BQE CN: Management Discussion
2003-04-03 08:39 (New York)
BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC ("BQE-V")
- Management Discussion
Management Discussion and Analysis
Year End Report to December 31, 2002
See also the Company's Annual Report and the audited consolidated
financial statements for the year ended December 31, 2002.
Description of Business
BioteQ is a Canadian industrial process technology company that has
developed the patented BioSulphide ProcessTM for water treatment and
sulphide reagent production. The process allows the treatment of acid
contaminated water with concurrent recovery of saleable metals from the
water. BioteQ has completed construction and commissioning of a commercial
plant at the Caribou Mine in New Brunswick for selective copper and zinc
recovery, and is continuing to market its Process at a number of other
sites in North America and elsewhere.
Operating Results
During 2001 and 2002, the Company has continued the development of the
Process. In late 2001 the company built its first commercial scale plant
which operated through most of 2002 and provided an essential demonstration
of the Company and the Process's capability. In 2002, there has been
significant effort to market the Process at a large number of sites in
North America and abroad, with the result that the Company has a potential
project list of over 30 sites which could benefit from the Company's
technology. These projects range from early stage enquiries where an
initial review of potential has been completed, to two advanced stage
projects where either preliminary or detailed engineering has been
finalised and the decision to construct plants is imminent. Because the
Company is dealing in the majority of cases with large organizations and
endeavouring to sign contracts for the long-term operation of plants at
their sites, the process of reaching a definitive decision has been slower
than expected, however the process demonstration at the Caribou plant has
proved an invaluable tool in 2002 and the building of additional plants
would eliminate any lasting concerns of the Company's capability. The
operating loss for the year was $1,081,034 compared to $686,064 for 2001.
The major reasons for the increase were as follows.General and
Administrative costs for 2002 were $596,573 compared to $645,862 for 2001.
The reduction was due to lower legal and investor relations costs by
$120,000, offset by slightly higher costs in all other categories while the
company was progressing from public company start-up in December 2000.
Development expenses amounted to $465,607(net of government grants of
$184,182), compared to $277,072 in 2001. The increase was due to $147,000
(net) for the cost of start-up, operating and testing at the Caribou plant
and an increased effort and expense of marketing the Process, amounting to
$95,000. Other development costs were lower by $53,000. During 2001 the
Company received Scientific Research tax credit refunds of $207,446
relating to a prior year. The refunds were credited to the statement of
operations for $200,352 and $7,094 was credited to Capital Assets. No
related refunds were received in 2002 and no further refunds are available
to the Company in the future.
Caribou operations
Since plant start-up in late 2001, the water chemistry of the plant
feed provided by Breakwater Resources Ltd ("Breakwater")has not matched the
plant design criteria. The actual metal loadings of zinc and iron in the
feed water have far exceeded the anticipated levels provided during the
plant design phase. Consequently, at times, the plant could not meet the
original water flow performance criteria. As a result, the removal of zinc
was often incomplete and/or plant feed flow was less than the original
design specifications, although copper removal was consistently greater
than 99.5% Despite this, the plant has exceeded expectations on a steady
state basis in other operating criteria, such as the rate of sulphide
generation per unit volume of mine drainage, and adaptability of plant
controls to wide fluctuations in feed composition. The operation has
enabled the Company to enhance the bioreactor vessel design supplied by
Paques to increase sulphur reduction capacity at Caribou and all future
designs and installations. Furthermore, despite the bioreactor capacity
limitation, the Caribou plant performed well for a consistent period,
provided excellent metal removal from the treated water at steady state,
and had minimal downtime with an overall operating availability of 95%
during steady state operations. The site owner has shut water delivery
down for the winter in order to flood the underground mine as part of
closure procedures.
2003 operations
General and administrative expenses during 2003 are expected to be
somewhat more than 2002, due largely to a need for administrative support
during this growing stage, the increased cost of insurance and to a new
contract with an investor relations company. Development costs should be
significantly less in 2003 due to little operating/development costs for
the Caribou operation which might progress to the expansion phase. In
addition, lower marketing costs are expected as the project pipeline
matures. The Company is anticipating it will be completing construction of
two new commercial plants before the end of the year, at least one of which
is expected to be producing revenue and cash flow in the last quarter.
Liquidity and Capital Resources
During 2002, the Company raised $313,671, net of expenses, from an
issue of convertible debentures. Late in the year, a further $1,797,380 (
net of cash issue costs) was raised from a private placement of units
priced at $0.50 (the units comprised one common share and one warrant to
buy an additional share). The Company also received $152,340 from
government grants in support of demonstrating the company's innovative
environmental technology at the Caribou plant. A further $49,048 is a
receivable at year-end. At December 31, 2002 the Company had cash of
$1,776,457 and working capital of $1,681,867. The Company is expecting to
finalize completion of a commercial agreement to build a second plant for
application of the BioSulphide ProcessTM in the very near future. The
Company has already investigated the opportunities for project financing,
which it believes would be available for a large percentage of a project.
The Company believes it has adequate working capital to carry it to the
time when operating cash flow will make it self supporting.
Risks and Uncertainties
Any new commercial application of the BioSulphide ProcessTM will have
certain construction and other risks associated with building and operating
a new plant. Revenue will fluctuate with the price of the commodities being
recovered and the exchange rate for the United States dollar. Operating
costs will be largely dependent on the cost of consumables and power, which
may fluctuate. The Company will be selecting projects which demonstrate
good profit margins which should allow for the adverse effect of price
changes. The economics of some projects under review by the Company are
based largely on estimates of metals to be recovered. Although there is
often a significant amount of data upon which estimates can be based, there
can never be absolute certainty as to the continuity of flow of water to be
treated, nor the concentrations of metals contained therein.
Subsequent Events
In January 2003, the Company completed an over allotment on the private
placement of December 2002, by issuing a further 940,000 units for gross
proceeds of $470,000 ($420,000, net of cash costs). Subsequent to the
year-end, the Company signed an agreement with Strategic Investor Relations
Corporation for the provision of investor relations services. The contract
is for one year at a
monthly cost of $4000
Outlook
The year 2003 will be significant for the Company. It expects to start
building projects with good profitability and cash flow. The Company has
enough working capital to last well into 2004 and expects to be able to
project finance a significant portion of new plants. The Company appears
well placed to start the operating phase of its development
TEL: (604) 685-1243 BIOTEQ ENVIRONMENTAL TECHNOLOGIES INC.
FAX: (604) 685-7778
This one has enormous possibilities too |
