BQE Water Inc.
Annual Report 2023

Plain-text annual report

BQE WATER INC. CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2023 and 2022 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, 2023 and December 31, 2022, and the consolidated statements of income and comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of material accounting policy information. 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, 2023 and December 31, 2022, 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 are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are 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. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue Recognition – Estimate of total expected hours or costs to complete project contracts Key Audit Matter Description As described in Note 3(l), Note 4, and Note 22 to the consolidated financial statements, technical services contracts are remunerated on agreed upon time-based rates or fixed prices. For most fixed price technical services contracts, the Company recognizes the revenue over time based on the project stage of completion method, whereby the percentage of revenues earned to date is estimated using an input measure, usually as the ratio of labor hours or contract costs incurred to date to total estimated labor hours or costs. We considered this to be a key audit matter due to the significant judgments made by management in estimating the costs to complete which drives the timing of revenue recognition. Changes to costs to complete estimates can have a material impact on the amount of revenue recognized. These estimates are subjective and complex due to the unique nature of many of the projects and are dependent on the status of each individual project at year end. As a result, significant auditor judgment and audit effort was required. MNP LLP 2200 - 1021 West Hastings Street, Vancouver BC, V6E 0C3 1.877.688.8408 T: 604.685.8408 F: 604.685.8594 Audit Response We responded to this matter by performing procedures over the estimate of total expected hours for each project or the costs to complete project contracts. Our audit work in relation to this included, but was not restricted to, the following:       Obtained an understanding and evaluated the design and implementation of essential controls related to the Company’s process for estimating and updating hours or costs required to complete projects; Compared the hours and costs incurred and the estimated hours or costs to complete against the original estimates and investigated any significant changes; Assessed management’s ability to forecast, by comparing the original total estimated hours or costs to the total hours or costs incurred for contracts completed during the year; Inspected a sample of contracts, and when applicable, change orders, to understand the contract scope and key terms in order to assess the appropriateness of revenue recognition; Tested, on a sample basis, the labour hours and costs incurred to supporting evidence; and Assessed the adequacy and appropriateness of the related consolidated financial statement disclosures. Other Information Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis. 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 the audits or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of 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. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a 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. Those charged with governance are responsible for overseeing the Company’s financial reporting process. 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. 2200 - 1021 West Hastings Street, Vancouver, British Columbia, V6E 0C3 1.877.688.8408 T: 604.685.8408 F: 604.685.8594 MNP.ca 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 circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. 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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw 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. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor's report is Abhishek Kapoor. Vancouver, British Columbia April 25, 2024 Chartered Professional Accountants BQE WATER INC. Consolidated Statements of Financial Position As at December 31, 2023 and 2022 (Expressed in Canadian dollars) Assets Current assets Cash and cash equivalents Restricted cash Trade and other receivables Prepaid and deposits Total current assets Non-current assets Property and equipment Intangible assets Investment in joint ventures Deposits Total non-current assets Total assets Liabilities Current liabilities Trade payable and accrued liabilities Loans Deferred revenues Lease obligations Other liabilities 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 21) Approved and authorized by the Board of Directors: note 5, 6 (a) 7 8 9 6, 10 11 22 (d) 12 8 13 11 22 (d) 12 14 December 31 2023 $ December 31 2022 $ 7,927,603 - 4,374,275 407,717 12,709,595 1,816,830 230,835 4,046,677 52,204 6,146,546 6,234,352 180,307 3,206,869 337,850 9,959,378 395,456 314,775 5,301,227 17,080 6,028,538 18,856,141 15,987,916 1,340,240 82,500 37,350 105,436 - 614,612 2,180,138 229,596 170,244 1,500,346 1,900,186 1,240,780 82,500 436,039 191,988 142,000 700,949 2,794,256 185,625 283,740 85,802 555,167 4,080,324 3,349,423 56,302,539 11,106,796 1,231,278 (53,864,796) 14,775,817 56,654,061 10,919,623 1,582,782 (56,517,973) 12,638,493 18,856,141 15,987,916 “Peter Gleeson” , Executive Chairman “Sara Elford” , Director The accompanying notes are an integral part of these consolidated financial statements. 2023 Consolidated Financial Statements pg. 5 BQE WATER INC. Consolidated Statements of Income and Comprehensive Income For the years ended December 31, 2023 and 2022 (Expressed in Canadian dollars) Revenues Operating expenses (excluding depreciation) Operating margin before depreciation Share of income from joint ventures General and administration Sales and development Share-based payments Depreciation and amortization Income from operations and joint ventures Finance income, net Foreign exchange (loss) gain Bad debt expenses Other income, net Income before income taxes Income tax expenses Net income for the year Other comprehensive income (loss) Items that may be reclassified subsequently to income Foreign currency translation Comprehensive income for the year Earnings per share Basic Diluted Weighted average number of shares outstanding Basic Diluted note 6 (a), 22 18 9 18 18 6 (b), 13 7, 8 15 16 17 19 14 (d) 14 (d) 14 (d) 14 (d) Year ended December 31 2022 $ 2023 $ 18,137,004 (9,074,847) 9,062,157 418,816 (2,726,934) (2,655,360) (466,097) (430,400) 3,202,182 204,429 (140,999) (473,112) 51,898 12,157,696 (7,106,966) 5,050,730 1,487,336 (2,464,143) (1,768,322) (670,615) (263,668) 1,371,318 26,834 48,098 - 24,785 2,844,398 (191,221) 1,471,035 (309,242) 2,653,177 1,161,793 (351,504) (167,604) 2,301,673 994,189 2.12 2.08 0.93 0.92 1,251,284 1,274,793 1,248,890 1,263,912 The accompanying notes are an integral part of these consolidated financial statements. 2023 Consolidated Financial Statements pg. 6 BQE WATER INC. Consolidated Statements of Changes in Equity For the years ended December 31, 2023 and 2022 (Expressed in Canadian dollars) Share Capital Balance, beginning of the year Exercise of stock options Shares repurchased Year ended December 31 2023 $ Number of Shares Year ended December 31 2022 $ Number of Shares 1,256,928 3,000 (13,300) 56,654,061 26,250 (377,772) 1,244,968 11,960 - 56,573,611 80,450 - note 14 (b) 13 (a) 14 (c) Balance, end of the year 1,246,628 56,302,539 1,256,928 56,654,061 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 (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 Total shareholders’ equity Balance, beginning of the year Exercise of stock options Shares repurchased Equity settled share-based payments Other comprehensive (loss) for the year Net income for the year Balance, end of the year 13 (a) 13 (a) 14 (c) 13 (a) 10,919,623 187,173 11,106,796 1,582,782 (351,504) 1,231,278 (56,517,973) 2,653,177 (53,864,796) 12,638,493 26,250 (377,772) 187,173 (351,504) 2,653,177 14,775,817 10,669,159 250,464 10,919,623 1,750,386 (167,604) 1,582,782 (57,679,766) 1,161,793 (56,517,973) 11,313,390 80,450 - 250,464 (167,604) 1,161,793 12,638,493 The accompanying notes are an integral part of these consolidated financial statements. 2023 Consolidated Financial Statements pg. 7 BQE WATER INC. Consolidated Statements of Cash Flow For the years ended December 31, 2023 and 2022 (Expressed in Canadian dollars) Operating activities Net income for the year Items not affecting cash Bad debt expenses Gain on sale of equipment Share of income from joint ventures Finance income, net Depreciation and amortization Unrealized foreign exchange gain Share-based payments Change in non-cash operating working capital items Net cash from (used in) operating activities Investing activities Purchase of property and equipment Proceeds on sale of equipment Purchase of intangible assets Dividends received from joint ventures Contributions made to joint ventures Interest received Net cash from (used in) investing activities Financing activities Lease payments on principal portion Lease payments on interest portion Proceeds from exercise of stock options Repurchase of shares Repayment of loan Proceeds from loan Interest paid Net cash from (used in) financing activities Effect of exchange rate changes on cash balances Net increase in cash and cash equivalents Cash and cash equivalents, beginning of the year Cash and cash equivalents, end of the year note 5, 17 17 9 15 7, 8 13 20 7 17 8 9 (a) 9 (c) 15 12 12 13 (a) 14 (c) 11 11 Year ended December 31 2022 2023 $ $ 2,653,177 1,161,793 473,112 (4,285) (418,816) (204,429) 430,400 (6,457) 466,097 3,388,799 (2,518,464) 870,335 (180,387) 4,285 - 1,386,750 - 103,470 1,314,118 (264,994) (26,467) 26,250 (377,772) (75,625) 273,699 (329) (445,238) 8,050 - (1,487,336) (26,834) 263,668 (49,574) 670,615 540,382 (904,105) (363,723) (81,401) - (100,000) 2,896,500 (49) 53,345 2,768,395 (166,360) (26,400) 80,450 - (82,500) - (94) (194,904) (45,964) 80,870 1,693,251 6,234,352 2,290,638 3,943,714 7,927,603 6,234,352 The accompanying notes are an integral part of these consolidated financial statements. 2023 Consolidated Financial Statements pg. 8 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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 200 – 30 East 6th Avenue, Vancouver, British Columbia, V5T 1J4, Canada. 2. BASIS OF PRESENTATION 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 25, 2024 by the Company’s Board of Directors. These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency, and have been prepared under the historical cost basis except for those assets and liabilities that are measured at fair values at the end of each reporting period. 3. SUMMARY OF MATERIAL ACCOUNTING POLICIES The principal accounting policies as set out below have been consistently applied to all periods presented in the consolidated 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. BQE Water (Hangzhou) Co. Ltd. BQE Water Delaware, Inc. Country of incorporation and operation Canada Chile Mexico China USA Ownership interest as at Dec. 31, 2023 100% 100% 100% 100% 100% Ownership interest as at Dec. 31, 2022 100% 100% 100% 100% 100% 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. BQE Water Nuvumiut Development Inc. i) Subsidiaries Country of incorporation and operation China China Canada Ownership interest as at Dec. 31, 2023 50% 20% 49% Ownership interest as at Dec. 31, 2022 50% 20% 49% 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 2023 Consolidated Financial Statements pg. 9 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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 statements 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. iii) Business Combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred is measured as the aggregate of the fair value (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquiree. The acquiree’s identifiable assets and liabilities that meet the conditions for recognition are recognized at their fair value at the acquisition date except for certain assets and liabilities which are recognized and measured in accordance with the applicable IFRS guidance. Goodwill arising on acquisition is recognized as an asset and is measured as the fair value of consideration paid less the fair value of the net identifiable assets and liabilities recognized. If the Company’s interest in the fair value of the acquiree’s net identifiable assets and liabilities exceeds the fair value of consideration paid, the excess is recognized immediately in the consolidated statements of income and comprehensive income as a bargain purchase. Transaction costs, other than those associated with the issuance of debt or equity securities that the Company incurs in connection with a business combination, are expensed as incurred. b) Foreign Currency Translation i) Functional and Presentation Currency The consolidated financial statements are presented in Canadian dollars (“CAD”), which is the Company’s 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, except for BioteQ Water Mexico S.A. de C.V. which is CAD, are respective of their local currency, such as the United States dollars (“USD”), Chilean peso (“CLP”) and Chinese renminbi (“RMB”). 2023 Consolidated Financial Statements pg. 10 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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). 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 and Cash Equivalents Cash consists of cash on hand and demand deposits. Cash equivalents consists of on demand bank investments and guaranteed investment certificates with maturity less than 91 days, some of which are interest-bearing. d) Restricted Cash Restricted cash is comprised of cash that is held by a bank as collateral for stand-by letters of credit. These balances are subject to collateral restrictions until the completion of the project and are therefore, not available for general use by the Company. Inventory and Work in Progress e) 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. 2023 Consolidated Financial Statements pg. 11 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 f) Property and Equipment i) Recognition and Measurement Property 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 pilot plants 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 pilot plants and equipment and subject to depreciation when ready for their intended use. If significant components of a property, plants or equipment have different useful lives, then they are accounted for as separate items (major components) of property 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 consolidated statements of income and comprehensive income (note 18) in the financial period in which they are incurred. Property 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 property 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 property 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 property 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 years Shorter of contract life or 10 to 20 years Intangible Assets g) Intangible assets are recorded at cost, net of amortization and any provision for impairment. Intellectual property assets are being amortized over the useful life of 5 years, being the remaining useful life of the related intellectual property assets from acquisition. Residual values and useful lives are reviewed at each reporting date. Where an indicator of impairment exists, intangible assets are subject to impairment testing as described in “Impairment of assets” under Note 3 (j). h) Financial Instruments 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 2023 Consolidated Financial Statements pg. 12 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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 (“FVTOCI”) 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. On initial recognition, the Company may irrevocably designate a financial asset that meets the amortized cost or FVTOCI 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 income and comprehensive income. As at December 31, 2023, 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, including any interest-bearing financial 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 2023 Consolidated Financial Statements pg. 13 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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 income, except for impairment. 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 cash equivalents, restricted cash, and trade and other receivables excluding 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, 2023 and 2022. 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 the near term. They are carried at fair value with changes in fair value recognized in profit or loss. The Company has classified contingent liabilities, included in other liabilities, and 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, 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. Leases i) At the inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether 1) the supplier has a substantive substitution right, 2) the Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period; and 3) the Company has the right to direct the use of the asset. For contracts that contain a lease, the Company recognizes a right-of-use (“RoU”) asset and a lease obligation at the lease commencement date in the consolidated statements of financial position. The RoU asset is initially measured based on the initial amount of the lease obligation plus any initial direct costs incurred less any lease incentives received. The RoU asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful 2023 Consolidated Financial Statements pg. 14 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 life of the RoU asset or the end of the lease term. The lease obligation is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. The lease obligation is subsequently measured at amortized cost using the effective interest rate method. 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 recognized 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 statements of income and comprehensive income (note 12), as permitted by IFRS 16. This expense is presented within general and administration expenses. j) Impairment i) Property and equipment & intangible assets The Company’s property and equipment & intangible assets 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. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, the Company’s assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation can be identified. An asset’s recoverable amount is the higher of its fair value less costs of disposal ("FVLCD") and value in use (“VIU”). In assessing value in use, the estimated future cash flows are discounted to their present value, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount is reduced to the recoverable amount. Impairment losses are recognized in profit and loss for the period. Impairment losses recorded may be subsequently reversed if the recoverable amount of the assets is once again higher than their carrying value. Where impairment is subsequently reversed, the carrying amount is increased to the revised estimate of the recoverable amount but only to the extent that it does not exceed the carrying value that would have been determined (net of depreciation) had no impairment loss been recognized in prior periods. ii) Receivables Receivables measured at amortized cost are assessed at each reporting date to determine whether there is 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. 2023 Consolidated Financial Statements pg. 15 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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. k) Provisions 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. Revenue Recognition l) Revenue is recognized by applying the five-step model under IFRS 15. The Company recognizes revenue when or as the control of goods or services are transferred to the customer and performance obligations are satisfied. i) Operation of Water Treatment Plants For revenue based on water treatment fees, the performance obligations are satisfied and revenue is recognized when water treatment services are provided and the customer receives control of the clean water to be discharged into the environment and as discharge limits and targets are achieved. The Company has agreements with customers for the operation of different water treatment plants, and considerations for such plants are earned based on a fixed monthly fee, an hourly fee based on time onsite, or water treatment fee based on the volume of water treated and discharged into the environment. Some agreements have a combination of the above as total considerations for water treatment operation services. The Company also has an agreement with the Company’s joint venture and other customers for the operations support of a water treatment plants, 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 is passed from the Company’s joint ventures 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 2023 Consolidated Financial Statements pg. 16 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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, such as a written report or completion of a performance test, 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, such as the nature, scope and value of the contracts, the Company recognizes revenue from technical services by either the project stage of completion method or the completed contract method. m) Contract Assets and Deferred Revenue Any excess of revenue recognized over progress billings on revenue contracts is carried as a contract asset in the consolidated financial statements. In most cases, the specific contract asset is amortized with reference to the same pattern of recognition as the revenue recognized on the associated project. Any excess of cash received from progress billings over earned revenue on revenue contracts is carried as a deferred revenue in the consolidated financial statements. n) 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. Grants that compensate the Company for expenses incurred are deferred and recognized in the consolidated statements of income and comprehensive income (note 18) on a systematic basis in the periods in which the intended expenses are recognized. o) 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. p) 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. 2023 Consolidated Financial Statements pg. 17 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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 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 q) 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 statements of income and comprehensive income (note 19) because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Current tax comprises the expected tax payable or receivable on the taxable profit for the year and any adjustment to tax payable or receivable in respect of previous years. Current tax also includes any tax arising from dividends. The Company’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. ii) Deferred Tax Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, unused tax losses and other income tax deductions. Deferred tax 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 2023 Consolidated Financial Statements pg. 18 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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. In determining the amount of current and deferred taxes, the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. Management believes that its tax liabilities for uncertain tax positions are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Share Capital r) Common shares are classified as share capital. When the Company purchases its own share capital, the consideration paid, including any directly attributable incremental costs if any, is deducted from the Company’s share capital. s) 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. t) Recent Accounting Pronouncements There are new accounting standards and amendments to accounting standards and interpretations that are effective for annual periods beginning on or after January 1, 2023 that have not been applied in preparing the consolidated financial statements for the year ended December 31, 2023. These standards and interpretations are not expected to have a significant impact on the Company’s consolidated financial statements. 4. 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 consolidated 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. 2023 Consolidated Financial Statements pg. 19 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to: a) Critical Judgments Critical judgments 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 statements 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. ii) Management’s judgment on revenue recognition, when determining the performance obligations that exist in an arrangement and 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 the intellectual property transaction in the previous year as an intangible asset acquisition and not a business combination arrangement. iv) Management’ assessment of impairment indicators for asset impairment on long-term assets such as property 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) 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. For the revenue arrangements comprise multiple performance obligations, estimates are required when determining the relative fair value of each performance obligation utilizing standalone prices for similar deliverables where it exists or internally generated estimates of standalone price. ii) 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. iii) 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 judgment is required to determine the discount rate on lease payments by assessing its incremental borrowing rate at each of the Company’s locations. iv) Long-Term Loans To determine the carrying value of the initial recognition and subsequent re-measurement of long-term interest-free loans provided by the government, management is required to exercise judgment in determining the effective interest rate on expected loan repayments over the term of the loan. 2023 Consolidated Financial Statements pg. 20 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 5. TRADE AND OTHER RECEIVABLES Trade receivables Allowance for expected credit loss Contract assets (note 22 (c)) Other receivables Dec. 31, 2023 $ 3,783,087 (1,788) 506,866 86,110 Dec. 31, 2022 $ 2,468,929 - 715,237 22,703 4,374,275 3,206,869 The Company’s changes in allowance for expected credit loss for the year ended December 31, 2023 and 2022 are as follows: Allowance for expected credit loss, beginning of the year Recognition of expected credit loss (note 16) Allowance for expected credit loss, end of the year 2023 $ - (1,788) (1,788) 2022 $ - - - 6. RELATED PARTY TRANSACTIONS AND BALANCES The following transactions were carried out with related parties of the Company: a) Revenue Earned from Joint Venture The Company earns operating fees from the joint venture, BQE Water Nuvumiut Development Inc., for providing water treatment services in Nunavik. Revenue earned from the joint venture for the year ended December 31, 2023 was $2,200,877 ($1,722,390 in 2022). Included in trade and other receivables as of December 31, 2023 is $382,837 ($154,611 at December 31, 2022) of trade receivables due from the joint venture. b) Management Compensation For the year ended December 31, 2023 and 2022, 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 13 (a) and 13 (c)) 2023 $ 865,362 150,250 2022 $ 786,908 223,842 1,015,612 1,010,750 2023 Consolidated Financial Statements pg. 21 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 7. PROPERTY AND EQUIPMENT Cost As at December 31, 2021 Additions Adjustment Foreign exchange translation Right-of-use assets1 $ Pilot plants $ 509,231 237,950 (1,638) 2,368 580,593 - - - Other2 $ 717,748 81,401 - - Total $ 1,807,572 319,351 (1,638) 2,368 As at December 31, 2022 747,911 580,593 799,149 2,127,653 Additions Disposals Foreign exchange translation 1,470,048 - (8,214) - - - 300,773 (192,991) (5,653) 1,770,821 (192,991) (13,867) As at December 31, 2023 2,209,745 580,593 901,278 3,691,616 Accumulated Depreciation As at December 31, 2021 Depreciation for the year Foreign exchange translation (317,281) (146,880) (38) (580,593) - - (654,557) (32,848) - (1,552,431) (179,728) (38) As at December 31, 2022 (464,199) (580,593) (687,405) (1,732,197) Depreciation for the year Disposals Foreign exchange translation (306,232) - 5,228 - - - (40,228) 192,991 5,652 (346,460) 192,991 10,880 As at December 31, 2023 (765,203) (580,593) (528,990) (1,874,786) Carrying Amount As at December 31, 2022 As at December 31, 2023 283,712 1,444,542 - - 111,744 372,288 395,456 1,816,830 1Right-of-use assets comprises lease assets (note 12) such as office building and office equipment. 2Other comprises leasehold improvements, furniture, office equipment, lab equipment, and accrued construction in progress that may be unpaid. 2023 Consolidated Financial Statements pg. 22 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 8. INTANGIBLE ASSETS Cost As at December 31, 2021 & 2022 & 2023 Accumulated Depreciation As at December 31, 2021 Depreciation for the year As at December 31, 2022 Depreciation for the year As at December 31, 2023 Carrying Amount As at December 31, 2022 As at December 31, 2023 Total $ 419,700 (20,985) (83,940) (104,925) (83,940) (188,865) 314,775 230,835 On September 3, 2021 (the “Acquisition Date”), the Company entered into an intellectual property purchase agreement and a consulting agreement (together as the “Agreements”) with R&S Environmental Consulting Services Inc. and its sole owner Randy Aguis (together as “R&S”). Under the terms of the Agreements, R&S would receive an aggregate cash payment of $250,000 and an earn-out bonus payable on the second anniversary of the Acquisition Date, for intangible asset rights pertaining to cyanide destruction. Intangible asset rights include all intellectual properties, such as the know-how, results, trade secrets, methods, and designs related to cyanide destruction. Also under the Agreements, R&S would work exclusively for the Company for a term of 2 years, collaborating with the Company’s engineering and business development teams, training and mentoring Company staff in regard to cyanide destruction, in exchange of a fixed monthly consulting fee. The Company concluded the transaction should be accounted for as an asset acquisition and recognized the acquired assets at cost. On the Acquisition Date, it was determined that the acquired assets are a group of similar identifiable assets with similar nature, class, and risk, therefore all the acquisition costs were allocated to this group. The total cost of the acquisition of $419,700 includes the total cash consideration of $250,000, plus the contingent consideration, or the earn-out bonus. The fair value of the earn-out bonus was contingent on net profits generated from the newly acquired intellectual properties, which was fair valued at $169,700 at the time of acquisition. The earn-out bonus of $142,000 was finalized and payment was made in full by May 2023. 2023 Consolidated Financial Statements pg. 23 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 9. INVESTMENT IN JOINT VENTURES The Company’s share of investment in joint ventures on December 31, 2023 was $4,046,677 ($5,301,227 on December 31, 2022), comprised of: Balance, January 1, 2022 Contributions made Share of net income Share of translation loss on foreign operation Dividends received Unrecognized share of net income and translation loss JCC-BQE $ 6,855,401 - 1,450,457 (145,059) (2,896,500) - MWT-BQE $ - - 52,034 (192) - (51,842) NVM-BQE $ - 49 36,879 - - - Balance, December 31, 2022 5,264,299 - 36,928 Share of net income (loss) Share of translation loss on foreign operation Dividends received Unrecognized share of net income and translation loss 381,190 (286,616) (1,386,750) - (99,312) (12,465) - 111,777 37,626 - - - Balance, December 31, 2023 3,972,123 - 74,554 a) JCC-BioteQ Environmental Technologies Co. Ltd. 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 2023, the Company received a gross cash distribution of $1,386,750 ($7.5 million RMB) compared to $2,896,500 ($15 million RMB) in 2022. 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. 2023 Consolidated Financial Statements pg. 24 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 The statement of financial position of the Company’s 50% interest in the JCC-BQE joint venture are presented as follows: Assets Cash Other current assets Non-current assets Total assets Liabilities Partner’s Equity Dec. 31, 2023 $ Dec. 31, 2022 $ 1,861,985 546,913 2,405,888 3,348,036 539,830 2,806,376 4,814,786 6,694,242 842,663 3,972,123 1,429,943 5,264,299 Total liabilities and partner’s equity 4,814,786 6,694,242 The statement of income and comprehensive income of the Company’s 50% interest in the JCC-BQE joint venture are presented as follows: Revenues Operating expenses (excluding depreciation) Non-operating expenses Depreciation of plant and equipment Income tax expense Net income for the year 2023 $ 2022 $ 4,376,419 (2,812,355) 1,564,064 (636,096) (470,638) (76,140) 381,190 6,241,425 (3,554,958) 2,686,467 (447,169) (485,254) (303,587) 1,450,457 Other comprehensive (loss) (286,616) (145,059) Comprehensive income for the year 94,574 1,305,398 2023 Consolidated Financial Statements pg. 25 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 b) Shandong MWT BioteQ Environmental Technologies Co. Ltd. In 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 loss in the joint venture for the year ended December 31, 2023 was $111,777 (comprehensive income of $51,842 in 2022). 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 losses are reduced to zero. As of December 31, 2023, the balance of unrecognized share of net losses for MWT-BQE is $240,267 ($128,490 on December 31, 2022). The sections of the statement of financial position of the Company’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, 2023 $ 49,040 24,447 50,264 - - Dec. 31, 2022 $ 92,214 28,908 47,573 26,014 - The statement of loss (income) of BQE Water’s 20% interest in the MWT-BQE joint venture are presented as follows: Revenues Operating expenses (excluding depreciation) Non-operating expenses Net (loss) income for the year 2023 $ 212,474 (174,677) 37,797 (137,109) (99,312) 2022 $ 480,345 (298,257) 182,088 (130,054) 52,034 Other comprehensive (loss) (12,465) (192) Comprehensive (loss) income for the year (111,777) 51,842 2023 Consolidated Financial Statements pg. 26 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 c) BQE Water Nuvumiut Development Inc. In 2021, BQE Water entered into a joint venture agreement with Nuvumiut Development Inc. (“NVM”), as partners with the Inuit community, to jointly provide water management and treatment services in the Nunavik regions, located in Northern Quebec, Canada. The joint venture, BQE Water Nuvumiut Development Inc. (“NVM-BQE”) was federally incorporated on December 2, 2021, with 49% ownership belonging to BQE and 51% to NVM. The sections of the statement of financial position of BQE Water’s 49% interest in the NVM-BQE joint venture are presented as follows: Current assets Current liabilities Partner’s equity Dec. 31, 2023 $ 280,439 205,885 74,554 Dec. 31, 2022 $ 139,743 102,815 36,928 The statement of income of BQE Water’s 49% interest in the NVM-BQE joint venture are presented as follows: Revenues Operating expenses Non-operating expenses Net income for the year 10. TRADE PAYABLE AND ACCRUED LIABILITIES Trade payable and accruals Payroll liability Tax payable 2023 $ 1,160,879 (1,113,951) 46,928 2022 $ 928,368 (890,859) 37,509 (9,302) (630) 37,626 36,879 Dec. 31, 2023 $ 661,989 654,118 24,133 Dec. 31, 2022 $ 647,151 566,151 27,478 1,340,240 1,240,780 2023 Consolidated Financial Statements pg. 27 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 11. LOANS On August 20, 2018, the Company entered into the first loan agreement with the Minister responsible for 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 of its selenium removal technology in the resource sector. Under the loan agreement, the Company is required to repay the total contribution in 60 equal monthly installments, equal to $6,875 per month, which began April 1, 2021 and continues until March 1, 2026. The Company’s carrying value of the WINN loan are as follows: Balance at January 1 Repayments Ending Balance Less: current portion of loan Non-current portion of loan Dec. 31, 2023 $ Dec. 31, 2022 $ 268,125 (75,625) 350,625 (82,500) 192,500 268,125 82,500 82,500 110,000 185,625 In 2023, the Company entered into a second loan agreement with Minister responsible for Pacific Economic Development Canada under the Business Scale-Up & Productivity Program (“BSP”). The BSP program offers the Company an interest-free loan contribution up to a maximum of $1,725,000. The BSP loan was granted to assist the Company to scale-up its water treatment plant commissioning capacity, with activities including marketing, and recruiting, hiring, and training of new staff for plant commissioning and operation expansion. Under the loan agreement, the Company shall repay the total contribution in 60 equal monthly installments commencing on April 1, 2027 until March 1, 2032. The BSP loan will be advanced in multiple trenches throughout the program. During 2023, the Company has received cash in aggregate of $273,699 under this loan agreement, which the Company recorded the initial fair value of $118,120, discounted by the effective interest rate of 12%. The Company’s carrying value of the BSP loan are as follows: Balance at January 1 Additions Interest expense on loan Ending Balance Non-current portion of loan Dec. 31, 2023 $ Dec. 31, 2022 $ - 118,120 1,476 119,596 119,596 - - - - - 2023 Consolidated Financial Statements pg. 28 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 12. LEASES The Company recognizes right-of-use assets (note 7) and lease obligations in relation to office and equipment leases. The assets and liabilities were measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rates at the time the lease was assumed or entered into. The incremental borrowing rates used are between 12% to 15% and it varies depending on the geographic area of the lease. The Company’s carrying value of lease obligations are as follows: Balance at January 1 Additions Adjustments Interest expense Payments on interest portion Payments on principal portion Foreign exchange translation Ending Balance Less: current portion of lease obligations Non-current portion of lease obligations Dec. 31, 2023 $ Dec. 31, 2022 $ 277,790 1,470,048 - 151,368 (26,467) (264,994) (1,963) 206,451 237,950 (1,638) 26,417 (26,400) (166,360) 1,370 1,605,782 277,790 105,436 191,988 1,500,346 85,802 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, 2023 and 2022 are as follows: Classified as short-term or as low value Leases with variable lease payments 2023 $ 82,713 129,293 2022 $ 85,507 99,855 212,006 185,362 2023 Consolidated Financial Statements pg. 29 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 The following is a schedule of the Company’s future lease payments under lease obligations: 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Total undiscounted lease payments Less: imputed interest Total carrying value of lease obligations Dec. 31, 2023 $ 253,511 281,193 264,695 252,114 253,205 280,588 284,856 289,123 293,391 297,658 74,681 2,825,015 (1,219,233) 1,605,782 13. 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, 2023 $ 187,173 10,264 268,660 Dec. 31, 2022 $ 250,464 21,155 398,996 466,097 670,615 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. Each vesting tranche in an award is considered a separate award with its own vesting period and grant date fair value. Fair value of each tranche is measured at the grant date using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period by increasing contributed surplus based on the number of awards expected to vest. The number of awards expected to vest is reviewed at least annually, with any impact being recognized immediately. On April 22, 2022, the Company granted 52,500 stock options with an exercise price of $30.00 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 2023 Consolidated Financial Statements pg. 30 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 model was $9.45 per option. The significant assumptions in the valuation model were with a volatility of 44.75%, an expected option life of 2.72 years and an annual risk-free interest rate of 2.79%. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: Balance, January 1, 2022 Granted Exercised Expired Balance, December 31, 2022 Exercised Expired Forfeited Balance, December 31, 2023 Number of options 53,300 52,500 (11,960) (3,500) 90,340 (3,000) - (3,000) Weighted average exercise price $ 8.12 30.00 6.73 6.00 21.10 8.75 - 30 84,340 21.22 As at December 31, 2023, the Company has 51,340 share options outstanding which were exercisable with a weighted average exercise price of $15.58 (21,841 on December 31, 2022 with a weighted average exercise price of $8.75). The weighted average market price per common share on the days of exercise during the year ended December 31, 2023 was $27.50 ($26.88 in 2022). The Company uses the Black-Scholes option pricing model in determining the fair value of the stock options. During the year ended December 31, 2023, the Company recognized $187,173 ($250,464 in 2022) of non-cash compensation expense related to stock options. The expiry date by exercise price at December 31, 2023 are as follows: Exercise price $ 8.75 30.00 Expiry Date January 8, 2025 April 22, 2027 number of outstanding share options 34,840 49,500 number of exercisable share options 34,840 16,500 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: 2023 Consolidated Financial Statements pg. 31 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 Balance, January 1, 2022 Fair value adjustment Balance, December 31, 2022 Redeemed Fair value adjustment Balance, December 31, 2023 Number of units 10,574 - 10,574 (2,737) - Value $ 290,778 21,155 311,933 (85,449) 10,264 7,837 236,748 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. The fair value per RSU on grant date was determined based on the Company’s share price on the day of grant. The initial fair values determined upon each grant date between January 1, 2022 and December 31, 2023 are as follows: Grant date February 1, 2022 April 22, 2022 September 20, 2022 April 27, 2023 September 20, 2023 The following table presents the changes to the RSU plan: Balance, January 1, 2022 Granted Forfeited Redeemed Fair value adjustment Balance, December 31, 2022 Granted Forfeited Redeemed Fair value adjustment Balance, December 31, 2023 Number of RSUs 16,767 3,076 864 3,651 847 Fair value $ 411,966 78,438 24,987 109,843 25,003 Number of units 7,886 20,707 (318) (4,136) - 24,139 4,498 (1,180) (9,136) - Value $ 103,663 - - (113,643) 398,996 389,016 - - (279,812) 268,660 18,321 377,864 2023 Consolidated Financial Statements pg. 32 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 14. SHARE CAPITAL a) Authorized An unlimited number of common shares, without nominal or par value. b) Issued As at December 31, 2023, the Company had 1,246,628 common shares outstanding (1,256,928 on December 31, 2022). c) Normal Course Issuer Bid (NCIB) On December 6, 2022, the Company obtained the approval of the TSX Venture Exchange to commence a NCIB to repurchase for cancellation up to 62,556 common shares over a 12-month period starting on December 12, 2022. On December 6, 2023, the Company renewed the NCIB to repurchase for cancellation up to 62,351, representing 5% of common shares issued and outstanding, over a 12-month period starting on December 13, 2023. For the year ended December 31, 2023, the Company purchased and cancelled 13,300 common shares at a weighted average price per share of $28.40 for a total of $377,772 under the terms of the NCIB. In 2022, no common shares were purchased and cancelled under the NCIB. Subsequent to the reporting year, between January 1, 2024 to April 25, 2024, the Company has not purchased common shares for cancellation under the NCIB. d) Earnings Per Share The calculation of earnings per share for the year ended December 31, 2023 and 2022 are as follows: Net income Basic weighted average number of shares outstanding Dilution of securities 2023 $ 2,653,177 1,251,284 23,509 2022 $ 1,161,793 1,248,890 15,022 Diluted weighted average number of shares outstanding 1,274,793 1,263,912 Earnings per share: Basic Diluted 2.12 2.08 0.93 0.92 2023 Consolidated Financial Statements pg. 33 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 15. FINANCE INCOME The net of finance income is comprised as follows: Finance income Interest expense 2023 $ 357,602 (153,173) 2022 $ 53,345 (26,511) 204,429 26,834 16. BAD DEBT EXPENSES For the year ended December 31, 2023, the Company recorded bad debt expenses of $473,112 ($nil in 2022). Among the bad debt expenses, $424,199 was due to the non-payment from one of its customers in Yukon and $47,125 due to an accounts receivable impairment from one of its customers in China. In May 2023, the Yukon-based customer ceased their operations at the mine site and the government later appointed a receiver for certain mining assets at site. The Company has assessed the event as an indicator of impairment and recorded the trade receivables from this customer as bad debt expense. The remaining $1,788 expense was the Company’s allowance for expected credit loss for the year ended December 31, 2023 (note 5), assessed based on the historical 3-year weighted average of the uncollectible trade receivables. 17. OTHER INCOME The net of other income is comprised as follows: Non-operating income Fair value adjustment on contingent consideration (note 8) Bad debt recovery 2023 $ 51,898 - - 51,898 2022 $ 5,135 27,700 (8,050) 24,785 2023 Consolidated Financial Statements pg. 34 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 18. EXPENSES BY NATURE Operating expenses (excluding depreciation) Employee benefits Consulting and contractor expenses Travel expenses Raw materials and consumables used Other expenses General and administration Employee benefits Consulting and contractor expenses Insurance expenses Rental expenses Travel expenses Director fees Other expenses Sales and development Employee benefits Consulting and contractor expenses Travel expenses Rental expenses Other expenses 2023 $ 6,378,215 1,368,292 1,043,324 140,670 144,346 2022 $ 4,829,730 1,285,307 648,921 278,733 64,275 9,074,847 7,106,966 1,360,546 522,218 395,063 149,894 73,160 78,400 147,653 1,178,594 485,193 323,883 142,828 107,377 74,700 151,568 2,726,934 2,464,143 2,039,223 151,334 207,181 62,113 195,509 1,360,695 157,383 108,044 42,534 99,666 2,655,360 1,768,322 2023 Consolidated Financial Statements pg. 35 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 19. INCOME TAXES Income tax expense differs from that computed by applying the applicable Canadian federal and provincial statutory rate of 27% (2022 – 27%) before taxes as follows: Expected income tax expense at statutory rates Non-taxable income Withholding tax Functional currency adjustments and other Different statutory tax rates on foreign subsidiaries Change in unrecognized deferred tax assets Income tax expense Current tax expense Deferred tax expense Income tax expense 2023 $ 767,987 (63,411) 182,354 (13,064) 26,865 (709,510) 2022 $ 397,179 (336,613) 308,688 88,384 28,036 (176,432) 191,221 309,242 2023 $ 191,221 - 2022 $ 309,242 - 191,221 309,242 Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their corresponding values for tax purposes. Details of deferred tax assets (liabilities) as at December 31, 2023 and 2022 are as follows: Foreign Jurisdictions Non-capital losses carry-forwards Tax reserves Property and equipment Other Deferred tax assets (liabilities) 2023 $ 2022 $ 26,286 (17,110) (32,527) 23,351 89,632 (81,500) (17,273) 9,141 - - The Company’s unrecognized deductible temporary differences and non-capital losses at December 31, 2023 and 2022 are as follows: 2023 Consolidated Financial Statements pg. 36 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 Canada Property and equipment Net capital losses Non-capital losses Deferred benefits and others Foreign Jurisdictions Property and equipment Unrealized foreign exchange loss Non-capital losses Other 2023 $ 2022 $ 532,513 8,056,712 24,596,264 2,137,564 1,512,113 8,056,712 26,966,018 932,018 35,323,053 37,466,861 334,209 346,754 53,562 1,474,209 200,572 951,680 199,569 1,375,605 2,208,734 2,727,426 Total unrecognized deductible temporary differences 37,531,787 40,194,287 The Company’s investment tax credits, expiring between 2022 and 2023, may be used to reduce future Canadian income taxes that are otherwise payable. As at December 31, 2023, the Company has not recognized a deferred tax asset in respect of non-capital loss carry forwards of approximately $24,596,264 ($26,966,018 in 2022) 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 $ 330,979 218,210 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 24,596,264 In addition, the Company has available tax losses in other jurisdictions that total $1,474,209 ($1,375,605 in 2022). 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 $287,901 beginning to expire in 2024. 2023 Consolidated Financial Statements pg. 37 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 20. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information (included within operating activities) is as follows: Change in non-cash working capital items Changes in trade and other receivables Changes in restricted cash Changes in other assets Changes in trade payable and accrued liabilities Changes in deferred revenues Changes in other liabilities 2023 $ (1,567,042) 172,364 (105,540) (2,049) (512,562) (503,635) 2022 $ (1,202,274) (90,204) (96,613) 235,937 362,713 (113,664) Change in non-cash working capital items (2,518,464) (904,105) For the year ended December 31, 2023, the total income taxes paid is $187,779 ($309,242 in 2022) and payment is included within other liabilities from the changes in non-cash working capital. 21. COMMITMENTS The Company has commitments of $2,217,735 under operating leases for office and laboratory premises, and for laboratory assay services, as follows: 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 $ 324,513 206,204 204,487 204,487 204,487 204,487 204,487 204,487 204,487 204,487 51,122 2,217,735 22. 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. 2023 Consolidated Financial Statements pg. 38 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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 an operation support fee, or a combination of the two. 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, 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 2023 $ 8,278,022 9,858,982 2022 $ 4,132,834 8,024,862 18,137,004 12,157,696 b) Remaining Performance Obligations As at December 31, 2023, the aggregate amount of the transaction price of ongoing contracts allocated to remaining performance obligations is $465,196, compared to $3,262,663 as at December 31, 2022. The remaining performance obligations of the Company are expected to be fully completed in the 12 months following 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 contract assets are grouped within trade and other receivables (note 5), and the changes in contract assets for the year ended December 31, 2023 and 2022 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 2023 $ 715,237 (715,237) 506,866 2022 $ 581,159 (514,839) 648,917 506,866 715,237 2023 Consolidated Financial Statements pg. 39 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 d) Changes in Deferred Revenue The Company’s changes in deferred revenue for the year ended December 31, 2023 and 2022 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 Revaluation on non-current portion of deferred revenue 2023 $ 719,779 (529,535) 17,350 - 2022 $ 326,803 (73,243) 436,039 30,180 Deferred revenue, end of the year 207,594 719,779 Less: Non-current portion of deferred revenue, end of the year (170,244) (283,740) Current portion of deferred revenue, end of the year 37,350 436,039 23. SEGMENTED INFORMATION Segmented information is reviewed by the Company’s chief decision maker to assess performance and allocate resources within the Company. The Company has one operating segment, principally being an integrated water management services and treatment solutions provider. The Company functions as a provider 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 location, presented based on the location in which the sale originated from, is as follows: Revenue Canada USA Latin America China Other 2023 $ 6,276,818 8,330,613 2,387,947 1,141,626 - 2022 $ 4,249,190 4,234,847 2,951,577 585,386 136,696 18,137,004 12,157,696 The Company’s non-current assets, excluding non-current deposits, by location of assets are as follows: Canada USA China Dec. 31, 2023 $ 2,000,758 92,215 4,001,369 Dec. 31, 2022 $ 674,618 45,762 5,291,078 6,094,342 6,011,458 2023 Consolidated Financial Statements pg. 40 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 Information about Major Customers b) The following table presents revenue for individual customers exceeding 10% of annual revenue for the year ended December 31, 2023 and 2022: Customer A Customer B Customer C Total 2023 $ 2,200,877 6,654,814 2,080,762 2022 $ 1,723,851 3,405,173 645,342 10,936,453 5,774,366 Represents percentage of total revenue for the year 60% 47% 24. 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 and geographical mix of business, 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, 2023 and 2022 as are follows: Shareholders’ equity Working capital Non-current liabilities 2023 $ 14,775,817 10,529,457 1,900,186 2022 $ 12,638,493 7,165,122 555,167 25. FINANCIAL RISK MANAGEMENT The Company’s activities expose it to various risks, including credit risk, market risks such as foreign currency risk, liquidity risk, and commodity price risk. The Company’s risk management activities are designed to mitigate possible adverse effects on the Company’s performance, having regard for the size and scope of the Company’s operations, with a primary focus on 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 2022. 2023 Consolidated Financial Statements pg. 41 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 a) Credit Risk Credit risk is the risk of an unexpected loss if a party to the Company’s financial instruments fails to meet their contractual obligations. The Company’s financial assets are primarily comprised of cash and cash equivalents, restricted cash, and trade and other receivables, including contract assets and excluding taxes receivable. Credit risk is primarily associated with trade and other receivables; however, it also arises on cash and cash equivalents. The Company’s maximum exposure to credit risk is as follows: Cash and cash equivalents & restricted cash Trade and other receivables (exclude tax receivable) Dec. 31, 2023 $ 7,927,603 4,374,275 Dec. 31, 2022 $ 6,414,659 3,206,869 12,301,878 9,621,528 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. The Company’s short-time investments, guaranteed investment certificates being either on-demand or maturity within 90 days, are subject to minimal credit risk as they are placed with a major Canadian financial institution. 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, 2023 is considered higher than normal. The Company used an historical 3-year trend and future expectations to make estimates on expected credit losses. As at December 31, 2023, the Company has an allowance for expected credit losses of $1,788 ($nil at December 31, 2022). All of the Company’s receivables have been reviewed for indicators of impairment and, if any, bad debt expenses have been recorded (note 16). The aging of trade and other receivables is as follows: 0-30 days $ 31-90 days $ Over 90 days $ Total $ Total $ Dec. 31, 2023 Dec. 31, 2022 Trade and other receivables (exclude tax receivable) 2,539,771 1,784,875 49,629 4,374,275 3,206,869 Collection of the Company’s trade receivables over 90 days, $49,629 as of December 31, 2023, is reasonably assured since approximately 96% has been collected as of April 25, 2024. The definition of items that are past due is determined by reference to terms agreed upon with individual customers, typically ranging between 15 to 45 days. Aside from those mentioned in Note 16, 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: 2023 Consolidated Financial Statements pg. 42 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 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 and cash equivalents, restricted 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 and presented in CAD, were as follows: Cash and cash equivalents & restricted cash Trade and other receivables (exclude tax) Trade and other payables (exclude tax) U.S. dollar 1,085,117 2,834,344 (52,814) Mexican peso 26,393 159 19,002 December 31, 2023 Chinese RMB 225,906 624,120 (4,308) Chilean peso 510,378 22,990 (422,985) Gross balance sheet exposure 3,866,647 45,554 110,383 845,718 Cash and cash equivalents & restricted cash Trade and other receivables (exclude tax) Trade and other payables (exclude tax) U.S. dollar 902,226 996,225 (19,143) Mexican peso 11,081 - (4,100) December 31, 2022 Chinese RMB 396,030 441,122 (5,784) Chilean peso 584,803 473,108 (535,612) Gross balance sheet exposure 1,879,308 6,981 522,299 831,368 A 10% strengthening (weakening) of the Canadian dollar against the following currencies would have decreased (increased) the Company’s net income from its financial instruments presented by the amounts shown below. U.S. dollar Mexican peso Chilean peso Chinese RMB 2023 $ 386,665 4,555 11,038 84,572 2022 $ 187,931 698 52,230 83,137 486,830 323,996 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 and cash equivalents & restricted 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, 2023, the Company has working capital of $10,529,457 ($7,165,122 as of December 31, 2022). To further 2023 Consolidated Financial Statements pg. 43 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 improve the Company’s access to liquidity, there are credit facilities available with the Royal Bank of Canada including a credit card facility of $30,000 and a revolving demand credit facility of $1,000,000. As of December 31, 2023, the revolving demand credit facility remains undrawn. The Company believes that it has access to sufficient funding through its cash to meet its foreseeable operating requirements without the use of the credit facility. The following table shows the contractual maturities of debt commitments. Refer to note 11 in respect to the loan agreements between the Company and the Federal Government of 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 Other liabilities Lease obligations < 1 year $ 1 to 3 years $ > 3 years $ Dec. 31, 2023 Dec. 31, 2022 Total $ Total $ 1,316,107 614,612 82,500 - 253,511 2,266,730 - - 110,000 - 545,888 657,642 - - 273,699 - 2,025,616 2,297,561 1,316,107 614,612 466,199 - 2,825,015 5,221,933 1,213,302 700,949 268,125 142,000 305,248 2,629,624 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, as the Company’s main customer base, may necessitate the Company to seek financing opportunities in accordance with its capital management strategy (note 24). d) Price Risk The Company’s net income, 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 $437,642 in 2023 ($624,143 in 2022). 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 $77,192 in 2023 ($102,403 in 2022). 2023 Consolidated Financial Statements pg. 44 BQE WATER INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2023 and 2022 26. FAIR VALUE MEASUREMENT The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In assessing the fair value of a particular contract, the market participant would consider the credit risk of the counterparty to the contract. Consequently, when it is appropriate to do so, the Company adjusts the valuation models to incorporate a measure of credit risk. Fair value represents management’s estimates of the current market value at a given point in time. The Company’s financial assets and liabilities by category and information about financial assets and liabilities in the consolidated statements of financial position are classified and measured as follows: Financial assets Cash and cash equivalents Restricted cash Trade and other receivables (excludes tax receivable) Financial liabilities Trade payable and other payables (excludes tax payable) Loans Lease obligation Other liabilities Deferred benefits Category Financial assets at amortized cost Financial assets at amortized cost Financial assets at amortized cost Dec. 31, 2023 $ Dec. 31, 2022 $ 7,927,603 - 4,374,275 6,234,352 180,307 3,206,869 Financial liabilities at amortized cost Financial liabilities at amortized cost Financial liabilities at amortized cost Financial liabilities at fair value Financial liabilities at fair value 1,316,107 312,096 1,605,782 - 614,612 1,213,302 268,125 277,790 142,000 700,949 The carrying values of the financial assets and liabilities at amortized cost presented above other than long-term portion of loans and lease obligation approximate their fair values due to the short-term maturities of these instruments. Carrying amount of long-term loan and lease obligation approximate fair value due to prevailing interest rates and the risk characteristics of the instruments. 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(h). 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. The Company’s contingent liabilities, recorded as other liabilities, are held at fair value, measured by Level 3 inputs. There were no transfers between Levels 1, 2 and 3 during the years ended December 31, 2023 and 2022. 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. 2023 Consolidated Financial Statements pg. 45 BQE WATER INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended December 31, 2023 and 2022 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 2023 MD&A should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2023, 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, as 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 (the presentation currency of the Company’s consolidated financial statements) and all tabular amounts are in $000s, unless otherwise noted. This MD&A has been prepared as at April 25, 2024. 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, BQE Water produces clean water and stable residues or saleable by-products, and 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 for our business. The Company has been in operation for over 25 years, and draws upon the extensive experience of over 100 employees to deliver exceptional operational and technical services. 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. 2023 Management’s Discussion and Analysis pg. 2 OUR STRATEGY The Company’s strategy is to apply our unique expertise and intellectual property (“IP”) related to the treatment of mine water and metallurgical bleed streams to help clients minimize their 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, activities 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 pre-permitting to post-closure. The Company’s primary service is the long-term operation of water treatment plants, designed by our team, to generate recurring revenues linked to plant performance. As the period between the identification of new projects and treatment plants entering their operating phase can be lengthy, we also generate revenues from technical services that are project specific and generally non-recurring in nature. As such, our services are grouped into two key areas: Operational Services Revenues from operational services provided by the Company are recurring in nature and are earned through water treatment fees, support 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, monthly fees, hourly fees, or a combination of them. Support fees are earned 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 offer 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 us to follow projects through the entirety of their development and implementation phases, and to provide recurring operational services for our clients. 2023 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 unlikely 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 we would have reported if our Chinese joint venture operations had been proportionately integrated 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 share of revenues from its China joint ventures to the Company’s revenues reported under GAAP. Proportional Revenues for the year ended December 31, 2023 and 2022 are as follows: (in $’000s) Reported revenues under GAAP Share of reported revenues from joint ventures Proportional Revenues for the year 2023 $ 18,137 4,589 22,726 2022 $ 12,158 6,721 18,879 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 deduct: net interest income, net add: income taxes add: depreciation and amortization EBITDA add: share-based payment expenses deduct: other income add: bad debt expense deduct/add: net foreign exchange loss (gain) Adjusted EBITDA 2023 $ 2,654 (211) 268 916 3,627 466 (51) 473 141 2022 $ 1,162 (30) 613 765 2,510 671 (82) 8 (48) 4,656 3,059 2023 Management’s Discussion and Analysis pg. 4 FINANCIAL HIGHLIGHTS  Achieved record Proportional Revenues of $22.7 million in 2023, a 20% increase from 2022.  Recorded historic high revenues under GAAP of $18.1 million in 2023, a 49% increase compared to 2022.  Share of income from China joint ventures was $419,000, $1.1 million lower than in 2022.  Net income for the year was $2.6 million compared to $1.2 million in 2022, a 128% increase.  Adjusted EBITDA was $4.6 million compared to $3.1 million the year prior, a 52% increase.  Increased working capital by 47% year-over-year to $10.5 million as at December 31, 2023.  Grew net cash and cash equivalents by 27% year-over-year to $7.9 million as of December 31, 2023. Selected financial results for the last 5 years are as follows: 2023 Management’s Discussion and Analysis pg. 5 Selected financial results for the 3 and 12 months ended December 31, 2023 are as follows: (in ’000s) Revenues under GAAP Proportional Revenues Net income (loss) Adjusted EBITDA 3 months ended Dec. 31 2022 3,465 4,479 (244) (90) 2023 5,014 5,431 249 541 12 months ended Dec. 31 2022 12,158 18,879 1,162 3,059 2023 18,137 22,726 2,654 4,656 OPERATIONAL SERVICES HIGHLIGHTS Our operational services consist of the operation or technical supervision of water treatment plants, which generate recurring revenues from three main sources: sales of recovered metals, water treatment fees and operations support fees. The Company’s operations by source of revenue are as follows: Operations JCC-BQE Joint Venture MWT-BQE Joint Venture Raglan Mine for Glencore Minto Mine for Government of Yukon Zhongkuang Metallurgical Facilities for MWT Zhaojin Metallurgical Facilities for MWT Power utility ash pond for WesTech Base metal project for a metal producer Location Jiangxi province, China Shandong province, China Northern Québec, Canada Yukon, Canada Shandong province, China Shandong province, China Eastern USA Southwestern USA Revenue Source Sales of recovered metals Sales of recovered metals Water treatment fees Water treatment fees Operations support fees Operations support fees Water treatment fees Water treatment fees JCC-BQE Joint Venture Operations Our 50/50 joint venture with partner Jiangxi Copper Company (“JCC”) operates three 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, 2023 are as follows: (in ’000s) Water treated (cubic metres) Copper recovered (pounds) 2023 19,493 1,935 2022 17,704 2,829 During 2023, all three plants met mechanical availability and process performance set by the Company. While the volume of water treated increased by 10% year-over-year, the mass of copper recovered decreased by 32%. The notable decrease in copper recovery compared to previous year can largely be attributed to the resource depletion in the waste rock dumps. We expect copper production in the coming years to fluctuate around this decreased level based on the lower grade waste rock currently stockpiled. 2023 Management’s Discussion and Analysis pg. 6 MWT-BQE Joint Venture Operations 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 revenues from the sale of zinc and copper recovered from smelter wastewater. The operating results for the 12 months ended December 31, 2023 are as follows: (in ’000s pounds) Zinc recovered Copper recovered 2023 162 49 2022 527 218 The mass of zinc and copper recovered decreased by 69% and 78% respectively. The smelter operated their production lines with ores from different sources which led to varying concentrations of zinc and copper in the feed composition and a fluctuation 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. During 2023, the plant was shut down intermittently as the value of zinc and copper in the feed was lower than the recovery cost of the metals. BQE Water Operations The number of operating days contributing to water treatment or support fees for the 12 months ended December 31, 2023 are as follows: (in days) Raglan Mine water treatment plants Minto Mine water treatment plant Zhongkuang SART plant Zhaojin SART plant Water treatment plant for ash pond in Eastern USA Water treatment plants in Southwest USA The volume of water treated for the 12 months ended December 31, 2023 are as follows: (in ’000s cubic metres) Raglan Mine water treatment plants Minto Mine water treatment plant SART plants in China Water treatment plants in the USA 2023 206 312 364 354 238 363 2023 2,218 938 602 168 2022 157 127 349 159 328 248 2022 1,870 378 411 18 The Company, with our Inuit partner Nuvumiut Development, operates four water treatment plants at Raglan Mine for Glencore Canada Corporation (“Glencore”). From May to December 2023, we mobilized our operations team for the 20th operating season at the mine. The total volume of water treated across all four plants at Raglan Mine in 2023 increased by 19% compared to 2022. Since August 2022, we have provided operational services for Minto Metals at Minto Mine in the Yukon. In May 2023, the customer ceased active operations at the mine and the Yukon Government stepped in to ensure the continuation of water management services in support of environmental protection. During 2023, while working directly for the Yukon Government, our team continued to treat and discharge clean water at the mine for the full season until plant winterization in October. In 2021, we began operations of the Zhongkuang SART plant and the Zhaojin SART plant at metallurgical facilities in China. Both plants have been under our technical supervision since the start of full production. Both SART plants operated fully throughout 2023 without disruption. 2023 Management’s Discussion and Analysis pg. 7 In 2022, we began operations of a treatment plant utilizing our Selen-IX™ process to remove selenium from ash pond water for WesTech Engineering (“WesTech”). In 2023, our operations team continued providing water treatment services with the Selen-IX™ circuit to manage the presence of selenium in the feed. In 2022, we completed the commissioning of a treatment plant utilizing a combination of nanofiltration and our proprietary selenium electro-reduction process for the simultaneous removal of selenium and sulphate from mine water for a base metal project in the American Southwest. In 2023, our team completed the performance test milestone for a 2nd newly constructed selenium removal water treatment plant which entered the operation phase in August. As a result, we are currently providing water treatment operation services for two water treatment plants in the American Southwest. TECHNICAL SERVICES HIGHLIGHTS BQE Water’s technical expertise and IP are applicable globally across broad areas of water management. Highlights of some of our technical services and technical innovation projects during 2023 are summarized below. Trusted Advisory Services (Water Management and Water Studies)  Completed a pilot demonstration of selenium removal from mine water using Selen-IX™ at a gold mine in the US to meet end-of-pipe limit of less than 2 parts per billion.           Completed a technical assessment of water treatment requirements and options for closure and post-closure at a mine in the Yukon overseen by the provincial government. Successfully completed commissioning of a new water treatment plant at a base metal mine in the US. Provided water treatment expertise to the executive team of a top tier metal producer in due diligence for an acquisition of an existing mining operation. Continued to provide engineering design services for three water treatment plants to support permitting of the KSM gold-copper project in British Columbia. Continued to provide engineering services for design for the construction of a new water treatment plant for water recycle at a gold mine in Mexico. Completed the water treatment pilot test campaign integrated into a rare earth elements metallurgical extraction project in Chile. Provided water treatment expertise and laboratory testing services in investigations of effluent toxicity at a mine in Eastern Canada. Completed a pilot scale demonstration of a new innovative method of managing thiosalts in mine effluents at an operating mine in Canada. Completed an operations performance and engineering analysis of bottlenecks in an existing reverse osmosis plant in Chile, and prepared a plan for upgrades to increase the plant capacity with minimal capital expense. Completed a laboratory scale program aimed at increasing water recovery and reducing brine waste for a reverse osmosis system being planned for implementation at a gold mine in BC. Cyanide Management (Destruction and Recycle)  Completed laboratory testing and scoping level engineering design for a cyanide removal plant to meet effluent discharge of less than 7 parts per billion for a mine in development in the US.   Completed a treatability assessment for the removal of cobalt and associated cyanide from an existing gold mine in Ontario. Continued with the engineering design for a third SART plant for Shandong Gold in China. 2023 Management’s Discussion and Analysis pg. 8 2023 COMMENTARY AND OUTLOOK FOR 2024 We are extremely pleased with our 2023 results, which delivered another set of new highs in several key financial metrics including Proportional Revenue, GAAP revenue, Adjusted EBITDA, and working capital. BQE Water’s 2023 financial performance is reflective of the success of our long-term business strategy, a key element of which is growing our recurring revenues from water treatment operations. This component of our revenues doubled between 2022 and 2023 and represented the main driver of our financial improvement year-over-year. The strong increase in recurring revenues in 2023 resulted from technical services delivered to customers in prior years since it typically takes several years for these technical services to mature into recurring operational services. Our business strategy is simultaneously centered on growing recurring revenue from water treatment fees rather than from the sale of recovered metals. In 2023, metals sales represented 20% of our Proportional Revenues, while water treatment fees grew to 36% of our Proportional Revenues. Our share of income from joint ventures, which earn revenues from metals sales, represented approximately 14% of our consolidated net income. Despite our positive overall results in 2023, there are also risks and opportunities for improvement. Firstly, in 2023, we reported a bad debt write-off due to the insolvency of Minto Metals Corporation (“Minto”). This non-recurring expense relates to unpaid amounts owed to the Company for services rendered in 2023. When BQE entered into a contract with Minto in 2022, management weighed the risk of the customer’s low working capital against the opportunity to provide services to a mine with significant water treatment requirements. When Minto entered receivership in May 2023, it was our presence on site that allowed us to secure a new and expanded contract directly with the Government of Yukon. Overall, this new contract more than compensated for BQE’s bad debt write-off. It also provided the Company with the opportunity to gain recognition from the Government of Yukon, positioning us well for potential future projects administered by the government in the province. The bulk of the Company’s operational services are, and will continue to be, provided to mid-tier and top-tier metal producers; however, working with junior mining companies is part of our business. As such, we will continue to carefully weigh the pros and cons of every contract we enter with a view to minimizing the risk of incurring bad debt expenses without adequate offsets. In 2023, BQE Water also reported an unusually low share of income from our joint venture with JCC in China due primarily to lower sales of recovered copper relative to prior years. While the mass of copper recovered is expected to decline over time due resource depletion in the waste rock piles that the copper containing wastewater comes from, the waste rock piles still contain a significant quantity of copper and, in management’s opinion, the drop in copper production in 2023 will not necessarily be reflective of copper recoveries in future years. The release of copper from waste rock is driven by climatic conditions such as temperature, humidity, and frequency and duration of rain events. Overall, investors should expect volatility in the mass of copper recovered from the JV operations in future years. Fluctuations in the price of copper is and will be another major determinant for our net income from joint ventures in the future. As noted above, the impact from metals sales to the Company’s overall financial results has and will continue to decrease as our recurring revenue from water treatment plant operations continues to grow over the medium and long term. Lastly, sales & development expenses and general & administration expenses together increased 27% in 2023. While some of these expenses are expected to increase due to the Company’s growth, we have identified multiple opportunities to improve efficiency across the organization with respect to workflow, communication, and resource allocation. Executing these opportunities will be management’s focus in 2024. Investors can nevertheless expect higher costs resulting from more proactive business development, marketing and investor relations activities, as well as increases in insurance costs and financial audit expenses. Overall, however, we believe our operating and profit margins can continue to improve year- over-year due to active management of costs, internal efficiencies, and economies of scale. In terms of labor resources, our focus will be on improving the utilization of existing resources prior to embarking on any further hiring initiatives. The figure below shows the evolution of our team from 2017 to 2023, including our projections for 2024, which highlights our focus in 2024 on the consolidation of the rapid growth of the past two years. 2023 Management’s Discussion and Analysis pg. 9 With respect to our outlook for 2024, we have relatively good visibility and certainty over key projects and activities. For operational services, we expect our recurring revenues will continue to increase. In 2024, we will have the first full year of operations at the newest selenium removal plant commissioned in Q3 2023. We also anticipate new contracts for operational services in 2024 with North American customers who complete the construction of new plants in 2024 and begin the transition to the operations phase in the second half of 2024 or early 2025. This momentum will be supported by the expected commissioning of our third SART plant in China that is expected to transition into operations in the first half of 2025, providing a similar revenue stream as the first two SART plants. It is important to note that the size and scope of operational services contracts vary, and will continue to vary, based on site specific requirements. For technical and advisory services, we anticipate the start of construction of one new North American treatment facility in 2024 that BQE designed and helped with permitting in previous years. Our outlook for 2024 as described above does not include certain potential “major projects” because the timing of these projects is not sufficiently certain to include at this time. In the long-term, the drivers for continued growth remain firmly in place and include:  Tightening government regulations and increased enforcement around water quality.  Social acceptability of new mines creating a major driver for water management and treatment decisions.  Global decarbonization driving demand for metals production.  Outsourcing of innovation in the mine water space combined with our track record of bringing innovation to market.  Increased role of Indigenous communities in clean water production and environmental monitoring.  Clean-up and closure of ash ponds as one of the largest environmental liabilities faced by power utilities. Despite these trends and our optimistic outlook for 2024, we continue to caution readers about the risks that may create sudden and potentially significant headwinds for us and our business. These include geopolitical risks with China, weak inflows of capital into the mining sector, a global recession, and/or prolonged weakness in commodity prices. For these reasons, we remain focused on fiscal prudence and maintaining our working capital at a level that allows us to withstand exogenous impacts. Our financial results in 2023 and the current outlook for 2024 support our view that we remain on track for profitable growth and have sufficient cash reserves to mitigate key risks. 2023 Management’s Discussion and Analysis pg. 10 SELECTED FINANCIAL INFORMATION (in $’000 except for per share amounts) Revenues Operating expenses Operating margin Share of income from joint ventures General and administration Sales and development Share-based payments Depreciation and amortization Income from operations and joint ventures Other income, net Bad debt expense Income tax expenses Net income for the year Earnings per share (basic) Earnings per share (diluted) Proportional Revenues (Non-GAAP measures) Adjusted EBITDA (Non-GAAP measures) Comprehensive income Cash and cash equivalents Proportional cash (Non-GAAP measures) Working capital Total assets Total non-current liabilities Shareholders’ equity 2023 $ 18,137 (9,075) 9,062 419 (2,727) (2,655) (466) (430) 3,203 115 (473) (191) 2022 $ 12,158 (7,107) 5,051 1,487 (2,464) (1,768) (671) (264) 1,371 108 (8) (309) 2,654 1,162 2.12 2.08 22,726 4,656 2,302 0.93 0.92 18,879 3,059 994 at Dec 31 2023 $ at Dec 31 2022 $ 7,928 9,790 10,529 18,856 1,900 14,776 6,234 9,582 7,165 15,988 555 12,638 2023 Management’s Discussion and Analysis pg. 11 COMPARISON OF QUARTERS Financial data for the last eight quarters: (in $’000s) Revenues Operating expenses Dec-23 $ 5,014 (2,260) Sept-23 $ 6,246 (2,959) Jun-23 Mar-23 $ $ 4,186 (2,162) 2,691 (1,694) Dec-22 $ 3,465 (2,044) Sept-22 $ 3,503 (1,759) Jun-22 Mar-22 $ $ 2,722 (1,773) 2,467 (1,531) 2,754 3,287 2,024 997 1,421 1,744 949 936 Share of results from joint ventures General and administration Sales and development Share-based payments Depreciation and amortization Income (loss) from operations Other income (expenses), net Bad debt expense Income tax expense Net income (loss) Translation gain (loss) Comprehensive income (loss) Non-GAAP Measures: Proportional Revenue Adjusted EBITDA (452) (695) (930) (138) (126) 413 68 (214) (18) 249 39 288 382 (610) (555) (109) (111) 2,284 (13) - (140) 2,131 71 2,202 407 (750) (557) (29) (111) 984 (83) (259) (27) 615 (471) 144 81 (672) (613) (190) (82) (479) 143 - (6) (342) 10 (332) (256) (690) (564) (209) (80) (378) 142 (8) - (244) 80 (164) 281 (591) (414) (172) (70) 778 84 - (289) 573 1,129 (579) (436) (267) (59) 737 (77) - (18) 642 333 (604) (354) (23) (55) 233 (41) - (2) 190 - 573 (139) 503 (109) 81 5,431 541 7,964 2,742 5,772 1,451 3,560 (80) 4,479 (90) 5,707 1,361 5,164 1,341 3,529 446 Quarterly results can fluctuate based on the number of plants operating, variations in the volume and grade of water treated, and movements in commodity prices. Seasonality at each site also impacts the timing of revenues. Operations at Raglan Mine and Minto Mine run in the warmer months, typically from May to October of each year. Copper production at the Dexing operations increase between April and September and decline during the winter months due to lower seasonal precipitation and the annual maintenance schedule. Revenues from contracts for technical services related to water management and technical innovation projects occur based on the timing of client requirements. 2023 Management’s Discussion and Analysis pg. 12 SUMMARY OF Q4 2023 FINANCIAL RESULTS The following is a summary of selected financial results for the three-month periods ended December 31, 2023 and 2022. 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 fees from operations Technical services Total Proportional Revenues Q4 2023 $ 417 2,843 2,171 5,431 % of total 8% 52% 40% 100% Q4 2022 $ 1,014 1,326 2,139 4,479 % of total % Change 22% 30% 48% 100% (59%) 114% 1% 21% Revenues from the sale of recovered metals of value comprise the Company’s share of joint venture revenue from the operation of water treatment plants. The amount of revenue is impacted by the quantity of metals recovered and the metal prices listed on the Shanghai Futures Exchange. During Q4 2023, the JCC-BQE joint venture contributed $416,000 to the Company’s share of Proportional Revenue compared to $727,000 in Q4 2022. The 43% decrease in revenue against 2022 was due to an approximate 44% decrease in the quantity of copper recovered. During Q4 2023, the MWT-BQE joint venture was operating intermittently and contributed $1,000 to the Company’s share of Proportional Revenue compared to $287,000 in Q4 2022. The decrease was due to a substantial one-time sale of copper and zinc in the fourth quarter of 2022. The Company earns water treatment fee revenues, including monthly fees and tolling fees from the volume of water treated and operations support fees, at four different sites including Raglan Mine in Nunavik through our partnership with Inuit company Nuvumiut Development, at Minto Mine in the Yukon, and at the three selenium removal plants in the US. The $1.5 million increase in water treatment fees is due to several operations. During Q4 2023, the third newly commissioned selenium removal treatment plant was fully operational, and all three US plants in aggregate provided $1.7 million of recurring revenues compared to $475,000 in Q4 2022. Through our operations at Raglan Mine, we earned $629,000 water treatment fees compared to $356,000 in Q4 2022, as the volume of water treated increased by 100% between the two periods. Our operation support fees are comprised of recurring technical support services at two SART plants in China that generated revenues of $178,000 in Q4 2023 compared to $150,000 in Q4 2022. Technical services revenues were comparable to the same period in 2022. These revenues are non-recurring in nature and are related 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. These revenues represent the sum of multiple contracts from various clients of varying contract values. Expenses Total operating expenses in Q4 2023 were $2.3 million compared to $2.0 million in Q4 2022, an increase of 11%, which is consistent with the increase in operations and project activity during the quarter. Each individual project requires different levels of technical expertise and resources depending on the specific mine conditions and treatment solutions. In Q4 2023, general and administration costs were $695,000 compared to $690,000 in Q4 2022. The $5,000 increase was due to increases in employee benefits, professional services, and insurance premiums, offset by decreases in travel expenses. Sales and development costs in Q4 2023 were $930,000 compared to $564,000 in Q4 2022, representing an increase of $366,000. The increase was largely attributable to a $281,000 increase in labor resources allocated to fulfill technological and business development incentives, a $37,000 increase in travel and event expenses related to business development, and a $18,000 increase in professional services. 2023 Management’s Discussion and Analysis pg. 13 SUMMARY OF 2022 FINANCIAL RESULTS The following is a summary of selected financial results for the years ending December 31, 2023 and 2022. 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 2023 $ 4,589 8,278 9,859 22,726 % of total 20% 36% 44% 100% 2022 $ 6,721 4,133 8,025 18,879 % of total % Change 36% 21% 43% 100% (32%) 100% 23% 20% Revenues from the sale of base metals recovered comprises the Company’s share of revenues from 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 concentrates sold. During 2023, our share of revenues from the JCC-BQE joint venture was $4.4 million compared to $6.2 million in 2022, representing a $1.8 million or 30% decrease. The decrease is predominately due to the 32% decrease in the total pounds of copper recovered, offset by a 2% increase in average copper prices. The decrease is largely due to the lower concentration of metals from the depreciated stockpile. The remaining variance was from the MWT-BQE joint venture, which contributed copper and zinc recovery sales of $212,000 to the Company’s Proportional Revenue in 2023 compared to $480,000 in 2022. The variance is due to the change in concentration of metals contained in the feed going into the treatment plant and the amount sold within the year. Water treatment fee revenues increased by $4.1 million or 100% compared to 2022, mainly due to the start of new operations in 2023. The recently commissioned third selenium removal plant in the US contributed new recurring revenues of $2.2 million and the full year of operations at Minto Mine added an additional $1.3 million to operation revenues in 2023 over 2022. Treatment fees from the Raglan operations provided $1.9 million in revenues in 2023 compared to $1.6 million in 2022, an increase of 18% year-over-year due to more water requiring treatment across the four plants from the year prior. In 2023, we continued to earn support fees in our SART plants in China totalling $719,000 compared to $546,000 from the prior year. Revenues from technical services increased by $1.8 million or 23% in 2023 compared to 2022. The increase is attributed to higher project activity in all areas of technical services, including commissioning activities in the US, engineering design of new water treatment plants, and the pilot demonstration project in South Dakota. 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. Such revenues represent the sum of multiple contracts from various clients of varying contract values. Operating Expenses Total operating expenses in 2023 were $9.1 million compared to $7.1 million in 2022, an increase of $2.0 million. The 28% increase in operating expenses is largely attributable to the aggregate 49% increase in operations services and project activity related to technical services completed in the year. Each operation site and individual project calls for varying levels of technical expertise and resources depending on the specific mine conditions and treatment needs. During 2023, gross margin improved to 50% compared to 42% in 2022. Expenses General and administration expenses in 2023 were $2.7 million compared to $2.5 million in 2022, representing a $263,000 or 11% increase. The increase was attributable to a $184,000 increase in employee benefits, and a $71,000 increase in insurance premiums for the year. 2023 Management’s Discussion and Analysis pg. 14 Sales and development costs in 2023 were $2.7 million compared $1.8 million in 2022, an increase of 50%. The $887,000 increase was largely attributed to a $678,000 increase in employee benefits, a $104,000 increase in travel expenses related to business development, and a $87,000 increase in other expenses directly related to technology development. Share-based payment expenses were $466,000 in 2023 compared to $671,000 in 2022, a decrease of $205,000. Share- based payment expenses mainly consist of non-cash compensation expenses relating to stock options which are expensed on a straight-line basis over the vesting period. Other share-based payment expenses were due to fair value adjustments of deferred and restricted share units resulting from an increase in the Company share price. Depreciation and amortization expenses were $430,000 in 2023 compared to $264,000 in 2022. The increase of $166,000 was due to several newly added right-of-use assets, including an office building lease valued at $1.4 million depreciating over 10 years, other office leases and several vehicle leases. Other Income and Expenses The net of other income was $115,000 in 2023 compared to an income of $108,000 in 2022. Other income consists of net finance income, foreign exchange and other income. Net finance income was $204,000 in 2023 compared to an expense of $27,000 in 2022. Finance income consists of interest income earned primarily from on-demand guaranteed investment certificates and is netted against finance costs, which consist of interest paid and interest accrued for other liabilities. The increase was primarily due to $156,000 of interest income from the initial fair value gain on the interest-free government loans received in 2023. Foreign exchange loss was $141,000 in 2023 compared to a gain of $48,000 in 2022. 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 of Canadian dollars. The remaining variance is from other income of $52,000 in 2023 compared to $33,000 in 2022. Other income consists of fair value adjustments on contingent liabilities, and other gains and fees earned which are non-operating in nature. During 2023, the Company recorded bad debt expenses of $473,000 compared to $8,000 in 2022. Included in bad debt expenses in 2023 was $424,000 due to non-payment from a Yukon-based customer in receivership and $47,000 due to accounts receivable impairment from a customer in China. In May 2023, the Yukon-based customer ceased their operations at the mine site and the Government of Yukon later appointed a receiver for certain mining assets at site. The Company assessed the event as an indicator of impairment and recorded the trade receivable from this customer as a bad debt expense. Income Tax In 2023, income tax expenses were $191,000 compared to $309,000 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 and by the Company’s wholly owned Chinese operating subsidiary. The distributions and withholding tax recognized are based on the net earnings of the prior year. These taxes are not able to be offset against accumulated tax benefits in other jurisdictions. Net Income Overall, net income for the year was $2.6 million compared to $1.2 million in 2022. 2023 Management’s Discussion and Analysis pg. 15 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. 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 our patented ChemSulphide® process to remove and recover dissolved copper from acid mine drainage generated by waste dumps and low-grade stockpiles. The recovered high-grade copper concentrate is shipped to JCC’s refinery. In 2014, the joint venture completed the construction and commissioning of two additional water treatment plants at JCC’s Yinshan Mine and Dexing Mine sites. Both plants also utilize the 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% of 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 Water treated (cubic metres) Copper produced (pounds) 2023 2022 7,057 720 8,206 677 4,230 538 8,051 1,298 5,666 911 3,987 620 19,493 1,935 17,704 2,829 The volume of water treated will fluctuate depending on precipitation levels and pounds of copper recovered at all three plants is driven by climatic conditions such as temperature, humidity, and frequency and duration of rain events. Over time, the mass of copper recovered is expected to decline over time due resource depletion in the waste rock piles that the copper containing wastewater comes from. 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 2023, 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 vary from period to period. 2023 Management’s Discussion and Analysis pg. 16 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. 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) 2023 285 162 49 2022 690 527 218 Raglan Mine Operation for Glencore Canada Corporation, Québec, Canada BQE Water operates four water treatment plants at Raglan Mine, an active nickel mine in Northern Québec which is owned by Glencore. The four plants include: BQE Water’s ChemSulphide® process plant, BQE Water’s Met-IX™ process plant, the lime neutralization plant at Spoon pit and the lime plant at Katinniq. All four 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 plant operations and receives a treatment fee per cubic metre of water treated and discharged. 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 2023 901 457 860 2,218 2022 993 392 485 1,870 Minto Mine Operation for Yukon Government, Yukon, Canada In 2022, BQE Water entered into an operational services agreement with Minto Metals to operate an existing water treatment plant at Minto Mine. As part of the operational services, BQE Water provides operations labor and coordination of mechanical and electrical maintenance to ensure effluent from the water treatment plant meets the specific discharge limits set within the permit parameters. In May 2023, the Yukon-based customer ceased active operations at the mine and the Government of Yukon stepped in to ensure the continuation of water management services in support of environmental protection. Throughout this transition, our operators continued onsite to operate the water treatment plant and provided continuous water treatment until plant winterization in October 2023. Operating results for the plant during the year were as follows: Operating days Water treated (in ’000s cubic metres) 2023 312 938 2022 127 378 2023 Management’s Discussion and Analysis pg. 17 Kemess Property Operation for Centerra Gold, British Columbia, Canada In 2020, we completed the commissioning of the first industrial scale plant utilizing our patented Selen-IX™ process for selenium management at the Kemess property in Northern BC owned by Centerra Gold. Upon commissioning, the plant operated continuously for a month treating up to 5,600 m3/day of mine impacted water to produce clean water containing selenium concentrations of less than 2 parts per billion. In December 2020, the Kemess site was declared to be in a state of care and maintenance. With the site requiring active water treatment only during mine construction, operation and closure but not during care and maintenance, the water treatment plant is not expected to operate until the site status changes. During 2023, we completed annual maintenance activities required to maintain the water treatment plant during this state. China Metallurgical Facilities Operations for MWT Water Treatment Ltd., Shandong Province, China In 2021, BQE Water completed the commissioning of two SART plants at two metallurgical facilities located in Eastern China, owned by Shandong Zhongkuang Group Co., Ltd. (“Zhongkuang”) and Zhaojin Mining Industry Co., Ltd. (“Zhaojin”). The Zhongkuang SART plant began operations in January 2021 and the Zhaojin SART plant in April 2021. Both SART plants are operated under the ongoing technical supervision of BQE Water. During operations, the SART plants are expected to recover cyanide, copper and zinc. Recovered cyanide will be re-used within the metallurgical process and the copper and zinc will be sold to generate incremental revenues for each owner. The volume of water treated for the two plants during the year were as follows: (in ’000s cubic metres) Zhongkuang SART plant Zhaojin SART plant 2023 178 424 2022 147 264 Ash Pond Clean-up Operations for WesTech Engineering, Virginia, USA At the end of 2021, BQE Water completed the commissioning of our first project in the power generation industry, a treatment plant utilizing our Selen-IX™ process to remove selenium from ash pond water for WesTech. The Selen-IX™ plant has a treatment capacity of 1,500 US gallons per minute and is designed to remove selenium down to below 7.7 parts per billion. BQE Water operates the Selen-IX™ plant under contract to WesTech who manages overall site operations. During 2023, our team was onsite providing water treatment services and utilizing the Selen-IX™ circuit, when selenium is present to remove selenium. Base Metal Mine in Southwestern, USA In 2022, BQE Water completed the commissioning of a treatment plant utilizing a combination of nanofiltration and our proprietary selenium electro-reduction process to simultaneously remove selenium and sulphate from mine water for a base metal project in the American Southwest. Upon completion of commissioning, we began providing ongoing plant operations services in exchange for water treatment fees comprised of a fixed guaranteed minimum and a variable fee linked to the volume of water treated. In 2023, our operations team operated the plant for the full year. In August 2023, BQE Water completed the commissioning of a second water treatment plant for the same base metal mine. Since being operational, the treatment plant treats mine impacted waters, removing selenium to below 2 ppb (Parts Per Billion) and dissolved metals, in compliance with applicable effluent quality regulations. Compensation for operations services consists of a base monthly fee, regardless of the volume of water reporting to treatment, plus a supplemental fee for additional water treated over and above the base. The plant has been operating year-round 24/7, with an overall plant availability more than 95%, and treat up to 4,500 gallons of water per minute, making it the largest Selen-IX™ plant currently in operation. 2023 Management’s Discussion and Analysis pg. 18 LIQUIDITY AND CAPITAL RESOURCES At December 31, 2023, BQE Water had 1,246,628 common shares issued (1,256,928 at December 31, 2022) and 84,340 stock options outstanding (90,340 at December 31, 2022). In 2022, the Company obtained the approval of the TSX Venture Exchange to commence a Normal Course Issuer Bid (NCIB) to repurchase for cancellation up to 62,556 common shares, representing 5% of common shares issued and outstanding, over a 12-month period starting December 12, 2022. The NCIB was renewed for another 12-monther period starting December 13, 2023. For the year ended December 31, 2023, the Company has repurchased for cancellation 13,300 common shares at a weighted average price per share of $28.40 under the terms of the NCIB (nil as of Dec 31, 2022). Subsequent to the reporting year, as of the date of this MD&A on April 25, 2024, there were 1,256,228 common shares issued and outstanding, and 74,740 stock options outstanding, and no common shares have been purchased and cancelled under the NCIB. At December 31, 2023, we had net cash and cash equivalents of $7.9 million, an increase of approximately $1.8 million from December 31, 2022. For the 12 months ended December 31, 2023, our net cash provided by operating activities was $870,000 ($364,000 used in 2022). Working capital is defined as current assets minus current liabilities. At December 31, 2023, the Company had a consolidated working capital position of $10.5 million, an increase of $3.4 million from December 31, 2022. At December 31, 2023, significant working capital items, aside from cash, include trade and other receivables of $4.4 million ($3.2 million at December 31, 2022) and trade payables and accrued liabilities of $1.3 million ($1.2 million at December 31, 2022). The Company has interest-free loans with the Minister of Western Economic Diversification Canada under the Western Innovation Initiative (“WINN”) program and with Pacific Economic Development Canada under the Business Scale-Up & Productivity Program (“BSP”). At December 31, 2023, the WINN and BSP loan balance was $312,000, both with obligations to repay the loan with 60 equal monthly installments ($268,000 at December 31, 2022). Additionally, there are credit facilities available with the Royal Bank of Canada including a credit card facility of $30,000 and a revolving demand credit facility of $1.0 million which had not been utilized as at December 31, 2023. The Company has commitments of $2.2 million until 2034 under operating leases for office and laboratory premises, and assay services. We believe we have sufficient working capital resources to finance current operations beyond the next 12 months. RELATED PARTY TRANSACTIONS Management Compensation For the years ended December 31, 2023 and 2022, 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 2023 $ 865,362 150,250 1,015,612 2022 $ 786,908 223,842 1,010,750 Revenue Earned from Joint Venture The Company earns operating fees from the joint venture, BQE Water Nuvumiut Development Inc., for providing water treatment services in Nunavik. Revenue earned from the joint venture for the year ended December 31, 2023 was $2,200,877 ($1,722,390 in 2022). Included in trade and other receivables as of December 31, 2023 is $382,837 ($154,611 at December 31, 2022) of trade receivables due from the joint venture. 2023 Management’s Discussion and Analysis pg. 19 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 consolidated 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 Judgments Critical judgments 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 judgment on revenue recognition, when determining the performance obligations that exist in an arrangement and the timing of the transfer of control and satisfaction of performance obligations of either at a point in time or over time. c) Management’ assessment of the intellectual property transaction in the previous year as an intangible asset acquisition and not a business combination arrangement. d) Management’ assessment of impairment indicators for asset impairment on long-term assets such as property and equipment or investment in joint ventures. 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. 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. For the revenue arrangements comprise multiple performance obligations, estimates are required when determining the relative fair value of each performance obligation utilizing standalone prices for similar deliverables where it exists or internally generated estimates of standalone price. 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 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 judgment 2023 Management’s Discussion and Analysis pg. 20 is required to determine the discount rate on lease payments by assessing its incremental borrowing rate at each of the Company’s locations. Long-term Loans To determine the carrying value of the initial recognition and subsequent re-measurement of long-term interest-free loans provided by the government, management is required to exercise judgment in determining the effective interest rate on expected loan repayments over the term of the loan. 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 controls 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 our 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, our 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 consolidated 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, 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, 2023 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Future Accounting Standards and Amendments There are a number of accounting standard amendments issued by the IASB which we have not yet adopted. None of the future amendments are expected to have a significant impact on the Company’s consolidated financial statements on adoption. RISKS AND UNCERTAINTIES Companies operating in the process technology sector face many and varied risks. While we strive to manage such risks to the extent possible and practical, risk management cannot eliminate risk completely. Following are the risk factors which 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 key employees or consultants could have an adverse material effect on our 2023 Management’s Discussion and Analysis pg. 21 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 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. Our success in the water management and treatment space is highly dependent on our ability to keep project and work sites safe and any failure to do so can have serious impact on the personal safety of our employees and others. In addition, it can expose the Company to contract termination, fines, regulatory sanctions or even criminal prosecution. Our safety record and operational safety practices also have a direct bearing on our ability to secure new project work. Certain clients will not engage 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. We adhere to very rigorous safety policies and procedures which are continually reinforced on project and work sites. 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 our operations or competitive position. Management of Growth The Company’s current growth trajectory 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. As the Company establishes additional water treatment facilities and streams of recurring revenue, it 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 could suffer. Economic and Project Site Dependence The Company currently derives its revenues from a limited number of sources (contracts). For certain contracts, we have made significant investments in fixed plants that are dependent on conditions at the project site that may be beyond our control. Changes in site conditions and/or the loss of any one contract could result in a materially adverse effect to our 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. 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. 2023 Management’s Discussion and Analysis pg. 22 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. Even such, the credit risk associated with trade receivables with aging balances over 90 days are considered higher than normal. Technology Risk The Company has completed the construction and commissioning of a number of plants. The operating and engineering data from these plants is used in estimates for new projects under evaluation and/or in the design engineering stage. Notwithstanding the foregoing, each new commercial venture undertaken by the Company has the inherent technical risk of any continuous biological and/or chemical process, which could include the loss of the biological feedstock. Intellectual Property Protection The Company cannot provide any assurance that any further intellectual property applications will be approved. Even if they are approved, such patents, trademarks or other intellectual property registrations may be successfully challenged by others or invalidated. The success of the Company and its ability to compete are substantially dependent on its internally developed technologies and processes which the Company will need to protect through a combination of patent, copyright, trade secret and trademark law. The trademark, copyright and trade secret positions of the Company’s business are uncertain and involve complex and evolving legal and factual questions. In addition, there can be no assurance that competitors will not seek to apply for and obtain trademarks and trade names that will prevent, limit or interfere with the Company’s BioSulphide®, ChemSulphide®, Met-IX™, Sulf-IX™ and Selen-IX™ processes. Litigation or regulatory proceedings, which could result in substantial cost and uncertainty to the Company, may also be necessary to enforce the intellectual property rights of the Company or to determine the scope and validity of other parties’ proprietary rights. There can be no assurance that the Company will have the financial resources to defend its patents, trademarks and copyrights from infringement or claims of invalidity. The patent positions of emerging companies can be highly uncertain and involve complex legal and factual questions. Thus, there can be no assurance that any patent applications made by or on behalf of the Company will result in the issuance of patents, that the Company will develop additional proprietary products that are patentable, that any patents issued or licensed to the Company will provide the Company with any competitive advantages or will not be challenged by any third parties, that the patents of others will not impede the ability of the Company to do business or that third parties will not be able to circumvent the patents assigned or licensed to the Company. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate any of the Company’s products or, if patents are issued and licensed to the Company, design around the patented product developed for the benefit of the Company. Since patent applications are maintained in secrecy for a period of time after filing, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that the 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. 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 2023 Management’s Discussion and Analysis pg. 23 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. 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. 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, 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. 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. 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. 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. 2023 Management’s Discussion and Analysis pg. 24 

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