 shares of BioteQ and $500,000 in cash, at the sole option of BioteQ. The agreement has a term of
three years from the date of the agreement, with a possible extension of two years for additional consideration of
500,000 shares of BioteQ for each year extended. There was nominal cost for the option. In order for the option to
be exercised, BioteQ’s shares are required to be trading for at least $3.00 at the exercise date.

12.

Income taxes

As at December 31, 2009, the Company has approximately $919,000 of research and development expenditures
available for unlimited carry-forward, and $86,000 of investment tax credits, expiring 2009 to 2010, all of which may
be used to reduce future Canadian income taxes otherwise payable.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

The Company has accumulated losses of approximately $13,462,000 for Canadian income tax purposes which may
be deducted in the calculation of taxable income in future years. The losses expire as follows:

2010

2014

2015

2026

2027

2028

2029

1,310,000

1,439,000

2,284,000

2,416,000

1,629,000

1,952,000

2,432,000

13,462,000

In addition, BioteQ has available tax losses in other jurisdictions that total $4,600,000 (2008 - $3,200,000). These
losses can be carried forward to offset against future taxable income in those jurisdictions with expiry periods that
range from 10 years to indefinitely.

As at December 31, 2009, 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 losses carry-forwards

2009
$

664,000

79,000

286,000

4,826,000

5,855,000

2008
$

439,000

194,000

295,000

4,236,000

5,164,000

Valuation allowance

(5,855,000)

(5,164,000)

Total future income tax assets

- -

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.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

The reconciliation of income tax attributable to operations computed at the statutory tax rates to income tax expense
(recovery), using a 30% (2008 - 31%) statutory tax rate, for the year ended December 31 is as follows:

Income tax recovery at statutory rates

(1,370,000)

(1,599,000)

2009

2008

Change in valuation allowance

Non-deductible expenses

Tax rate differences

Other

Total income tax expense

13. Extraordinary items

692,000

269,000

213,000

322,000

126,000

1,232,000

522,000

229,000

(296,000)

88,000

In January 2009, the Mt. Gordon mine site in Queensland, Australia experienced heavy rainfall that flooded the site
and led to suspension of all mining and water treatment activities. The Company has suffered damages to equipment
and inventory and is continuing to review the extent of the damages with its insurance provider. The Company
served notice to its customer shutting down operations under the force majeure clause of its agreement. The
Company expects that any loss or damage to equipment and inventory will be replaced under its existing property
insurance policy and has expensed any items that it expects will not be recovered under this policy. As at December
31, 2009, the insurance claim has not yet been settled.

14. Consolidated Statement of Cash Flows – Supplemental Information

Increase in accounts receivable

Decrease (increase) in receivable from joint venture partners

Decrease (increase) in taxes receivable

2009

2008

(608,338)

(998,243)

(46,269)

(19,840)

152,299

90,074

Increase in accrued interest receivable on loan receivable

(65,576)

Increase in accrued lease fees

Decrease (increase) in inventory

Decrease (increase) in prepaid expenses

Increase (decrease) in accounts payable and accrued liabilities

(526,231)

237,035

150,556

(714,932)

(846,529)

(209,264)

832,567

(1,593,595)

(979,096)

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

Supplemental cash flow

Withholding taxes paid and receivable
Income taxes paid

Non-cash operating, financing and investing activities

Increase in loan receivable on disposal of property, plant and

and equipment (Note 7)

Decrease in accounts payable related to purchase of

2009

41,923
204,654

2008

56,757
88,124

6,302,661

property, plant and equipment

(1,920,000)

15. Segmented information

The Company currently has one operating segment. Geographic disclosures are as follows:

Revenue

Canada

U.S.

Australia

China

Mexico

Other

Property, plant and equipment

Canada

U.S.

Australia

China

Mexico

2009

2008

2,770,847

624,501

115,861

2,265,422

44,293

1,494,689

2,064,404

871,391

1,624,782

1,707,224

573,691

6,394,615

7,762,490

2,037,183

2,743,390

8,287,457

1,862,481

2,183,507

2,938,037

8,806,544

1,813,219

6,429,278

14,930,511

22,170,585

Revenues are attributed to countries based on the location of customers.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

Revenues were derived from customers that individually accounted for greater than 10% of total revenues, as follows:

Customer A

Customer B

Customer C

2009

1,402,953

2,171,892

2008

1,494,689

1,624,782

1,330,538

4,905,383

3,119,471

16.

Financial instruments

Under GAAP, financial instruments are classified into one of the following categories: held for trading, held-to-
maturity, available-for-sale, loans and receivables and other financial liabilities. The following table summarizes
information regarding the carrying values of the Company’s financial instruments:

Held for trading (cash and cash equivalents)

Held to maturity (short-term investments)

Loans and receivables

Other financial liabilities

2009

2,491,302

2,849,244

13,024,925

1,295,759

2008

3,524,777

5,702,696

5,975,850

2,010,691

Interest income and other gains and losses from “held for trading” and “held to maturity” financial assets are
recognized in interest income. Interest income, expense and gains and losses from loans, receivables and other
financial liabilities are recognized in other income (expense). The following table summarizes interest income and
expense under the effective interest method for the year ended December 31, 2009:

Interest income from:

Held for trading (cash and cash equivalents)

Held to maturity (short-term investments)

Loans and receivables

Fair Value

2009

45,317

31,613

648,897

2008

61,527

542,858

353,995

Cash and cash equivalents, short-term investments, trade receivable, receivable from joint venture partners, other
assets and accounts payable and accrued liabilities are short term financial instruments whose fair value
approximated the carrying amount given that they will mature shortly.

During 2008, the loan receivable (note 7) was issued at fixed interest rates comparable to prevailing rates for similar
instruments. As of December 31, 2008, NWM was in default of the terms of the loan. The Company has not

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

exercised its security over the loan. The Company estimated the fair value of the security underlying the loan
receivable based on (1) applying an estimated value or reserve multiple for comparable companies to the estimated
reserves of the Lluvia de Oro site which was provided as security for the loan receivable; and (2) estimating the fair
value of the security provided on the loan receivable based on the market capitalization of NWM as at December 31,
2008. As a result, the Company has determined that the fair value of the collateral is in excess of the carrying value
of this loan and no impairment is required.

Classification and Measurement of Financial Instruments

Cash and cash equivalents are measured at fair value. CICA Handbook Section 3862 Financial Instruments –
Disclosures requires classification of these items within a hierarchy that prioritizes the inputs to fair value
measurement. The three levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly;
Level 3 – Inputs that are not based on observable market data.

All of the Company's cash and cash equivalents is measured using level 1 inputs.

Measurement Uncertainty

The Company recognizes revenues on sales of recovered metals at a provisional price for the metals at the time of
shipment. All sales that have not been settled at the reporting period have been recognized at market prices at the
balance sheet date. Actual settlement prices are based on market prices of metals one to four months after
shipment. Future changes in market prices could require a material change in recognized amounts in future periods.

Risks

The Company’s activities expose it to various risks, including credit risk, market risks such as foreign exchange risk
and interest rate risk, and liquidity risk. The Company’s risk management activities are designed to mitigating
possible adverse effects on the Company’s performance, having regard for the size and scope of the Company’s
operations, with a primary focus on preservation of capital. Risk management activities are managed by the finance
and accounting department. The Company’s risk management policies and procedures have not changed from
2008.

Interest rate risk

a)
Short-term investments are invested in separate investments with varying maturities exposing the Company to
interest rate risk on these financial instruments. All short-term investments have remaining maturities of less than
one year. The recognized interest income of the Company’s short-term investments for the year ended December
31, 2009 was $31,613 (2008 - $542,858). It is estimated that net income (loss) will fluctuate by $7,200 (2008 -
$56,900) per annum, for every 1% change in the prevailing rates of interest.

The loan receivable with NWM (note 7) is subject to interest rate risk as the interest accumulating on the loan
balances is based on LIBOR + 2%. During the year, the Company recognized income of $65,576 (2008 - $nil) on the
loan balance outstanding from NWM. It is estimated that net income (loss) will fluctuate by $36,000 (2008 - $nil) for
every 1% change in the prevailing rates of interest.

b) Credit Risk
The Company is exposed to credit risk in its cash and cash equivalents, short-term investments, trade receivable,
loans and other receivables. As the Company does not utilize credit derivatives or similar instruments, the maximum
exposure to credit risk is the full carrying value of the financial instrument. The Company minimizes the credit risk of
cash and cash equivalents and short-term investments by depositing only with reputable financial institutions and
limiting the term to maturity to less than one year.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

Credit risk on trade receivable and other loan receivables are minimized by performing credit reviews, on-going credit
evaluation and account monitoring procedures. All of the Company’s receivables have been reviewed for indicators
of impairment. At December 31, 2009, the allowance for doubtful accounts balance was $nil (2008 - $nil). In
addition, we recorded a bad debt expense of $nil during the year ended December 31, 2009 (2008 - $nil). Of the
Company’s receivables, there are no overdue balances and collection is reasonably assured. The definition of items
that are past due is determined by reference to terms agreed with individual customers. No trade receivables have
been challenged by the respective customers and the Company continues to conduct business with them on an on-
going basis. Accordingly, management has no reason to believe that the balance is not fully collectible.

As of December 31, 2009, the loan receivable balance (note 7) of $10,807,659 (2008 - $4,413,191) accounted for
83% (2008 - 73%) of all receivable balances. This balance is secured by the assets of the Lluvia de Oro Mine. The
Company has estimated the fair value of the collateral to be in excess of the loan receivable.

As of December 31, 2009, there were tax related recoverable of $663,692 (2008 - $907,804) which accounted for
31% (2008 - 56%) of all trade receivable. Of this balance, $652,091 (2008 - 751,442) related to Mexican IVA tax
(GST), which had been paid on construction work on the water treatment plant in Mexico. The Company has no
reason to believe that these balances will not be collected.

c) Foreign Currency Risk
There is a risk to the Company’s earnings that arise from fluctuations in foreign exchange rates and the degree of
volatility of these rates. The Company’s financial results are reported in Canadian dollars. The Company does not
hedge foreign exchange risks.

The Company’s exposure to foreign currency risk is primarily related to fluctuations in the value of the Canadian
dollar relative to that of the United States dollar, because the Company’s revenues are largely derived from the sale
of commodities which are priced in U.S. dollars. In addition, and to a lesser extent the Company is exposed to
currency fluctuations related to operating costs and any construction costs in the local currencies where its plants are
being built. Presently, currencies affected would be the Australian dollar, Chinese Renminbi, Mexican Pesos and
Chilean Pesos If the Canadian dollar depreciated by 1% against the currencies mentioned above, with all other
variables held constant, the impact of the foreign currency change on the other foreign financial instruments would
lead to additional after tax net income (loss) of $57,000. For the year ended December 31, 2009, the Company
reported a foreign exchange loss of $353,562 (2008 - $921).

d) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligation as they fall due. The
Company currently settles its financial obligations out of cash and cash equivalents and short-term investments. The
ability to do this relies on the Company collecting its trade receivable in a timely manner and by maintaining sufficient
cash and cash equivalents in excess of anticipated needs. At December 31, 2009, the Company’s accounts payable
and accrued liabilities were $1,295,759 (2008 - $2,010,691), which falls due for payment within twelve months of the
balance sheet date.

e) Commodity Price Risk
The Company is exposed to price risk with respect to commodity prices. The Company closely monitors commodity
prices to determine the appropriate course of action to be taken. The Company does not have any hedging or other
commodity based risks respecting its operations.

17. Capital management

In the management of capital, the Company includes shareholders equity, excluding accumulated other
comprehensive income. The Company manages its capital to ensure that financial flexibility is present to increase
shareholder value through organic growth and selective acquisitions as well as allow the Company to respond to
changes in economic and/or marketplace conditions.

Financial Statements

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2009 and 2008

2009 Annual Report

Considering the early stage of development of the Company, it has not utilized debt financing to any significant
degree and currently has no outstanding debt or facilities, and there are no externally imposed capital requirements.
In order to maintain or adjust its capital structure the Company may issue new shares, purchase shares for
cancellation pursuant to a normal course issuer bid, raise debt or refinance existing debt with different characteristics.
There were no changes in the Company’s approach to capital management during the period.

18. Commitments

The Company has commitments of $87,800 under operating leases for office and laboratory premises and for office
equipment.

The Company is committed to repayment of government assistance in the form of a quarterly 2% royalty on corporate
gross revenues. The maximum amount remaining to be paid is $86,799 of which $37,000 has been accrued at
December 31, 2009.

19. Subsequent events

Subsequent to the year-end, the Company entered into an agreement with Newalta Corporation to pursue joint
projects that could apply the innovative environmental technologies and operating expertise of both companies. In
connection with this agreement, Newalta purchased 3,636,364 common shares of the Company, at an issue price of
$1.10 per share, for total cash consideration of $4 million. Each share purchased includes an additional warrant to
purchase one common share of the Company at 125% of the issue price for one year and 150% of the issue price
thereafter. The warrants expire after 5 years.

Financial Statements

BioteQ Environmental Technologies Inc.

2009 Annual Report

CORPORATE INFORMATION

2009 Directors
George W. Poling 1,4
Chairman of the Board of Directors
Independent Consultant and
Professor Emeritus
University of British Columbia
Vancouver, British Columbia

C. Bruce Burton 1,3
Independent Consultant
Toronto, Ontario

Kelvin P.M. Dushnisky 1,2,3
Executive Vice-President,
Corporate Affairs
Barrick Gold Corporation
Toronto, Ontario

P. Bradley Marchant 4
CEO of the Company
Vancouver, British Columbia

Clement A. Pelletier 2,4
Chief Executive Ofﬁ cer
Rescan Environmental Services Ltd.
Vancouver, British Columbia

Kenneth F. Williamson 2,3
Independent Consultant
Dwight, Ontario

1 – member, Audit Committee
2 – member, Compensation Committee
3 – member, Corporate Governance Committee
4 – member, Technical Committee

Offi cers
P. Bradley Marchant
CEO

David Kratochvil
President & COO

Richard W. Lawrence
Vice President

Paul Kim
Vice President & CFO

Tanja McQueen
Vice President

Head Offi ce
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

Banker
HSBC Bank Canada
Vancouver, British Columbia

Transfer Agent
Computershare
Vancouver, British Columbia

Stock Exchange
Toronto Stock Exchange (TSX)
Symbol: BQE

Annual Meeting
9 am, May 6, 2010
16th Floor
401 West Georgia Street
Vancouver, British Columbia

Suite 1700 – 355 Burrard Street
Vancouver, B.C.
V6C 2G8, Canada
Phone: 604.685.1243
Fax: 604.685.7778
Email: bioteq@bioteq.ca
www.bioteq.ca
TSX:BQE