BQE Water Inc. Annual Report 2012

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FY2012 Annual Report · BQE Water Inc.

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Laying the
Foundation

2012 AnnuAl RepoRt

Contents

1
2
2
3
3
4
5

Global Footprint

Company Profile

Key Relationships

Technology Product Portfolio

Target Applications

2012 Key Metrics

CEO Message

8
9
30
32

IBC

Management’s Report to Shareholders

Management’s Discussion & Analysis

Independent Auditor’s Report

Consolidated Financial Statements

Board of Directors

Management Team

Corporate Information

Global Footprint

With headquarters and laboratory services in Vancouver,
Canada and offices in both Chile and China, BioteQ has
designed, supplied, commissioned and operated industrial
water treatment plants at project sites around the world.
The plants are offered on a Design-Supply, Design-Supply-

Operate basis or as part of a Joint Venture arrangement. In
2012, BioteQ had active plant operations that treated 10.6
million cubic metres of wastewater and removed 2.5 million
pounds of metals from the environment.

BioteQ designed/operated plants

BioteQ designed plants

BioteQ commissioned plant

BioteQ offices

BioteQ laboratory

Company Profile

BioteQ Environmental Technologies is a water treatment
company providing proprietary technologies and leading
technical expertise to serve the mining, energy and
industrial markets. Our proven technologies have been
applied to selectively recover dissolved metals and
to remove targeted contaminants including sulphate
and selenium from industrial process waters. These
technologies produce treated water for re-use or safe
discharge to the environment, reduce or eliminate residual
waste and recover saleable by-products from wastewater.

Application of these technologies has helped customers
comply with environmental regulations, develop new
revenue streams from recovered metals, recover up to 99%
of process water for re-use and lower the life cycle costs of
water treatment. BioteQ has the in-house expertise to offer
a full scope of services, from lab and pilot testing, process
design, plant commissioning and operations to on-going
technical support. This knowledge and experience allows
BioteQ to deliver practical solutions, tailored to the unique
water treatment needs of each customer.

Scope of services
provided by BioteQ
in delivering water
treatment solutions.
Construction is
undertaken with a
local partner.

Lab & Pilot
Testing

Design &
Engineering

Equipment
Procurement

Construction

Commissioning

Operations &
Training

Ongoing Technical
Support

Key Relationships

We have formed key relationships with industry leaders as
part of the Company’s “go to market” strategy to expand
into new sectors and geographical territories. These

relationships broaden BioteQ’s own growth efforts and
they bring with them, significant knowledge and presence
in their respective areas of expertise.

JOINT
VENTURE
PARTNERS

Jiangxi Copper Company
Largest copper mining company
in China

Freeport McMoRan
Copper & Gold
World’s largest publically traded
copper company

STRATEGIC
PARTNERS

EcoMetales
Industrial waste management
company wholly owned by Chile’s
largest copper producer

Newalta Corporation
Canada’s largest industrial waste
management & environmental
services firm

Minería Mexico
Mexico’s largest mining company
with world’s largest copper reserves

STRATEGIC
SUPPLIER

LANXESS Sybron Chemicals
Leading international manufacturer
& supplier of ion exchange resins
used in water treatment

Technology Product Portfolio

Our portfolio of patented process technologies include
sulphide precipitation for selective metal recovery or
removal and ion exchange solutions for the selective
removal of metals and contaminants such as sulphate and
selenium from process waters.

METAL RECOVERy & REMOVAL
The BioSulphide® and ChemSulphide® processes use
biological and chemical sources of sulphide to selectively
remove dissolved metals in a form that can be sold to offset
water treatment costs and eliminate waste sludge while
producing clean water for re-use or safe release to the
environment. These processes can remove metals that are
toxic and recover metals that have value.

We also apply our deep sulphide precipitation know-
how to making operable the SART process, an enabling
technology for gold processing developed by SGS Lakefield
and Teck Corporation. SART removes the metallurgical
interference of cyanide-soluble metals and regenerates
cyanide for recycle to the gold recovery process. SART can
improve gold yields and reduce operating costs for copper-
complexed gold deposits.

We use Ion Exchange process technology to treat water
that has very low metal concentrations but that must be
lowered further to meet stringent discharge requirements.
Ion Exchange technology is also used to selectively recover

small amounts of high value metals, such as rhenium, from
waste streams.

These technologies can, in some instances, be combined
effectively with lime treatment to improve the performance
of lime plants by reducing metal loading in residual sludge,
reducing sludge volumes and improving water quality.

SULPhATE REMOVAL
BioteQ has developed Sulf-IXTM and Sulf-IXCTM ion exchange
technologies for the removal of Total Dissolved Solids (TDS)
and sulphate from wastewater. The processes produce
treated water to meet sulphate discharge regulations.
The only by-product is a solid gypsum product. These
processes can also reduce sulphate levels in industrial
re-use applications such as cooling towers, enabling the
recirculation and re-use of water.

SELENIUM REMOVAL
BioteQ has developed an Ion Exchange based approach
to remove selenium from water streams. Selenium is
present in mine water run-off and coal-fired power plant
process waters and is toxic at high levels for aquatic life,
leading to increased scrutiny from regulatory authorities.
Coal mining and power generation industries are actively
looking for reliable and cost efficient technology solutions.
BioteQ’s approach provides effective selenium removal and
stabilization at a low total life cycle cost.

Target Applications

MINING

COPPER/GOLD DEPOSITS

SMELTING

CONTAMINANT REMOVAL

Metals recovery/removal
from acid mine drainage to
meet environmental discharge
requirements & to create
value from waste

Remove interference of
cyanide-soluble copper and
recycle cyanide to improve the
project economics of copper-
laden gold deposits

High-value metal recovery
from smelter waste streams to
meet environmental discharge
requirements & to create
value from waste

Remove contaminants to
meet environmental discharge
requirements and recover
water for re-use, conserving
water supplies

All figures for years
2008 and 2009
are presented in
accordance with
Canadian generally
accepted accounting
principles.

See “Non-GAAP
Measures” in the
Management
Discussion & Analysis.

*Indicates adoption
of new Corporate
Strategy in 2012.

**2013 Financial
Guidance

2012 Key Metrics

FINANCIAL hIGh LIGhTS

Revenues ($ ‘000)

11,800

9,424

8,744

7,414

7,762

6,395

Adjusted EBITDA ($ ‘000)
*

(2,415)

(3,606)

(3,742)

< (1,000)

(1,890)

**13

(10,500)

Revenues increased 27% in 2012 over the prior
year due to increased engineering and plant sales.
2013 revenues project a 25% growth over 2012.

Adjusted EBIDTA improved 49% over 2011. 2013
is projected to see additional improvements of
50% from 2012.

OPERATIONAL hIGh LIGhTS

Water Treated (billion L)

Metals Removed (million lbs)

10.6

9.5

3.0

9.4

7.9

7.3

2.0

2.2

2.1

2.5

BioteQ’s operations treated an increase of 11%
more wastewater in 2012 than the prior year.

BioteQ removed 19% more metals from the
environment than the year prior.

CEO Message

After assuming the CEO role at BioteQ in mid October 2011, I worked
with the management team during November and December developing
a new strategy for the Company—a strategy that aimed to build on the
existing strengths of the organization but one that would enable the
Company to achieve significantly enhanced scale and scope.

2012 was the first year in which we began
to implement the new corporate strategy.
It was also a year in which we strived to
show measured but meaningful financial and
operational progress. However, the primary
focus for the Company in 2012 was to lay the
foundation that would enable continuing rapid
growth over the coming 5 years.

BIOTEQ CORPORATE hISTORy
Several key points relating to BioteQ’s
founding and evolution are relevant to
understanding the strategy the Company
adopted for 2012 and beyond.

historic Business Model
BioteQ was established with a Build-Own-
Operate (BOO) business model. From a
technology perspective, BioteQ was largely
engaged in treating acid rock drainage streams
containing high levels of valuable metals.
The Company viewed itself as a mining
company—one that mined the metals found
in the wastewater streams of existing mining
operations.

The BOO business model worked well as a new
technology deployment strategy. By putting
up the capital, BioteQ assumed the capital
related risks associated with initial technology
deployment.

However, while this approach worked well to
minimize the risks borne by initial customers,
the BOO model had significant limitations:

▪ Major mining companies are typically
reluctant to allow third parties to own
assets on their mine sites. BioteQ’s BOO
model limited the addressable market by
excluding many larger mining firms. This
model also raised the risk profile associated
with the remaining addressable market
which consisted, in significant measure, of
small and mid-tier mining companies.

▪ BioteQ’s cost of capital was and is higher
than the cost of capital of most of its
prospective customers (larger firms typically
have greater access to debt and a lower
cost of equity) making the BOO model a less
attractive financial proposition for many
prospective customers.

Limited Proactive Sales Function
The Company had a limited proactive
commercial capability. Sales leads were
typically inbound and were generated
largely through conference attendance and
participation. There was no dedicated Sales
team nor was there a Sales VP position at the
executive table. Sales functions were handled
by various individuals as time permitted.

Relevant but Limited Product Portfolio
BioteQ’s commercial products had
traditionally focused on the BioSulphide® and
ChemSulphide® and SART metals removal
systems. Beyond these core technologies,
BioteQ had in recent years spent time
developing sulphate removal technology.

While this technology portfolio did offer
opportunities for additional growth, the
product portfolio was somewhat limited and
the Company lacked a technology roadmap
to guide its thinking as to how or whether the
portfolio should be expanded.

Key Elements of the New Strategy
BioteQ’s new strategy is aspirationally focused
on the Company becoming a global leader in
the development and provision of innovative
water treatment solutions to industrial
markets including mining, metallurgy and
energy. As we grow we will be focused on:
▪ The delivery of innovative, reliable and cost

effective solutions for our customers;
▪ The generation of consistently strong

returns to shareholders;

▪ The creation of a fun and fulfilling workplace

for our employees; and

▪ A commitment to making a positive impact

on and contribution to environmental
sustainability.

Over the coming 3-5 years, our specific goals
are centred on significantly growing the
revenue base of the Company and driving to
generate strong positive cash flows. The major
elements of the new corporate strategy are:

BioteQ as a “Technology Solutions Provider”
Leverage BioteQ’s technologies and in-house
capabilities to meet the needs of the broadest
possible addressable market. This implies that
we will monetize the value of our technologies
and capabilities through utilization of a range
of business models including:
▪ Design-Supply—design, supply of equipment

packages and commissioning services;
▪ Design-Supply-Operate—design, supply
of equipment packages, commissioning
services and long-term plant operations;
▪ Joint Ventures—in the right circumstances

and with the right partners, our contribution

may take the form of technology provision
and/or capital for an interest in the
proceeds from plants.

We believe this more flexible approach to the
market will enable a significant scaling of the
revenue profile of the current business. It will
do so while generating reasonable flows of
recurring revenue from operating contracts
and joint venture contracts to complement
one-time “solution” sales.

Proactive Sales Presence in Key Markets
▪ Build a professional Sales and Marketing

organization

▪ Initial focus on North and South America
▪ Build effective and commercially productive

channel relationships

Broaden Product Portfolio with Selective/
Targeted Technology & Business
Development Initiatives
▪ Begin to actively commercialize the sulphate

removal solution

▪ Select and commence development of

technology solutions for markets of highest
priority based on market size, competitive
position and time to market

Enhanced Focus on IP Generation and
Capture
▪ Enhance attractiveness of offerings and
expand margin potential through the
strategic use and expansion of our IP
portfolio

RECaP oF 2012
Key accomplishments
▪ Financial progress in 2012 was in line with
the Company’s guidance for the year with
revenue growth of 27% and a 49% increase
in EBITDA compared to 2011. 2012 revenues
represent the strongest performance by the
Company since inception. We believe the

1 The ChemSulphide®
plant at the Raglan
Mine in Quebec that
operates seasonally
from late spring
to fall. The plant
treats wastewater
to remove nickel
to meet discharge
requirements.

2 In joint venture with
a large US based
mining company, a
BioSulphide® plant
was developed to
treat wastewater
and recover a
high-grade copper
concentrate that
is sold to generate
revenues.

3 A ChemSulphide®

plant was developed
jointly with Jiangxi
Copper Company to
treat wastewater
and recover a
saleable high-grade
copper concentrate.
The revenues
generated from
the copper sales
delivered a capital
payback on the
plant in under three
years.

strong results achieved in the first year of
our new strategy has established a strong
foundation for progress going forward.

▪ BioteQ had active plant operations in

Canada, the US and China that collectively
treated 10.6 million cubic metres of water
and removed 2.5 million pounds of metals
from the environment.

▪ BioteQ together with its joint venture

partner Jiangxi Copper Company announced
plans in September to build a second
ChemSulphide® copper recovery plant at
the Dexing site.

▪ Significant technology development

was made in selective high-value metals
recovery (one test contract signed) and
selenium removal (two test contracts
signed).

▪ BioteQ successfully resolved its ongoing
litigation with NWM. Under the terms
of the resolution NWM agreed to pay
BioteQ $1.2M over three years. NWM also
subsequently purchased from BioteQ the
SART plant assets located at NWM’s Lluvia
mine site in Mexico for USD $650,000.

Key Challenges
▪ Legal actions relating to the dispute with

▪ BioteQ completed fee based engineering

Birla Mount Gordon continued during 2012.

design work for an arsenic removal facility
for EcoMetales, a wholly-owned subsidiary
of Codelco. The project has now moved on
to the next stage of review, which includes
environmental and regulatory approvals.

▪ BioteQ obtained 7 paid testing contracts

relating to a number of different
applications. These testing contracts
typically constitute the initial phase in the
development of projects that could lead to
the provision of full-scale treatment plants.

▪ BioteQ continued to work with Kinross Gold
in 2012 providing technical services, and
extended the contract in place into 2013.

▪ BioteQ and Newalta completed construction

of a mobile Sulf-IXTM pilot plant to test
for sulphate removal. Subsequent to year
end, the parties announced the successful
commissioning of the unit at a Newalta
site. BioteQ also announced it had secured
the first test contract for the unit with a US
based industrial customer.

OUTLOOK
2012 was a year in which significant progress
was made with the implementation of a new
strategy we believe will stabilize the existing
business and provide a platform for rapid
growth. Given the numerous financial, sales
and operational accomplishments over the
past 12 months, I believe we are poised for
sustained growth and we are well on our way
towards creating a robust, innovative and
financially strong organization.

Thank you for your continued support,

Jonathan Wilkinson
Chief Executive Officer

4 The joint venture,

with Jiangxi Copper
Company, ion
exchange based
nickel-cobalt
recovery plant at
the Dexing Mine
in China.

5 BioteQ obtained 7
testing contracts
that were
carried out at
the company’s
Vancouver lab.
Testing contracts
are typically the first
phase in developing
full-scale water
treatment plants.

6 Construction and
commissioning of
the Mobile Sulf-
IXTM pilot plant to
provide on-site
testing for sulphate
removal was
completed. The pilot
plant was developed
in partnership
with Newalta
Corporation.

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 International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) 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 2012 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 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’s 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.

Jonathan Wilkinson
Chief Executive Officer

Paul Kim
Vice President & Chief Financial Officer

8 | Management’s Report to Shareholders

Management’s Discussion and Analysis

(All figures expressed in Canadian dollars unless otherwise noted)

March 15, 2013

The following Management’s Discussion and Analysis provides information that management believes is relevant to an
assessment and understanding of our consolidated results of operations and financial condition. We have prepared this
document in conjunction with our broader responsibilities for the accuracy and reliability of the financial statements and 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 2012 Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with our audited consolidated
financial statements for the year ended December 31, 2012, which are prepared in accordance Generally Accepted
Accounting Standards (“GAAP”) defined under International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).

All financial information is presented in Canadian dollars unless otherwise noted. Certain statements contained in
Management’s Discussion and Analysis constitute forward-looking statements. Such forward-looking statements involve a
number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward looking
statements, which speak only as of the date the statements were made and readers are advised to consider such forward-
looking statements in light of the risks.

DESCRIPTION OF BUSINESS
BioteQ Environmental Technologies Inc. (“BioteQ” or the “Company”) is a process technology company headquartered in
Vancouver, British Columbia, Canada. We apply innovative technologies and operating expertise to solve challenging
industrial water treatment problems to reduce environmental liabilities while delivering lower life cycle costs for water
treatment. Our commercially proven technologies treat industrial wastewater contaminated with dissolved heavy metals,
sulphate and other contaminants, producing saleable by-products and clean water for re-use or safe discharge to the
environment.

BioteQ is listed on the Toronto Stock Exchange (“TSX”) under the symbol BQE.

Additional information may be found on our website www.bioteq.ca and also on SEDAR at www.sedar.com.

Management’s Discussion and Analysis | 9

2012 HIGHLIGHTS
2012 was a successful year for BioteQ. We generated the highest level of revenues that the Company has achieved in its
history. We also made significant progress with respect to cash usage levels and further reported progress in a range of
operational areas.

2012 was the first year in which we began to implement our new corporate strategy. It was a year in which we strived to
show meaningful financial and operational progress. However, the primary focus for the company in 2012 was to lay the
foundation that would enable continuing rapid growth over the coming five years.

At the beginning of 2012, we established a set of financial and operational milestones for the year. The following is a
summary of our progress against these milestones:

To increase revenue by at least 30%

2012 Financial Milestones

Revenues for the year grew in line with guidance provided by BioteQ in March 2012. Total revenues for the year were $9.4
million compared to $7.4 million in 2011. This represents a 27% increase over revenues achieved by the Company in 2011 and
is a record level of revenue for the company since inception. Further, our reported revenues do not include the $650,000 USD
in proceeds we received from the sale of our plant equipment in Mexico to NWM Mining. These proceeds are included in the
financial statements as part of the “reversal of impairment” on our Statement of Operations. Had this sale been to a typical
BioteQ customer other than NWM Mining, it would have been accounted for as revenue.

It is also instructive to note that during 2012 our revenues from metal recovery operations were impacted by an overall
decline in copper prices year over year. Had copper pricing in 2012 been in line with 2011 levels, our revenue and our gross
margin would have further improved by $767,000.



To reduce cash used in operations (including changes in working capital) from $2.5 million in 2011 to less than $1.5
million in 2012 (40% reduction)

Cash usage for the year was also in line with guidance provided by the Company in March 2012. Total cash used in
operations, after changes in working capital, for 2012 was $1.46 million compared to $2.5 million in 2011, a 43%
improvement year over year. In addition to revenue growth and cash use improvements, our adjusted EBITDA (see Non-GAAP
measures), improved from ($3.7) million in 2011 to ($1.9) million in 2012, a 49% improvement year over year.

Secure an initial sale to a strategic alliance partner

2012 Operational Milestones

We announced a contract with strategic alliance partner EcoMetales, a wholly-owned subsidiary of Codelco Limited, to
develop basic engineering and laboratory testing related to arsenic removal for a treatment facility to be built in Chile. The
work, which included lab testing and basic engineering, was completed during the year. The project is now in the next phase
of review, which will include environmental and other regulatory approval procedures.

Close sales bookings in Latin America


In addition to the arsenic removal project with EcoMetales, we completed engineering review and start-up support services
for a Kinross Gold SART project in Chile. Upon completion of the services, we renewed an ongoing technical support contract
and are contracted to provide these services into 2013.

We also secured a number of testing contracts with mining companies in South America. One contract was with a leading
international mining company to carry out validation test work for recovery of copper and other high value trace metals and
removal of arsenic from smelter effluent at a site in Chile, applying our ion exchange technology. The work, which includes
laboratory testing and evaluation, was completed in the first quarter of 2013, and will provide the design basis for a pilot
plant and eventually a commercial plant.

10 | Management’s Discussion and Analysis

Initial pilot undertaken in a market vertical outside of hard rock mining


We completed construction of a mobile Sulf-IXTM unit that will provide pilot scale testing for sulphate removal. The mobile
pilot plant, a joint initiative with Newalta Corporation, provides on-site field testing for sulphate removal from wastewater.
Subsequent to year end, the parties announced the successful commissioning of the unit at a Newalta site. BioteQ also
announced it had secured the first test contract for the unit with a US based industrial (non-hard rock mining) customer.

Other Highlights


Our water treatment operations continue to address challenging water treatment requirements of the mining sector.
BioteQ had active plant operations in Canada, the US and China that collectively treated 10.6 million cubic metres of
water and removed 2.5 million pounds of metals from the environment.
During the year, we continued to build our business of providing technology solutions – including design, engineering,
commissioning and other technical services to mining and other industrial customers.
In Q1 2012, we delivered a mobile ion exchange water treatment plant to an international mining customer. Total
proceeds from the sale of the plant and supplies were $1.2 million.
Our operations at the Dexing mine site in China continued to generate excellent results. We operate at the site as part
of a joint venture with the mine site owner, Jiangxi Copper Company (“JCC”).
a. Our existing copper recovery plant treated 8.7 million cubic metres of water and recovered just under 2 million

pounds of copper, a 15% increase over 2011;

b. We are in the process of making modifications to the new nickel-cobalt ion exchange recovery plant and expect

this plant will be on stream producing commercial quantities of metals in Q2 2013; and
The joint venture announced plans to build a second ChemSulphide copper recovery plant at the Dexing site. The
plant is expected to be completed in Q3 2013 at a total cost of approximately $3 million.

BioteQ obtained 7 paid testing contracts relating to a number of different applications. These testing contracts typically
constitute the initial phase in the development of projects that could, if the project proceeds forward beyond the testing
phase, lead to the provision of full-scale treatment plants.
Significant technology development progress was made in the areas of:
a.
b.

Selective high-value metals recovery (one test contract signed); and
Selenium removal (two test contracts signed).



 We negotiated a settlement of our lawsuit against NWM Mining Corporation (“NWM”) for unpaid lease payments

relating to a treatment plant built at NWM’s Mexican mine site. Subsequent to the legal settlement, BioteQ negotiated
the sale of its existing plant equipment at the site to NWM. The total value of the settlement and purchase price of the
plant equipment was approximately $2 million. Under the relevant agreements, payments will be made to BioteQ over a
three year period.
Our litigation with Aditya Birla in Australia remains in progress. We continue to believe that our position is strong with
regard to Birla’s claims against BioteQ and are pursuing a counter-claim against Birla for breach of contract.



OUTLOOK
2012 was a year in which significant progress was made with regard to development and implementation of a new strategy
that we believe will stabilize the existing business and provide a platform for growth going forward. Given the numerous
financial, sales and operational accomplishments made by the company over the past 12 months, we believe that the
Company is poised for sustained growth and that we are well on our way towards creating a robust, innovative and financially
sound organization.

In 2012 we achieved record revenue level for the Company and reduced our cash used in operations by over 40%. In addition,
we made several operational changes that included:




Creation of a focused and dedicated sales and marketing organization;
Establishment of a technology innovation and business development function; and
Enhanced and made more rigorous our engineering and project execution functions.

Management’s Discussion and Analysis | 11

In 2013, we expect to continue to build on the progress made in 2012. Key financial milestones for 2013 are:

a) Revenue
We expect to grow revenue in 2013, on a proportionate revenue basis, by 25% over 2012 to approximately $11.8 million.
Revenue growth is expected to be generated from: the completion of plants currently under construction at the Dexing site;
large scale piloting campaigns with customers in North and South America; plant sales; and engineering and technical
development projects.

b) Adjusted EBITDA
We will provide guidance for 2013 and beyond in terms of Adjusted EBITDA (adjusted to exclude the effects of foreign
exchange and stock based compensation charges). We believe that this non-GAAP measure will provide investors and
observers with enhanced transparency and understanding of the underlying performance of the Company.

In 2012, our adjusted EBITDA was ($1.9) million. For 2013, we expect to improve our adjusted EBITDA by approximately 50%
to less than ($1) million. The projected improvement in adjusted EBITDA is expected to come from additional margin
generated via increased sales revenues and from continued improvements in the efficiency of our operating and engineering
activities.

Both Proportional revenue and Adjusted EBITDA are non-GAAP measures without standard meaning under GAAP. Please
refer to section “Non-GAAP Measures” (immediately below) for additional descriptions and reconciliation to corresponding
GAAP measures.

NON-GAAP MEASURES
We use non-GAAP measures to supplement our consolidated financial statements presented in accordance with generally
accepted accounting principles, or GAAP, to enhance investors’ and observers’ overall understanding of the Company's
current financial performance. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated
with our results of operations as determined in accordance with GAAP. In addition, non-GAAP measures may be different
from non-GAAP measures used by other companies. Non-GAAP measures should only be used to evaluate our results of
operations in conjunction with the corresponding GAAP measures.

Operating cash flow (use), before changes in non-cash working capital
Operating cash flow (use), before changes in non-cash working capital is derived as follows:

GAAP: Net cash provided by (used in) operating activities
Adjustment: Change in non-cash working capital items
Operating cash flow (use), before changes in non-cash working capital

2012
$
(1,463)
(354)
(1,817)

2011
$
(2,549)
(993)
(3,542)

Dec 31
2010
$
1,198
(249)
949

12 | Management’s Discussion and Analysis

Adjusted EBITDA
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is derived as follows:

GAAP: Net income (loss)

add: interest expense (income)

add: taxes

add: depreciation and amortization

EBITDA

add: stock-based compensation

add: net foreign exchange loss (gain)

Adjusted EBITDA

2012
$
(3,367)

(60)

465

976

2011
$
(5,090)

(125)

472

695

Dec 31
2010
$
(10,929)

(179)

225

880

(1,986)

(4,048)

(10,003)

130

(34)

102

205

471

(968)

(1,890)

(3,742)

(10,500)

Proportional Revenue
Beginning in Q1 2013, we are required to adopt IFRS 11 as our standard for joint venture accounting (see Adoption of
Accounting Standards and Pronouncements under IFRS). The new standard will require that we account for our joint
ventures, the Bisbee and Dexing projects, using the equity method of consolidation. In general, going forward the revenue
and operating costs associated with our proportionate share of activities in our joint ventures will be netted and disclosed
as single line item on our Consolidated Statements of Operations. The change in accounting standard will not impact our
overall, consolidated profitability or cash flow in past or future periods. However, this change will, given the mandated
accounting treatment, mean that the Company will show substantially lower revenues than it historically has.

Given this, beginning in Q1 2013, we plan to also provide a non-GAAP financial measure, Proportional Revenue, to disclose
the estimated revenue we would have reported had we continued to include our share of joint venture revenue on a gross
basis – as has been the case since the Company’s inception. We believe this disclosure will allow comparability of our future
financial results to prior years and provide additional insight into our underlying results.

Below is a table outlining the estimated impact on our reported revenues for the years 2010-2012 had we applied the IFRS 11
standard during those years:

Revenues as reported / Proportional revenue
% change

less: Revenue reported in joint ventures

Revenue as reported under IFRS 11

% change

2012
$
9,424

27%

2011
$
7,414

(15%)

Dec 31
2010
$
8,744

37%

(4,161)

(4,099)

(3,688)

5,263

59%

3,315

(34%)

5,056

35%

Management’s Discussion and Analysis | 13

COMPARATIVE INFORMATION

( in $’000 except for per share amounts)

Revenues
less: Plant & other operating costs (excluding depreciation)

General and administrative expenses
Sales and development

Depreciation and amortization
Stock-based compensation
Loss before other income (expenses)
Other income (expenses) – net
Reversal (impairment) of Lluvia de Oro operations
Other impairment/write down of assets
Income tax
Net loss for the year
Cumulative translation adjustment
Comprehensive loss for the year

2012

$
9,424
5,770
3,655
4,822
1,555

(2,723)
976
130
(3,829)
94
1,227
(394)
(465)
(3,367)
(22)
(3,389)

2011

$
7,414
4,654
2,760
4,990
955

(3,185)
695
102
(3,982)
(81)
-
(555)
(472)
(5,090)
408
(4,682)

2010

$
8,744
4,921
3,823
3,094
843

(114)
880
471
(1,465)
1,147
(10,386)
-
(225)
(10,929)
(1,483)
(12,412)

Net loss per share (basic and diluted)

0.05

0.07

0.16

Net cash provided by (used in) operating activities, after changes in working
capital
Adjusted EBITDA*

(1,463)

(2,549)

1,198

(1,890)

(3,742)

(10,500)

2012
7,356
15,358
2,611
12,747

2011

9,520
19,287
200
16,006

at Dec 31
2010

13,835
22,169
47
20,530

Working capital
Total assets
Total long term liabilities
Shareholder’s equity

* see Non-GAAP measures

14 | Management’s Discussion and Analysis

COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMEBER 31, 2012 TO DECEMEBER 31, 2011

The following is a summary of selected financial results for the year ending December 31, 2012.

Revenue
In 2012, revenues totaled $9.4 million compared to $7.4 million in 2011; a 27% increase. The change in total revenue from
each revenue source is shown in the table below:

Project Type

Metal recovery
Treatment fees
Engineering services and plant sales
Total revenues and fees

2012
$
4,161
1,787
3,475
9,426

% of total

2011 % of total

44%
19%
37%
100%

$
4,099
1,802
1,513
7,414

55%
24%
20%
100%

Total
Revenue %
Change

1%
(1%)
130%
27%

In 2012, revenues from engineering services and plant sales were up significantly to $3.5 million compared to $1.5 million in
2011 a 130% increase over the prior year. Revenues for these services include design, construction, commissioning, pilot
operations and testing contracts. The increase in revenue over 2011 was attributable to the sale of a mobile ion exchange
plant for $1.2 million, increased revenue for engineering and technical support services at a Kinross Gold site during the year
and revenue from several new lab testing contracts with potential to form the basis for full scale plant proposals.

During the year, we also negotiated the sale of equipment at NWM’s mine site in Mexico. The total proceeds of this sale was
USD $650,000. These proceeds are not included as revenue. Rather, they are included in the “Reversal of impairment of
Lluvia de Oro operations” (see further description in “Expenses and Other Income” section).

2012 revenues from metal recovery operations, which include the joint ventures at Bisbee and Dexing, were $4.2 million,
consistent with the prior year. While revenue for the year was similar to 2011, average copper prices in 2012 were
significantly lower than in 2011. In 2011, the average copper price was US $4.00 per pound. The average copper price on the
London Metal Exchange (“LME”) during over 2012 was US $3.61 per pound – a 10% decrease year over year. Our actual net
realized price of copper was $3.35 per pound in 2012 compared to $3.97 per pound in 2011. This negative price variance
accounts for approximately $767,000 in revenue and gross margin year over year. In other words, had copper pricing in 2012
been the same as in 2011, our revenues and cash flow would have improved by a further $767,000. We were able to offset
the decline in copper pricing by enhanced productivity at our copper producing operations. Our share of total copper
recovered increased 207,000 pounds over 2011.

In 2012, revenues from treatment fees were $1.8 million, consistent with the prior year. We generated treatment fees at our
operations at the Raglan and Minto mine sites based on volumes of water treated. Revenue from the Raglan site decreased
from 2011 as we treated 864,000 cubic metres of water compared to 1.2 million cubic metres in 2011. The decrease in water
volume was due to lower precipitation in the region than the prior year. The decrease at Raglan was offset by revenues from
operations at the Minto site in 2012. The Minto site was inactive in 2011 at the request of the customer.

Plant & other operating costs (excluding depreciation)
Total plant & other operating costs (excluding depreciation) were $5.8 million compared to $4.7 million in 2011. Gross margin
increased $868,000 from 2011 to 2012. BioteQ also continues to incur care and maintenance expenses for its water
treatment plant at the Mount Gordon mine site which continues to be inactive. Operating costs were generally in line with
budgeted expectations for the year. Costs also include an allocation of BioteQ’s internal technical and engineering resources
that are directly attributable to revenue generating projects.

As previously noted in the discussion of revenue, the decline in copper prices compared to the prior year has lowered gross
margins on copper recovery revenue. In 2012, the impact of the negative price variance was $767,000.

Management’s Discussion and Analysis | 15

Expenses and other income
In 2012, general and administrative expenses were $4.8 million compared to $5 million in the prior year quarter. The
decrease in general and administrative costs was mainly due to one-time CEO transition and recruitment costs incurred in
2011 of about $750,000. This decrease was offset by higher incremental legal costs related to the Birla and NWM litigations,
consulting fees and payments due to its former Chief Executive Officer, severance pay resulting from an internal efficiency
review earlier in 2012 and modest increases in general administrative costs. However, some of these costs are essentially
non-recurring and short-term in nature and will gradually be reduced or eliminated in 2013. In addition to these non-
recurring costs, recurring costs increased with the addition of a Vice President of Sales & Marketing early in 2012.

Sales and development costs in 2012 were $1.6 million compared to $955,000 in 2011. Over the last year, we added key
senior level sales and marketing resources including a dedicated sales resource for the Latin American market as part of our
strategy to increase our presence in this geographic area. Additional engineering and technical resources have also been
added to the sales effort to enable the company to deliver significant growth going forward.

Total depreciation and amortization expense was $976,000 in 2012 compared to $695,000 in 2011. At the beginning of 2012,
we reduced the amortization period of certain assets to reflect our updated estimate of their useful life.

Stock based compensation charges were $130,000 compared to $102,000 in the prior year. These non-cash charges will
fluctuate based on the number of securities issued and assumptions on the valuation and expected life of those securities.

We recognized a foreign exchange gain of $34,000 compared to a loss of $205,000 in 2011. These gains and losses arise
mainly from changes in the value of the US dollar, Australian dollar, Mexican Peso, Chilean Peso and Chinese RMB relative to
the Canadian dollar.

BioteQ recognized an impairment charge of $394,000 in relation to certain construction materials that were originally
purchased for use in the Dexing ion exchange plant and now deemed redundant. The joint venture partners have determined
that alternative equipment would provide improved operating performance long-term. The joint venture has negotiated a
partial refund of the original construction materials that includes fixed and variable repayments over the next 12 months.
These repayments will be recognized into income as they are received in subsequent periods.

During the year, we recognized the settlement of our litigation against NWM and the sale of equipment at NWM’s mine site.
The total value of the settlement and sale to NWM is approximately $2 million. This sum will be paid to BioteQ over a three
year period. In addition, we will no longer have to incur anticipated demobilization costs which were accrued in prior years.
The income from both transactions with NWM will be recognized as a “Reversal of impairment of Lluvia de Oro operations”
on our Statement of Operations in the period that cash payments are received. For 2012, we have recognized the following
amounts: $200,000 for the first payment of the legal settlement, $650,000 USD for the sale of plant equipment, and $375,000
for the reversal of demobilization costs accrued in prior years. The total amount of other income for the year was $1.2
million.

In 2012, income tax expense was $465,000 compared to $472,000 in 2011. The income tax charge is a result of taxable profits
in China and Chile. These taxes cannot offset accumulated tax benefits in other jurisdictions.

Overall performance
Overall net loss for the year was $3.4 million or $0.05 per share, compared to a loss of $5.1 million in 2011, or a loss of $0.07
per share; a 34% improvement year over year.

Cash used in operating activities, after changes in working capital, was $1.5 million compared $2.5 million in 2011; a 43%
improvement year over year.

Adjusted EBITDA was ($1.9) million compared to ($3.7) million in 2011; a 49% improvement over 2011.

16 | Management’s Discussion and Analysis

COMPARISON OF QUARTERS

Financial data for the last eight quarters
(unaudited, in $'000 except per share amount)

Quarters ended

Total revenues
Plant & other operating costs

General & administrative
Sales and development
Depreciation & amortization
Stock based compensation

Other income (expenses)

Impairment charges
Income taxes
Net income (loss)
Cumulative translation adjustment
Comprehensive income (loss)
Net income (loss) per share

Dec-12
$
2,089
1,137
953
1,241
455
259
31
(1,034)
22
(1,011)
46
138
(1,196)
156
(1,040)
(0.02)

Sep-12
$
2,773
1,572
1,201
1,305
428
240
39
(811)
(31)
(842)
348
67
(1,257)
(197)
(1,454)
(0.02)

Jun-12 Mar-12
$
2,164
1,409
755
1,192
312
237
22
(1,008)
84
(924)
-
65
(989)
(73)
(1,062)
(0.01)

$
2,398
1,652
746
1,084
360
240
38
(976)
1,246
270
-
195
75
92
167
0.00

Dec-11
$
1,736
1,360
376
1,219
309
218
21
(1,391)
(11)
(1,402)
555
(39)
(1,918)
(32)
(1,950)
(0.02)

Sep-11
$
2,948
1,351
1,598
1,784
305
160
10
(661)
(122)
(783)
-
337
(1,121)
561
(560)
(0.02)

Jun-11 Mar-11
$
1,324
1,106
218
936
123
157
43
(1,041)
(177)
(1,218)
-
97
(1,315)
57
(1,258)
(0.02)

$
1,406
837
569
1,051
218
160
28
(888)
229
(659)
-
78
(737)
(178)
(915)
(0.01)

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. 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.

Management’s Discussion and Analysis | 17

Summary of Q4 2012 results
Below is a summary of revenue for Q4 2012 and Q4 2011:

Project Type

Metal recovery

Treatment fees

Engineering services and plant sales

Total revenues

Q4 2012

% of total

Q4 2011

% of total

669

298

1,122

2,091

32%

14%

54%

100%

654

428

1,736

38%

25%

100%

Total
Revenue %
Change

(54%)

164%

20%

Total revenues for Q4 2012 increased 20% over the prior year’s quarter. Metal recovery revenue was consistent with 2011. In
the quarter, our share of recovered copper 144,000 pounds compared to 198,000 pounds in 2011. The fourth quarter is
typically our lowest quarter for copper production due to a three week annual maintenance shutdown at the Dexing site.
Treatment fee revenue decreased 54% over the prior year as the Raglan site treated less water in the fourth quarter.
Engineering services and plant sale fees increased 164% year over year largely due to the extension of our technical services
contract at a Kinross Gold mine site and completion of various lab testing contracts.

Total operating costs decreased $195,000 over the prior year and gross profit increased from $376,000 in 2011 to $926,000 in
2012. This reflects a change in mix of revenue towards higher margin engineering services and plant sale activities during the
quarter.

General & administrative costs were $1.2 million, consistent with the prior year. Significant expenses incurred during the
quarter include litigation fees related to the Birla lawsuit and annual employee compensation benefits.

Sales and development costs were $455,000 compared to $309,000 in the prior year. The increased costs reflect the
investment we have made over the last year to enhance our sales and marketing activities in targeted markets.

Overall net loss for the quarter was $1.2 million compared to a loss of $1.9 million in 2011.

18 | Management’s Discussion and Analysis

PROJECT SUMMARY
The following chart summarizes significant projects BioteQ has in progress.

Customer

Project

Business Model

Revenue
Source

Capital
Cost (BQE
Share)

Annual Design
Capacity
(m3 treated)

Current Status

Current Operating Projects

Freeport-McMoRan Bisbee, AZ

50% JV

Copper

$3,200,000

2,900,000

Jiangxi Copper

Dexing, China

50% JV

Copper

$1,886,000

5,800,000

Jiangxi Copper

Dexing Ni-Co

50% JV

Nickel, cobalt

$2,100,000

4,600,000

Jiangxi Copper

Dexing, China

50% JV

Copper

$1,600,000

4,800,000

Xstrata

Raglan,PQ

Build, Own, Operate
for Fees

Fees per m3 of
water

$2,000,000

1,100,000

Spoon - Raglan,
PQ

Operate

Fixed labour fees

Owned by
customer

200,000

Current Design, Engineering and Commissioning Projects

Freeport-
McMoRan

Kinross

Newalta

Sulf-IX™ demo
plant

Engineering services

Fees

Maricunga

Engineering services

Engineering and
commissioning
fees

Owned by
customer

Mobile Sulf-IX™
plant

Joint ownership

n/a

$486,000

US Industrial
Company

Mobile Sulf-IX™
pilot campaign

Engineering and
technical services

Fees

EcoMetales

Arsenic removal
plant

Engineering services

Engineering and
design fees

Mining customer

Ion exchange

for recovery of
copper and
other metals

Selenium
removal

Copper leach
solution
treatment

Metal recovery
from zinc
electrolyte

Mining customer

Minera Mexico
(Grupo Mexico)

Lab testing and
technical evaluation

Fees

Lab testing and
technical evaluation

Fees

Lab testing and
technical evaluation

Fees

n/a

TBD –
owned by
customer

TBD

n/a

Current operations expected to
recover a total of 600,000 pounds
of copper in 2013.

Current operations expected to
recover a total of 1.8 million
pounds of copper in 2013.

Plant currently recovering small
amounts of commercial grade
metals. Currently undergoing
upgrades and expected to
commence commercial operations
in Q2 2013.

Engineering and design in progress.
Expected completion in Q3 2013.

Operating season concluded in
November 2012. Current operating
contract expires in April 2014. Plant
is expected to treat 945,000 cubic
metres of water in 2013.

Operating season concluded in Q3
2012. Current operating contract
expires in April 2014.

On-going technical services.

Technical services contract
extended into 2013.

Commissioning completed Q1
2013.

Initial pilot campaign for Mobile
Sulf-IX™ plant commenced in
February 2013.

Engineering design is complete.
Project now under review by
customer.

Test work complete; commercial
proposal for plant supply in
progress.

Test work in progress; technical
evaluation and proposal to follow.

Test work in progress; commercial
proposal to follow.

Management’s Discussion and Analysis | 19

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 $3.8 million USD. 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 greater than 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 metres)

Mechanical availability (%)

Copper recovered (pounds)

Copper recovery (%)

2012

253

78%

123,000

98%

2011

311

99%

167,000

99%

Dec 31 YTD

2012

974

79%

492,000

99%

2011

610

55%

330,000

97%

In Q4 2012, the Bisbee plant treated a total of 253,000 cubic metres of water and recovered 123,000 pounds of copper, a
decrease from 311,000 cubic metres of water and 167,000 pounds of copper in Q4 2011. The decrease was due to
mechanical upgrades that took place during the quarter that temporarily shut down operations. The joint venture also
implemented improvements to the water management system that will increase the availability of water in future periods.

For the 2012 year, the Bisbee plant treated 974,000 cubic metres of water and recovered 492,000 pounds of copper. This is
an increase over 2011 when the plant treated 610,000 cubic metres of water and recovered 330,000 pounds of copper. 2012
operations were impacted by a shutdown in the second quarter for plant maintenance and upgrades.

With expected improvements in mechanical availability of the plant and the water management improvements put in place
during the fourth quarter, we expect the Bisbee plant to increase production to 600,000 pounds of copper for 2013.

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; price is based on
the average metal price during the month that the concentrate is shipped, less refining costs. The plant was designed by
BioteQ, and is operated by the joint venture company JCC-BioteQ Environmental Technologies Ltd, which is managed jointly
where BioteQ is responsible for technical operations and JCC is responsible for local administrative, procurement and
government activities. The joint venture partners share equally in the revenues and costs. BioteQ generates revenue from the
sale of its share of the recovered copper.

Plant operating results (total for the JV)

Water treated (thousand cubic metres)

Mechanical availability (%)

Copper produced (pounds)

Copper recovery (%)

2012

1,671

99%

165,000

95%

Dec 31 YTD

2011

1,642

90%

2012

8,661

99%

2011

7,661

97%

230,000

1,985,000

1,733,000

95%

94%

96%

20 | Management’s Discussion and Analysis

In Q4 2012, the Dexing plant treated a total of 1.7 million cubic metres of water and recovered 165,000 pounds of copper.
Copper recovery decreased from 230,000 pounds in Q4 2011 to 165,000 pounds in Q4 2012. The decrease was mainly due to
changes in feed water grade. The plant shuts down annually for approximately 3 weeks for routine repairs and maintenance.

For the 2012 year, the Dexing plant treated 8.7 million cubic metres of water and recovered just under 2 million pounds of
copper; a record year for the operation. This is an increase over 2011 when the plant treated 7.7 million cubic metres of
water and recovered 1.7 million pounds of copper. The increase was mainly due to higher than normal precipitation levels in
the region over the year. At various points in the year, the plant ran above its normal design capacity to meet the demand.

With expected completion of the new copper recovery plant at the Dexing site (see below), the plant is expected to recover a
total of 1.8 million pounds of copper in 2013. This is consistent with historical levels of operation and the normal design
capacity of the plant.

Dexing Ion Exchange Plant, China: Joint-venture with Jiangxi Copper Company
In 2010, the JCC-BioteQ joint venture began 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 was $1.3 million. Construction of the plant was completed in mid-2011. From mid-2011, BioteQ and
JCC have performed testing and commissioning services.

During the commissioning process, the joint venture partners identified two issues that needed to be resolved before full
commercial operations could begin:
 Mechanical risks were identified related to the materials and construction of certain process components. These issues



are now well understood and a process to address these matters is in place; and
As a result of testing during the commissioning process, the performance of a key piece of process equipment was
reviewed for long-term performance. The joint venture partners have identified an alternative type of equipment to
improve long-term performance of the plant and have begun implementing changes accordingly.

The plant is currently producing commercial grade metal concentrates in limited quantities and will ramp up production once
the outstanding issue has been demonstrated to have been fully resolved. Full production is expected to be achieved in Q2
2013. Post plant modifications, we expect the total volume of metals recovered to be slightly lower than had initially been
estimated but that operations will incur significantly lower operating costs. The revised annual recovery of metals is expected
to be approximately 36,000 pounds of nickel and 53,000 pounds of cobalt per year.

New Dexing Copper Recovery Plant, China: Joint-venture with Jiangxi Copper Company
In Q3 2012, BioteQ and JCC announced plans to begin construction of a second water treatment plant to recover copper at
the Dexing mine site in China. The joint venture partners will share equally in the capital costs of the plant and in the profits
generated from operations. The total cost of the plant is expected to be $3.2 million. BioteQ’s share of the capital cost is
estimated to be $1.6 million, which will be funded from the existing cash reserves of the joint venture. Revenues from the
operation of the new plant will be based on copper recovered, identical to the joint venture’s existing copper recovery facility
at the site.

During the plant execution process, BioteQ will contribute to the engineering design and will work with JCC personnel on the
procurement of key process equipment. JCC will provide all permits and manage site construction. Staff from the existing
joint venture will provide commissioning and operating services. Construction is slated to be completed and the plant in
operation in Q3 2013.

The new plant will apply BioteQ’s patented ChemSulphide® process to selectively recover copper from mine drainage, using a
design similar to the copper recovery plant built at the site in 2008. This plant will address the Dexing mine’s need for
increased water treatment capacity.

The plant will be designed to treat up to 24,000 cubic metres of water per day. Annually, it is expected to treat approximately
4.6 million cubic metres of water and remove approximately 900,000 pounds of copper from the environment. The copper
concentrate will be sold to Jiangxi Copper Company’s refinery at market prices, less transportation and refining costs. The

Management’s Discussion and Analysis | 21

operating costs for the new plant are expected to be similar to the current operation, which has a production cost of
approximately $1.50 per pound of copper recovered. The financial performance of this, as any copper recovery plant, can be
impacted by copper price, the amount of copper dissolved in the water, and annual precipitation levels.

This is the fourth water treatment project between BioteQ and its joint venture partner, Jiangxi Copper Company (JCC). In
2006, BioteQ and JCC formed a joint venture to apply BioteQ’s technology at JCC’s mine sites. To date, the partners have
designed, built, and operated three water treatment plants at the Dexing mine site, located near Dexing City in southeastern
China, including a copper recovery plant that applies BioteQ’s ChemSulphide® process to remove approximately 2 million
pounds of copper annually from the environment, a BioteQ designed HDS lime treatment plant, and an ion exchange plant
for recovery of cobalt and nickel. The joint venture projects have been recognized with several national and international
awards for environmental performance and sustainability.

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 northern Quebec, owned by
Xstrata Nickel. Because of the harsh winter conditions in northern Quebec, 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 metre of water
treated. BioteQ’s operating contract at the site expires in April 2014.

Plant operating results

Water treated (thousand cubic metres)

Days operated (some partial)

Nickel recovery

2012

241

98%

2011

484

98%

Dec 31 YTD

2012

864

149

98%

2011

1,066

200

98%

BioteQ continues 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.

During Q4 2012, the plant discharged a total of 241,000 cubic metres of water compared to 484,000 cubic metres of water in
2011. The total volume of water decreased in 2012 due to lower precipitation in the region and the resultant availability of
water for treatment. BioteQ has been working with the site owner to develop additional water treatment processes to
increase treatment capacity at the site long-term. BioteQ successfully concluded its ninth operating season at the Raglan site
in November.

For the 2013 operating season, the total volume of water treated is expected to be 945,000 cubic metres based on historical
precipitation levels in the region. 2013 is also effectively the final operating season under the current contract. We are
working with the customer to identify future water treatment requirements and to discuss options relating to water
treatment for future years.

The Minto Project, Yukon: Design-Supply-Operate for Minto Explorations Ltd.
In Q4 2009, BioteQ and Minto Explorations Ltd. (“Minto”) 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 has been responsible for all capital costs for the plant,
and provides all plant operating costs, including process reagents and consumables. Construction and commissioning of the
plant was completed in 2010.

The Minto, Yukon operation commenced seasonal operations for 2012 in April. The plant treated 104,000 cubic metres of
water as of mid-June when the plant concluded operations for the season slightly earlier than anticipated, pending an

22 | Management’s Discussion and Analysis

amendment to the site owner’s water use license. Revenues for this operation are based on a combination of labour fees and
fees for the volume of water treated. The original three year operating contract for the site has now been completed.

Engineering and Pilot Projects
During the year, the Company was engaged in several contracts for engineering and design projects. The following are the
significant projects either in-progress or completed during the year:


In Q1 2012, we delivered a mobile ion exchange water treatment plant to an international mining customer. Total
proceeds from the sale of the plant and supplies were $1.2 million.
Between Q1 and Q3 2012, we completed our contract to deliver engineering review and start-up support services for a
Kinross Gold SART project. At the end of Q3, we entered into an agreement with Kinross to extend technical support
services into 2013.
In Q3 and Q4 2012, we completed engineering and lab testing for EcoMetales Limited, a strategic partner in Latin
America. The project is now in the next phase of review, which will include environmental and other regulatory approval
procedures.



 We completed construction of a mobile Sulf-IX unit that will provide pilot scale testing for sulphate removal. The mobile

pilot plant, a joint initiative with Newalta Corporation, provides on-site field testing for sulphate removal from
wastewater. Subsequent to year end, the parties announced the successful commissioning of the unit at a Newalta site.
BioteQ also announced it had secured the first test contract for the unit with a US based industrial customer.
 We continue to provide ongoing technical and engineering services for a large scale Sulf-IX™ demonstration plant

designed by BioteQ and built at a Freeport-McMoRan mine site in the southern US. The operation of the Sulf-IX™ plant
is an important milestone to demonstrate BioteQ’s Sulf-IX™ technology at this scale. We are working with Freeport-
McMoRan to complete plant optimization by the middle of 2013.
BioteQ obtained a total of seven paid testing contracts relating to a number of different applications. These testing
contracts typically constitute the initial phase in the development of projects that could lead to the provision of full-
scale treatment plants.
Significant technology development progress was made in the areas of:
a.
b.

Selective high-value metals recovery (one test contract signed); and
Selenium removal (two test contracts signed).



The Mount Gordon Project, Australia – Build-own-operate for Aditya Birla
In 2008, we completed construction of a water treatment plant at the Mount Gordon Mine site, a copper mine in
Queensland, Australia. The mine is owned by Aditya Birla Minerals (“Birla”), a large metals conglomerate based in India. We
provided for all capital costs and expected to earn revenue from metals recovered.

In January 2009, the Mount Gordon mine site experienced heavy flooding during a severe rain storm. A portion of BioteQ’s
plant was damaged and we suspended our operating agreement under the force majeure provisions of the contract. We have
been unable to come to terms on a new or modified operating agreement with Birla to permanently restart operations.

In 2010, Birla commenced legal action against us alleging that BioteQ had breached and repudiated the agreement. Birla is
seeking unspecified financial damages, interest and costs. We do not believe the allegations have merit and are vigorously
defending our position. In February 2011, we filed legal action against Birla for breach of contract related to water treatment
operations at the Mount Gordon site. We concurrently filed a statement of defense responding to claims for damages made
by Birla in 2010. Both cases have yet to go to trial.

The Lluvia de Oro Project, Mexico: Lease-to-own for NWM Mining
In April 2012, we negotiated a settlement of our outstanding lawsuit against NWM Mining Corporation (“NWM”) for unpaid
lease payments relating to a treatment plant built at NWM’s Mexican mine site. Subsequent to the legal settlement, we
negotiated the sale of our existing plant equipment at the site to NWM. Terms of each transaction are noted below:

a) The legal settlement was for $1.3 million, which included an immediate payment of $200,000, a second payment of

$400,000 due in April 2013, and a final payment of $700,000 due in April 2014. All future payment obligations are secure

Management’s Discussion and Analysis | 23

by a $2 million “Consent to Judgment” that BioteQ can enforce against NWM in the event of a default. The initial
payment for $200,000 has been received in Q2 2012.

b) The sale of the plant equipment was for a total price of $650,000 USD. The terms of the sale included transfer of all

equipment at the site on an “as-is” basis to NWM with no further obligations or warranties from BioteQ related to the
equipment or site. BioteQ maintained ownership of the process logic control (“PLC”) system that formed a key
intellectual property component of the plant. Payment for the equipment was received in full in Q2 2012 and the PLC has
been returned to BioteQ.

The total value of the settlement and sale with NWM is approximately $2 million. In addition to the cash settlement, we will
not have to incur anticipated demobilization costs of $375,000 which were accrued in prior years. The income from both
transactions with NWM will be recognized as a “Reversal of impairment charges” on BioteQ’s Statement of Operations in the
period that cash payments are received. The reversal of accrued demobilization costs was recognized in the Q2 2012.

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2012, BioteQ had 69,966,672 common shares issued and outstanding (unchanged from December 31,
2011), 4,781,666 stock options outstanding (December 31, 2011 - 4,802,000) and 3,636,364 warrants outstanding
(unchanged from December 31, 2011).

As of March 15, 2013 the number of stock options issued and outstanding are 5,244,999. The number of common shares and
warrants issued and outstanding remain unchanged from December 31, 2012.

At December 31, 2012, the Company had cash and short-term investments, consisting of banker’s acceptance notes, of
$7,528,726, a decrease of $1,732,341 from December 31, 2011. This cash has primarily funded operating activities of
$1,462,776, net capital asset purchases of $282,128.

Working capital at the end of the year was $7,356,022, a decrease of $2,164,305 from December 31, 2011. BioteQ’s
significant working capital items include trade receivables of $1,380,672 ($1,664,326 at December 31, 2011) and trade
payables of $1,976,636 ($2,659,249 at December 31, 2011).

BioteQ has estimated future commitments of $1.6 million for the completion of the new water treatment plants at the
Dexing mine site and $895,115 under operating leases for office and laboratory premises and for office equipment. The
balance of available funds is largely uncommitted.

To date, the Company has not yet realized profitable operations and has relied on non-operational sources of financing to
fund its operations. Management believes that the current working capital will be sufficient to enable the Company to meet
its anticipated operating, capital expenditure, growth, and other financial requirements in the near term.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The application of certain accounting policies requires the Company to make estimates and judgments based on assumptions.
For a complete discussion of accounting estimates and judgments deemed most critical by the Company, refer to the
Company’s annual 2012 audited financial statements.

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

24 | Management’s Discussion and Analysis

costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been prevented or detected.

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

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

There has been no change in BioteQ’s internal controls over financial reporting during the year ended December 31, 2012
that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial
reporting.

Adoption of Accounting Standards and Pronouncements under IFRS
The IASB has issued the following standards which have not yet been adopted by the Company. Each of the new standards is
effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company assessed the
impact that the new and amended standards will have on its financial statements and concluded that there will be no
material differences except as noted below.

The following is a description of the new standards:

IFRS 7 Financial Instruments: Disclosure
In December 2011, the IASB issued amendments to IFRS 7 Financial Instruments which enhances the current offsetting
disclosure. The amendments require an entity to disclose information about rights of set-off and related arrangements (e.g.
collateral agreements). The disclosure will provide users with information in evaluating the effect of netting arrangements on
an entity’s financial position. The new disclosures are required for all recognized financial instruments that are set off in
accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognized financial instruments
that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set
off in accordance with IAS 32.

IFRS 10 Consolidation
IFRS 10 was issued in May 2011 and requires an entity to consolidate an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Under existing IFRS, consolidation is required when an entity has power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. IFRS 10 replaces SIC 12 Consolidation – Special Purpose Entities and parts of
IAS 27 Consolidation and Separate Financial Statements.

IFRS 11 Joint Arrangements
In May 2011, IFRS 11 was issued and requires a venturer to classify its interest in a joint arrangement as a joint venture or
joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the
venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS,
entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 superceded
IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non-monetary Contributions by Venturers.

Management’s Discussion and Analysis | 25

The Company has two joint arrangements: Bisbee and Dexing (see note 4 in the 2012 audited financial statements). The
Company undertook an analysis and concluded that both of the joint arrangements met the criteria for joint venture as
specified under IFRS 11. Accordingly, the two joint ventures will be accounted for using the equity method of accounting.
This guidance is effective for years beginning on or after January 1, 2013 and will be applied retrospectively.

The adoption of IFRS 11 will have a significant impact on the presentation of the Company’s financial statements. Asset,
liabilities, revenues and expenses presented on the financial statements will not include the Company’s pro rata share of
each of the assets, liabilities, revenues and expenses in the joint ventures. The Company will present its investment in the
joint ventures at cost and the carrying value, adjusted thereafter to include the Company’s pro rata share of earnings of the
joint ventures. The investment account of the Company is also increased or decreased to reflect the Company’s share of
capital transactions. For the year-ended December 31, 2012, the Company accounted for the results from the Bisbee and
Dexing joint ventures using the proportionate consolidation method (note 2 in the 2012 audited financial statements).

IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 was issued in May 2011 and establishes disclosure requirements for interests in other entities, such as joint
arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing
disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated
with, an entity’s interests in other entities.

IFRS 13 Fair Value Measurement
IFRS 13 was issued in May 2011 and is a comprehensive standard for fair value measurement and disclosure requirements for
use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or
paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes
disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed
among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement
basis or consistent disclosures.

IAS 32 Financial Instruments: Presentation
In December 2011, the IASB issued amendments to IAS 32 Financial Instruments: Presentation which clarifies the meaning of
“currently has a legally enforceable right to set-off”. The amendments also clarify the application of the IAS 32 offsetting
criteria to settlement systems which apply gross settlement mechanism that are not simultaneous. Further, the rights of set-
off must not only be legally enforceable in the normal course of business, but must also be enforceable in the other specific
situations and not be contingent on a future event. The guidance is effective for years beginning on or after January 1, 2013
and will be applied retrospectively.

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.

26 | Management’s Discussion and Analysis

Economic and Project Site Dependence
The Company currently derives its revenue from a limited number of sources (contracts). For certain contracts, the Company
has made significant investments in fixed plants that are dependent on conditions at the project site that may be beyond the
control of the Company. Changes in site conditions and/or the loss of any one contract could result in a materially adverse
effect on the Company’s 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 15
plants to date deploying proprietary technologies developed by BioteQ and applying them to meet site specific conditions.
However, the Company has been unable to consistently generate sufficient cashflows from these projects to cover
development and administrative costs. The Company may not be able to monetize its technologies to generate sufficient
positive cashflows on a consistent basis.

Competition
The Company is aware of and does address existing competitors for metal removal opportunities. There is a possibility that
other companies will enter these markets and compete with the Company. Such competitors could 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.

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

Management’s Discussion and Analysis | 27

applications for such inventions. There can be no assurance that the Company’s patents, if issued, would be valid or
enforceable by a court or that a competitor’s technology or product would be found to infringe such patents.

The Company is not currently aware of any claims asserted by third parties that the Company’s intellectual property infringes
on their intellectual property. However, in the future, a third party may assert a claim that the Company infringes on their
intellectual property. If the Company is forced to defend against these claims, which may be with or without any merit or
whether they are resolved in favour or against the Company, the Company may face costly litigation and diversion of
management’s attention and resources. As a result of such a dispute, the Company may have to develop costly non-
infringement technology or enter into license agreements which may not be available at favourable terms.

Access to Proprietary Information
The Company generally controls access to and distribution of its technologies, documentation and other proprietary
information. Despite efforts by the Company to protect its proprietary rights from unauthorized use or disclosure, parties
may attempt to disclose, obtain or use its solutions or technologies. There can be no assurance that the steps the Company
has taken or will be taking will prevent misappropriation of its solutions or technologies, particularly in foreign countries
where laws or law enforcement practices may not protect proprietary rights as fully as in the United States or Canada.

Commodity Prices
For some of the Company’s operations, the Company will be selling recovered metals obtained from treated water to
generate revenue. These recovered metals face commodity pricing risks and thus their prices may vary based on world supply
and demand. There can be no assurance that the price of metals will maintain at current buying rates.

Currency Risk
Commodities are priced in United States dollars. Therefore, any devaluation of the United States dollar would adversely
affect the Company’s future revenues. Further, since a significant portion of the Company’s expenses are in Canadian and
other currencies, a significant increase in the value of such currencies relative to the United States dollar coupled with
unstable or declining base metal prices could have an adverse affect on the Company’s results of operations to the extent
that sales of base metals are not hedged.

Environmental Regulation
The Company’s business and operations are subject to environmental regulation in various jurisdictions in which it operates.
There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s
business and operations.

Management of Growth
The Company could experience growth that could put a significant strain on each of the Company’s managerial, operational
and financial resources. The Company must implement and constantly improve its operational and financial systems and
expand, train and manage its employee base to manage growth. The Company might also establish additional water
treatment facilities which would create additional operational and management complexities. In addition, the Company
expects that its operational and management systems will face increased strain as a result of the expansion of the Company’s
technologies and services. The Company might not be able to effectively manage the expansion of its operations and
systems, and its procedures and controls might not be adequate to support its operations. In addition, management might
not be able to make and execute decisions rapidly enough to exploit market opportunities for the expansion of the
Company’s technologies and services. If the Company is unable to manage its growth effectively, its business, results of
operations and financial condition will suffer.

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

28 | Management’s Discussion and Analysis

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.

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.

There are also outstanding securities and agreements pursuant to which common shares of the Company may be issued in
the future which will result in dilution to the Company’s shareholders.

Management’s Discussion and Analysis | 29

March 15, 2013

Independent Auditor’s Report

To the Shareholders of BioteQ Environmental Technologies Inc.

We have audited the accompanying consolidated financial statements of BioteQ Environmental
Technologies Inc. and its subsidiaries, which comprise the consolidated statement of financial
position as at December 31, 2012 and December 31, 2011 and the consolidated statements of
operations and comprehensive loss, statement of changes in equity and statement of cash flow for the
years then ended, and the related notes, which comprise a summary of significant accounting policies
and other explanatory information.

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 International Financial Reporting Standards, 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.

PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 700, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806, www.pwc.com/ca

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of BioteQ Environmental Technologies Inc. and its subsidiaries as at December 31,
2012 and December 31, 2011 and their financial performance and their cash flows for the years then
ended in accordance with International Financial Reporting Standards.

(Signed) PricewaterhouseCoopers LLP

Chartered Accountants

PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 700, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806, www.pwc.com/ca

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

BioteQ Environmental Technologies Inc.
Consolidated Statements of Financial Position
For the years ended December 31, 2012 and 2011

Assets
Current assets
Cash and cash equivalents
Short-term investments
Trade receivables
Receivable from joint venture partners (note 17)
Net insurance proceeds receivable (note 20)
Taxes recoverable
Inventory (note 7)
Work in progress
Other receivable and prepaid expenses

Non-current assets
Property, plant and equipment (note 4, 8 and 16)
Intangible asset
Total assets

Liabilities
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue
Taxes payable
Deferred lease inducement

Non-current liabilities
Deferred income tax liability (note 13)
Long-term liabilities (note 9)
Total liabilities

Shareholders' Equity
Capital stock and warrants (note 10)
Contributed surplus
Accumulated other comprehensive loss
Deficit
Total shareholders' equity
Total liabilities and shareholders' equity
Contingency (note 20)
Commitments (note 21)
Subsequent event (note 23)

Approved by the Board of Directors

“Jonathan Wilkinson”
Jonathan Wilkinson, Director

Dec 31 2012
$

Dec 31 2011
$

5,594,154
1,934,572
1,380,672
159,724
-
41,131
89,957
229,797
306,641
9,736,648

5,582,740
38,710
15,358,098

1,976,636
91,970
251,930
60,090
2,380,626

146,140
84,723
2,611,489

4,774,970
4,486,097
1,664,326
182,286
637,099
153,889
48,174
432,261
222,709
12,601,811

6,615,837
69,682
19,287,330

2,659,249
340,185
63,105
18,945
3,081,484

88,713
111,146
3,281,343

55,269,416
8,247,007
(1,097,611)
(49,672,203)
12,746,609
15,358,098

55,269,416
8,117,400
(1,075,369)
(46,305,460)
16,005,987
19,287,330

“G. W. Poling”
G.W. Poling, Director

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

32 | Financial Statements

BioteQ Environmental Technologies Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the years ended December 31, 2012 and 2011

Revenue
Plant and other operating costs (not including depreciation)

General and administration
Sales and development
Stock-based compensation (note 10)
Depreciation of property, plant and equipment (note 8)
Amortization of intangible asset
Loss before the under-noted

Interest income
Other income
Foreign exchange gain (loss)
Write-down of capital assets (note 8)
Reversal of impairment of Lluvia de Oro operations (note 6)
Impairment of reagent (note 4)
Loss before income taxes

Income taxes (note 13)
Net loss for the year

Other comprehensive income (loss)
Cumulative translation adjustment
Comprehensive loss for the year

Net loss per share
Basic and diluted

Weighted average number of shares outstanding
Basic and diluted

2012
$

2011
$

9,424,179
5,769,513
3,654,666

4,822,446
1,555,154
129,607
945,098
30,972
(3,828,611)

7,413,797
4,654,065
2,759,732

4,991,527
955,225
101,878
664,038
30,972
(3,983,908)

48,602
11,886
33,915
-
1,226,873
(394,214)
(2,901,549)

122,418
2,376
(204,519)
(554,565)
-
-
(4,618,198)

465,194
(3,366,743)

472,257
(5,090,455)

(22,242)
(3,388,985)

407,576
(4,682,879)

(0.05)

(0.07)

69,966,672

69,949,120

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

Financial Statements | 33

BioteQ Environmental Technologies Inc.
Consolidated Statement of Changes in Equity
For the years ended December 31, 2012 and 2011

Number of
shares

Capital
stock

Warrants

Contributed
surplus

Accumulated
other
comprehensive
income (loss)

Deficit
$

Total
$

69,865,006 53,668,812

1,513,417

8,045,826

(1,482,945)

(41,215,005)

20,530,105

Balance - January 1, 2011
Stock-based compensation
(note 10)

Exercise of options

101,666

87,187

Net loss for the year
Other comprehensive loss for
the year

101,878

(30,304)

101,878

56,883

(5,090,455)

407,576

Balance - December 31, 2011

69,966,672

53,755,999

1,513,417

8,117,400

(1,075,369)

(46,305,460)

16,005,987

Balance - January 1, 2012
Stock-based compensation
(note 10)

Net loss for the year
Other comprehensive income
for the year

69,966,672

53,755,999

1,513,417

8,117,400

(1,075,369)

(46,305,460)

16,005,987

129,607

(3,366,743)

(22,242)

Balance - December 31, 2012

69,966,672

53,755,999

1,513,417

8,247,007

(1,097,611)

(49,672,203)

12,746,609

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

34 | Financial Statements

BioteQ Environmental Technologies Inc.
Consolidated Statement of Cash Flow
For the years ended December 31, 2012 and 2011

Cash flow used in

Operating activities
Net loss for the period
Items not affecting cash:

Depreciation of property, plant and equipment
Amortization of intangible asset
Amortization of deferred lease inducement
Deferred income tax
Write down of capital asset (note 8)
Impairment of reagent (note 4)
Loss on disposal of equipment
Unrealized foreign exchange loss
Interest income
Stock-based compensation charge (note 10)

Change in non-cash working capital items (note 15)
Net cash used in operating activities

Investing activities
Purchase of property, plant and equipment
Proceeds on disposal of equipment
Receipt of government grant (note 19)
Purchase of short-term investments
Proceeds from sale of short-term investments
Net cash provided by investing activities

Financing activities
Proceeds from exercise of options
Increase in deferred lease inducement
Increase (decrease) in long-term liabilities
Net cash provided by financing activities

Effect of exchange rate changes on cash
Increase in cash
Cash
Beginning of period
End of period

2012
$

2011
$

(3,366,743)

(5,090,455)

945,098
30,972
(22,328)
57,427
-
394,214
-
29,548
(14,880)
129,607
(1,817,085)
354,309
(1,462,776)

664,038
30,972
(28,417)
88,713
554,565
-
6,171
230,021
(99,110)
101,878
(3,541,624)
992,968
(2,548,656)

(559,678)
-
277,550
(3,908,203)
6,474,608
2,284,277

(984,892)
12,604
-
(14,053,596)
17,624,000
2,598,116

-
63,473
(26,423)
37,050
858,551
(39,367)
819,184

56,883
-
64,262
121,145
170,605
(49,100)
121,505

4,774,970
5,594,154

4,653,465
4,774,970

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

Financial Statements | 35

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

1. General Information
BioteQ Environmental Technologies Inc. and its subsidiaries (together “BioteQ” or the “Company”) create custom water
treatment solutions to remove and recover dissolved metals and to remove contaminants such as sulphate and selenium
from water impacted by mining, energy and industrial activities. The Company's clean technologies convert wastewater into a
useful resource. Fifteen commercial scale plants have been built at sites in North America, Australia, China and Europe, with
additional projects in development. The Company generates its revenues from three main sources: metal recovery,
treatment fees, and engineering services and plant sales. Please refer to note 2 for details on the Company’s accounting
policies for revenue recognition. BioteQ is incorporated and domiciled in Canada. The address of its registered office is Suite
1000 – 1050 West Pender Street, Vancouver, BC.

The Company’s Board of Directors approved these consolidated financial statements on March 15, 2013.

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. For the year-ended December 31, 2012, the
Company incurred a net loss of $3,366,743 (2011 - $5,090,455), had a net decrease in cash and short-term investments of
$1,732,341 (2011 – $3,349,789) and used net cash in operating activities of $1,462,776 (2011 – $2,548,656). The Company
has not yet realized 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.

Significant accounting policies

2.
These consolidated financial statements have been prepared in accordance with IFRS as issued by IASB. The Company has
consistently applied the accounting policies used in the preparation of its financial statements for all periods presented. The
significant accounting policies used in the preparation of these consolidated financial statements are described below.

Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention.

Consolidation
The financial statements of the Company consolidate the accounts of BioteQ Environmental Technologies Inc. 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 (note 4) are proportionately consolidated. All intercompany transactions, balances and unrealized gains and losses
from intercompany transactions are eliminated on consolidation.

Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-
maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of operating
segments and has been identified as the Chief Executive Officer of BioteQ.

Foreign currency translation
a) Functional and presentation currency
Items included in the financial statements of each consolidated entity in the BioteQ Environmental Technologies Inc. group
are measured using the currency of the primary economic environment in which the entity operates (the “functional
currency”). The consolidated financial statements are presented in Canadian dollars, which is BioteQ’s functional currency.

36 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

The financial statements of entities that have a functional currency different from that of BioteQ Environmental Technologies
Inc. (“foreign operations”) are translated into Canadian dollars as follows: assets and liabilities – at the closing rate at the date
of the statement of financial position, and income and expenses – at the average rate for the period (as this is considered a
reasonable approximation of actual rates prevailing at the transaction dates). All resulting changes are recognized in other
comprehensive income as cumulative translation adjustments.

When an entity disposes of its entire interest in a foreign operation, or loses control, joint control, or significant influence
over a foreign operation, the foreign currency gains or losses accumulated in other comprehensive income related to the
foreign operation are recognized in profit or loss. If an entity disposes part of an interest in a foreign operation which remains
a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in other comprehensive income related
to the subsidiary is reallocated between controlling and non-controlling interests.

b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of
the transactions. Generally, foreign exchange gains and losses resulting from the settlement of foreign currency transactions
and from the translation at period-end exchange rates of monetary assets and liabilities denominated in currencies other
than an operation’s functional currency are recognized in the statement of operations.

Cash and cash equivalents
Cash consists of unrestricted bank deposits, some of which are interest-bearing. Cash equivalents consist of unrestricted
security deposits held at the Company’s banks which can readily be converted to cash.

Short-term investments
Short-term investments consist of bankers’ acceptances with maturities of less than one year. The investments are carried on
the statement of financial position at amortized cost using the effective interest method plus accrued interest.

Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the
instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have
been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are
derecognized when the obligation specified in the contract is discharged, cancelled or expires.

The Company classifies its financial instruments in the following categories:

Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is classified in this category if
acquired principally for the purpose of selling or repurchasing in the short-term.

Derivatives are also included in this category unless they are designated as hedges. The Company currently does not use
any derivatives in the course of its business.

Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are
expensed in the consolidated statement of operations. Gains and losses arising from changes in fair value are presented
in the consolidated statement of operations within “other gains and losses (net)” in the period in which they arise. Non-
derivative financial assets and liabilities at fair value through profit or loss are classified as current except for the portion
expected to be realized or paid beyond twelve months of the balance sheet date, which are classified as long-term.

ii. Available-for-sale investments: Available-for-sale investments are non-derivatives that are either designated in this
category or not classified in any other categories. The Company currently does not have any available-for-sale
investments.

Financial Statements | 37

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

Available-for-sale investments are recognized initially at fair value plus transaction costs and are subsequently carried at
fair value. Gains or losses arising from re-measurement are recognized in other comprehensive income except for
exchange gains and losses on the translation of debt securities, which are recognized in the consolidated statement of
operations. When an available-for-sale investment is sold or impaired, the accumulated gains or losses are moved from
accumulated other comprehensive income to the statement of operations and are included in “other gains and losses
(net)”. Available-for-sale investments are classified as non-current, unless an investment matures within twelve months,
or management expects to dispose of it within twelve months.

iii. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. The Company’s loans and receivables comprise cash, short-term investments,
trade receivables, receivable from joint venture partners, and net insurance proceeds receivable; and are included in
current and long-term assets. Loans and receivables are initially recognized at the amount expected to be received, less,
when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are
measured at amortized cost using the effective interest method less a provision for impairment. The Company does not
sell its receivables under any kind of arrangement with any third parties.

iv. Financial liabilities at amortized cost: Financial liabilities at amortized cost include trade payables. Trade payables are

initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables at fair
value. Subsequently, trade payables are measured at amortized cost using the effective interest method. The trade
payables are classified as current liabilities if payment is due within twelve months. Otherwise, they are presented as
non-current liabilities.

Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such
evidence exists, the Company recognizes an impairment loss. The loss is the difference between the amortized cost of the
loan or receivable and the present value of the estimated future cash flows, discounted using the instrument’s original
effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly through the
use of an allowance account.

Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.

Inventory
Inventory of metal concentrate is 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 and other direct costs (including external services) and related production overheads, but exclude
administrative and finance costs. Net realizable value is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and selling expenses.

Chemicals and spare parts inventories are valued at the lower of cost and net replacement cost, which approximates net
realizable value.

Work in progress
Work in progress represents the costs that the Company incurred for projects that are not billed at the balance sheet date.
This amount includes both direct materials and direct labour costs.

Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Costs
include cost of materials, direct labour costs and an appropriate portion of normal overheads, net of any grants and
contractual amounts received under feasibility studies. All costs are capitalized in the course of construction. Upon
commissioning, these costs are amortized over the useful life of the asset.

38 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

The carrying amount of these items is not revalued as the Company has elected not to apply the allowed alternative method,
which consists of regularly revaluing one or more categories of property, plant and equipment.

Where an item of property, plant and equipment comprises of major components with different useful lives, the components
are accounted for as separate items from the main asset to which they relate and depreciated separately over their own
useful life. Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for
separately, including major inspection and overhaul expenditures, are capitalized. The costs of day-to-day servicing are
recognized in profit and loss as incurred.

The major categories of property, plant and equipment are depreciated on a straight-line basis as follows:

Computer equipment
Furniture and fixture, and general equipment
Vehicles
Pilot plants
Water treatment plants

3 years
5 years
5 years
3 – 5 years
10 – 20 years

The depreciation method, useful life and residual values are assessed annually.

Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with the carrying
amount of the asset and are included as part of other gains and losses in the statement of operations.

Identifiable intangible asset
The Company’s intangible asset comprises of intellectual property with a finite useful life and is capitalized and amortized on
a straight-line basis in the statement of operations over the period of its expected useful life of eight years.

Impairment of non-financial assets
The Company’s property, plant and equipment and intangible asset are reviewed for indications of impairment at each
financial position date. Such indications may be based on events or changes in the market environment, or on internal
sources of information. If any such indication is present, the recoverable amount of the asset is estimated in order to
determine whether impairment exists. Where the asset does not generate cash flows that are independent from other
assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

An asset’s recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value, using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have not
been adjusted.

If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying
amount is reduced to the recoverable amount. Impairment losses are recognized in profit and loss for the period. Impairment
losses recorded may be subsequently reversed if the recoverable amount of the assets is once again higher than their
carrying value. Where impairment is subsequently reversed, the carrying amount is increased to the revised estimate of
recoverable amount but only to the extent that it does not exceed the carrying value that would have been determined (net
of depreciation) had no impairment loss been recognized in prior periods.

Stock-based compensation
The Company grants stock options to certain employees, officers and non-employee members of the Board of Directors.
Stock options vest over 36 months (1/3 vesting in equal installments throughout the vesting period) and expire after five
years. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. Fair
value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense
is recognized over the tranche’s vesting period by increasing contributed surplus based on the number of awards expected to
vest. The number of awards expected to vest is reviewed at least annually, with any impact being recognized immediately.

Financial Statements | 39

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

Long-term incentive plan
The Company granted Deferred Share Units (“DSU”) to non-employee members of the Board of Directors until the plan was
closed on January 1, 2012. 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. Compensation expense is recognized at the grant date. The fair value of the grant is re-measured
each balance sheet date and changes in fair value are recognized through the statement of operations.

Provisions
A provision is a liability of uncertain timing or amount. Provisions are recognized when the Company has a present legal or
constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to
settle the obligation, and the amount can be reliably estimated.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at
the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value
of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered
from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the
amount receivable can be measured reliably.

Decommissioning and restoration provisions
The Company estimates liabilities for statutory, contractual, constructive and legal obligations associated with the
decommissioning and restoration of property, plant and equipment. Discount rates using a pre-tax rate that reflect the time
value of money are used to calculate the net present value of asset retirement obligations. The Company also evaluates, on a
plant by plant basis, the probability of incurring rehabilitation costs in light of specific locations and partners involved.

Income tax
Income tax comprises current and deferred tax. Income tax is recognized in the statement of operations except to the extent
that income tax relates to items recognized directly in equity, in which case the income tax is also recognized directly in
equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively
enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined on a non-
discounted basis using tax rates and laws that have been enacted or substantively enacted at the statement of financial
position date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized
to the extent that it is probable that the assets can be recovered.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of
the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will
not reverse in the foreseeable future.

Deferred income tax assets and liabilities are presented as non-current.

40 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

Revenue
Revenue is recognized when the amount of revenue can be measured reliably, it is probable that the economic benefits will
flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably. In addition,
for the sale of metal concentrates, revenue is recognized when the Company has transferred to the buyer the significant risks
and rewards of ownership of the goods and retains neither managerial involvement nor control over the goods. For the sale
of services, a further recognition requirement is that the stage of completion of the transaction at the end of the reporting
period can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable.

The Company has three revenue streams:

a) Metal Recovery
The above criteria are generally met when the title of the metal concentrate passes to the customer. 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 quotation period one to four months after the month of shipment.

b) Treatment Fees
The above criteria are generally met as services are performed. The Company has agreements with different customers for
the operation of water treatment plants. The agreements specify the amount and timing of fees, based on (i) a fixed labour
component, (ii) a variable component per measure of water treated, or (iii) both fixed and variable components.

c) Engineering services and Plant Sales
The above criteria are generally met as services are performed. Engineering services include plant design, construction,
piloting, commissioning and operations. Revenue recognition criteria for the sale of materials and components used in the
construction of water treatment plants are generally met upon delivery or installation. Lab services include experiment
design, experimental equipment and reagent procurement, test apparatus setup, conducting of experiments, disposals of
samples and delivery of final lab reports on the results. The Company recognizes revenue from lab services by either the
percentage of completion or completed contract method depending on the specific circumstances of the individual contracts.

Government assistance
Government assistance is recorded when reasonable assurance exists that the Company has complied with the terms and
conditions of the approved grant program. Government assistance is either recorded as a reduction of the cost of the
applicable property, plant and equipment or credited in the statement of operations as determined by the nature of the
assistance.

Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a
deduction from equity.

Earnings per share
Basic earnings per share (“EPS”) is calculated by dividing the net income (loss) for the period attributable to equity owners of
the Company by the weighted average number of common shares outstanding during the period.

Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments.
The number of shares included with respect to options, warrants and similar instruments is computed using the treasury
stock method. The Company’s potentially dilutive common shares comprise warrants and stock options granted to
employees and officers.

Financial Statements | 41

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

Accounting standards issued but not yet applied
The IASB has issued the following standards which have not yet been adopted by the Company. Each of the new standards is
effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company assessed the
impact that the new and amended standards will have on its financial statements and concluded that there will be no
material differences except as noted below.

The following is a description of the new standards:

The Company has two joint arrangements: Bisbee and Dexing (note 4). The Company undertook an analysis and concluded
that both of the joint arrangements met the criteria for joint venture as specified under IFRS 11. Accordingly, the two joint
ventures will be accounted for using the equity method of accounting. This guidance is effective for years beginning on or
after January 1, 2013 and will be applied using the modified retrospective application guidance requirements of IFRS 11.

42 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

Critical Accounting Estimates and Judgments

3.
In preparing the consolidated financial statements, management undertakes a number of judgments, estimates and
assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ
from the judgments, estimates and assumptions made by management. The following are the estimates and judgments
applied by management that most significantly affect the Company’s consolidated financial statements. These estimates and
judgments have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year.

Critical accounting estimates
a) Property, plant and equipment
Estimated impairment
In 2010, the Company determined that the water treatment plant assets at the Mt. Gordon mine site in Queensland,
Australia were impaired due to the uncertainty associated with estimated future cash flows. The Company recorded a total
impairment charge of $7,414,091 at December 31, 2010 and January 1, 2010 for the full carrying value of the Mt. Gordon
water treatment plant and inventory.

The Company regularly reviews the carrying values of its long-lived assets, including inactive operations. Recoverability is
tested on a project by project basis by comparing current carrying values to fair values based on discounted future cash
flows. 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, as described above. Changes in market conditions, reserve estimates and other assumptions used in
these estimates may result in future write-downs or write-ups. Any write-ups are limited to previous write-downs less
notional amortization.

Estimated useful lives
Management estimates the useful lives of property, plant and equipment based on the period during which the assets are
expected to be available for use. The amounts and timing of recorded expenses for depreciation of property, plant and
equipment for any period are affected by these estimated useful lives. The estimates are reviewed at least annually and are
updated if expectations change as a result of physical wear and tear, technical or commercial obsolescence and legal or other
limits to use. It is possible that changes in these factors may cause significant changes in the estimated useful lives of the
Company’s property, plant and equipment in the future.

Financial Statements | 43

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

b) Decommissioning and restoration provisions
The Company’s estimates of obligations associated with the decommissioning and restoration of property, plant and
equipment could change as a result of changes in regulatory requirements and assumptions regarding the amount and timing
of future expenditures and recoveries. The Company’s estimates are reviewed annually for changes in regulatory
requirements, effects of inflation and changes in other estimates.

c) Financial instruments
Fair value
The fair values of cash and cash equivalents, short-term investments, trade receivables, receivable from joint venture
partners, net insurance proceeds receivable, and accounts payable and accrued liabilities approximate their carrying values
due to the short-term to maturities of these financial instruments.

The Company’s activities expose it to various risks, including credit risk, liquidity risk and market risks such as foreign currency
risk, commodity price risk and interest rate 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.

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 the market prices at the statement of
financial position date. Actual settlement prices are based on market prices of metals one to four months after shipment.
Future changes in market prices could require a material change in recognized amounts in future periods.

Estimated impairment
In 2010, the Company recorded an impairment charge of $8,282,650 for the full carrying value of the loan receivable from
NWM Mining Corporation with respect to the Lluvia de Oro agreement. Refer to note 6 for the partial reversal of the
impairment charge for the loan receivable.

The Company regularly reviews the carrying value of its financial assets to assess whether there is objective evidence that a
financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss. Based on the current review
of business conditions, management believes that there are no indicators of impairment of financial assets as at December
31, 2012. Changes in market conditions and other assumptions may result in future changes in carrying values.

Critical accounting judgments
a) Determination of functional currency
In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, the Company has determined that the functional
currency for each of its subsidiaries and joint venture interests is the local currency, with the exception of BioteQ Water
Mexico S.A. de C.V. where the functional currency is the Canadian dollar.

Interest in Joint Ventures

4.
Bisbee joint venture
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, USA. The plant recovers copper from low-grade wastewater. The plant was constructed by BioteQ and
commenced operations in August 2004.

44 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

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

Consolidated statement of financial position
Current assets
Non-current assets
Current liabilities

Consolidated statement of operations
Revenue
Plant and other operating costs (not including depreciation)
Depreciation
Net loss for the year

Dec 31, 2012
$

Dec 31, 2011
$

37,942
1,464,749
1,114

2012
$

806,581
(711,374)
(313,425)
(218,218)

33,199
1,757,026
1,214

2011
$

515,883
(667,798)
(306,534)
(458,449)

Dexing joint venture
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 technologies. 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 a potential five additional sites owned and operated by JCC. This first plant commenced
operations on April 1, 2008.

In 2010, the joint venture partners began construction of an ion exchange water treatment plant (the “Dexing Ion Exchange
Plant”) at the Dexing mine site to recover cobalt and nickel from wastewater using an innovative ion exchange based
technology developed by BioteQ. BioteQ’s share of the capital cost is expected to be approximately $1.3 million. Construction
of the plant was completed in mid-2011. From mid-2011, BioteQ and JCC have continued to perform testing and
commissioning services. During the commissioning process, the joint venture partners identified certain mechanical risks, and
certain process equipment did not yield the optimal level of operating performance.

The mechanical risks have been resolved and an implementation plan developed. With respect to the process equipment, the
joint venture partners have conducted significant testing and analysis and determined that an alternative approach utilizing
different materials would improve performance of the plant. The joint venture partners completed part of the required
modification work in Q4 2012 and the remaining work will be completed in Q1 2013. The joint venture partners expect the
plant will move into commercial production in Q2 2013.

BioteQ recorded an impairment charge of $394,214 related to the original process equipment that will no longer be used and
thus a corresponding reduction in the net book value of construction in process.

At December 31, 2012, BioteQ has recognized a total of $1,120,262, net of the government grant for $277,550, (2011 -
$1,804,471, net of $Nil) as construction in progress costs and has future commitments of $Nil (2011 - $300,000) towards the
final completion of the Dexing Ion Exchange Plant.

Financial Statements | 45

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

In September 2012, the joint venture partners committed a further $3.2 million to build an additional copper recovery plant
(ChemSulphide® technology – similar to the first water treatment plant at the Dexing mine). This will be the fourth plant
designed by BioteQ at JCC’s Dexing mine site. The joint venture partners will share equally in the capital costs of the plant and
in the profits generated from operations. BioteQ’s share of the capital cost is estimated to be $1.6 million, which will be
funded from existing cash reserves of the joint venture. Revenues from the operation of the new plant will be based on
copper recovered, identical to the joint venture’s existing copper recovery facility at JCC’s Dexing mine site.

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

Consolidated statement of financial position
Current assets
Non-current assets
Current liabilities
Long-term liabilities

Consolidated statement of operations
Revenue
Plant and other operating costs (not including depreciation)
Depreciation
General and administration
Interest income
Impairment of reagent
Income taxes
Net income for the year

Dec 31, 2012
$

Dec 31, 2011
$

4,042,314
2,283,201
724,726
146,140

2012
$

2,832,280
3,201,940
912,927
88,713

2011
$

3,354,867
(1,594,196)
(151,729)
(489,562)
10,619
(394,214)
(275,870)
459,915

3,583,328
(2,085,181)
(137,556)
(449,286)
48,396
-
(341,158)
618,543

5. Agreements
The Company currently has a number of revenue generating agreements in place with various customers. These contracts
relate to activities that include recurring water treatment operations, engineering services, design, construction, and
commissioning projects. During the year, the Company entered into the following new significant contracts.

Kinross agreements
During the year, the Company signed an agreement with Compania Minera Maricunga, a wholly-owned subsidiary of Kinross
Gold (“Kinross”) to provide technical support services for a SART Plant. The services under this contract were completed in
December 2012 and the revenue was recognized in full in 2012. Subsequent to year-end, the Company secured a second
contract with Kinross to extend the on-site technical support services until December 2013.

6. NWM Settlement and the Sale of the Lluvia de Oro Water Treatment Plant
In 2009, BioteQ entered into an agreement with NWM Mining Corporation (“NWM”) and a third party, Renvest Mercantile
Bancorp, to sell BioteQ’s copper recovery and cyanide regeneration plant in Sonora, Mexico, to NWM under a sales type
lease arrangement.

46 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

At December 31, 2010, the Company determined that there were significant indicators of impairment related to the carrying
value of the lease due to NWM’s failure to make the agreed upon lease payments and alleged deficiencies with the plant. The
Company recorded an impairment charge of $8,282,650 in 2010, comprising of $7,907,650 for the full carrying value of the
lease and $375,000 for estimated site removal costs.

On April 25, 2012, the Company reached a settlement agreement with NWM. Under the terms of the settlement agreement,
NWM will pay BioteQ $1.3 million in cash over 2013 and 2014. The first $200,000 payment from NWM was received on April
26, 2012. A second payment of $400,000 is due April 30, 2013. The final payment of $700,000 is due April 30, 2014. In the
event that NWM is sold, or sells or transfers its assets, the payments will become due immediately. If NWM fails to make the
specified payments, BioteQ has been provided with a $2 million consent to judgement that it can enforce against NWM. The
$2 million figure remains in place until the final payment is made to BioteQ.

On June 18, 2012, the Company agreed to sell a majority of equipment from its Lluvia de Oro plant to NWM for US $650,000.
BioteQ received the full payment on June 27, 2012.

In connection to these transactions, BioteQ has reversed a portion of the impairment charge on the Lluvia de Oro operation
that was recognized in 2010. The reversal consists of the $200,000 settlement amount that was received during the year, the
sale price of the plant equipment for US $650,000 and a reversal of accrued demobilization cost of US $375,000. Future
settlement payments will be recorded as reversal of impairment for the Lluvia de Oro operations in the period when the
funds are received.

Inventory

Inventory of chemicals and spare parts
Inventory of metal concentrate

Dec 31, 2012
$
45,201
44,756
89,957

Dec 31, 2011
$
43,304
4,870
48,174

Financial Statements | 47

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

Property, Plant and Equipment

Year ended December 31, 2011

Opening net book value
Additions

Disposals
Transferred from (to) capital assets

Depreciation
Write-down of capital assets

Foreign exchange translation

Closing net book value

At December 31, 2011
Cost

Water treatment
plants

Construction in
progress

Other (1)

Total

4,638,783
(102,459)

1,773,359
952,567

229,526
142,869

6,641,668
992,977

661,618

-
(661,618)

(18,775)
-

(565,665)
(151,147)

-
(345,014)

125,678

4,606,808

85,177

1,804,471

(98,373)
(58,404)

7,715

204,558

(664,038)
(554,565)

218,570

6,615,837

7,943,212

1,725,232

584,844

10,253,288

Accumulated depreciation, impairment and other

(3,336,404)

79,239

(380,286)

(3,637,451)

4,606,808

1,804,471

204,558

6,615,837

Year ended December 31, 2012
Opening net book value

Additions
Government grant (note 19)

Transferred from work in progress
Impairment of reagent (note 4)

Reversal of over-accrual of construction costs
Depreciation

Foreign exchange translation

Closing net book value

At December 31, 2012
Cost

4,606,808

55,769

-
-

(817,249)

1,050

3,846,378

1,804,471

576,149
(277,550)

204,558

124,084

36,510
(394,214)

-
-

(196,324)
-

-
(127,849)

(12,133)

1,536,909

(1,340)

199,453

6,615,837

756,002
(277,550)

36,510
(394,214)

(196,324)
(945,098)

(12,423)

5,582,740

7,998,981

1,469,803

686,732

10,155,516

Accumulated depreciation, impairment and other

(4,152,603)

67,106

(487,279)

(4,572,776)

3,846,378

1,536,909

199,453

5,582,740

In 2011, the Company recorded a write down of capital assets for $554,565 related to equipment that was redundant and
provided no future economic value to the company. The assets include site equipment that is no longer deemed to be
functional.

(1)

“Other” is comprised of pilot plants, furniture and fixtures, general equipment, computer equipment, and vehicles.

48 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

Long-term Incentive Plan

9.
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.

The measurement of the compensation expense and corresponding liability for these awards is based on the intrinsic value of
the award, and is recorded as a charge to the general and administration expense. At each balance sheet date, changes in the
Company’s payment obligation due to changes in the Company’s share price are recorded as a charge to the general and
administrative expense.

Effective January 1, 2012, the Company modified the compensation structure for the Board of Directors. As a result of this
modification, the Company ceased granting new DSUs to non-executive Board members. Instead, the Company has begun to
issue stock options to non-executive Board members as part of their total compensation.

As at December 31, 2012, there were 564,225 (December 31, 2011 – 564,225) DSUs outstanding. During the year, there were
no redemptions of DSUs.

10. Capital Stock and Warrants
Authorized: unlimited common shares without par value.

On January 22, 2010, the Company entered into an agreement with Newalta Corporation ("Newalta") to pursue joint projects
that apply the technology and operating expertise of both companies. In connection with this agreement, Newalta purchased
3,636,364 common shares of the Company, at an issue price of $1.10 per share, for total cash consideration of $4 million.
Each share purchased includes an additional warrant to purchase one common share of the Company at $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. At
December 31, 2012, none of the above warrants have been exercised.

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

Stock Options

Outstanding at January 1

2012

2011

Weighted
Average
Exercise Price
$
1.98

Options
Granted
(Quantity)
4,802,000

Weighted
Average
Exercise Price
$
2.13

Options exercised
Options granted
Options forfeited and expired
Outstanding at December 31

- -
1,555,000
(1,575,334)
4,781,666

0.19
3.68
0.89

0.56
0.29
1.63
1.98

Options
Granted
(Quantity)
6,148,001

(101,666)
930,000
(2,174,335)
4,802,000

Of the 4,781,666 outstanding options (2011 – 4,802,000), 2,606,635 options (2011 – 3,872,000) were exercisable.

Financial Statements | 49

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

The Company uses the Black-Scholes option pricing model in determining the fair value of the stock options. The following
summary provides information on the grants and inputs to the Black-Scholes model.

On February 1, 2012, the Company granted 250,000 stock options with an exercise price of $0.23 to an officer of the
Company. These options will vest over three years with one-third vesting each year on the anniversary of the grant date and
will expire in five years after the grant date. The fair value of this grant was determined at $0.13 per option. The significant
assumptions in the Black-Scholes model were: weighted average share price of $0.24 on the grant date, exercise price as
shown above, volatility of approximately 81%, an expected option life of 3 years and an annual risk-free interest rate of
1.09%.

On April 10, 2012, the Company granted 540,000 stock options with an exercise price of $0.19 to the directors of the
Company. These options will vest over three years with one-third vesting each year on the anniversary of the grant date and
will expire in five years after the grant date. The fair value of the grant was determined at $0.08 per option. The significant
assumptions in the Black-Scholes model were: weighted average share price of $0.18 on the grant date, exercise price as
shown above, volatility of approximately 73%, an expected option life of 3 years and an annual risk-free interest rate of
1.52%.

On May 24, 2012, the Company granted 60,000 options with an exercise price of $0.17 to a director of the Company. These
options will vest over three years with one-third vesting each year on the anniversary of the grant date and will expire in five
years after the grant date. The fair value of the grant was determined at $0.08 per option. The significant assumptions in the
Black-Scholes model were: weighted average share price of $0.17 on the grant date, exercise price as shown above, volatility
of approximately 74%, an expected option life of 3 years and an annual risk-free rate of 1.18%.

On November 22, 2012, the Company granted 705,000 options with an exercise price of $0.18 to the employees and officers
of the Company. These options will vest over three years with one-third vesting each year on the anniversary of the grant
date and will expire in five years after the grant date. The fair value of the grant was determined at $0.07 per option. The
significant assumptions in the Black-Scholes model were, weighted average share price of $0.17 on the grant date, exercise
price as shown above, volatility of approximately of approximately 71%, an expected option life of 3 years and an annual risk
rate of 1.16%. The Company adjusted for a forfeiture rate of 50,000 options as one of the officers left the Company
subsequent to the year-end.

50 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

Exercise Price
Range
$
0.01 to 0.50

Exercise price
per share
$

2012

2011

Expiry date

Total Options
(Quantity)

0.17
0.18
0.19
0.23
0.23
0.30

0.53
0.58
0.78

1.21

2.00

2.30

3.00
3.05

4.20
4.29
4.38

2017
2017
2017
2017
2016
2016

2014
2014
2015

2015

60,000
705,000
540,000
250,000
180,000
750,000
2,485,000

-
-
-
-
180,000
750,000
930,000

450,000
356,666
400,000
1,206,666

458,334
436,666
400,000
1,295,000

180,000

260,000

2012

50,000

2012

16,600

2013
2013

2012
2012
2012

905,000
5,000
910,000

-
-
-
-
4,781,666

990,000
20,000
1,010,000

1,190,400
25,000
25,000
1,240,400
4,802,000

0.51 to 1.00

1.01 to 1.50

1.51 to 2.00

2.01 to 2.50

3.01 to 3.50

4.01 to 4.50

Financial Statements | 51

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

11. Expenses by Nature

Changes in inventory
Raw materials and consumables used
Employee benefits
Professional fees
Other expenses

12. Wages and Employee Benefits Expense

Salaries and short-term benefits
Share and option-based payments

2012
$
(41,783)
4,336,609
5,612,448
1,117,796
1,122,043
12,147,113

2011
$
6,549
2,644,946
5,041,622
712,730
2,194,970
10,600,817

2012
$
5,612,448
129,607
5,742,055

2011
$
4,808,771
334,729
5,143,500

Key management compensation includes the Company’s directors and members of the Executive. Compensation awarded to
key management includes:

2012
$
1,334,012
136,841
1,470,853

2011
$
1,657,661
328,861
1,986,522

2012
$

2011
$

407,767

383,544

57,427
465,194

88,713
472,257

Salaries, fees and short-term benefits
Share and option-based payments

13.

Income taxes

Current tax:
Current tax on profits for the year

Deferred tax:
Origination and reversal of timing difference
Income tax expense

52 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

The statutory tax rate to income tax expense (recovery) was 25.0% (2011 – 26.5%) for the year-ended December 31, 2012.
The tax on the Company’s profits (losses) before tax differs from the amount that would arise using the weighted average tax
rate applicable to profits (losses) of the consolidated entities as follows:

Income tax recovery at statutory rates

Tax losses for which no deferred income tax asset was recognized
Non-deductible expenses
Tax rate differences
Other
Income tax expense

2012
$
(733,329)

1,459,155
40,209
(126,842)
(173,999)
465,194

2011
$
(1,223,822)

2,172,738
31,306
(258,171)
(249,794)
472,257

As at December 31, 2012, the Company has approximately $919,000 (2011 - $919,000) of research and development
expenditures available for unlimited carry-forward, and $86,000 (2010 - $86,000) of investment tax credits, expiring 2019 and
2020, all of which may be used to reduce future Canadian income taxes that are otherwise payable.

The Company has accumulated loss of $21,043,255 (2011 - $16,295,998) 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
2031
2032

$
1,438,574
2,284,202
2,416,351
1,628,919
1,951,879
2,372,749
965,964
4,086,003
3,898,614
21,043,255

In addition, the Company has available tax losses in other jurisdictions that total $16,625,634 (2011 - $16,282,315). 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.

Financial Statements | 53

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

As at December 31, 2012, the Company’s future tax assets and liabilities are as follows:

Deferred tax assets:

Intangible asset
Property, plant and equipment
Lease inducement
Unpaid compensation
Foreign tax credits
Research and development expense carry-forwards
Reserves
Non-capital losses carry-forwards

Deferred tax assets not recognized
Total future income tax assets

2012
$

2011
$

(9,678)
3,737,176
15,023
50,983
252,230
294,250
-
10,347,007
14,686,991
(14,686,991)

(17,421)
3,560,580
-
-
63,104
294,250
112,500
9,148,817
13,161,830
(13,161,830)
- -

No income tax benefits related to the future tax assets have been recognized in the accounts because of the uncertainty on
whether future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized.

Deferred tax liability:

Property, plant and equipment

The movement of the deferred income tax account is as follows:

At January 1
Charge to the statement of operations
At December 31

The movement in deferred income tax liability during the year is as follows:

At January 1, 2012
Charge to the statement of operations
At December 31, 2012

2012
$
146,140

2011
$
88,713

2012
$
88,713
57,427
146,140

2011
$
-
88,713
88,713

Accelerated tax
depreciation
$
88,713
57,427
146,140

54 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

14. Loss per Share
a) Basic
Basic earnings per share are calculated by dividing the net income attributable to owners of the parent company by the
weighted average number of common shares outstanding during the year.

Net loss attributable to owners of the parent ($)
Weighted average number of common shares outstanding
Basic loss per share ($)

2012
(3,366,743)
69,966,672
(0.05)

2011
(5,090,455)
69,949,120
(0.07)

b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding to assume
conversion of all dilutive potential common shares. The Company has two categories of dilutive potential common shares:
warrants and stock options. For both, a calculation is done to determine the number of shares that could have been acquired
at fair value (determined as the average market price of the Company’s outstanding shares for the period), based on the
exercise prices attached to the warrants and stock options. The number of shares calculated above is compared with the
number of shares that would be issued assuming exercise of the warrants and stock options.

During the year, the Company incurred a net loss and as a result all potential dilutive instruments became anti-dilutive.

Net loss attributable to owners of the parent ($)

Weighted average number of common shares outstanding
Adjustments for:
Warrants
Stock Options
Weighted average number of common shares outstanding
for diluted loss per share
Diluted loss per share ($)

2012
(3,366,743)

2011
(5,090,455)

69,966,672

69,949,120

-
-

69,966,672
(0.05)

69,949,120
(0.07)

15. Consolidated Statement of Cash Flow – Supplemental Information

Change in non-cash working capital items
Decrease in trade receivables
Decrease (increase) in receivable from joint venture partners
Decrease (increase) in net insurance receivable
Decrease (increase) in taxes recoverable
Decrease (increase) in inventory
Decrease (increase) in work in progress

Decrease (increase) in other receivable and prepaid expenses
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in deferred revenue
Increase in taxes payable
Change in non-cash working capital items

2012
$
283,654
22,562
637,099
112,758
(41,783)
165,954

(83,932)
(682,613)
(248,215)
188,825
354,309

2011
$
12,637
(2,082)
(18,851)
(138,420)
6,549
(402,883)

18,380
1,114,348
340,185
63,105
992,968

Financial Statements | 55

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

16. Segment Reporting
a) Operating segment - the Company has one operating segment, being principally to build process plants and earn

revenues from recovered metals, treatment fees, plant sales, engineering fees and process licenses.

b) Products and services - the Company’s sources of revenues are as follows:

Metal recovery
Treatment fees
Engineering services and plant sales

2012
$
4,161,448
1,787,400
3,475,331
9,424,179

2011
$
4,098,797
1,801,898
1,513,102
7,413,797

c) Geographic information – The Company’s revenue, property, plant and equipment, and intangible asset by geographic

area are as follows:

Revenue

Canada
U.S.
China
Chile
Other

Property, plant and equipment

Canada
U.S.
China
Chile

2012
$

2011
$

3,261,217
818,903
3,354,867
1,818,718
170,474
9,424,179

1,806,398
590,555
3,582,913
592,891
841,040
7,413,797

Dec 31, 2012
$

Dec 31, 2011
$

847,338
1,464,749
1,719,069
14,675
4,045,831

1,214,653
1,757,026
3,631,102
13,056
6,615,837

The Company’s intangible asset resides in Canada.

d) Major customers - Revenues were derived from customers that individually accounted for greater than 10% of total

revenues, as follows:

Customer A
Customer B
Customer C
Customer F

56 | Financial Statements

2012
$
2,855,423
3,354,867
479,466
1,239,909
7,929,665

2011
$
1,679,969
3,582,913
121,929
317,300
5,702,111

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

17. Related Party Transactions
The Company’s Bisbee joint venture sells all of the metal concentrate recovered in its operations to the joint venture partner,
FMI. For the year-ended December 31, 2012, the Bisbee joint venture’s sales to FMI were in the amount of $806,581 (2011 -
$515,883). As at December 31, 2012, the amount receivable from FMI was $67,814 (2011 - $90,814)

The Company’s Dexing joint venture sells all of the metal concentrate recovered in its operations to the joint venture partner,
JCC. For the year-ended December 31, 2012, the Dexing joint venture’s sales to JCC were in the amount of $3,354,867 (2011 -
$3,582,913). As at December 31, 2012, the amount receivable from JCC was $91,910 (2011 - $91,472)

During the year, BioteQ provided engineering services to a company whose key management personnel is also director of
BioteQ for an amount of $41,924 (2011 - $Nil).

All related party sales are recorded at the fair market value of the metal prices on the date of sale net of transportation and
refining costs at standard industry rates. Sales and other transactions were recorded at the exchange amount.

18. Financial Instruments and Fair Values
Measurement categories
As explained in Note 2, financial assets and liabilities have been classified into categories that determine their basis of
measurement and, for items measured at fair value, whether changes in fair value are recognized in the statement of
operations or comprehensive income. Those categories are: fair value through profit or loss; loans and receivables; available
for sale assets; and for liabilities, amortized cost. The following table shows the carrying values of assets and liabilities for
each of these categories at December 31, 2012 and 2011.

Assets
Loan and receivables
Cash
Short-term investments
Trade receivables
Receivable from joint venture partners
Net insurance proceeds receivable

Liabilities
Amortized cost
Trade payables

Dec 31, 2012
$

Dec 31, 2011
$

5,594,154
1,934,572
1,380,672
159,724
-
9,069,122

4,774,970
4,486,097
1,664,326
182,286
637,099
11,744,778

533,435

479,624

The carrying values of cash, short-term investments, trade receivables, receivable from joint venture partners, net insurance
proceeds receivable and trade payables approximately their fair value.

As shown in the table above, the Company’s financial instruments are classified as loans and receivables and financial
liabilities at amortized cost. As a result, these instruments were not measured at fair value through profit and loss.

Financial Statements | 57

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

Financial risk factors
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 finance and accounting department.
The Company’s risk management policies and procedures have not changed from 2011.

Interest rate risk

a)
Short-term investments are invested in separate investments with varying maturities exposing the Company to interest rate
risk on these financial instruments. All short-term investments have remaining maturities of less than one year. The
recognized interest income of the Company’s short-term investments for the year ended December 31, 2012 was $48,602
(2011 - $122,418). It is estimated that net income (loss) would fluctuate by $2,665 (2011 - $41,000) 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 and trade receivables. As the
Company does not utilize credit derivatives or similar instruments, the maximum exposure to credit risk is the full carrying
value of the financial instrument. The Company minimizes the credit risk 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 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, 2012, the
allowance for doubtful accounts balance was $nil (2011 - $nil). In addition, BioteQ recorded a bad debt expense of $nil during
the year ended December 31, 2012 (2011 - $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.

As of December 31, 2012, there were tax related receivables of $443,500 (2011- $516,021) which accounted for 32% (2011 -
31%) of all trade receivables. Of this balance, $431,854 (2011 - $509,074) is related to Mexican VAT tax, which was paid on
construction work on the water treatment plant in Mexico. The Company has completed all the necessary tax filings and
believes that the IVA refund will be collected.

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 part of the Company’s revenues is 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 loss of
$46,243. For the year ended December 31, 2012, the Company reported a foreign exchange gain (loss) of $33,915 (2010 -
$(204,915)).

58 | Financial Statements

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011

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, 2012, the Company’s accounts payable and accrued liabilities were
$1,976,636 (2011 - $2,659,249), 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, 2012, the Company had copper sales of $67,490 (2011 - $82,054) that were
subject to commodity price risk. If copper prices change by 1% against the value recorded, the impact would result in either
an increase or decrease in revenue of $675 (2011 - $821).

19. Government Assistance
In March 2012, the Jiangxi Provincial Development and Reform Commission in China announced that the Dexing joint
venture’s new ion exchange plant was the recipient of a $550,100 (RMB $3,500,000) government grant. The Dexing joint
venture received the full amount of the grant in April 2012 and May 2012. As the Dexing joint venture fulfilled all conditions
of receiving the grant, the Company recorded its 50% share of $277,550 as a reduction to the cost of construction in progress.

20. Contingency
In 2008, the Company completed the construction of a water treatment plant at the Mt. Gordon Mine site, an active copper
mine in Queensland, Australia. The mine is owned by Aditya Birla Minerals (“Birla”), a large metals conglomerate based in
India. The Company provided for all capital costs and expected to earn revenue from metals recovered.

In January 2009, the Mt. Gordon mine site experienced heavy flooding during a severe rain storm. A portion of the
Company’s plant and equipment were damaged and the Company suspended its operating agreement under the force
majeure provisions of the contract (note 3).

In 2010, the Company determined that the Mt. Gordon mine site is unlikely to resume operations. As a result, under the
terms of its insurance policy, the Company elected to receive payment for the indemnity value of the equipment and
inventory. At December 31, 2011, the Company recorded insurance proceeds receivable of $637,099 (AU $614,131). The
Company received the full amount of the insurance proceeds in February 2012.

In 2010, Birla commenced legal action against the Company alleging that the Company breached and repudiated the original
agreement to operate the water treatment plant. Birla is seeking unspecified financial damages. The Company does not
believe the allegations have merit and is vigorously defending its position. In March 2011, the Company filed a defense
against Birla’s claim and concurrently filed a counterclaim against Birla for breach of contract related to water treatment
operations at the Mt. Gordon site. The litigation remains in progress. As at December 31, 2012, the Company did not record
any contingency for the Birla lawsuit.

Financial Statements | 59

BioteQ Environmental Technologies Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010

21. Commitments
In 2011, the Company’s Board of Directors appointed a new Chief Executive Officer (“CEO”). The former CEO retired from the
Company on October 10, 2011 (“Retirement Date”). Upon the Retirement Date, the Company began making equal monthly
payments of $21,875 over 24 months to the former CEO for total payments of $525,000. During the payment period, the
predecessor CEO may elect to accelerate any remaining installment payments in a lump sum. Accordingly, this entire payable
amount was recorded on the Company’s financial statements for 2011. As at December 31, 2012, the remaining payable
amount was $203,931 (2011 - $466,431).

In March 2012, the Company entered into a lease agreement for a new office premise. The lease commenced on October 1,
2012 with a term of five years.

In July 2012, the Company renewed the lease for the laboratory facility and storage space. The renewal commenced on
September 1, 2012 with a term of two years.

The Company has commitments of $895,115 under operating leases for office and laboratory premises and for office
equipment, as follows:

2013
2014
2015
2016
2017

$
213,976
207,194
169,678
173,867
130,400
895,115

22. Capital Management
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost
of capital.

The Company 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.

23. Subsequent Event
Subsequent to the year-end, the Dexing joint venture received US $50,000 from a supplier for a refund for certain equipment
that was impaired (note 4). The supplier will also provide a second amount of US $50,000 in 2013. Further, an additional
amount of refund may be available depending on the sale price of the original equipment to other third parties. The
Company will record its 50% share of the refunds against the impairment charge in the period when the cash is received.

60 | Financial Statements

Board of Directors

George W. Poling 2,4 PhD
Chairman of the Board of Directors
Independent Consultant, Professor Emeritus
University of British Columbia
Vancouver, British Columbia

C. Bruce Burton 1,3 BBA, MBA, CA, ICD.D
Independent Businessman
Toronto, Ontario

Christopher A. Fleming 3,4 PhD
Senior Metallurgist Consultant
SGS Minerals Services
Lakesfield, Ontario

Management Team

Peter Gleeson 1,3
Independent Businessman
Seattle, Washington

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

Ronald Sifton 1,2 CA, ICD.D
Independent Businessman
Calgary, Alberta

Jonathan Wilkinson MA
Chief Executive Officer
BioteQ Environmental Technologies
Vancouver, British Columbia

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

Jonathan Wilkinson MA
Chief Executive Officer

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

David Kratochvil PhD, PEng
President & Chief Technology Officer

Andrew Hall MASc, MBA
Vice President, Sales & Marketing

Corporate Information

Investor Relations
Tel: 1 800 537 3073
investor@bioteq.ca

Legal Counsel
McCarthy Tétrault LLP
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 9, 2013
Vancouver Marriott Pinnacle Downtown Hotel
1128 West Hastings Street
Vancouver, British Columbia V6E 4R5

BioteQ Environmental Technologies
Suite 1000 - 1050 West Pender Street
Vancouver BC Canada V6E 3S7
t 604.685.1243 f 604.685.7778

tf 1.800.537.3073
investors@bioteq.ca www.bioteq.ca