BQE Water Inc. Annual Report 2010

FY2010 Annual Report · BQE Water Inc.

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Clean
technology

Sustainable
water treatment
solutions

2010
ANNUAL
REPORT

Corporate Profile

BioteQ Environmental Technologies creates custom
water treatment solutions to recover dissolved metals
and remove sulphate from water impacted by mining,
energy, and industrial activities.

Working with the world’s leading resource companies, utility operators and
regulators, BioteQ helps customers reduce environmental liabilities while
generating revenue from wastewater. The company’s solutions recover
saleable metal products and produce clean water that can be re-used
or safely discharged to the environment.

By recovering value from waste, BioteQ has created economically and
environmentally sustainable water treatment solutions that enable
customers to comply with regulations, reduce the environmental impact
of their operations and lower the life cycle costs of water treatment.

Wellington Oro

Caribou

Raglan

Sulf-IXTM Pilot

BioSulphide®

Dexing

Research & Development

Commercialize Technology

Growth

200320002007SART

Sulf-IXTM

Establish strategic
alliances with
Newalta, Lanxess
and EcoMetales

Minto

Growth

2 Global Operations

3 Achievements & Goals

4 CEO’s Message

6 Management’s Report to Shareholders

7 Management’s Discussion and Analysis

37 Independent Auditor’s Report

38 Consolidated Financial Statements

65 Board of Directors

65 Management Team

65 Corporate Information

Page 1

2010Global Operations

BioteQ is a trusted partner for the world’s leading resource companies,
utility operators and regulators. Headquartered in Vancouver, Canada with
offices in Santiago, Chile, BioteQ has designed and commissioned 14 water
treatment plants around the world.

BioteQ has a successful track record of delivering safe and reliable
water treatment plants that comply with environmental regulations and
consistently achieve strict water quality criteria. We have a disciplined
approach to training, safety, operations and maintenance that incorporates
ISO 14001 standards for environmental compliance.

Customers work with us because we can help them to:
» Comply with strict regulations.
» Improve water conservation & re-use.
» Reduce or eliminate waste sludge.
» Convert wastewater into a valuable resource.

Plants built
BioteQ offices

BioteQ Environmental Technologies 2010 Annual Report
GLOBAL OPERATIONS

Page 2

2010 Achievements

2011 Goals

» Treated 7.9 billion litres of contaminated water

1. Grow BioteQ’s business

» Removed 2.2 million pounds of metal contaminants

Increase revenues by at least 25%

from the environment

» Increased revenues by 37%

» Balanced the revenue mix and reduced commodity

exposure by securing new fee based contracts

» Launched the first large-scale plant applying Sulf-
IX™ ion exchange technologies for the removal of
sulphate

» Secured new customers in the mining industry,

including Barrick Gold Corporation, Cameco, Teck
Corporation, and EcoMetales

» Expanded BioteQ’s portfolio of projects:

· Generate net positive operating cash flow

· Expand BioteQ’s portfolio of projects

· Expand our presence in key markets—North

America, Chile and China

· Diversify the market base to serve new customers

in mining, power generation, and oil & gas

2. Maintain reliable and consistent operations

· Meet strict health, safety and environmental

standards

· Continue to generate recurring cash flow from

· Established permanent operations at the Minto

operations

Mine, Yukon

Initiated construction of a third plant at the Dexing
Mine, China

· Carried out 3 commissioning projects

· Completed 3 engineering projects

3. Leverage BioteQ’s core competencies

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

· Completed 3 pilot operations to introduce new

technologies or secure new customers

Innovate to develop new water treatment
solutions for existing and new market sectors

» Established 3 strategic alliances to diversify into new

industries and regions:

· Newalta Corporation

· Lanxess Sybron Chemicals

· EcoMetales

» Received award recognition:

· CIM/Syncrude Award for Excellence in Sustainable

Development

· Canada China Business Excellence Award for

Outstanding SME Innovation and Best Practice

BioteQ Environmental Technologies 2010 Annual Report
ACHIEVEMENTS & GOALS

Page 3

CEO’s Message

Looking back on 2010, the year was a mix of significant
advancements and unexpected set-backs. Looking to
2011 and beyond, we are confident that BioteQ will
achieve significant revenue growth in the coming year,
and finally turn the corner towards profitability.

We set out at the beginning of the year to execute
six new water treatment projects in 2010, including
two design projects, two pilot plants, and two new
operations, and to further strengthen BioteQ’s growth
potential through diversification of markets and
technology. On these counts, we were very successful.
We met our project goals by the third quarter, formed
three strategic alliances, made important additions to
our customer base and operations, and launched our
new Sulf-IX™ technology on a commercial-scale.

Strategic Alliances
Market diversification has been a component of
BioteQ’s growth strategy for the past several years. The
energy sector—including power generation and oil &
gas—is a large market that has tremendous potential
for our existing technologies. It is also complex and
competitive, where market entry can be difficult for
new players. Similarly, from experience we know that
entry into new geographic markets like Chile can be
challenging without a local market presence.

We believe that carefully selected strategic alliances
with existing market leaders is the most effective
strategy for BioteQ to enter new markets. In 2010 we
entered into three strategic alliances that are helping to
expand our customer base in mining and to introduce
BioteQ’s technologies into new industries.

In January, we formed a strategic alliance with Newalta
Corporation, Canada’s largest waste management
company. In March, we announced a marketing alliance
with Lanxess Sybron Chemicals, one of the world’s
largest specialty chemical manufacturers. And in
September, we established a strategic alliance with

EcoMetales, a waste management firm wholly-owned
by Chilean copper giant Codelco.

Strategic alliances are not easy. They require a
shared vision of the future, commitment of senior
management, and mutual trust. We spent 2010
developing strong relationships with our strategic
alliance partners, and these efforts are now bearing
fruit. We have initiated our first projects with Newalta
and EcoMetales; both projects are applying our ion
exchange technologies, and are now in the detailed
engineering stage for expected construction in 2011.

New Customers & Operations
We expanded our customer base in 2010, carrying
out design and pilot projects for Barrick Gold, Teck
Corporation, Cameco, and EcoMetales. Two of these
projects are advancing to engineering and construction
in 2011.

We added 4 new plants to our portfolio during 2010,
including a design-build-operate project for Minto
Explorations in the Yukon where we also provide
ongoing operating services, a design-commission
project for Koza Gold in Turkey for a SART plant, and
two commissioning projects for Freeport-McMoRan—
including a ChemSulphide® plant, and the first large-
scale Sulf-IX™ plant.

We initiated construction of a new plant for cobalt and
nickel recovery at the Dexing Mine site, in joint venture
with Jiangxi Copper Company. The plant uses a novel
ion exchange process to treat wastewater that has very
low concentrations of dissolved metals, expanding our
portfolio of metal recovery technologies.

Expanding Our Clean Technology Solutions
Over the last five years, BioteQ has developed Sulf-IX™,
a new technology to remove sulphate from wastewater.
The process uses ion exchange to produce clean water
with low residual sulphate concentrations and a solid

BioteQ Environmental Technologies 2010 Annual Report
CEO’S MESSAGE

Page 4

gypsum by-product that can be sold while recovering
up to 99% of water for re-use. After comprehensive
piloting, our first large-scale water treatment plant
applying the Sulf-IX™ technology commenced
commissioning in late 2010 for Freeport-McMoRan
at a mine site in the southern US.

Outlook
I understand that the set-backs of 2010 are unexpected
and frustrating for shareholders. As a shareholder, I
share that frustration. However, I also remain optimistic
about BioteQ’s prospects for the coming years. We are
stronger today than we have ever been.

Beyond mining, Sulf-IX™ is a gateway for BioteQ to
diversify into new sectors, such as power generation
and oil & gas. The technology platform can also be
expanded for application in the recovery of specialty
metals such as molybdenum and rhenium.

Unexpected Events
The first three quarters of 2010 ran according to
plan, and we were confident about the company’s
accomplishments and results. Unfortunately, the fourth
quarter brought unexpected events.

First, the Bisbee operation experienced an unexpected
shut-down due to contamination from a reagent in the
bioreactor. As a result, copper recovery at the plant
was significantly lower than expected for the year,
impacting our fourth quarter results. The bioreactor
has been re-inoculated, and we expect production to
return to normal levels in the second quarter of 2011.

Second, NWM Mining defaulted on its lease obligations
for the Lluvia SART plant. This amount was written
down in the fourth quarter to reflect the lack of
payments at the year end. We have initiated legal
action to recover the full value of the lease payments,
and are confident about the legal grounds for suit.

After careful consideration, we have elected to write
down the assets at the Mt. Gordon site in Australia.
We have tried, unsuccessfully, for the past 2 years
to establish a new operating contract at the site
with the site owner, Birla Mt. Gordon, and have now
commenced legal action.

We presently have 3 projects in engineering that we
expect will lead to construction of new plants during
the year, and will drive revenue growth of at least 25%
in 2011. Our strategic alliances are gaining momentum,
and we anticipate these relationships will continue to
generate new opportunities. Our business development
pipeline is the strongest in our history, indicating
continued growth in the coming years. Interest in our
new Sulf-IX™ technology is growing, from a wide range
of industries including mining, smelting, shale gas
frac’ing, steel manufacturing, and landfill leachates. We
have cash in the bank to support growth. And we have
a talented and committed team.

As a clean technology innovator, our long-term
outlook is to continue to develop new water treatment
solutions for existing and new market sectors. Water is
a finite resource. Our determination and potential are
unlimited.

On behalf of the Board of Directors,

P. Bradley Marchant
Chief Executive Officer

BioteQ Environmental Technologies 2010 Annual Report
CEO’S MESSAGE

Page 5

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, reflect management’s best estimates and judgements.
Management is responsible for the accuracy, integrity and objectivity of the Consolidated
Financial Statements and Management’s Discussion and Analysis within reasonable limits of
materiality and for the consistency of financial data included in the text of the Annual Report
with that contained in the consolidated financial 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 financial information is prepared. The Consolidated Financial Statements
have been independently audited by PricewaterhouseCoopers LLP. Their report for 2010
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 officers of the Company. The Audit
Committee meets with management as well as with external auditors to satisfy itself that
management is properly discharging its financial reporting responsibilities and to review the
Consolidated Financial Statements, the independent auditors’ report and the Management’s
Discussion and Analysis. The Audit Committee reports its findings to the Board of Directors for
consideration in approving the Consolidated Financial Statements and Management Discussion
and Analysis for presentation to the shareholders. The external auditors have direct access to
the Audit Committee of the Board of Directors.

The Consolidated Financial Statements 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 Officer

Paul Kim
Vice President & Chief Financial Officer

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S REPORT TO SHAREHOLDERS

Page 6

Management�s Discussion and Analysis

(All figures expressed in Canadian dollars unless otherwise noted)

March 24, 2011

The following Management’s Discussion and Analysis provides information that management
believes is relevant to an assessment and understanding of the Company’s consolidated results
of operations and financial condition. Management has prepared this document in conjunction
with its broader responsibilities for the accuracy and reliability of the financial statements,
the development and maintenance of appropriate information systems and internal controls
to ensure that the financial information is complete and reliable. The Audit Committee of
the Board of Directors, consisting of independent directors, has reviewed this document
and all other publicly reported financial information, for integrity, usefulness, reliability and
consistency.

This discussion should be read in conjunction with the consolidated financial statements and
accompanying notes for years ended December 31, 2010 and 2009, which were prepared in
accordance with Generally Accepted Accounting Principles in Canada (“Canadian GAAP”).
All financial information is presented in Canadian dollars unless otherwise noted. 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” or “Company”) is a water treatment
company headquartered in Vancouver, British Columbia, Canada. BioteQ applies innovative
technologies and operating expertise to solve challenging water treatment problems reducing
environmental liabilities while delivering lower life cycle costs for water treatment. The
Company’s commercially proven technologies treat industrial wastewater contaminated with
dissolved heavy metals and sulphate, producing saleable by-products and clean water that can
be discharged safely to the environment.

The Company is listed on the Toronto Stock Exchange (TSX) under the symbol BQE.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 7

Technologies
BioteQ’s technologies are applied to treat industrial wastewater generated by mining, power
generation, and oil & gas activities. The Company’s patented sulphide process technologies,
BioSulphide® and ChemSulphide®, selectively remove and recover metals from acid wastewater.
Sulf-IX™ process technologies reduce sulphate and total dissolved solids in wastewater.

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

These “clean” technologies extract valuable products from waste, reduce environmental
liabilities, and produce clean water that complies with strict water quality regulations for re-use
or safe discharge to the environment.

BioteQ’s technologies can be applied to treat wastewater streams in several industries, including:

» Mining & metallurgical applications: treatment of groundwater and surface water drainage,
acid mine drainage, metallurgical bleed streams, lime plant effluents, tailings water, and
sulphidization-acidification-recycle-thickening (SART) for gold processing.

» Power generation applications: treatment of cooling tower water, flue-gas desulphurization

(FGD) blowdown, and ash pond water;

» Oil & gas applications: treatment of produced water and shale gas fracing water.

BioteQ works with leading resource companies and over the past decade has designed and built
14 commercial scale water treatment plants at industrial sites in Canada, the US, Mexico,
Australia, and China. The plants are operated to ISO 14001 standards for environmental
compliance, and deliver consistent results and reliable water treatment operations at customer
sites.

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 or collects proceeds
from the sale of recovered metals, and could include transfer of the plant to the
site owner in the future.

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/or Operate – Plant sales where BioteQ provides any
combination of process design, technology, engineering, supply of a turnkey plant,
and operations expertise on a fee basis.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 8

Revenue Sources
Potential revenue streams are from:

sales of value-added by-products recovered from the wastewater

» water treatment fees

» process license fees

» plant sales

» engineering fees

sale of treated water

These revenues can be recurring (from long-term, ongoing operating or services contacts), or
one-time (for short-term projects).

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 9

2010 OVERVIEW
BioteQ’s water treatment operations continued to solve challenging water treatment problems
for the resource sector. The company had operations in Canada, the US, Mexico, Australia and
China in 2010. These plants treated 8 billion liters of contaminated water, and removed 2.2
million pounds of metal contaminants from the environment.

» Revenue increased 37% over 2009. The increase was mainly attributable to higher copper

prices, new operations, and an increase in fee based projects.

» Operating margin increased from $1.4 million in 2009 to $3.8 million in 2010.

» The overall net loss increased from $4.7 million in 2009 to $16.5 million in 2010. The 2010

net loss includes impairment charges of $7.5 million related to the Mt. Gordon operation and
$8.3 million related to the Lluvia de Oro project.

» BioteQ exceeded its annual target of executing six new water treatment projects, completing
construction and the first year of operations for the Minto water treatment plant, initiating
construction of the Dexing ion exchange plant, as well as carrying out 3 commissioning
projects, 3 pilot plant projects, and 3 engineering projects.

» BioteQ initiated construction of an additional water treatment plant at the Dexing mine site

to recover cobalt and nickel from acid wastewater using an innovative ion exchange
technology developed by BioteQ. BioteQ’s share of the capital cost is anticipated to be about
$1.5 million. Construction is expected to be completed in Q1 2011 and commissioning to
begin shortly after. Commitments relating to the completion of the plant are $866,000 as at
December 31, 2010.

» BioteQ entered into separate strategic alliances with Newalta Corporation, LANXESS Sybron
Chemicals. Inc, and EcoMetales Limited. The relationships will allow BioteQ to leverage each
partner’s areas of expertise and market access in order to apply BioteQ’s technologies to new
mining customer applications and diversify into new industry markets. In connection with the
strategic alliance with Newalta Corporation, Newalta invested $4 million into BioteQ through
a private placement.

» BioteQ’s new Sulf-IX™ technology was launched with the application of the process at a new
plant for a Freeport-McMoRan mine site. Freeport provided all capital for the project; BioteQ
provided commissioning services, and will continue to support the operation and monitor
results.

OUTLOOK
The company has an active pipeline of new plant projects that are expected to contribute to
revenue growth of at least 25% in 2011. The pipeline is expected to drive new project activity into
2012 and beyond. The scope of projects in our development pipeline has expanded to include
larger plants and more diverse market sectors including steel manufacturing, power generation,
oil and gas, and landfill leachate treatment, to compliment our growing mining practice. The key
projects and initiatives for the upcoming year include:

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 10

Leveraging our strategic alliance relationships to drive growth:

⋅

BioteQ is working with Newalta to review operations management systems at BioteQ's
operations. The companies are also working together to develop opportunities to
combine Newalta's onsite service offering with expanded application of BioteQ's proven
technology in the mining industry, and assessing new applications for BioteQ's processes
in new industries.

BioteQ is working with LANXESS to expand our projects in mining, with the application of
ion exchange technologies to recover low concentrations of metals, as well as specialty
metals such as molybdenum. The companies are also working together to market
BioteQ’s Sulf-IX™ technologies to the power generation industry as a water treatment
solution for cooling tower make-up and blow-down water.

BioteQ is working with EcoMetales to expand our presence in the mining markets in Chile
and South America.

» Expanding our portfolio of projects

⋅

Construction of the new ion exchange plant for recovery of cobalt and nickel at the
Dexing site is nearing completion, with commissioning scheduled to commence in the
second quarter of 2011. The plant is expected to be fully operational by the third quarter
of 2011, recovering a saleable cobalt and nickel product. Revenues from the plant will be
based on the quantity of metals recovered, and will be shared equally by the joint
venture partners.

BioteQ is currently engineering a 6,500 m3/h zinc recovery plant with capacity to recover
over 100 million pounds of zinc annually, on behalf of a mining customer. Negotiation of
a fee-based commercial contract for technical services and commissioning is in progress,
subject to key project milestones.

BioteQ has initiated a fee-based design-supply-commission pilot project with Newalta,
applying BioteQ's new Sulf-IX™ technology for sulphate removal. The plant is designed
for mobile applications, and is expected to be operational in 2011.

BioteQ is working with EcoMetales Limited to recover molybdenum from waste smelter
dust, which is a newly demonstrated technology for BioteQ and EcoMetales. Piloting and
initial design of the plant is complete, and engineering is in progress. The companies have
established a commercial framework to advance the project, subject to approvals at key
milestones.

» Diversifying our technology offering

⋅

BioteQ's new Sulf-IX™ technology for sulphate removal is generating growing market
interest, with the recent completion of the new Sulf-IX™ plant. BioteQ is working with its
strategic partners to introduce the Sulf-IX™ technology into new markets.

Together, these activities are expected to drive revenue growth and generate net positive
earnings in 2011, and position the company for continued expansion in the future.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 11

OVERALL ANNUAL PERFORMANCE
Comparative Information
(in Canadian $’000 except for per share amounts)

Revenues

less: Plant and engineering costs

Lease fee income - Lluvia de Oro

General and administrative expenses

Marketing and development costs

Other expenses (income) - net

Amortization

Stock-based compensation

Loss before income taxes and extraordinary items

Income tax

Impairment loss and extraordinary items - Mt. Gordon

2010

$
8,744

4,921

3,823

1,001

4,824

3,094

842

(123)

1,011

999

521

(509)

225

7,453

2009

$
6,395

5,037

1,358

2008

$
7,762

8,003

(241)

526

1,884

2,773

829

154

(241)

2,429

936

(957)

(1,872)

(2,649)

1,109

890

844

1,664

(3,871)

(5,157)

126

697

Impairment loss - Lluvia de Oro

Net loss

8,283

(16,470)

(4,694)

(5,245)

Net loss per share (basic and diluted)

$ 0.24

$ .08

$ 0.09

Working capital

Total assets

Total long term liabilities

Shareholder’s equity

2010

$
13,802

22,802

2009

$
7,689

34,386

at Dec 31,

2008

$
10,106

38,863

21,163

33,091

36,852

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 12

Revenue
During 2010, revenues totaled $8.7 million. This was a 37% increase or $2.3 million over 2009.
The change in total revenue from each revenue source is shown in the table below:

$000's

Metal recovery

Treatment fees

Engineering services and plant sales

Total revenue

2010
$
$4,013

1,948

2,783

$8,744

% Total

46%

22%

32%

2009
$
$2,765

1,403

2,227

%Total

43%

22%

35%

100%

$6,395

100%

Total
Revenue
%Change

45%

39%

25%

37%

During the year, revenues from metal recovery operations, which include the Mt. Gordon site as
well as joint ventures at Bisbee and Dexing, increased 45% over the prior year. The increase in
revenue was due to higher copper recovery at the Dexing site combined with overall higher
copper prices during the year. In 2010, the Dexing site recovered a total of 1.9 million pounds of
copper compared to 1.7 million pounds in 2009. The Bisbee site, which had been furloughed
between April 2009 to May 2010, recovered 290,000 pounds of copper in 2010 compared to
304,000 pounds in 2009. The Mt. Gordon site was inactive in 2010 but BioteQ sold 141,000
pounds of copper that had been recovered during prior operations.

Revenues from treatment fees increased 39% over 2009. BioteQ generates treatment fees from
operations at the Raglan and Minto sites. In 2010, BioteQ completed its first operating season at
the Minto mine site after completing construction of a new water treatment plant earlier in the
year. In 2010, BioteQ treated 1.1 million cubic meters of water at the Raglan mine site compared
to 915,000 cubic meters in 2009. BioteQ also operated the Spoon lime treatment plant at the
site. During the first operating season at Minto, BioteQ treated a total of 530,000 cubic meters of
water, significantly higher than budgeted.

Revenues from engineering services and plant sales increased 25% over 2009. Revenues for these
services include design, construction, commissioning and pilot operations. Revenues from these
services are generally “one-time” in nature but projects may lead to additional project work or
ongoing operations. Significant projects in 2010 include the completion of the construction of the
Minto plant, commissioning services at a new SART and Sulf-IX(TM) plants, and several pilot
projects at customer sites.

BioteQ recognized $1 million in lease fee income compared to $526,000 in 2009. The lease
agreement was entered into in June 2009 and the increase reflects the first full year of the
agreement. At year end, based on the Company’s assessment of recoverability, all accrued lease
fee income has been provided for (see “Impairment of loan receivable”).

Plant and engineering costs
Total plant and engineering costs were $4.9 million in 2010, slightly lower than $5 million in 2009.
As a result, overall operating margins improved from $1.4 million in 2009 to $3.8 million in 2010.
2010 operating costs at Raglan and Bisbee were consistent with the prior year. 2009 costs

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 13

included $243,000 related to the shutdown of the Lluvia de Oro SART plant early in that year
prior to transfer of the plant to NWM Mining. Although production increased at the Dexing site,
overall costs decreased by $120,000 mainly due to lower reagent prices. The Mt Gordon site was
inactive during 2010 but operating costs increased $260,000 due to the sale of concentrate
inventory from previous operations.

Expenses and other income
During 2010, general and administrative expenses increased from $2.8 million in 2009 to $3.1
million. The increase was due to higher administrative costs at the Dexing operation, increased
legal and accounting fees, and higher regulatory and compliance costs.

Marketing and development costs in 2010 were $843,000, comparable to 2009 when total costs
were $829,000. BioteQ is continuing to invest in the development of new technologies and
modifications to existing technologies for application into new markets. BioteQ is currently
expanding its lab and technical resources to meet expected future demands.

Total amortization expense was $1 million in 2010, consistent with $1.1 million recorded in 2009.
Amortization expense will fluctuate based on the number of plants owned by BioteQ and ongoing
assessment of the carrying values of those assets.

Stock based compensation charges were $521,000 in 2010 compared to $890,000 in 2009. These
non-cash charges will fluctuate based on the number of securities issued and assumptions on the
valuation and useful life of those securities.

BioteQ recognized a foreign exchange loss of $56,000 in 2010 compared to a loss of $354,000 in
2009. These losses arise mainly from changes in the value of the US dollar, Australian dollar, and
Chinese RMB relative to the Canadian dollar.

During the year, BioteQ recognized interest income of $79,000 from its marketable securities
holdings and $100,000 in other income from interest on its loan to NWM Mining Corporation.
NWM repaid the balance of this loan in September 2010.

Income tax expense was $225,000 in 2010 compared to $126,000 in 2009. The income tax charge
is a result of taxable profits in China. These taxes cannot offset accumulated tax benefits in other
jurisdictions.

Impairment of loan receivable
In June 2009, BioteQ entered into a Termination, Consolidation, and Reconciliation agreement
(TCRA) with NWM Mining Corp. (NWM) to restructure the terms of an existing loan and to sell
BioteQ’s SART plant on a lease to own basis. Repayments on the loan commenced in January
2010 and lease payments were scheduled to begin in October 2010. At the time of the TCRA, the
value of the loan was approximately $4.4 million and the total lease obligation was $9.6 million.
BioteQ retained a security interest in NWM’s mine assets against the loan. BioteQ retained
ownership of the plant until all lease payments are made.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 14

In September 2010, NWM repaid the full balance of the loan and BioteQ released its security
interest. NWM has failed to make any lease payments and is in default of the TCRA. NWM has
alleged that there are deficiencies with the SART plant and that it is inoperable. BioteQ strongly
disagrees with this assertion. BioteQ had successfully commissioned and operated the plant in
2008 prior to turning over operating responsibility for the plant on an “as is” basis to NWM.

Subsequent to year-end, BioteQ initiated legal action against NWM seeking damages for
defaulting on the lease agreement.

For financial reporting purposes only, BioteQ cannot reasonably estimate the value that could be
realized from legal action or any alternative measures at this time. As a result of this uncertainty
associated with estimated future cash flows, BioteQ has recorded an impairment charge of $8.3
million in the current year’s results. The impairment covers the full cost of the plant plus accrued
lease fee income recognized to date of $7.9 million. In addition, BioteQ has accrued estimated
site removal costs related to the plant. BioteQ will continue to pursue the legal action against
NWM and explore other opportunities to recover the value of its investment. Any future
recoveries will be reflected at the time they can be reasonably determined.

Impairment of assets and extraordinary items
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.

BioteQ completed construction and commissioning of the plant and began operations in April
2008.

In January 2009, significant rain events flooded the site causing evacuation of all site personnel
and damaging a portion of BioteQ’s plant equipment. The Company served notice to Birla that it
had ceased operations and suspended the agreement under the force majeure provisions of the
contract. In February 2009, BioteQ served Birla with a termination notice for breach of the
agreement. BioteQ filed an insurance claim for the damaged equipment and inventory. In 2009,
BioteQ recorded $697,000 as an extraordinary expense reflecting the loss of inventory and
equipment that were not expected to be recovered under BioteQ’s insurance policy.

Currently, the plant is subject to flooding and remains inactive. BioteQ has been unable to reach
agreement with Birla on a new water treatment agreement that reflects the current conditions at
the site.

Birla has commenced legal action against BioteQ alleging that BioteQ has breached and
repudiated the agreement. Birla is seeking unspecified financial damages, interest and costs.
BioteQ does not believe the allegations have any merit and is vigorously defending its position.
BioteQ is also reviewing the condition of the plant and exploring its own legal rights, which
includes pursuing a counterclaim against Birla for failing to meet certain conditions of the original
agreement and for wrongful termination.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 15

At year end, BioteQ has reviewed the carrying value of its asset related to the project. BioteQ has
considered the history of the project, current status with Birla, and the probability of future
operations at the site. Based on this assessment, future cash flows from the project cannot be
reasonably estimated due to the uncertainty of outcomes from current actions. BioteQ has
recorded an impairment charge, net of expected insurance proceeds, of $7.5 million. Any future
recoveries will be reflected at the time they can be reasonably determined.

Overall performance
Overall net income for the year was a loss $16.5 million, or $0.24 per share, compared to a loss of
$4.7 million in 2009, or $0.08 per share. Results for 2010 and 2009 were heavily impacted by
impairment charges and extraordinary items respectively. Net income in 2010, excluding
impairment charges, was a loss $734,000 compared to a loss of $4 million in 2009 adjusted for
extraordinary items.

Cash flow from operating activities was $163,000 in 2010 compared to a cash use of $4.3 million
in 2009.

BioteQ ended the year with total assets of $23 million compared to $34 million in 2009. The
decrease in total assets was due to the impairment charges recognized during the year.

Working capital at the end of 2010 was $13.8 million which included $12.6 million in cash and
short-term investments. Both balances have increased over 2009 when the year ended with $7.7
million in working capital and $5.3 million in cash and short-term investments.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 16

COMPARISON OF QUARTERS
Financial data for the last eight quarters (unaudited)
In Canadian $'000 except per share amounts
Quarters ended

Dec-10

Sep-10

Jun-10 Mar-10

Dec-09

Sep-09

Jun-09 Mar-09

Total revenues
Plant & other operating
expenses

Lease fee income

General & administrative
Marketing & development
costs
Other expenses (income)

Amortization

Stock based compensation
Income (loss) before
income taxes and
extraordinary items
Income taxes

Impairment loss and

extraordinary items

Net income (loss)

Income (loss) per share

$
1,508

$
2,749

$
1,949

$
2,538

$
1,978

$
2,280

$
1,207

$
930

1,081

967

954

1,919

1,764

1,045

710

1,518

427

259

686

745

106

1,782

256

995

247

2,038

1,242

907

168

722

263

(76)

(133)

619

239

858

720

305

214

526

740

779

185

(222)

1,039

251

113

260

127

390

245

131

(196)

(254)

243

150

243

219

1,235

497

(588)

1,235

631

231

141

232

225

195

497

745

255

(588)

618

158

(108)

(594)

(1,256)

323

183

318

293

(586)

652

(589)

(716)

(188)

(1,100)

(1,867)

(17)

(81)

15,736

(16,305)

(0.24)

593

0.01

(81)

(677)

0.00

(0.01)

(635)

(0.02)

697

(262)

(1,196)

(2,601)

0.00

(0.02)

(0.04)

Quarterly results 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. Operations at Minto are expected to run from April to October 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.
Revenue from engineering, design and construction services occur based on timing of customer
requirements.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 17

Total
Revenue
%Change

129%
535%
(61%)

(24%)

Below is a summary of revenue for Q4 2010 and 2009:

Project Type

Metal recovery
Treatment fees
Engineering services and plant sales (fee-based)
Total revenues

Q4 2010
$
455
381
672
1,508

% Total Q4 2009
$
199
60
1,719
1,978

30%
25%
45%
100%

%Total

10%
3%
87%
100%

Revenue in Q4 2010 was $1.5 million compared to $2 million in Q4 2009. Q4 2009 included
revenue from the construction of the Minto plant which was completed in Q1 2010. Copper
recovery at the Dexing plant was higher in 2010 and market prices were significantly higher. The
Bisbee plant contributed incremental revenue prior to shutdown part way through the quarter.
The plant was furloughed during the same period in 2009. Raglan treated a higher volume of
water in Q4 2010 in addition to new operations at the Minto mine site.

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. Total costs in Q4 2010
were $1.1 million compared to costs of $1.8 million in 2009. The decrease in costs was mainly
due to the construction of the Minto plant in 2009. Overall operating margin increased to
$427,000 from $214,000 in 2009. The improvement in margin was due to higher volume and
improved margins at the Dexing plant.

In Q4 2010, BioteQ recorded $259,000 in accrued lease fee income from NWM Mining related to
the Lluvia de Oro project. NWM defaulted on its lease obligation and an impairment against this
income has been recognized.

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 Q4 2010 $745,000, consistent with costs in 2009.

Marketing and development costs include costs for business development as well as laboratory
research and engineering activities to support project evaluation and new technologies. A
significant portion of this investment has been directed to develop future opportunities with new
strategic partners. Marketing and development costs will fluctuate quarter to quarter based on
the resource requirements from revenue generating projects which are included in plant and
operating costs. In Q4 2010, total costs were $106,000 compared to $185,000 in 2009. The
decrease in cost was due to the allocation of engineering resources to revenue generating
projects.

Amortization costs in Q4 2010 were $251,000 compared to $243,000 in 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

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 18

model, which is affected by price volatility. In Q4 2010, total costs were $113,000 compared to
$219,000 in 2009.

“Other” includes interest income and foreign exchange gains or losses. Interest income is
affected by the amount of cash invested and the interest rate. Foreign exchange gains or losses
are affected by changes in currency exchange rates, mainly with the US Dollar, Chinese RMB,
Mexican Peso, Chilean Pesos and Australian Dollar. Net “Other” charges for Q4 2010 was $57,000
compared to $30,000 in 2009.

Income tax charges and recoveries are a result of taxable activity in China. These taxes cannot
offset accumulated tax benefits in other jurisdictions. In Q4 2010, BioteQ recorded a recovery of
$17,000 compared to a recovery of $81,000 in 2009.

In Q4 2010, BioteQ recorded total impairment and related charges of $15.7 million. $7.9 million
relates to the write-down of the loan receivable from NWM and estimated site removal costs of
the Lluvia de Oro SART plant; $7.5 million relates to the impairment of the Mt Gordon assets.

BioteQ recorded a net loss of $16.3 million for Q4 2010 compared to a net loss of $635,000 in
2009. Overall net loss for Q4 2010, adjusted for one-time impairment charges, was $569,000.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 19

OPERATIONS BY PROJECT
Project Summary
The following chart summarizes BioteQ’s major projects.

Customer

Project

Operating Projects

Freeport- McMoRan

Bisbee, AZ.

Jiangxi Copper

Dexing, China

Xstrata

HDS Plant -
Dexing, China

Raglan,Que.

50% Joint
Venture

Design

Build, Own,
Operate for
Fees

Fees per m3 of
water

Spoon - Raglan,
Que.

Operate

Fixed labour fees

Minto Explorations

Minto, Yukon

Design,
Supply, and
Operate

Operating fees
(labour + fees
per m3)

Construction Projects

Business
Model

Revenue
Source

Capital
Cost (BQE
Share)

Annual
Design
Capacity
(m3 treated)

Current Status

Copper

$3,200,000

2,900,000

Plant to resume full operations
Q2 2011

Copper

$1,886,000

5,800,000 Operating since April 2008.

Owned by
customer

$2,000,000

Owned by
customer

4,600,000 Operating since April 2009.

750,000 Ongoing seasonal operation
May to November.

200,000 Ongoing seasonal operation

June to September.

400,000 Ongoing seasonal operation
May to November.

Jiangxi Copper

Dexing Ni-Co

50% JV

Nickel, cobalt

$1,500,000

4,600,000

Construction in progress.
Completion in Q2 2011.

Engineering and Pilot Projects

Mining co.

Gold mine site

Design and
commissioning

Engineering and
design fees

Freeport- McMoRan

Sulf-IX™ plant

Plant sale

Engineering fees

Freeport McMoRan

ChemSulphide®
plant

Mining co.

Pilot plant

Mining co.

Pilot plant

EcoMetales

Pilot plant

Plant sale

Engineering fees

Engineering
services

Engineering and
design fees

US EPA

Wellington Oro,
CO

Plant sale

Engineering fees

Owned by
customer

Paid by
customer

Owned by
customer

685,000

SART plant commissioning
completed July 2010.

n/a

Commissioning completed in
2010.

Commissioning completed in
2010

n/a

Piloting complete

n/a

Piloting complete

n/a

Piloting complete

300,000 Operating since January 2009.

BioteQ provides on-site support
as required.

Inactive Operations

Aditya Birla

NWM Mining

Mt. Gordon,
Australia

Build, Own,
Operate

TBD

$9,169,000

2,100,000 Original operating contract
terminated.

Lluvia de Oro,
Mexico

Plant sale

TBD

$6,443,000

4,300,000

Customer has defaulted on lease
agreement. Legal proceedings in
progress.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 20

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

Plant operating results (total for the JV)

Water treated (thousand cubic meters)

Mechanical availability (%)*

Copper produced (pounds)

2010

189

51%

94,000

2009

Year-to-date Year-to-date

2010

561

59%

276,000

2009

818

98%

304,000

>99%

Copper recovery %
*Operations were furloughed between April 2009 and May 2010. Mechanical availability has been adjusted for
this period.

>99%

In April 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. In May 2010, the joint venture announced that all requirements
for restart of the plant were met and full operations resumed.

In October 2010, the site operations were temporarily suspended due to technical problems with
the plant’s reagent supply. The plant is expected to reach full operating capacity in Q2 2011.

The Dexing Project, China – Joint-venture with Jiangxi Copper Company
BioteQ commissioned a copper recovery plant on 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.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 21

Plant operating results (total for the JV)

Water treated (thousand cubic meters)

Mechanical availability (%)

Copper produced (pounds)

Copper recovery %

2010

804

98%

99,000

94%

2009

729

94%

59,000

93%

Year-to-date Year-to-date

2010

5,783

96%

2009

5,467

96%

1,923,000

1,699,000

94%

Operations at the site had another successful year 2010. The plant treated 5.8 million cubic
meters of water and recovered 1.9 million pounds of copper, an increase over 2009 when 5.5
million cubic meters of water were treated and 1.7 million pounds of copper were recovered.

During Q4 2010, the plant was closed for four weeks for scheduled annual maintenance.
Typically, 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 maintains a technical and supervisory role in the operations of the plant.

During the year, BioteQ initiated construction of an additional water treatment plant at the
Dexing mine site to recover cobalt and nickel from acid wastewater using an innovative ion
exchange technology developed by BioteQ. BioteQ’s share of the capital cost is anticipated to be
about $1.5 million. Construction is expected to be completed in Q1 2011 and commissioning to
begin shortly after.

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. The operating fee is negotiated with the customer prior to the start
of each operating season.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 22

Plant operating results

Water treated (thousand cubic meters)

Days operated (equivalent hours)

Nickel recovery %

2010

371

98%

2009

318

98%

Year-to-date Year-to-date

2010

1,066

200

98%

2009

915

165

96%

BioteQ successfully completed its sixth operating season at the Raglan mine site in northern
Quebec. The site treated just over one million cubic meters of water; a significant increase over
the 2009 season 915,000 cubic meters and budgeted expectations of 750,000 cubic meters.

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 has secured a contract to provide these services for the
next 3 operating seasons.

The Minto Project, Yukon – Design-Supply-Operate for Minto Explorations Ltd.
In Q4 2009, BioteQ and Minto Explorations Ltd. entered into an agreement to design and
construct a new, long term water treatment plant at the Minto mine site. In November 2009,
BioteQ entered into 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 provides all plant operating costs, including process reagents and consumables. Construction
of the plant was completed in Q1 2010 and commissioning was completed in Q2 2010.

Plant operating results

Water treated (thousand cubic meters)

Days operated (equivalent hours)

Copper removal (%)

2010

137

88%

Year-to-date

2010

530

112

82%

The first operating season at the site began in July 2010. BioteQ’s operating team was able to
successfully meet the strict water quality requirements under the operating agreement and
increase the capacity of the plant from its original design.

Seasonal operations were completed in early November. The typical operating season for the
plant is expected to run from April to November of each year.

BioteQ’s operating contract with Minto is a fee based arrangement based on volume of water
treated and operating days.

Engineering and Pilot Projects
During the year, the Company was engaged in several contracts for engineering and pilot
projects.

» During the year, BioteQ conducted preliminary studies and design for a large scale zinc

recovery plant. The project has advanced to the preliminary feasibility and engineering stage

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 23

and BioteQ is currently negotiating a fee-based commercial contract for technical services
and commissioning, subject to key project milestones.

» During the year, BioteQ worked with EcoMetales Limited to pilot recovery of molybdenum

from waste smelter dust. The project has advanced to engineering, and is expected to enter
construction in 2011, subject to customer approvals at key milestones.

» BioteQ provided commissioning and engineering services during the third and fourth quarter
of 2010 for a large scale Sulf-IX™ plant at a Freeport-McMoRan mine site. The customer
completed construction of the plant in 2010 using BioteQ’s technology and design. The
commissioning of the plant is an important milestone to demonstrate BioteQ’s Sulf-IX™
technology at this scale.

In Q3 and Q4, BioteQ provided commissioning and engineering services for a ChemSulphide®
plant owned by a customer.

In Q4 2009, BioteQ entered into an engineering services contract with a customer to provide
preliminary design and cost estimates for a large scale water treatment plant at the
customer’s new mine site. The work for this contract was substantially completed Q1 2010.
In Q4 2010, the customer requested additional services from BioteQ in the next phase of
their evaluation which is expected to be completed in Q1 2011.

In Q3 2009, BioteQ entered into a contract with a mining company to design a SART plant for
a gold mine site. The design work was completed in Q1 2010. In Q2 2010, the scope of
services was expanded and BioteQ provided the mining company with support during
construction and commissioning services which were completed in July 2010.

» During the year, BioteQ provided engineering and construction services for two pilot plants
for new mining customers to apply BioteQ’s technology to recover metal and remove
sulphate from their contaminated water sources. The engineering work and pilot plants were
paid for by the customers.

» BioteQ continues to provide ongoing engineering support on a fee basis for the Wellington

Oro project. In 2005, BioteQ won an international bid to provide a water treatment plant for
Wellington Oro, a closed silver-zinc mine site 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.

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
Minerals (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. This is a build, own, operate project where BioteQ

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 24

has provided for all capital costs for the plant and earned revenue from metals recovered. BioteQ
completed construction and commissioning and began operations in April 2008.

In Jan 2009, the Mt. Gordon mine site experienced heavy flooding during a severe rain storm. A
portion of BioteQ’s plant was damaged and BioteQ suspended its operating agreement under the
force majeure provisions of the contract. In February 2009, BioteQ served Birla with a
termination notice for breach of the agreement. BioteQ has been unable to come to terms on a
new or modified operating agreement with Birla to restart operations.

The Lluvia de Oro Project, Mexico – Lease-to-own for NWM Mining
BioteQ completed construction and commissioning of a SART (sulphidization-acidification-
recycle-thickening) plant in 2008 at the Lluvia de Oro gold mine site in Mexico, applying this new
enabling technology to reduce the metallurgical interference of copper in the gold recovery
process, and increase gold yields. The plant operated successfully during 2008, reducing copper in
the gold leach solution to below 50 mg/L in the discharge from the plant, and recovering
dissolved copper as a high-grade copper sulphide concentrate. Over 20,000 pounds of dry copper
concentrate was recovered containing 65 percent copper, which was sold to Trafigura.

In June 2009, BioteQ entered into a Termination, Consolidation, and Reconciliation agreement
(TCRA) with NWM Mining Corp. (NWM) to restructure the terms of an existing loan and to sell
BioteQ’s SART plant on a lease to own basis. Repayments on the loan commenced in January
2010 and lease payments were scheduled to begin in October 2010. At the time of the TCRA, the
value of the loan was approximately $4.4 million and the total lease obligation was $9.6 million.
BioteQ would retain a security interest in NWM’s mine assets against the loan. BioteQ would
retain ownership of the plant until all lease payments were made.

Subsequent to year-end, BioteQ initiated legal action against NWM seeking damages for the total
value of NWM’s lease obligation. NWM has purported to terminate the TCRA on the grounds that
BioteQ failed to remedy the SART Plant deficiencies. BioteQ believes that its legal position is valid
and that NWM’s claims are without merit.

BioteQ Environmental Technologies 2010 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS

Page 25

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2010, BioteQ had 69,865,006 (fully diluted-79,649,371) common shares issued
and outstanding, compared to 66,190,308 (fully diluted-71,898,309) at December 31, 2009.
During the year, 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, 710,000 options were granted and
total proceeds of $22,234 were received from the exercise of options.

At the current date of March 24, 2011, the number of issued shares is 69,911,672, a total of
5,943,001 options and 3,636,364 warrants are outstanding.

At December 31, 2010, the Company had cash and short-term investments, consisting of banker’s
acceptance notes, of $12,610,856, an increase of $7,270,310 from December 31, 2009. The
increase in cash during the year was generated from $4,000,000 for the issuance of capital stock
and warrants to Newalta Corporation, $4,106,461 in loan repayments from NWM Mining Corp.,
net of any increases in the loan and accrued interest income, $22,234 from the exercise of
options, $46,884 in long-term liabilities, $707,142 from operating activities after funding capital
asset purchases of $1,068,059 and $544,352 in working capital changes.

Working capital at the quarter-end was $13,801,975, an increase from December 31, 2009 of
$6,112,725. The change was caused by substantially the same factors as affected cash, noted
above. BioteQ has future commitments of $866,000 for the completion of the new water
treatment plant at the Dexing mine site. The balance of available funds is largely uncommitted.

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.

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

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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.

There has been no change in BioteQ’s internal controls over financial reporting during the year
ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect,
the Company’s internal controls over financial reporting.

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, and measurement of net insurance proceeds 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.

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-

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lived assets or asset group exceeds its fair value, based on internal estimates of discounted future
cash flows or estimated salvage values.

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.

CHANGES IN ACCOUNTING POLICIES
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. These new standards
effectively harmonize the business combinations standard under GAAP with IFRS. These new
standards revise guidance on the determination of the carrying amount of the assets acquired

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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 has
evaluated this policy and concluded that it will not have a material impact on the financial results
of the Company.

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. IFRS requires that in the year of implementation, the comparative financial
statements be restated to conform to the standards. The Company’s first annual IFRS financial
statements will be for the year ending December 31, 2011 and will include the comparative
period of 2010.

Update on IFRS conversion plan
BioteQ has continued to work on its transition to IFRS including assessing the impact on
accounting policies and implementation decisions, infrastructure, business activities and control
activities. Regular progress reporting to the Audit Committee of the Board of Directors on the
status of the IFRS implementation plan has taken place.

The transition plan comprised of three phases: review and assessment; design and
implementation. The review and assessment phase involved a high-level diagnostic of the major
differences between Canadian GAAP and IFRS. In the assessment, considerations were 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 were identified as
significant for the Company, the design and implementation phase of the conversion plan is
nearly complete.

The Company does not expect that there will be significant modifications to the existing
accounting system along with its internal and disclosure control processes as a result of the
conversion to IFRS.

Starting in the first quarter of 2011, BioteQ will prepare unaudited consolidated financial
statements in accordance with IFRS including comparative figures for 2010. The Company’s
transition date is January 1, 2010 (the “Transition Date”) and the preparation of the Company’s
opening balance sheet under IFRS as at the transition date is substantially complete. BioteQ will
ultimately prepare its opening balance sheet and financial statements for 2010 and 2011 by
applying all IFRS standards that are effective at December 31, 2011 or earlier. The standard
setting body of IFRS has significant ongoing projects that could affect the ultimate differences
between Canadian GAAP and IFRS. These changes, if implemented, could have a material effect
on the Company’s financial statements.

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First-time adoption of IFRSs
IFRS 1, First Time Adoption of International Financial Reporting Standards (“IFRS 1”), provides
guidance for the initial adoption of IFRS. Under IFRS 1 the standards are applied retrospectively at
the transition date unless certain optional and mandatory exemptions in specific areas of certain
standards are applied. The most significant exemptions which are expected to apply in the
preparation of the Company’s first consolidated financial statements under IFRS are summarized
as follows:

Accounting estimates
Accounting estimates applied in accordance with IFRS at the date of transition should be
consistent with estimates in accordance with Canadian GAAP unless there is objective evidence
that estimates were in error.

Business combinations
IFRS 1 allows first-time adopters to elect not to apply IFRS 3, Business Combinations,
retrospectively to business combinations that occurred prior to the date of transition to IFRS.
BioteQ expects to make this election and apply IFRS 3 to business combinations that occur on or
after January 1, 2010.

Fair value as deemed cost
There is an option to record property, plant and equipment at fair value on transition to IFRS.
This fair value becomes the deemed cost of the asset for reporting under IFRS. BioteQ expects to
make this election and apply the fair value as deemed cost to certain property, plant and
equipment that were impaired under IFRS at the transition date. The result is that the asset cost
base is adjusted to fair value.

Cumulative translation differences
International Accounting Standard (“IAS”) 21, The Effects of Changes in Foreign Exchange Rates,
requires an entity to determine the translation differences in accordance with IFRS from the date
on which a subsidiary was formed or acquired. IFRS 1 allows cumulative translation differences
for all foreign operations to be deemed zero at the transition date to IFRS, with future gains or
losses on subsequent disposal of any foreign operations to exclude translation differences arising
from periods prior to the transition date to IFRS. BioteQ expects to apply this exemption.

Share-based payment transactions
IFRS 1 provides an exemption from applying IFRS 2, Share-based Payment, to equity instruments
that were granted on or before November 7, 2002, or to equity instruments that were granted
subsequent to November 7, 2002 and vested before the later of the date of transition to IFRS and
January 1, 2005. BioteQ expects to elect to not apply IFRS 2 to grants that vested prior to January
1, 2010.

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Expected areas of significance
In addition to the exemptions discussed above, there are a number of areas with differences in
accounting policies between Canadian GAAP and IFRS. These differences could have a significant
impact on the Company’s consolidated financial statements. The following explains these key
areas and the changes in accounting policies. The list and comments below should not be
regarded as a complete list of estimated changes that will result from transition to IFRS and are
intended to highlight only those areas that are considered to be most significant.

Impairment of assets
IAS 36, Impairment of Assets, uses a one-step approach 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). Canadian GAAP generally uses
a two-step approach to impairment testing, first comparing asset carrying value with
undiscounted future cash flows to determine whether impairment exists, and then measuring
any impairment by comparing asset carrying values with fair values. This difference may
potentially result in write-downs where carrying values of assets were previously supported
under Canadian GAAP on an undiscounted future cash flow basis, but could not be supported on
a discounted future cash flow basis.

Additionally, under Canadian GAAP, assets are grouped at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other assets and liabilities for impairment
testing purposes. IFRS requires that assets be tested for impairment at the level of cash
generating units, which is the lowest level of assets that generate largely independent cash
inflows. This lower-level grouping could result in identification of impairment more frequently
under IFRS but for potentially smaller amounts.

The extent of any new write-downs may be partially offset by the requirement under IAS 36 to
reverse any previous impairment losses where circumstances have changed such that the
impairments have been reduced. Canadian GAAP prohibits reversal of impairment losses.

BioteQ’s impairment testing for the January 1, 2010 opening balance sheet under IFRS resulted in
an impairment charge for the property, plant and equipment at the Mt. Gordon Mine site and at
the Bisbee site.

Property, plant and equipment
IAS 16, Property, Plant and Equipment, requires an entity to identify the significant component
parts of its items of property, plant and equipment and depreciate those parts over their
respective useful lives. Canadian GAAP only requires componentization to the extent practicable.

BioteQ has identified significant component parts within its property, plant and equipment that
were not depreciated separately under Canadian GAAP. The identification of these component
parts resulted in a higher depreciation than that determined under Canadian GAAP. This
adjustment will be recorded in opening retained earnings upon transition to IFRS.

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Foreign exchange translation
IAS 21, The Effects of Changes in Foreign Exchange Rates, requires an entity to assess its foreign
operation using a functional currency and presentation currency approach. There is no distinction
between self-sustaining and integrated foreign operation as there is under Canadian GAAP.
Where the functional currency of an entity is different from the presentation currency, an
approach similar to the current rate method under Canadian GAAP is applied. The key elements
are:

» Assets and liabilities are translated at the balance sheet date exchange rate.

Income and expenses are translated at the exchange rate at the date of the transaction
although the average rate may be applied as a proxy in many circumstances.

» All resulting currency exchange differences are recognized in the Foreign Currency

Translation Reserve (FCTR) within other comprehensive income.

The most significant differences to BioteQ are in relation to the Australian, Chilean, China and US
operations which are currently treated as integrated foreign operations under Canadian GAAP.
The assessment of functional currency for these operations resulted in a change in the method of
foreign currency translation under IFRS. There will be no change in the method used for the
foreign currency translation of the Mexico operations based upon the assessment of the
functional currency for the operation.

Joint ventures
IAS 31, Interests in Joint Ventures, currently provides a policy choice to account for joint ventures
using either proportionate consolidation or the equity method. The International Accounting
Standards Board (“IASB”) is currently considering Exposure Draft 9, Joint Arrangements, (“ED 9”),
that is intended to modify IAS 31. The IASB has indicated that it expects to issue a new standard
to replace IAS 31 in early 2011. ED 9 proposes to eliminate the option to proportionately
consolidate such interests that exist in IAS 31, and require an entity to recognize its interest in a
joint venture using the equity method. The proposed change is not yet a requirement under IFRS
and it is unclear as to when this change will be applicable.

BioteQ is currently using the proportionate consolidation method for accounting for its interests
in joint ventures. The proposed change in ED 9 will impact the current accounting treatment of
proportionate consolidation of the Bisbee project and the Dexing project, if and when the new
IAS 31 requirements become effective for our consolidated financial statements. Until the new
IAS 31 is issued and its effective date is known, BioteQ expects to continue to apply the current
accounting policy to proportionately consolidate its jointly controlled entities on transition to
IFRS.

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 contractual 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

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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.

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, 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 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.

BioteQ Environmental Technologies 2010 Annual Report
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Technology Risk
The Company has completed the construction and commissioning of a number of plants. The
operating and engineering data from these plants is used in estimates for new projects under
evaluation and/or in the design engineering stage. Notwithstanding the foregoing, each new
commercial venture undertaken by the Company has the inherent technical risk of any
continuous biological and/or chemical process, which could include the loss of the biological
feedstock.

Intellectual Property Protection
The Company cannot provide any assurance that any further intellectual property applications
will be approved. Even if they are approved, such patents, trademarks or other intellectual
property registrations may be successfully challenged by others or invalidated. The success of the
Company and its ability to compete are substantially dependent on its internally developed
technologies and processes which the Company will need to protect through a combination of
patent, copyright, trade secret and trademark law.

The trademark, copyright and trade secret positions of the Company’s business are uncertain and
involve complex and evolving legal and factual questions. In addition, there can be no assurance
that competitors will not seek to apply for and obtain trademarks and trade names that will
prevent, limit or interfere with the Company’s BioSulphide®, ChemSulphide®, or Sulf-IX™
processes. Litigation or regulatory proceedings, which could result in substantial cost and
uncertainty to the Company, may also be necessary to enforce the intellectual property rights of
the Company or to determine the scope and validity of other parties’ proprietary rights. There
can be no assurance that the Company will have the financial resources to defend its patents,
trademarks and copyrights from infringement or claims of invalidity.

The patent positions of emerging companies can be highly uncertain and involve complex legal
and factual questions. Thus, there can be no assurance that any patent applications made by or
on behalf of the Company will result in the issuance of patents, that the Company will develop
additional proprietary products that are patentable, that any patents issued or licensed to the
Company will provide the Company with any competitive advantages or will not be challenged by
any third parties, that the patents of others will not impede the ability of the Company to do
business or that third parties will not be able to circumvent the patents assigned or licensed to
the Company. Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate any of the Company’s products or, if patents are issued and
licensed to the Company, design around the patented product developed for the benefit of the
Company.

Since patent applications are maintained in secrecy for a period of time after filing, and since
publication of discoveries in the scientific or patent literature often lags behind actual
discoveries, the Company cannot be certain that the investors of the patents were the first
creators of inventions covered by pending applications, or that it was the first to file patent
applications for such inventions. There can be no assurance that the Company’s patents, if issued,
would be valid or enforceable by a court or that a competitor’s technology or product would be
found to infringe such patents.

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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 Company’s technologies and services. The Company might not be

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Page 35

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.

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Page 36

Independent Auditor’s Report

To the Shareholders of BioteQ Environmental Technologies Inc.

We have audited the accompanying consolidated financial statements of, which comprise the
consolidated balance sheets as at December 31, 2010 and December 31, 2009 and the consolidated
statements of operations, comprehensive loss and deficit and cash flows for the years then ended,
and the related notes including a summary of significant accounting policies.

Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Canadian generally accepted accounting principles, and for such
internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audits. We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are
free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation of
the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of BioteQ Environmental Technologies Inc. as at December 31, 2010 and December
31, 2009 and the results of its operations and its cash flows for the years then ended in accordance
with Canadian generally accepted accounting principles.

“PricewaterhouseCoopers LLP”
Chartered Accountants
March 24, 2011
Vancouver, British Columbia

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INDEPENDENT AUDITOR’S REPORT

Page 37

BioteQ Environmental Technologies Inc.
Consolidated Balance Sheets
As at December 31, 2010 and 2009

Assets
Current assets
Cash and cash equivalents
Short-term investments
Trade receivables
Receivable from joint venture partners
Current portion of loan receivable (note 7)
Net insurance proceeds receivable (note 12)
Taxes recoverable
Inventory (note 5)
Prepaid expenses

Loan receivable (note 7)
Property, plant and equipment (note 8)
Intangible asset (note 9)

Liabilities
Current liabilities
Accounts payable and accrued liabilities
Deferred lease inducement

Long-term liabilities (note 13)

Shareholders' Equity
Capital stock, warrants and contributed surplus (note 14)
Deficit

Commitments (note 20)
Contingencies (note 4)
Subsequent event (note 4)

Approved by the Board of Directors

2010
$

2009
$

4,653,465
7,957,391
1,676,963
180,204
-
618,248
15,469
54,723
237,775
15,394,238

-
7,307,136
100,654
22,802,028

1,544,901
47,362
1,592,263

46,884
1,639,147

63,232,605
(42,069,724)
21,162,881
22,802,028

2,491,302
2,849,244
2,169,978
47,288
468,424
-
76,597
658,874
223,302
8,985,009

10,339,235
14,930,511
131,626
34,386,381

1,295,759
-
1,295,759

-
1,295,759

58,689,871
(25,599,249)
33,090,622
34,386,381

P.B. Marchant, Director

G.W. Poling, Director

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

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 38

BioteQ Environmental Technologies Inc.
Consolidated Statements of Operations, Comprehensive Loss and Deficit
For the years ended December 31, 2010 and 2009

Revenue

8,744,237

6,394,615

2010
$

2009
$

Operating expenses
Plant and other operating costs
General and administrative expenses
Marketing and development costs

Operating expenses before amortization , impairment
and stock-based compensation

Amortization of property, plant and equipment (note 8)
Amortization of intangible asset (note 9)
Impairment of Mt. Gordon operations (notes 11 and 12)
Impairment of Lluvia de Oro operations (note 7)
Stock-based compensation charge (note 14)

4,920,893
3,094,422
842,572

8,857,887

967,978
30,972
7,453,439
8,282,650
520,500

5,036,999
2,772,584
828,843

8,638,426

1,078,159
30,972
-

-
890,000

Loss before the under-noted

(17,369,189)

(4,242,942)

Interest income
Other income
Lease fee income
Foreign exchange loss

Loss before income taxes

Income tax expense (note 15)

Loss before extraordinary items

Extraordinary items (note 12)

79,133
99,713
1,000,710
(56,114)

76,930
122,666
526,231
(353,562)

(16,245,747)

(3,870,677)

224,728

126,236

(16,470,475)

(3,996,913)

(697,038)

Net loss and comprehensive loss for the year

(16,470,475)

(4,693,951)

Deficit - Beginning of year

(25,599,249)

(20,905,298)

Deficit - End of year

Loss per share - basic
and diluted (note 2)

Weighted average number of basic and
diluted shares outstanding

(42,069,724)

(25,599,249)

(0.24)

(0.08)

67,782,512

62,087,137

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

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 39

BioteQ Environmental Technologies Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2010 and 2009

Cash flows from (used in) operating activities
Net loss for the year
Items not affecting cash:
Amortization of property, plant and equipment
Amortization of intangible asset
Amortization of deferred lease inducement
Impairment of Mt. Gordon operations
Impairment of Lluvia de Oro operations
Stock-based compensation charge (note 14)

Change in non-cash working capital items (note 16)

Cash flows from financing activities
Proceeds from exercise of warrants and options
Proceeds from issuance of capital stock and warrants
Increase in long-term liabilities

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
Repayment of loan receivable

2010
$

2009
$

(16,470,475)

(4,693,951)

967,978
30,972
(14,208)
7,389,725
8,282,650
520,500

707,142
(544,352)
162,790

22,234
4,000,000
46,884
4,069,118

(1,068,059)
(23,022,738)
17,914,591
4,106,461
(2,069,745)

1,078,159
30,972
-

-
890,000

(2,694,820)
(1,593,595)
(4,288,415)

42,234
-

-
42,234

(140,746)
(12,861,204)
15,714,656
500,000
3,212,706

Increase (decrease) in cash and cash equivalents

2,162,163

(1,033,475)

Cash and cash equivalents
Beginning of year
End of year

Supplemental cash flow information (note 16)

2,491,302
4,653,465

3,524,777
2,491,302

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

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 40

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

1. COMPANY OPERATIONS
BioteQ Environmental Technologies Inc. (“BioteQ” or the “Company”) has acquired and
developed processes to treat metal-laden, sulphate-rich wastewater streams for acid
neutralization and metal recovery. Fourteen 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 business conditions at
certain sites (notes 4, 7 and 11). For the year ended December 31, 2010, the Company incurred
a net loss of $16,470,475 (2009 – $4,693,951), had a net increase in cash and short-term
investments of $7,270,310 (2009 – a decrease of $3,886,927) and generated net cash from
operating activities of $162,790 (2009 – used net cash of $4,288,415). The Company has not yet
realized annual profitable operations and has relied on non-operational sources of financing to
fund its operations. The Company’s success and recoverability of long-lived assets are
dependent upon its ability to achieve and sustain profitable operations at existing sites, secure
projects with new customers, and may require obtaining additional funding to accelerate future
growth.

2. SIGNIFICANT ACCOUNTING POLICIES
Generally 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.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 41

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

Cash and cash equivalents

Cash consists of unrestricted bank deposits, some of which are interest bearing and all of which
are classified as loans and receivables. 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 accrued interest. Investments with maturities of
greater than 90 days and less than one year are classified as short-term investments.

Inventory

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 exclude 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
Vehicles
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 the long-lived asset or asset group exceeds its fair value, based on internal
estimates of discounted future cash flows or estimated salvage values. Management’s estimates
of mineral prices, foreign exchange rates, production levels and operating costs are subject to

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 42

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

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 recognized as the services are rendered, and;

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

Government assistance

Government assistance is recorded when reasonable assurance exists that the Company has
complied with the terms and conditions of the approved grant program. Government assistance
is either recorded as a reduction of the cost of the applicable property, plant and equipment or
credited in the statements of operations as determined by the nature of the assistance. Where
assistance is contingently repayable, the repayment of these funds is treated as either an
increase in the cost of the asset or an expense, in the year it is incurred, as determined by the
original accounting treatment of the assistance.

Foreign currency translation

The Company’s foreign subsidiaries and joint 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.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 43

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

Loss per share

Loss per share is calculated using the weighted average number of shares outstanding during
the period, excluding performance based escrow shares. 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, 2010 and 2009, 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 substantive 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 at 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 exercised. 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 classifies all financial assets and liabilities as either: held-to-maturity, held-for-
trading, loans and receivables, available-for-sale, or other financial liabilities. The subsequent
recognition of the financial instrument depends on its initial classification.

The Company has classified its financial instruments as follows:

a) Short-term investments: the Company classified its short-term investments as held-to-
maturity, which is 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.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 44

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

b) Cash and cash equivalents, accounts receivable, loan receivable and net insurance proceeds

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

c) Accounts payable and accrued liabilities and long-term liabilities: the Company classified

accounts payable and accrued liabilities and long-term liabilities 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.

3. FUTURE ACCOUNTING CHANGES
Business combinations and related sections

The Canadian Institute of Chartered Accountants (“CICA”) has issued new accounting
recommendations related to business combinations and minority interests effective January 1,
2011, with early adoption permitted. These new standards effectively harmonize the business
combinations standard under GAAP with International Financial Reporting Standards (“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 Company has evaluated this policy and concluded that it will not have a material impact on
the financial results of the Company.

4. 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.

Construction of the plant was largely completed in November 2003 and it began operations in
June 2004. Under the contract, the Company charged a fixed monthly fee and charges a variable
treatment fee based on the total volume of water discharged by the plant. The final fixed
monthly payment was made in January 2009. The operating fee is negotiated with the customer
prior to the start of each operating season. The fees are subject to certain conditions and

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 45

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

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, 2010, the cost of the plant, including commissioning costs, amounted to
$1,987,400 (2009 - $1,987,400) and the net book value after accumulated depreciation
amounted to $1,298,970 (2009 - $1,398,340).

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 provided for a plant to recover copper, cobalt and nickel from contaminated
water. In addition, BioteQ was to provide an evaporation system to treat water inventory in
Birla’s open pit at the site subject to permitting, infrastructure and site access to be obtained
and provided by the site owner.

The copper circuit, evaporation system and the separate cobalt recovery circuit completed
commissioning and commenced operations on April 1, 2008.

In January 2009, heavy rainfall 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 and suspended the agreement under the force majeure provisions of the
contract. In February 2009, BioteQ served Birla with a termination notice for breach of the
agreement. 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 while an amended operating agreement was negotiated.

Currently, the plant is subject to flooding and remains inactive. The Company has been unable
to reach agreement with Birla on a new water treatment agreement.

Birla has commenced legal action against the Company alleging that the Company has breached
and repudiated the agreement. Birla is seeking unspecified financial damages. The Company
does not believe the allegations have any merit and is vigorously defending its position. The
Company is also reviewing the condition of the plant and exploring its legal rights, including a
counterclaim against Birla (see notes 11 and 12).

Lluvia de Oro agreement

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

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 46

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

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. Commissioning of the plant was completed in December 2008.

In June 2009, BioteQ, NWM and a third party, Renvest Mercantile Bancorp (“Renvest”) through
its Global Resource Fund, entered into an agreement that superseded all previous agreements.
The agreement restructured the terms of the existing loan and included the sale of the plant to
NWM under a sales type lease arrangement. The balance of the loan was secured by NWM’s
project assets. Ownership of the plant remained the property of BioteQ until all lease payments
were made.

In September 2010, NWM repaid the balance of the loan. BioteQ’s security interests in the site’s
assets were removed.

In August 2010, NWM gave notice to the Company that there were alleged deficiencies with the
plant. The Company does not agree with this assessment and has tried to address these
concerns with NWM. NWM has failed to make any lease payments and the Company has given
notice to NWM that it is in default of the agreement. The Company has been unable to resolve
the alleged deficiencies or agree on terms of the lease payments.

Subsequent to the year ended December 31, 2010, the Company commenced legal action
against NWM seeking damages for NWM’s default on the lease agreement (see note 7).

Minto agreement

In October 2009, BioteQ signed an agreement with Minto Explorations Ltd. (“Minto”) for the
construction of a water treatment facility at the Minto mine site. In November 2009, the
companies entered into an operating contract for BioteQ to provide operating services at the
plant for three seasons.

BioteQ designed and constructed the plant, which was sold to Minto upon completion. The
plant was commissioned in April 2010 and the first operating season commenced.

Seasonal operations typically run from April to October of each year. BioteQ’s operating
contract provides for a treatment fee combining a fixed labour amount and a variable
component based on the total cubic meters of water treated. Minimum standby fees and water
volumes available for treatment are in place.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 47

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

5. INVENTORY

Inventory of chemicals and spare parts
Inventory of metal concentrate

Provision for metal concentrate and chemicals

2010
$
26,923
27,800
54,723
-
54,723

2009
$
396,160
1,237,382
1,633,542
(974,668)
658,874

Inventory is valued at the lower of cost and net realizable value. During the year ended
December 31, 2010, the inventory of metal concentrate and chemicals for the Mt. Gordon
operations in the amount of $83,714 was written off as it was determined not to be recoverable
by the Company (see notes 11 and 12). During the year ended December 31, 2009, 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.

The cost of inventories recognized as expense and included in plant and other operating costs
for the year ended December 31, 2010 amounted to $2,440,166 (2009 - $2,958,089). Non-
inventory items recorded in plant and other operating costs include items such as labour,
supplies and travel.

6. 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 was completed in August 2004; the plant has been operational from that
date.

On 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. In May 2010, the joint venture announced that all
requirements for restart of the plant were met and full operations resumed.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 48

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

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

Consolidated balance sheets
Current assets
Long-term assets

Consolidated statements of operations
Revenue
Operating loss
Net loss

Consolidated statements of cash flows
Operating activities
Financing activities
Investing activities

Dexing agreement

2010
$

2009
$

47,000
1,368,000

6,800
1,498,000

460,200
(36,100)
(179,400)

477,200
(45,000)
(185,000)

(77,000)
90,400
(13,400)

(24,900)
24,900
-

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. The joint venture 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 commenced operations on April 1, 2008.

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

Consolidated balance sheets
Current assets
Long-term assets
Current liabilities

Consolidated statements of operations
Revenue
Expenses
Net income

Consolidated statements of cash flows
Operating activities
Financing activities
Investing activities

2010
$

2009
$

2,760,200
2,165,700
(680,200)

2,085,000
1,302,000
(544,000)

3,228,100
(1,679,600)
1,324,900

2,172,000
(1,741,000)
305,000

1,229,100
(833,800)
(66,100)

288,000
(153,000)
(74,000)

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 49

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

During the year, the joint venture partners agreed to construct a new plant facility at the site.
The new water treatment plant is designed to recover cobalt and nickel from acid wastewater
using an innovative ion exchange technology developed by the Company. BioteQ’s share of the
capital cost is anticipated to be approximately $1.5 million and construction is expected to be
completed in Q1 2011. At year end, BioteQ has recognized a total of $773,000 as construction in
progress costs and has future commitments of $866,000 towards the completion of the plant.

7. LOAN RECEIVABLE
In April 2008, BioteQ agreed to provide $4 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.

In June 2009, the Company, NWM, and a third party, Renvest, entered into an agreement to
refinance the original terms of the loan and enter into a new lease arrangement for BioteQ’s
plant at the site. The key terms of the agreement were as follows:

» NWM made a payment of $500,000 on June 12, 2009 to the Company against the existing

loan.

The repayment terms of the remaining loan were restructured. BioteQ would charge NWM
an annualized interest rate of LIBOR + 2% on the outstanding balance, and a revised
schedule of minimum repayments began 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 would receive total lease payments of $9,621,710 under the agreement.
Payments would be due each month beginning in October 2010.

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 would retain legal title to the plant
until all lease payments were received.

In September 2010, NWM elected to repay the balance of the loan. The Company received
$3,606,461 in cash as full repayment of all outstanding principal and interest. The Company
released its share of the first charge over the project assets that were held as security on the
loan. The terms of the lease agreement for the plant remained in place.

At December 31, 2010, the Company has determined significant indicators of impairment
related to the carrying value of the lease. The Company has been unable to resolve the current
situation with NWM, in relation to alleged deficiencies with the plant and missed lease
payments under the agreement (see note 4).

Subsequent to the year ended December 31, 2010, the Company is pursuing legal action against
NWM but it is unknown if any amounts will be realized. At year end, the lease balance of
$7,907,650 was fully impaired due to the uncertainty associated with estimated future cash

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 50

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

flows. The Company retains ownership of the plant and will continue to pursue alternative
remedies to recover the value of the assets. In addition, the Company accrued $375,000 of site
removal costs related to the plant.

Below is a summary of the total loan and lease balance:

Balance - December 31, 2009
Total interest
Total additions
Total lease fee income
Total repayments
Balance - December 31, 2010
Less: impairment charge
Long-term portion

Loan
$
3,978,767
99,713
27,981
-

(4,106,461)

-
-
-

Lease
$
6,828,892
-
78,048
1,000,710
-
7,907,650
7,907,650

Total
$
10,807,659
99,713
106,029
1,000,710
(4,106,461)
7,907,650
7,907,650

8. PROPERTY, PLANT AND EQUIPMENT

Pilot plants
Office equipment
Vehicles
Water treatment plants
Construction in progress

Cost
$
372,113
381,870
175,844
7,690,247
1,808,675
10,428,749

Accumulated
Amortization
$
365,815
231,675
109,302
2,414,821
-
3,121,613

Cost
$
372,113
279,590
162,464
16,517,026
1,006,632
18,337,825

Accumulated
Amortization
$
361,631
190,709
77,574
2,777,400
-
3,407,314

2010

Net
$
6,298
150,195
66,542
5,275,426
1,808,675
7,307,136

2009

Net
$
10,482
88,881
84,890
13,739,626
1,006,632
14,930,511

Amortization expense for the year ended December 31, 2010 amounted to $967,978 (2009 -
$1,078,159). An impairment charge of $6,913,725 related to water treatment plants was
recorded.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 51

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

9. INTANGIBLE ASSET

Intellectual property
December 31, 2010
December 31, 2009

Cost
$

Accumulated
Amortization
$

Net
$

247,770
247,770

147,116
116,144

100,654
131,626

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
business 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 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 of business conditions as well as estimated future cash flows,
management believes that there are sufficient opportunities at each project to recover the
current carrying value of long-lived assets with the exception of the Mt. Gordon site (see note
11). Changes in market conditions, reserve estimates and other assumptions used in these
estimates may result in future write-downs.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 52

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

11. IMPAIRMENT OF MT. GORDON OPERATIONS

BioteQ served a further termination notice in July 2010 (see note 4). The Company is currently
reviewing the condition of the plant and exploring its legal rights, obligations and alternatives.

The Company is doubtful that a new agreement with Birla will be reached. On this basis, the
Company has determined that the assets at the Mt. Gordon mine site are impaired as at
December 31, 2010 due to the uncertainty associated with estimated future cash flows. The
Company has recorded an impairment charge of $6,997,439 for the full carrying amount of the
plant and inventory, of which $6,913,725 relates to property, plant and equipment and $83,714
relates to inventory. See note 12 for additional impairment relating to the Mt. Gordon
operations.

12. NET INSURANCE PROCEEDS RECEIVABLE
In January 2009, the Mt. Gordon mine site experienced heavy rainfall that flooded the site and
led to suspension of all mining and water treatment activities. The Company suffered damages
to equipment and inventory and has reviewed the extent of the damages with its insurance
provider.

At the time of the initial insurance claim, the Company expected to replace the damaged
equipment and inventory under the terms of its insurance policy. Any items that were not
expected to be recovered under the policy were expensed during the year ended December 31,
2009. BioteQ has determined that the Mt. Gordon mine site is unlikely to resume operations
(see note 11). As a result, under the terms of its insurance policy, the Company has elected to
receive payment for the indemnity value of the equipment and inventory, which is a lower
amount than the originally estimated replacement cost. At year end, the Company has
estimated insurance proceeds receivable of $618,248, net of the deductible. The Company has
recognized an impairment of approximately $456,000 from the original estimated claim.

13. LONG-TERM INCENTIVE PLAN
Deferred share unit plan

The Company implemented a Deferred Share Unit Plan, effective July 1, 2010, pursuant to
which deferred share units (“DSU”) may be granted to non-employee members of the Board of
Directors on an annual basis. The number of DSUs granted to a participant is calculated by
dividing (i) a specified dollar amount of the participant’s annual retainer, by (ii) the five-day
volume weighted average trading price of the shares of the Company traded through the
facilities of the Toronto Stock Exchange on the trading days immediately preceding the date of
grant. Dividends paid on the shares of the Company are credited as additional DSUs. Each DSU
entitles the holder to receive a cash payment equal to the five-day volume weighted average
trading price of the shares preceding the date of redemption. The DSUs vest immediately and
may only be redeemed within the period beginning on the date a holder ceases to be a
participant under the plan and ending on December 31 of the following calendar year.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 53

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

During the year, an aggregate of 57,780 DSUs were granted to non-employee members of the
Board of Directors, representing the 2010 grant.

14. CAPITAL STOCK, WARRANTS AND CONTRIBUTED SURPLUS
Authorized

Unlimited common shares without par value

Issued and outstanding

Balance - December 31, 2008
Stock-based compensation
Exercise of options
Balance - December 31, 2009
Stock-based compensation
Issuance of capital stock and
warrants
Exercise of options
Balance - December 31, 2010

Common Shares

Number of
Shares
66,126,974
-
63,334
66,190,308
-

Amount
$
51,089,406
-
58,974
51,148,380
-

Warrants
Amount
$
-
-
-
-
-

Contributed
Surplus
Amount
$
6,668,231
890,000
(16,740)
7,541,491
520,500

Total
$
57,757,637
890,000
42,234
58,689,871
520,500

3,636,364
38,334
69,865,006

2,486,583
33,849
53,668,812

1,513,417
-
1,513,417

-
(11,615)
8,050,376

4,000,000
22,234
63,232,605

On January 22, 2010, the Company entered into an agreement with Newalta Corporation
("Newalta") to pursue joint projects that apply the technologies 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 $1.375 per share for one year and $1.65 per share thereafter. The warrants expire after five
years. The proceeds of the investment were allocated on a relative fair value basis with
$2,486,583 allocated to common shares and $1,513,417 allocated to the warrants. The fair
value of the warrants was estimated at the date of the offering using the following Black-
Scholes estimates:

Expected dividend yield
Expected volatility
Risk-free interest rate
Expected average warrant term

-
103%
1.63%
3 years

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 54

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

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. At December 31, 2010, 6,986,501
options are available for issue, of which 6,148,001 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 period is as follows:

2010
Weighted
average
exercise price
$
2.26
0.58
0.94
1.84
2.13
2.28

Number

5,708,001
(38,334)
710,000
(231,666)
6,148,001
5,499,668

2009
Weighted
average
exercise price
$
2.59
0.67
0.56
2.46
2.26
2.54

Number

4,820,368
(63,334)
1,125,000
(174,033)
5,708,001
4,433,557

838,500

911,030

Outstanding - January 1
Options exercised
Options granted
Options forfeited
Outstanding - December 31
Exercisable at December 31
Available for future grant pursuant
to Company's stock option plan at
December 31

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

2010

2009

Range of
exercise prices
$
0.51 - 1.00
1.01 - 1.50
1.51 - 2.00
2.01 - 2.50
3.01 - 3.50
4.01 - 4.50

Number of
outstanding at
December 31
1,421,666
976,667
1,322,668
74,934
1,095,000
1,257,066
6,148,001

0.51 - 1.00
1.01 - 1.50
1.51 - 2.00
2.01 - 2.50
3.01 - 3.50
4.01 - 4.50

1,211,666
666,667
1,322,668
74,934
1,125,000
1,307,066
5,708,001

Weighted
average
remaining
contractual life
(years)
3.8
1.5
0.5
1.0
2.6
1.6
1.8

Weighted
average
exercise price
$
0.62
1.30
1.68
2.32
3.00
4.20
2.13

4.2
1.3
1.5
2.0
3.6
2.6
2.5

0.59
1.34
1.68
2.32
3.00
4.20
2.26

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 55

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

The fair value of stock options granted is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:

Expected dividend yield
Expected stock price volatility
Risk-free interest rates
Expected life of options (years)

2010

2009

-
90% - 104%
1.83% - 2.13%
3

80% - 85%
1.75% - 2.00%
3

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

Year ended December 31, 2010
Year ended December 31, 2009

b) Escrow shares

Weighted
average fair
value
$
0.59
0.30

Weighted
average
exercise price
$
0.94
0.56

At December 31, 2010, the common shares issued include nil (2009 – 2,100,000) 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 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. For each of the years ended
December 31, 2008 and 2009, the Board of Directors approved the release of 2,100,000
escrowed shares.

During the year ended December 31, 2010, the Board of Directors approved the release of the
final 2,100,000 of escrowed shares.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 56

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

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

Total number of escrow shares outstanding

2010
nil

2009
2,100,000

c) Warrants

On January 22, 2010, the Company issued 3,636,364 warrants to Newalta in connection with the
above share capital issuance. Each warrant provides the holder with the right to purchase one
common share of the Company at $1.375 per share for one year and $1.65 per share thereafter.
The warrants expire after five years.

As at December 31, 2010, no warrants were exercised.

15. INCOME TAXES
As at December 31, 2010, the Company has approximately $919,000 of research and
development expenditures available for unlimited carry-forward, and $86,000 of investment tax
credits, expiring 2019 to 2020, all of which may be used to reduce future Canadian income taxes
otherwise payable.

The Company has accumulated losses of approximately $13,114,000 for Canadian income tax
purposes which may be deducted in the calculation of taxable income in future years. The losses
expire as follows:

2014
2015
2026
2027
2028
2029
2030

$
1,439,000
2,284,000
2,416,000
1,629,000
1,952,000
2,373,000
1,021,000
13,114,000

In addition, BioteQ has available tax losses in other jurisdictions that total $5,691,000 (2009 -
$4,600,000). 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.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 57

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

As at December 31, 2010, the Company’s future tax assets and liabilities were as follows:

Property, plant and equipment
Loan receivable
Reserves
Financing costs
Research and development expense carry-
forwards
Non-capital losses carry-forwards

Valuation allowance
Total future income tax assets

2010
$
2,939,000
2,214,000
105,000
-

2009
$
664,000
-
-
79,000

286,000
5,089,000
10,633,000
(10,633,000)
-

286,000
4,826,000
5,855,000
(5,855,000)

No income tax benefits related to the future tax assets have been recognized in the accounts as
their realization does not meet the requirement of “more likely than not” under the liability
method of tax allocation.

The reconciliation of income tax attributable to operations computed at the statutory tax rates
to income tax expense (recovery), using a 28.5% (2009 - 30%) statutory tax rate, for the year
ended December 31 is as follows:

Income tax recovery at statutory rates
Change in valuation allowance
Non-deductible expenses
Tax rate differences
Other
Total income tax expense

2010
$
(4,630,000)
4,778,000
152,000
(147,000)
72,000
225,000

2009
$
(1,370,000)
692,000
269,000
213,000
322,000
126,000

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 58

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

16. CONSOLIDATED STATEMENTS OF CASH FLOWS – SUPPLEMENTAL

INFORMATION

Change in non-cash working capital items

Decrease (increase) in trade receivables
Increase in receivable from joint venture partners
Decrease (increase) in taxes recoverable
Increase in interest income on loan receivable
Increase in loan receivable
Increase in accrued lease fee income
Decrease in inventory
Decrease (increase) in prepaid expenses
Decrease in account payable and accrued liabilities
Change in non-cash working capital items

Supplemental cash flow information

Withholding taxes paid
Income taxes paid

Non-cash operating, financing and investing activities

Increase in loan receivable on disposal of
property, plant and equipment
Increase in accounts payable for demobilization
costs related to property, plant and equipment
Increase in deferred lease inducement
related to leasehold improvements
Increase in insurance proceeds receivable for damages to
inventory and property, plant and equipment

2010
$
493,015
(132,916)
61,128
(99,713)
(106,029)
(1,000,710)
485,903
(14,473)
(230,557)
(544,352)

2009
$
(608,338)
(46,269)
(19,840)
(65,576)
-
(526,231)
237,035
150,556
(714,932)
(1,593,595)

2010
$

-
162,868

2009
$

41,923
204,654

6,302,661

479,699

61,570

618,248

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 59

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

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

Revenue

Canada

U.S.

Australia

China

Other

Property, plant and equipment

Canada

U.S.

Australia

China

Other

2010
$

2009
$

3,622,213

1,105,675

324,574

3,283,945

407,830

8,744,237

2010
$

1,975,853

2,556,443

32,673

2,720,842

2,770,847

624,501

115,861

2,265,422

617,984

6,394,615

2009
$

2,037,183

2,743,390

8,287,457

1,862,481

21,325

7,307,136

14,930,511

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

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

Customer A
Customer B
Customer C

2010
$
1,488,064
3,283,945
2,016,149
6,788,158

2009
$
1,402,953
2,171,892
1,330,538
4,905,383

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 60

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

18. 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-to-maturity (short-term investments)
Loans and receivables
Other financial liabilities

2010
$
7,957,391
7,128,880
1,591,785

2009
$
2,849,244
15,516,227
1,295,759

Interest income and other gains and losses from 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 years
ended December 31, 2010 and 2009:

Interest income from:

Held-to-maturity (short-term investments)
Loans and receivables

Fair value

2010
$

35,225
1,144,331

2009
$

31,613
694,214

Cash and cash equivalents, short-term investments, trade receivables, receivable from joint
venture partners, loan receivable, net insurance proceeds receivable and accounts payable and
accrued liabilities are short-term financial instruments whose fair value approximates the
carrying amount given that they will mature shortly.

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 dates. 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 currency risk, commodity price risk and interest rate risk, and liquidity risk. The
Company’s risk management activities are designed to mitigate 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

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 61

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

finance and accounting department. The Company’s risk management policies and procedures
have not changed from 2009.

Interest rate risk

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, 2010 was $35,225 (2009 -
$31,613). It is estimated that net income (loss) would fluctuate by $79,500 (2009 - $7,200) per
annum for every 1% change in the prevailing rates of interest.

b) Credit risk

The Company is exposed to credit risk on its cash and cash equivalents, short-term investments,
trade receivables, loans receivable and net insurance proceeds receivable. 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 on
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.

Credit risk on trade receivables, loan receivable and net insurance proceeds receivable is
minimized by performing credit reviews, ongoing credit evaluation and account monitoring
procedures. All of the Company’s receivables have been reviewed for indicators of impairment.
At December 31, 2010, the allowance for doubtful accounts balance was $nil (2009 - $nil). In
addition, BioteQ recorded a bad debt expense of $nil during the year ended December 31, 2010
(2009 - $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 ongoing
basis. The net insurance proceeds receivable is an estimate of the recovery on settlement of the
outstanding insurance claim. The Company expects that upon settlement, collection of the
amount is reasonably assured. Accordingly, management has no reason to believe that the
balances are not fully collectible.

As of December 31, 2010, there were tax related recoverables of $560,595 (2009 - $663,692)
which accounted for 33% (2009 - 31%) of all trade receivables. Of this balance, $545,126 (2009 -
$652,091) 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.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 62

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

c) Foreign currency risk

There is a risk to the Company’s earnings that arises 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
of $31,600. For the year ended December 31, 2010, the Company reported a foreign exchange
loss of $56,114 (2009 - $353,562).

d) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations 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 receivables in a timely manner and maintaining sufficient cash and cash equivalents in
excess of anticipated needs. At December 31, 2010, the Company’s accounts payable and
accrued liabilities were $1,544,901 (2009 - $1,295,759), which fall due for payment within
twelve months of the balance sheet date. See note 20 for additional commitments.

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.
At December 31, 2010, the Company has copper sales of $19,272 (2009 - $nil) that are subject
to commodity price risk. If the copper price changes by 1% against the value recorded, the
impact would result in either an increase or decrease in revenues of $193 (2009 - $nil).

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 63

BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009

19. 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.

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 financing or refinance existing debt with different characteristics. There
were no changes in the Company’s approach to capital management during the year.

20. COMMITMENTS
The Company has commitments of $357,099 under operating leases for office and laboratory
premises and for office equipment, as follows:

2011
2012
2013
2014
2015

$
205,810
140,323
5,244
4,990
732
357,099

BioteQ has future commitments of $866,000 for the completion of the new water treatment
plant at the Dexing mine site, which is expected to be completed in Q1 2011 (see note 6).

21. GOVERNMENT ASSISTANCE
In June 2009, the Company entered into an agreement with the National Research Council
Canada (“NRC”) under its Industrial Research Assistance Program (“IRAP”) to provide funds to
assist in testing new applications of wastewater treatment technologies in the energy sector.
The NRC agrees to reimburse BioteQ for wage costs incurred on account of the research work
performed to a maximum of $295,000. The agreement ends March 31, 2011.

During the year, the company received $138,315 (2009 - $17,335) of government assistance and
has a receivable of $16,556 (2009 - $16,456) at December 31, 2010. The total amount of
government assistance of $154,871 (2009 - $33,791) has been recorded as a reduction to
development expenses.

22. COMPARATIVE FIGURES
The comparative figures have been reclassified to conform to the current year presentation.

BioteQ Environmental Technologies 2010 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS

Page 64

Board of Directors

Management Team

George W. Poling1,4, PhD
Chairman of the Board of Directors
Independent Consultant and Professor Emeritus
University of British Columbia
Vancouver, British Columbia

P. Bradley Marchant, MASc
Chief Executive Officer

David Kratochvil, PhD, PEng
President & Chief Operating Officer

C. Bruce Burton1,3, BBA, MBA, CA, ICD.D
Independent Businessman
Toronto, Ontario

Paul Kim, CA
Vice-President, Chief Financial Officer & Corporate
Secretary

Kelvin P.M. Dushnisky2,3, BSc (Hon), MSc, LLB
Executive Vice-President, Corporate Affairs
Barrick Gold Corporation
Toronto, Ontario

Tanja McQueen, MBA
Vice-President, Corporate Development

Christopher A. Fleming3,4, PhD
Senior Metallurgical Consultant
SGS Minerals Service
Lakefield, Ontario

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

Clement A. Pelletier2,4, BSc
Chief Executive Officer
Rescan Environmental Services Ltd.
Vancouver, British Columbia

Ronald Sifton1,2, CA, ICD.D
Independent Businessman
Calgary, Alberta

1Member, Audit Committee
2Member, Compensation Committee
3Member, Corporate Governance Committee
4Member, Safety and Environment Committee

Corporate Information

Investor Relations
Tel: 1 800 537 3073
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
9:00 am Thursday, May 26, 2011
Vancouver Marriott Pinnacle Downtown Hotel
Point Grey Room
1128 West Hastings Street
Vancouver, British Columbia V6E 4R5

BioteQ Environmental Technologies 2010 Annual Report
BOARD OF DIRECTORS, MANAGEMENT TEAM & CORPORATE INFORMATION

Page 65

1100 - 355 Burrard Street
Vancouver BC Canada V6C 2G8
Tel: 604 685 1243
Fax: 604 685 7778
Toll Free: 1 800 537 3073
bioteq@bioteq.ca
www.bioteq.ca