BQE WATER INC.
(formerly BioteQ Environmental Technologies Inc.)
Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
Independent Auditors’ Report
To the Shareholders of BQE Water Inc.:
We have audited the accompanying consolidated financial statements of BQE Water Inc. (formerly BioteQ
Environmental Technologies Inc.), which comprise the consolidated statements of financial position as at
December 31, 2016 and December 31, 2015, and the consolidated statements of loss and comprehensive loss,
changes in equity and cash flows for the years then ended, and a summary of significant accounting policies
and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of 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 audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the 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 we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of BQE Water Inc. as at December 31, 2016 and December 31, 2015 and its consolidated
financial performance and its consolidated cash flows for the years 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 BQE Water 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 BQE Water Inc. to
continue as a going concern.
Vancouver, British Columbia
April 19, 2017
Chartered Professional Accountants
BQE Water Inc.
Consolidated Statements of Financial Position
As at December 31, 2016 and 2015
Assets
Current assets
Cash and cash equivalents
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
Convertible loan
Deferred lease inducement
Total liabilities
Shareholders’ Equity
Share capital
Contributed surplus
Equity component of convertible loan
Accumulated other comprehensive income
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
Going concern (note 2(b))
Commitments (note 20)
Subsequent event (note 25)
note
6
7
8
9
10
7, 11
18
12
13
12, 14
12
13
December 31
2016
$
December 31
2015
$
2,231,798
527,054
86,255
20,018
121,028
2,986,153
217,010
4,231,567
24,601
4,473,178
1,408,890
568,204
116,165
61,455
130,122
2,284,836
432,526
4,708,976
24,601
5,166,103
7,459,331
7,450,939
878,891
152,195
157,415
128,910
8,572
1,325,983
1,377,532
‐
929,579
152,550
254,100
65,954
11,430
1,413,613
‐
8,572
2,703,515
1,422,185
54,719,814
10,047,271
84,614
1,410,982
(61,506,865)
4,755,816
54,719,814
10,033,768
‐
456,982
(59,181,810)
6,028,754
7,459,331
7,450,939
Approved and authorized by the Board of Directors
Signed “George Poling”
George Poling, Director
Signed “Peter Gleeson”
Peter Gleeson, Director
The accompanying notes are an integral part of these consolidated financial statements.
1
BQE Water Inc.
Consolidated Statements of Loss and Comprehensive Loss
For the years ended December 31, 2016 and 2015
Revenue
Plant and other operating costs (excluding depreciation) 15
Operating margin before depreciation
note
15
15
12
9
10
16
17
18
General and administration
Sales and development
Stock‐based compensation expense (recovery)
Depreciation of plant and equipment
Share of results of equity accounted joint venture
Loss from operations and joint venture
Finance (costs) income, net
Foreign exchange (loss) gain
Other income, net
Loss before income taxes
Income tax expense, net
Net loss for the year
Other comprehensive income
Items that will be reclassified subsequently to loss
Translation gain on foreign operations
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
2015
$
2016
$
3,960,713
1,757,982
2,202,731
1,705,104
1,154,214
76,459
233,551
(156,289)
(810,308)
(97,973)
(1,427,094)
11,205
(2,324,170)
(885)
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
(1,289,635)
(142,645)
(2,325,055)
(1,432,280)
954,000
516,912
(1,371,055)
(915,368)
(0.02)
(0.02)
93,966,672
93,966,672
The accompanying notes are an integral part of these consolidated financial statements.
2
BQE Water Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2016 and 2015
Year ended December 31
2016
$
Number of
Shares
Year ended December 31
2015
$
Number of
Shares
note
Share Capital
Balance, beginning of the year
Expired warrants
14
93,966,672
54,719,814
‐
93,966,672
56,253,254
(1,533,440)
Balance, end of the year
93,966,672
54,719,817
93,966,672
54,719,814
Contributed surplus
Balance, beginning of the year
Share‐based payments
Expired warrants
Settlement of convertible loan
Balance, end of the year
Equity component of convertible loan
Balance, beginning of the year
Issuance of convertible loan
Balance, end of the year
Accumulated other comprehensive income (loss)
Balance, beginning of the year
Other comprehensive income for the year
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
Settlement of convertible loan
Issuance of convertible loan
Net loss for the year
Other comprehensive income for the year
Balance, end of the year
12
13
12
13
10,033,768
13,503
‐
‐
10,047,271
‐
84,614
84,614
456,982
954,000
1,410,982
(59,181,810)
(2,325,055)
(61,506,865)
6,028,754
13,503
‐
84,614
(2,325,055)
954,000
4,755,816
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
The accompanying notes are an integral part of these consolidated financial statements.
3
BQE Water Inc.
Consolidated Statements of Cash Flow
For the years ended December 31, 2016 and 2015
Operating activities
Net loss for the year
Items not affecting cash
Income tax expense
Deferred Income tax recovery
Bad debt expense (recovery)
Share of results of equity accounted joint venture
Gain on settlement of convertible loan
Interest costs (income)
Depreciation of plant and equipment
Amortization of deferred lease inducement
Net foreign exchange loss
Expense (recovery) 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
Proceeds from sale of short‐term investments
Interest received
Net cash provided by investing activities
Financing activities
Financing initiation costs paid
Interest paid
Proceeds from convertible loan
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
note
18
18
17
10
17
16
9
12
19
18
9
9
10
16
13
13
Year ended December 31
2015
$
2015
$
(2,325,055)
(1,432,280)
38,571
(37,686)
5,212
(156,289)
‐
97,973
233,551
(11,430)
1,421,030
76,459
(657,664)
(108,138)
(765,802)
(38,571)
(804,373)
(18,040)
‐
181,480
‐
6,696
170,136
(23,652)
‐
1,480,334
1,456,682
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)
463
19,688
822,908
1,408,890
493,209
915,681
2,231,798
1,408,890
The accompanying notes are an integral part of these consolidated financial statements.
4
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
BQE Water Inc. is the ultimate parent company of its consolidated group (“BQE” or the “Company”). Effective March 1, 2017,
the name of the Company was changed from BioteQ Environmental Technologies Inc. to BQE Water Inc.
The Company is a service provider specializing in water treatment and management for the mining and metallurgical
industry. The Company generates its revenues from three main sources: metal recovery, water treatment fees, and
engineering services.
BQE 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 trading under the symbol BQE.
The address of its registered office is Suite 250 – 900 Howe Street, Vancouver, British Columbia, V6Z 2M4, Canada.
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, 2016.
The Company’s Board of Directors approved these consolidated financial statements on April 19, 2017.
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, 2016, the Company incurred a net loss of $2,325,055 (2015 – $1,432,280) and used net
cash in operating activities of $804,373 (2015 – $1,081,761). At December 31, 2016, the Company had a working capital
position of $1,660,170 (2015 – $871,223) and a cumulative deficit of $61,506,865 (2015 – $59,181,810).
In July 2016, the Company completed financing through a convertible loan for gross proceeds of $1,500,000 (note 13), and
the Company currently believes that it has sufficient working capital resources to meet operating requirements over the next
12 months. This assumes that BQE is able to continue successful operations at Raglan and our Chinese joint venture, market
prices for metals and foreign exchange rates remain at current levels, the Company maintains or further decreases operating
expenses, successfully repatriates funds from its Chinese 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.
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.
5
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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, 2016 that had a material impact on these consolidated financial statements.
Certain prior year comparative figures have been reclassified to comply with the 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 losses 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 (Chile) SpA
BioteQ Water Mexico S.A. de C.V.
BioteQ Water (Australia) Pty Ltd.
(disolved in 2016)
BioteQ (Shanghai) Water Treatment
Technologies Co. Ltd.
JCC‐BioteQ Environmental
Technologies Co. Ltd.
Shangdong MWT BioteQ
Environmental Technologies Co. Ltd.
($nil transaction in 2016)
i)
Subsidiaries
Subsidiary
Joint
venture
Joint
venture
Ownership
type
Subsidiary
Subsidiary
Subsidiary
Method of
accounting
Consolidated
Consolidated
Consolidated
Country of
incorporation
and operation
Canada
Chile
Mexico
Ownership
interest as at
Dec. 31, 2016
100%
100%
100%
Ownership
interest as at
Dec. 31, 2015
100%
100%
100%
Subsidiary
Consolidated
Australia
‐
Consolidated
China
Equity
China
100%
50%
100%
100%
50%
Equity
China
20%
0%
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
6
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
related to the Company.
b) Foreign currency translation
i)
Functional and presentation currency
Items included in the financial statements of each consolidated entity in BQE Water 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 purpose of presenting these consolidated financial statements, entities including joint ventures that have a functional
currency different from that of BQE Water 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 BQE 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.
Inventory and work in progress
d)
Inventory of metal concentrate is valued at the lower of average production cost and net realizable value. Production costs
that are inventoried include the costs directly related to bringing the inventory to its current condition and location, such as
materials, labour and other direct costs (including external services) and related production overheads, but exclude
administrative and finance costs. Net realizable value is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and selling expenses.
Chemicals and spare parts inventories are valued at the lower of cost and net replacement cost, which approximates net
realizable value. Work in progress 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.
7
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
e) 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 expenditures that are 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 labour, 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 statement of profit or loss in the financial period in which they are incurred.
A plant and equipment item 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 from the disposal or retirement of a plant and equipment item 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
f)
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 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
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
8
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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, cancelled or expired.
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 an 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 of cash and cash equivalents, trade and other receivables, and receivables
from joint ventures. No financial asset was designated as FVTPL, available for sale or held for maturity as at December 31,
2016 and 2015.
iv) Non‐derivative financial liabilities – measurement
Financial liabilities are classified as FVTPL when the financial liability is either held for trading or is designated as 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
stock‐based compensation expense or recovery.
The Company has classified the provisions related to the Company’s Deferred Share Units (“DSU”) and Restricted Share Units
(“RSU”) as 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 an amortized cost using the effective interest method.
9
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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 and
convertible loan 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.
g)
Impairment
i)
Plant and equipment
The Company’s plant and equipment 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 its fair value less costs of disposal ("FVLCD") and value in use (“VIU”). 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 the
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)
Loans and Receivables
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
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.
10
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
Indications includes observable data indicating there is a measurable decrease in the estimated future cash flows of the
investee’s operations. When there is objective evidence that an investment is impaired, the carrying amount of such
investment is compared to its recoverable amount, being the higher of its FVLCD and VIU. If the recoverable amount of an
investment is less than its carrying amount, the carrying amount is reduced to its recoverable amount and an impairment
loss, being the excess of carrying amount over the recoverable amount, is recognized in the period in which the relevant
circumstances are identified. When an impairment loss reverses in a subsequent period, the carrying amount of the
investment is increased to the revised estimate of recoverable amount to the extent that the increased carrying amount does
not exceed the carrying amount that would have been determined had an impairment loss not been previously recognized. A
reversal of an impairment loss is recognized in net earnings or loss in the period in which the reversal occurs.
h) Provisions
A provision is a liability of uncertain timing or amount. Provisions are recognized when: (i) the Corporation has present legal
or constructive obligations as a result of past events; (ii) it is probable that an outflow of resources will be required to settle
the obligations; and (iii) and the amount has been reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligations using a
pre‐tax rate that reflects current market assessments of the time value of money and the risk specific to the obligations. The
increase in the provision due to passage of time is recognized as interest expense. As at December 31, 2016 and 2015, the
Company did not have any liability for provisions.
Revenue Recognition
i)
Revenue is recognized when the amount of revenue can be measured reliably, and 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) Water Treatment fees revenue
The above criteria are generally met as services are performed. The Company has an agreement with a customer for the
operation of a water treatment plant. Water treatment fees revenue are earned based on the volume of water treated and
on labour hours incurred.
ii) Engineering and lab services
The above criteria are generally met as services are performed. Engineering services include plant design, construction,
piloting, commissioning and operation support. 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 upon terms.
j) 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
11
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
or loss on a systematic basis in the periods in which the intended expenses are recognized.
k) 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.
Share‐based payment
l)
The Company maintains a RSU plan, a DSU plan, and a stock option plan for employees and directors of the Company.
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 contributed surplus.
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.
Income tax
m)
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.
12
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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.
n) 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.
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.
13
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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 a percentage‐of‐completion method, which requires
judgment relative to assessing risks, estimating project costs for completion, and making assumptions for 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 factors used
to assess 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 ventures. 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 changes 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 an interest rate requires management’s estimate in
reference to loan interest paid by comparable companies in a similar sector. Management estimates 15% being the
reasonable interest rate a comparable company in the technology sector would likely pay in obtaining loans. As the
convertible loan with a conversion feature has an interest rate of 8%, a higher estimate would lead to a higher equity
component of the convertible loan.
5. RECENT ACCOUNTING PRONOUNCEMENT
The Company has not early adopted any amendment, standard or interpretation that has been issued by the IASB but is not
yet effective. Changes in accounting standards not yet effective:
14
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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 will evaluate the impact of the change to the consolidated financial statements based on the characteristics of
financial instruments outstanding at the time of adoption of IFRS 9.
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 introduces a single
contract‐based five‐step model that applies to contracts with customers and two approaches for the recognition of revenue:
at a point in time or over time. The five steps are: identify the contract(s) with the customer, identify the performance
obligations in the contract, determine the transaction price, allocate the transaction price, and recognize revenue when the
performance obligation is satisfied. 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. IFRS 15 also requires enhanced disclosures
about revenue to help investors better understand the nature, amount, timing and uncertainty of revenue and cash flows
from contracts with customers, and improve the comparability of revenue from contracts with customers. 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 intends to adopt IFRS 15 in its consolidated financial at the date it becomes effective. The extent of the impact
of adoption of the standard has not yet been determined.
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, 2016
$
439,573
74,096
13,385
Dec. 31, 2015
$
390,216
173,693
4,295
527,054
568,204
15
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
7. RELATED PARTY TRANSACTIONS
The following transactions were carried out with related parties of the Company:
a) As at December 31, 2016, the Company had a receivables balance of $86,255 (2015 ‐ $116,165) from the Dexing joint
venture, arising mainly from joint venture costs incurred on behalf of the joint venture. 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 during the year ended December 31, 2016 and 2015.
b) As of December 31, 2016, the Company has $10,000 included in trade payables and accrued liabilities (December 31,
2015 – $160,000) with a company, owned by a director, for management consulting services. For the year ended
December 31, 2016 and for 2015, the services received amounted to $120,000.
c)
For the year ended December, 2016 and 2015, the compensation awarded to key management, which includes the
Company’s directors and members of the executive, are as follows:
Salaries, fees and short‐term benefits
Termination benefits
Share‐based payments
2016
$
525,826
‐
13,502
2015
$
787,889
84,525
50,899
539,328
923,313
Included in the trade payables and accrued liabilities as of December 31, 2016 is $49,200 (2015 – $230,043) of salaries,
director fees, and termination benefits, with payment commitments in 2017.
d) On July 6, 2016, the Company entered into an 18‐month, secured, 8% per annum interest bearing convertible loan
agreements with multiple lenders totalling to $1,500,000 (note 13). These lenders include certain directors,
shareholders, management, and employees of the Company. In 2015, the Company entered into a six‐month 12%
interest bearing convertible loan with six lenders with total proceeds of $775,000 (note 13). These lenders include
directors, management and shareholders of the Company.
8. INVENTORY AND WORK IN PROGRESS
Work in progress
Inventory of spare parts
Dec. 31, 2016
$
20,018
‐
Dec. 31, 2015
$
40,248
21,207
20,018
61,455
During the year ended December 31, 2016, the Company wrote down $19,931 of inventory, all of which was included in
operating costs (2015 – no write down of inventories) as a result of recoverability analysis performed at the reporting date,
which are related to spare parts.
16
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
9. PLANT AND EQUIPMENT
As at Dec. 31, 2015
Opening net book value
Additions
Disposals
Depreciation
Foreign exchange translation
Water
treatment
plant
$
100,509
50,254
‐
(64,407)
‐
Pilot
plants
$
434,456
‐
(800)
(116,487)
‐
Other1
$
Total
$
68,203
550
‐
(39,829)
77
603,168
50,804
(800)
(220,723)
77
Closing net book value
86,356
317,169
29,001
432,526
As at Dec. 31, 2015
Cost
Accumulated depreciation
2,105,132
(2,018,776)
580,593
(263,424)
517,833
(488,832)
3,203,558
(2,771,032)
Closing net book value
86,356
317,169
29,001
432,526
As at Dec. 31, 2016
Opening net book value
Additions
Depreciation
Foreign exchange translation
86,356
8,256
(94,612)
‐
317,169
‐
(117,287)
‐
29,001
9,784
(21,652)
(5)
432,526
18,040
(233,551)
(5)
Closing net book value
‐
199,882
17,128
217,010
As at Dec. 31, 2016
Cost
Accumulated depreciation
2,113,388
(2,113,388)
580,593
(380,711)
528,224
(511,096)
3,222,205
(3,005,195)
Closing net book value
‐
199,882
17,128
217,010
1Other comprises of office and lab equipment and computer equipment.
17
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
10. INVESTMENT IN JOINT VENTURE
Investment in joint venture is comprised of:
Balance, January 1, 2015
Share of comprehensive income
Contributions made
Distributions received
Balance, December 31, 2015
Share of comprehensive loss
Contributions made
Distributions received
Balance, December 31, 2016
Dexing joint venture
$
5,033,483
871,409
229,284
(1,425,200)
4,708,976
(295,929)
202,920
(384,400)
4,231,567
The Company’s share of net earnings in the Dexing joint venture for the year ended December 31, 2016 were $156,289 (2015
– $189,377)
During 2006, BQE 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 BQE and JCC, is called JCC‐BioteQ Environmental Technologies Co. Ltd. The joint
venture builds and operates water treatment plants using BQE’s technologies. The agreement includes a license contract
whereby BQE 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.
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 fair market price of the metal with adjustments in accordance with
the agreed terms.
Any cash distributions from the joint venture to BQE 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, BQE 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 2016,
the Company received a gross cash distribution of $384,400 (RMB $2,000,000) (2015 ‐$1,425,200 (RMB $7,000,000)).
18
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
BQE’s 50% interest in the Dexing joint venture’s financial statements is presented as follows:
Statement of financial position
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
Deferred income tax assets
Dec. 31, 2016
$
Dec. 31, 2015
$
783,474
‐
87,979
55,134
100,272
857
1,027,716
4,481,601
65,321
4,546,922
588,406
92,699
112,817
80,147
438,052
522
1,312,643
5,351,657
‐
5,351,657
Total assets
5,574,638
6,664,300
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Total liabilities
Partner’s Equity
Joint venture partner equity
Accumulated other comprehensive income
Accumulated deficit
Total partner’s equity
Total liabilities and partner’s equity
1,343,071
1,955,324
1,343,071
1,955,324
3,584,024
1,449,908
(802,365)
4,231,567
3,381,104
1,902,126
(574,254)
4,708,976
5,574,638
6,664,300
19
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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
Foreign exchange (loss) income
Income before income taxes
Current income tax (expense) recovery
Deferred income tax recovery
Net income for the year
Other comprehensive income
Translation (loss) gain on foreign operation
Comprehensive (loss) income for the year
2016
$
2015
$
4,401,089
3,493,374
907,715
4,301,770
3,462,898
838,872
255,003
512,545
140,167
(1,623)
(9,383)
184,339
482,547
171,986
(840)
12,542
129,161
183,688
(38,938)
66,066
5,689
‐
156,289
189,377
(452,218)
682,032
(295,929)
871,409
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
Interest payable under convertible loan (note 13)
Dec. 31, 2016
$
489,051
267,462
65,392
56,986
Dec. 31, 2015
$
446,660
413,605
69,314
‐
878,891
929,579
20
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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, 2016
$
13,503
61,216
1,740
Dec. 31, 2015
$
42,524
(60,193)
(1,549)
76,459
(19,218)
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 grant date 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:
2016
Weighted average
exercise price
$
0.14
‐
0.29
0.11
Number of
options
5,233,333
‐
(900,000)
4,333,333
2015
Weighted average
exercise price
$
0.21
0.11
0.75
0.14
Number of
options
6,058,333
(108,334)
(716,666)
5,233,333
Outstanding at January 1
Forfeited
Expired
Outstanding at December 31
Exercisable at end of year
0.12
3,466,666
0.18
3,332,222
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 grant date 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
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
Exercise price range
$
0.07 to 0.15
0.17 to 0.19
0.07 to 0.19
Weighted average remaining life
(months)
25
8
2016 number of outstanding
share options
3,133,333
1,200,000
20
4,333,333
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 management and 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 Venture 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, 2015
Granted
Redeemed
Balance, December 31, 2015
Redeemed
Balance, December 31, 2016
Number of units
3,187,160
93,958
(366,043)
2,915,075
‐
2,915,075
During 2016, the Company recorded fair value adjustment as expense of $61,216 (2015 – recovery of $60,193) 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, the Company will settle the RSU in cash, having
payment equal to the five‐day volume weighted average trading price of the number of RSUs held preceding the date of
redemption. RSU granted are accounted for and fair valued using the same methodology as DSUs.
22
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
The following table presents the changes to the RSU plan:
Balance, January 1, 2015
Redeemed
Balance, December 31, 2015
Redeemed
Balance, December 31, 2016
Number of units
82,841
‐
82,841
‐
82,841
The RSUs outstanding at the end of 2016 are all vested as at December 31, 2016 (December 31, 2015 – 41,421). During 2016,
the Company recorded fair value adjustment as expense of $1,740 (2015 – recovery of $1,549) as stock‐based compensation
expense related to the RSUs.
13. CONVERTIBLE LOAN
On July 6, 2016, the Company entered into an 18‐month convertible loan agreement with multiple lenders, which include
certain directors, management, and employees of the Company, individual investors, and non‐management insiders of the
Company. The lenders agreed to advance a secured convertible loan with an aggregate principle amount of $1,500,000. The
Company grants to the lenders a security interest of all the personal property in which the Company now has or hereafter
acquires. Out of the aggregate principle, $1,441,000 are from single tranche lenders and the remaining $59,000 are from
multi‐tranche lenders. Single tranche lenders agreed to advance the loan on the issuance date. Multi‐tranche lenders agreed
to advance funds to the Company in 9 monthly equal tranches starting July 31, 2016 to March 31, 2017.
Under the agreement, the convertible loan bears interest at a rate of 8% per annum, and interest being payable semi‐
annually. The convertible loans are due for repayment 18 months from the effective date at their nominal value of
$1,500,000 or conversion into common shares of the Company at the holder’s option with the conversion price of $0.06 per
share. Any unpaid and accrued interest that is to be converted into common shares shall be equal to the greater of $0.06 or
the market price on the date such interest becomes due and payable. At any time, the Company may elect to repay all or any
portion of the principle and unpaid accrued interest prior to the maturity date.
On June 9, 2015, the Company entered into a six‐month, unsecured, convertible loan agreements with six lenders. Under the
loan agreements, the loans bear interest at a 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%.
For the $1.5 million convertible loan entered in 2016, the fair value of the liability component is calculated using a market
interest rate for comparable companies of 15% for an equivalent, non‐convertible secured loan at the date of issue (2015 –
20% equivalent of non‐convertible unsecured loan). 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 the issuance of the convertible loan are allocated to the liability and equity components in its allocated proportion.
23
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
The carrying amount of the liability component of the convertible loan and the interest payable are derived as follows:
Face value of convertible loan issued
Less: amounts receivable from lenders
Transaction costs
Equity conversion component on initial recognition
Liability component on initial recognition
Accumulated amortization of interest expense
Equity conversion component on settlement
Gain on early settlement
Equity settlement to contributed surplus
Repayment of interest
Repayment of loan
Total liability component as at period end
Current interest payable included in accrued liabilities (note 11)
Non‐current liability component balance as at period end
Dec. 31, 2016
$
Dec. 31, 2015
$
1,500,000
(19,667)
(23,652)
(122,300)
1,334,381
100,137
‐
‐
‐
‐
‐
1,434,518
(56,986)
1,377,532
775,000
‐
(7,303)
(30,712)
736,985
73,708
30,712
(8,911)
(10,994)
(46,500)
(775,000)
‐
‐
‐
14. SHARE CAPITAL
Authorized: unlimited common shares without par value.
As at December 31, 2016, the Company has 93,966,672 (December 31, 2015 – 93,966,672) common shares outstanding and
no warrants outstanding (December 31, 2015 – nil).
15. EXPENSES BY NATURE
Plant and other operating costs
Employee benefits
Raw materials and consumables used
Consulting and contractor expenses
Equipment rental expenses
Travel expenses
Other expenses
2016
$
1,210,614
109,848
222,720
61,036
93,029
60,735
2015
$
1,416,021
156,544
469,624
129,603
77,739
83,777
1,757,982
2,333,308
24
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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
Travel expenses
Other expenses
16. FINANCE COSTS AND INCOME
The finance costs and income are comprised as follows:
Finance income
Finance costs
17. OTHER INCOME, NET
The other income is comprised as follows:
Recovery of value added tax receivable
(Write‐off) recovery of trade receivable
Gain on settlement of convertible loan (note 13)
689,203
103,400
376,863
302,748
134,749
98,141
758,716
185,600
476,660
294,927
164,120
151,284
1,705,104
2,031,307
789,343
119,046
86,425
84,980
74,420
908,925
66,705
79,897
84,304
37,097
1,154,214
1,176,928
2016
$
6,696
(104,669)
2015
$
88,280
(74,801)
(97,973)
13,479
2016
$
16,417
(5,212)
‐
11,205
2015
$
268,109
67,848
8,911
344,868
Recovery of value added tax receivable
In 2016, the Company recovered $16,417 (2015 ‐ $268,109) in VAT receivable from the Mexican government of which
$478,278 was written off in 2014. During 2016, the Company paid professional fees of $4,238 (2015 ‐$140,623) to assist in
the recovery of this balance.
25
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
18. INCOME TAXES
Current tax expense on profits for the year
Deferred tax recovery
Income tax expense
2016
$
38,571
(37,686)
2015
$
142,645
‐
885
142,645
The statutory tax rate to income tax expense was 26% (2015 – 26%) for the year‐ended December 31, 2016. 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:
Expected income tax recovery at statutory rates
Non‐deductible expenses and (non‐taxable income)
Withholding tax
Change in tax rates
Functional currency adjustments
Different statutory tax rates on foreign subsidiaries
Change in unrecognized deferred tax assets
2016
$
(604,284)
(39,489)
38,571
(125,871)
531,545
(78,181)
278,594
2015
$
(335,305)
207,449
142,645
22,092
(184,117)
(9,597)
299,478
Income tax expense
885
142,645
Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their corresponding values for tax purposes. Details of deferred tax assets (liabilities) as at
December 31, 2016 and 2015 are as follows:
Non‐capital losses carry‐forwards
Convertible loan
Unrealized foreign exchange gain
Investment in joint venture
Deferred tax assets (liabilities)
2016
$
29,623
(29,623)
‐
‐
2015
$
179,376
‐
(59,194)
(120,182)
‐
‐
The Company’s unrecognized deductible temporary differences and non‐capital losses at December 31, 2016 and 2015 are as
follows:
26
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
Canada
Plant and equipment
Investment in joint venture
Net capital losses
Non‐capital losses
Investment tax credits
Deferred benefits and others
Foreign Jurisdictions
Plant and equipment
Unrealized foreign exchange loss
Non‐capital losses
2016
$
2015
$
3,082,381
‐
9,635,754
23,732,528
86,834
228,302
36,765,799
3,387
1,278,723
3,311,870
4,593,980
2,975,957
3,158,087
7,438,030
21,558,720
86,834
203,929
35,421,557
7,306,628
‐
4,724,310
12,030,938
Total unrecognized deductible temporary differences
41,359,779
47,452,495
The Company’s investment tax credits, expiring between 2018 and 2020, all of which may be used to reduce future Canadian
income taxes that are otherwise payable. As at December 31, 2016, the Company has not recognized a deferred tax asset in
respect of non‐capital loss carry forwards of approximately $23,732,528 (2015 ‐ $21,558,720) which may be carried forward
to apply against future year income tax for Canadian income tax purposes, subject to the final determination by taxation
authorities, expiring in the following years:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
$
2,273,406
1,628,919
1,951,879
2,372,749
965,964
3,007,451
3,735,949
3,403,636
2,414,568
1,458,931
519,076
23,732,528
In addition, the Company has available tax losses in other jurisdictions that total $3,311,870 (2015 ‐ $4,724,310). The
remaining losses can be carried forward to offset against future taxable income in those jurisdictions with expiry periods from
10 years to indefinitely.
As at December 31, 2016, the Company has income taxes payable of $152,195 (2015 ‐ $152,550), due to an estimated
withholding tax with the Chilean government as the Company’s Canadian entity earned income while operating at a Chilean
water treatment plant during 2012.
27
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
19. 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
Decrease (increase) in inventory
Decrease in other assets
Decrease in trade payable and accrued liabilities
(Decrease) increase in deferred revenue
Decrease in other liabilities
2016
$
62,367
35,001
9,171
(117,459)
(97,218)
‐
2015
$
484,997
(32,060)
13,374
(4,378)
203,320
(9,344)
Change in non‐cash working capital items
(108,138)
655,909
20. COMMITMENTS
The Company has commitments of $818,167 under operating leases for office and laboratory premises, for laboratory assay
services, and for office equipment, as follows:
2017
2018
2019
2020
2021
$
339,831
228,256
122,490
122,490
5,100
818,167
21. SEGMENTED INFORMATION
The Company has one operating segment, being principally to build process plants and earn revenues from metal recovery,
water treatment fees, and engineering & lab services.
a) Segment revenue
The Company’s sources of revenue are as follows:
Water treatment fees
Engineering & lab services
2016
$
1,655,042
2,305,671
2015
$
1,677,503
1,969,526
3,960,713
3,647,029
b) Geographic information
The Company mainly generates revenue from Canada (country of domicile) and occasionally from other foreign countries.
The Company’s revenue by geographic locations, presented based on the location in which the sale originated from, are as
follows:
28
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
Revenue
Canada
Mongolia
Chile
Other
2016
$
3,201,281
391,299
61,748
306,385
2015
$
3,416,180
‐
223,922
6,927
3,960,713
3,647,029
The Company’s non‐current assets, excluding non‐current deposits, by location of assets are as follows:
Non‐current assets
Canada
Chile
China
Dec. 31, 2016
$
Dec. 31, 2015
$
217,010
‐
4,231,567
431,267
1,259
4,708,976
4,448,577
5,141,502
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 86% (2015 – 93%) of the Company’s total revenue for the year ended December 31, 2016.
Customer A
Customer B
Customer C
Customer D
Customer G
Customer K
2016
$
1,655,042
391,299
472,365
844,438
12,262
23,765
3,399,171
2015
$
1,677,502
‐
‐
‐
1,074,671
630,097
3,382,270
22. 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.
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 additional debt financing or refinance existing debt with different
characteristics. There were no changes in the Company’s approach to capital management during the year.
29
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
23. 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 2015.
a) Credit risk
Credit risk is the risk of an unexpected loss if a party to the Company’s financial instruments fails to meet their contractual
obligations. The Company’s financial assets are primarily comprised of cash and cash equivalents, 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 equivalent, and receivable from joint venture.
The Company’s maximum exposure to credit risk is as follows:
Cash and cash equivalents
Trade and other receivables
Receivable from joint venture
Dec. 31, 2016
$
2,231,798
527,054
86,255
Dec. 31, 2015
$
1,408,890
568,204
116,165
2,845,107
2,093,259
The Company minimizes the credit risk on cash and cash equivalents by depositing only with reputable and highly‐rated
financial institutions.
Credit risk on trade and other receivables is minimized by performing credit reviews, ongoing credit evaluation and account
monitoring procedures. The historical level of customer defaults is negligible and, as a result, the credit risk associated with
trade receivables at December 31, 2016 is considered to be negligible. All of the Company’s receivables have been reviewed
for indicators of impairment. The allowance for doubtful accounts balance was $11,812 at December 31, 2016 (December 31,
2015 ‐ $12,600). The aging of accounts receivable is as follows:
Trade and other receivables
Receivable from joint venture
0‐30
days
$
259,802
‐
31‐60
days
$
245,576
‐
Over 60
days
$
21,676
86,255
Dec. 31, 2016
Dec. 31, 2015
Total
$
527,054
86,255
Total
$
568,204
116,165
259,802
245,576
107,931
613,309
684,369
The Company recorded bad debt recovery of $11,205 during the year ended December 31, 2016 (2015 – recovery of
$335,957), of which recovery of $16,417 is related to the VAT recovery in Mexico and expenses of $5,212 are related to the
allowance of the Company’s doubtful receivable accounts. 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 upon
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.
30
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
b) Currency risk
The Company conducts business 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
the Canadian dollar: cash and cash equivalents, trade and other receivable, receivable from joint venture, and trade payable
and accrued liabilities. 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
407,812
109,925
(72,860)
Mexican
pesos
14,570
‐
(1,845)
Australian
dollar
1,172
December 31, 2016
Chinese
renminbi
1,657
Chilean
peso
10,851
‐
‐
69,414
(176,605)
‐
(1,130)
Gross balance sheet exposure
444,877
12,725
1,172
(96,340)
527
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
iii) Translation exposure
The Company’s functional and reporting currency is Canadian dollars. The Company’s foreign operations translate their
operating results from their respective functional currency to Canadian dollars. Therefore, exchange rate movements in the
U.S. dollar, Mexican peso, Australian dollar, 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.
31
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
US dollar
Mexican peso
Australian dollar
Chilean peso
Chinese renminbi
2016
$
44,488
1,273
117
(9,634)
53
36,297
2015
$
26,128
293
122
(9,373)
2,726
19,896
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 table shows the contractual maturities of debt commitments. The amounts presented represent the future
undiscounted principal and interest cash flows, and therefore, do not equate to the carrying amounts on the consolidated
statements of financial position.
Trade payable and other payables
Deferred benefits
Convertible loan
Interest Payable on convertible loan
< 1 year
$
821,905
128,910
‐
178,520
1‐2 years
$
‐
‐
1,500,000
1,973
Dec. 31, 2016
Total
$
821,905
128,910
1,500,000
180,493
Dec. 31, 2015
Total
$
929,579
65,954
‐
‐
1,129,335
1,501,973
2,631,308
995,533
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. 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 22).
d) Price risk
The Company’s net income or loss, 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 income or loss before taxes and other comprehensive
income or loss before taxes by $440,109 in 2016 (2015 ‐ $430,177).
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 and RSU plan that the Company is required to satisfy in cash
32
BQE Water Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
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 income or loss. A 10% change in prices would impact the Company’s net income or loss
before taxes and other comprehensive income or loss before taxes by $12,535 in 2016 (2015 ‐ $7,288).
24. 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:
Category
Financial assets
Cash and cash equivalents
Trade and other receivables
Receivable from joint venture
Loan and receivables at amortized cost
Loan and receivables at amortized cost
Loan and receivables at amortized cost
Financial liabilities
Trade payable and other payables
Convertible loan
Deferred benefits
Financial liabilities at amortized cost
Financial liabilities at amortized cost
Financial instruments at FVTPL
Dec. 31, 2016
$
Dec. 31, 2015
$
2,231,798
527,054
86,255
878,891
1,377,532
128,910
1,408,890
568,204
116,165
929,579
‐
65,954
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(f). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3
inputs. The Company’s DSUs and RSUs 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, 2016 and 2015. 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.
25. SUBSEQUENT EVENT
In December 2016, the Company renewed an extension of the Raglan operation contract until 2020 with the mine site owner.
Pursuant to the terms of the contract, the Company effectively transferred the ownership of the Raglan water treatment
plant to the mine site owner on January 1, 2017. This transaction has no financial effect as the net book value of the water
treatment plant asset was $nil on December 31, 2016.
33
Management’s Discussion and Analysis
April 19, 2017
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 2016 Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with our audited consolidated
financial statements for the year ended December 31, 2016, 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, 2016 and the sections “2016 Commentary and 2017 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
BQE Water Inc. (“BQE” or the “Company”) (formally BioteQ Environmental Technologies Inc.) is a service provider specializing
in water treatment and management for the mining and metallurgical industry. We are focused on reducing Life Cycle Costs
through customized solutions that reduce risk and long‐term environmental liabilities while introducing sustainability into the
overall water management plan. Headquartered in Vancouver, British Columbia, Canada, our treatment solutions help mine
owners to comply with environmental regulations and in the process, minimize waste generation, recover value from waste
where possible and maximize water recovery. We have extensive technical expertise and treatment plant operations
experience that enables us to provide our clients with comprehensive water treatment and management services from
permitting through to operations.
BQE is listed on the TSX Venture Exchange under the symbol BQE.
Additional information may be found on our website www.bqewater.com 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 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
1
assets, liabilities and equity in the joint venture are presented as a net investment on our consolidated statement of financial
position.
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 BQE’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, 2016 and 2015 are as follows:
(in $’000s)
Reported revenues under GAAP
Share of reported revenues from Dexing Joint Venture
Proportional Revenue for the year
2016
$
3,961
4,401
8,362
Adjusted EBITDA
Adjusted EBITDA (“earnings before interest, taxes, depreciation and amortization”) is derived as follows:
(in $’000s, all amounts include BQE’s proportionate share of joint venture results)
GAAP: Net loss
add: interest expense (income)
add: income taxes
add: depreciation and amortization
EBITDA
add: stock‐based compensation (recovery)
add: net foreign exchange loss (gain)
Adjusted EBITDA
2016
$
(2,325)
100
(26)
747
(1,504)
76
1,436
8
2015
$
3,647
4,302
7,949
2015
$
(1,433)
(12)
138
704
(603)
(19)
(272)
(894)
2
2016 OVERVIEW
Financial Highlights
Revenues for the year as reported under GAAP were $4 million compared $3.6 million in 2015, an 11% increase over the
prior year;
Proportional revenues for the year were $8.4 million compared to $7.9 million in 2015, a 6% increase over the prior year;
Net loss as reported under GAAP was $2.3 million compared to $1.4 million in 2015;
Adjusted income before interest, tax, depreciation and amortization (“adjusted EBITDA”) for the year was $8,000
compared to a loss of $894,000 in 2015. Since we began measuring adjusted EBITDA, this marks the first time which the
Company achieved a positive adjusted EBIDTA over one fiscal year and a positive adjusted EBIDTA for the last three
consecutive quarters;
Cash and cash equivalents reported under GAAP was $2.2 million compared to $1.4 million at the end of 2015; and
Proportional cash and cash equivalents and short term investments, which includes our share held in joint ventures, as of
December 31, 2016 was $3 million compared to $2.1 million at the end of 2015.
Financing
On July 6, 2016, we issued convertible loans (“Loan”) with an aggregate principle of $1.5 million. The Loan is with multiple
lenders which include certain directors, management, and employees of BQE, individual investors, and non‐management
insiders of the company. The Loan bears interest at a rate of 8% per annum with interest being payable semi‐annually from
the issuance date. Under the agreement, the Loan is due for repayment in 18 months from the issuance date. The Company
may elect to prepay all or any portion of the outstanding balance plus unpaid interest accrued at any time during the term of
the Loan without penalty. During the term of the Loan, the lenders will hold a first charge security interest over the assets of
the company.
Upon prepayment or maturity of the Loan, each lender may elect to convert all or any portion of the unpaid principal into
common shares of BQE at a conversion price of $0.06 cents per share. Any accrued but unpaid interest thereon will be
converted into common shares at a conversion price equal to the greater of $0.06 cents per share or the then‐prevailing
market price of the common shares.
The proceeds of the Loan will be used to fund general operating expenses and ensure we have the financial resources to
continue executing on our longer term growth strategy.
Operating Highlights
Raglan Mine, Quebec
During the year, we completed our 13th operating season at the Raglan Mine site. Operating results for the 12 months ended
December 31, 2016 are as follows:
(in ’000s)
Water treated (cubic metres)
2016
982
2015
1,118
3
Joint venture with Jiangxi Copper Company, China
Our joint venture in China with partner Jiangxi Copper Company (“JCC”) operated three plants during 2016. Operating results
during the 12 months ended December 31, 2016 are as follows:
Dexing 1
(in ’000s)
Water treated (cubic metres)
Copper produced (pounds)
Dexing 2
(in ’000s)
Water treated (cubic metres)
Copper produced (pounds)
Yinshan
(in ’000s)
Water treated (cubic metres)
Copper produced (pounds)
Total Joint Venture
(in ’000s)
Water treated (cubic metres)
Copper produced (pounds)
2016
6,637
1,577
2016
8,547
1,190
2016
2,996
842
2016
18,180
3,609
2015
8,066
1,663
2015
8,670
869
2015
3,156
594
2015
19,892
3,126
Sales and Project Highlights
Selen‐IX™ Activity
In March 2016, we completed the pilot testing contract with a Canadian mining company which originally commenced in mid‐
2015. 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 capital and operating costs of a
full‐scale plant. Currently, preliminary design and engineering work is in progress with the customer.
In August 2016, BQE secured a contract with a new customer, a Canadian resource company, for a pilot scale demonstration
and evaluation of Selen‐IX™ technology to remove selenium from mine impacted water. The pilot campaign was completed in
December 2016 and the final report was issued in February 2017. The results are being reviewed with the customer to
determine the advancement of the project. The total value of the contract is comparable to past pilot campaigns.
BQE has now completed four Selen‐IX™ pilot campaigns since 2013. This demonstrates the increasing need for mining
companies to manage selenium concentrations in their wastewater and the capabilities of our solution.
Zinc and Copper Recovery – Joint Venture
During the year, we completed a detailed technical and economic assessment of a new treatment plant to be installed at an
active smelter in China. We have commenced engineering and construction and expect to begin operations in late 2017.
Under terms of the joint venture and operating contracts, we will receive a fixed‐fee, technical support contract and an
ongoing share of the profits from the operation.
Design, Construction, and Commissioning Services
During the year, we provided design, construction and commissioning services for a water treatment plant at the Silvertip
project in Northern BC. The plant has been commissioned and is available for water treatment operations. We continue to
provide additional technical services and operational support as required.
4
2016 COMMENTARY AND OUTLOOK FOR 2017
Our results for the year reflect continuing improvements for BQE despite the challenging environment for the resource
industry globally. During the first half of the year, we required working capital to fund general operating expenses and to
ensure we had the financial resources to continue executing on our longer term growth strategy. As a result, in July 2016, we
issued $1.5 million in convertible loans. That financing allowed us to achieve significant improvements over the last half of
the year and build a solid pipeline of projects into 2017. Specifically, our achievements were:
increased Proportional Revenue over 2015;
positive Adjusted EBITDA on an annual basis;
successful demonstration of our Selen‐IX™ capabilities with a new resource sector customer while continuing to raise our
profile within the industry;
successful completion of the design and construction of a new water treatment plant at the Silvertip Mine in BC, Canada;
securing a contract for pilot demonstration of BQE’s Sulf‐IX™ process for sulphate control in Peru; and
finalizing a new joint venture agreement for a water treatment plant in China that will contribute long term, recurring
revenue beginning in Q4 2017.
For 2017, we expect to continue building on the improvements made over the past several years. We begin 2017 with a
backlog of project sales of approximately $1.6 million. Included in this backlog are contracts with customers in Latin America
which we see as an important market long term. We have also renewed our operating contract at the Raglan Mine site for an
additional four years and we expected our new joint venture in China to begin operations later this year.
The current backlog of projects are the results of efforts over the past several years. We have worked 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. We have
also restructured our expenditures over this time to preserve working capital while continuing to expand our project pipeline
and deliver our services in a strategic and disciplined manner. We expect to build on this throughout the current year.
Although these projects provide significant opportunities for future one‐time and recurring revenues, all of these projects
happen in stages, typically over the period of 2 to 3 years and the timing of revenue is uncertain. Consequently, the
consistency of the Company’s profitability through 2017 and 2018 cannot be guaranteed with the existing projects pipeline
and the continued growth of the projects pipeline is one of the primary areas of focus for the Company’s management. In
particular, the lack of control of timing of revenues from existing projects introduces a risk of temporary shortage in working
capital. Management and our Board of Directors are actively exploring potential options to ensure continuing operations of
our business and avoid shortages in working capital. 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.
5
FINANCIAL RESULTS
(in $’000 except for per share amounts)
Revenues
less: 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 from operations and joint ventures
Finance income, net
Foreign exchange (loss) gain
Bad debt recovery
Other income
Loss before income taxes
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
6
2016
$
3,961
1,758
2,203
1,705
1,154
76
234
(156)
(810)
(98)
(1,427)
11
‐
(2,324)
(1)
(2,325)
954
(1,371)
(0.02)
8,362
8
2015
$
3,647
2,333
1,314
2,031
1,177
(19)
221
(189)
(1,907)
13
259
336
9
(1,290)
(143)
(1,433)
517
(916)
(0.02)
7,949
(894)
at December 31
2016
$
at December 31
2015
$
1,660
7,459
1,378
4,756
871
7,451
9
6,029
COMPARISON OF QUARTERS
Financial data for the last eight quarters:
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
Income (loss) from operations and
joint ventures
Other (expenses) income
Bad debt recovery
Income tax expense
Net income (loss)
Translation (loss) gain
Comprehensive (loss) income
Non‐GAAP Measures:
Proportional Revenue
Adjusted EBITDA
Dec‐16
$
1,570
Sep‐16
$
1,356
Jun‐16 Mar‐16
$
391
$
644
Dec‐15
$
1,229
Sep‐15
$
1,620
Jun‐15 Mar‐15
$
512
$
286
680
890
404
181
‐
58
494
862
410
356
30
60
365
279
465
268
16
59
195
(160)
(291)
219
172
426
349
30
57
100
813
416
577
278
(1)
57
740
880
472
248
1
57
280
6
456
358
(19)
52
500
12
526
293
‐
55
392
(55)
(446)
(80)
52
(36)
4
(1)
19
(94)
(75)
166
(238)
(790)
(887)
157
(395)
(782)
(49)
‐
‐
117
22
139
(1,415)
7
‐
(1,646)
1,290
(356)
(26)
‐
‐
(816)
(263)
(1,079)
206
68
(143)
(756)
(174)
(930)
6
116
‐
279
287
566
6
83
‐
(306)
(90)
(396)
63
69
‐
(650)
494
(156)
2,295
107
2,411
414
2,137
71
1,519
(584)
1,723
(777)
3,010
496
2,008
(49)
1,208
(566)
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.
7
SUMMARY OF Q4 2016 FINANCIAL RESULTS
Below is a summary of revenue for Q4 2016 and Q4 2015:
(unaudited, in $'000 except per share amount)
Revenue Source
Water treatment fees
Engineering and lab services
Total revenue
Metal recovery – share of joint venture results
Total Proportional Revenue
Q4 2016
$
399
1,171
1,570
725
2,295
% of total
17%
51%
68%
32%
100%
Q4 2015
$
462
767
1,229
494
1,723
% of total
27%
45%
72%
28%
100%
Total
Revenue
% Change
(14%)
53%
28%
47%
33%
Total revenues for Q4 2016 increased 28% over the prior year’s quarter. During Q4 2016, the treatment fee revenue
decreased by 14% due to the decrease in water treated as operations ended 22 days earlier than the prior year’s quarter.
Engineering and lab services fees increased by 53% from Q4 2016 over last year’s quarter. The revenue from engineering and
lab services include design, construction, consulting, commissioning and pilot operations, which are generally one‐time in
nature and have varying contract values.
In Q4 2016, total Proportional Revenue increased 33% over the prior year’s quarter. Metal recovery revenue increased by
47% due to the 34% increase in copper recovered and 8% increase in copper price. In the quarter, our share of recovered
copper was 263,000 pounds compared to 196,000 pounds in 2015. The fourth quarter is typically our lowest quarter for
copper production due to a three‐week annual maintenance shutdown at the mine site.
General and administration costs during the quarter decreased by $173,000 over the prior year. The decrease in general and
administration costs are mainly the result of savings in overhead salaries, public company fees, consulting and professional
services costs.
Overall net income for the quarter was $20,000 compared to a net loss of $756,000 in Q4 2015.
SUMMARY OF 2016 FINANCIAL RESULTS
The following is a summary of selected financial results for the year ending December 31, 2016.
Revenue
The change in revenue and Proportional Revenue from each revenue source is shown in the table below:
(in $’000s)
Revenue Source
Water treatment fees
Engineering and lab services
Total revenue
Metal recovery – share of joint venture results
Total Proportional Revenue
2016
$
1,655
2,306
3,961
4,401
8,362
% of total
20%
28%
48%
52%
100%
2015
$
1,678
1,969
3,647
4,302
7,949
% of total
21%
25%
46%
54%
100%
Total
Revenue
% Change
(1%)
17%
9%
2%
5%
Treatment fee revenue for the Raglan site in 2016 was consistent with the 2015 season. The treatment fee revenue
comprises of fees earned from cubic metre of water discharged and operation support labour. The total volume of water
treated during 2016 decreased by 12% comparing to 2015 as the operation treated water 35 less days in 2016 compared to
prior year. The decrease in water treated was offset by the increase of fees earned from operation support.
The $337,000 increase from last year’s engineering and lab services revenue are due to the Company having an higher
number of projects in pilot campaigns, consulting, engineering and lab services than 2015.
8
Revenue from metal recovery operations in our joint venture in China, which are correlated with the amount of copper
recovered and the price of copper, increased by $99,000 from 2015. The total pounds of copper recovered increased 483,000
pounds over the prior year due to a higher concentration and grade of copper in the water treated. The average LME annual
price of copper in 2016 was USD $2.21/lb and USD $2.50/lb in 2015. The 12% decline in average annual copper prices year
over year was offset by the 15% increase in copper recovered.
Plant and other operating costs (excluding depreciation)
Total plant and other operating costs (excluding depreciation) were $1.8 million compared to $2.3 million in 2015, a decrease
of $575,000. The decrease is mainly due to the decrease in cost to complete the pilot campaigns and other engineering and
lab projects in 2016. Each individual project will require different levels of costs depending on specific mine conditions and
treatment requirements. Projects in 2016 required lower costs to meet the project’s scope and requirements.
Our share of total plant and other operating costs (excluding depreciation) in the China venture for 2016 were consistent with
2015 at $3.5 million.
Expenses
In 2016, general and administration expenses were $1.7 million compared to $2 million in the prior year. The decrease of
$326,000 in general and administration costs were due to lower salaries and benefits for administration, legal and
professional fees, and public company expenses in 2016.
Sales and development costs in 2016 were $1.2 million, which is a decrease of $23,000 from 2015.
Total depreciation and amortization expenses were $234,000 in 2016 compared to $221,000 in 2015. The increase of $13,000
was mainly due to our acceleration of depreciation on our water treatment plant asset.
Stock‐based compensation were $76,000 compared to a recovery of $19,000 in the prior year. In 2016, stock‐based
compensation expenses were higher due to a higher fair value adjustments of deferred and restricted share units from a
higher Company share price.
Other expenses and other income
Net finance costs were $98,000 compared to a finance income of $13,000 in 2015. During 2016, we recorded interest
expense of $100,000 relating to the $1.5 million 18‐month Loan. Comparing to the prior year, we recorded interest expense
from debt financing of $74,000 and also recorded interest income of $80,000, which is related to the VAT recovered from the
Mexican government.
Foreign exchange loss was $1,427,000 in 2016 compared to a gain of $259,000 in 2015. These gains and losses arise mainly
from changes in the value of the US dollar, Mexican peso, Chilean peso and Chinese renminbi relative to the Company’s
reporting currency in Canadian dollar. In June 2016, we dissolved our Australian subsidiary, BioteQ Water (Australia).
Throughout each reporting period since inception in 2007, the Company recognized cumulative foreign translation
differences of $1,417,000 related to the translation of the Australian subsidiary’s financial results from the Australian dollar
to the Canadian dollar. Such translation differences have been recognized in other comprehensive loss as “foreign currency
translation adjustments on foreign subsidiaries”. Upon the final dissolution of the subsidiary, the accumulated other
comprehensive loss due to translation adjustments on this subsidiary has been reclassified as a foreign exchange loss in the
Statement of Operations. It does not reflect results from our current or future operating activities.
In 2016, income tax expense was $1,000 compared to $143,000 in the prior year. The income tax charges in both years
contained the taxes withheld in China for the distributions made by the Dexing joint venture, which were an expense of
$39,000 in 2016 and $143,000 in 2015. These taxes cannot offset accumulated tax benefits in other jurisdictions. Also during
2016, we recorded a deferred income tax recovery of $38,000 relating to the issuance of the Loan.
9
PROJECT SUMMARY
Joint venture with Jiangxi Copper Company, China
In 2007, BQE entered into a 50/50 joint venture arrangement with JCC, China’s largest copper producer and in April 2008, the
joint venture completed the construction and commissioning of its first water treatment plant at JCC’s Dexing Mine site, an
active copper mine in China. The plant utilizes BQE’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 the construction and commissioning of two new water treatment plants at JCC’s Yinshan
Mine site and Dexing Mine site. Both plants also utilize BQE’s ChemSulphide® process.
All three plants were designed by BQE and are operated by the joint venture. The plants are managed jointly where BQE 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:
Dexing 1
(in ’000s)
Water treated (cubic metres)
Copper produced (pounds)
Dexing 2
(in ’000s)
Water treated (cubic metres)
Copper produced (pounds)
Yinshan
(in ’000s)
Water treated (cubic metres)
Copper produced (pounds)
Total Joint Venture
(in ’000s)
Water treated (cubic metres)
Copper produced (pounds)
2016
6,637
1,577
2016
8,547
1,190
2016
2,996
842
2016
18,180
3,609
2015
8,066
1,663
2015
8,670
869
2015
3,156
594
2015
19,892
3,126
The volume of water treated and pounds of copper recovered at all three plants will fluctuate depending on precipitation
levels and the prevailing environmental conditions at both sites. The two plants Dexing 1 and Dexing 2 treat water from the
same sources and water may be diverted from one plant to the other to optimize operations. JCC is continuing to complete
water management changes at the Yinshan site that is expected to improve the volume of water treated and copper
recovered from the plant in the future. These changes are now expected to be completed in 2018.
During 2016, all three plants met or exceeded mechanical availability and process performance. 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. Even with a decrease of 9% in water treated, copper grade has improved significantly and BQE was able to
increase copper recovery by 15% over 2015.
10
Raglan Operation for Glencore Canada Corporation, Quebec
BQE 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 by BQE in 2004 and uses the Company’s
ChemSulphide® process to remove dissolved nickel from wastewater to produce clean water that meets strict water quality
criteria for discharge to the environment. BQE is contracted to provide ongoing operating services in return for a water
treatment fee per cubic metre of water discharged. The previous operating contract with Glencore expired at the end of
2016. At year‐end, we successfully renewed an extension of the contract for both operations until 2020 and have transferred
ownership of the Raglan water treatment plant to Glencore on January 1, 2017.
Operating results for the 12 months ended December, 31 2016 are as follows:
Water treated and discharged (cubic metres)
Days operated (equivalent days)
Operating Hours
Discharge Hours
% of discharged hours/operating hours
2016
982,000
146
3469
3190
92%
2015
1,118,000
181
4325
3823
88%
In 2016, we successfully completed our 13th operating season at the site. During the year, we treated and discharged a total
of 982,000 cubic metres of water, which is 12% less compared to 2015. During 2016, we also operated 35 days less than
2015, as operating days are largely determined by the level of precipitation and timing of winter conditions in the region. As
we continued to enhance and improve our services in 2016, we improved our ratio of discharged hours over total operating
hours from 88% in 2015 to 92% in 2016.
BQE 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 BQE’s ChemSulphide® plant.
Piloting, Engineering & Lab Projects
Selen‐IX™ Pilot Operation
During 2016, BQE secured a contract with a Canadian resource company for a pilot scale demonstration and evaluation of its
Selen‐IX™ technology to remove selenium from mine impacted water. The pilot followed a successful laboratory campaign
completed earlier in the year directly at the client’s site and utilized BQE’s existing mobile Selen‐IX™ pilot plant. The
objectives of the pilot campaign were to: demonstrate selenium removal to reach discharge targets on a continuous basis,
generate design criteria for a full scale plant, and develop a preliminary capital and operating cost estimate. The pilot
campaign was completed in December 2016 and the final report were submitted in February 2017. The total value of the
contract is comparable to past pilot campaigns.
Engineering & Consulting Services
During 2016, the Company continued to provide consulting services to several mining projects in Canada, Asia, Europe and
Latin America. The services covered a broad spectrum of activities including permitting support, development of site specific
water management strategies and various stages of water treatment assessment for the removal of metals, sulphate and
selenium. BQE expects that these activities will continue over the next several quarters and may lead to new activities as
water management measures proceed to implementation.
Operational Support Services
During 2016, we completed services to provide the design, construction and commissioning for a water treatment plant at
the Silvertip project in northern BC. Currently, we continue to provide operational support for their water treatment plant
and additional lab testing services relating to arsenic, cyanide and selenium.
Lab Testing Services
Near the closing of 2016, we secured 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
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cost estimates for a possible full‐scale plant. If results prove favourable, 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
BQE completed its detailed technical and economic assessment of a new treatment plant to be installed at an active smelter
in China. The proposed new treatment plant has completed environmental permitting and BQE has formed a joint venture
partnership with MWT to deliver the treatment plant for the smelter. BQE has begun the engineering and construction phase
of the project and expects to start commissioning and operations in late 2017. Under the current arrangement of the joint
venture, BQE will earn a fixed‐fee from technical support and an ongoing share of the profits from the operation.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2016, BQE had 93,966,672 common shares issued (December 31, 2015 – 93,966,672) and 4,333,333 stock
options outstanding (December 31, 2015 ‐ 5,233,333).
As of April 19, 2017 the number of common shares issued and outstanding remain unchanged from December 31, 2016; and
3,793,333 stock options are issued and outstanding.
At December 31, 2016, the Company had cash and cash equivalents of $2,231,798, which is an increase of $822,908 in cash
and cash equivalents from December 31, 2015. The cash and cash equivalents funded operating activities of $804,373 and
capital asset purchases of $18,040.
Working capital at the end of the year was $1,660,170, an increase of $788,947 from December 31, 2015. BQE’s significant
working capital items include trade and other receivables of $527,054 ($568,204 at December 31, 2015) and trade payable
and accrued liabilities of $878,891 ($929,579 at December 31, 2015).
The Company has $818,167 under operating leases for office and laboratory premises and for office equipment.
As disclosed in note 2(b) of our audited consolidated financial statements for the year ended December 31, 2016 and in the
“2016 COMMENTARY AND 2017 OUTLOOK” section of this MD&A, the Company believes that it has sufficient working capital
resources to continue current operations for the next 12 months. 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.
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 secure and complete new sales
contracts.
On July 6, 2016, we completed an 18‐month secured convertible loan with an aggregate principle of $1.5 million. The Loan
was with multiple lenders and bears interest at a rate of 8% per annum with interest being payable semi‐annually from the
issuance date. Upon prepayment or maturity of the Loan, each lender may elect to convert all or any portion of the unpaid
principal into common shares of BQE at a conversion price $0.06 cents per share. The proceeds of the Loan are used to fund
general operating expenses and to ensure we have the financial resources to continue executing on our long‐term growth
strategy. Subsequent to the end of the year, on January 7, 2017, BQE paid out all accrued interest on the Loan.
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, 2016, the Company had a receivables balance of $86,255 (2015 ‐ $116,165) from the Dexing joint
venture, arising mainly from joint venture investments and sales 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 during the year ended December 31, 2016 and 2015. Sales and other transactions would have been
recorded at the exchange amount agreed upon by both parties.
b) As of December 31, 2016, the Company has $10,000 included in trade payables and accrued liabilities (December 31,
2015 – $160,000) with a company, owned by a director, for management consulting services. For the year ended
December 31, 2016 and for 2015, the services received amounted to $120,000.
c)
For the year ended December, 2016 and 2015, the compensation awarded to key management, which includes the
Company’s directors and members of the executive, are as follows:
Salaries, fees and short‐term benefits
Termination benefits
Share‐based payments
2016
$
525,826
‐
13,502
539,328
2015
$
787,889
84,525
50,899
923,313
Included in the trade payables and accrued liabilities as of December 31, 2016 is $49,200 (2015 – $230,043) of salaries,
director fees, and termination benefits, with payment commitments in 2017.
d) On July 6, 2016, the Company entered into an 18‐month, secured, 8% per annum interest bearing convertible loan
agreements with multiple lenders totalling to $1.5 million (note 13). These lenders include certain directors,
management, and employees of the Company.
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:
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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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 a 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 factors used
to assess 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 ventures. 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 changes 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 an interest rate require management’s estimate in
reference to loan interest paid by comparable companies in a similar sector. Management estimates 15% being the
reasonable interest rate a comparable company in the 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 period covered by this report, the Company’s disclosure controls and procedures were
effective to provide reasonable assurance that the information required to be disclosed in reports it files is recorded,
processed, summarized and reported within the appropriate time periods and forms.
The Company’s management has also evaluated the design and operating effectiveness of the Company’s internal control
over financial reporting as of the end of the period covered by this report. The risk of a significant error is mitigated by the
active involvement of senior management and the board of directors in all the affairs of the Company; open lines of
communication within the Company; the present levels of activities and transactions within the Company being readily
transparent; and the thorough review of the Company’s financial statements by management and the Board of Directors.
Based on the result of the assessment, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that
the Company’s internal controls over financial reporting have been adequately designed. During the current year, the
Company’s management implemented a formal testing program on the operating effectiveness of its controls and concluded
that they are also effective.
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There has been no change in BQE’s internal controls over financial reporting during the year ended December 31, 2016 that
has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Recent Accounting Pronouncement
The Company has not early adopted any amendment, standard or interpretation that has been issued by the IASB but is not
yet effective. Changes in accounting standards not yet effective:
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 will evaluate the impact of the change to the consolidated financial statements based on the characteristics of
financial instruments outstanding at the time of adoption of IFRS 9.
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 introduces a single
contract‐based five‐step model that applies to contracts with customers and two approaches for the recognition of revenue:
at a point in time or over time. The five steps are: identify the contract(s) with the customer, identify the performance
obligations in the contract, determine the transaction price, allocate the transaction price, and recognize revenue when the
performance obligation is satisfied. 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. IFRS 15 also requires enhanced disclosures
about revenue to help investors better understand the nature, amount, timing and uncertainty of revenue and cash flows
from contracts with customers, and improve the comparability of revenue from contracts with customers. 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 intends to adopt IFRS 15 in its consolidated financial at the date it becomes effective. The extent of the impact
of adoption of the standard has not yet been determined.
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 BQE and applying them to meet site specific
15
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.
BQE'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
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 investor 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, 2016 and in the “2016 COMMENTARY AND 2017 OUTLOOK” section of this MD&A, the Company
believes that it has sufficient working capital resources for approximately the next 12 months. Beyond this point, we will need
to secure new sources of working capital to continue operations.
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 secure and complete 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.
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Commodity Prices
For the Company’s joint venture operations, it generates revenue by selling recovered copper obtained from treated water.
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 copper will maintain at current buying rates.
Currency Risk
The Company conducts business 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 Company’s joint venture
operations sell and incur costs mainly in Chinese RMB. 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. The
Company is also exposed to currency risk through assets and liabilities denominated in currencies other than Canadian dollar.
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.
The Company is not currently aware of any claims asserted by third parties that the Company’s intellectual property infringes
on their intellectual property. However, in the future, a third party may assert a claim that the Company infringes on their
intellectual property. If the Company is forced to defend against these claims, which may be with or without any merit or
whether they are resolved in favour or against the Company, the Company may face costly litigation and diversion of
management’s attention and resources. As a result of such a dispute, the Company may have to develop costly non‐
infringement technology or enter into license agreements which may not be available at favourable terms.
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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.
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.
Environmental Regulation
The Company’s business and operations are subject to environmental regulation in various jurisdictions in which it operates.
There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s
business and operations.
Management of Growth
The Company could experience growth that could put a significant strain on each of the Company’s managerial, operational
and financial resources. The Company must implement and constantly improve its operational and financial systems and
expand, train and manage its employee base to manage growth. The Company might also establish additional water
treatment facilities which would create additional operational and management complexities. In addition, the Company
expects that it’s operational and management systems will face increased strain as a result of the expansion of the
Company’s technologies and services. The Company might not be able to effectively manage the expansion of its operations
and systems, and its procedures and controls might not be adequate to support its operations. In addition, management
might not be able to make and execute decisions rapidly enough to exploit market opportunities for the expansion of the
Company’s technologies and services. If the Company is unable to manage its growth effectively, its business, results of
operations and financial condition will suffer.
Conflicts of Interest
Certain 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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