BQE WATER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended December 31, 2020 and 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant
to an assessment and understanding of our consolidated results of operations and financial condition. Management of the
Company have prepared this document in conjunction with their broader responsibilities for reasonable assurance
regarding the reliability of the financial reporting and the establishment and maintenance of adequate information systems
and internal controls to ensure that the financial information is complete and reliable. Management also believes that any
internal controls and procedures for financial reporting, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control systems are met. 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 2020 MD&A should be read in conjunction with our audited consolidated financial statements for the year ended
December 31, 2020, under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee (“IFRIC”). All financial information in
this MD&A is derived from the Company’s Financial Statements prepared on a going concern basis, which presumes the
realization of assets and discharge of liabilities in the normal course of business operations for the foreseeable future. Our
accounting policies are described in note 3 of our audited consolidated financial statements. All financial information is
presented in Canadian dollars unless otherwise noted. This MD&A has been prepared as at April 28, 2020.
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.
OUR BUSINESS
BQE Water Inc. (“BQE Water” or the “Company”) is helping to make the mining and metallurgical industry more
environmentally sustainable and profitable by implementing innovative water management and treatment solutions that
support and improve operations in this sector. Central to our business model is that BQE Water produces clean water and
stable residues (or saleable by-products) and that we monetize the value of our unique process know-how through
recurring revenues generated from plant operations services.
BQE Water is headquartered in Vancouver, British Columbia, Canada. The Company has regional offices in Chile and China,
which are two key geographical markets in our business. BQE Water is listed on the TSX Venture Exchange under the
symbol BQE. Additional information may be found on our website at www.bqewater.com and on SEDAR at
www.sedar.com.
2020 Management’s Discussion and Analysis
pg. 2
OUR STRATEGY
The Company’s main strategy is to apply our unique expertise and intellectual property (“IP”) related to the treatment of
mine water and metallurgical bleed streams to help our clients minimize the life cycle costs and risks associated with water.
Additionally, we recognize that sustained growth and the financial success of our business are linked to ongoing innovation
and the expansion of our IP portfolio which we are actively engaged in through our own operations and through inquiries
from clients evaluating new projects.
The Company monetizes the value of its IP and expertise through services that span the full life cycle of mining projects
from permitting to closure. The Company’s primary service is the long-term operation of water treatment plants we have
designed to generate recurring revenue that is linked to the plant’s performance. As the period between the identification
of new projects and treatment plants entering their operating phase can be lengthy, BQE Water also generates revenues
from technical services that are project specific and are generally non-recurring in nature. The services provided by BQE
Water are grouped into two key areas:
Operational Services
Revenues from operational services provided by the Company are earned through water treatment fees or through the sale
of recovered base metals. Water treatment fees are either tolling fees charged per cubic metre of clean water treated and
discharged subject to specific water quality criteria or fees for the Company’s expertise linked to the achievement of
operational targets and delivered through supervisory and ongoing operational support services. The Company also
monetizes the value of its IP through joint ventures by sharing in the value of metals recovered from treating wastewater.
Technical Services
Technical services provided by the Company can be grouped into consulting and technical innovation services. Consulting
services help mining companies define water problems, identify opportunities for improving project performance and
present solutions to address specific water management issues. Such services include feasibility & assessment studies,
toxicity investigations, process engineering design, treatment plant commissioning and plant optimization. Technical
innovation services offers our clients beneficial design and technological improvements drawn from our unique knowledge
and expertise acquired from ongoing plant operations services. This also provides the Company with opportunities to
develop new technologies, through either laboratory treatability assessments or field pilot demonstrations, as triggered by
industry needs. These services allow BQE Water to follow projects through the entirety of their development and
implementation phases, and to provide recurring operational services for our clients.
2020 Management’s Discussion and Analysis
pg. 3
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 overall understanding of the Company's current financial
performance with investors and observers. Non-GAAP financial measures have limitations in that they do not reflect all
amounts associated with our operational results as determined in accordance with GAAP. In addition, non-GAAP financial
measures do not have any standardized meaning prescribed by GAAP and are 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
operational results in conjunction with the corresponding GAAP measures.
Proportional Results
To provide additional insight into our financial results, certain statements in this MD&A disclose the effective portion of
results that we would have reported if our joint venture operations had been proportionately integrated into our results
and are referred to as BQE Water’s proportional share (“Proportional”). All Proportional financial measures disclosed in this
MD&A are non-GAAP measures.
Proportional Revenues
This non-GAAP financial measure of Proportional Revenue adds BQE Water’s shares of joint venture revenues to the
Company’s revenues reported under GAAP. Proportional Revenues for the year ended December 31, 2020 and 2019 are as
follows:
(in $’000s)
Reported revenues under GAAP
Share of reported revenues from joint ventures
Proportional Revenues for the year
2020
$
7,696
5,801
2019
$
5,640
5,550
13,497
11,190
Adjusted EBITDA
Adjusted EBITDA (“earnings before interest, taxes, depreciation and amortization”) is intended to provide additional
information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures
presented by other companies. It should not be considered in isolation or as a substitute for measures of performance
prepared in accordance with IFRS. Consequently, the presentation of Adjusted EBITDA enables shareholders to better
understand the underlying financial performance of our business through the eyes of management. Adjusted EBITDA
includes adjustments of the Company’s Proportional share of joint venture results. The following table reconciles this non-
GAAP measure to the most directly comparable IFRS measure of net income:
(in $’000s)
GAAP: Net income
add: interest expense (income)
add: income tax expense
add: depreciation and amortization
EBITDA
add: share-based payment expenses
add: bad debt expenses
deduct: other income
add: net foreign exchange loss
Adjusted EBITDA
2020
$
1,166
7
376
770
2,319
387
-
(89)
55
2,672
2019
$
242
(4)
282
695
1,215
153
383
(66)
37
1,722
2020 Management’s Discussion and Analysis
pg. 4
FINANCIAL HIGHLIGHTS
Increased Adjusted EBITDA by 55%, from $1.7 million in 2019 to $2.7 million in 2020.
Grew revenues reported under GAAP by 36%, from $5.6 million in 2019 to $7.7 million in 2020, and grew Proportional
Revenues by 21%, from $11.2 million in 2019 to $13.5 million in 2020.
Recorded historic high net income of $1.2 million in 2020 compared to $242,000 in 2019, an increase of 382%.
Grew diluted Earnings Per Share by 375%, from $0.20 in 2019 to $0.95 in 2020.
Increased working capital by 94% year-over-year, from $1.8 million to $3.5 million as of December 31, 2020.
Increased net cash by $1.1 million over the 12-month period, from $2.1 million to $3.2 million at the end of 2020.
OPERATIONAL SERVICES HIGHLIGHTS
Our operational services consist of the operation of water treatment plants, which generate recurring revenues for the
Company from two main sources: sales of recovered metals and water treatment fees.
Revenues from Sales of Recovered Metals
The Company operates four water treatment plants that generate revenues from the sale of recovered metals, three plants
from the JCC-BQE Joint Venture (“JCC-BQE”) and one plant from the MWT-BQE Joint Venture (“MWT-BQE”).
JCC-BQE Joint Venture
Our 50/50 joint venture with partner Jiangxi Copper Company (“JCC”) operates water treatment plants at Dexing Mine and
at Yinshan Mine in Jiangxi province of China. The volume of water treated and pounds of copper recovered by the plants
fluctuate seasonally depending on precipitation levels in the region. The operating results for the 12 months ended
December 31, 2020 are as follows:
(in ’000s)
Water treated (cubic metres)
Copper recovered (pounds)
2020
21,094
3,312
2019
22,052
3,449
2020 Management’s Discussion and Analysis
pg. 5
During 2020, all three plants met mechanical availability and process performance set by the Company. Both the volume of
water treated and the mass of copper recovered decreased by approximately 4% year-over-year. Changes in water volume
and feed grade are largely the result of environmental conditions which are beyond the control of the joint venture. The
minimal variances between 2019 and 2020 indicate very stable operations.
MWT-BQE Joint Venture
Our 20% share of MWT-BQE is with our 80% partner Beijing MWT Water Treatment Project Limited Company (“MWT”) and
together we operate a water treatment plant at a smelter in Shandong province of China. MWT-BQE generates the majority
of its revenues from the sale of zinc recovered from smelter wastewater, along with small traces of copper found in the
stream. The operating results for the 12 months ended December 31, 2020 are as follows:
(in ’000s)
Zinc recovered (pounds)
Copper recovered (pounds)
2020
1,254
226
2019
1,023
142
The mass of zinc recovered increased by 23% and the mass of copper recovered increased by 59%. During 2020, the smelter
periodically operated their production lines with a slightly higher-grade ore, which led to a higher concentration of zinc and
copper in the feed composition and also an increase in the volume of wastewater treated by the plant. The joint venture
has no control in the composition and volume of the feed that flows into the plant.
Revenues from Water Treatment Fees
The Company is contracted to operate and provide technical support for water treatment plants that generate recurring
revenues in the form of water treatment and operations support fees. They include four plants operated by BQE Water for
Glencore at Raglan Mine in Northern Québec and a plant operated by the MWT-BQE joint venture but supported and
supervised by BQE Water in China. Operating fees from the Glencore operations are primarily based on the volume of
water treated and discharged in accordance with strict regulatory requirements. The MWT-BQE plant generates fixed
operations support fees for the achievement of operational targets that rely on the Company’s technical expertise.
The Company successfully completed the commissioning of the first industrial scale plant utilizing its patented Selen-IX™
process for selenium management at the Kemess property in Northern BC owned by Centerra Gold. During 2020, the plant
operated and treated water for approximately a month. In December 2020, the Kemess property was declared to be in an
extended state of care and maintenance, with water treatment not required under this status.
The volume of water treated for the 12 months ended December 31, 2020 are as follows:
(in ’000s)
4 Treatment plants at Raglan Mine (cubic metres)
Treatment plant at MWT-BQE (cubic metres)
Treatment plant at Kemess property (cubic metres)
2020
1,555
637
119
2019
1,982
588
-
2020 Management’s Discussion and Analysis
pg. 6
TECHNICAL SERVICES HIGHLIGHTS
BQE Water’s technical expertise and IP are applicable globally across broad areas of water management. The highlights of
technical services provided to clients and technical innovation projects during 2020 are summarized below.
Commercial Deployment of Selen-IX™ and Direct Selenium Electro-Reduction (“ERC”) Technology
Successfully completed the commissioning and performance testing of the Selen-IX™ plant at the Kemess property in
Northern BC.
Completed the engineering design and initiated procurement for the first commercial scale direct selenium ERC plant
at a mine in the US.
Continued to provide engineering services to support equipment procurement and fabrication for the first Selen-IX™
plant outside of mining currently under construction at a power utility ash pond in the US.
Cyanide Management and Recovery for Precious Metals Extraction Projects using SART
Successfully completed the commissioning of the SART plant for Shandong Zhongkuang Group in China.
Initiated the commissioning of the SART plant for Zhaojin Mining Industry in China.
Initiated the design of a SART plant for a gold mine in Central America.
Water Consulting Services – Management, Treatability, Permitting Assistance, Toxicity Mitigation
Development of a water management plan and monitoring program for El Mirador Mine in Ecuador.
Design of a water treatment plant integrated into a gold metallurgical plant to enable Zero Liquid Discharge operation.
Expansion of an ammonia removal water treatment system for an existing gold mine in Ontario.
Scoping level engineering for a selenium removal plant at an active mine in Canada.
Treatability assessment of organo-arsenic removal from mine water at an active gold mine in Asia.
Assessment of improvements to the water management and treatment strategy for the KSM project in BC.
Water treatment design for a gold mine in Central America.
Engineering design of a treatment plant for the simultaneous removal of sulphate and selenium from mine influenced
water in the US.
Pilot demonstration of selenium removal to support the permitting of a new mine in North America.
Preliminary technical assessment for selective thiocyanate removal combined with cyanide recovery from carbon-in-
pulp tailings at a project site in North America.
2020 Management’s Discussion and Analysis
pg. 7
2020 COMMENTARY AND OUTLOOK FOR 2021
Overall, 2020 was not only another successful year continuing with the multi-year trend of improvements in the Company’s
financial performance, but also a year in which the Company achieved several key technical milestones. The highlights can
be summarized as follows:
Achieved the best financial performance in Company history with net income of $1.2 million and Adjusted EBITDA of
$2.7 million, representing year-over-year increases of 382% and 55% respectively.
Completed the commercialization of the first large scale plant operation utilizing the Company’s patented Selex-IX™
process technology to produce treated water with selenium concentrations of less than 2 parts per billion.
Advanced two additional large scale selenium removal projects to the plant construction phase, including one in the
power generation sector to remediate a coal ash pond in the US.
Completed the commissioning of the first SART plant in China, as well as the first SART plant globally, to recover copper
and zinc in one plant, reflecting BQE Water’s leadership in cyanide recovery and recycle technology.
Expanded the technical team to reflect the increase in projects and to strengthen the Company’s capabilities in areas
critical to future growth, including plant operations (in North America and China), environmental health & safety, and
technology development.
Improved environmental health & safety systems to ensure the Company can maintain continued strong safety and
environmental records as the number of operations and the scope of field services increases.
Secured a backlog of project work providing better visibility for cash flows in 2021.
Improved the Company’s working capital year-over-year by 94%, further strengthening the Company’s ability to
manage cash throughout 2021.
Since 2014, management of the Company has pursued a business strategy focused on ESG (Environmental, Social and
Governance) and growing recurring revenues by monetizing the value of the Company’s intellectual property through plant
operations. However, prior to commencing new operations, we recognized that we needed to provide various types of
professional services to our clients first, often for years, before projects reached the operations phase. In this context, 2020
represented a significant milestone as some projects that have been in our pipeline for several years became operational.
Moreover, current construction of new projects provides us with good visibility with respect to additional plants that are
expected to be operational in 2021 and 2022.
Key to the Company’s strategy is the use of local operators and the development of local centres of operational excellence
in close geographic proximity to plant locations. This proved to be critical during the COVID-19 pandemic as travel
restrictions were enforced by many national and regional governments while water treatment was declared an essential
service. Our ability to mobilize local teams to successfully deliver operations services without interruption in Eastern and
Western Canada and in China demonstrated the strength of our technical team and the robustness of our business strategy.
Building on this experience, we plan to develop our US operations team and expand our outreach to indigenous
communities living near our plants in 2021. We envision these communities becoming valuable long-term partners to help
us build inclusive operations teams while ensuring projects benefit all stakeholders.
While we are proud of our results and achievements in 2020 and are working towards continued growth, we recognize the
COVID-19 pandemic has created headwinds and uncertainties in our business. In particular, business development activities
have been curtailed due to our inability to travel, concerns about liquidity have reduced capital spending by mining
companies, and the lack of certainty around the post pandemic economy continues to influence decisions on projects
globally. Nevertheless, we are entering 2021 with a relatively strong balance sheet and good visibility, with several key
projects advancing towards operations. A majority of our projects are driven by a requirement for environmental
compliance which is essential to the success of mining projects and to the ESG policies adopted by many mining companies.
Finally, water use, treatment and discharge limits continue to tighten. These trends bode well for us as we position
ourselves to capitalize on opportunities that may arise during any post pandemic economic recovery in the commodities
sector.
2020 Management’s Discussion and Analysis
pg. 8
In summary, the Company expects to achieve the following in 2021:
Initiate long-term operations support of two new SART plants in China, increasing the Company’s recurring revenues
from China outside of the JCC and MWT joint venture operations.
Complete commissioning and initiate long-term operation of the new selenium treatment plant at a coal ash pond in
the US under a contract signed in 2020.
Initiate commissioning of the new treatment system for the simultaneous removal of sulphate and selenium at a mine
in the US. This plant is expected to become operational in Q1 2022. The operating contract is expected to be signed
prior to the start of commissioning in Q4 2021.
Continue development of our US based operations team.
Commence pro-active outreach to indigenous groups and communities at all existing and potential new projects.
Complete our 18th operating season at Raglan Mine, while creating long-term employment opportunities for members
of indigenous communities through our Inuit partners.
Successfully execute engineering design and pilot projects in North and South America, some of which may advance to
the implementation phase in 2022.
Continue new technology development in strategic areas by utilizing government funding secured in 2020 and
establishing candidate sites for potential early adoption.
2020 Management’s Discussion and Analysis
pg. 9
SELECTED FINANCIAL INFORMATION
(in $’000 except for per share amounts)
Revenues
Operating expenses
General and administration expenses
Sales and development expenses
Share-based payment expenses
Depreciation
Share of earnings from joint ventures
Income from operations and joint ventures
Net of other (expenses) income
Bad debt expenses
Income tax expenses
Net income for the year
Other comprehensive income (loss)
Translation gain (loss) on foreign operations
Comprehensive income (loss) for the year
Earnings per share (basic)
Earnings per share (diluted)
Non-GAAP Measures:
Proportional Revenues
Adjusted EBITDA
Working capital
Total assets
Total non-current liabilities
Shareholders’ equity
2020
$
7,696
4,431
3,265
1,622
971
387
148
(1,139)
1,276
(8)
-
(102)
1,166
228
1,394
0.96
0.95
2019
$
5,640
2,789
2,851
1,631
1,063
153
131
(849)
722
14
(383)
(111)
242
(284)
(42)
0.20
0.20
13,497
2,672
11,190
1,722
at December 31
2020
$
at December 31
2019
$
3,543
10,464
821
8,088
1,829
8,376
331
6,405
2020 Management’s Discussion and Analysis
pg. 10
COMPARISON OF QUARTERS
Financial data for the last eight quarters:
(in $’000s)
Quarters ended
Revenues
Operating expenses
General and administration
Sales and development
Shared-based payment expenses
Depreciation
Share of (earnings) loss from
joint ventures
(Loss) income from operations and
joint ventures
Other income (expenses), net
Bad debt expenses
Income tax expenses
Net (loss) income
Translation (loss) gain
Comprehensive (loss) income
Non-GAAP Measures:
Proportional Revenues
Adjusted EBITDA
Dec-20
$
1,609
934
675
413
349
107
42
Sept-20
$
2,738
1,381
1,357
342
153
113
33
Jun-20 Mar-20
$
1,936
1,195
741
433
229
49
36
$
1,414
921
493
435
239
118
36
Dec-19
$
1,382
882
500
480
230
13
(23)
Sept-19
$
2,326
857
1,469
405
241
55
54
Jun-19 Mar-19
$
716
444
272
383
319
22
50
$
1,216
607
609
362
274
64
50
(101)
(785)
(380)
127
263
(402)
(507)
(202)
(135)
1,501
45
(133)
(463)
1,116
366
(300)
30
-
(97)
(202)
(63)
(265)
(58)
-
-
1,443
97
1,540
(95)
-
(5)
(55)
(191)
(246)
115
-
-
(18)
387
369
21
(95)
(91)
(628)
70
(558)
37
(287)
(17)
849
(140)
709
(17)
(1)
(3)
345
(241)
104
(27)
-
-
(327)
27
(300)
3,085
133
5,287
2,039
2,771
412
2,356
91
2,005
(451)
3,991
1,495
3,138
756
2,057
(80)
Quarterly results can fluctuate based on the number of plants operating in the quarter, variation in the volume and grade of
water treated and movements in commodity prices. Seasonality at each operation also impacts the timing of revenues.
Operations at Raglan Mine typically run from May to October of each year. Copper production at the Dexing operations
increase between April and September of each year and decline during the winter months due to lower seasonal
precipitation and the annual maintenance schedule. Revenues from contracts for technical services relating to water
management and technical innovation projects occur based on the timing of client requirements.
2020 Management’s Discussion and Analysis
pg. 11
SUMMARY OF Q4 2020 FINANCIAL RESULTS
The following is a summary of selected financial results for the three-month periods ended December 31, 2020 and 2019.
Proportional Revenues
The change in Proportional Revenues from each revenue source is shown in the table below:
(in $’000s)
Revenue source
Sale of recovered metals from operations
Water treatment fee from operations
Technical services
Total Proportional Revenues
Q4 2020
$
1,476
534
1,075
3,085
% of total
48%
17%
35%
100%
Q4 2019
$
623
131
1,251
2,005
% of total
% Change
31%
7%
62%
100%
137%
308%
(14%)
54%
Revenues from the sale of recovered metals of value comprises the Company’s share of joint venture revenue from the
operation of water treatment plants in China. The amount of revenue is impacted by the quantity of metals recovered and
the metal prices listed on the Shanghai Futures Exchange. During Q4 2020, the Company’s share of revenues from the JCC-
BQE joint venture increased 113% from the comparable period in 2019 due to an approximate 76% increase in the quantity
of copper recovered for the period and a 21% increase in the average copper price in the period. During Q4 2020, the MWT-
BQE joint venture contributed $243,000 to the Company’s share of Proportional Revenue compared to $43,000 in Q4 2019.
The increase of $200,000 was due to a substantial sale of 173,000 pounds of copper completed during Q4 2020, which was
approximately 77% of the year’s total production.
Revenues from water treatment fees are generated from the Company’s seasonal operation of water treatment plants at
Raglan Mine and from operations support at the MWT-BQE plant. The increase of $403,000 from the same period in 2019 is
attributed mainly to the operations at Raglan Mine. During Q4 2020, the treatment plants at Raglan Mine treated 66% more
water than the same period in 2019. Due to the late start of the ChemSulphide® treatment plant at Raglan Mine, as water
was not being discharged until mid-July due to the long lead time to replace a discharge pump, the 2020 operating season
was extended until mid-November. The Company continued to provide ongoing operations support at the MWT-BQE water
treatment plant during Q4 2020, earning $52,000 in revenues compared to $46,000 in Q4 2019.
Revenues from technical services decrease by $176,000 from the same period in 2019. These revenues are non-recurring in
nature and consist of water management services such as treatability assessments, permitting assistance, engineering and
plant design, construction and commissioning of water treatment plants, laboratory testing and pilot demonstrations. The
amount represents the sum of multiple contracts from various clients of varying contract values.
Expenses
Total operating expenses in Q4 2020 were $934,000 compared to $882,000 in Q4 2019, a variance of $52,000, which is due
to changes of project activity during the quarter and the duration of the water treatment during the period. In addition,
each individual project requires different levels of technical expertise and resources depending on the specific mine
conditions and water treatment solutions.
In Q4 2020, general and administration costs were $413,000 compared to $480,000 in Q4 2019. The $67,000 decrease in
general and administration costs was mainly due to the decrease in office expenses and travel expenses during the period.
Sales and development costs in Q4 2020 were $349,000 compared to $230,000 in Q4 2019, representing an increase of
$119,000. Due to the decrease of technical services activity during the quarter, more labour resources and assay expenses
were designated for business and technology development initiatives during the quarter when compared to Q4 2019.
2020 Management’s Discussion and Analysis
pg. 12
SUMMARY OF 2020 FINANCIAL RESULTS
The following is a summary of selected financial results for the year ending December 31, 2020 and 2019.
Proportional Revenues
The change in Proportional Revenues from each revenue source is shown in the table below:
(in $’000s)
Revenue source
Sale of recovered metals from operations
Water treatment fee from operations
Technical services
Total Proportional Revenues
2020
$
5,801
1,785
5,911
13,497
% of total
43%
13%
44%
100%
2019
$
5,550
1,663
3,977
11,190
% of total
% Change
50%
14%
36%
100%
5%
7%
49%
21%
Revenues from the sale of base metals recovered comprises the Company’s share of revenues from its joint ventures in
China. The sale of copper and zinc recovered during the operation of water treatment plants is impacted by the amount and
market price of metal concentrate sold. During 2020, the Company’s share of revenues from the JCC-BQE joint venture
increased $66,000 or 1% from 2019. While the total pounds of copper recovered decreased by 4% over the prior year, the
average copper price was $3.26/LB in 2020 and $3.09/LB in 2019, representing a 5% increase. The remaining $185,000
increase was from the MWT-BQE joint venture, which contributed copper and zinc recovery sales of $411,000 to the
Company’s Proportional Revenue in 2020 compared to $226,000 in 2019. This increase is due to the greater quantity of
metals recovered from the plant feed which had a higher concentration of zinc and copper.
Water treatment fee revenues include the tolling fees earned from each cubic metre of water discharged at Raglan Mine
and at the newly commissioned plant at the Kemess property in Northern BC, as well as operations support fees from the
MWT-BQE plant in Shandong, China. The addition of the Selen-IX™ plant at Kemess added new revenues of $250,000 during
2020. Treatment fees from the Raglan operation decreased by $136,000 year-over-year due to the late start of the
ChemSulphide® treatment plant as water was not being discharged until mid-July due to the long lead time to replace a
discharge pump. Lastly, the Company continued to support the operation at the MWT-BQE water treatment plant, earning
$193,000 in revenues compared to $185,000 in 2019.
Revenues from technical services had the largest increase of $1.9 million, or 49%, in 2020 when compared to the previous
year. These revenues are non-recurring in nature and relate to water management services such as treatability
assessments, permitting assistance, engineering and plant design, construction and commissioning of water treatment
plants, laboratory testing and pilot demonstrations. In 2020, there was an increase in project activity across the full
spectrum of services provided by the Company, most notably in the areas of engineering and plant design for three US-
based selenium removal water treatment plants.
Operating Expenses
Total operating expenses in 2020 were $4.4 million compared to $2.8 million in 2019, an increase of $1.6 million. The 59%
increase in operating expenses is partly attributed to the 49% increase in project activity related to technical services
completed in the year. Each individual project requires varying levels of technical expertise and resources depending on the
specific mine conditions and treatment requirements. The remaining increase of operating expenses are due to the
additional labour resources required for the commissioning of the Kemess plant and the new SART plants in China, both of
which are required prior to the generation of new recurring revenues. Total employee benefits, which is the largest
component contained within operating expenses, were $3.2 million in 2020 compared to $2.2 million in 2019.
Expenses
In 2020, general and administration expenses remained the same as 2019, at $1.6 million. With no major change year-over-
year, increases in professional services fees and insurance expenses were offset by decreases in general office expenses
during the year.
2020 Management’s Discussion and Analysis
pg. 13
Sales and development costs in 2020 were $971,000 compared to $1.1 million in 2019, a decrease of $92,000. The variance
is due to internal labour resources being re-allocated from technology development to the fulfillment of technical services
contracts and due to the decrease in travel related expenses for business development during the year.
Depreciation expenses were $148,000 in 2020 compared to $131,000 in 2019. With the adoption of IFRS 16 on January 1,
2019, the Company’s depreciation expense includes the amortization of right-of-use assets. The increase of $17,000 was
due to an office lease extension which extended the amortization period of right-of-use assets for another 36 months.
Share-based payment expenses were $387,000 in 2020 compared to $153,000 in 2019, an increase of $234,000. Share-
based payment expenses mainly consist of non-cash compensation expenses relating to stock options expenses which are
expensed on a straight-line basis over the vesting period. In January 2020, the Company granted 51,000 stock options,
which accounted for $225,000 of additional share-based payment expenses during the year. Other share-based payment
expenses were due to fair value adjustments of deferred and restricted share units resulting from the increase of the
Company share price.
Other Income and Expenses
The net of other income and expenses was an expense of $8,000 compared to an income of $14,000 in 2019. Other income
and expenses consist of finance costs, foreign exchange and other income.
Net finance costs were $17,000 in 2020 compared to $15,000 in 2019. Foreign exchange loss was $55,000 in 2020
compared to $37,000 in 2019. These exchange 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 dollars. The
remaining variance is from other income of $64,000 in 2020 and $66,000 in 2019. Other income are recoveries from written
off liabilities, and other gains and fees earned which are non-operating in nature.
Income Tax
In 2020, net income tax expenses were $102,000 compared to $111,000 in the prior year. The income tax charges in both
years consist of a 10% withholding tax in China for the distributions made by the JCC-BQE joint venture. These taxes are not
able to be offset against accumulated tax benefits in other jurisdictions.
Net Income and Comprehensive Loss
Overall net income for the year was $1.2 million compared to $242,000 in 2019.
As the Company operates through subsidiaries and joint ventures with functional currencies which differs from the
Company’s reporting currency of the Canadian dollar, any exchange differences on the translation of the net assets of such
entities are recognized in a separate component of equity, which is through other comprehensive income or loss. After the
translation adjustment, total comprehensive income for the year was $1.4 million compared to a comprehensive loss of
$42,000 in 2019.
2020 Management’s Discussion and Analysis
pg. 14
SUMMARY OF OPERATIONAL SERVICES
JCC-BQE Joint Venture Operation, Jiangxi Province, China
In 2007, BQE Water 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, an active copper mine in China. The plant utilizes BQE Water’s ChemSulphide® process to remove dissolved copper
from acid mine drainage generated by waste dumps and low-grade stockpiles. The high-grade copper concentrate
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 and Dexing Mine sites. Both plants also utilize BQE
Water’s ChemSulphide® process.
All three water treatment plants were designed by BQE Water and are operated by the joint venture. The plants are
managed jointly whereby BQE Water is responsible for technical operations and JCC is responsible for local administrative,
procurement and government activities. The joint venture partners share 50% in the revenues and costs. Revenues are
generated through the sale of recovered copper from the plants based on the metal price during the day when the
concentrate is shipped, less refining costs.
Operating results for all three plants during the year were as follows:
(in ’000s)
Dexing 1
Water treated (cubic metres)
Copper produced (pounds)
Dexing 2
Water treated (cubic metres)
Copper produced (pounds)
Yinshan
Water treated (cubic metres)
Copper produced (pounds)
Total Joint Venture
Water treated (cubic metres)
Copper produced (pounds)
2020
7,872
1,251
2020
9,400
1,327
2020
3,822
734
2020
21,094
3,312
2019
8,728
1,452
2019
9,360
1,215
2019
3,964
782
2019
22,052
3,449
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 site. The two plants, Dexing 1 and Dexing 2, treat water from the
same source and water may be diverted from one plant to the other to optimize operations.
During 2020, 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.
2020 Management’s Discussion and Analysis
pg. 15
MWT-BQE Joint Venture Operation, Shandong Province, China
In 2016, BQE Water entered into a joint venture agreement with MWT for the design, construction and operation of a
treatment plant that recovers copper and zinc from wastewater generated by the Guoda gold smelter and refinery owned
by Zhaoyuan Gold Smelting Co., Ltd (“Zhaoye”). BQE Water provides its technology and plant operating experience in
exchange for an ongoing 20% share of the profit from metals recovered and technical support fees. The water treatment
plant was completed and commissioned in 2018. Copper concentrate produced by the plant is sold back to Zhaoye and the
zinc concentrate is sold to local metal traders.
Operating results for the plant during the year were as follows:
(in ’000s)
Water treated (cubic metres)
Zinc recovered (pounds)
Copper recovered (pounds)
2020
637
1,254
226
2019
588
1,023
142
Raglan Mine Operation for Glencore Canada Corporation, Quebec, Canada
BQE Water operates four water treatment plants at Raglan Mine, an active nickel mine in Northern Québec which is owned
by Glencore Canada Corporation (“Glencore”). The four plants include: BQE Water’s ChemSulphide® process plant, BQE
Water’s Met-IX™ process plant, a lime neutralization plant at Spoon and the newly added lime plant at Katinniq. All plants
discharge treated water into the environment. The ChemSulphide® and Met-IX™ plants also recover nickel from wastewater
which is blended into the nickel concentrate produced by the mine. Because of the harsh winter conditions in Northern
Québec, water is not available for processing until the spring thaw; the plant runs seasonally, typically from late spring to
fall. BQE Water is responsible for all aspects of the plant operation and depending on the plant, the Company charges a
treatment fee per cubic metre of water discharged or a monthly operation fee.
The volume of water treated for the four plants during the year were as follows:
(in ’000s cubic metres)
ChemSulphide® and Met-IX™ plants
Spoon plant
Katinniq plant
Total
2020
640
355
560
1,555
2019
879
381
722
1,982
In 2020, we successfully completed our 17th operating season at the site. The timing and length of the 2020 operating
season was comparable with previous seasons in the past, with our operating crew deployed from May to November.
Kemess Operation for Centerra Gold, British Columbia, Canada
The Company successfully completed the commissioning of the first industrial scale plant utilizing its patented Selen-IX™
process for selenium management at the Kemess property in Northern BC owned by Centerra Gold. Since late August 2020,
the plant has operated continuously treating up to 5,600 m3/day of mine impacted water to produce treated water with
selenium concentrations of less than 2 parts per billion. During 2020, the plant operated and treated water for
approximately a month. In December 2020, the Kemess site was declared to be in a state of care and maintenance. With
the site only requiring active water treatment during mine construction, operation and closure but not during care and
maintenance, the new water treatment plant is not expected to operate until the site status changes.
2020 Management’s Discussion and Analysis
pg. 16
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2020, BQE Water had 1,217,435 common shares issued (1,210,434 at December 31, 2019) and 82,833
stock options outstanding (39,501 at December 31, 2019).
As of the date of this MD&A, on April 28, 2021, the Company has 1,222,769 common shares issued and outstanding; and
77,499 stock options outstanding.
At December 31, 2020, the Company had Cash of $3.2 million, an increase of approximately $1.2 million from December 31,
2019. For the 12 months ended December 31, 2020, the Company’s Cash provided by operating activities was $145,000.
The Company had a working capital position at the end of the year of $3.5 million, an increase of $1.7 million from
December 31, 2019. At December 31, 2020, BQE Water’s significant working capital items, aside from Cash, include trade
and other receivables of $1.7 million ($1.2 million at December 31, 2019) and trade payable and accrued liabilities of $1.1
million ($1.4 million at December 31, 2019).
The Company has an interest-free loan with the Minister of Western Economic Diversification Canada under the Western
Innovation Initiative (“WINN”) program. As of December 31, 2020, the WINN loan balance is $412,500 and the Company
has obligations to repay it in 60 equal monthly installments commencing on April 1, 2021 until March 1, 2026. Further, the
Company has credit facilities available with the Royal Bank of Canada (“RBC”) including a credit card facility of $15,000 and
a revolving demand credit facility of $500,000 which had not been utilized as of December 31, 2020.
The Company has commitments of $388,000 until 2023 under operating leases for office and laboratory premises and for
assay services.
The Company believes that it has sufficient working capital resources to finance its current operations beyond the next 12
months, albeit with the continuing potential for a temporary working capital shortfall based on short-term fluctuations in
the Company’s non-recurring revenues combined with the timing of the annual dividend payment from China.
2020 Management’s Discussion and Analysis
pg. 17
RELATED PARTY TRANSACTIONS
For the year ended December 31, 2020 and 2019, the compensation awarded to the Company’s key management, which
includes the Board of Directors and executive management, are as follows:
Salaries, fees and short-term benefits
Share-based payments
2020
$
671,197
170,749
2019
$
633,354
31,564
841,946
664,918
Included in salaries, fees and short-term benefits, are consulting services received from companies owned by the
Company’s management that amount to $135,000 for the year ended December 31, 2020 ($120,000 in 2019).
Included in trade payables and accrued liabilities as of December 31, 2020 is $13,162 ($100,768 at December 31, 2019) of
director fees, management consulting service fees with companies owned by the Company’s management, and termination
benefits.
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 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 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:
a) Management’s assessment of the Company’s ability to continue as a going concern, as 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;
b) Management’s judgement on determining the timing of the transfer of control and satisfaction of performance
obligations of either at a point in time or over time; and
c) Management’ assessment of impairment indicators for asset impairment on long-term assets such as plant and
equipment or investment in joint ventures.
2020 Management’s Discussion and Analysis
pg. 18
Key Sources of Estimation Uncertainty and Assumptions
The following are 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.
COVID-19 Economic Uncertainties
The Company has assessed the economic impacts of the novel coronavirus (“COVID-19”) pandemic on its consolidated
financial statements. As at December 31, 2020, management has determined that the Company’s ability to execute its
medium- and longer-term plans, the economic viability of its assets and the carrying value of its long-lived assets are not
materially impacted. In making this judgment, management has assessed various criteria including, but not limited to,
existing laws, regulations, orders, potential hindrances to our supply chain, disruptions in the markets for our services,
commodity prices and foreign exchange prices along with the actions the Company has taken at its operations to protect
the health and safety of its workforce and local communities. At this time, the full extent of the impact that the COVID-19
outbreak may have on the Company is unknown and will depend on future developments that are highly uncertain and that
cannot be predicted with confidence.
Revenue Recognition
Revenue for technical services relating to water management are recognized using the project stage of completion method,
which requires judgment related to estimating project inputs and costs for completion and making assumptions for scope
changes. Depending on the services provided and on the contract terms, many variables are used in assessing the revenues
earned based on the project stage of completion at the reporting date.
Expected Credit Loss
Trade and other receivables are assessed for impairment at each reporting date by applying the expected credit loss
impairment model. Expected credit loss represents management’s best estimate and assumptions based on actual credit
loss experience and informed credit assessment, and also takes into consideration forward-looking information. If actual
credit losses differ from estimates, future earnings would be affected.
Right-of-Use Assets & Lease Obligations
To determine the value of the initial recognition and subsequent re-measurement of right-of-use-assets and lease
obligations, management is required to exercise judgment in several areas. Management has reviewed its lease agreements
to estimate the lease term by evaluating the probability of exercising its option to extend or renew its lease contracts.
Further judgement is required to determine the discount rate on lease payments by assessing its incremental borrowing
rate at each of the Company’s locations.
2020 Management’s Discussion and Analysis
pg. 19
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 the reports it files are
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 controls
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 oversight of the Board of Directors in all affairs of the Company; open
lines of communication within the Company; the present levels of activities and transactions within the Company being
readily transparent; and the thorough review of the Company’s financial statements by management and the Board of
Directors. Based on the result of the assessment, the Company’s Chief Executive Officer and Chief Financial Officer have
concluded that the Company’s internal controls over financial reporting have been adequately designed. During the current
year, the Company’s management implemented a formal testing program on the operating effectiveness of its controls and
concluded that they are also effective.
There has been no change in BQE Water’s internal controls over financial reporting during the year ended December 31,
2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial
reporting.
Adoption of New Accounting Standards and Amendments
The Company has adopted the following new accounting standards during 2020:
Amendments to IFRS 3 – Definition of a Business
On October 22, 2018, the IASB issued amendments to IFRS 3 Business Combinations that seek to clarify whether a
transaction results in an asset or a business acquisition. The amendments apply to businesses acquired in annual reporting
periods beginning on or after January 1, 2020. Earlier application is permitted. The definition of a business is narrower
which could result in fewer business combinations being recognized. The Company adopted the amendments to IFRS 3 on a
prospective basis on January 1, 2020. The adoption of the amendments to IFRS 3 did not have an impact on the financial
statements.
2020 Management’s Discussion and Analysis
pg. 20
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 completely. Following are the risk
factors which the Company’s management believes are most important in the context of the Company’s business. It should
be noted that this list may not be exhaustive and other risks may apply. An investment in the Company may not be suitable
for all investors.
Dependence on Key Personnel
The Company is substantially dependent upon a number of key management, technical, project and business development
personnel. The loss of any one or more of the Company’s key employees or consultants could have an adverse material
effect on its business. Additionally, the Company’s ability to develop, manufacture and market its services 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 an adverse material effect on the Company’s business operating results and financial
condition.
Maintaining Safety and Protecting the Environment
Despite the Company’s efforts to minimize the risk of safety and environmental incidents, they can occur from time to time
and, if and when they do, the impact on the Company can be significant. The Company’s success in the water management
and treatment space is highly dependent on its ability to keep its project sites and offices safe and any failure to do so can
have serious impact on the personal safety of its employees and others. In addition, it can expose the Company to contract
termination, fines, regulatory sanctions or even criminal prosecution.
The Company’s safety record and operation safety practices also have a direct bearing on its ability to secure new project
work. Certain clients will not engage particular contractors or consultants to perform work if their safety practices do not
conform to predetermined standards or if they have an unacceptably high incidence of safety infractions or incidents.
The Company adheres to very rigorous safety policies and procedures which are continually reinforced on its project sites
and offices. Management is not aware of any pending health and safety legislation or prior incidents which would be likely
to have a material impact on any of the Company’s operations, or its competitive position.
Economic and Project Site Dependence
The Company currently derives its revenues 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.
Commodity Prices
For the Company’s joint venture operations, it generates revenues by selling recovered metals of value 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 prices of these metals will maintain at current buying rates.
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 24 plants to date deploying proprietary technologies developed by BQE Water and applying them to meet site
specific conditions. The Company has been profitable but there are risks that the Company will not be able to continue to
generate sufficient cash flow from non-recurring projects and to receive timely annual dividends from the Company’s
investments in joint ventures to cover ongoing development and administration costs.
BQE Water's ability to continue future operations is dependent on its ability to generate positive cash flow 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.
2020 Management’s Discussion and Analysis
pg. 21
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 to 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.
Global Pandemic
Efforts to fight the COVID-19 pandemic have been taken by national and local governments. These efforts have had a
significant impact on businesses through the restrictions put in place by the Canadian, provincial and municipal
governments regarding travel, business operations and isolation/quarantine orders. During the pandemic, the Company
initiated a work from home policy and requested all employees to engage in active social distancing. A majority of the
Company’s ongoing projects, being regulatory driven, are considered essential and continued without any significant
disruptions. The Company’s operation of water treatment plants continues since treatment of contaminated water is
considered an essential service.
Although there is currently no significant direct COVID-19 impact to the Company, the COVID-19 pandemic could impact
our suppliers, customers, local communities and other stakeholders, which could impact the Company’s ability to operate in
the future. The COVID-19 pandemic and responses to it may also lead to an economic recession or downturn that may
materially adversely affect the Company’s operations or liquidity position. One or more of the Company’s employees could
contract COVID-19 or be directly affected by someone who does contract COVID-19 and may be required to self-isolate. At
this time, the full extent of the impact the COVID-19 outbreak may have on the Company is unknown and will depend on
future developments that are highly uncertain and that cannot be predicted with confidence.
Credit Risk
The Company’s credit risk is primarily associated with trade and other receivables, however, it also arises on cash. The
Company invests its cash with counterparties that it believes are of high credit quality as assessed by reputable rating
agencies. To manage credit risk on trade and other receivables, the Company transacts with customers with strong credit
ratings with ongoing credit evaluation and account monitoring procedures. Prior to 2019, the historical level of customer
default was negligible. For the year ended December 31, 2019, the Company wrote off trade receivables of $288,405 due to
the default from one of its customers with aging balances over 90 days. As a result, the credit risk associated with trade
receivables with aging balances over 90 days are considered higher than normal.
Currency Risk
The Company conducts significant business in Canada, the United States, Mexico, Chile and China. 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 renminbi. 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 the
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
2020 Management’s Discussion and Analysis
pg. 22
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 inventors of
the patents were the first creators of inventions covered by pending applications, or that it was the first to file patent
applications for such inventions. There can be no assurance that the Company’s patents, if issued, would be valid or
enforceable by a court or that a competitor’s technology or product would be found to infringe such patents.
The Company is not currently aware of any claims asserted by third parties that the Company’s intellectual property
infringes on their intellectual property. However, in the future, a third party may assert a claim that the Company infringes
on their intellectual property. If the Company is forced to defend against these claims, which may be with or without any
merit or whether they are resolved in favour or against the Company, the Company may face costly litigation and diversion
of management’s attention and resources. As a result of such a dispute, the Company may have to develop costly non-
infringement technology or enter into license agreements which may not be available at favourable terms.
Access to Proprietary Information
The Company generally controls access to and distribution of its technologies, documentation and other proprietary
information. Despite efforts by the Company to protect its proprietary rights from unauthorized use or disclosure, parties
may attempt to disclose, obtain or use its solutions or technologies. There can be no assurance that the steps the Company
has taken or will be taking will prevent misappropriation of its solutions or technologies, particularly in foreign countries
where laws or law enforcement practices may not protect proprietary rights as fully as in Canada or the United States.
Competition
The Company is aware of and does address existing competitors for water treatment 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 believes it’s technologies for water treatment solutions is far beyond
the capabilities of others available in the market, but the Company may not be able to compete successfully with future
competitors and cannot ensure that competitive pressures will not materially and adversely affect its business, operating
results and financial condition.
Information Systems and Cyber-Security Risk
The Company relies on information technology to manage, process, store and transmit electronic information. Complete,
accurate, available and secure information is vital to the Company’s operations and any compromise in such information
could result in improper decision making, inaccurate or delayed operational and/or financial reporting, delayed resolution
to problems, breach of privacy and/or unintended disclosure of confidential information. Failure in the completeness,
2020 Management’s Discussion and Analysis
pg. 23
accuracy, availability or security of the Company’s information systems, the risk of system interruption or failure during
system upgrades or implementation, or a breach of data security could adversely affect the Company’s operations and
financial results.
In addition, cyber-security incidents relating to the Company’s information technology systems may disrupt operations and
impact operating results. Cyber-security incidents may occur from a range of techniques, from phishing or hacking attacks
to sophisticated malware, hardware or network attacks. While the Company has implemented systems, policies,
procedures, practices, hardware and backups designed to prevent and limit the effect of cyber-security attacks, there can
be no assurance that these measures will be sufficient to prevent, detect or address the attacks in a timely matter or at all.
A successful cyber-attack may allow unauthorized interception, destruction, use or dissemination of the Company’s
confidential information, which could have a material adverse effect on the business.
Environmental Regulation
The Company’s business and operations are subject to environmental regulations in various jurisdictions in which it
operates. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the
Company’s business and operations.
Management of Growth
The Company could experience growth that could put a significant strain on each of the Company’s managerial, operational
and financial resources. The Company must implement and constantly improve its operational and financial systems and
expand, train and manage its employee base to manage growth. The Company might also establish additional water
treatment facilities which would create additional operational and management complexities. In addition, the Company
expects that its operational and management systems will face increased strain as a result of the expansion of the
Company’s technologies and services. The Company might not be able to effectively manage the expansion of its operations
and systems, and its procedures and controls might not be adequate to support its operations. In addition, management
might not be able to make and execute decisions rapidly enough to exploit market opportunities for the expansion of the
Company’s technologies and services. If the Company is unable to manage its growth effectively, its business, results of
operations and financial condition will suffer.
Conflicts of Interest
Certain directors, officers and other members of management of the Company and its subsidiaries serve (and may in the
future serve) as directors, officers, promoters and members of management of other companies and therefore, it is
possible that a conflict may arise between their duties as a director, officer or member of management of the Company or
its subsidiaries and their duties as a director, officer, promoter or member of management of such other companies. The
directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers
for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such
laws in respect of any directors’ and officers’ conflicts of interest or in respect of any breaches of duty by any of its directors
or officers. All such conflicts will be disclosed by such directors or officers in accordance with the Business Corporations Act
(British Columbia) and they will govern themselves in respect thereof to the best of their ability in accordance with the
obligations imposed upon them by law.
Possible Volatility of Share Price
The market price of the Company’s common shares could be subject to wide fluctuations in response to, and may be
adversely affected by, quarterly variations in operating results, announcements of technological innovations or new
products by the Company or its competitors, changes in financial estimates by securities analysts, or other events or
factors. In addition, the financial markets have experienced significant price and volume fluctuations. This volatility has had
a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating
performance. Broad market fluctuations or any failure of the Company’s operating results in a particular quarter to meet
market expectations may adversely affect the market price of the Company’s common shares.
Lack of Dividends
No dividends have been paid to date on the Company’s common shares. The Company anticipates that for the foreseeable
future the Company’s earnings, if any, will be retained for use in its business and that no cash dividends will be paid on the
common shares.
2020 Management’s Discussion and Analysis
pg. 24
BQE WATER INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
Independent Auditor's Report
To the Shareholders of BQE Water Inc.:
Opinion
We have audited the consolidated financial statements of BQE Water Inc. and its subsidiaries (the "Company"), which comprise the
consolidated statements of financial position as at December 31, 2020 and December 31, 2019, and the consolidated statements of
income and comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes to the consolidated
financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2020 and December 31, 2019, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in
this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and
significant audit findings, including any significant deficiencies in internal control that we identify during our audits.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Jian-Kun Xu.
Vancouver, British Columbia
April 28, 2021
Chartered Professional Accountants
BQE WATER INC.
Consolidated Statements of Financial Position
As at December 31, 2020 and 2019
(Expressed in Canadian dollars)
Assets
Current assets
Cash
Trade and other receivables
Prepaid and deposits
Total current assets
Non-current assets
Plant and equipment
Investment in joint ventures
Deposits
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade payable and accrued liabilities
Loans
Deferred revenues
Lease obligations
Deferred benefits
Total current liabilities
Non-current liabilities
Loans
Deferred revenues
Lease obligations
Total non-current liabilities
Total liabilities
Shareholders’ Equity
Share capital
Contributed surplus
Accumulated other comprehensive income
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
Commitments (note 19)
note
5
7
8
6, 9
10
20(d)
11
12
10
20(d)
11
13
December 31
2020
$
December 31
2019
$
3,239,692
1,685,717
172,711
5,098,120
319,664
5,021,154
24,881
5,365,699
2,060,060
1,237,261
171,023
3,468,344
249,444
4,641,460
16,822
4,907,726
10,463,819
8,376,070
1,055,487
61,875
75,349
92,128
270,003
1,554,842
350,625
283,740
186,877
821,242
1,381,840
-
5,135
104,517
148,220
1,639,712
254,511
-
76,516
331,027
2,376,084
1,970,739
56,386,413
10,565,312
1,445,214
(60,309,204)
8,087,735
56,344,407
10,320,533
1,216,730
(61,476,339)
6,405,331
10,463,819
8,376,070
Approved and authorized by the Board of Directors
Signed “Peter Gleeson”
Peter Gleeson, Executive Chairman
Signed “Sara Elford”
Sara Elford, Director
The accompanying notes are an integral part of these consolidated financial statements.
2020 Consolidated Financial Statements
pg. 28
BQE WATER INC.
Consolidated Statements of Income and Comprehensive Income (Loss)
For the years ended December 31, 2020 and 2019
(Expressed in Canadian dollars)
Revenues
Operating expenses (excluding depreciation)
Operating margin before depreciation
General and administration
Sales and development
Share-based payment expenses
Depreciation
Share of earnings from joint ventures
Income from operations and joint ventures
Finance costs, net
Foreign exchange loss
Other income (loss), net
Income before income taxes
Income tax expense
Net income for the year
Other comprehensive income (loss)
Items that will be reclassified subsequently to income (loss)
Translation gain (loss) on foreign operations
Comprehensive income (loss) for the year
Earnings per share
Basic
Diluted
Weighted average number of shares outstanding
Basic
Diluted
note
20
14
14
14
6, 12
7
8
15
16
17
13(c)
13(c)
13(c)
13(c)
Year ended December 31
2019
$
2020
$
7,696,361
4,430,958
3,265,403
1,621,996
970,547
386,882
147,669
(1,139,450)
1,277,759
(16,967)
(54,938)
63,698
1,269,552
(102,417)
5,639,834
2,789,136
2,850,698
1,630,839
1,063,115
153,125
131,262
(848,555)
720,912
(15,335)
(36,939)
(316,605)
352,033
(110,853)
1,167,135
241,180
228,484
(284,061)
1,395,619
(42,881)
0.96
0.95
0.20
0.20
1,215,884
1,232,858
1,208,681
1,213,236
The accompanying notes are an integral part of these consolidated financial statements.
2020 Consolidated Financial Statements
pg. 29
BQE WATER INC.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2020 and 2019
(Expressed in Canadian dollars)
Share Capital
Balance, beginning of the year
Exercise of options
Balance, end of the year
Contributed surplus
Balance, beginning of the year
Equity settled share-based payments
Balance, end of the year
Accumulated other comprehensive income
Balance, beginning of the year
Other comprehensive income (loss) for the year
Balance, end of the year
Accumulated deficit
Balance, beginning of the year
Net income for the year
Balance, end of the year
note
13(b)
12 (a)
12
Total shareholders’ equity
Balance, beginning of the year
Exercise of options
Equity settled share-based payments
Other comprehensive income (loss) for the year
Net income for the year
12
12
Balance, end of the year
Year ended December 31
2020
$
Number of
Shares
Year ended December 31
2019
$
Number of
Shares
1,210,434
7,001
56,344,407
42,006
1,208,435
1,999
56,332,413
11,994
1,217,435
56,386,413
1,210,434
56,344,407
10,320,533
244,779
10,565,312
1,216,730
228,484
1,445,214
(61,476,339)
1,167,135
(60,309,204)
6,405,331
42,006
244,779
228,484
1,167,135
8,087,735
10,265,959
54,574
10,320,533
1,500,791
(284,061)
1,216,730
(61,717,519)
241,180
(61,476,339)
6,381,644
11,994
54,574
(284,061)
241,180
6,405,331
The accompanying notes are an integral part of these consolidated financial statements.
2020 Consolidated Financial Statements
pg. 30
BQE WATER INC.
Consolidated Statements of Cash Flow
For the years ended December 31, 2020 and 2019
(Expressed in Canadian dollars)
Operating activities
Net income for the year
Items not affecting cash
Income tax expense
Bad debt expense
Share of earnings from joint ventures
Finance costs, net
Depreciation expense
Net foreign exchange loss
Share-based payment expenses
Change in non-cash operating working capital items
Cash provided by (used in) operations
Income taxes paid
Net cash provided by (used in) operating activities
Investing activities
Purchase of plant and equipment
Net distribution received from joint venture
Interest received
Net cash provided by investing activities
Financing activities
Lease payments on principal portion
Lease payments on interest portion
Proceeds from exercise of stock options
Proceeds from loans
Interest paid
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net change in cash
Cash, beginning of the year
Cash, end of the year
note
17
16
8
15
7
12
18
17
7
8
15
11
11, 15
12
10
15
Year ended December 31
2019
2020
$
$
1,167,135
241,180
102,417
-
(1,139,450)
16,967
147,669
7,409
386,882
689,029
(442,770)
246,259
(100,808)
145,451
(20,237)
973,500
4,792
958,055
(99,486)
(21,478)
42,006
157,989
(298)
78,733
110,853
383,035
(848,555)
15,335
131,262
57,561
153,125
243,796
(449,892)
(206,096)
(112,257)
(318,353)
(9,864)
825,867
9,905
825,908
(91,423)
(25,216)
11,994
254,511
(24)
149,842
(2,607)
(22,649)
1,179,632
2,060,060
634,748
1,425,312
3,239,692
2,060,060
The accompanying notes are an integral part of these consolidated financial statements.
2020 Consolidated Financial Statements
pg. 31
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
BQE Water Inc. (“BQE Water” or the “Company”) is the ultimate parent company of its consolidated group. BQE Water is an
integrated water management services and treatment solutions provider with unique expertise and intellectual property to
support the mining and metallurgical industry in reducing life cycle costs and risks associated with water.
The Company 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
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board ("IASB"). These consolidated financial statements were
authorized for issue on April 28, 2021 by the Company’s Board of Directors.
These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency.
These consolidated financial statements have been prepared under the historical cost basis except for deferred share units
and restricted share units, which are measured at fair value through profit or loss.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies as set out below have been consistently applied to all periods presented in the consolidated
financial statements and are prepared using the same accounting policies and methods of computation as the annual audited
consolidated financial statements of the Company for the year ended December 31, 2019, with the exception of
Amendments to IFRS 3 as described below.
Amendments to IFRS 3 – Definition of a Business
On October 22, 2018, the IASB issued amendments to IFRS 3 Business Combinations that seek to clarify whether a transaction
results in an asset or a business acquisition. The amendments apply to businesses acquired in annual reporting periods
beginning on or after January 1, 2020. Earlier application is permitted. The definition of a business is narrower which could
result in fewer business combinations being recognized. The Company adopted the amendments to IFRS 3 on a prospective
basis on January 1, 2020. The adoption of the amendments to IFRS 3 did not have an impact on the financial statements.
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 of the Company, which are accounted for under the consolidation method, are as follows:
Entity
Biomet Mining Corporation
BioteQ Water (Chile) SpA
BioteQ Water Mexico S.A. de C.V.
BioteQ (Shanghai) Water Treatment Technologies Co. Ltd.*
BQE Water (Hangzhou) Co. Ltd.
* Dissolved on September 2, 2020
Country of
incorporation
and operation
Canada
Chile
Mexico
China
China
Ownership
interest as at
Dec. 31, 2020
100%
100%
100%
0%
100%
Ownership
interest as at
Dec. 31, 2019
100%
100%
100%
100%
100%
2020 Consolidated Financial Statements
pg. 32
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
The joint ventures of the Company, which are accounted for under the equity method, are as follows:
Entity
JCC-BioteQ Environmental Technologies Co. Ltd.
Shandong MWT BioteQ Environmental Technologies Co. Ltd.
i)
Subsidiaries
Country of
incorporation
and operation
China
China
Ownership
interest as at
Dec. 31, 2020
50%
20%
Ownership
interest as at
Dec. 31, 2019
50%
20%
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. The
activities of any dissolved subsidiary are recorded up to the date of dissolution.
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 financial results, 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. The Company will record a subsequent investment in joint venture
adjustment upon the receipt of cash distribution or dividend produced by the joint venture’s profit. 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 a
profit, the Company resumes recognizing its share of those profits only after its share of the profits equals the share of losses
not recognized.
When the Company transacts with a joint venture, profits or losses resulting from the transactions with the joint venture are
recognized in the Company’s consolidated financial statements only to the extent of interests in the joint venture that are not
related to the Company.
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 functional
currency of the Company’s subsidiaries and its joint ventures are respective of their functional currency, such as the Chilean
peso (“CLP”) and Chinese renminbi (“RMB”). 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 the presentation currency (“foreign operations”) are translated into CAD as follows:
Assets and liabilities: at the closing rate at the date of the statement of financial position.
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).
2020 Consolidated Financial Statements
pg. 33
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
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 Water entity, transactions in currencies other than the entity’s
functional currency (“foreign currency”) are recognized at the rates of exchange prevailing at the date 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
Cash consists of unrestricted bank deposits, some of which are interest-bearing.
Inventory and Work in Progress
d)
Inventories of metal concentrates in the Company’s joint venture are valued at the lower of average production cost and net
realizable value. Production costs that are inventoried include the costs directly related to bringing the inventory to its
current condition and location, such as materials, labour 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.
Chemical and spare part inventories in the Company’s joint ventures 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.
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.
2020 Consolidated Financial Statements
pg. 34
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
Plant and equipment items are 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
Furniture, office and lab equipment
Right-of-use assets & leasehold improvements
Pilot plants
Water treatment plants
Estimated useful life
3 years
5 years
Remaining lease term
3 to 5 years
Shorter of contract life or 10 to 20 years
Financial Instruments
f)
Financial assets and liabilities, including derivatives, are recognized in the consolidated statements of financial position when
the Company becomes a party to the contractual provisions of the financial instrument or derivative contract. Financial
instruments are required to be initially measured at fair value and are subsequently accounted for based on their
classification as described below. The classification depends on the purpose for which the financial instruments were
acquired and their characteristics. Except in very limited circumstances, the classification is not changed subsequent to initial
recognition.
i)
Fair Value Estimation
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. These levels 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.
Level 3 inputs are unobservable inputs for the asset or liability.
ii)
Financial Assets
Based on their nature, the Company classifies its non-derivative financial assets as subsequently measured at amortized cost,
fair value through other comprehensive income and fair value through profit or loss (“FVTPL”). The classification of financial
assets is based on the contractual cash flow characteristics and the Company’s business model for managing the financial
asset. Financial assets are recognized when the Company becomes party to the contractual provisions of the instrument. On
2020 Consolidated Financial Statements
pg. 35
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
initial recognition, the Company may irrevocably designate a financial asset that meets the amortized cost or fair value
through other comprehensive income criteria as measured at FVTPL, if doing so eliminates or significantly reduces a
measurement or recognition inconsistency. This designation will be recorded until the financial asset is derecognized.
Derivative instruments are recorded in the consolidated statements of financial position at fair value with both realized and
unrealized changes in fair value recognized immediately in other income in the consolidated statements of earnings. As at
December 31, 2020, the Company did not have any outstanding financial derivatives.
Financial assets are derecognized when the contractual cash flows from the asset expire or when the Company transfers the
right to receive the contractual cash flows of the asset in a transaction whereby all risks and rewards of the financial asset are
transferred. Any retained interest in the financial asset transferred is recognized as a separate financial asset or liability.
Financial assets and liabilities are offset and presented net in the consolidated statements of financial position only when a
legal right of offset exists and the Company intends to settle the transaction on a net basis or realize the asset and the liability
simultaneously.
Financial Assets at Amortized Cost
Financial assets with fixed or determinable payments that are neither derivatives nor quoted in an active market are
classified as financial assets at amortized cost. The objective is to hold such assets to collect contractual cash flows and
contractual terms give rise on specified dates to cash flows that represent solely payments of principal and interest. These
financial assets are initially recognized at fair value plus any transaction costs directly attributable to the asset. These assets
are subsequently measured at amortized cost using the effective interest method, less any impairment losses.
Financial Assets at Fair Value Through Other Comprehensive Income (“FVTOCI”)
Financial assets at FVTOCI represent those non-derivative financial assets that are held to achieve an objective by both
collecting contractual cash flows and selling the financial assets, where contractual terms give rise on specified dates to cash
flows that represent solely payments of principal and interest. Financial assets at FVTOCI are initially measured at fair value
plus any transaction costs directly attributable to the asset. Subsequent fair value gains or losses are recognized in other
comprehensive earnings, except for impairment. For interest-bearing financial assets, interest calculated using the effective
interest method and any foreign exchange gains and losses on monetary financial assets are recognized in profit or loss.
Financial Assets at Fair Value Through Profit or Loss (“FVTPL”)
A financial asset is measured at FVTPL if it does not meet the criteria for assets measured at amortized cost or fair value
through other comprehensive income. Financial assets at FVTPL include held for trading assets and derivative instruments.
Financial assets are classified as held for trading if the Company manages such investments and makes purchase and sale
decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy
and have been acquired principally for the purpose of selling in the near term. A financial asset is measured at FVTPL if it is a
derivative that is not designated as effective as a hedging instrument. Financial assets at FVTPL are measured at fair value
with changes recognized in profit or loss. Transaction costs associated with assets classified as FVTPL are recognized as
incurred through profit or loss.
Cash and trade and other receivables shall exclude all tax receivable, such as value added tax (“VAT”) and
GST/PST/QST/HST/IVA, are classified as financial assets at amortized cost. No financial asset was designated as FVTPL or
FVTOCI as at December 31, 2020 and 2019.
iii) Financial Liabilities
The Company classifies its financial liabilities into one of the following categories:
Financial Liabilities at Fair Value Through Profit or Loss
This category comprises derivatives and financial liabilities incurred principally for the purpose of selling or repurchasing in
2020 Consolidated Financial Statements
pg. 36
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
the near term. They are carried at fair value with changes in fair value recognized in profit or loss. The Company has classified
deferred benefits which are the provisions related to the Company’s Deferred Share Units (“DSU”) and Restricted Share Units
(“RSU”) as FVTPL. Financial liabilities that are initially recognized at FVTPL originally include any transaction costs directly
attributable to the liability.
Other Financial Liabilities
This category consists of liabilities carried at amortized cost using the effective interest method. The Company has classified
trade payable and accrued liabilities, which exclude all tax payable such as VAT and GST/PST/QST/HST/IVA, lease obligations
and loans as financial liabilities at amortized cost.
The Company initially recognizes financial liabilities on the trade date at which the Company becomes a party to the
contractual provisions of the instrument. Financial liabilities are derecognized when their contractual obligations are
discharged, cancelled or have expired. Any adjustment to the amortized cost of the financial liability arising from a
modification or exchange is recognized in profit or loss at the date of the modification or exchange.
iv) 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.
Leases
g)
The Company recognizes right-of-use (“RoU”) assets and lease obligations in the consolidated statement of financial position
initially measured as the present value of future lease payment and recognizes depreciation of RoU assets and interest on
lease obligations in the consolidated statement of income. Lease payments, including both principal and interest
components, are recognized within the consolidated statement of cash flows within financing activities.
A lease modification is accounted for as a separate lease from the original lease if the modification increases the scope of the
lease by adding the right to use one or more underlying assets; and the consideration for the lease increase by an amount
commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone
price to reflect the circumstances of the particular contract. If the lease modification merely extends the Company’s right to
use an existing leased asset to which it already has access, the modification is not accounted for as a separate lease. Instead,
the Company recalculates the existing lease obligations on the effective date of the lease modification to include the lease
payments until the end of the extended period and a corresponding adjustment is also made to the RoU asset. The additional
RoU asset and lease obligations relating to the extended period are therefore recognised on the date of modification.
For short-term leases (terms of 12 months or less) and leases of low-value assets, the Company has opted to recognize these
lease payments as expenses on the consolidated statement of income, as permitted by IFRS 16. This expense is presented
within general and administration expenses.
h)
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 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.
2020 Consolidated Financial Statements
pg. 37
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
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)
Receivables
Receivables measured at amortized cost are assessed at each reporting date to determine whether there is an objective
evidence of impairment. An expected credit loss impairment model is applied, where expected credit losses are the present
value of all cash shortfalls over the expected life of the receivable. A receivable is impaired if objective evidence indicates that
a loss event has occurred after the initial recognition of the receivable, and that the loss event will have a negative effect on
the estimated future cash flows of that receivable that can be estimated reliably.
An impairment loss in respect of receivables is calculated as the difference between its carrying amount and the present
value of the estimated future cash flows discounted at the receivable’s original effective interest rate. Losses are recognized
in profit or loss and reflected in an allowance account against receivables. Interest on the impaired receivables continues to
be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to
decrease, the decrease in 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.
Indications include 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.
Provisions
i)
A provision is a liability of uncertain timing or amount. Provisions are recognized when: (i) the Company 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) 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, 2020 and 2019, the
Company did not have any liability for provisions.
j) Revenue Recognition
Revenue is recognized by applying the five-step model under IFRS 15. The Company recognizes revenue when, or as the
goods or services are transferred to the control of the customer and performance obligations are satisfied.
i) Operation of Water Treatment Plants
For revenue based on water treatment fees, the above criteria are generally met as water treatment services are provided
and performance obligations are satisfied when the customer receives the control of discharged clean water and as
operational targets are achieved. The Company has an agreement with a customer for the operation of water treatment
plants, and revenue from water treatment fees are earned based on the volume of water treated and discharged into the
2020 Consolidated Financial Statements
pg. 38
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
environment. The Company also has an agreement with the Company’s joint venture for the operations support of a water
treatment plant, with revenues earned for ongoing operations support and supervisory services.
Revenues are also earned by the Company’s joint ventures on the sale of metal concentrates recovered from the operation of
water treatment plants. For the sale of metal concentrate, the performance obligations are satisfied when the control of the
metal concentrate are passed from the Company to the customer. Revenue is recognized based on the final settlement of
weights and assays and is recorded at the fair value, based on prevailing market prices adjusted in accordance with agreed
upon terms. Smelting and transportation charges are netted against revenue for sales of metal concentrate.
ii) Technical Services Relating to Water Management
Technical services include both water management consulting and technical innovation services. Water management
consulting services include feasibility and assessment studies, toxicity investigations, process engineering design, plant
commissioning and plant optimization. Technical innovation services include field pilot demonstrations, laboratory
treatability assessments, designing and conducting experiments, and delivery of final reports on the results. Technical
services contracts can be remunerated on agreed upon time-based rates or a fixed price commitment for the scope of the
contract. The services are passed onto the customer upon the delivery of the work product or as hours of services are
performed for the customer. As control of the services passes from the Company to the customer over time, revenue is
recognized based on the extent of progress towards completion of the performance obligation. Depending on the specific
circumstances of the individual contracts, the Company recognizes revenue from technical services by either the project
stage of completion method or the completed contract methods.
k) Government Grants
Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be
received and the Company 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 are credited
to the statement of profit or loss on a straight-line basis over the expected lives of the related assets.
Grants that compensate the Company for expenses incurred are deferred and recognized in the statement of profit or
loss on a systematic basis in the periods in which the intended expenses are recognized.
l)
Employee Benefits
i) Bonus Plans
The Company recognizes a liability and an expense for bonuses based on a formula that takes into consideration the key
performance indicators of the Company. The Company recognizes a provision where contractually obliged or where there is a
past practice that has created a constructive obligation.
ii)
Defined Contribution Plans
Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in profit or loss in
the periods during which the related service is provided by the employees.
iii) Termination Benefits
Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination
benefits at the earlier of the following dates:
When the Company can no longer withdraw the offer of those benefits.
When the entity recognizes costs for a restructuring that is within the scope of IAS 37 and involves the payment of
termination benefits.
When benefits falling due more than 12 months after the end of the reporting period are discounted to their present
value.
2020 Consolidated Financial Statements
pg. 39
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
m) Share-based Payments
The Company maintains a Deferred Share Unit (“DSU”) plan, a Restricted Share unit (“RSU”) plan and a stock option plan for
employees and directors of the Company. The DSU plan and the RSU plan are considered as cash-settled share-based
payments and the stock option plan is considered as equity-settled share-based payments.
RSUs are measured initially at the fair value and the amount payable is recognized as an expense with a corresponding
increase in liabilities over the vesting period. The RSUs vest over three years in equal installments and the Company will settle
all RSUs in cash. Compensation expense relating to the initial award and changes in the market price at each reporting date is
recognized on a straight-line basis in profit or loss over the vesting period.
DSUs are measured initially at the fair value and such liabilities are recognized as an obligation at the grant date. The fair
value of the amount payable to holders of DSUs is equivalent to the cash value of the common shares at the report 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 the period.
Stock options 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. Each vesting tranche in an award is considered a
separate award with its own vesting period and grant date fair value. Compensation expense is recognized over the tranche’s
vesting period by increasing contributed surplus based on the number of awards expected to vest. 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. Upon exercise of stock options, the consideration paid
by the option holder is recorded as an increase to share capital and the amount previously recognized in contributed surplus
will not be reversed back to share capital.
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
n)
The Company follows the asset and liability method of accounting for income taxes. Income tax is recognized in profit or loss,
except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the
current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively. Where
current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the
accounting for the business combination. Income tax comprises of two components: current and deferred.
i) Current Tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before taxes as reported in
the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are
taxable or deductible in other years and items that are never taxable or deductible. Current tax comprises the expected tax
payable or receivable on the taxable profit for the year and any adjustment to tax payable or receivable in respect of previous
years. Current tax also includes any tax arising from dividends. The Company’s current tax is calculated using tax rates that
have been enacted or substantively enacted by the end of the reporting period.
ii) Deferred Tax
Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
2020 Consolidated Financial Statements
pg. 40
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
and their respective tax bases, unused tax losses and other income tax deductions. 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 those deductible temporary differences which can be utilized.
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 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.
Taxable temporary differences arising on the initial recognition of goodwill.
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 or the tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company
expects at the reporting date to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and
liabilities are offset only if certain criteria are met.
o) Earnings Per Share
Basic earnings per share is calculated by dividing the net income for the year attributable to the equity owners of the
Company by the weighted average number of common shares outstanding during the year. Diluted earnings per share is
calculated using the treasury stock method by adjusting the weighted average number of common shares outstanding for
dilutive instruments. If the Company incurs net losses in a fiscal year, basic and diluted losses per share are the same.
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 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 considered to be relevant. Actual results may differ from these
estimates.
Estimates and assumptions are continually evaluated and are based on management’s experience and other facts and
circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and
liabilities are accounted for prospectively.
The areas which require management to make significant judgments, estimates and assumptions in determining carrying
values include, but are not limited to:
a) Critical Judgements
Critical judgements that management has made in the process of applying the Company’s accounting policies and that have
the most significant effect on the amounts recognized in the consolidated financial statement are:
i) Management’s assessment of the Company’s ability to continue as a going concern, as 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.
2020 Consolidated Financial Statements
pg. 41
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
ii) Management’s judgement on determining the timing of the transfer of control and satisfaction of performance
obligations of either at a point in time or over time.
iii) Management’ assessment of impairment indicators for asset impairment on long-term assets such as plant and
equipment or investment in joint ventures.
b) Key Sources of Estimation Uncertainty and Assumptions
The following are 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) COVID-19 Economic Uncertainty
The Company has assessed the economic impacts of the novel coronavirus (“COVID-19”) pandemic on its consolidated
financial statements. As at December 31, 2020, management has determined that the Company’s ability to execute its
medium and longer-term plans, the economic viability of its assets and the carrying value of its long-lived assets are not
materially impacted. In making this judgment, management has assessed various criteria including, but not limited to,
existing laws, regulations, orders, potential hindrances to our supply chain, disruptions in the markets for our services,
commodity prices and foreign exchange prices along with the actions the Company has taken at its operations to protect the
health and safety of its workforce and local communities. At this time, the full extent of the impact that the COVID-19
outbreak may have on the Company is unknown and will depend on future developments that are highly uncertain and that
cannot be predicted with confidence.
ii) Revenue Recognition
Revenue for technical services relating to water management are recognized using the project stage of completion method,
which requires judgment for estimating project inputs and costs for completion and making assumptions for scope changes.
Depending on the services provided and on the contract terms, many variables are used in assessing the revenues earned
based on the project stage of completion at the reporting date.
iii) Expected Credit Loss
Trade and other receivables are assessed for impairment at each reporting date by applying the expected credit loss
impairment model. Expected credit loss represents management’s best estimate and assumptions based on actual credit loss
experience and informed credit assessment, and also takes into consideration forward-looking information. If actual credit
losses differ from estimates, future earnings would be affected.
iv) Right-of-Use Assets & Lease Obligations
To determine the value of the initial recognition and subsequent re-measurement of RoU assets and lease obligations,
management is required to exercise judgment in several areas. Management has reviewed its lease agreements to estimate
the lease term by evaluating the probability of exercising its option to extend or renew its lease contracts. Further judgement
is required to determine the discount rate on lease payments by assessing its incremental borrowing rate at each of the
Company’s locations.
2020 Consolidated Financial Statements
pg. 42
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
5. TRADE AND OTHER RECEIVABLES
Trade receivables
Contract assets (note 20 (c))
Other
Dec. 31, 2020
$
1,274,976
410,715
26
Dec. 31, 2019
$
775,931
446,719
14,611
1,685,717
1,237,261
The Company’s changes in allowance for expected credit loss for the year ended December 31, 2020 and 2019 are as follows:
Allowance for expected credit loss, beginning of the year
Recognition of bad debt expense
Write-off of uncollected trade receivables
2020
$
94,630
-
-
2019
$
-
383,035
(288,405)
Allowance for expected credit loss, end of the year
94,630
94,630
6. RELATED PARTY TRANSACTIONS AND BALANCES
The following transactions were carried out with related parties of the Company:
For the year ended December 31, 2020 and 2019, the compensation awarded to the Company’s key management, which
includes the Board of Directors and executive management, are as follows:
Salaries, fees and short-term benefits
Share-based payments (note 12(a) and 12(c))
2020
$
671,197
170,749
2019
$
633,354
31,564
841,946
664,918
Included in salaries, fees and short-term benefits, are consulting services received from companies owned by the Company’s
management that amount to $135,000 for the year ended December 31, 2020 ($120,000 in 2019).
Included in trade payables and accrued liabilities as of December 31, 2020 is $13,162 ($100,768 at December 31, 2019) of
director fees, management consulting service fees with companies owned by the Company’s management, and termination
benefits.
2020 Consolidated Financial Statements
pg. 43
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
7. PLANT AND EQUIPMENT
Cost
As at December 31, 2018
Additions
Foreign exchange translation
Right-of-use assets1
$
Pilot plants
$
-
272,116
224
580,593
-
-
Other2
$
642,757
9,864
-
Total
$
1,223,350
281,980
224
As at December 31, 2019
272,340
580,593
652,621
1,505,554
Additions
Foreign exchange translation
196,535
1,561
-
-
20,237
-
216,772
1,561
As at December 31, 2020
470,436
580,593
672,858
1,723,887
Accumulated Depreciation
As at December 31, 2018
Depreciation for the year
Foreign exchange translation
-
(95,399)
63
(580,593)
-
-
(544,318)
(35,863)
-
(1,124,911)
(131,262)
63
As at December 31, 2019
(95,336)
(580,593)
(580,181)
(1,256,110)
Depreciation for the year
Foreign exchange translation
(106,873)
(444)
-
-
(40,796)
-
(147,669)
(444)
As at December 31, 2020
(202,653)
(580,593)
(620,977)
(1,404,223)
Carrying Amount
As at December 31, 2019
As at December 31, 2020
177,004
267,783
-
-
72,440
51,881
249,444
319,664
1Right-of-use assets comprises lease assets (note 11) such as office building and office equipment.
2Other comprises leasehold improvements, furniture, office equipment and lab equipment.
2020 Consolidated Financial Statements
pg. 44
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
8. INVESTMENT IN JOINT VENTURES
The Company’s share of investment in joint ventures on December 31, 2020 was $5,021,154 ($4,641,460 on December 31,
2019), comprised of:
Balance, January 1, 2019
Share of net income (loss)
Share of translation loss on foreign operation
Contributions made
Distributions received
Unrecognized share of net loss and translations loss
Balance, December 31, 2019
Share of net income
Share of translation gain on foreign operation
Distributions received
Unrecognized share of net income and translations gain
Balance, December 31, 2020
JCC-BQE
$
4,947,798
864,592
(345,063)
97,633
(923,500)
-
4,641,460
1,139,450
213,744
(973,500)
-
5,021,154
MWT-BQE
$
14,651
(161,697)
(19,247)
-
-
166,293
-
19,795
6,285
-
(26,080)
-
JCC-BioteQ Environmental Technologies Co. Ltd.
a.
In 2007, BQE Water entered into 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, which forms
a 50/50 share joint venture company between BQE Water and JCC, is called JCC-BioteQ Environmental Technologies Co. Ltd.
(“JCC-BQE”). The joint venture builds and operates water treatment plants utilizing BQE Water’s technologies. The agreement
includes a license contract whereby BQE Water will provide its patented technology on a royalty-free basis to the joint
venture company for use at Dexing Mine and up to five potential additional sites owned and operated by JCC.
The joint venture sells 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
upon terms. Currently, the joint venture operates three water treatment plants.
Any cash distributions from the joint venture to BQE Water 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 Water and JCC have a standing agreement to distribute excess cash reserves
annually. The partners 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. In 2020, the
Company received a gross cash distribution of $973,500 ($5 million RMB) compared to $923,500 ($5 million RMB) in 2019.
The joint venture derives its revenue from recovered copper sales, which are 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 global commodity price risk. The Company’s share of net earnings in the joint
venture for the year ended December 31, 2020 was $1,139,450 ($864,592 in 2019).
2020 Consolidated Financial Statements
pg. 45
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
The financial statements of BQE Water’s 50% interest in the JCC-BQE joint venture are presented as follows:
Statement of financial position
Assets
Current assets
Cash and short-term investments
Trade and other receivables
Income taxes recoverable
Inventory
Prepaid expenses
Non-current assets
Plant and equipment
Deferred tax assets
Dec. 31, 2020
$
Dec. 31, 2019
$
2,000,668
544,530
67,749
117,191
2,283
2,732,421
3,401,170
65,964
3,467,134
2,183,228
150,070
18,649
38,392
1,047
2,391,386
3,699,322
63,121
3,762,443
Total assets
6,199,555
6,153,829
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Total liabilities
Partner’s Equity
Joint venture partner equity
Accumulated other comprehensive income
Accumulated deficits
Total partner’s equity
1,178,401
1,512,369
1,178,401
1,512,369
3,961,989
1,384,820
(325,655)
5,021,154
3,961,989
1,171,076
(491,605)
4,641,460
Total liabilities and partner’s equity
6,199,555
6,153,829
2020 Consolidated Financial Statements
pg. 46
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
Statement of operations and comprehensive income
Revenues
Plant and other operating costs (excluding depreciation)
General and administration
Depreciation of plant and equipment
Income from operations
Finance income
Other income
2020
$
5,389,662
3,110,673
2,278,989
372,737
533,678
1,372,574
15,878
24,754
2019
$
5,323,088
3,436,789
1,886,299
388,322
481,278
1,016,699
19,055
56
Income before income taxes
1,413,206
1,035,810
Income tax expense
Net income for the year
Other comprehensive income (loss)
Translation income (loss) on foreign operation
(273,756)
(171,218)
1,139,450
864,592
213,744
(345,063)
Comprehensive income for the year
1,353,194
519,529
b. Shandong MWT BioteQ Environmental Technologies Co. Ltd.
During 2016, BQE Water signed a joint venture agreement with Beijing MWT Water Treatment Project Limited Company
(“MWT”) for the construction and operation of a water treatment plant located in Shandong Province, China. The joint
venture between BQE Water and MWT is called Shandong MWT BioteQ Environmental Technologies Co., Ltd. (“MWT-BQE”).
The joint venture built a water treatment plant at a smelter owned by Shandong Zhaojin Group Zhaoyuan Gold Smelting Co.,
Ltd (“Zhaoye”). The joint venture operates the plant using BQE Water’s patented technology to recover and sell copper and
zinc metals from Zhaoye’s industrial wastewater stream to generate revenues. BQE Water is entitled to 20% of the after-tax
profits of the joint venture. Upon the establishment of MWT-BQE, the Company paid a cash contribution of $96,400 (RMB
$500,000) as registered capital, which represents 4.35% of the total registered capital of the joint venture.
The Company’s 20% share of comprehensive income in the joint venture for the year ended December 31, 2020 was $26,080
(net loss of $180,944 in 2019). As BQE Water does not have a commitment to fund the losses of MWT-BQE, the share of
comprehensive income of the joint venture will be recognized on the investments of MWT-BQE when the unrecognized share
of net loss is reduced to zero. As of December 31, 2020, the balance of unrecognized share of net losses for MWT-BQE is
$140,213 ($166,293 on December 31, 2019).
2020 Consolidated Financial Statements
pg. 47
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
The sections of the statement of financial position of BQE Water’s portion of interest in the MWT-BQE joint venture are
presented as follows:
Current assets
Plant and equipment
Current liabilities
Non-current liabilities
Partner’s equity
Dec. 31, 2020
$
87,270
47,014
60,388
28,911
-
Dec. 31, 2019
$
34,182
60,276
55,145
-
-
The statement of loss of BQE Water’s 20% interest in the MWT-BQE joint venture is presented as follows:
Revenues
Plant and other operating costs (excluding depreciation)
Non-operating costs
Depreciation of plant and equipment
2020
$
411,067
181,377
229,690
121,755
88,140
2019
$
227,215
181,575
45,640
123,977
83,360
Net income (loss) for the year
19,795
(161,697)
Other comprehensive income (loss)
6,285
(19,247)
Comprehensive income (loss) for the year
26,080
(180,944)
9. TRADE PAYABLE AND ACCRUED LIABILITIES
Trade payable and accruals
Payroll liability
Tax payable
Dec. 31, 2020
$
429,035
592,115
34,337
Dec. 31, 2019
$
845,131
536,709
-
1,055,487
1,381,840
10. LOANS
On August 20, 2018, the Company entered into a loan agreement with the Minister of Western Economic Diversification
Canada under the Western Innovation Initiative (“WINN”). The WINN program offers the Company an interest-free loan
contribution up to a maximum of $412,500. The WINN loan was granted to the Company to assist in the commercialization
and scale-up of its selenium removal technology in the resource sector. Under the loan agreement, the Company shall repay
the total contribution in 60 equal monthly installments commencing on April 1, 2021 until March 1, 2026. As of December 31,
2020, the Company has received a total of $412,500 under this loan agreement ($254,511 on December 31, 2019).
2020 Consolidated Financial Statements
pg. 48
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
11. LEASES
The Company’s carrying value of lease obligations are as follows:
Balance at January 1
Addition of lease obligations
Interest expense on lease obligations
Lease payments on interest portion
Lease payments on principal portion
Foreign exchange translation
Ending Balance
Less: current portion of lease obligations
Non-current portion of lease obligations
Dec. 31, 2020
$
Dec. 31, 2019
$
181,033
196,535
21,463
(21,478)
(99,486)
938
272,116
-
25,216
(25,216)
(91,423)
340
279,005
181,033
92,128
104,517
186,877
76,516
Lease contracts with components of variable lease payments and leases that are classified as short-term and as low value
assets are not counted under lease obligations. The Company’s lease expense, which is not counted under lease obligations,
for the year ended December 31, 2020 and 2019 are as follows:
Classified as short-term or as low value
Leases with variable lease payments
2020
$
27,473
74,886
2019
$
43,485
95,361
102,359
138,846
The following is a schedule of the Company’s future lease payments under lease obligations:
2021
2022
2023
Total undiscounted lease payments
Less: imputed interest
Total carrying value of lease obligations
Dec. 31, 2020
$
119,877
116,650
91,236
327,763
(48,758)
279,005
2020 Consolidated Financial Statements
pg. 49
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
12. SHARE-BASED PAYMENT EXPENSES
The Company’s share-based payment expenses are comprised as follows:
Stock options (a)
Deferred share units (b)
Restricted share units (c)
Dec. 31, 2020
$
244,779
104,742
37,361
Dec. 31, 2019
$
54,574
42,205
56,346
386,882
153,125
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 3 years in equal installments.
On January 8, 2020, the Company granted 51,000 stock options with an exercise price of $8.75 to the directors and
employees of the Company. These options have a term of five 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 $7.36 per option. The significant assumptions in the valuation model were: a volatility of
124.2%, an expected option life of five years and an annual risk-free interest rate of 1.62%.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2020
Weighted average
exercise price
$
6.00
8.75
6.00
-
6.00
7.69
6.00
Number of
options
39,501
51,000
(667)
-
(7,001)
82,833
31,833
2019
Weighted average
exercise price
$
6.00
-
6.00
7.00
6.00
6.00
6.00
Number of
options
62,000
-
(500)
(20,000)
(1,999)
39,501
25,665
Outstanding at January 1
Granted
Forfeited
Expired
Exercised
Outstanding at December 31
Exercisable at December 31
2020 Consolidated Financial Statements
pg. 50
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
The Company uses the Black-Scholes option pricing model in determining the fair value of the stock options. During the year
ended December 31, 2020, the Company recognized $244,779 ($54,574 in 2019) of non-cash compensation expense related
to stock options. The expiry date by exercise price at December 31, 2020 are as follows:
Exercise price $
6.00
8.75
Expiry Date
December 7, 2022
January 8, 2025
number of outstanding share
options
31,833
51,000
number of exercisable share
options
31,833
-
b) Deferred Share Units
The Company implemented a deferred share unit (“DSU”) plan pursuant to which DSUs may be granted to management and
non-employee members of the Board of Directors on an annual basis. The number of DSUs granted to a participant is
calculated by dividing: (i) a specified dollar amount of the participant’s compensation amount paid in DSUs in lieu of cash 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. 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 on the date a holder ceases to be a
participant under the plan, with payment no later than 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, 2019
Redeemed
Fair value adjustment
Other adjustment
Balance, December 31, 2019
Fair value adjustment
Balance, December 31, 2020
Number of
units
15,385
(4,201)
-
(610)
10,574
-
Value
$
86,171
(36,502)
45,865
(3,660)
91,874
104,742
10,574
196,616
c) Restricted Share Units
The Company implemented a restricted share unit (“RSU”) plan pursuant to which RSUs may be granted to the officers and
employees 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 RSUs immediately in cash, with payment
equal to the five-day volume weighted average trading price of the number of RSUs held preceding the date of redemption.
The RSU plan was amended by the Board of Directors on January 8, 2020. Under the new amendment, any unvested RSUs
shall be forfeited upon separation of employment with the Company. RSUs granted are accounted for and fair valued by
recognizing share-based payment expenses on a straight-line basis over the vesting period.
During 2020, the Company granted 3,281 RSUs to management and employees of the Company. The RSUs granted remained
unvested as at December 31, 2020.
2020 Consolidated Financial Statements
pg. 51
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
The following table presents the changes to the RSU plan:
Balance, January 1, 2019
Granted
Fair value adjustment
Balance, December 31, 2019
Granted
Forfeited
Redeemed
Fair value adjustment
Balance, December 31, 2020
13. SHARE CAPITAL
Number of
units
-
6,485
-
6,485
3,281
(381)
(2,032)
-
Value
$
-
42,477
13,869
56,346
7,258
-
(20,320)
30,103
7,353
73,387
a) Authorized
An unlimited number of common shares, without nominal or par value.
Issued
b)
As at December 31, 2020, the Company had 1,217,435 common shares outstanding (1,210,434 on December 31, 2019).
c) Earnings per share
The calculation of earnings per share for the year ended December 31, 2020 and 2019 are as follows:
Net income
Basic weighted average number of shares outstanding
Dilution of securities
2020
$
1,167,135
1,215,884
16,974
2019
$
241,180
1,208,681
4,555
Diluted weighted average number of shares outstanding
1,232,858
1,213,236
Earnings per share:
Basic
Diluted
0.96
0.95
0.20
0.20
2020 Consolidated Financial Statements
pg. 52
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
14. EXPENSES BY NATURE
Operating expenses (excluding depreciation)
Employee benefits
Consulting and contractor expenses
Raw materials and consumables used
Travel expenses
Equipment rental expenses
Other expenses
General and administration
Employee benefits
Director fees
Consulting and contractor expenses
Rental expenses
Insurance expenses
Other expenses
Sales and development
Employee benefits
Consulting and contractor expenses
Travel expenses
Rental expenses
Other expenses
15. FINANCE COSTS
The net of finance costs is comprised as follows:
Finance income
Interest expense
2020
$
3,159,432
670,790
383,772
86,771
68,222
61,971
2019
$
2,183,043
311,097
169,011
101,869
9,265
14,851
4,430,958
2,789,136
691,205
85,900
463,953
87,345
191,993
101,600
689,534
93,700
414,571
99,867
170,968
162,199
1,621,996
1,630,839
746,925
141,791
11,135
15,014
55,682
799,150
68,141
100,260
38,979
56,585
970,547
1,063,115
2020
$
4,792
(21,759)
2019
$
9,905
(25,240)
(16,967)
(15,335)
2020 Consolidated Financial Statements
pg. 53
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
16. OTHER INCOME AND LOSS
The net of other income and loss is comprised as follows:
Other income
Bad debt expense (note 5)
2020
$
63,698
-
2019
$
66,430
(383,035)
63,698
(316,605)
17. INCOME TAXES
Income tax expense differs from that computed by applying the applicable Canadian federal and provincial statutory rate of
27% (2019 – 27%) before taxes as follows:
Expected income tax expense at statutory rates
Non-taxable income
Withholding tax
Functional currency adjustments
Different statutory tax rates on foreign subsidiaries
Change in unrecognized deferred tax assets
2020
$
342,779
(236,870)
102,359
(48,202)
(3,251)
(54,398)
2019
$
95,049
(163,200)
102,292
26,912
(19,913)
69,713
Income tax expense
102,417
110,853
Current tax expense
Deferred tax expense
Income tax expense
2020
$
102,417
-
2019
$
110,853
-
102,417
110,853
2020 Consolidated Financial Statements
pg. 54
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
The Company’s unrecognized deductible temporary differences and non-capital losses at December 31, 2020 and 2019 are as
follows:
Canada
Plant and equipment
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
Other
2020
$
2019
$
1,282,900
8,056,712
27,257,500
-
549,007
1,336,726
8,056,712
27,894,047
52,688
311,342
37,146,119
37,651,515
60,905
1,370,211
2,992,543
12,154
76,068
1,086,152
3,207,806
-
4,435,813
4,370,026
Total unrecognized deductible temporary differences
41,581,932
42,021,541
The Company’s investment tax credits, expiring between 2019 and 2020, may be used to reduce future Canadian income
taxes that are otherwise payable. As at December 31, 2020, the Company has not recognized a deferred tax asset in respect
of non-capital loss carry forwards of approximately $27,257,500 ($27,894,047 in 2019) 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
2037
2038
2039
$
1,581,506
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
584,241
3,191,545
312,657
647,505
27,257,500
2020 Consolidated Financial Statements
pg. 55
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
In addition, the Company has available tax losses in other jurisdictions that total $2,992,543 ($3,207,806 in 2019). These
losses can be carried forward to offset against future taxable income in those jurisdictions with expiry periods from 5 years to
indefinitely, with losses of $1,234,150 beginning to expire in 2022.
18. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information (included within operating activities) is as follows:
Change in non-cash working capital items
Increase in trade and other receivables
Increase in prepaid and deposits
(Decrease) increase in trade payable and accrued liabilities
Increase (Decrease) in deferred revenue
(Decrease) in deferred benefits
2020
$
(443,832)
(9,595)
(320,894)
351,871
(20,320)
2019
$
(318,568)
(66,631)
55,857
(84,048)
(36,502)
Change in non-cash working capital items
(442,770)
(449,892)
19. COMMITMENTS
The Company has commitments of $388,130 under operating leases for office and laboratory premises, and for laboratory
assay services, as follows:
2021
2022
2023
$
216,839
95,547
75,744
388,130
20. REVENUE
The Company monetizes the value of its intellectual property and expertise primarily through the services of long-term
operations and maintenance of water treatment plants to generate recurring revenue that is linked to plant performance. As
the period between the identification of new projects and treatment plants entering their operating phase can be lengthy,
the Company also generates revenues from technical services relating to water management that are project specific and
generally non-recurring in nature.
a) Disaggregation of Revenue
The Company functions as providers of operational services of water treatment plants and as providers of technical services
relating to water management. The Company disaggregates revenues from contracts with customer into operations contracts
and technical services contracts.
Operations contracts are when the Company is appointed to operate water treatment plants and to provide operations
support for a customer. Operations contracts generate recurring revenue for the Company, which is either based on an
agreed upon tolling fee for water treated and discharged into the environment or based on a fixed technical support fee.
Technical services contracts are when the Company is appointed to provide water management consulting services and
technical innovation services to its customer. Such services include feasibility & assessment studies, toxicity investigation,
2020 Consolidated Financial Statements
pg. 56
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
process engineering design, plant commissioning, plant optimization, laboratory treatability assessments and field pilot
demonstrations. Depending on the need of the customer or the project requirements, technical services contracts may be in
the form of a fixed priced contract or a time-based contract.
The disaggregated revenue of the Company are as follows:
Operations contracts
Technical services contracts
2020
$
1,785,632
5,910,729
2019
$
1,663,639
3,976,195
7,696,361
5,639,834
b) Remaining Performance Obligations
As at December 31, 2020, the aggregate amount of the transaction price of ongoing contracts allocated to remaining
performance obligations is $1,555,007, compared to $916,191 as at December 31, 2019. The remaining performance
obligations of the Company are expected to be fully completed in the next 12 months of the reporting date. The value of
remaining performance obligations does not include amounts for non-contracted future services or for estimated future work
orders where the value of work is not specified. Therefore, the Company’s anticipated future work to be performed at a given
time is greater than what is reported as remaining performance obligations.
c) Changes in Contract Assets
The Company’s changes in contract assets for the year ended December 31, 2020 and 2019 are as follows:
Contract assets, beginning of the year
Amounts invoiced included in the beginning balance
Net increase in contract assets recognized during the year
Contract assets, end of the year
2020
$
446,719
(378,370)
342,366
2019
$
199,719
(178,699)
425,699
410,715
446,719
d) Changes in Deferred Revenue
The Company’s changes in deferred revenue for the year ended December 31, 2020 and 2019 are as follows:
Deferred revenue, beginning of the year
Recognition of deferred revenue included in the beginning balance
Net increase in deferred revenue recognized during the year
Less:
Non-current portion of deferred revenue, end of the year
Current portion of deferred revenue, end of the year
2020
$
5,135
-
353,954
(283,740)
75,349
2019
$
92,556
(92,556)
5,135
-
5,135
2020 Consolidated Financial Statements
pg. 57
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
21. SEGMENTED INFORMATION
The Company has one operating segment, being principally to build and operate water treatment plants. The Company
functions as providers of operational services of water treatment plants and as providers of technical services relating to
water management.
a) Geographic Information
The Company mainly generates revenue from North America 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:
Revenue
Canada
USA
Latin America
China
Other
2020
$
2019
$
2,510,742
3,583,905
1,049,423
552,291
-
3,360,685
213,899
1,129,871
920,579
14,800
7,696,361
5,639,834
The Company’s non-current assets, excluding non-current deposits, by location of assets are as follows:
Canada
China
Dec. 31, 2020
$
310,606
5,030,212
Dec. 31, 2019
$
223,441
4,667,463
5,340,818
4,890,904
Information about Major Customers
b)
The following table presents revenue for individual customers exceeding 10% of annual revenue for the year ended
December 31, 2020 and 2019:
Customer A
Customer C
Customer D
Customer E
Customer F
Total
2020
$
1,342,113
384,700
439,335
2,485,240
935,720
2019
$
1,565,220
942,444
920,579
100,333
17,318
5,587,108
3,545,894
Represents percentage of total revenue for the year
73%
63%
2020 Consolidated Financial Statements
pg. 58
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
22. CAPITAL MANAGEMENT
The Company’s capital management objectives are to ensure that the Company has the financial capacity to support its
current and anticipated volume of business and mix of geographical establishments, to manage unforeseen operational and
project requirements, and to provide its investors with maximum long-term returns on equity.
In the management of capital, the Company defines capital as shareholder’s equity and non-current liabilities, which includes
loans, lease obligations, and deferred revenues. In order to facilitate the management of its capital requirements, the
Company prepares annual budgets, which are approved by the Board of Directors annually. As a component of working
capital, the Company maintains balances of cash, which are intended to cover current liabilities. 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.
The amounts of shareholders’ equity, working capital and non-current liabilities at December 31, 2020 and 2019 as are
follows:
Shareholders’ equity
Working capital
Non-current liabilities
2020
$
8,087,735
3,543,278
821,242
2019
$
6,405,331
1,828,632
331,027
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
the preservation of capital. Risk management activities are managed by the Company’s finance and accounting department,
with oversight from the Board of Directors. The Company’s risk management policies and procedures have not changed from
2019.
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 trade and other receivables excluding tax
receivable. Credit risk is primarily associated with trade and other receivables, however, it also arises on cash.
The Company’s maximum exposure to credit risk is as follows:
Cash
Trade and other receivables (exclude tax receivable)
Dec. 31, 2020
$
3,239,692
1,685,717
Dec. 31, 2019
$
2,060,060
1,222,784
4,925,409
3,282,844
The Company invests its cash with the objective of maintaining safety of principal and providing adequate liquidity to meet all
current payment obligations. The Company invests its cash with counterparties that it believes are of high credit quality as
assessed by reputable rating agencies. Given these high credit ratings, the Company does not expect any counterparties
holding this cash to fail to meet their obligations.
2020 Consolidated Financial Statements
pg. 59
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
The Company transacts with customers with strong credit ratings and strives to minimize credit risk by performing credit
reviews, ongoing credit evaluation and account monitoring procedures. The credit risk associated with trade receivables with
aging balances over 90 days at December 31, 2020 is considered higher than normal and the Company has an allowance for
expected credit losses at December 31, 2020 of $94,630 ($94,630 at December 31, 2019). All of the Company’s receivables
have been reviewed for indicators of impairment. The aging of trade and other receivables is as follows:
0-30
days
$
31-90
days
$
Over 90
days
$
Total
$
Total
$
Dec. 31, 2020 Dec. 31, 2019
Trade and other receivables
(exclude tax receivable)
458,530
901,783
325,404
1,685,717
1,222,784
Of the Company’s receivables, despite overdue balances of $1,227,187, 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.
b) Currency Risk
The Company conducts business in Canada, United States, Mexico, Chile and China. As a result, the Company has foreign
currency exposure with respect to items not denominated in Canadian dollars. The two 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) Foreign Exchange Exposure
The Company is exposed to currency risk through the following assets and liabilities denominated in currencies other than
the Canadian dollar: cash, trade and other receivable excluding tax receivable, and trade payable and accrued liabilities
excluding tax payable. The currencies of the Company’s financial instruments and other foreign currency denominated
liabilities exposed to currency risk, based on notional amounts, were as follows:
Cash
Trade and other receivables (exclude tax)
Trade and other payables (exclude tax)
U.S.
dollar
1,203,035
504,810
(136,184)
Mexican
peso
19,912
-
(912)
December 31, 2020
Chinese
RMB
248,093
483,403
(14,429)
Chilean
peso
31,438
33,964
(405,164)
Gross balance sheet exposure
1,571,661
19,000
(339,762)
717,067
2020 Consolidated Financial Statements
pg. 60
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
Cash
Trade and other receivables (exclude tax)
Trade and other payables (exclude tax)
U.S.
dollar
332,754
287,983
(255,774)
Mexican
peso
5,847
-
-
December 31, 2019
Chinese
RMB
Chilean
peso
21,406
-
(338,183)
815,085
284,533
(6,732)
Gross balance sheet exposure
364,963
5,847
(316,777)
1,092,886
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.
U.S. dollar
Mexican peso
Chilean peso
Chinese RMB
2020
$
157,166
1,900
(33,976)
71,707
2019
$
36,496
585
(31,678)
109,289
196,797
114,692
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 from Cash. 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. As of December 31, 2020, the Company has
working capital of $3,543,278 ($1,828,632 as of December 31, 2019). To further improve the Company’s access to liquidity,
there are credit facilities available with the Royal Bank of Canada including a credit card facility of $15,000 and a revolving
demand credit facility of $500,000. As of December 31, 2020, the revolving demand credit facility remains undrawn. The
Company believes that it has access to sufficient funding through the use of the credit facility and its Cash to meet its
foreseeable operating requirements.
The following table shows the contractual maturities of debt commitments. Refer to note 10 in respect to the loan agreement
between the Company and the Minister of Western Economic Diversification Canada. 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
(excludes tax payable)
Deferred benefits
Loans
Lease obligations
< 1 year
$
1 to 3 years
$
> 3 years
$
Dec. 31, 2020 Dec. 31, 2019
Total
$
Total
$
1,021,150
270,003
61,875
119,877
-
-
247,500
207,886
-
-
103,125
-
1,021,150
270,003
412,500
327,763
1,381,840
148,220
254,511
206,443
1,472,905
455,386
103,125
2,031,416
1,991,014
2020 Consolidated Financial Statements
pg. 61
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
Taking into consideration the Company’s current cash position, volatile equity markets, global uncertainty in the capital
markets and increasing cost pressures, the Company continues to review expenditures to ensure adequate liquidity. A period
of extended depression in the mining industry, which is the Company’s main customer base, may necessitate the Company to
seek financing opportunities in accordance to its capital 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 ventures will be significantly affected by changes in the commodity
price of copper being sold by the joint ventures of the Company. 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 $538,966 in 2020 ($532,309 in 2019).
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 plans that the Company is required to satisfy in cash
upon vesting. The Company considers the plan a financial liability and is required to fair value the outstanding liability with
the resulting changes included in stock-based compensation expense in each period: an increase in share unit award prices
would decrease the Company’s net income or loss. A 10% change in common stock prices would impact the Company’s net
income or loss before taxes and other comprehensive income or loss before taxes by $34,241 in 2020 ($14,585 in 2019).
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 liabilities by category and information about financial assets and liabilities measured at
fair value on a recurring basis in the statement of financial position are classified and measured as follows:
Financial assets
Cash
Trade and other receivables
(excludes tax receivable)
Financial liabilities
Trade payable and other payables
(excludes tax payable)
Loan
Lease obligation
Deferred benefits
Category
Dec. 31, 2020
$
Dec. 31, 2019
$
Financial assets at amortized cost
3,239,692
2,060,060
Financial assets at amortized cost
1,685,717
1,222,784
Financial liabilities at amortized cost
Financial liabilities at amortized cost
Financial liabilities at amortized cost
Financial instruments at FVTPL
1,021,150
412,500
279,005
270,003
1,381,840
254,511
181,033
148,220
2020 Consolidated Financial Statements
pg. 62
BQE WATER INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
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 deferred benefits, which consist of 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, 2020 and 2019. 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.
2020 Consolidated Financial Statements
pg. 63