BioteQ Environmental Technologies Inc.
Consolidated Financial Statements
For the year ended December 31, 2015 and 2014
INDEPENDENT AUDITORS' 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 statements of financial position as at December 31,
2015, and the consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and
cash flows for the year then ended, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for 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.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit 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 auditors’ 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 obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of BioteQ Environmental Technologies Inc. and its subsidiaries as at December 31, 2015, and their financial
performance and cash flows for the year then ended in accordance with International Financial Reporting
Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 2(b) in the consolidated financial statements which
states that BioteQ Environmental Technologies Inc. incurred significant loss from operations, negative cash flows
from operating activities and has an accumulated deficit. This, along with other matters described in Note 2(b),
indicates the existence of a material uncertainty that may cast significant doubt about the ability of BioteQ
Environmental Technologies Inc.to continue as a going concern.
Other Matter
The consolidated financial statements of BioteQ Environmental Technologies Inc. and its subsidiaries as at and
for the year ended December 31, 2014 were audited by another auditor who expressed an unmodified opinion
on those statements in their report date March 26, 2015.
April 19, 2016 Chartered Professional Accountants
Vancouver, BC
BioteQ Environmental Technologies Inc.
Consolidated Statements of Financial Position
As at December 31, 2015 and 2014
Assets
Current assets
Cash and cash equivalents
Short‐term investments
Trade and other receivables
Receivable from joint venture
Inventory and work in progress
Prepaid and other deposits
Total current assets
Non‐current assets
Plant and equipment
Investment in joint venture
Deposits
Total non‐current assets
Total assets
Liabilities
Current liabilities
Trade payable and accrued liabilities
Income taxes payable
Deferred revenues
Deferred benefits
Current portion deferred lease inducement
Total current liabilities
Non‐current liabilities
Deferred lease inducement
Total liabilities
Shareholders’ Equity
Capital stock and warrants
Contributed surplus
Accumulated other comprehensive income (loss)
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
Going concern (note 2(b))
Commitments (note 21)
Approved and authorized by the Board of Directors
note
6
7
8
9
10
7, 11
20
12
12, 14
December 31
2015
$
December 31
2014
$
1,408,890
‐
568,204
116,165
61,455
130,122
2,284,836
432,526
4,708,976
24,601
5,166,103
915,681
373,991
847,077
228,201
25,472
143,380
2,533,802
603,168
5,033,483
24,601
5,661,252
7,450,939
8,195,054
929,579
152,550
254,100
65,954
11,430
1,413,613
935,867
152,740
51,323
133,089
11,430
1,284,449
8,572
20,002
1,422,185
1,304,451
54,719,814
10,033,768
456,982
(59,181,810)
6,028,754
56,253,254
8,446,809
(59,930)
(57,749,530)
6,890,603
7,450,939
8,195,054
Signed “Peter Gleeson”
Peter Gleeson, Director
Signed “David Kratochvil”
David Kratochvil, Director
The accompanying notes are an integral part of these consolidated financial statements.
1
BioteQ Environmental Technologies Inc.
Consolidated Statements of Loss and Comprehensive Loss
For the years ended December 31, 2015 and 2014
Revenue
Plant and other operating costs (excluding depreciation) 15
Operating margin before depreciation
note
15
15
12
9
10
18
20
General and administration
Sales and development
Stock‐based compensation (recovery) expense
Depreciation of plant and equipment
Amortization of intangible asset
Share of results of equity accounted joint venture
Loss from operations and joint venture
Finance income, net
Foreign exchange gain
Other income, net
Loss before income taxes
Income tax expense
Net loss for the year
Other comprehensive income
Items that will be reclassified subsequently to loss
Translation gain on foreign operations
Other comprehensive income for the year
Comprehensive loss for the year
Net loss per share
Basic and diluted
Weighted average number of shares outstanding
Basic and diluted
Year ended December 31
2014
$
2015
$
3,647,029
2,333,308
1,313,721
2,031,307
1,176,928
(19,218)
220,723
‐
(189,378)
(1,906,641)
13,479
258,659
344,868
3,621,952
1,930,605
1,691,347
2,496,985
1,455,567
41,286
224,078
7,738
(701,149)
(1,833,158)
13,563
56,829
200,400
(1,289,635)
(142,645)
(1,562,366)
(87,556)
(1,432,280)
(1,649,922)
516,912
398,144
516,912
398,144
(915,368)
(1,251,778)
(0.02)
(0.02)
93,966,672
92,388,589
The accompanying notes are an integral part of these consolidated financial statements.
2
BioteQ Environmental Technologies Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2015 and 2014
Year ended December 31
2015
$
Number of
Shares
Year ended December 31
2014
$
Number of
Shares
note
Capital stock
Balance, beginning of the year
Issued in rights offering, net of financing costs of
$236,185
93,966,672
54,719,814
69,966,672
53,755,999
‐
‐
24,000,000
963,815
Balance, end of the year
93,966,672
54,719,814
93,966,672
54,719,814
Warrants
Balance, beginning of the year
Issued for financing costs in rights offering
Expired warrants
Balance, end of the year
Contributed surplus
Balance, beginning of the year
Share‐based payments
Warrants issued for financing costs in rights offering
Expired warrants
Settlement of convertible loan
Balance, end of the year
Accumulated other comprehensive income (loss)
Balance, beginning of the year
Other comprehensive income for the year
14
14
12
14
14
13
Balance, end of the year
Accumulated deficit
Balance, beginning of the year
Net loss for the year
Balance, end of the year
Total shareholders’ equity
Balance, beginning of the year
Share‐based payments
Issued in rights offering, net of financing costs
Settlement of convertible loan
Net loss for the year
Other comprehensive income for the year
Balance, end of the year
1,533,440
‐
(1,533,440)
‐
8,446,809
42,524
‐
1,533,440
10,995
10,033,768
(59,930)
516,912
456,982
(57,749,530)
(1,432,280)
(59,181,810)
6,890,603
42,524
‐
10,995
(1,432,280)
516,912
6,028,754
1,513,417
20,023
‐
1,533,440
8,385,196
81,636
(20,023)
‐
‐
8,446,809
(458,074)
398,144
(59,930)
(56,099,608)
(1,649,922)
(57,749,530)
7,096,930
81,636
963,815
‐
(1,649,922)
398,144
6,890,603
The accompanying notes are an integral part of these consolidated financial statements.
3
BioteQ Environmental Technologies Inc.
Consolidated Statements of Cash Flow
For the years ended December 31, 2015 and 2014
Operating activities
Net loss for the year
Items not affecting cash
Income tax expense
Net gain from legal settlement
Bad debt (recovery) expense
Share of results of equity accounted joint venture
Gain on settlement of convertible loan
Interest income
Gain on disposal of equipment
Depreciation of plant and equipment
Amortization of intangible asset
Amortization of deferred lease inducement
Net foreign exchange gain
(Recovery) expense recognized in respect
of stock‐based compensation
Change in non‐cash working capital items
Cash used in operations
Income taxes paid
Net cash used in operating activities
Investing activities
Purchase of plant and equipment
Proceeds from disposal of equipment
Net distribution received from joint venture
Purchase of short‐term investments
Proceeds from sale of short‐term investments
Interest received
Net cash provided by investing activities
Financing activities
Financing initiation costs
Interest paid
Net proceeds from rights offering
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash
equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
note
18
18
10
18
18
9
12
21
20
9
9
10
13
13
Year ended December 31
2014
$
2015
$
(1,432,280)
(1,649,922)
142,645
‐
(67,848)
(189,378)
(8,911)
(13,479)
‐
220,723
‐
(11,430)
(215,849)
(19,218)
(1,595,025)
655,909
(939,116)
(142,645)
(1,081,761)
(50,804)
800
1,195,917
‐
373,991
89,180
1,609,084
(7,302)
(46,500)
‐
(53,802)
87,556
(49,918)
556,451
(701,149)
‐
(13,563)
(6,933)
224,078
7,738
(11,430)
(19,012)
41,286
(1,534,818)
105,016
(1,429,802)
(87,556)
(1,517,358)
(58,320)
4,492
660,767
(373,991)
‐
12,634
245,582
‐
‐
1,015,635
1,015,635
19,688
(21,155)
493,209
915,681
(277,296)
1,192,977
1,408,890
915,681
The accompanying notes are an integral part of these consolidated financial statements.
4
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
BioteQ Environmental Technologies Inc. and its subsidiaries (together “BioteQ” or the “Company”) is a service provider
specializing in treating mining wastewater and specific hydrometallurgical streams while achieving compliance and
introducing sustainability into water management. The Company generates its revenues from three main sources: metal
recovery, treatment fees, and engineering services and plant sales.
BioteQ is a publicly listed company incorporated and domiciled in Canada with limited liability under the legislation of the
Province of British Columbia. The Company’s shares are listed on the TSX Venture Exchange under the symbol BQE. The
address of its registered office is Suite 1000 ‐ 1050 West Pender Street, Vancouver, BC.
2. BASIS OF PREPARATION
a. Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board ("IASB"), effective as of December 31, 2015.
The Company’s Board of Directors approved these consolidated financial statements on April 19, 2016.
b. Going concern assumption
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, 2015, the Company incurred a net loss of $1,432,280 (2014 – $1,649,922) and used net
cash in operating activities of $1,081,761 (2014 – $1,517,358). The Company was able to complete a cash dividend from its
joint venture for net proceeds of $1,195,917 which contributed to a net increase in cash and short‐term investments of
$119,218 (2014 – increase of $96,695). The Company had a working capital position of $871,223 (2014 – $1,249,353) and a
cumulative deficit of $59,181,810 (2014 – 57,749,530) as at December 31, 2015.
Currently, based on its planned expenditures and expected cash flows, the Company will need to secure new sources of
working capital to continue operations beyond approximately one quarter. Management’s plan is to actively work with the
Company’s Board to secure sources of funds, including possible equity and debt financing options, while at the same time
focus on increasing revenue and exercise careful cost control to sustain operations. If necessary, the Company will curtail
discretionary spending. The Board believes that there is a reasonable expectation that the Company will be successful in
obtaining the necessary financing resolution to address its working capital needs and for this reason believes it is appropriate
to continue to adopt the going concern basis in preparing these consolidated financial statements.
The continuation of the Company as a going concern is dependent upon its ability to raise additional financing and ultimately
attain and maintain profitable operations. This assumes that the Company is able to successfully obtain financing to fund its
working capital needs, continue successful operations at its Raglan and Dexing joint venture operations, maintain or further
decrease operating expenses, successfully repatriate funds from its Dexing joint venture, and secures and completes new
sales contracts.
Historically, the Company has not yet realized profitable operations and has relied on non‐operational sources of financing to
fund its operations. Whether and when the Company can attain profitability and positive cash flows is uncertain. While the
Company has been successful in securing financing in the past, there is uncertainty whether financing will be available in the
future on terms acceptable to the Company. Accordingly, there is a material uncertainty that may cast significant doubt upon
the Company’s ability to continue as a going concern. The consolidated financial statements do not include adjustment to the
recoverability and classification on recorded assets and liabilities and related expenses that might be necessary should the
Company be unable to continue as a going concern. If the going concern assumption is not appropriate, material
adjustments to the financial statements could be required.
5
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
c. Basis of measurement
These consolidated financial statements have been prepared under the historical cost basis except for deferred share units
and restricted share units, which are measured at fair value through profit or loss.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies as set out below have been consistently applied to all periods presented in these
consolidated financial statements, unless otherwise stated. The Company did not adopt any new accounting standard
changes or amendments effective January 1, 2015 that had a material impact on these consolidated financial statements.
Certain prior year comparative figures have been reclassified to comply the with current year’s presentation.
a) Basis of consolidation
These consolidated financial statements incorporate the financial statements of the Company, and the entities controlled by
the Company, and the share of net assets and net earnings or loss in entities which the Company is a joint venture partner.
The principal subsidiaries and joint ventures of the Company are as follows:
Entity
Biomet Mining Corporation
BioteQ Water (Australia) Pty Ltd.
BioteQ Water (Chile) SpA
BioteQ Water Mexico S.A. de C.V.
BioteQ (Shanghai) Water
Treatment Technologies Co. Ltd.
JCC‐BioteQ Environmental
Technologies Co. Ltd.
i)
Subsidiaries
Ownership
type
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Method of
accounting
Consolidated
Consolidated
Consolidated
Consolidated
Country of
incorporation
and operation
Canada
Australia
Chile
Mexico
Ownership
interest as at
Dec. 31, 2015
100%
100%
100%
100%
Ownership
interest as at
Dec. 31, 2014
100%
100%
100%
100%
Subsidiary
Consolidated
China
Joint venture
Equity
China
100%
50%
0%
50%
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. The financial statements of a subsidiary are included in the consolidated financial statements from the date that
control commences until the date that control ceases. Inter‐company balances and transactions, and any unrealized income
and expenses arising from inter‐company transactions, are eliminated in preparing the consolidated financial statements.
ii)
Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the
equity method of accounting. Under the equity method, an investment in a joint venture is initially recognized in the
consolidated statement of financial position at cost and adjusted thereafter to recognize the Company’s share of the profit or
loss and other comprehensive income of the joint venture. When the Company’s share of losses in the joint venture exceeds
the Company’s interest in that joint venture, the Company discontinues recognizing its share of further losses. Additional
losses are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments
on behalf of the joint venture. If the joint venture subsequently reports profit, the Company resumes recognizing its share of
those profits only after its share of the profits equals the share of losses not recognized.
When the Company transacts with a joint venture, profits or losses resulting from the transactions with the joint venture are
recognized in the Company’s consolidated financial statements only to the extent of interests in the joint venture that are not
related to the Company.
6
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
b) Foreign currency translation
i)
Functional and presentation currency
Items included in the financial statements of each consolidated entity in BioteQ Environmental Technologies Inc.’s 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 (“CAD”), which is the Company’s presentation
currency.
For the purposes of presenting these consolidated financial statements, entities including joint ventures that have a
functional currency different from that of BioteQ Environmental Technologies Inc. (“foreign operations”) are translated into
CAD 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).
Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.
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.
ii)
Transactions and balances
In preparing the financial statements of each individual BioteQ entity, transactions in currencies other than the entity’s
functional currency (“foreign currency”) are recognized at the rates of exchange prevailing at the dates of the transactions. At
the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing
at that date. Non‐monetary items carried at fair value that are denominated in foreign currencies are retranslated at the
rates prevailing at the date when the fair value was determined. Non‐monetary items that are measured in terms of historical
cost in a foreign currency are not retranslated.
Exchange differences on monetary items are recognized in profit or loss in the period in which they arise except for the
exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither
planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized
initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items.
c) Cash and cash equivalents
Cash consists of unrestricted bank deposits, some of which are interest‐bearing. Cash equivalents consist of term deposits
with original maturities of less than 91 days and unrestricted security deposits held at the Company’s banks which can readily
be converted to cash.
d) Short‐term investments
Short‐term investments consist of bankers’ acceptances with original maturities of greater than three months. The
investments are carried on the statement of financial position at amortized costs using the effective interest method and
include interest accrued at the end of the year.
Inventory and work in progress
e)
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
7
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
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 represents the costs that the Company incurred for projects that are not completed at the statement of
financial position date. This amount includes both direct materials and direct labour costs.
f) Plant and equipment
i)
Recognition and measurement
Plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.
Historical cost includes expenditure that is directly attributable to the acquisition of the items. The cost of self‐constructed
plant and equipment includes the costs of materials, costs directly attributable to bringing the assets to a working condition
for their intended use such as labor, professional fees and, for qualifying assets, borrowing costs capitalized in accordance
with the Company’s accounting policy. Self‐constructed assets are classified to the appropriate categories of plant and
equipment and subject to depreciation when ready for their intended use. If significant components of a plant or equipment
have different useful lives, then they are accounted for as separate items (major components) of plant and equipment.
ii)
Subsequent measurement
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be
measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged
to the income statement during the financial period in which they are incurred.
An item of plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of plant and equipment
is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit
or loss.
iii) Depreciation
Depreciation of plant and equipment is calculated using the straight‐line method to allocate their cost net of their residual
values, over the shorter of their estimated useful lives and the contract life. Depreciation commences when the asset is fully
constructed and available for use. Depreciation methods, useful lives and residual values are reviewed at each financial year
end and adjusted prospectively, if appropriate. Depreciation categories and useful lives for items included in plant and
equipment are as follows:
Asset
Computer equipment
Office and lab equipment
Pilot plants
Water treatment plants
g) Financial Instruments
i)
Fair value estimation
Estimated useful life
3 years
5 years
3 to 5 years
Shorter of contract life or 10 to 20 years
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, regardless of whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the
characteristics of the asset or liability if market participants would take those characteristics into account when pricing the
asset or liability at the measurement date.
In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree
8
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
The Company classifies non‐derivative financial assets into the following categories: financial assets at fair value through
profit or loss (“FVTPL”), held‐to maturity financial assets, loans and receivables and available‐for‐sale financial assets. The
classification depends on the purpose for which the financial assets were acquired.
The Company classifies non‐derivative financial liabilities as either financial liabilities at FVTPL or other financial liabilities.
Management determines the classification of financial assets and liabilities at initial recognition.
ii) Non‐derivative financial assets and financial liabilities – recognition and de‐recognition
The Company initially recognizes loans and receivables and debt securities issued on the date when they are originated. All
other financial assets and financial liabilities are initially recognized on the trade date. All regular way purchases or sales of
financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales
of financial assets that require delivery of assets within the time frame established by regulation or convention in the
marketplace.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of
ownership and does not retain control over the transferred asset. Any interest in such derecognized financial assets that is
created or retained by the Company is recognized as a separate asset or liability.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when,
and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to
realize the asset and settle the liability simultaneously.
iii) Non‐derivative financial assets – measurement
Loans and receivables are non‐derivative financial assets with fixed or determinable payments that are not quoted in an
active market. Loans and receivables are initially recognized at the amount expected to be received plus any directly
attributable transaction costs, 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 impairment. Interest income is
recognized by applying the effective interest rate, except for short‐term receivables when the effect of discounting is
immaterial.
The Company’s loans and receivables comprise cash and cash equivalents, short‐term investments, trade and other
receivables, and receivable from joint ventures. No financial asset was designated as FVTPL or as available for sale as at
December 31, 2015 and 2014.
iv) Non‐derivative financial liabilities – measurement
Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at
FVTPL. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re‐measurement recognized in
profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is
included in the other gains and (losses) line item.
9
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
The Company has classified the provisions related to the Company’s Deferred Share Units (“DSU”) and Restricted Share Units
(“RSU”) as at FVTPL.
Other financial liabilities are initially recognized at the fair value less any directly attributable transaction cost. Subsequent to
initial recognition, these liabilities are measured at amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments, including all fees and points paid or received that form an integral part of the effective interest rate, transaction
costs and other premiums or discounts, through the expected life of the financial liability or a shorter period where
appropriate, to the net carrying amount on initial recognition. The Company classifies its trade and other payables as other
financial liabilities.
v)
Share capital
The Company’s ordinary common shares are classified as equity. Incremental costs directly attributable to the issue of
ordinary shares, warrants and stock options, net of any tax effects, are recognized as a deduction from equity.
h)
Impairment
i)
Tangible and intangible assets other than goodwill
The Company’s 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.
ii) Non‐derivative financial assets measured at amortized cost
The Company considers evidence of impairment for these assets at both an individual asset and a collective level. All
individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively
assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually
significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with
similar risk characteristics.
In assessing collective impairment, the Company uses historical information on the timing of recoveries and the amount of
loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to
be greater or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated
future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected
in an allowance account. When the Company considers that there are no realistic prospects of recovery of the asset, the
10
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is
reversed through profit or loss.
iii) Equity‐accounted investment in joint venture
An equity accounted investment in joint venture is reviewed for indication of impairment at each financial position date.
When necessary, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36
Impairment of assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to
sell) with its carrying amount. An impairment loss is recognized in profit or loss and is reversed if there has been a favourable
change in the estimates used to determine the recoverable amount.
Provisions
i)
A provision is a liability of uncertain timing or amount. Provisions are recognized when: (i) the Corporation has a present legal
or constructive obligation as a result of past exploration, development or production events; (ii) it is probable that an outflow
of resources will be required to settle the obligation; and (iii) and the amount has been reliably estimated. Provisions do not
include any additional obligations which are expected to arise from future disturbance.
The Company estimates liabilities for statutory, contractual, constructive and legal obligations associated with the
decommissioning and restoration of plant and equipment. 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.
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. For the year ended December 31, 2015 and 2014, the Company did not
record any decommissioning obligation or rehabilitation costs.
j) Revenue Recognition
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.
i)
Treatment fees revenue
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.
ii) Engineering and lab services
The above criteria are generally met as services are performed. Engineering services include plant design, construction,
piloting, commissioning and operations. 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 engineering and lab services by either the percentage of completion or
completed contract method depending on the specific circumstances of the individual contracts.
iii) Metal recovery revenue
The above criteria are generally met when the title of the metal concentrate passes to the customer. Revenue from metal
recovery is recorded at the fair value, based on prevailing market prices adjusted in accordance with agreed terms.
11
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
k) Government grant
Grants from the governments are recognized at their fair value where there is a reasonable assurance that the grant will be
received and the group will comply with all attached conditions. Government grants are recognized as follows:
Grants relating to plant and equipment are included in non‐current liabilities as deferred government grants and
are credited to the statement of profit or loss on a straight line basis over the expected lives of the related assets.
Grants that compensate the Company for expenses incurred are deferred and recognized in the statement of profit
or loss on a systematic basis in the periods in which the intended expenses are recognized.
l)
Employee benefits
i) Bonus plans
The Company recognizes a liability and an expense for bonuses based on a formula that takes into consideration the key
performance indicators of the Company. The Company recognizes a provision where contractually obliged or where there is a
past practice that has created a constructive obligation.
ii)
Defined contribution plans
Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in profit or loss in
the periods during which the related service is provided by the employees.
iii) Termination benefits
Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination
benefits at the earlier of the following dates:
When the Company can no longer withdraw the offer of those benefits; and
When the entity recognizes costs for a restructuring that is within the scope of IAS 37 and involves the payment of
termination benefits.
Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.
m) Share‐based payment
The Company maintains a RSU plan and a DSU plan for employees, and a stock option plan for employees and directors.
Cash‐settled share‐based payments, which include RSUs and DSU, are measured initially at the fair value and such liabilities
are recognized as an obligation at the grant date. At the end of each reporting period until the liability is settled, and at the
date of settlement, the fair value of the liability is re‐measured, with any changes in fair value recognized in profit or loss for
in the period.
Equity‐settled share‐based payments, which include the stock option plan, are measured at the fair value of the equity
instruments at the grant date. Fair value is measured using the Black‐Scholes pricing model. The fair value determined at the
grant date of the equity‐settled share‐based payments is expensed on a straight‐line basis over the vesting period, based on
the Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of
each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of
the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the
revised estimate, with a corresponding adjustment to the contributed surplus.
Equity‐settled share‐based payment with parties other than employees are measured at the fair value of the goods or
services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value
of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the
service.
12
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Income tax
n)
The Company follows the asset and liability method of accounting for income taxes. Income tax is recognized in profit or loss,
except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the
current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current
tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting
for the business combination. Income tax comprises of two components: current and deferred.
i) Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before taxes as reported in
the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are
taxable or deductible in other years and items that are never taxable or deductible. Current tax comprises the expected tax
payable or receivable on the taxable profit for the year and any adjustment to tax payable or receivable in respect of previous
years. Current tax also includes any tax arising from dividends. The Company’s current tax is calculated using tax rates that
have been enacted or substantively enacted by the end of the reporting period.
ii) Deferred tax
Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, unused tax losses and other income tax deductions. Deferred tax liabilities are generally
recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable profits will be available against which those deductible temporary
differences can be utilized.
Deferred tax assets and liabilities are not recognized for:
Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit or loss;
Temporary differences related to investments in subsidiaries, associates and joint arrangements, and interests in joint
ventures, to the extent that the Company is able to control the timing of the reversal of the temporary differences and it
is probable that they will not reverse in the foreseeable future; and
Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the
extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be
realized. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company
expects at the reporting date to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and
liabilities are offset only if certain criteria are met.
o) Earnings (loss) per share
Basic earnings (loss) per share 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 earnings (loss) per share is calculated using the treasury stock method 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.
13
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires the Company’s
management to make judgments, estimates and assumptions about the future events that affect the amounts reported in
the consolidated financial statements and related notes to the financial statements. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ
from these estimates.
Estimates and assumptions are continually evaluated and are based on management’s experience and other facts and
circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and
liabilities are accounted for prospectively.
The areas which require management to make significant judgments, estimates and assumptions in determining carrying
values include, but are not limited to:
a) Critical judgements
Critical judgements that management has made in the process of applying the Company’s accounting policies and that have
the most significant effect on the amounts recognized in the consolidated financial statement are limited to management’s
assessment of the Company’s ability to continue as a going concern (note 2(b)).
b) Key sources of estimation uncertainty and assumptions
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of
the reporting period, that have a significant risk of causing a material adjustment to the reported amounts of assets and
liabilities, income and expenses within the next fiscal year.
i) Revenue recognition
Revenue from engineering and lab services are recognized using percentage‐of‐completion method, which requires judgment
relative to assessing risks, estimating contract revenue and expenses, and making assumptions for schedule and technical
issues. Depending on the services provided and on the contract terms, many variables are used in assessing the revenue from
the percentage completed at the reporting date.
ii) Asset impairment
Determining the amount of asset impairment requires an estimation of the recoverable amount, which is defined as the
higher of fair value less the cost of disposal or 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 risk specific to the asset. In assessing fair value less costs to sell, the price that would be received on the sale
of an asset in an orderly transaction between market participants at the measurement date is estimated. Many of factors
used in assessing recoverable amounts are outside of the control of management and it is reasonably likely that assumptions
and estimates will change from period to period. These changes may result in future impairments in the Company’ long term
assets such as plant and equipment or investment in joint venture. For example, the copper price could be lower than
projected due to economic, industry or competitive factors, or the discount rate used in the value in use model could
increase due to change in market interest rate.
iii) Convertible loan
The calculation of the fair value of the debt component of the convertible loan issued during the year requires using an
interest rate that the Company would have had to pay had the loan been obtained without a conversion feature. As the
Company has not entered into a conventional loan in the past, such interest rate require management’s estimate by
reference to loan interest paid by comparable companies in the similar sector. The Company estimates 20% being the
reasonable interest rate a comparable company in technology sector would likely pay in obtaining loans.
14
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
5. RECENT ACCOUNTING PRONOUNCEMENT
The following is an over view of accounting standard changes that the Company will be required to adopt in future years. The
Company is still in the process of assessing the impact on the financial statements of these new standards:
IFRS 9 Financial instruments
On July 24, 2014, the IASB issued the complete IFRS 9, Financial Instruments (“IFRS 9”). IFRS 9 introduces new requirements
for the classification and measurements of financial assets. Under IFRS 9, financial assets are classified and measured based
on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces
additional changes relating to financial liabilities and amends the impairment model by introducing a new “expected credit
loss” model for calculating impairment. It also includes a new general hedge accounting standard which aligns hedge
accounting ore closely with risk management. The mandatory effective date of IFRS 9 is for annual periods beginning on or
after January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. The
restatement of prior periods is not required and is only permitted if information is available without the use of hindsight.
The Company has not yet determined the effect of adoption of IFRS 9 on its consolidated financial statements.
IFRS 15 Revenues from contracts with customers
On May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 deals with revenue
recognition and establishes principles for reporting useful information to users of financial statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is
recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the
benefits from the good or service. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related
interpretations. The effective date is for reporting periods beginning on or after January 1, 2018 with early application
permitted. The Company has not yet determined the effect of adoption of IFRS 15 on its consolidated financial statements.
IFRS 16 Leases
On January 6, 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). IFRS 16 specifies the methodology to recognize, measure,
present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and
liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The standard
replaces IAS 17 Leases. The effective date is for reporting periods beginning on or after January 1, 2019 with early adoption
permitted. The Company has not yet determined the effect of adoption of IFRS 16 on its consolidated financial statements.
6. TRADE AND OTHER RECEIVABLES
Trade receivables
Unbilled receivables
Other
Dec. 31, 2015
$
390,216
173,693
4,295
Dec. 31, 2014
$
546,145
299,966
966
568,204
847,077
15
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
7. RELATED PARTY TRANSACTIONS
The following transactions were carried out with related parties of the Company:
a) As at December 31, 2015, the Company had a receivable balance of $116,165 (2014 ‐ $228,201) from the Dexing joint
venture, arising mainly from joint venture investments and sale transactions. The receivables are unsecured in nature
and bear no interest. No provisions are held against such receivables. There was no sale of goods and services with the
Dexing joint venture (2014 ‐ $85,691) during the year ended December 31, 2015. Sales and other transactions are
recorded at the exchange amount agreed by both parties.
b)
In February 2014, the Company entered into a contract for approximately 23 months with a company owned by a
director, to procure management consulting services. For the year ended December 31, 2015, the services received
amounted to $120,000 (2014 ‐ $110,000) and as of December 31, 2015, the Company has $160,000 included in trade
payable and accrued liabilities (December 31, 2014 – $110,000).
c) On June 9 2015, the Company entered into a six‐month, unsecured, 12% interest bearing convertible loan agreements
with six lenders totalling to $775,000 (note 13). The six lenders include directors, management and shareholders of the
Company. At the year ended December 31, 2015, there was no outstanding balance on these loans. (note 13)
8. INVENTORY AND WORK IN PROGRESS
Work in progress
Inventory of chemicals and spare parts
Dec. 31, 2015
$
40,248
21,207
Dec. 31, 2014
$
‐
25,472
61,455
25,472
Inventory is recorded at the net realisable value at year end and prior year. There have been no impairments or write down
of inventories during the year and there is no provision for obsolescence (2014 – $nil).
16
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
9. PLANT AND EQUIPMENT
Water
treatment
plants
$
153,952
4,483
‐
(6,800)
(51,126)
‐
As at Dec. 31, 2014
Opening net book value
Additions
Transferred in (out)
Disposals
Depreciation
Foreign exchange translation
Pilot
plants
$
Construction
in progress
$
Other1
$
Total
$
504,146
‐
38,943
‐
(108,633)
‐
‐
38,943
(38,943)
‐
‐
‐
121,079
11,891
‐
‐
(64,319)
(448)
779,177
55,317
‐
(6,800)
(224,078)
(448)
68,203
603,168
516,847
(448,644)
3,153,119
(2,549,951)
68,203
603,168
68,203
550
‐
(39,829)
77
603,168
50,804
(800)
(220,723)
77
29,001
432,526
517,833
(488,832)
3,203,558
(2,771,032)
29,001
432,526
Closing net book value
100,509
434,456
As at Dec. 31, 2014
Cost
Accumulated depreciation
2,054,879
(1,954,370)
581,393
(146,937)
Closing net book value
100,509
434,456
As at Dec. 31, 2015
Opening net book value
Additions
Disposals
Depreciation
Foreign exchange translation
100,509
50,254
‐
(64,407)
‐
434,456
‐
(800)
(116,487)
‐
Closing net book value
86,356
317,169
As at Dec. 31, 2015
Cost
Accumulated depreciation
2,105,132
(2,018,776)
580,593
(263,424)
Closing net book value
86,356
317,169
1Other comprises of office furniture, lab equipment and computer software and hardware.
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
17
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
10. INVESTMENT IN JOINT VENTURE
Investment in joint venture is comprised of:
Balance, January 1, 2014
Share of comprehensive income
Contributions made
Distributions received
Balance, December 31, 2014
Share of comprehensive income
Contributions made
Distributions received
Balance, December 31, 2015
Dexing joint venture
$
4,564,750
1,129,501
199,732
(860,500)
5,033,483
871,409
229,284
(1,425,200)
4,708,976
The Company’s share of net earnings in the Dexing joint venture for the years ended December 31, 2015 were $189,377
(2014 – 701,149)
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 five potential additional sites owned and operated by JCC. The first plant commenced operations
on April 1, 2008.
During 2014, the joint venture partners completed the construction and commissioning of a new water treatment plant at
JCC’s Yinshan mine site and a second copper recovery plant at JCC’s Dexing mine site. The Company’s share of the total cost
of construction, including accrued amounts, was $2,981,083 (CNY 17,173,680).
The Dexing joint venture sells all of the metal concentrate recovered in its operations to the joint venture partner, JCC. All
related party sales are recorded on the date of sale at the adjusted fair market price of the metal based on applicable terms,
net of transportation and refining costs at standard industry rates.
Any cash distributions from the joint venture to BioteQ must be unanimously approved by both partners and comply with
Chinese tax and regulatory requirements. Distributions are also subject to Chinese withholding taxes and minimum capital
requirements as applicable. Currently, BioteQ and its partner have a standing agreement to distribute excess cash reserves
annually. The partners will take into consideration factors such as operating performance of the plants, future capital
requirements and working capital flexibility in determining the cash amount to be distributed in a given year. During 2015,
the Company received a gross cash distribution of $1,425,200 (CNY 10,000,000) (2014 ‐$860,500 (CNY 5,000,000)).
18
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
BioteQ’s 50% interest in the Dexing joint venture’s financial statements is presented as follows:
Statement of financial position
Dec. 31, 2015
$
Dec. 31, 2014
$
588,406
92,699
112,817
80,147
438,052
522
1,312,643
670,539
233,625
394,384
‐
151,473
458
1,450,479
5,351,657
4,845,936
6,664,300
6,296,415
1,955,324
‐
1,955,324
1,220,419
42,513
1,262,932
1,955,324
1,262,932
3,381,104
1,902,126
(574,254)
4,708,976
3,151,820
1,220,094
661,569
5,033,483
6,664,300
6,296,415
Assets
Current assets
Cash and cash equivalents
Short‐term investments
Trade and other receivables
Taxes recoverable
Inventory
Prepaid expenses
Non‐current assets
Plant and equipment
Total assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Current income tax payable
Total liabilities
Partner’s Equity
Joint venture partner equity
Accumulated other comprehensive income
Retained earnings
Total partner’s equity
Total liabilities and partner’s equity
19
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Statements of operations and comprehensive income
Revenue
Plant and other operating costs (excluding depreciation)
General and administration
Depreciation of plant and equipment
Income from operations
Finance (expense) income
Foreign exchange income (loss)
Other income
Income before income taxes
Current income tax recovery (expense)
Net income for the year
Other comprehensive income
Translation gain on foreign operation
Comprehensive income for the year
2015
$
2014
$
4,301,770
3,462,898
838,872
3,568,203
2,334,286
1,233,917
184,339
482,547
171,986
(840)
12,542
‐
126,248
275,205
832,464
31,880
(8,068)
25,225
183,688
881,501
5,689
(180,352)
189,377
701,149
682,032
428,352
871,409
1,129,501
The Dexing joint venture derives its revenue from recovered copper sales, which is subject to risks that are beyond the
control of the joint venture. The copper recovery rate is dependent on the rainfall in the region and the grade of copper in
the water treated, while the revenue is exposed to the world commodity price risk.
11. TRADE PAYABLE AND ACCRUED LIABILITIES
Trade payable and accruals
Payroll liability
Value added tax payable
Dec. 31, 2015
$
446,660
413,605
69,314
Dec. 31, 2014
$
507,237
384,659
43,971
929,579
935,867
20
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
12. SHARE‐BASED PAYMENTS
The Company’s recorded stock‐based compensation (recovery) expense comprised as follows:
Stock options (i)
Deferred share units (ii)
Restricted share units (iii)
Dec. 31, 2015
$
42,524
(60,193)
(1,549)
Dec. 31, 2014
$
81,636
(13,843)
(26,507)
(19,218)
41,286
a) Stock options
Under the Company’s Stock Option Plan (the “Plan”), the maximum number of shares reserved for exercise of all options
granted by the Company may not exceed 10% of the Company’s shares issued and outstanding at the time the options are
granted. The exercise price of each option granted under the Plan is determined at the discretion of the Board at no less than
the five‐day volume weighted average share price preceding the grant date. Options granted under the Plan expire no later
than the fifth anniversary of the date the options were granted and vesting provisions for issued options are determined at
the discretion of the Board although the Company has a practice of having options vest over thirty‐six months in equal
installments.
Each vesting 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.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2015
Weighted average
exercise price
$
0.21
‐
0.11
0.75
0.14
Number of
options
6,068,333
‐
(108,334)
(716,666)
5,243,333
2014
Weighted average
exercise price
$
0.37
0.07
0.23
0.49
0.21
Number of
options
4,189,999
2,800,000
(83,334)
(838,332)
6,068,333
Outstanding at January 1
Granted
Forfeited
Expired
Outstanding at December 31
Exercisable at end of year
0.07
3,332,222
0.38
2,564,441
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 April 10, 2014, the Company granted 2,800,000 options with an exercise price of $0.07 to the directors and employees of
the Company. These options have a term of 5 years from the date of grant and vest over three years with one‐third vesting
each year on the anniversary of the grant date. The fair value of these options determined using the Black‐Scholes valuation
model was $0.03 per option. The significant assumptions in the valuation model were: weighted average share price of $0.07
on the grant date, exercise price as described above, volatility of approximately 82.10%, an expected option life of 3 years
and an annual risk‐free interest rate of 1.20%.
21
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Exercise price range
$
0.07 to 0.15
0.17 to 0.30
0.07 to 0.30
Weighted average remaining life
(months)
37
16
2015 number of outstanding
share options
3,133,333
2,110,000
28
5,243,333
b) Deferred share unit
The Company implemented a deferred share unit (“DSU”) plan, effective July 1, 2010, pursuant to which DSUs may be
granted to non‐employee members of the Board of Directors on an annual basis. During 2013, the DSU Plan was amended to
include certain senior managers of the Company, effective from October 1, 2013 to December 31, 2014.
The number of DSUs granted to a participant is calculated by dividing (i) a specified dollar amount of the participant’s
compensation amount paid in DSU in lieu of cash, and 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 upon issuance 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.
As the Company is required to settle this award in cash, it records these awards as a liability and a corresponding charge
including changes to the fair value to stock‐based compensation expense. The DSU is a financial instrument that is fair valued
at each reporting date based on the five‐day volume weighted average price of the Company’s common shares.
The following table presents the changes to the DSU plan:
Balance, January 1, 2014
Granted
Redeemed
Balance, December 31, 2014
Granted
Redeemed
Balance, December 31, 2015
Number of units
532,786
2,850,468
(196,094)
3,187,160
93,958
(366,043)
2,915,075
In 2013, the Company entered into an arrangement with certain senior managers and the directors to pay a portion of their
cash compensation in DSUs. During the year ended December 31, 2015, there were no salaries (2014 – $41,338) covered
under the arrangement were included in the stock‐based compensation expense. The arrangement expired as of December
31, 2014.
During 2015, the Company recorded fair value adjustment as recovery of ($60,193) (2014 – ($58,939)) as stock‐based
compensation expense related to the DSUs.
c) Restricted share units
The Company implemented a restricted share unit (“RSU”) plan, effective August 5, 2010, pursuant to which RSUs may be
granted to the officers of the Company. Under this plan, notional RSUs are granted and vested annually over a three‐year
term in general or otherwise determined by the Board. Upon vesting, RSUs are automatically paid out in the Company’s
shares purchased in the open market in a number equal to the number of RSUs held. RSU granted are accounted for and fair
valued using the same methodology as DSUs.
22
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
The following table presents the changes to the RSU plan:
Balance, January 1, 2014
Redeemed
Balance, December 31, 2014
Redeemed
Balance, December 31, 2015
Number of units
434,332
(351,491)
82,841
‐
82,841
The RSUs outstanding at the end of 2015 remain unvested as at December 31, 2015 (December 31, 2014 – 82,841). During
2015, the Company recorded fair value adjustment as recovery of $1,549 (2014 – $26,507) as stock‐based compensation
expense related to the RSUs.
13. CONVERTIBLE LOAN
On June 9, 2015, the Company entered into six‐month, unsecured, convertible loan agreements (the “Loans”) with six
lenders. Under the Loan agreements, the Loans bear interest rate of 12% per annum, with a principle of $775,000. The Loans
are due for repayment 6 months from the issuance date at their nominal value of $775,000 plus interest or conversion into
common shares of the Company at the holder’s option with the conversion price of $0.03 per share. The Company may elect
to repay any portion of the principle prior to the maturity date subject to a minimum interest payment of 6%.
The fair value of the liability component, all included as a liability in convertible loan, is calculated using a market interest rate
for comparable companies of 20% for an equivalent, non‐convertible, loan at the date of issue. The residual amount,
representing the value of the equity conversion component, is included in shareholders’ equity as an equity component of
the convertible loan. Transaction costs associated with issuing the convertible loan are allocated to the liability and equity
components in its allocated proportion.
The carrying amount of the liability component of the convertible loan is derived as follows:
Face value of convertible loan issued on June 9, 2015
Transaction cost
Equity conversion component on initial recognition
Liability component on initial recognition
Accumulated amortisation of interest expense
Gain on settlement
Equity conversion component on settlement
Equity settlement to contributed surplus
Repayment of convertible loan
Liability component balance as at period end
Dec. 31, 2015
$
Dec. 31, 2014
$
775,000
(7,303)
(30,712)
736,985
27,208
(8,911)
30,712
(10,994)
(775,000)
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
During the year ended December 31, 2015, the Company recorded interest expense relating to the Loans of $73,708 (2014 ‐
$nil).
23
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
14. 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. These warrants with a relative fair value basis of $1,513,417 expired on January 21,
2015 and are allocated to a contributed surplus.
In January 2014, the Company completed a Shareholders Rights Offering (the “Offering”). For the Offering, 24,000,000
common shares were issued for proceeds of $963,815, net of financing costs of $236,185. As a part of the financing costs, the
Company issued 685,714 warrants with an exercise price of $0.07, which are fair valued at $20,023. These warrants expired
on December 10, 2015 and are allocated to a contributed surplus.
As at December 31, 2015, the Company has 93,966,672 (December 31, 2014 – 93,966,672) common shares outstanding and
no (December 31, 2014 – 4,322,078) warrants outstanding.
15. EXPENSES BY NATURE
Plant and other operating costs
Employee benefits
Raw materials and consumables used
Consulting and contractor expenses
Equipment rental expenses
Other expenses
General and administration
Employee benefits
Director fees
Consulting and contractor expenses
Rental expenses
Insurance expenses
Other expenses
Sales and development
Employee benefits
Consulting and contractor expenses
Rental expenses
Other expenses
2015
$
1,416,021
156,544
469,624
129,603
161,516
2014
$
1,210,359
248,730
307,854
57,571
106,091
2,333,308
1,930,605
758,716
185,600
476,660
294,927
164,120
151,284
1,129,989
175,400
589,403
293,055
141,590
167,548
2,031,307
2,496,985
908,925
66,705
79,897
121,401
1,245,920
32,396
82,405
94,846
1,176,928
1,455,567
24
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
16. IMPAIRMENT
In accordance with the Company’s accounting policies, the recoverable amount of an asset is estimated when an indication of
impairment exists. Indicators of impairment existed for our investment in the Dexing joint venture.
To determine the recoverable value of Dexing joint venture, a five‐year discounted cash flow analysis was prepared in
accordance with IAS 36 utilizing the Value‐In‐Use (VIU) valuation method. The key assumptions applied in the in the analysis
include:
a) Copper prices estimated using current price in the initial year, which is gradually escalated over the next three
years, reaching a long‐term price in 2020 of US$3.00 per pound, adjusted for premium market prices in China;
b) Copper volume projected to be consistent with prior plant performance and planned improvements in future
years;
c) Discount rate of 20.5%;
d)
e)
Terminal growth rate of 0%; and
Exchange rates estimated using current rate at December 31, 2015.
As at December 31, 2015, the estimated recoverable amount of our investment in Dexing joint venture exceeded its carrying
value and accordingly no impairment charges were recorded.
17. COMPENSATION OF DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL
Key management compensation includes the Company’s directors and members of the Executive. Compensation awarded to
key management includes:
Salaries, fees and short‐term benefits
Termination benefits
Share‐based payments
2015
$
787,889
84,525
50,899
2014
$
863,224
470,899
112,665
923,313
1,446,788
Included in the trade payable and accrued liabilities as at December 31, 2015 is $230,043 (2014 – $114,630) of salaries,
director fees, and termination benefits, with payment commitments in 2016.
18. OTHER INCOME
The other income (expense) is comprised as follows:
Recovery (write‐off) of value added tax receivable in Mexico (a)
Recovery (write‐off) of trade receivable
Gain on settlement of convertible loan
Gain from legal settlement
Gain on disposal of equipment
Recovery of NWM settlement (b)
25
2015
$
268,109
67,848
8,911
‐
‐
‐
2014
$
(478,278)
(78,173)
‐
49,918
6,933
700,000
344,868
200,400
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
a) Value added tax (“VAT”) receivable in Mexico
In 2015, the Company recovered $408,732 in VAT receivable from the Mexican government, which $478,278 were written off
in 2014. To assist in the recovery of this balance, the Company paid professional fees of $140,623, which have been applied
against the recovered amount. Also in 2015, the Company received interest income of $80,102 related to this outstanding
balance. Any additional VAT amounts collected in the future will be recorded as a recovery of bad debt in the period received.
b) NWM settlement
In 2014, the Company recorded $700,000 as bad debt recovery from the Lluvia de Oro water treatment plant settlement
agreement with NWM Mining Corporation.
19. GOVERNMENT ASSISTANCE
In March 2013, the Company entered into an agreement with the National Science and Engineering Research Council of
Canada (“NSERC”) under its Industrial Research Assistance Program (“IRAP”) to provide funds to assist in testing new
applications of wastewater treatment technologies in the mining sector. As of December 31, 2015, the Company claimed
$48,589 (2014 ‐ $170,441) under IRAP and received $68,834 (2014 ‐ $172,943). As of December 31, 2015, the Company has
claimed the 100% of the amount granted by NSERC.
20. INCOME TAXES
Current tax:
Current tax on profits for the year
Income tax expense
2015
$
142,645
142,645
2014
$
87,556
87,556
The statutory tax rate to income tax expense was 26% (2014 – 26%) for the year‐ended December 31, 2015. The tax on the
Company’s losses before tax differs from the amount that would arise using the weighted average tax rate applicable to
losses of the consolidated entities as follows:
Income tax recovery at statutory rates
Tax assets for which no deferred income tax was recognized
Adjustment in relation to prior period
Non‐deductible expenses
Tax rate differences
Tax effect on forgiveness of intercompany debt
Withholding tax
Other
2015
$
(335,305)
(2,686,428)
2,592,446
207,449
(9,597)
(2,317)
142,645
233,752
2014
$
(428,980)
1,207,062
376,135
86,633
(27,619)
(1,969,442)
87,500
756,267
Income tax expense
142,645
87,556
As at December 31, 2015, the Company has approximately $86,000 (2014 ‐ $86,000) of investment tax credits, expiring
between 2018 and 2020, all of which may be used to reduce future Canadian income taxes that are otherwise payable.
26
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
The Company has accumulated loss of $22,754,627 (2014 ‐ $23,720,692) for Canadian income tax purposes which may be
deducted in the calculation of taxable income in future years. The losses expire as follows:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
$
2,387,340
1,628,919
1,951,879
2,372,749
965,964
3,007,451
3,735,949
3,403,636
2,414,568
886,172
22,754,627
In addition, the Company has available tax losses in other jurisdictions that total $2,636,928 (2014 ‐ $9,799,999). Of these,
$299,756 will expire in 2016 upon dissolution of foreign subsidiaries. The remaining losses can be carried forward to offset
against future taxable income in those jurisdictions with expiry periods from 10 years to indefinitely.
The Company’s deferred tax assets that have not been recognized are as follows:
Plant and equipment
Investment in JV
Share issuance costs
ITC credit
Non‐capital losses carry‐forwards
Capital losses carry‐forwards
Other
Deferred tax assets not recognized
2015
$
2,967,425
284,680
24,984
64,257
7,355,196
1,933,888
(31,156)
12,599,274
(12,599,274)
2014
$
2,840,346
1,035,491
34,720
64,257
9,119,747
2,091,671
48,464
15,234,696
(15,234,696)
Total deferred tax assets
‐
‐
No income tax benefits related to the deferred 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.
27
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
21. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information (included within operating activities) is as follows:
Change in non‐cash working capital items
Decrease in trade and other receivables and receivable from joint venture
(Increase) in inventory
Decrease in other asset
(Decrease) increase in trade payable and accrued liabilities
Increase in deferred revenue
Decrease in other liabilities
2015
$
484,997
(32,060)
13,374
(4,378)
203,320
(9,344)
2014
$
142,017
(225,574)
14,626
174,876
50,563
(51,492)
Change in non‐cash working capital items
655,909
105,016
22. COMMITMENTS
The Company has commitments of $555,666 under operating leases for office and laboratory premises and for office
equipment, as follows:
2016
2017
$
341,496
214,170
555,666
23. SEGMENTED INFORMATION
The Company has one operating segment, being principally to build process plants and earn revenues from metal recovery,
treatment fees, engineering & lab services, and plant sales.
a) Segment revenue
The Company’s sources of revenue are as follows:
Treatment fees
Engineering & lab services
2015
$
1,677,503
1,969,526
2014
$
1,676,511
1,945,441
3,647,029
3,621,952
28
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
b) Geographic information
The Company’s revenue, plant and equipment, and investment in joint venture by geographic area are as follows:
Revenue
Canada
Chile
Other
Plant and equipment
Canada
Chile
Investment in joint venture
China
2015
$
3,416,180
223,922
6,927
2014
$
2,975,188
558,970
87,794
3,647,029
3,621,952
Dec. 31, 2015
$
Dec. 31, 2014
$
431,267
1,259
599,894
3,274
432,526
603,168
Dec. 31, 2015
$
Dec. 31, 2014
$
4,708,976
4,941,118
Information about major customers
c)
The following table presents revenue to individual customers exceeding 10% of annual revenue for the following periods. The
following customers represent 93% (2014 – 77%) of the Company’s total revenue for the year ended December 31, 2015.
Customer A
Customer G
Customer K
2015
$
1,677,502
1,074,671
630,097
2014
$
1,834,111
‐
951,803
3,382,270
2,785,914
29
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
24. CAPITAL RISK 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.
25. FINANCIAL RISK MANAGEMENT
The Company’s activities expose it to various risks, including credit risk, market risks such as foreign currency risk, liquidity
risk, and commodity price 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 board of directors and its finance and accounting
department. The Company’s risk management policies and procedures have not changed from 2014.
a) Credit risk
Credit risk is the risk of an unexpected loss if a party to the Company’s financial instruments falls to meet their contractual
obligations. The Company’s financial assets are primarily composed of cash and cash equivalents, short‐term investments,
trade and other receivables and receivable from joint venture. Credit risk is primarily associated with trade and other
receivables; however, it also arises on cash and cash equivalents, short‐term investments, and receivable from joint venture.
The Company’s maximum exposure to credit risk is as follows:
Cash and cash equivalents
Short‐term investments
Trade and other receivables
Receivable from joint venture
Dec. 31, 2015
$
1,408,890
‐
568,204
116,165
Dec. 31, 2014
$
915,681
373,991
847,077
228,201
2,093,259
2,364,950
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 and other 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. The allowance for
doubtful accounts balance was $12,600 at December 31, 2015 (December 31, 2014 ‐ $82,268).
30
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
The aging of accounts receivable is as follows:
Trade and other receivables
Receivable from joint venture
0‐30
days
$
250,145
‐
31‐60
days
$
304,037
‐
Over 60
days
$
14,022
116,165
Dec. 31, 2015
Dec. 31, 2014
Total
$
568,204
116,165
Total
$
847,077
228,201
250,145
304,037
130,187
684,369
1,075,278
The Company recorded bad debt recovery of $335,957 during the year ended December 31, 2015 (2014 – expense of
$556,451), of which $268,109 is related to the VAT recovery in Mexico (note 18). 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.
b) Currency risk
The Company operates in Canada, the United States, Mexico, Chile, China and Australia. As a result, the Company has foreign
currency exposure with respect to items not denominated in Canadian dollars. The three main types of foreign exchange risk
for the Company can be categorized as follows:
i)
Transaction exposure
The Company’s operations sell mainly services and incur costs in different currencies. This creates exposure at the
operational level, which may affect the Company’s profitability as exchange rates fluctuate. The Company has not hedged its
exposure to currency fluctuations.
ii) Currency risk exposure
The Company is exposed to currency risk through the following assets and liabilities denominated in currencies other than
Canadian dollar: cash and cash equivalents, trade and other receivable, receivable from joint venture, trade payable and
accrued liabilities, and current income taxes payable. The currencies of the Company’s financial instruments and other
foreign currency denominated liabilities exposed to currency risk, based on notional amounts, were as follows:
Cash and cash equivalents
Trade and other receivables and
Receivables from joint venture
Trade and other payables
US
dollar
149,986
116,985
(5,687)
Mexican
pesos
7,339
‐
(4,412)
Australian
dollar
1,217
December 31, 2015
Chinese
renminbi
‐
Chilean
peso
17,031
‐
‐
39,100
(149,858)
27,257
‐
Gross balance sheet exposure
261,284
2,927
1,217
(93,727)
27,257
31
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Cash and cash equivalents
Trade and other receivables and
Receivables from joint venture
Trade and other payables
US
dollar
5,196
72,394
(4,195)
Mexican
pesos
1,725
‐
(6,653)
Australian
dollar
40,675
December 31, 2014
Chinese
renminbi
‐
Chilean
peso
390,363
‐
‐
112,648
(119,762)
228,201
‐
Gross balance sheet exposure
73,395
(4,928)
40,675
383,249
228,201
iii) Translation exposure
The Company’s functional and reporting currency is Canadian dollars. The Company’s operations translate their operating
results from the host currency to Canadian dollars. Therefore, exchange rate movements in the U.S. dollar, Australian dollar,
Mexican peso, Chilean peso and Chinese renminbi can have a significant impact on the Company’s consolidated operating
results. A 10% strengthening (weakening) of the Canadian dollar against the following currencies would have decreased
(increased) the Company’s net loss from its financial instruments presented by the amounts shown below.
US dollar
Mexican peso
Australian dollar
Chilean peso
Chinese renminbi
2015
$
26,128
293
122
(9,373)
2,726
19,896
2014
$
7,340
(493)
4,068
38,325
22,820
72,060
Liquidity risk
c)
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. The ability to do this relies on the Company
collecting its trade receivables in a timely manner and maintaining sufficient cash in excess of anticipated needs.
The following are the contractual maturities, and all of which are due within twelve months of the balance sheet date. The
amounts presented represent the future undiscounted cash flows:
Trade payable and other payables
Deferred benefits
Dec. 31 2015
$
1,082,129
65,954
Dec. 31 2014
$
1,084,849
136,847
1,148,083
1,221,696
Taking into consideration the Company’s current cash position, volatile equity markets, global uncertainty in the capital
markets and increasing cost pressures, the Company is continuing to review expenditures in order to ensure adequate
liquidity (note 2). A period of continuous depression in mining industry, which is the Company’s main customer base, may
necessitate the Company to seek financing opportunities in accordance to its capital risk management strategy (note 24).
32
BioteQ Environmental Technologies Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
d) Price risk
The Company’s earnings and financial condition are subject to price risk due to fluctuations of the following:
i) Commodity price risk
The profitability of the Company’s investment in joint venture will be significantly affected by changes in the commodity price
of copper. Copper prices fluctuate on a daily basis and are affected by numerous factors beyond the Company’s control. The
supply and demand for copper, the level of interest rates, the rate of inflation, investment decisions by large holders of
copper, including governmental reserves, and the stability of exchange rates can all cause significant fluctuations in copper
prices. A 10% change in copper prices would impact the Company’s net earnings before taxes and other comprehensive
income before taxes by $430,177 in 2015 (2014 ‐ $356,820).
ii) Common stock price risk
The Company is subject to price risk for changes in the Company’s common stock price per share. The Company has
implemented, as part of its long‐term incentive plan, the DSU plan that the Company is required to satisfy in cash upon
vesting. The Company considers the plan a financial liability and is required to fair value the outstanding liability with the
resulting changes included in stock‐based compensation expense each period: an increase in share unit award prices would
decrease the Company’s net earnings. A 10% change in prices would impact the Company’s net earnings before taxes and
other comprehensive income before taxes by $7,288 in 2015 (2014 ‐ $13,354).
26. Fair Value Measurement
The Company defines fair value as 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. In assessing the fair value of a particular contract, the
market participant would consider the credit risk of the counterparty to the contract. Consequently, when it is appropriate to
do so, the Company adjusts the valuation models to incorporate a measure of credit risk. Fair value represents management’s
estimates of the current market value at a given point in time.
The Company’s financial assets and financial liabilities are classified and measured as follows:
Financial assets
Cash and cash equivalents
Trade and other receivables
Receivable from joint venture
Short‐term investments
Financial liabilities
Trade payable and other payables
Deferred benefits
Category
Dec. 31, 2015
$
Dec. 31, 2014
$
Loan and receivables at amortized cost
Loan and receivables at amortized cost
Loan and receivables at amortized cost
Loan and receivables at amortized cost
1,408,890
568,204
116,165
‐
915,681
847,077
228,201
373,991
Financial liabilities at amortized cost
Financial instruments at FVTPL
1,082,129
65,954
1,084,849
136,847
The carrying values of the financial assets and liabilities presented above approximate their fair values. The Company has not
offset financial assets with financial liabilities.
The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value as
described in note 3(g). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3
inputs. The Company’s DSUs are held at fair value, measured by Level 1 inputs. There were no transfers between Levels 1, 2
and 3 during the years ended December 31, 2015 and 2014. The Company’s policy is to recognize transfers into and transfers
out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.
33
Management’s Discussion and Analysis
(All figures expressed in Canadian dollars unless otherwise noted)
April 19, 2016
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 2015 Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with our audited consolidated
financial statements for the year ended December 31, 2015, under International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board (“IASB”).
Users should consider the disclosures in note 2(b) titled “Going concern assumption” of the audited consolidated financial
statements for the year ended December 31, 2015 and the sections “2015 Commentary and 2016 Outlook” and “Liquidity
and Capital Resources” in this MD&A.
All financial information is presented in Canadian dollars unless otherwise noted. Certain statements contained in the MD&A
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 service provider specializing in treating mining
wastewater and specific hydrometallurgical streams with focus on reducing Life Cycle Costs while achieving compliance and
introducing sustainability into water management. Headquartered in Vancouver, British Columbia, Canada, our treatment
solutions minimize waste, recover value from waste where possible and maximize water recovery. We have extensive
expertise and operations experience in sulphide precipitation, ion exchange, alkali/lime neutralization and SART process
technologies.
BioteQ is listed on the TSX Venture Exchange under the symbol BQE.
Additional information may be found on our website www.bioteq.ca and also on SEDAR at www.sedar.com.
NON‐GAAP MEASURES
We use non‐GAAP financial 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 financial 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 financial
measures do not have any standardized meaning prescribed by GAAP and are therefore likely to be comparable to similar
non‐GAAP financial measures presented by other companies. Non‐GAAP financial measures should only be used to evaluate
our results of operations in conjunction with the corresponding GAAP measures.
Proportional Revenue and Other Proportional Results
Under the IFRS, the revenue and operating costs associated with our proportionate share of activities in our joint venture are
netted and disclosed as a single line item on our consolidated statements of loss and comprehensive loss. Also, our share of
assets, liabilities and equity in the joint venture are presented as a net investment on our consolidated statement of financial
position.
1
To provide additional insight into our underlying results, certain statements in this MD&A disclose the effective portion of
results that we would have reported if our joint venture results had been proportionately integrated into our results and
referred to as BioteQ’s proportional share (“Proportional”). All proportional financial measures disclosed in this MD&A are
non‐GAAP measures. We believe these disclosures allow comparability of our current financial results to prior years and
provide additional insight into our underlying results:
Proportional Revenue
Proportional Revenues for the twelve‐month periods ended December 31, 2015 and 2014 are as follows:
(in $’000s)
Reported revenues under GAAP
Add: share of revenues from Dexing Joint Venture:
Reported revenues
add: Sales and administrative costs previously included in revenue
Proportional Revenue for the year
Adjusted EBITDA
Adjusted EBITDA is derived as follows:
(in $’000s, all amounts include BioteQ’s proportionate share of joint venture results)
GAAP: Net loss
less: interest income
add: taxes
add: depreciation and amortization
EBITDA
add: stock‐based compensation
less: net foreign exchange gain
Adjusted EBITDA
2015
$
3,647
4,302
731
8,680
2015
$
(1,433)
(12)
137
704
(604)
(19)
(272)
(895)
2014
$
3,622
3,568
653
7,843
2014
$
(1,650)
(46)
268
507
(921)
41
(49)
(929)
2015 OVERVIEW
During 2015, we continued to solve challenging water treatment problems for the resource sector with operations and
projects in Canada, the U.S., Chile and China. For the year, our operations treated a total of 21 million cubic metres of water
and removed 3.1 million pounds of metals from the environment. We also completed a pilot operation to demonstrate the
capabilities of our new Selen‐IX technology.
We also continued to make progress in the development of new technologies to expand our portfolio of solutions,
particularly in the areas of sulphate and selenium removal.
Annual Financial Results:
Revenues as reported under GAAP were $3.6 million compared $3.6 million in 2014;
Proportional revenues for the year were $8.7 million compared to $7.8 million in 2014, an increase of 12% year over
year;
Net loss as reported under GAAP was $1.4 million compared to $1.6 million in 2014;
Adjusted loss before interest, tax, depreciation and amortization (“adjusted EBITDA”) for the year was $895,000
compared to a loss of $929,000 in 2014;
Cash and cash equivalents and short term investments reported under GAAP was $1.4 million compared to $1.3 million
at the end of 2014; and
2
Proportional cash and cash equivalents and short term investments which includes our share held in joint ventures, was
$2.1 million compared to $2.2 million at the end of 2014.
Water Treatment Operations:
We successfully completed our 12th operating season at the Raglan mine site. During the year, we treated and discharged
a total of 1.1 million cubic metres of water; similar to the volume we treated and discharged in 2014;
Our joint venture in China with partner Jiangxi Copper Company (“JCC”), operated three plants during the year. Two of
the plants are located on the Dexing mine site as well as a plant on the Yinshan mine site. Both mine sites are owned by
JCC. The joint venture treated a total of 20 million cubic metres of water and recovered 3.1 million pounds of copper
from all three sites during the year.
i)
The original water treatment operation at the Dexing mine site treated 8.1 million cubic metres of water and
recovered a total of 1.7 million pounds of copper compared to 2014 when we treated 8.1 million cubic metres of
water and recovered 2.1 million pounds of copper.
ii) The second copper recovery plant at JCC’s Dexing mine also had a full year of operation and it treated 8.7 million
cubic metres of water and recovered a total of 870,000 pounds of copper compared to 2014 when we started
operation in August and treated 2.1 million cubic metres of wastewater and recovered 270,000 pounds of copper.
iii) The water treatment plant at JCC’s Yinshan mine site treated 3.2 million cubic metres of water and recovered a total
of 594,000 pounds of copper compared to 2014 when we started operation in June and treated 1.2 million cubic
metres of wastewater and recovered 240,000 pounds of copper.
Sales and New Technology Development:
The following is an update on key sales opportunities completed in 2015:
Seabridge Gold ‐ Selen‐IX™ Pilot Project
During the year, we concluded our Selen‐IX™ pilot testing contract with Seabridge Gold, a Canadian mining company, which
originally commenced in mid‐2014. The pilot testing results are being used to demonstrate the capacity of the Selen‐IX™
process to meet stringent discharge limits for selenium and provide engineering design data required for evaluating the
overall capital and operating costs of a full scale plant that would treat up to 43,000 m3/day of wastewater.
New Selen‐IX™ Pilot Project
During the year, we entered into a contract with a Canadian mining company to complete a pilot scale demonstration and
evaluation of our Selen‐IX™ technology to remove selenium from mine impacted water to less than 1 part per billion. In early
2016, we completed our field operations and provided final results to the customer. The total value and length of the pilot
project was comparable to our past Selen‐IX™ pilot projects.
These Selen‐IX™ pilot projects builds upon the previous pilot we completed in 2013 with Teck Resources. It demonstrates the
increasing need for mining companies to manage selenium concentrations in their mine water and the capabilities of our
solution.
We are awaiting decisions from both customers on their future plans for water treatment at these sites. These decisions will
be impacted by the companies’ overall mine plans, regulatory and permitting requirements, and markets conditions to meet
financing needs and the long term project economics.
Other Items:
During 2015, the Company recovered $408,732 value‐added tax (“VAT”) receivable and paid related professional fees
paid of $140,623. We continue to pursue the remaining outstanding balance of approximately $70,000 but the timing
and amount of recovery is uncertain.
The Continued Listings Committee of the Toronto Stock Exchange (“TSX”) decided to delist the Company’s common
shares effective November 12, 2015. The delisting was imposed for failure by BioteQ to meet the continued listing
requirements of the TSX. Subsequently, our shares began trading on the TSX Venture Exchange (the “TSXV”).
3
2015 COMMENTARY AND 2016 OUTLOOK
At the beginning of 2015, we provided financial estimates for our full year results. The following is commentary on our year
end results against these estimates.
We anticipated our Proportional Revenues to be in the range of $8.0 million to $8.5 million for the year. Our actual results
exceeded our estimate at $8.7 million. The increase was driven by a combination of slightly higher recurring revenue from
our existing operations and additional revenue from our Selen‐IX™ pilot projects.
For Adjusted EBITDA, we estimated our loss to be in the range of $400,000 to $700,000. We ended 2015 with an Adjusted
EBITDA loss of $884,000. This loss was slightly higher than expected but an improvement over our results for 2014. The
higher than expected loss was largely attributable to the rapid decline in copper prices throughout the year which directly
impacted the profitability of our plants in our Chinese joint venture.
We ended 2015 with $1.4 million in cash outside of our China joint venture. Although the joint venture continues to be cash
flow positive, low copper prices have reduced the rate at which cash accumulates in the joint venture account and, it will
likely take 2‐3 quarters of operations before any significant funds are available for repatriation to our Canadian parent entity.
We have been growing our project pipeline slowly but steadily since early 2014 and this effort has started to translate into
new contracts. While many of these contracts are relatively small in monetary value, they represent initial stages of longer
term projects where BioteQ can expect to generate significantly more revenue as the projects advance through the
development stages.
So far in 2016, we have won contracts to provide design, construction, and commissioning services for a water treatment
plant at the Silvertip project in northern BC, laboratory scale testing of Selen‐IX™ on a wastewater stream at an active mineral
processing operation in Northern Saskatchewan, water management consulting services for a mine site in Mongolia, and
preliminary technical and economic assessments of water treatment requirements at two sites in Mexico. We have also
completed our detailed technical and economic assessment of a new treatment plant to be installed at an active smelter in
China. The proposed new treatment plant is currently undergoing environmental permitting and BioteQ is working closely
with a potential new partner on forming a joint venture to deliver the treatment plant for the smelter under a Build‐Own‐
Operate business model following the environmental approval.
Although these projects provide significant opportunities for future one‐time and recurring revenues, the short term cash
flow potential is limited. As a result, since the end of 2015, our working capital level has declined and it is very likely that we
will need to secure new sources of working capital in the form of debt or equity investments in the next quarter.
From the historical perspective, although the company has not achieved profitability yet, the trend in our financial results
since 2014 when the last equity financing was put in place shows significant improvement. These improvements were
achieved during the time of a major decline in mining activity and commodity prices which directly reduced the cash flow
from our China operations, and negatively impact prospects for new projects in the mining industry which we serve.
Whether and when the Company can attain profitability and positive cash flows is uncertain. However, the Company’s
management team has worked tirelessly on positioning the Company for success by getting the Company involved in early
stages of new projects, strengthening our technical team, and advancing the development and commercialization of new
products including our Sulf‐IX and Selen‐IX processes.
Management and our Board of Directors are actively exploring potential financing options to ensure continuing operations of
our business to generate future cash flows for the Company. However, while the Company has been successful in securing
financing in the past, there is uncertainty whether financing will be available in the future on terms acceptable to the
Company.
4
2015
$
3,647
2,333
1,314
2,031
1,177
(189)
‐
(1,705)
221
(19)
(1,907)
281
‐
336
‐
‐
(143)
(1,433)
517
(916)
(0.02)
8,680
(895)
2015
871
7,451
9
6,029
2014
$
3,622
1,931
1,691
2,497
1,456
(701)
‐
(1,561)
232
41
(1,834)
71
50
(556)
700
7
(88)
(1,650)
398
(1,252)
(0.02)
7,843
(929)
2014
1,249
8,195
20
6,891
2013
$
4,066
2,371
1,695
3,473
1,856
1,057
1,463
(6,154)
746
199
(7,099)
111
‐
‐
400
239
(78)
(6,427)
640
(5,787)
(0.09)
7,610
(2,304)
at December 31
2013
1,786
8,326
66
7,097
COMPARATIVE INFORMATION
(in $’000 except for per share amounts)
Revenues
less: Plant and other operating costs (excluding depreciation)
General and administration
Sales and development
Share of results of equity accounted joint ventures
Impairment of investment in joint venture
Depreciation and amortization
Stock‐based compensation
Loss before other income (expenses)
Other income – net
Net gain from legal settlement
Bad debt recovery (expense)
Recovery of NWM settlement
Gain on disposal of capital assets
Income tax
Net loss for the year
Translation gain on foreign operations
Comprehensive (loss) for the year
Net loss per share (basic and diluted)
Proportional Revenues1
Adjusted EBITDA1
Working capital
Total assets
Total long term liabilities
Shareholders’ equity
Notes:
1. See Non‐GAAP measures
5
COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMEBER 31, 2015 TO DECEMEBER 31, 2014
The following is a summary of selected financial results for the year ending December 31, 2015.
Revenue
In 2015, revenue was $3.6 million, similar to 2014. Proportional Revenue was $8.7 million compared to $7.8 million in 2014.
The change in revenue and Proportional Revenue from each revenue source is shown in the table below:
(in $’000s)
Revenue Source
Treatment fees
Engineering and lab services
Total revenue
Metal recovery – share of joint venture results
Total Proportional Revenue
2015
$
1,677
1,970
3,647
5,033
8,680
% of total
19%
23%
42%
58%
100%
2014
$
1,677
1,945
3,622
4,221
7,843
Total Revenue
%
Change
0%
1%
1%
19%
11%
% of total
21%
25%
46%
54%
100%
Treatment fee revenue for the Raglan site in 2015 was consistent with the 2014 season. The volume of water treated
remained the same at 1.1 million cubic metres in 2015 and 2014. The seasonal operation treated water for 15 more days in
2015 compared to 2014.
The marginal 1% increase from last year’s engineering and lab services revenue due to maintaining a similar value of projects
in pilot campaigns, engineering and lab services as 2014.
Revenue from metal recovery operations, which are from the joint venture in China, increased by $812,000 from 2014. The
total pounds of copper recovered increased 552,000 pounds over the prior year due to a full year operations of two new
plants. The decline in average annual copper prices year over year partially offset the increase in overall volume. The average
LME annual price of copper in 2015 was USD $2.50/lb. In 2014, the average annual price of copper was USD $3.11/lb.
Plant and other operating costs (excluding depreciation)
Total plant and other operating costs (excluding depreciation) were $2.3 million compared to $1.9 million in 2014, an
increase of $400,000. The increase is mainly due to the increase in cost to complete the pilot campaigns and other
engineering and lab projects in 2015. Each individual project will require different levels of costs depending on specific mine
conditions and treatment requirements. Projects in 2015 required higher costs to meet the project’s scope and requirements.
Our share of total plant and other operating costs (excluding depreciation) in the China venture also increased from $2.3
million in 2014 to $3.5 million in 2015. The increase in cost was driven by higher volumes of water treated and copper
recovered over the prior year as well as the impact of foreign exchange rates between the Chinese renminbi and Canadian
dollar.
Expenses and other income
In 2015, general and administration expenses were $2.0 million compared to $2.5 million in the prior year. The decrease of
$466,000 in general and administration costs are mainly the net savings from the restructuring expenses in 2014.
Sales and development costs in 2015 were $1.2 million compared to $1.5 million in 2014. The decrease of $279,000 is largely
due to the reduced head count resulting in lower salaries and benefits in sales and development from 2014.
Total depreciation and amortization expenses were $221,000 in 2015 compared to $232,000 in 2014. The decrease of
$10,000 is mainly due to our intangible asset being fully amortized in Q1 2015.
6
Stock‐based compensation were a recovery of $19,000 compared to charge of $41,000 in the prior year. In general, these
non‐cash charges 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 $259,000 compared to $57,000 in 2014. The foreign exchange gain includes an
elimination of $173,000 translation loss from the Bisbee joint venture, which is was dissolved during the year. The remaining
gain arise mainly from changes in the value of the US dollar, Australian dollar, Mexican peso, Chilean peso and Chinese yuan
renminbi relative to the Canadian dollar.
During 2015, the Company recovered $408,732 in VAT receivable from the Mexican government, which $478,278 were
written off in 2014. To assist in the recovery of this balance, the Company paid professional fees of $140,623, which have
been applied against the recovered amount. Also in 2015, the Company received interest income of $80,102 related to this
outstanding balance. Any additional VAT amounts collected in the future will be recorded as a recovery of bad debt in the
period received.
Also included in the bad debt recovery in 2015, the Company recovered from its customers a net receivable in the amount of
$67,848 compared to the expense of $78,173 recognized in 2014.
In June 2015, the Company entered into a six‐month, unsecured, convertible loan agreements (the “Loans”) with six lenders
with a principle of $775,000. The Loans has been fully repaid to all lenders in November 2015.
In 2015, income tax expense was $143,000 compared to $88,000 in the prior year. The income tax charges in both years are
the taxes withheld in China for the distributions made by the Dexing joint venture. These taxes cannot offset accumulated tax
benefits in other jurisdictions.
Overall performance
Overall net loss for the year was $1.4 million or $0.02 per share, compared to a loss of $1.6 million in 2014, or a loss of $0.02
per share.
Cash used in operating activities, after changes in working capital, was $1.1 million compared $1.5 million in 2014; a 27%
decrease year over year.
Adjusted EBITDA was ($895,000) compared to ($929,000) million in 2014; a 4% loss decrease over 2014.
7
COMPARISON OF QUARTERS
Financial data for the last eight quarters
(unaudited, in $'000 except per share amount)
Quarters ended
Total revenues
Plant and other operating costs
(excluding depreciation)
General and administration
Sales and development
Stock‐based compensation
Depreciation and amortization
Share of results of equity
accounted joint ventures
(Loss) income from operations and
joint ventures
Other income (expenses)
Net gain from legal settlement
Bad debt recovery (expense)
Recovery of NWM settlement
Income tax expense
Net (loss) income
Translation (loss) gain
Comprehensive (loss) income
Dec‐15
$
1,229
Sep‐15
$
1,620
Jun‐15 Mar‐15
$
512
$
286
Dec‐14
$
1,049
Sep‐14
$
1,722
Jun‐14 Mar‐14
$
154
$
697
813
416
577
278
(1)
57
392
(887)
206
‐
68
‐
(143)
(756)
(174)
(930)
740
880
472
248
1
57
280
6
456
358
(19)
52
500
12
526
293
‐
55
632
417
368
357
5
58
684
1,038
463
236
22
56
463
234
563
337
(27)
55
151
3
1,103
526
42
63
(55)
(446)
(80)
245
(499)
(478)
30
157
(395)
(782)
(617)
760
(216)
(1,761)
6
‐
116
‐
‐
279
287
566
6
‐
83
‐
‐
(306)
(90)
(396)
63
‐
69
‐
‐
(650)
494
(156)
18
‐
(78)
‐
‐
(677)
20
(657)
56
50
‐
300
‐
1,166
265
1,431
(12)
‐
‐
300
(88)
(16)
(61)
(77)
16
‐
(478)
100
‐
(2,123)
174
(1,949)
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 the 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 the timing of customer requirements.
8
Summary of Q4 2015 results
Below is a summary of revenue for Q4 2015 and Q4 2014:
(unaudited, in $'000 except per share amount)
Revenue Source
Treatment fees
Engineering and lab services
Total revenue
Metal recovery – share of joint venture
results
Total Proportional Revenue
Q4 2015
$
463
766
1,229
578
1,807
% of total
26%
42%
68%
32%
100%
Q4 2014
$
413
636
1,049
1,067
2,116
Total
Revenue %
Change
12%
20%
17%
% of total
20%
30%
50%
50%
100%
(46%)
(15%)
Total revenues for Q4 2015 increased 17% over the prior year’s quarter. Treatment fee revenue increased by 12% due to the
increase in water treated in Q4 as Raglan’s 2015 season lasted 9 days longer than the prior year. Engineering and lab services
fees increased by 20% from Q4 2015 over last year’s quarter. The revenue from engineering and lab services include design,
construction, commissioning and pilot operations, which are generally one‐time in nature and have varying contract values.
In 2015, total Proportional Revenue for Q4 decreased 15% over the prior year’s quarter. Metal recovery revenue decreased
by 46% due to the 39% decrease in copper recovered and 26% decrease in copper price. In the quarter, our share of
recovered copper was 196,000 pounds compared to 317,000 pounds in 2014. The fourth quarter is typically our lowest
quarter for copper production due to a three‐week annual maintenance shutdown at the Dexing site.
General and administration costs during the quarter increased by $209,000 over the prior year. The increase in general and
administration costs are mainly the result of severance costs in Q4 2015 of $105,000 and other slight increases in public
company fees, consulting and professional services costs.
Overall net loss for the quarter was $756,000 compared to a loss of $677,000 in 2015.
PROJECT SUMMARY
Joint venture with Jiangxi Copper Company, China
In 2007, BioteQ entered into a 50/50 joint venture arrangement with Jiangxi Copper Company (“JCC”), China’s largest copper
producer, to evaluate potential water treatment sites utilizing BioteQ’s technology.
In April 2008, the joint venture completed construction and commissioning of its first water treatment plant at JCC’s Dexing
Mine site, an active copper mine in China. The plant utilizes 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
recovered from the water is shipped to JCC’s refinery.
In 2014, the joint venture completed construction and commissioning of two new water treatment plants: in June, at JCC’s
Yinshan Mine site, and a second water treatment plant at the Dexing site in August. Both plants also utilize BioteQ’s
ChemSulphide® process.
All three plants were designed by BioteQ and are operated by the joint venture company JCC‐BioteQ Environmental
Technologies Co. Ltd. The plants are 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. Revenues are generated through the sale of recovered copper from the plants based on the average
metal price during the month when the concentrate is shipped, less refining costs.
Operating results for all three plants during the year were as follows:
9
Dexing 1 (existing water treatment plant):
Plant operating results
Water treated (cubic metres)
Copper produced (pounds)
Dexing 2 (commenced operations in August 2014)
Plant operating results
Water treated (cubic metres)
Copper produced (pounds)
Yinshan (commenced operations in June 2014)
Q4
2015
1,838,000
217,000
Q4
YTD Dec. 31
YTD Dec. 31
2014
1,543,000
347,000
2015
8,066,000
1,663,000
2014
8,143,000
2,064,000
Q4
2015
1,847,520
134,169
Q4
YTD Dec. 31
YTD Dec. 31
2014
1,632,000
230,000
2015
8,670,000
870,000
2014
2,079,000
270,000
Plant operating results
Water treated (cubic metres)
Copper produced (pounds)
Q4
2015
762,000
41,000
Q4
YTD Dec. 31
YTD Dec. 31
2014
295,000
57,000
2015
3,156,000
594,000
2014
1,195,000
240,000
The two Dexing plants treat water from the same source at the site and provides excess water treatment capacity in the
event of unusually high rainfall. It will also provide additional water treatment capacity to support future mining expansion
activities at the site.
During 2015, operations at both Dexing plants performed in line with expectations in terms of mechanical availability and
process performance. However, due to higher volumes of water treated combined with a lower copper grade in the feed
water, operating costs have increased over the prior year. Changes in water volume and feed grade are largely the result of
environmental conditions beyond the control of the joint venture and will fluctuate from period to period.
Operations at Yinshan are continuing to be optimized to improve overall performance and profitability. JCC is continuing to
complete water management changes at the site that will improve the volume of water treated and copper recovered from
the plant in the future. These changes are now expected to be completed in 2017.
The Raglan Project, Quebec: Build‐own‐operate for Glencore Canada Corporation
BioteQ operates a seasonal water treatment plant at the Raglan Mine, an active nickel mine in northern Quebec, owned by
Glencore. 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 provided $2 million in capital to
build the plant and provides ongoing operating services in return for a water treatment fee per cubic metre of water treated.
BioteQ’s current operating contract with Glencore expires at the end of 2016.
Water treated (cubic metres)
Days operated (some partial)
Q4
2015
360,000
62
Q4
YTD Dec. 31
YTD Dec. 31
2014
319,000
53
2015
1,118,000
181
2014
1,135,000
166
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In 2015, we successfully completed our 12th operating season at the site. During the year, we treated and discharged a total
of 1.1 million cubic metres of water, which is similar to 2014. The 2015 season was the third highest volume of water we have
treated at the site since we began operations in 2004. Treatment volumes are largely determined by the level of precipitation
and timing of winter conditions in the region. We have also made modifications to the treatment plant and processes to
increase the available capacity of our operations. We continue to work with the site management to enhance and improve
our services.
BioteQ also maintains operating responsibility for Glencore’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.
The Bisbee Project, Arizona: Joint venture with Freeport‐McMoRan Copper & Gold
In September 2013 we announced that operations at the Bisbee plant had been suspended. The Bisbee operations was part
of a joint venture with Freeport‐McMoRan Copper & Gold (“FMI”) and was dissolved during Q2 2015.
Technology Development, Engineering and Pilot Projects
Seabridge Gold ‐ Selen‐IX™ Pilot Project
During the year, we concluded our Selen‐IX™ pilot testing contract with Seabridge Gold, a Canadian mining company, which
originally commenced in mid‐2014. The pilot testing results are being used to demonstrate the capacity of the Selen‐IX™
process to meet stringent discharge limits for selenium and provide engineering design data required for evaluating the
overall capital and operating costs of a full scale plant that would treat up to 43,000 m3/day of wastewater.
New Selen‐IX™ Pilot Project
During the year, we entered into a contract with a Canadian mining company to complete a pilot scale demonstration and
evaluation of our Selen‐IX™ technology to remove selenium from mine impacted water to less than 1 part per billion. In early
2016, we completed our field operations and provided final results to the customer. The total value and length of the pilot
project was comparable to our past Selen‐IX™ pilot projects.
We are awaiting decisions from both customers on their future plans for water treatment at these sites. These decisions will
be impacted by the companies’ overall mine plans, regulatory and permitting requirements, and markets conditions to meet
financing needs and the long term project economics.
These Selen‐IX™ pilot projects builds upon the previous pilot we completed in 2013 with Teck Resources. It demonstrates the
increasing need for mining companies to manage selenium concentrations in their mine water and the capabilities of our
solution.
Design, Construction, and Commissioning Services
We have entered into a contract to provide design, construction and commissioning services for a water treatment plant at
the Silvertip project in northern BC. The design has been completed and construction and commissioning is currently in
progress and expected to be completed by the end of Q2 2016. We are discussing additional services with the customer to
include future operating support if required.
Lab Testing Contracts
We have recently started contracts with customers in Canada and Latin America to perform lab scale testing of our
technologies at various mine sites. These tests will allow the customers to assess our technologies and provide high level cost
estimates for a possible full scale plant. If results prove favorable, it may lead to additional services including pilot scale
testing, design, construction, and operation of a full scale plant in the future.
Zinc and Copper Recovery – Joint Venture
We have also completed our detailed technical and economic assessment of a new treatment plant to be installed at an
active smelter in China. The proposed new treatment plant is currently undergoing environmental permitting and BioteQ is
working closely with a potential new partner on forming a joint venture to deliver the treatment plant for the smelter under a
Build‐Own‐Operate business model following the environmental approval.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2015, BioteQ had 93,966,672 common shares issued and outstanding (December 31, 2014 – 93,966,672),
5,243,333 stock options outstanding (December 31, 2014 ‐ 6,068,333) and no warrants outstanding (December 31, 2014 –
4,322,078).
As of April 19, 2016 the number of common shares issued and outstanding remain unchanged from December 31, 2015;
5,243,333 stock options are issued and outstanding; and number of warrants issued and outstanding remain unchanged from
December 31, 2015.
At December 31, 2015, the Company had cash and cash equivalents of $1,408,890 and no short‐term investments, which is
an increase of $119,218 in cash and cash equivalents and short‐term investments from December 31, 2014. The cash and
cash equivalents and short‐term investments funded operating activities of $1,081,761 and net capital asset purchases of
$50,804.
Working capital at the end of the year was $871,223, a decrease of $378,130 from December 31, 2014. BioteQ’s significant
working capital items include trade and other receivables of $568,204 ($847,077 at December 31, 2014) and trade payable
and accrued liabilities of $929,579 ($935,867 at December 31, 2014).
The Company has $555,666 under operating leases for office and laboratory premises and for office equipment.
Any cash distributions from the Chinese joint venture to BioteQ must be unanimously approved by both partners and comply
with Chinese tax and regulatory requirements. Distributions are also subject to Chinese withholding taxes and minimum
capital requirements as applicable. Currently, BioteQ and its partner have a standing agreement to distribute excess cash
reserves annually. The partners will take into consideration factors such as operating performance of the plants, future
capital requirements and working capital flexibility in determining the cash amount to be distributed in a given year.
As disclosed in note 2(b) of our audited consolidated financial statements for the year ended December 31, 2015 and in the
“2015 COMMENTARY AND 2016 OUTLOOK” section of this MD&A, the Company believes that it has sufficient working capital
resources for approximately one quarter. Beyond this point, we will need to secure new sources of working capital to
continue operations. Potential sources of new working capital include new sales projects or non‐operational sources such as
debt or equity investments.
Management’s current plan is to actively work with the Company’s Board to secure sources of funds, including possible
equity and debt financing options, while at the same time focus on increasing revenue and exercise careful cost control to
sustain operations. If necessary, the Company will curtail discretionary spending. The Board believes that there is a
reasonable expectation that the Company will be successful in obtaining the necessary financing resolution to address its
working capital needs and for this reason believes it is appropriate to continue to adopt the going concern basis in preparing
these consolidated financial statements.
The continuation of the Company as a going concern is dependent upon its ability to raise additional financing and ultimately
attain and maintain profitable operations. This assumes that the Company is able to successfully obtain financing to fund its
working capital needs, continue successful operations at its Raglan and Dexing joint venture operations, maintain or further
decrease operating expenses, successfully repatriate funds from its Dexing joint venture, and secures and completes new
sales contracts.
Historically, we have not yet realized profitable operations and relied on non‐operational sources of financing to fund our
operations. Whether and when the Company can attain profitability and positive cash flows is uncertain. While the Company
has been successful in securing financing in the past, there is uncertainty whether financing will be available in the future on
terms acceptable to the Company. Accordingly, there is a material uncertainty that may cast significant doubt upon the
Company’s ability to continue as a going concern. Our consolidated financial statements do not include adjustment to the
recoverability and classification on recorded assets and liabilities and related expenses that might be necessary should the
Company be unable to continue as a going concern. If the going concern assumption is not appropriate, material adjustments
to our consolidated financial statements could be required.
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RELATED PARTY TRANSACTIONS
The following transactions were carried out with related parties of the Company:
a) As at December 31, 2015, the Company had a receivable balance of $116,165 (2014 ‐ $228,201) from the Dexing joint
venture, arising mainly from joint venture investments and sale transactions. The receivables are unsecured in nature
and bear no interest. No provisions are held against such receivables. There was no sale of goods and services with the
Dexing joint venture (2014 ‐ $85,691) during the year ended December 31, 2015. Sales and other transactions are
recorded at the exchange amount agreed by both parties.
b)
In February 2014, the Company entered into a contract for approximately 23 months with a company owned by a
director, to procure management consulting services. For the year ended December 31, 2015, the services received
amounted to $120,000 (2014 ‐ $110,000) and as of December 31, 2015, the Company has $160,000 included in trade
payable and accrued liabilities (December 31, 2014 – $110,000).
c) On June 9 2015, the Company entered into a six‐month, unsecured, 12% interest bearing convertible loan agreements
with six lenders totalling to $775,000 (note 13). The six lenders include directors, management and shareholders of the
Company. At the year ended December 31, 2015, there was no outstanding balance on these loans.
d) Key management compensation includes the Company’s directors and members of the Executive. Included in the trade
payable and accrued liabilities as at December 31, 2015 is $230,043 (2014 – $114,630) of salaries, director fees, and
termination benefits, with payment commitments in 2016. Compensation awarded to key management includes:
Salaries, fees and short‐term benefits
Termination benefits
Share‐based payments
2015
$
787,889
84,525
50,899
2014
$
863,224
470,899
112,665
923,313
1,446,788
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires the Company’s
management to make judgments, estimates and assumptions about the future events that affect the amounts reported in
the consolidated financial statements and related notes to the financial statements. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ
from these estimates.
Estimates and assumptions are continually evaluated and are based on management’s experience and other facts and
circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and
liabilities are accounted for prospectively.
The areas which require management to make significant judgments, estimates and assumptions in determining carrying
values include, but are not limited to:
a) Critical judgements
Critical judgements that management has made in the process of applying the Company’s accounting policies and that have
the most significant effect on the amounts recognized in the consolidated financial statement are limited to management’s
assessment of the Company’s ability to continue as a going concern (note 2(b)).
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b) Key sources of estimation uncertainty and assumptions
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of
the reporting period, that have a significant risk of causing a material adjustment to the reported amounts of assets and
liabilities, income and expenses within the next fiscal year.
Revenue recognition
Revenue from engineering and lab services are recognized using percentage‐of‐completion method, which requires judgment
relative to assessing risks, estimating contract revenue and expenses, and making assumptions for schedule and technical
issues. Depending on the services provided and on the contract terms, many variables are used in assessing the revenue from
the percentage completed at the reporting date.
Asset impairment
Determining the amount of asset impairment requires an estimation of the recoverable amount, which is defined as the
higher of fair value less the cost of disposal or 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 risk specific to the asset. In assessing fair value less costs to sell, the price that would be received on the sale
of an asset in an orderly transaction between market participants at the measurement date is estimated. Many of factors
used in assessing recoverable amounts are outside of the control of management and it is reasonably likely that assumptions
and estimates will change from period to period. These changes may result in future impairments in the Company’ long term
assets such as plant and equipment or investment in joint venture. For example, the copper price could be lower than
projected due to economic, industry or competitive factors, or the discount rate used in the value in use model could
increase due to change in market interest rate.
Convertible loan
The calculation of the fair value of the debt component of the convertible loan issued during the year requires using an
interest rate that the Company would have had to pay had the loan been obtained without a conversion feature. As the
Company has not entered into a conventional loan in the past, such interest rate require management’s estimate by
reference to loan interest paid by comparable companies in the similar sector. The Company estimates 20% being the
reasonable interest rate a comparable company in technology sector would likely pay in obtaining loans.
GENERAL
Disclosure Controls and Procedures and Internal Control over Financial Reporting
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that any disclosure
controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide
only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control
system reflects the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been prevented or detected.
The Company’s management has evaluated the design and effectiveness of the Company’s disclosure controls and
procedures. Based upon the results of that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were
effective to provide reasonable assurance that the information required to be disclosed in reports it files is recorded,
processed, summarized and reported within the appropriate time periods and forms.
The Company’s management has also evaluated the design and operating effectiveness of the Company’s internal control
over financial reporting as of the end of the period covered by this report. The risk of a significant error is mitigated by the
active involvement of senior management and the board of directors in all the affairs of the Company; open lines of
communication within the Company; the present levels of activities and transactions within the Company being readily
transparent; and the thorough review of the Company’s financial statements by management and the Board of Directors.
Based on the result of the assessment, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that
the Company’s internal controls over financial reporting have been adequately designed. During the current year, the
14
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, 2015
that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial
reporting.
Recent Accounting Pronouncement
The following is an over view of accounting standard changes that the Company will be required to adopt in future years. The
Company is still in the process of assessing the impact on the financial statements of these new standards:
IFRS 9 Financial instruments
On July 24, 2014, the IASB issued the complete IFRS 9, Financial Instruments (“IFRS 9”). IFRS 9 introduces new requirements
for the classification and measurements of financial assets. Under IFRS 9, financial assets are classified and measured based
on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces
additional changes relating to financial liabilities and amends the impairment model by introducing a new “expected credit
loss” model for calculating impairment. It also includes a new general hedge accounting standard which aligns hedge
accounting ore closely with risk management. The mandatory effective date of IFRS 9 is for annual periods beginning on or
after January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. The
restatement of prior periods is not required and is only permitted if information is available without the use of hindsight.
The Company has not yet determined the effect of adoption of IFRS 9 on its consolidated financial statements.
IFRS 15 Revenues from contracts with customers
On May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 deals with revenue
recognition and establishes principles for reporting useful information to users of financial statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is
recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the
benefits from the good or service. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related
interpretations. The effective date is for reporting periods beginning on or after January 1, 2018 with early application
permitted. The Company has not yet determined the effect of adoption of IFRS 15 on its consolidated financial statements.
IFRS 16 Leases
On January 6, 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). IFRS 16 specifies the methodology to recognize, measure,
present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and
liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The standard
replaces IAS 17 Leases. The effective date is for reporting periods beginning on or after January 1, 2019 with early adoption
permitted. The Company has not yet determined the effect of adoption of IFRS 16 on its consolidated financial statements.
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.
Uncertain Profitability, Funding Needs, Financing Risks and Dilution
The Company believes there are many sites which can benefit from the Company’s processes. The Company has designed
and/or built 17 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 cash flows from these projects
to cover ongoing development and administration costs to date.
BioteQ's ability to continue future operations is dependent on the Company's ability to generate positive cash flows from
existing water treatment operations and projects currently under construction, securing additional design, engineering,
construction and operating contracts, and if required, additional internal cost restructuring and financing in the future.
Sources of potential financing include, but are not limited to, a combination of strategic partnerships, joint venture
15
arrangements, project debt finance, issuance of equity and other capital markets alternatives. Management will pursue such
additional sources of financing when required and while management has been successful in securing financing in the past,
there can be no assurance it will be able to do so in the future or that these sources of funding or initiatives will be available
for the Company and that they will be available on terms which are acceptable to the Company.
The issuance of common shares in the capital of the Company in the future could also 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.
Going Concern
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. As disclosed in note 2(b) of our audited consolidated financial statements for the
year ended December 31, 2015 and in the “2015 COMMENTARY AND 2016 OUTLOOK” section of this MD&A, the Company
believes that it has sufficient working capital resources for approximately one quarter. Beyond this point, we will need to
secure new sources of working capital to continue operations.
Management’s plan is to actively work with the Company’s Board to secure sources of funds, including possible equity and
debt financing options, while at the same time focus on increasing revenue and exercise careful cost control to sustain
operations. If necessary, the Company will curtail discretionary spending. The Board believes that there is a reasonable
expectation that the Company will be successful in obtaining the necessary financing resolution to address its working capital
needs and for this reason believes it is appropriate to continue to adopt the going concern basis in preparing these
consolidated financial statements.
The continuation of the Company as a going concern is dependent upon its ability to raise additional financing and ultimately
attain and maintain profitable operations. This assumes that the Company is able to successfully obtain financing to fund its
working capital needs, continue successful operations at its Raglan and Dexing joint venture operations, maintain or further
decrease operating expenses, successfully repatriate funds from its Dexing joint venture, and secures and completes new
sales contracts.
Historically, the Company has not yet realized profitable operations and has relied on non‐operational sources of financing to
fund its operations. Whether and when the Company can attain profitability and positive cash flows is uncertain. While the
Company has been successful in securing financing in the past, there is uncertainty whether financing will be available in the
future on terms acceptable to the Company. Accordingly, there is a material uncertainty that may cast significant doubt upon
the Company’s ability to continue as a going concern. The consolidated financial statements do not include adjustment to the
recoverability and classification on recorded assets and liabilities and related expenses that might be necessary should the
Company be unable to continue as a going concern. If the going concern assumption is not appropriate, material
adjustments to the consolidated financial statements could be required.
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.
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.
16
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 price 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 US dollar. Therefore, any devaluation of the US 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 US dollar coupled with unstable or declining base metal prices could
have an adverse effect on the Company’s results of operations to the extent that sales of base metals are not hedged.
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®,
Met‐IX™, Sulf‐IX™ and Selen‐IX™ processes. Litigation or regulatory proceedings, which could result in substantial cost and
uncertainty to the Company, may also be necessary to enforce the intellectual property rights of the Company or to
determine the scope and validity of other parties’ proprietary rights. There can be no assurance that the Company will have
the financial resources to defend its patents, trademarks and copyrights from infringement or claims of invalidity.
The patent positions of emerging companies can be highly uncertain and involve complex legal and factual questions. Thus,
there can be no assurance that any patent applications made by or on behalf of the Company will result in the issuance of
patents, that the Company will develop additional proprietary products that are patentable, that any patents issued or
licensed to the Company will provide the Company with any competitive advantages or will not be challenged by any third
parties, that the patents of others will not impede the ability of the Company to do business or that third parties will not be
able to circumvent the patents assigned or licensed to the Company. Furthermore, there can be no assurance that others will
not independently develop similar products, duplicate any of the Company’s products or, if patents are issued and licensed to
the Company, design around the patented product developed for the benefit of the Company.
Since patent applications are maintained in secrecy for a period of time after filing, and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that the investors of the
patents were the first creators of inventions covered by pending applications, or that it was the first to file patent
applications for such inventions. There can be no assurance that the Company’s patents, if issued, would be valid or
enforceable by a court or that a competitor’s technology or product would be found to infringe such patents.
17
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 favor 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 favorable 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 Canada or the United States.
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
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.
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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.
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