Simon Property Group
Annual Report 2022

Plain-text annual report

TRUSTED PARTNER IN POWER™ 2022 ANNUAL REPORT TRUSTED PARTNER IN POWER™ WE ARE INDEPENDENT • Unbiased service provider • Pole-to-Product™ • Relationships over transactions WE ARE LOCAL • Community-based • Local service with continent-wide expertise • Certified, well- trained, non-union WE HAVE SCALE • Award-winning Health & Safety Programs • Flexible and responsive • Right ideas and solutions CEO’s Message to Shareholders.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Chairman’s Message to Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Key Figures.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Management Team and Board of Directors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Business Overview.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Schedule 1 – Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Management’s Responsibility for Financial Reporting.. . . . . . . . . . . . . . . . . . . 23 BDO Independent Auditor’s Report.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Consolidated Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Notes to the Consolidated Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . . . 32 Schedule 2 – Management’s Discussion & Analysis.. . . . . . . . . . . . . . . . . . . . . 70 MD&A, Forward-Looking Information, Presentation of Financial Information, Key Performance Indicators.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Business Overview.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Summary Financial Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 EBITDA, Adjusted EBITDA, and Pro-forma EBITDA.. . . . . . . . . . . . . . . . . . . . . . 76 Results of Operations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Results of Operations by Reportable Business Segment.. . . . . . . . . . . . . . . . 84 Financial Condition, Liquidity and Capital Resources.. . . . . . . . . . . . . . . . . . . . 89 Outlook.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Off Balance-Sheet Arrangements, Commitments and Contingencies.. . 94 Summary Quarterly Financial Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Significant Accounting Judgements and Estimates.. . . . . . . . . . . . . . . . . . . . . . 95 Financial Instruments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Disclosure Controls and Procedures and Internal Controls Over Financial Reporting.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Risk Management.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Corporate Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 TABLE OF CONTENTS 3 Dear shareholders, I am pleased to report that in 2022, Spark Power remained committed to our core values and have achieved significant improvements in our results compared to previous periods. We have taken important steps to position the business to address both current and long- term opportunities associated with electrification, with a focus on maximizing potential shareholder returns. During the year, we dedicated significant effort towards formulating our new three-year strategy, “Let’s Grow Better,” aimed at creating sustainable and long-term value for shareholders through a fully integrated platform company targeting the period of 2023 - 2025. With our new vision and mission, we are prepared to unlock the next phase of our maturity, built on a foundation of operational excellence. We also made significant progress towards achieving our “One Spark” operating model, which brings together our culture, technology platform, business processes, and organization as an integrated platform. We continued to grow the business by adding new customers, including significant U.S. solar operations and maintenance agreements, large scope technical services work, and expanding our Renewables Operating Centre in Dallas, Texas, which monitors solar and battery storage assets across North America. These accomplishments are a testament to the tireless efforts of our team, and I thank them for their unwavering commitment. In November, we divested our Bullfrog Power Inc. business unit. This transaction has further streamlined the business, allowing us to focus on our core Technical Services and Renewables Services segments. I want to take this opportunity to thank our Spark Power employees for their hard work and dedication. Especially given their focus on health and safety and the continued positive trending we experienced in 2022. To our valued customers and shareholders, thank you for the trust you have placed in us. We will continue to work tirelessly every day to maintain and build upon this trust. As an integrated North American electrical services provider with a strong strategy in place, we are well positioned for the years ahead. Sincerely, Richard Jackson President & CEO CEO’S MESSAGE TO SHAREHOLDERS 4 Dear shareholders, In 2022, Spark Power has once again demonstrated the strength of our business and the talent of our people. Through a year of strategic planning and long- term goal setting, Spark Power has continued to support communities across North America that depend on our services. We closed the year strong, with a focus on launching the 2025 Let’s Grow Better Strategy. Through the establishment of strategic pillars and supporting workstreams, we will further strengthen our ability to serve customers’ evolving needs, roll- out our go-to-market plan and focus on US maturity, invest in the growth and learning of our people, and work toward continuous improvement and operational excellence. While our business is amid a transformation, I have full confidence that we have the proper team in place to accomplish our mission. As we look forward to another year of progress, the Board of Directors thanks our President and Chief Executive Officer, Richard Jackson, Vice President and Chief Financial Officer, Richard Perri and the entire executive team for their exceptional leadership and support through 2022. We want to recognize the hard work and commitment our Spark Power colleagues demonstrate every day, delivering a range of services rooted in trust, resilience and care. I want to thank my fellow Board members for contributing their expertise and industry knowledge, and while I have made the decision not to stand for re-election as Chair for personal reasons. The continued support from our shareholders is greatly appreciated, and we’d like to thank our customers for the opportunity to serve them. We will continue to work each day to maintain your trust as your partner in power. Sincerely, Lucio Di Clemente Chairman of the Board CHAIRMAN’S MESSAGE TO SHAREHOLDERS 5 EVOLVING STRATEGIC IMPERATIVES TO DRIVE STRATEGY Integration (Operations, Brand, Culture) • Predictable operational excellence • Clarity and consistency in our go-to-market messaging - Trusted Partner in Power™ • Focus on profitable US growth • Focus on Business Unit/Branch Manager – develop, retain and support 2020 Integration (Operations, Brand, Culture) & Platform • Predictable operational excellence • Recapitalization for stability & growth 2021 Platform for Growth • Predictable operational excellence • Embed culture • Acquisition & integration 2022 6 GROWTH STRATEGY The Corporation’s Executive Team reviews its 3-year Strategic Plan on an annual basis to assure that the business is consistently positioned to properly address both the current and long-term opportunities; maximizing the potential for shareholder returns. In Q4 2022, the Corporation continued the establishment of a sound foundation for long-term success through its launch of the 2025 Let’s Grow Better Strategy. The focus of the new strategy is profitable growth, positive free cash flow generation, and implementation of the ‘Spark Way’, resulting in value creation for all stakeholders. The Strategic Plan is rooted in three key pillars- customer, people and operational excellence; supported by a clear brand position, and an annual statement of strategic priorities. Our Vision: Shaping the future of electrification in our communities. Our Mission: As the Trusted Partner in Power™ in North America, we deliver the highest quality standards in service, reliability and safety. Our Strength: Our highly skilled and dedicated people, our knowledge of the power industry, our distributed branch model, and our commitment to safety ensures we deliver the right solutions for our customers. Brand Position & Promise - Trusted Partner in Power™ The Corporation’s brand position is to be our customers’ Trusted Partner in Power. This brand underpins the Corporation’s go-to-market strategies, including but not limited to marketing, business development, offerings development, organization and customer promise. The Corporation lives this brand overtly through its messaging (internal and external) and through the delivery on this promise to our customers. With the newly formed 2025 Let’s Grow Better Strategy, the Corporation is set to transition from a ‘One Spark’ operating model, focused on the final phase of integration of all the acquired subsidiaries, to establishing ‘The Spark Way’. Over the course of this strategic cycle, the organization will transform to the ‘Spark Way’ which is described as a set of common goals, practices, and purpose to achieve the newly formed vision and mission as Spark Power prepares to unlock the next phase in its maturity supported by a foundation of operational excellence. 7 GROWTH STRATEGY (continued) The Corporation has established the following strategic pillars and supporting workstreams as part of its 2025 Let’s Grow Better Strategy: 1. Customer • Targeted Go-to-Market • Customer Experience • US Market Maturity 2. People • Learning & Growth • Talent Management • Leadership & Business Acumen 3. Operational Excellence • Workforce Planning • Enterprise Governance • Continuous Improvement • Quality Management 8 GROWTH STRATEGY (continued) The Corporation has established the following Guiding Principles that help clarify the organization’s purpose and establishes a framework for identifying and pursuing strategic opportunities. • One Spark Leveraging our fully integrated lines of business, centralized corporate services and systems to deliver a customer- centric, pole-to- product service experience for our customers. • Mission First Serving the need of our customers, employees, and our communities by applying the highest standards of excellence to our everyday work. • Profitable Growth Institutionalizing a narrow and deep strategy focused on margin expansion and targeting industry leading gross margins in our business through the ongoing pursuit of continuous improvement opportunities. Our goal is to advance the profitable growth mindset from being EBITDA- focused to a free cash flow focused organization. • North American Brand Become a North American Brand through the transformation of our brand position and promise as the Trusted Partner in Power with strategic customers to expand our current footprint. • Predictable Business Strengthening rigour and discipline using governance and common processes to evolve predictability in our Business. 9 OUR SCALE CREATES DIFFERENTIATION ABILITY TO: • Invest in our commitment to health and safety • Be responsive to our customers’ needs at any time across all our services • Scale to serve our customers – geographically and for jobs of any size • Invest in understanding markets, technology and products to help our customers identify the right solutions • Invest in recruiting, hiring, training and retaining high quality people ~1,200 EMPLOYEES ~700 FLEET VEHICLES 6,500+ mw RENEWABLE ASSETS SERVICED & SUPPORTED 5,500 CUSTOMERS 1,000+ TECHICAL SKILLED WORKERS 10 Only zero is acceptable. Safety is our top priority with zero compromised, zero short cuts, and zero excuses. 1.51 Total Recordable Injury Frequency 0.00 Lost Time Frequency 28,638 Inspections 34,406 Meetings 7,052 Observations ZERO TOLERANCE SAFETY CULTURE 11 WHAT IS SPARK 100? Spark 100 is an employee-led committee focused on promoting sustainable practices, educating our employees, and engaging with our local communities through impactful initiatives across Spark. Our four guiding principles coupled with employee suggestions help us identify annual initiatives. The success of Spark 100 is directly related to the voice of our employees and engagement with the Spark 100 Team – whether that’s through being directly involved as a Spark100 member, participating in events, or simply suggesting new ideas. We are introducing Spark100’s new vision, mission, guiding principles and our 2023 objectives tied to the Let’s Grow Better Strategic Plan as part of the People Pillar. Spark 100 – Our Commitment Vision To inspire positive, long-term social and environmental change that will better serve our people & our communities, now and over the next century. Mission To engage, empower and educate our employees to create a culture that upholds Spark 100s four guiding principles. Diversity, Equity & Inclusion Create Industry-leading opportunities that celebrate diversity and promote equity and inclusion in our workplace. Environment Engaging our employees in sustainable practices that decrease our collective carbon footprint. Health & Wellness Providing our employees with the tools and resources to promote a culture of safety and wellness. Community Supporting our employees and the communities in which they live and work. 12 SHIFT TO SCALABLE FIELD FOCUSED MODEL Building a scalable network of local branch operations in all markets we serve across North America to: • Emphasize operational excellence • Prioritize health and safety • Guide capital allocation & strategy planning 13 OUR NORTH AMERICAN FOOTPRINT OUR NORTH AMERICAN FOOTPRINT 14 )s n oilli m ni( e u n e v e R Employees -10 40 90 190 140 240 250 2000 1800 1600 1400 1200 1000 800 600 400 200 00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022 2021 Revenue (M) *As described earlier, the Bullfrog Sale was completed in November 2022. The 2022 revenue figure includes Bullfrog -related revenue up to November 30, 2022, and the employee headcount excludes Bullfrog employees People A HISTORY OF GROWTH 15 Revenue (Millions) 32% Compound Annual Growth Rate 2015-2021 28% Compound Annual Growth Rate 2015-2022 Adjusted EBITDA (Millions) 19% Compound Annual Growth Rate 2015-2021 24% Compound Annual Growth Rate 2015-2022 Gross Margin % - 3 Year Average 2020 2021 2022 3-Year Revenue 228.2 255.8 272.3 756.3 Gross Margin 76.7 68.8 54.8 200.3 GM % 33.6% 26.9% 20.1% 26.5% Revenue - CAD 2020 2021 2022 Spark Power Group Inc. Cons Technical Services 153,579 156,500 181,653 Renewables 64,538 86,335 89,333 Corporate Services 1,618 1,788 1,291 Total 219,735 244,623 272,277 Sustainability - Disc. Operations 8,418 11,191 10,109 TOTAL 228,153 255,814 282,386 Adjusted EBITDA Margin % - 3 Year Average 2020 2021 2022 3-Year Revenue 228.2 255.8 272.3 756.3 Adjusted EBITDA 32.4 21.7 33.1 87.2 EBITDA % 14.2% 8.5% 12.2% 11.5% STRONG FINANCIAL PERFORMANCE 2015 2016 2017 2018 2019 2020 2021 2022 $47.6 $63.8 $80.0 $119.8 $188.6 $228.2 $255.8 $272.3 2015 2016 2017 2018 2019 2020 2021 2022 $7.5 $10.3 $15.5 $20.5 $25.1 $32.4 21.7 33.1 16 Richard Jackson President & CEO Richard is Spark Power’s President & Chief Executive Officer with over 20 years of leadership experience in industrial companies across North America. Richard leads all operations within Spark including designing the organization for long-term scalable growth, formulating and leading the execution of Spark’s corporate strategy, and driving functional and operating performance across the organization. Richard Perri Executive Vice President & CFO Richard is Spark Power’s Executive Vice President & Chief Financial Officer with over 20 years of financial and leadership experience across multiple industries. He oversees the organization’s financial accounting and strives to create a team-oriented environment that is thorough in addressing and reporting the Company’s financial operations. Cody Zaitsoff Executive Vice President, U.S. Technical Services Cody is Spark Power’s Executive Vice President, U.S. Technical Services with over 18 years of experience in the electrical services sector. An experienced leader with a background in field engineering and system design services, Cody is responsible for overseeing all Spark Power operations across the U.S. and in Canada from Manitoba west to British Columbia, and Canada’s North. Helen Yuan Vice President, Finance Helen Yuan is Spark Power’s Vice President, Finance with almost 18 years of experience across various industries. She is responsible for building and overseeing the finance team over financial accounting and reporting, developing and improving internal control systems, cash flow management, financial planning and analysis, and supporting decisions to help drive business performance. SENIOR LEADERSHIP TEAM 17 April Currey Vice President, Sales & Marketing April is Spark Power’s Vice President of Sales & Marketing with over 16 years of experience overseeing sales, marketing, and market intelligence initiatives, including significant experience with sector innovation projects focused on providing customers with more choices to manage electricity. She is responsible for leading the commercial strategy for the organization. Najlaa Rauf Vice President of People & Culture (Human Resources) Najlaa is Spark Power’s Vice President of People & Culture (Human Resources) with over 10 years of experience in employee engagement, human resources, and leadership development in non-profit, education and electrical contracting services. She is responsible for leading the organization in the areas of culture, and talent attraction, retention, and development. Michael Mah Vice President, Information Technology Michael is Spark Power’s Vice President of Information Technology with over 20 years of experience in technology leadership across many different industry sectors including energy and utilities, financial services, and real estate. He is responsible for leading Spark’s Information Technology and Systems team in the management and delivery of technology services for the organization. Phil Lefko Vice President, Chief Legal Counsel, Spark Power Group of companies Phil serves as Chief Legal Counsel to the Spark Power Group of companies and has almost 20 years of experience as a practising lawyer with a focus on corporate finance and securities, mergers and acquisitions, corporate governance, and general corporate matters. He has been providing Spark Power legal services since its inception. SENIOR (continued) LEADERSHIP TEAM 18 1. Member of the Audit and Risk Committee 2. Member of the Compensation and Human Capital Committee Jason Sparaga Co-founder and Director Jason is Spark Power’s Co- Founder & Board Chair with over 20 years of experience in private company M&A, corporate finance, and merchant banking, with a history of closing more than 100 transactions. A driven entrepreneur and business leader, Jason is focused on M&A activities, corporate finance, and supporting key strategic initiatives. Andrew Clark Co-founder and Vice Board Chair Andrew is Spark Power’s Co-Founder & Vice Board Chair with over two decades of experience in the industrial manufacturing, merchant banking, and advanced energy sectors. Andrew’s primary focus is on the company’s Corporate Sustainability. Eric Waxman Co-Founder and Board Director Eric is Spark Power’s Co- Founder and Board Director with over 20 years of extensive experience with M&A, investment banking, and private equity deal structures. A strong leader, Eric focuses on driving an ownership and safety-first culture within the Company and leading acquisition transactions and their integration to accelerate Spark Power’s North American-wide expansion. Lucio Di Clemente Board Chair (1) Lucio Di Clemente, CPA/CA, MBA, ICD.D, is an experienced executive, corporate director, and business advisor who brings a wealth of operational excellence and experience with financial transactions. Lucio has been instrumental in closing deals with an aggregate value of over $3B over the course of his career, working with several iconic Canadian companies across a broad spectrum of industries. Joseph Quarin Director (2) Joe Is a successful public company Chief Executive Officer (TSX and NYSE), corporate executive and director. He was the Chief Executive Officer and Director of Progressive Waste Solutions Ltd., a North American non-hazardous solid waste management company from January 2012 until the reverse- merger with Waste Connections Inc. in 2016. Daniel Peloquin Director (1,2) Daniel Peloquin is a seasoned executive who has been involved in the manufacturing and exporting of products and services serving the electrical Transmission and Distribution (T&D) industry and End Users on international markets for over 35 years. Peloquin’s background includes extensive executive leadership in general management, human capital, engineering, sales, marketing and operations. BOARD CHAIR 19 Overview The Corporation is a leading provider of end-to-end electrical services and operations and maintenance services, to the industrial, utility, and renewable asset markets in Canada and the United States. Spark Power is focused on becoming its customers’ Trusted Partner in Power™, taking advantage of the opportunities presented by significant public and private investment in electrification and renewables development. We have focused our business on serving specific segments including: industrial customers; regulated utilities; original equipment manufacturers and renewable asset owners. In addition, we have worked to develop longstanding relationships with customers focused on industries less likely to be impacted by recession or displacement (such as offshoring) – including food & beverage, packaging, logistics, automation and data centres. We manage concentration risk by ensuring that no customer represents more than 10% of our revenue. The business of the Corporation was commenced in 2009 with the incorporation of Spark Solar Management Inc., to capitalize on the Ontario provincial government’s then newly implemented Green Energy Act. Spark Power was formed in 2014 in connection with a corporate reorganization of Spark Solar Management Inc. Currently, the Corporation’s business is most mature in Eastern Canada, accounting for the largest part of our revenue. The Corporation’s ‘branch network’ model has been proven over many years, adopted through our wholly owned subsidiary, New Electric. The Branch Network model now spans across all our North American branch locations. Under this model, branch managers have full profit and loss responsibility, supported by corporate services better provided centrally because of scale (such as financial reporting, marketing, supply chain management, information technology, systems and engineering). As the Corporation expands, replicating this model, particularly by expanding in regions in which a presence has already been established, has proven to be a repeatable successful model for expansion. The Corporation’s long-term North American growth and diversification strategy includes a focus on expansion opportunities in the United States. The Corporation intends to increase its presence in the United States market through a targeted go to market plan and an intentional selection of expansion regions and service segments as well as a combination of new branch openings and acquisitions at the appropriate time. The Corporation will prioritize branch openings in locations where opportunities exist to grow synergistically with its Canadian customers that also have U.S. operations by expanding existing relationships with these customers into new regions and leveraging business start-up costs. In 2020, the Corporation migrated its U.S. Corporate Office to Dallas, Texas and began the management transition from ‘start-up state’ to ‘run state’. This change included the appointment of a new Executive Vice President to oversee the U.S. Line of Business. The Corporation announced new branch openings in Houston, Texas, Bakersfield, California and Albany, New York in late 2020 and throughout 2021. The Corporation has grown through a mix of acquisition and organic growth. Spark Power has made twelve acquisitions over the past ten years, and coupled with post-acquisition organic growth, this has led to substantial scale in our operations. In November 2022, Spark Power divested its Bullfrog Power Inc. business unit, including its United States business carried on through Bullfrog Solutions USA Inc., and its subsidiary companies, for total all-cash proceeds of up to $35.0 million, subject to customary adjustments and including an earnout of up to $3.5 million, payable over a maximum of five years. Proceeds from the transaction were used to facilitate near-term deleveraging and strengthening of Spark Power’s balance sheet, while also providing the Corporation with additional liquidity to support growth in the next stage of its maturity. The transaction will also further streamline the business, allowing it to focus on its core Technical Services and Renewables businesses. DESCRIPTION OF THE BUSINESS 20 Renewables Spark Power is an independent renewables operations and maintenance provider in North America. Operating in many centres and remote locations in the U.S. and Canada, the Renewables business is primarily focused on Wind, Solar, Storage and Electric Vehicle Charging assets. Spark’s Renewables services include: Operating Structure Operating within our field focused operating model, Spark is organized into reportable business segments as detailed below. Management believes that this segmentation reflects how the business is managed and provides a clear understanding, for both management and other users of the financial information, of the businesses with different growth opportunities, revenue profiles and historical earnings performance and potential. Technical Services Canada Renewables Canada Technical Services USA Renewables USA Spark’s integrated suite of services across North America are as follows: Technical Services Centred around its branch network, Spark’s Technical Services business segment operates out of several locations in the U.S. and Canada and focuses on pole-to-product industrial electrical contracting services. With highly responsive and local technical teams, Spark offers a wide variety of services and solutions to a wide range of customers to meet their low to medium/high voltage needs including: • Emergency response and shift coverage • Preventative Maintenance • Substation Construction • Installation and commissioning of equipment • Power Systems Engineering • Customer control panel design/ assembly • Industrial automation services • Power Equipment Sales & Rentals Solar • 24/7 monitoring and analytics from central operating centre • Fence to fence, onsite operations and maintenance to wide range of solar sites Wind • In-construction services • Asset monitoring • Operations and maintenance • Commissioning Battery Energy Storage Systems (BESS) • Engineering, procurement, and construction • Operations and maintenance • Commissioning Electric Vehicle (EV) Infrastructure • Construction • Operations and maintenance 21 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31 2022 & 2021 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements for Spark Power Group Inc. were prepared by management in accordance with International Financial Reporting Standards ( IFRS ). Management acknowledges responsibility for the fair preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and the opinion of management, the consolidated financial statements have been prepared within acceptable limits using accounting policies consistent with IFRS appropriate in the circumstances. Management has established processes, which are in place to provide them sufficient knowledge to support management representations that they have exercised reasonable diligence that (i) the consolidated financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of and for the periods presented by the consolidated financial statements and (ii) the consolidated financial statements fairly present in all material respects the financial condition, financial performance and cash flows of the Company, as of the date of and for the periods presented by the consolidated financial statements. The Board of Directors is responsible for reviewing and approving the consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements together with other financial information of the Company for issuance to the shareholders. rs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities. (Signed) (Signed) Richard Jackson Richard Perri President & Chief Executive Officer Executive Vice President & Chief Financial Officer March 28, 2023 Oakville, Ontario 23 24 25 26 27 SPARK POWER GROUP INC. Consolidated Statements of Financial Position Presented in thousands of Canadian dollars As at December 31 Notes 2022 2021 Assets Current assets Accounts receivable 4 67,995 $ 63,510 $ Other receivable 5 4,816 - HST receivable 1,229 1,951 Inventory 7 8,365 8,167 Contract asset 4 26,805 25,826 Current portion of lease receivable 8 94 - Current derivative assets 30 - 1,769 Prepaid expenses and deposits 4,969 7,161 114,273 108,384 Non-current assets Lease receivable 8 80 - Long-term derivative assets 30 - 2,150 Long-term receivables 29 3,318 - Property and equipment and right-of-use assets 9 48,424 33,272 Intangible assets 10 19,964 29,116 Goodwill 11 29,830 37,963 Deferred tax asset 16 2,887 - 218,776 $ 210,885 $ Liabilities and Shareholders' equity Current liabilities Bank indebtedness 12 24,921 $ 28,142 $ Accounts payable and accrued liabilities 44,174 54,730 Current portion of long-term debt 13 4,500 61,962 Current portion of promissory notes 14 2,500 10,738 Current portion of lease liability 15 8,057 6,643 Current derivative liabilities 30 - 1,203 Income taxes payable 942 1,656 Contract liability 4 7,187 7,182 92,281 172,256 Non-current liabilities Long-term debt 13 28,602 - Lease liability 15 27,475 13,984 Deferred tax liability 16 - 1,096 148,358 187,336 Shareholders' equity Share capital 17 179,303 139,472 Contributed surplus 2,041 1,606 Accumulated other comprehensive loss (1,236) (34) Deficit (109,690) (117,495) 70,418 23,549 218,776 $ 210,885 $ See accompanying notes to the consolidated financial statements. 28 SPARK POWER GROUP INC. Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Presented in thousands of Canadian dollars, except share and per share amounts Notes 2022 2021 Revenue 4,20 272,277 $ 244,624 $ Cost of sales 6,20 217,430 199,446 Gross profit 54,847 45,178 Expenses Selling, general and administrative 6,20 55,984 55,799 Provison for expected credit loss 4,20 1,769 518 Reorganization costs 20,28 2,048 3,391 Other expenses (income) 57 (49) Foreign exchange (gain) loss 20 (624) 955 Loss from continuing operations (4,387) (15,436) Other income (expenses) Finance expense (8,423) (7,126) Transaction costs 27 (1,329) (2,141) Impairment loss 11 (1,500) (4,000) (11,252) (13,267) Loss before income taxes from continuing operations (15,639) (28,703) Current income tax recovery 16 1,346 1,175 Deferred income tax recovery 16 3,294 1,005 Income taxes recovery 4,640 2,180 Net loss from continuing operations (10,999) (26,523) Net income from discontinued operations 29 18,804 5,230 Net income (loss) 7,805 (21,293) Cumulative translation adjustment (1,202) 373 Comprehensive income (loss) 6,603 $ (20,920) $ Basic 23 (0.12) $ (0.47) $ Diluted 23 (0.12) $ (0.47) $ Basic 23,29 0.21 $ 0.09 $ Diluted 23,29 0.21 $ 0.09 $ See accompanying notes to the consolidated financial statements. Earnings (loss) per share attributable to equity holders for continuing operations Earnings per share attributable to equity holders for discontinued operations As at December 31, 29 SPARK POWER GROUP INC. Consolidated Statements of Changes in Equity Presented in thousands of Canadian dollars, except share and per share amounts Warrants Contributed Accumulated other comprehensive Number Amount Amount surplus loss Deficit Balance at December 31, 2020 Notes 53,649,648 130,284 $ 2,662 $ 1,017 $ (407) $ (96,202) $ 37,354 $ Net loss - - - - - (21,293) (21,293) Exercise of options 17 411,282 782 - (206) - - 576 Forfeiture of options 17 - - - (87) - - (87) Conversion of restricted share units 17 219,277 144 - (129) - - 15 Forfeiture of restricted share units 17 - - - (61) - - (61) Stock-based compensation 17 - - - 1,072 - - 1,072 Issuance of common shares 17 2,654,028 5,600 - - - - 5,600 Cumulative translation adjustment - - - - 373 - 373 Balance at December 31, 2021 56,934,235 136,810 $ 2,662 $ 1,606 $ (34) $ (117,495) $ 23,549 $ Net income - - - - - 7,805 7,805 Conversion of restricted share units 17 551,434 306 - (306) - - - Forfeiture of restricted share units 17 - - - (53) - - (53) Stock-based compensation 17 - - - 794 - - 794 Issuance of common shares 17 33,007,466 39,525 - - - - 39,525 Cumulative translation adjustment - - - - (1,202) - (1,202) Balance at December 31, 2022 90,493,135 176,641 $ 2,662 $ 2,041 $ (1,236) $ (109,690) $ 70,418 $ See accompanying notes to the consolidated financial statements. Common shares Shareholders' equity 30 SPARK POWER GROUP INC. Consolidated Statements of Cash Flows Presented in thousands of Canadian dollars Notes 2022 2021 Cash flows from operating activities Net income (loss) 7,805 $ (21,293) $ Adjustments for non-cash items Amortization and depreciation 9,10 19,250 18,769 Amortization of deferred financing fees 13 309 184 Provision for expected credit losses 4 1,769 (518) Unrealized foreign exchange loss 654 1,559 Earn-out 29 (3,318) - Stock-based compensation 17 794 1,072 Forfeited options and restricted share units 17 (53) (148) Deferred income taxes 16 (3,294) (316) Gain on disposal of discontinued operations, net of taxes 29 (8,674) - Impairment loss 11 1,500 4,000 Changes in non-cash working capital balances Accounts receivable (7,051) (11,955) Other receivable (4,816) - HST receivable 722 (365) Inventory (1,021) (671) Contract asset (1,947) 3,114 Lease receivable (174) 379 Prepaid expenses and deposits (34) (1,075) Government grant receivable - 379 Accounts payable and accrued liabilities (9,906) 14,657 Income taxes payables (204) (584) Contract liabilities 37 3,427 Cash flows from (used in) discontinued operations 29 (4,354) (1,541) (12,006) 9,074 Cash flows from investing activities Purchase of property and equipment 9 (4,548) (5,599) Investment in intangible assets 10 (4,080) - Disposal of discontinued operations, net of cash disposed of 29 30,017 - 21,389 (5,599) Cash flows from financing activities Bank indebtedness 12 (3,221) 2,698 Issuance of share capital 17 39,525 5,600 Conversion of restricted share units 17 - 15 Exercise of warrants and stock options 17 - 576 Proceeds from long-term debt 13 2,833 5,260 Repayment of long-term debt 13 (30,120) (9,508) Repayment of promissory notes 14 (8,238) - Repayment of lease liability 15 (8,280) (7,569) Increase in deferred financing fees 13 (1,882) (547) (9,383) (3,475) Net change in cash and cash equivalents during the period - - Cash and cash equivalents, beginning of period - - Cash and cash equivalents, end of period - $ - $ Supplementary cash flow information Interest paid 8,423 7,471 Cash taxes paid 2,304 267 See accompanying notes to the consolidated financial statements. For years ended December 31 31 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 1. BUSINESS DESCRIPTION Spark Power Group Inc provides electrical power services and solutions to North American industrial, commercial, institutional, renewable, and agricultural customers, as well as utility markets including municipalities, universities, schools, and hospitals. head office, principal address, and registered office is located at 1337 North Service Road E, Suite 200, Oakville, Ontario L6H 1A7. 2. BASIS OF PREPARATION Statement of Compliance These consolidated financial statements of the Company and its subsidiaries have been Accounting Standards Board 22. The Board of Directors approved these consolidated financial statements on March 27, 2023. Going Concern In the preparation of Financial Statements, management is required to identify events or conditions that could these conditions or events, the Company considers whether its plans that are intended to mitigate those relevant conditions or events will alleviate the potential significant doubt. The Company is required to comply with certain covenants, terms and conditions under the amended credit facilities including minimum cumulative monthly EBITDA commitments through March 31, 2023 and other covenants subsequent to March 31, 2023 as outlined in Note 13. EBITDA is defined as net income (loss) before finance expense, income taxes, depreciation and amortization, unrealized gains or losses on foreign exchange and derivative instruments and other approved addbacks. As a result, management has determined that it would be prudent to disclose that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business. Basis of Measurement These Financial Statements have been prepared on a historical cost basis, except for certain financial instruments that are carried at fair value with changes in fair value recognized in comprehensive (loss) income, as described in the accounting policies below. Functional and Presentation Currency the Company and its subsidiaries except for US subsidiaries: Spark Power LLC, Northwind Solutions Group (USA) Inc., One Wind Services (USA) Inc., Spark Power (Midwest USA) Corp., Spark Power (Northeast USA) Corp., Spark Power (West USA) Corp., Spark Power (Southeast USA) Corp., Spark Power (Southwest USA) Corp., and Spark Power Services (USA) Corp., whose functional 32 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 2. BASIS OF PREPARATION (Continued) Basis of Consolidation These Financial Statements include the accounts of Spark and its subsidiaries. The Financial Statements present the results of the Company and its subsidiaries as if they formed a single entity. All inter-company transactions and balances between the entities have been eliminated. The Financial Statements incorporate the results of business combinations using the acquisition method. In the Consolidated Statement of Financial Position are initially recognized at their fair values as at the acquisition date. On November 30, 2022, the Company sold all the shares of its 100% owned subsidiaries Bullfrog Power Inc., Canadian REC Wholesale Inc., and Less Emissions Inc. During fiscal 2021, the Company sold all of the shares of its 100% owned subsidiary Orbis SPA. Subsequent to the year end, the Company merged Northwind Solutions Group (USA) Inc. and One Wind Services (USA) Inc. to become Spark Power Renewables USA Inc., and Northwind Solutions Group Inc., One Wind Services Inc., and Spark Power Solutions Ltd., to become Spark Power Renewables Canada Inc., respectively. Further, New Electric Enterprises Inc. changed its legal name to Spark Power Low Voltage Services Inc. Significant Accounting Judgments and Estimates The preparation of the Financial Statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and reported amounts of revenues and expenses during the reporting period. Management is required to apply judgment and estimates in recognizing revenue, determination of appropriate provisions, including expected credit losses, useful lives of assets, valuation of equity transactions, valuation of business combinations, discount rate of lease liabilities, valuation of derivative financial instruments, Subsidiary Ownership % 1625704 Alberta Inc. 100% 2552095 Ontario Inc. 100% 3-Phase Electrical Ltd. 100% Lizco Sales & Rentals Inc. 100% New Electric Enterprises Inc. 100% Northwind Solutions Corp. 100% Northwind Solutions Group Inc. 100% Northwind Solutions Group (USA) Inc. 100% One Wind Services Inc. 100% One Wind Services (USA) Inc. 100% Orbis Engineering Field Services Ltd. 100% Sibro Technologies Ltd. 100% Spark Power Corp. 100% Spark Power Group Inc. 100% Spark Power High Voltage Services Inc. 100% Spark Power LLC 100% Spark Power Services Corp. 100% Spark Power Solutions Inc. 100% Spark Power Solutions Ltd. 100% Spark Solar Management Inc. 100% Spark Solar Services Corp. 100% Spark Power (USA) Corp. 100% Spark Power (Midwest USA) Corp. 100% Spark Power (Northeast USA) Corp. 100% Spark Power (West USA) Corp. 100% Spark Power (Southeast USA) Corp. 100% Spark Power (Southwest USA) Corp. 100% 33 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 2. BASIS OF PREPARATION (Continued) impairment of property and equipment and intangible assets, and impairment of goodwill. By their nature, these judgments and estimates are subject to measurement uncertainty and are reviewed periodically and adjustments, if necessary, are made in the period in which they are identified. Actual results could differ from those estimates. Revenue recognition The most significant judgments and estimates in recognizing revenue relate to the long- term construction and management contracts, as they are long-term in nature and contain consideration that is variable based on a number of uncertain factors, such as change orders, reserves set up for additional costs/overruns, etc. Also, the Company estimates progress towards completion and gross margins to be earned at the end of these construction contracts, where a change in these estimates may have a material impact on the overall revenue recognized for the period. Construction contracts - The Company determines the extent to which the estimate of variable consideration is constrained (and therefore excluded from the measurement of revenue) by considering historical trends and the lowest levels of annual incentive fees earned in the past. Management contracts - Key assumptions made in determining the estimate of the transaction price related to management contracts include: Cash flow projections for the per-project and per-kilowatt hour capacity are uniform in each year going forward; and The number of licensees will not materially change over the remaining contract term. Expected credit losses Expected credit losses associated with accounts receivable and contract assets require management to assess certain forward looking and macroeconomic factors to determine whether there is a significant increase in credit risk as well as the expected provision on the balance outstanding as at year-end. (Note 4) Onerous contracts A contract is considered onerous when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be derived from the contract. The determination of when to record a provision for an onerous contract is a complex process that involves management judgment about outcomes of future events and estimates concerning the nature, extent and timing of expected future cash flows and discount rates related to the contract. Useful lives of assets Significant estimates in connection with these Financial Statements include the determination of the useful lives of property and equipment and intangible assets based on their expected depreciation rates. (Notes 9 and 10) Lease liability The lease liabilities associated with all property, equipment and vehicle leases are measured at the present value of expected lease payments and discounted using the interest rate implicit in the lease, unless remental borrowing rate on commencement of the lease is used. The Company determines its incremental borrowing rate as the rate of interest it would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Additionally, management makes certain assumptions regarding the extension and termination options and termination value available within its lease arrangements to determine the overall lease term. This requires significant estimates and assumptions from management that may have an impact on the Financial Statements. (Note 15) Valuation of derivative financial instruments The estimated fair values of financial assets and liabilities are subject to measurement uncertainty due to their exposure to credit, liquidity and market risks. Furthermore, the Company may use derivative instruments, including power purchase arrangements, to manage commodity price, foreign currency and interest rate exposures. The fair value of these derivatives is determined using valuation models which require assumptions concerning the amount and timing of future cash flows, and discount rates. et data including quoted forward commodity prices and volatility, interest rate yield curves and foreign exchange rates. The resulting fair value estimates may not be indicative of the amounts realized or settled in current market transactions and, as such, are subject to measurement uncertainty. (Note 30) 34 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 2. BASIS OF PREPARATION (Continued) Impairment of property and equipment and intangible assets At the end of each reporting period, the Company reviews the carrying amounts of property and equipment and intangibles to determine whether there is any indication of impairment. If any such indication exists, the Company estimates the recoverable amount of the asset in order to determine the extent of the impairment loss, if any. The Company generally assesses impairment at the level of cash- that generate cash inflows that are largely independent of cash inflows from other assets. Impairment is assessed by comparing the management to make estimates and assumptions with respect to expected revenues and expenses, which are subject to change. Impairment of goodwill The ann estimates of future performance of the related CGU based on past history and economic trends, plus estimates of the weighted average cost of capital. When circumstances warrant, impairment testing will be completed on a quarterly basis. (Note 11) For the purpose of impairment testing, goodwill that is allocated to CGUs is compared to the net recoverable value of the CGU. The recoverable amount of each CGU is determined based on value-in-use calculations using a discounted cash flow model based on a reasonable forecast of operations for each CGU. Various assumptions are used in forecasting the business the most significant of which include: Discount rates The discount rates reflect appropriate adjustments relating to market risk and risk factors specific to the business in general. Revenue growth rates Revenue growth rates assumed consider historical trends in the business unit, the general economic environment and managements views on business risks and opportunities that may exist that will impact the relevant CGUs. Gross margin realizations Gross margin realizations assumed for each CGU considers historical trends, recent trends impacted by current economic environment and business mix within the CGUs. Outside factors considered include the state of the general economy in the region and the impact of competitive forces on pricing and levels of in The estimate of the recoverable amount for the CGUs is most sensitive to the assumptions noted above. Changes in any of these key inputs/assumptions could result in a significant change to the determination of goodwill impairment. Liquidity Risk The Company makes estimates and assumptions concerning the future, including its projected compliance with debt covenants and potential for the disclosure of going concern indicators. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations on future events that are believed to be reasonable under the circumstances. Significant judgements and estimates surrounding future revenue growth rate assumptions and EBITDA realizations for each of its business units have the greatest impact on the potential for introducing additional liquidity risk as a result of debt covenant compliance requirements. The resulting accounting estimates and judgements may vary from actual results and could result in a risk of causing a change in presentation and/or disclosure in the future. Discontinued operations A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. Judgement is required in determining the timing of classification to discontinued operations, and resulting assets held for sale. 35 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company derives revenue from the provision of services and sale of equipment, as segregated in primarily four revenue streams: Service contracts for the inspection, testing, repair and maintenance of electrical generating equipment. Contracts are typically short-term in nature (i.e. less than 3 weeks). Payment is due upon completion of the contract. Construction contracts for the development, construction and procurement of electrical generating equipment. Contracts may last for several months to more than one year. Payment is due in milestones as the contract is completed. Contracts for the management of client electrical generating equipment, including the procurement of maintenance services, recordkeeping and day-to-day operations. Contracts are long term in nature and are typically for the period of time equal to the energy contract held by the client. Payment is due based on a fixed amount annually per-site monitored plus, an incentive fee as performance metrics are achieved on an annual basis. Equipment sales contracts for the fabrication of custom electrical equipment used in low, medium and high voltage applications. Contracts may last from several days to several months depending on material lead times. Advance payment is due on larger contracts based on completed milestones, and on smaller contracts when the product is shipped. The Company offers limited time warranties on the quality of its work being free from material defects. In accordance with IFRS 15, Revenue from Contracts with Customers, such warranties are not accounted for as separate performance obligations and hence no revenue is allocated to them. Instead, a provision is made for the cost of satisfying the - warranties in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. 36 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Applying the five-step model required by IFRS 15, Revenue from Contracts with Customers, revenue is recognized as follows for these contracts: Step in Model Service Construction Management Equipment Sales Identify the contract The contractual arrangement executed with the client, specifying the timing, scope and compensation. The contractual arrangement executed with the client, specifying the timing, scope and compensation. The contractual arrangement executed with the client, specifying the timing, scope and compensation. The contractual arrangement executed with the client, specifying the timing, scope and compensation. Identify distinct performance obligations Single performance obligation to provide services with combined inputs from applicable labour and materials. Single performance obligation to provide construction services with combined inputs from applicable labour and materials. Single performance obligation to provide management services for customer-owned photovoltaic systems. Contract may include multiple performance obligations. Estimate transaction price Fixed fee established in contract. Change orders due to changes in scope or unexpected costs are accounted for as contract modifications prospectively. Fixed fee established in contract. Change orders due to changes in scope or unexpected costs are accounted for as contract modifications prospectively. Consideration receivable by the Company is variable and is based on a set fee per site that is managed, plus a management incentive fee based on a percentage of cash flows above certain thresholds. As the consideration is variable, an estimate is made based on the cash flow forecasts, which incorporate estimates of sites over the contract term, the amount of electricity to be produced and the overall economic performance of the sites. The estimation is subject to a constraint where only the amount up to which it is highly unlikely that a material reversal of revenue will occur in the future is included in the transaction price. This estimate is revised at each reporting period, with the cumulative effect of the change in estimate being recorded in revenue. Contract price is the transaction price. 37 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Step in Model Service Construction Management Equipment Sales Allocate transaction price to performance obligations Total revenue is allocated to the single performance obligation. Total revenue is allocated to the single performance obligation. Total revenue is allocated to the single performance obligation. The transaction price is clearly identified in the contract and is allocated to each performance obligation linked to customer commitments for each obligation under goods arrangement. Recognize revenue as performance obligations are satisfied Revenue is recognized over time, as the work performed enhances assets controlled by the customer (e.g. electrical premises). Progress towards completion is based on costs incurred as a percentage of total expected costs to complete the project. Consideration received in advance of the progress made to satisfy the performance obligation is recognized as a contract liability. Further, progress made towards the satisfaction of performance obligation at a period end in advance of milestone achieved for billing purposes is recognized as a contract asset. Revenue is recognized over time, as the work performed enhances assets controlled by the customer (e.g. electrical premises). Progress towards completion is based on costs incurred as a percentage of total expected costs to complete the project. Consideration received in advance of the progress made to satisfy the performance obligation is recognized as a contract liability. Further, progress made towards the satisfaction of performance obligation at a period end in advance of milestone achieved for billing purposes is recognized as a contract asset. Revenue is recognized over time based on an estimate of total sites monitored as a percentage of total site measurements required over the term of the contract, as the number of sites under management is used as the base for estimating the progress in satisfying the overall performance obligation. Contract asset is recognized when there are discrepancies between the timing of payment and recognition of revenue, as the Company is only contractually eligible to receive payment for its services upon meeting certain financial metrics in the project. Revenue is recognized at a point in time once control passes to the customer (i.e. when products are delivered). Contract liabilities relate to pre-payments received for on-going projects for which the related performance obligation is expected to be completed in the next 12 months. Contract assets related to work in progress and unbilled accounts receivable for which the related performance obligation has been completed, and amounts remain to be billed as at the end of the reporting period. 38 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed, and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. Direct costs of acquisitions are recognized immediately as an expense. Goodwill is capitalized as an asset with any impairment in carrying value being charged to the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss). Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess representing the bargain purchase is credited in full to the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) on the acquisition. The Company has had no bargain purchase on its acquisitions. Intangible Assets The Company has certain externally acquired intangible assets through business combinations that are initially recognized at their fair values, using appropriate valuation techniques, and subsequently amortized on a straight- line basis over their useful economic lives when they have a finite useful life. Intangible assets are recognized on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. Management estimates the useful life of its finite life intangible assets as follows: Customer contracts - 1.5 years Customer relationships - 10 years Non-competition agreements - 5 years ERP system Tradename - - 10 years 3 years Intangible assets determined to have an indefinite useful life are recorded at cost and not subject to amortization. The Company does not have significant indefinite life intangible assets. Property and Equipment Property and equipment are recorded at cost net of accumulated depreciation and write-downs for impairment, if any. Depreciation is calculated on a declining balance, except for the depreciation of our leased assets which are calculated on a declining basis over their estimated useful lives, as follows: Computer hardware - 30% - 100% Computer software - 55% Equipment - 20% - 30% Furniture and fixtures - 20% Right of use assets and leaseholds - over the lease term Vehicles - 20% - 30% Impairment of Non-Financial Assets Impairment tests on goodwill and indefinite life intangible assets are undertaken annually at the financial year end, or when events/circumstances warrant a test to be conducted. Other non-financial assets are subject to the impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Recent events have given rise to significant judgement and estimation uncertainty, such as project delays and government restrictions. As such, impairment tests on goodwill are being performed on a quarterly basis. See Note 2 Impairment of Goodwill. 39 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its CGU xpected to benefit from a business combination that gives rise to the goodwill. Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognized in Other Comprehensive Income (Loss). The Company evaluates impairment losses for potential reversals on assets other than goodwill when management has made the judgement that events or circumstances warrant such consideration. An impairment loss recognized for goodwill is not reversed. Foreign Currency tional currency using the closing rate at the end of each reporting period. Non-monetary assets and liabilities are translated at the rates on the date the fair value was determined or at historical cost using the rate at the date of the transaction. Revenues and expenses arising from foreign currency denominated transactions are translated at the average exchange rates in effect during the month of the transaction. Translation gains and losses are included in the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss). Financial Instruments Financial Assets All financial assets are initially recorded at fair value and designated upon inception into one of the following three categories: amortized cost, fair value through profit or loss, or fair value through other comprehensive (loss) income. Contingent consideration for the earn-out related to the disposal of discontinued operations are classified as amortized cost. (Note 29) Amortized cost These assets arise principally from the provision of goods and services to customers, but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely the payments of principal and interest. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortized cost using the effective interest rate method, less provision for impairment. Impairment provisions for accounts receivables and contract assets are recognized based on the simplified approach within IFRS 9, Financial Instruments, using the lifetime expected credit losses. During the process of reviewing accounts receivable and contract assets for impairment, the probability of the non-payment of the accounts receivable or contract asset is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for accounts receivables and contract assets. For accounts receivable and contract assets, which are reported net, such provisions are recorded in a separate provision account with the loss being recognized within operating expenses in the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss). On confirmation that a certain accounts receivables and contract assets will not be collectable, the gross carrying value of the asset is written off against the associated provision. of accounts receivable, other receivable, HST receivable, government grants receivable, and contract assets. Fair value through profit or loss These assets are carried in the Consolidated Statement of Financial Position at their fair value with changes in fair value recognized in the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss). Transaction costs associated with financial instruments measured at fair value through profit or loss are expensed as incurred. 40 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) classified at fair value through profit or loss include derivative financial instruments such as interest rate swaps, power purchase arrangements and hedge arrangements. The Company entered into a power purchase agreement for the purchase and sale of renewable energy and environmental attributes. The Company also entered into a Hedge arrangement . Under these agreements, the Company is responsible for any excess risk in the current market. While this agreement economically hedges the risk of changes in cash flows due to fluctuations in power rates, hedge accounting has not been applied for these instruments. The fair value of the Hedge is based on the current market value of similar contracts with similar remaining durations as if the contract had been entered into on the reporting date. See Note 30 for further details. Financial Liabilities The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. Fair value through profit or loss This category comprises of derivative liabilities related to the Power Purchase Agreement. See Note 30 for further details. Other financial liabilities Other financial liabilities include bank indebtedness, accounts payable and accrued liabilities, contract liabilities, long-term debt, promissory notes, and lease liabilities, which are initially recognized at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortized cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated Statement of Financial Position. Share-Based Payment Transactions Employees, directors, and service providers of the Company may receive a portion of their compensation in the form of share-based payment transactions, whereby services are rendered as consideration for equity instruments - In situations where equity instruments are issued to non-employees and the fair value of goods or services received by the entity as consideration cannot be estimated reliably, they are measured at fair value of the equity instruments granted. The costs of equity settled transactions are measured by reference to the fair value of the equity instrument at the date on which they are granted. The costs of equity settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant party becomes ful - number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in contributed surplus. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied provided that all other performance and/or service conditions are satisfied. Where the terms of an equity settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification. The dilutive effect of outstanding options and warrants is reflected as additional dilution in the computation of earnings per share. (Note 17) 41 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Leases All leases are accounted for by recognizing a right-of-use asset in property and equipment and a lease liability except for leases of low value assets and leases with a duration of 12 months or less. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily of the lease is used. The Company determines its incremental borrowing rate as the rate of interest it would have to pay to borrow over a similar term, and with similar security, the funds necessary to obtain an asset of a similar value to the right-of- use asset in a similar economic environment. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. Further, lease terms are based on assumptions regarding extension terms that allow for operational flexibility and favorable future market conditions. On initial recognition, the carrying value of the lease liability also includes: amounts expected to be payable under any residual value guarantee; the exercise price of any purchase option granted in favour of the Company if it is reasonably certain to exercise that option; any penalties payable for terminating the leases, if the term of the lease has been estimated on the basis of the termination option being exercised. Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for: lease payments made at or before commencement of the lease; initial direct costs incurred; and the amount of any provision recognized where the Company is contractually required to dismantle, remove or restore the leased asset. Subsequent to initial measurement, lease liabilities increase as a result of interest at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortized on a straight- line basis over the remaining term of the lease or over the remaining economic life of the asset, whichever is shorter. When the Company revises its estimate of the term of any lease, it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that was applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases, an equivalent adjustment is made to the carrying value of the right-of-use assets, with the revised carrying amount being amortized over the remaining lease term. For contracts that both convey a right to the Company to use an identified asset and require services to be provided to the Company by the lessor, the Company has elected to account for the entire contract as a lease. That is, the Company does not allocate any amount of the contractual payment to, and account separately for, any services provided by the supplier as part of the lease contract. Income Taxes Income tax expense represents the sum of current income taxes and deferred income taxes. Current and deferred taxes are recognized in profit and loss, except to the extent that it relates to items recognized in other comprehensive income (loss) or directly in equity. Under these circumstances, the taxes are recognized in other comprehensive income (loss) or directly in equity. 42 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Current income taxes Current income tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute current income tax assets and liabilities are measured at tax rates which have been enacted or substantively enacted at the reporting date. Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to set off the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred income taxes Deferred income taxes are provided using the asset and liability method applied to temporary differences at the date of the Consolidated Statement of Financial Position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, except: Where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognized for all deductible temporary differences, and carry forward of unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax losses can be utilized except: Where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the date of the Consolidated Statement of Financial Position. Deferred income tax assets and deferred income tax liabilities are offset if, a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend to either settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. 43 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventories Inventories are initially recognized at cost (with the exception of inventories acquired as part of a business combination which are initially recognized at fair market value), and subsequently at the lower of cost and net realizable value. Cost is determined using the weighted average cost method. Costs of inventories of items that are segregated for specific projects are assigned by using specific identification of their individual costs. Inventory includes all costs to purchase, convert, and bring the inventory to its present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Provisions A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Related Party Transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. New and Amended International Financial Reporting Standards Adopted in 2022 acquisition. IFRIC takes different fact patterns into consideration and discusses the underlying accounting treatment under IFRS 2, Share-based payment and IAS 32, Financial instruments: presentation. This is not an warrants originally issued in 2018 as part of the reverse takeover transaction between Canaccord Genuity Acquisition Corp IV (SPAC) and Spark Power Corp, and concluded that the adoption of the standards will not have an material impact on the Financial Statements. New and Amended International Financial Reporting Standards to be Adopted in 2023 or Later The following new standards and amendments to existing standards were issued by the IASB and are expected to be adopted by the Company in 2023 or later. Amendments to IAS 1, Presentation of Financial Statements, requiring entities to disclose material, instead of significant, accounting policy information, and . (January 1, 2023). Amendments to IAS 12, Income Taxes Deferred Tax related to Assets and Liabilities arising from a Single Transaction, narrowing the scope for exemption when recognizing deferred taxes. (January 1, 2023). Amendments to IAS 1, Presentation of Financial Statements, clarifying the classification requirements in the standard for liabilities as current or non-current. (January 1, 2024). Amendments to IFRS 16, Leases Lease Liability in a Sale and Leaseback, clarifying subsequent measurement requirements for sale and leaseback transactions for sellers-lessees. (January 1, 2024). Amendments to IAS 1, Presentation of Financial Statements Non-current Liabilities with Covenants, modifying the 2020 amendments to IAS 1 to further clarify the classification, presentation, and disclosure requirements in the standard for non-current liabilities with covenants. (January 1, 2024). We do not expect the adoption of these amendments, if any, will have Financial Statements. 44 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 4. ACCOUNTS RECEIVABLE, CONTRACT ASSET AND REVENUE Summary of aging: The provision for expected credit losses was determined based on historical loss rates and payment behavior from customers by major aging category, updated for estimates of forward-looking factors that may differ from past experiences such as credit quality and industry factors. These updated loss rates were applied to aging categories to determine the expected credit losses on accounts receivable and contract assets using the simplified approach. The Company determines there to be an increase in credit risk when balances are outstanding for more than 60 days past the customers' contractual payment terms. Management determines whether there is any objective evidence of impairment based on indications that a debtor or a group of debtors are experiencing significant financial difficulty, delinquency in payments, probability that they will enter bankruptcy or any other financial reorganization. The balance of contract asset as at December 31, 2022 is current and has no provision recorded. 2022 2021 Trade 70,570 $ 65,661 $ Less: Provision for doubtful accounts (2,575) (2,151) 67,995 $ 63,510 $ 2022 2021 Contract asset 25,826 $ 28,809 $ Additions during the period 59,875 43,833 Amount recognized during the period (58,896) (46,816) 26,805 $ 25,826 $ 2022 2021 Contract liability 7,182 $ 3,723 $ Additions during the period 130,228 129,419 Amount recognized during the period (130,223) (125,960) 7,187 $ 7,182 $ As at December 31, 2022 31-90 days Current Past Due >90 days Total Balance 52,492 6,482 11,596 70,570 Provision for doubtful accounts 62 121 2,392 2,575 52,430 6,361 9,204 67,995 As at December 31, 2021 31-90 days Current Past Due >90 days Total Balance 49,735 12,527 3,399 65,661 Provision for doubtful accounts 238 855 1,058 2,151 49,497 11,672 2,341 63,510 45 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 4. ACCOUNTS RECEIVABLE, CONTRACT ASSET AND REVENUE (Continued) Summary of movements in provision: Revenue Disaggregation by Stream: The Technical Services, Renewables and Corporate columns represent the segments that can be found in Note 20. The Company generates higher revenues in the second and third quarters as weather can impact available outdoor work in the first and fourth quarters. The Sustainability segment was sold on November 30, 2022 as disclosed further in Note 29. 5. Other Receivables (i) Since the second quarter of 2022, the Company incurred costs relating to the interior buildout of its new head office in Oakville, Ontario. The costs incurred to date are reimbursable by the landlord and therefore have been recorded as a receivable at December 31, 2022. 2022 2021 Opening balance (2,151) $ (1,719) $ Increase during the period (1,769) (630) Write-off during the period 1,345 198 Ending balance (2,575) $ (2,151) 2022 Technical Services Renewables Corporate Total Service 177,378 $ 89,333 $ - $ 266,711 $ Management - - 1,291 1,291 Equipment 4,275 - - 4,275 Total 181,653 $ 89,333 $ 1,291 $ 272,277 $ 2021 Technical Services Renewables Corporate Total Service 157,922 $ 79,055 $ - $ 236,977 $ Management - - 1,788 1,788 Equipment 5,859 - - 5,859 Total 163,781 $ 79,055 $ 1,788 $ 244,624 $ Notes December 31 2022 December 31 2021 Leasehold improvement receivables (i) 2,285 $ - Disposal of discontinued operations 29 2,263 - Other 268 - 4,816 $ - $ 46 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 6. COVID-19 PANDEMIC & GOVERNMENT GRANTS The COVID-19 pandemic and its variants continued to disrupt global health and impact economic conditions. The Company maintained its business continuity plans to ensure appropriate measures, procedures and protocols were in place to safeguard service to our customers while prioritizing employee, customer and vendor safety. While governments have eased some COVID- continued to be impacted by COVID- le changes or due to a broader government directive which resulted in the need to modify work practices to meet appropriate health and safety standards, or by other COVID-19 related impacts on the availability of labour or to the supply chain. The extent to which COVID- performance will depend on further developments, including the resurgence and spread of any new variants, its s and employees and actions taken by governments. The ongoing conflict in Ukraine has also resulted in significant uncertainty in the global economy, such as higher volatile commodity prices, currency exchange rates and interest rates, and increasing rates of inflation. The Company continues to monitor ongoing developments and attempts to mitigate the business and financial risks related to the events described above, including but not limited to, decline in customer demand, increase in operating costs, interruption of project work, credit risk associated with customer non-payment, access to financing and changes in the timing of cash flows. Canada Emergency Wage Subsidy to help employers keep and/or return Canadian-based employees to payrolls in response to challenges posed by the COVID-19 pandemic. During 2021, management determined that it met the employer eligibility criteria and applied for CEWS. The Company recognized $2,539 in government grants under the payroll support program which has been recorded against the segmented cost of sales and selling, general and administrative expenses to which they are related. There were no CEWS received in 2022. Skills Development Funding During the second quarter of 2021 the Company received approval for a $5,300 grant from the Government of Ontario Skills Development Fund to support employee training and advancement initiatives within the Company. With this funding the Company implemented a one-year program between April 2021 and March 2022 whereby the funds were utilized through this period on programs and initiatives previously approved by the Government of Ontario. The Company would be required to return any funds not utilized in accordance with the program criteria and timelines. At the end of 2022, the Company had received funding towards this grant of $4,846 which has fully been utilized to fund expenditures approved under the program and $3 has been earned in interest on the funds received. The Company has received all funding related to this grant as at December 31, 2022. During the second quarter of 2022 the Company received approval for a $3,440 grant from the Government of Ontario Skills Development Fund to support employee training and advancement initiatives within the Company. With this funding the Company implemented a one-year program between April 2022 and March 2023 whereby the funds need to be utilized through this period on programs and initiatives previously approved by the Government of Ontario. At the end of the year the Company had received funding towards this grant of $1,866 of which $1,463 has been utilized to fund expenditures approved under the program. The balance of $403 has been included in bank indebtedness. 47 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 7. INVENTORY During the year, $52,309 (2021 - $54,446) of inventory was recognized in cost of sales. There were no material amounts of inventory that were written down to their net realizable value in the current or prior year. 8. LEASE RECEIVABLE On June 1, 2022, the Company relocated its US Head Office in Dallas, Texas and entered into a 3-year sublease agreement for their previous premises, resulting in a lease receivable. The leased property bears an interest at an approximate rate of 6% expiring in 2024. 9. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS As at December 31, 2022, property and equipment and right-of-use assets was $48,424 (December 31, 2021 - $33,272). This balance consists of both purchased assets and assets obtained through lease agreements. Purchased assets consist of the following: December 31 2022 December 31 2021 Equipment and supplies 8,365 $ 8,167 $ 8,365 $ 8,167 $ Computer Hardware Computer Software Furniture and Fixtures Leaseholds Equipment Vehicles Total Cost Balance at December 31, 2020 1,884 5,541 1,800 3,734 9,407 1,842 24,208 Additions 454 463 152 2,480 1,386 663 5,598 Disposals - - - - - - - Balance at December 31, 2021 2,338 6,004 1,952 6,214 10,793 2,505 29,806 Additions 540 897 50 1,622 1,346 93 4,548 Disposals - - - - - - - Disposal of discontinued operations (473) (70) (208) (302) (144) - (1,197) Balance at December 31, 2022 2,405 6,831 1,794 7,534 11,995 2,598 33,157 Accumulated depreciation Balance at December 31, 2020 932 3,402 1,206 1,153 4,334 575 11,602 Additions 354 1,059 131 552 1,609 568 4,273 Disposals - - - - - - - Balance at December 31, 2021 1,286 4,461 1,337 1,705 5,943 1,143 15,875 Additions 424 649 41 995 1,391 283 3,783 Disposals - - - - - - - Disposal of discontinued operations (461) (69) (205) (274) (144) - (1,153) Balance at December 31, 2022 1,249 5,041 1,173 2,426 7,190 1,426 18,505 Net carrying amounts December 31, 2021 1,052 1,543 615 4,509 4,850 1,362 13,931 December 31, 2022 1,156 1,790 621 5,108 4,805 1,172 14,652 48 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 9. PROERTY AND EQUIPMENT, AND RIGHT-OF-USE ASSETS (Continued) Right-of-use assets consist of the following: 10. INTANGIBLE ASSETS and has capitalized certain internal and third-party costs related to the development, testing and implementation of the ERP System. The new ERP System implementation is expected to be completed in 2023 and will be amortized over 10 years. During 2022, immaterial amortization was recorded as it relates to US operations. Leased Property Leased Equipment Leased Vehicles Total Cost Balance at December 31, 2020 18,981 1,232 15,657 35,870 Additions 4,549 54 6,789 11,392 Disposals (668) - (895) (1,563) Balance at December 31, 2021 22,862 1,286 21,551 45,699 Additions 11,281 - 12,942 24,223 Disposals (1,141) - (1,720) (2,861) Disposal of discontinued operations (445) (6) - (451) Balance at December 31, 2022 32,557 1,280 32,773 66,610 Accumulated depreciation Balance at December 31, 2020 9,173 1,036 10,014 20,223 Additions 3,645 165 3,723 7,533 Disposals (570) - (828) (1,398) Balance at December 31, 2021 12,248 1,201 12,909 26,358 Additions 3,697 40 4,869 8,606 Disposals (626) - (1,274) (1,900) Disposal of discontinued operations (223) (3) - (226) Balance at Dec 31, 2022 15,096 1,238 16,504 32,838 Net carrying amounts December 31, 2021 10,614 85 8,642 19,341 December 31, 2022 17,461 42 16,269 33,772 Customer contracts Customer relationships Non- competition agreement Tradename ERP System Total Cost: Balance at December 31, 2020 1,846 $ 37,448 $ 213 $ 14,193 $ - $ 53,700 $ Removal of fully amortized asset (1,846) - (213) - - (2,059) Balance at December 31, 2021 - $ 37,448 $ - $ 14,193 $ - $ 51,641 $ Additions - - - - 4,080 4,080 Disposal of discontinued operations - (5,028) - (2,897) - (7,925) Balance at December 31, 2022 - $ 32,420 $ - $ 11,296 $ 4,080 $ 47,796 $ Accumulated Amortization: Balance at December 31, 2020 1,744 $ 11,261 $ 199 $ 3,765 $ - $ 16,969 $ Amortization for the period 102 3,725 14 3,774 - 7,615 Removal of fully amortized asset (1,846) - (213) - - (2,059) Balance at December 31, 2021 - $ 14,986 $ - $ 7,539 $ - $ 22,525 $ Amortization for the period - 3,616 - 3,752 29 7,397 Disposal of discontinued operations - (2,090) - - - (2,090) Balance at December 31, 2022 - $ 16,512 $ - $ 11,291 $ 29 $ 27,832 $ Net carrying amounts: December 31, 2021 - $ 22,462 $ - $ 6,654 $ - $ 29,116 $ December 31, 2022 - $ 15,908 $ - $ 5 $ 4,051 $ 19,964 $ 49 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 11. GOODWILL During the year, the Company disposed of the goodwill related to Bullfrog Power Inc. See Note 29 for detailed discussion. The Company is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate present value of the cash flows. Based on the events in the current economic environment, management has performed a calculation at the end of each quarter to determine whether goodwill has suffered any impairment. taking into account factors such as market interest rate volatilities, inflationary pricing impact, labour shortages, and the possible impact of COVID-19 due to new variants, management determined that the 3-Phase Electrical Ltd. CGU required an impairment adjustment of $1,500 (2021 - $4,000). Management will continue to monitor the impact of COVID-19 on a quarterly basis. The recoverable value of each CGU was based on value-in-use calculation using a discounted cash flow methodology. The value-in-use was calculated using unobservable (Level 3) inputs such as the budgeted and projected revenues and EBITDA margin for a five-year period plus a terminal year. The EBITDA is defined as net income (loss) before finance expense, income taxes, depreciation and amortization. The Company considered past experience, economic trends as well as industry and market trends in assessing if the level of EBITDA can be maintained in the future. The Company also used discount rates in the range of 13% and 18% (2021 10% overall rate of return required by debt and equity holders on their investment. Determining the WACC requires analyzing the cost of equity and debt separately and takes into account a risk premium that is based on each CGU. The change in the discount rate in the current year as compared to the prior year is related to the change in market interest rate, and in operational strength each CGU has seen in operations since acquisition. Growth rates ranging between 0% and 18% (2021 0% and 18%) and terminal rate of 2% (2021 2%) have been used to estimate future cash flows of each of the CGUs. The change in the growth rate range in the current year as compared to the prior year is related to the organic growth the Company has seen in the CGUs since acquisition. 12. BANK INDEBTEDNESS Original carrying amount Disposal Impairment 2022 2021 Spark Power Solutions Ltd. 1,554 - - 1,554 1,554 Spark Power High Voltage Services Inc. 3,633 - - 3,633 3,633 New Electric Enterprises Inc. 13,847 - - 13,847 13,847 Orbis Engineering Services Ltd. 2,456 - - 2,456 2,456 Bullfrog Power Inc. 6,633 (6,633) - - 6,633 Spark Power LLC 284 - - 284 284 3-Phase Electrical Ltd. 4,449 - (1,500) 2,949 4,449 One Wind Services Inc. and One Wind Services (US) Inc. 5,107 - - 5,107 5,107 37,963 $ (6,633) $ (1,500) $ 29,830 $ 37,963 $ Net carrying amount as at December 31 2022 2021 $35,000 revolving credit facility, subject to borrowing base limits, bearing interest at prime plus 2.00% - 3.00% per annum payable monthly. The loan matures on September 30, 2024. The lender has general security over the Company. 26,062 29,344 $ Cash on hand (1,141) (1,202) 24,921 $ 28,142 $ 50 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 12. BANK INDEBTEDNESS (Continued) On November 30, 2022, the Company amended its credit agreement with its lender (herein referred to as the , with a $35,000 revolving credit facility that matures on September 30, 2024, subject to certain borrowing base conditions. Bank indebtedness bears interest at prime plus 2.0% - 3.0%, with an incremental interest rate margin of 1.0% applied through March 31, 2023. During the year, the Company paid $2,061 (2021 - $1,451) of interest related to bank indebtedness which has been included in Finance expense. Further details of the Amended and Restated Credit Agreement are included in Note 13 Long-term debt. 13. LONG TERM DEBT (i) During the year ended December 31, 2022, the Company paid $7,371 in principal payments against the term loan (2021 - $9,508). (ii) On November 30, 2022, the Company repaid $22,000 against the term loan, including the $2,000 advance on the term loan received in the third quarter of 2022, using the proceeds from the disposal of discontinued operations. (Note 29) During the year, the Company paid $4,359 (2021 - $3,014) of interest related to the long-term debt which has been included in Finance expense. On November 30, 2022, the Company entered into a new Amended and Restated Credit Agreement with its Lender. Key terms of these Agreements are as follows: a. The maturity date of this new facility was extended to September 30, 2024 and will be amortized over an 8-year period with quarterly repayments of $1,125, reduced from previously $2,082 per quarter; b. Achieve a minimum cumulative monthly EBITDA at the end of each calendar month through March 31, 2023; c. Maintain incremental interest rate margin of 1.00% on facility advances in place from April 29, 2022 through March 31, 2023; d. Subsequent to the 2022 fiscal year, maintain certain covenants on a 12-month rolling quarterly basis, including: Minimum fixed charge coverage ratio of 1.00 for the quarter ended March 31, 2023, as revised subsequent to the year end, increasing to 1.25 for each fiscal quarter thereafter; Maximum total senior debt to EBITDA ratio based on the most recently completed four fiscal quarters of 3.25:1.00; 2022 2021 Non-revolving term loan with Bank of Montreal bearing interest at prime plus 2.00% - 3.00% per annum, payable monthly. Principal payments of $2,082 per quarter commenced June 30, 2021 and reduced to $1,125 commencing December 2022. The loan matures on September 30, 2024. The lender has general security over the Company. (i) and (ii) 35,922 $ 62,459 $ Loan bearing interest at 4.00% per annum and repayable in annual payments of principal plus accrued interest. Principal payments to be made as follows: 2021 - $750. The loan was secured by a General Security Agreement and repaid in full on April 30, 2022. - 750 35,922 63,209 Less: current portion 4,500 61,962 Less: financing fees, net of amortization 2,820 1,247 Long-term debt 28,602 $ - $ 51 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 13. LONG TERM DEBT (Continued) Maximum total debt to EBITDA ratio based on the most recently completed four fiscal quarters of 3.75:1.00. As at December 31, 2022, the Company was in compliance with the financial covenants in effect in its credit facility, being the minimum cumulative monthly EBITDA covenant. 14. PROMISSORY NOTES During the year, the Company incurred $100 (2021 - $868) of interest related to the promissory notes which has been recorded to Finance expense. 15. LEASE LIABILITY Included in Finance expense is $1,412 (2021 - $1,159) of interest expense on lease liabilities. Total cash outflows relating to leases consist of principal payments in the amount of $8,280 (2021 - $7,569). Short term and low value leases are not significant. 2022 2021 Issued January 1, 2017 and bears interest at 6% per annum which is payable annually. The accrued interest is included in accounts payable and accrued liabilities. The note was repaid on January 1, 2022. - $ 988 $ Issued July 1, 2018 and bears interest at 6% per annum paid quarterly. Principal payments of $2,000 to be made on each anniversary commenced in 2021. The loan was repaid in July 2022. - 4,000 Issued August 1, 2019 and bears interest at 4%. Accrued interest is due and payable on each anniversary. 2,500 2,500 Issued November 1, 2019 and bears interest at 5%. Principal payments to be made on each anniversary as follows: 2021 - $500; 2022 - $2,750. Accrued interest is due and payable on each anniversary. The loan was repaid in 2022. - 3,250 2,500 10,738 Less: current portion 2,500 10,738 Promissory notes - $ - $ 2022 2021 Property and office space leases bearing interest at an approximate rate of 6%. The leases extend through fiscal 2037. 18,798 $ 11,477 $ Motor vehicle leases bearing interest at an approximate rate of 6%. The leases extend through fiscal 2027. 16,689 9,059 Equipment and hardware leases bearing interest at an approximate rate of 6%. The leases extend through 2025. 45 91 35,532 20,627 Less: current portion 8,057 6,643 Lease liability 27,475 $ 13,984 $ 52 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 15. LEASE LIABILITY (Continued) All of the leases are secured by the underlying assets. Future minimum lease payments for the next five years are as follows: 16. INCOME TAXES Major components of income tax expense: Tax expenses on continuing operations excludes the tax expenses on the discontinued operations of $2,850 (2021 - $1,358) and tax expenses on the gain on sale of discontinued operations of $1,860 (2021: nil). Both of these have been included in net income from discontinued operations, net of taxes. See Note 29. The income tax provision recorded differs from the income tax obtained by applying the statutory income tax rate of 26.5% (2021 - 26.5%) to the income for the year and is reconciled as follows: 2023 9,132 2024 8,208 2025 6,790 2026 5,197 2027 and thereafter 15,301 44,628 Less: imputed interest 9,096 35,532 2022 2021 Current tax expenses (recovery) Current year (868) $ (677) $ True-up of prior year (478) (498) (1,346) (1,175) Deferred tax expenses (recovery) Origination and reversal of temporary differences (3,294) (1,005) (3,294) (1,005) Tax expenses (recovery) on continuing operations (4,640) $ (2,180) $ 2022 2021 Loss before income taxes from continuing operations (15,639) $ (28,902) $ Statutory rate 26.5% 26.5% Expected income tax recovery (4,144) (7,659) Increase (decrease) in income taxes due to: Permanent differences 2,397 1,543 Change in valuation allowance (1,470) 3,793 True-up of prior year (935) 82 Other (488) 61 Income tax expense (recovery) (4,640) $ (2,180) $ 53 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 16. INCOME TAXES (Continued) The tax effects of significant components of temporary differences that give rise to deferred tax assets and liabilities are as follows: The Company has non-capital losses available that can be utilized to reduce taxable income of future years. These losses expire as follows: Operating losses incurred by the Company subsidiaries for which a deferred tax asset has not been recognized were $10,995 (2021 - $17,132). 17. SHARE CAPITAL Authorized: Unlimited Common shares Issued: 2022 2021 Deferred tax assets Loss carryforwards 6,516 $ 4,296 $ Provision for expected credit losses - - Property and equipment and right of use asset 467 338 Financing costs 69 129 Other - 567 7,052 5,330 Deferred tax liabilities Intangible assets 316 (2,746) Property and equipment (915) (1,262) Other (3,566) (2,418) (4,165) (6,426) Net deferred tax asset/(liability) 2,887 $ (1,096) $ 2040 11,982 $ 2041 15,798 2042 7,581 35,361 Valuation allowance (10,995) 24,366 $ Number Amount Balance, December 31, 2020 53,649,648 130,284 $ Exercise of stock options (i), (ii) and (iii) 411,282 782 Conversion of restricted share units (iv), (vi) and (vii) 219,277 144 Issuance of common shares through private placement (v) 2,654,028 5,600 Balance, December 31, 2021 56,934,235 136,810 Issuance of common shares through rights offering (viii) 24,674,133 29,525 Issuance of common shares through private placement (ix) 8,333,333 10,000 Conversion of restricted share units (x) 551,434 306 Balance, December 31, 2022 90,493,135 176,641 $ 54 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 17. SHARE CAPITAL (Continued) (i) In January 2021, 75,075 common shares were issued upon the exercise of options granted under the proceeds of $125. An additional value allocated to these shares in the amount of $37 was reallocated from contributed surplus to share capital. (ii) In February 2021, 186,207 common shares were issued upon the exercise of options granted under the Omnibus Plan at an exercise price of $1.34 per option for cash proceeds of $250. An additional value allocated to these shares in the amount of $94 was reallocated from contributed surplus to share capital. (iii) In April 2021, 150,000 common shares were issued upon the exercise of options granted under the Omnibus Plan at an exercise price of $1.34 per option for cash proceeds of $201. An additional value allocated to these shares in the amount of $75 was reallocated from Contributed surplus to Share capital. (iv) In May 2021, 189,277 common shares were issued upon the conversion of Restricted Share Units. A value of $129 was applied to these shares and reallocated from contributed surplus to share capital. (v) In June 2021, 2,654,028 common shares were issued upon the closing of a non-brokered private placement at a price of $2.11 per share for cash proceeds of $5,600. Approximately 88% of the equity capital was provided by the three founders of the business. (vi) In July 2021, 20,000 common shares were issued upon the conversion of Restricted Share Units. A value of $0.50 per unit was applied to these shares and reallocated from contributed surplus to share capital. (vii) In August 2021, 10,000 common shares were issued upon the conversion of Restricted Share Units. A value of $0.50 per unit was applied to these shares and reallocated from contributed surplus to share capital. (viii) In January 2022, 24,674,133 common shares were issued upon the closing of a rights offering at a price of $1.20 per share for net cash proceeds of $29,525, excluding issuance costs of $84. (ix) In January 2022, 8,333,333 common shares were issued upon the closing of a non-brokered private placement at a price of $1.20 per share for cash proceeds of $10,000. There were no issuance costs associated with this financing. (x) During 2022, 551,434 common shares were issued upon the conversion of Restricted Share Units. A fair value of $306 was applied to these shares and reallocated from Contributed surplus. Omnibus Equity Incentive Plan and employees and consultants, subject to certain conditions, so that they may participate in its growth and development. As at December 31, 2022, there were 5,832,426 stock options, RSU, DSU or PSU that are available to be granted under the Omnibus Equity Incentive Plan (December 31, 2021 5,693,424). Options generally expire after ten years, with vesting provisions stated in the Omnibus Plan. In addition, 1,735,980 stock options were part of a rollover when the Company completed the acquisition of Genuity Acquisition Corp., of which 1,039,542 remain outstanding, and accordingly are not included against the total options available under the Omnibus Equity Incentive Plan. 55 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 17. SHARE CAPITAL (Continued) Stock Options Activity in the Company's stock option Omnibus Plan for the years ended December 31, 2022 and 2021 are summarized as follows: (xi) During the second and third quarter of 2022, the Company granted 68,844 and 1,110,000 stock options with an exercise price of $1.38 and $1.20, vesting equally over a three-year period with a ten-year term and a four-year period with a five-year term, respectively. (xii) In 2021, 108,000 options and 66,000 with an exercise price of $1.66 and $1.34 per unit, respectively, were forfeited upon the departure of an employee. A value of $54 and $33, respectively, were applied to these options and removed from Contributed surplus. (xiii) In 2022, 100,000 and 225,000 options with an exercise price of $1.38 and $1.20 per unit, respectively, were forfeited No adjustment made to the Contributed Surplus. The Company used the Black-Scholes option pricing model to estimate the fair value of options granted in the year based on the following inputs: There were no options granted during the year ended December 31, 2021. Of the total number of options outstanding at December 31, 2022, 1,985,376 (December 31, 2021 1,379,031) had vested and were exercisable. The weighted average remaining life of the options was 8.1 years. Restricted Share Unit Plan The Omnibus Equity Incentive Plan allows the Board of Directors to issue equity settled RSUs, provided that, when combined, the maximum number of common shares reserved for issuance under all stock-based shares. Number of Options Weighted Average Option Exercise Price $ Number of Options Weighted Average Option Exercise Price $ Outstanding, beginning of period 2,083,198 1.29 2,688,480 1.32 Granted during the period (xi) 1,178,844 1.21 - - Forfeiture during the period (xii) and (xiii) (325,000) 1.20 (174,000) 1.54 Cancelled during the period - - (20,000) 1.32 Exercised during the period (i), (ii) and (iii) - - (411,282) 1.40 Outstanding, end of year 2,937,042 1.27 2,083,198 1.29 Year ended December 31, 2022 Year ended December 31, 2021 2022 Estimated life 5 years Volatility 50% Dividend growth rate 0% Risk-free interest rate 3.64% 56 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 17. SHARE CAPITAL (Continued) RSU plan for the years ended December 31, 2022 and 2021 are summarized as follows: (xiv) On April 6, 2021, the Company issued 790,962 RSUs with an exercise price of $1.77 per unit. These units shall cliff vest on the third anniversary of the grant date. (xv) On April 6, 2021, the Company issued 372,567 RSUs with an exercise price of $1.77 per unit of which 189,277 of these units vest immediately and are converted into common shares, while the remaining 183,290 units shall cliff vest on 18 months after the grant date. (xvi) In 2021, 120,000 RSUs with a value of $1.05 per unit, were forfeited upon the departure of various employees. Additionally, 26,733 RSUs with a value of $1.77 per unit, were forfeited upon the departure of various employees. A value of $61 during the year. (xvii) On June 29, 2022, the Company issued 1,755,000 RSUs with an exercise price of $0.71 per unit, 600,000 of which cliff vest on June 29, 2025 and the remaining vest in three installments on each anniversary date of grant. (xviii) On September 16, 2022, the Company issued 135,000 RSUs with an exercise price of $0.75 per unit which vest in three installments on each anniversary date of grant. (xix) In 2022, the 551,434 vested were converted into common shares, and a value of $306 was applied to these RSUs and transferred from contributed surplus to common shares during the year. (xx) In 2022, 301,305 RSUs with a value of $0.57 per unit were forfeited upon the departure of various employees. A value of $53 was applied to these RSUs and removed from contributed surplus during the period. The weighted average fair value of RSUs granted during 2022 is $0.31 (2021 - $0.63). The estimated fair value of the equity settled RSUs granted will be recognized as an expense over the vesting period of the RSUs. The following inputs were used to estimate the fair value of the RSUs: Deferred Share Unit Plan The Omnibus Equity Incentive Plan allows the Board of Directors to issue equity settled DSUs, provided that, when combined, the maximum number of common shares reserved for issuance under all stock-based shares. Number Amount Balance, December 31, 2020 608,441 307 $ Granted during the period (xiv) and (xv) 1,163,529 801 Exercised during the period (xv) (219,277) (144) Forfeited during the period (xvi) (146,733) (77) Balance, December 31, 2021 1,405,960 887 $ Granted during the period (xvii) and (xviii) 1,890,000 586 Excercised during the period (xix) (551,434) (306) Forfeited during the period (xx) (301,305) (53) Balance, December 31, 2022 2,443,221 1,114 $ 2022 2021 Estimated life 3 years 3 years Volatility 69% 70% Dividend growth rate 0% 0% Risk-free interest rate 3.72% 0.70% 57 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 17. SHARE CAPITAL (Continued) 2 and 2021 are summarized as follows: (xxi) In 2022, the Company issued 160,519 DSUs (2021 24,532 DSUs) with a weighted average exercise price of $0.61 (2021 $2.04) per unit. These units vest upon date of the grant. The weighted average fair value of deferred share units granted during 2022 is $0.61 (2021 - $0.98). The estimated fair value of the equity settled DSUs granted will be recognized as an expense over the vesting period of the DSUs. The following inputs were used to estimate the fair value of the DSUs: Performance Share Units On September 20, 2022, the Company granted 1,550,000 equity settled PSUs, with an exercise price of $1.20, with an expiry date on January 1, 2027. For each of the financial years ended December 31, 2022, December 31, 2023, December 31, 2024 and December 31, 2025, 12.5% of the PSUs are eligible to vest with a multiplier of 50% to 150% based on the achievement of the Gross Margin Percentage and Operational EBITDA performance goals (the Performance Goals ). Notwithstanding the maximum for 150% vesting set out for each Performance Goal, in each year, a maximum of 25% of the PSUs are eligible to vest. The fair value of PSUs granted is estimated at the date of grant using the Black-Scholes option pricing model, taking into account the terms and conditions, on which the PSUs were granted, with estimates regarding probability of performance condition being met and forfeiture rates. During the year, $76 expenses were recorded in contributed surplus. During the year, 300,000 PSUs were forfeited. The following inputs were used to estimate the fair value of the PSUs: Estimated Life 4.25 years Volatility 70% Dividend growth rate 0% Risk-free interest rate 3.70% Share Appreciation Rights Plan On September 16, 2022, the Company adopted a stock appreciation rights plan (the further aligns the Company s strategic objective of value creation to the compensation of the senior management team of the Company. On September 20, 2022, the Company s senior management team were granted 2,325,000 share appreciation rights ( SARs ), to be settled in cash, with an expiry date on January 1, 2027. The SARs vest on the occurrence of a change in control that achieves certain financial thresholds, or upon satisfaction of the alternative vesting condition, provided that such vesting condition is satisfied prior to the expiry date. The liability for the share appreciation rights is measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying bi-nominal pricing model, taking Number Amount Balance, December 31, 2020 56,654 35 $ Granted during the period (xxi) 24,532 44 Balance, December 31, 2021 81,186 79 $ Granted during the period (xxi) 160,519 98 Balance, December 31, 2022 241,705 177 $ 2022 2021 Estimated life 3 years 3 years Volatility 70% 70% Dividend growth rate 0% 0% Risk-free interest rate 3.35% 0.56% 58 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 17. SHARE CAPITAL (Continued) into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered services to date. The following inputs were used to estimate the fair value of the SARs: Estimated Life 4.01 years Volatility 71% Dividend growth rate 0% Risk-free interest rate 3.99% There were nil financial liabilities recorded as at December 31, 2022. 450,000 SARs were forfeited at year end. Share-based compensation During the year ended December 31, 2022, share-based compensation of $794 (2021 - $1,072) was recorded as an expense and added to contributed surplus. Warrants were converted to 943,333 warrants at a ratio of 1.00:1.08. Additionally, 10,833,333 warrants were issued in connection with the Spark Power Acquisition for a total amount of 11,776,666 warrants outstanding as at both December 31, 2022 and December 31, 2021 at a value of $2,662. On October 31, 2019, the Company completed a Rights Offering to its shareholders. Pursuant to the Warrant agreement, and in connection to this Rights Offering, the number of shares issuable upon exercise of each Warrant has been adjusted from 1 Common share to 1.028 Common shares at an exercise price of $3.45 per share for a remaining term of 3.5 years. On January 31, 2022, the Company completed a Rights Offering to its shareholders. Pursuant to the Warrant agreement, and in connection to this Rights Offering, the number of shares issuable upon exercise of each Warrant has been adjusted from 1.028 Common share to 1.10 Common shares at an exercise price of $3.14 per share for a remaining term of 1.7 years. These warrants have been measured using the Black-Scholes method using the following inputs: Stock price - $3.00 per share Exercise price - $3.45 per share Risk-free interest rate 2.10% Volatility 14% Term 5 years Yield 0%. These inputs require management judgment and estimates and a change in such estimates could result in a material change to the valuation of these warrants. 18. FINANCIAL INSTRUMENTS The Company has classified its financial instruments in accordance with IFRS into various categories as described in its accounting policies. The fair values of financial instruments are classified and measured according to the following three levels based on the fair value hierarchy. Level 1: quoted prices in active markets for identical assets or liabilities. Level 2: inputs other that quoted priced included within Level 1 that are observable for the asset or liability either directly or indirectly. Level 3: inputs for the asset or liability that are no based on observable market data. There were no financial 59 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 18. FINANCIAL INSTRUMENTS (Continued) instruments carried at fair value categorized in Level 3 as at December 31, 2022 and December 31, 2021. There were no transfers between levels during the period. The financial instruments recorded at fair value are the Interest Rate Swap arrangement and derivative financial instruments such as PPA and Hedge arrangements and are categorized as Level 2. The fair value of the Interest Rate Swap arrangement in a cumulative loss amount of $nil has been recorded to finance expense using Mark-to- The Interest Rate Swap arrangement ended on September 30, 2021 and was not renewed. The Company does not have any financial instruments carried at fair value categorized in Level 3 as at period end. The carrying values of accounts receivable, other receivable, HST receivable, government grant receivable, contract assets, bank indebtedness, accounts payable and accrued liabilities, income taxes payable and contract liabilities approximate their fair values due to the immediate or short-term nature of these securities. The fair values of the borrowings approximate their carrying values as they are calculated based on the present value of the future principal and interest cash flows, discounted at the market rate of interest at the reporting date. The market rate of interest is determined by reference to similar liabilities. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Risk management objectives and policies while retaining ultimate responsibility for them. The Company is exposed to a variety of financial risks by virtue of its activities: market risk, risk from infectious diseases, credit risk, interest rate risk, liquidity risk and foreign currency risk. Except for risks highlighted by the COVID-19 overall risk management program has not changed throughout the year and focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance. Risk management is carried out by the finance department under policies approved by the Board of Directors. This department identifies and evaluates financial risks in close cooperation with management. Infectious diseases Outbreaks or the threat of outbreaks of viruses or other infectious diseases or similar health threats may have a material adverse effect on the Company by causing operational and supply chain delays and disruptions (including as a result of government regulation and prevention actions), adverse effects on operational efficiency, including due to quarantine, testing and monitoring obligations, labour shortages and shutdowns, decreased demand, increased unrecoverable costs, declines in gross margin realizations, capital markets volatility, or other unknown but potentially significant impacts. Notwithstanding the phased reduction in restrictions in most jurisdictions following the peak of the COVID-19 variant in 2022, unexpected developments in financial markets, regulatory environments, supply chains, or supplier, employee, or customer behaviour and confidence may have adverse impacts on our financial results and condition, and business operations and reputation if another epidemic or pandemic-scale infectious disease arises, or if a mutation of the COVID-19 virus results in renewed government and private sector restrictions. The Company cannot accurately predict what future effects such conditions may have on its operations or financial results. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in economic downturn that could result in a material adverse effect on the demand for the Company s services, investor confidence, and general financial market liquidity, all of which may adversely affect the Company s business and the market price of the Common Shares. Accordingly, any outbreak or threat of an outbreak of an epidemic disease or similar public health emergency could have a material adverse effect on the Company s business, financial condition, and results of operations. 60 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 18. FINANCIAL INSTRUMENTS (Continued) Credit risk Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation. The Company is mainly exposed to credit risk from credit sales. Management of the Company monitors the credit worthiness of its customers by performing background checks on all new customers focusing on publicity, reputation in the market and relationships with customers and other vendors. ustomers and performs frequent reviews of outstanding balances. The Company determines there to be an increase in credit risk when The Company considers a receivable to be in default when contractual payments are 120 days past due, except when they are within terms. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. Provisions for outstanding balances are set based on forward looking information; when there is a change in the circumstances of a customer that would result in financial difficulties as indicated through a change in credit quality done on a continued basis through the monitoring of outstanding balances as well as the frequency of payments received. A receivable is completely written off once management determines the probability of collection to be not present. Further disclosures regarding accounts receivables are provided in Note 4. held with a major Canadian bank which the Company believes lessens the degree of credit risk. Contract assets subject the Company to credit risk in the case of non-performance or disputes on performance. Contract assets are reviewed similar to receivables when deemed necessary. Interest rate risk bearing debt securities. The Company may increase debt levels depending on the balance of financing in the future. If cash balances are higher than required for immediate requirements, the Company invests with a low-risk strategy in secure short-term deposits through major banks to earn interest income. The revolving facilities (Note 12) bear interest at a variable rate; however, the balance of the lines is continually terest rate risk. Therefore, the interest rate risk and cash flow exposure are not significant. The long-term debt also bears interest at a variable rate. At December 31, 2022, if interest rates had been higher by 2% with all other variables held constant, net loss would have been $1,500 higher. A decline in interest rates of 1% would have decreased the 750. Liquidity risk repayments on its debt instruments. It is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due meet its liabilities when they become due. The Board receives quarterly information regarding cash balances and cash flow projections. The liquidity risk of each subsidiary is managed centrally by the treasury function. Additional information related to liquidity risk is found in Note 2 and 13. The following table sets out the contractual maturities as at December 31, 2022 (representing undiscounted contractual cash flows) of financial liabilities: 61 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 18. FINANCIAL INSTRUMENTS (Continued) 19. CAPITAL MANAGEMENT The Company defines its managed capital as the total of interest-bearing long- including share capital, contributed surplus, accumulated other comprehensive (loss) income and retained earnings (deficit). As at December 31, 2022, total managed capital was $106,340 (2021 - $86,758). The objectives when managing capital are: i. an appropriate amount of leverage; and ii. To provide an appropriate return to shareholders The Company manages its capital structure within guidelines approved by the Board of Directors. The Company makes adjustments to its capital structure based on changes in economic conditions and the requirements. The Company has the ability to adjust its capital structure by issuing new equity or debt, selling assets to reduce debt, controlling the amount it distributes to shareholders, and making adjustments to its capital expenditure program. 31, 2022 or 2021. 20. SEGMENTED INFORMATION The Company has three primary segments: Technical Services, Renewables and Corporate. Two of the segments are strategic business units that offer different products and services. The segments are reported in a manner consistent with internal reporting provided to the chief operating decision-maker. The chief operating decision- maker has been identified as the management team including the Chief Executive Officer and the Chief Financial Officer. The Technical Services segment includes the New Electric, Spark High Voltage, Orbis, Lizco and 3-Phase CGUs. The Renewables segment includes the One Wind, Northwind, and Spark Power Solutions CGUs. The Company evaluates segment performance on the basis of profit and loss from operations but excluding any non-recurring losses and share-based payments. The Sustainability segment was sold in 2022, and therefore excluded in the segmented information. Details of the Sustainability segment are presented in Note 29. 2022 Notes Carrying amount Contractual cash flow 2023 2024 2025 2026 2027 and thereafter Bank indebtedness 12 24,921 24,669 24,669 - - - - Accounts payable and accrued liabilities 44,174 44,174 44,174 - - - - Long-term debt 13 33,102 33,102 4,500 28,602 - - - Promissory notes 14 2,500 2,500 2,500 - - - - Lease liability 15 35,532 44,628 9,132 8,208 6,790 5,197 15,301 140,229 149,073 84,975 36,810 6,790 5,197 15,301 2021 Notes Carrying amount Contractual cash flow 2022 2023 2024 2025 2026 and thereafter Bank indebtedness 12 28,142 $ 28,142 $ 28,142 $ - $ - $ - $ - $ Accounts payable and accrued liabilities 53,748 53,748 53,748 - - - - Long-term debt 13 61,962 64,051 64,051 - - - - Promissory notes 14 10,738 11,673 11,673 - - - - Lease liability 15 20,627 22,856 7,558 5,443 4,190 2,783 2,882 Derivative liabilities 29 1,203 1,203 1,203 - - - - Future lease commitment 30 - 15,020 - 904 904 904 12,308 176,420 $ 196,693 $ 166,375 $ 6,347 $ 5,094 $ 3,687 $ 15,190 $ 62 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 20. SEGMENTED INFORMATION (Continued) 2022 Technical Services Renewables Corporate Total Segment revenues 181,653 $ 89,333 $ 1,291 $ 272,277 $ Segment cost of sales 145,141 72,289 - 217,430 Segment selling, general and administration expenses 25,272 9,671 21,041 55,984 Segment provision for expected credit loss 1,769 - - 1,769 Segment reorganization costs 266 512 1,270 2,048 Segment change in foreign exchange (gain) loss (270) (95) (259) (624) Other expenses (income) - - 57 57 Segment amortization and depreciation 16,012 2,196 1,351 19,559 Segment profit (loss) 9,475 6,956 (20,818) (4,387) Finance expense - - - (8,423) Transaction Costs - - - (1,329) Impairment Loss (1,500) - - (1,500) Total Company income (loss) before taxes from continuing operations (15,639) $ Segment assets 113,343 $ 68,620 $ 33,926 $ 215,889 $ Deferred tax asset - $ - $ 2,887 2,887 Total Company assets 218,776 $ Segment liabilities 44,836 $ 53,976 $ 49,546 $ 148,358 $ Long-term debt - Total Company liabilities 148,358 $ 2021 Technical Services Renewables Corporate Total Segment revenues 163,781 $ 79,055 $ 1,788 $ 244,624 $ Segment cost of sales 136,645 62,801 - 199,446 Segment selling, general and administration expenses 25,271 8,007 22,521 55,799 Segment provision for expected credit loss 518 - - 518 Segment change in fair value of derivative instruments - - - - Segment change in realized gain on settlement of derivative instruments - - - - Segment reorganization costs 569 453 2,369 3,391 Segment change in foreign exchange (gain) loss 239 519 197 955 Other expenses (income) - - (49) (49) Segment amortization and depreciation 15,261 1,519 2,173 18,953 Segment profit (loss) 539 7,275 (23,250) (15,436) Finance expense - - - (7,126) Transaction Costs - - - (2,141) Impairment Loss (4,000) - - (4,000) Total Company income (loss) before taxes from continuing operations (28,703) $ Segment assets 130,421 $ 35,806 $ 22,573 $ 188,800 $ Segment liabilities 74,688 $ 19,630 $ 87,377 $ 181,695 $ Deferred tax liability 407 Long-term debt - Total Company liabilities 182,102 $ 63 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 20. SEGMENTED INFORMATION (Continued) The Company has locations in Canada and the US. Details of the operations by geographical area are as follow: 21. RELATED PARTY TRANSACTIONS In the year ended December 31, 2022, $6,255 (2021 - $1,455) of revenue was earned from and there was $662 owing from Red Jar Capital, , in accounts receivable (2021 - $256). Further, there were no other balances due to/from related parties and/or shareholders as at December 31, 2022 and 2021. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, comprised of the C and other benefits paid to the key management personnel in the year were $2,292 (2021 - $1,871). 2022 Canada USA Total Regional revenues 178,861 $ 93,416 $ 272,277 $ Regional cost of sales 144,127 73,303 217,430 Regional selling, general and administation expenses 46,325 9,659 55,984 Regional provision for expected credit loss 1,769 - 1,769 Other expenses (income) 57 - 57 Regional reorganization costs 2,048 - 2,048 Regional change in foreign exchange (gain) loss (624) - (624) Regional profit (loss) (14,841) $ 10,454 $ (4,387) $ Property and equipment 40,959 $ 7,465 $ 48,424 $ Intangible assets 19,201 $ 763 $ 19,964 $ Goodwill 29,545 $ 285 $ 29,830 $ 2021 Canada USA Total Regional revenues 171,946 $ 72,678 $ 244,624 $ Regional cost of sales 133,771 65,675 199,446 Regional selling, general and administation expenses 47,200 8,599 55,799 Regional provision for expected credit loss 85 433 518 Other expenses (income) (49) - (49) Regional reorganization costs 3,340 51 3,391 Regional change in foreign exchange (gain) loss 955 - 955 Regional profit (loss) (13,356) $ (2,080) $ (15,436) $ Property and equipment 27,841 $ 5,431 $ 33,272 $ Intangible assets 27,978 $ 1,138 $ 29,116 $ Goodwill 37,679 $ 284 $ 37,963 $ 64 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 22. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES 23. EARNINGS PER SHARE The Company presents basic and diluted earnings per share data for its ordinary shares, being Common shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for treasury shares held. Diluted earnings per share is determined by dividing the profit or loss attributable to shareholders of ordinary shares by the weighted average number of shares outstanding, adjusted for the effects of all dilutive potential ordinary shares. As the Company is in a Net and Comprehensive Loss position from continuing operations in the current year, the outstanding option, RSUs, DSUs and warrants are anti-dilutive. Basic and diluted earnings per share 2021 Cash flows Deferred financing fees New leases acquired during the year 2022 Bank indebtedness 28,142 (3,221) - - 24,921 Long-term debt 61,962 (29,169) 309 - 33,102 Promissory notes 10,738 (8,238) - - 2,500 Lease liability 20,627 (8,280) - 23,185 35,532 121,469 (48,908) 309 23,185 96,055 2020 Cash flows Deferred financing fees New leases acquired during the year 2021 Bank indebtedness 25,444 $ 2,698 $ - $ - $ 28,142 $ Long-term debt 66,572 (4,794) 184 - 61,962 Promissory notes 10,738 - - - 10,738 Lease liability 17,285 (8,050) - 11,392 20,627 120,039 $ (10,146) $ 184 $ 11,392 $ 121,469 $ Non-cash changes Non-cash changes 2022 2021 Numerator: Net (loss) income from continuing operations (10,999) $ (26,523) $ Net income (loss) from discontinued operations 18,804 5,230 Net income (loss) 7,805 (21,293) Denominator: Weighted average number of basic shares outstanding 89,560,957 56,564,958 Weighted average number of diluted shares outstanding 89,560,957 56,564,958 (Loss) earnings per share from continuing operations: Basic (0.12) $ (0.47) $ Diluted (0.12) $ (0.47) $ (Loss) earnings per share from discontinued operations: Basic 0.21 $ 0.09 $ Diluted 0.21 $ 0.09 $ 65 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 24. EXPENSE BY NATURE 25. PROVISION FOR EXPECTED CREDIT LOSSES As of December 31, 2022, the Company recognized $1,769 in Provision for Expected Credit Losses (2021 - $580). 26. FINANCE EXPENSE 27. TRANSACTION COSTS During the year ended December 31, 2022, the Company recognized $1,329 in transaction costs. These are costs associated with the rights offering and the strategic review process. In addition, there were $1,985 transaction costs incurred related to the sale of Bullfrog and included in the calculation of gain on disposal of discontinued operations as disclosed in Note 29. The transactions costs include legal and advisory costs. During the year ended December 31, 2021 the Company incurred $2,141 in transactions costs. These are related to costs associated with the convertible debenture process and costs associated with the strategic review process including legal costs and special committee fees. 28. REORGANIZATION AND OTHER NON-RECURRING COSTS During the year ended December 31, 2021, the Company recognized $2,048 of severance related costs (2021 - $2,141) of which $1,376 was included in accrued liabilities as at December 30, 2022 (December 31, 2021 - $1,794). corporate overheads. 2022 2021 Material, equipment and subcontractors 68,304 $ 70,225 $ Other administration costs 44,304 36,556 Office and telephone 5,696 4,816 Salaries and wages 129,085 118,200 Occupancy costs 2,592 1,858 Advertising and promotion 334 634 Depreciation of property and equipment 12,389 11,806 Amortization of intangible assets 7,396 7,615 Professional fees 3,314 3,535 273,414 $ 255,245 $ Notes 2022 2021 Interest on bank indebtedness 12 2,061 $ 1,451 $ Interest on long-term debt 13 4,358 3,014 Interest on promissory notes 14 100 868 Interest on lease liabilities 15 1,412 1,159 Mark-to-Market interest gain 18 - (345) Other 492 979 8,423 $ 7,126 $ 66 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 29. DISCONTINUED OPERATIONS On November 30, 2022, the Company sold its Bullfrog business unit, a wholly owned subsidiary, for approximately $35.0 million to a third party. Bullfrog was classified as a discontinued operation as at December 31, 2022. The Bullfrog business November 30, 2022. With Bullfrog being sold, the Sustainability segment is no longer presented in the Segment note. Results of discontinue operations for the years ended: Cash flows from (used in) discontinued operation: Notes 2022 2021 Revenue 10,109 11,191 Cost of sales 6 2,830 4,118 Gross profit 7,279 7,073 Expenses Selling, general and administrative 6,24 2,930 3,538 Provison for expected credit loss 4 15 112 Change in fair value of derivative instruments 30 (7,427) (2,716) Realized gain on settlement of derivative instruments 30 (1,234) (1,051) Foreign exchange loss 15 26 Reorganization costs - 101 Results from operating activities 12,980 7,063 Current income tax expense 885 669 Deferred income tax expense 1,965 689 Income tax expense 16 2,850 1,358 Results from discontinued operations, net of taxes 10,130 5,705 Gain on sale of discontinued operations 10,534 - Income tax expenses on sale of discontinued operations 16 1,860 - 8,674 - Net income from discontinued operations, net of taxes 18,804 5,705 Basic earnings per share 0.21 $ 0.09 $ Diluted earnings per share 0.21 $ 0.09 $ 2022 2021 Net cash provided by (used in) operating activities (4,354) $ (1,541) $ Net cash from investing activities 30,017 - Net cash flows for the year 25,663 $ (1,541) $ 67 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 29. DISCONTINUED OPERATIONS (Continued) Effect of disposal on the financial position of the Company: Components of considerations: During the third quarter of 2021, the Company sold all the shares of its 100% owned subsidiary Orbis SPA for $189 (US$150) to a third party, including the assumption of value added tax outstanding of $144 and outstanding legal fees of $57. As a result of this sale the Company recorded a loss on discontinued operations of $475 for the period ended December 31, 2021. Notes 2022 Trade and other receivables (1,489) Contract assets (1,000) Inventories (885) Prepaid expenses and deposits (1,552) Property, plant and equipment (269) Goodwill (6,634) Intangibles (5,835) Current and long-term derivative assets (10,684) Trade payables and accrued liabilities 1,055 Contract liabilities 46 Deferred taxes liabilities 2,654 Income tax payables 825 Current and long-term derivative liabilitiies 541 Lease liabilities 241 Net assets and liabilities (22,986) Consideration received in cash 30,000 Other 24 Cash and cash equivalents disposed of (7) Net cash inflows 30,017 Consideration received upon close 30,000 Consideration in escrow 1,500 Earn-out 3,318 Working capital adjustments 336 Other 450 Net cash inflows 35,604 68 SPARK POWER GROUP INC. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2022 and 2021 Presented in thousands of Canadian dollars, except share and per share amounts 30. POWER PURCHASE AGREEMENT As disclosed in Note 29 discontinued operations, the Power Purchase Agreement and the power swap arrangement were sold on November 30, 2022 as the Company sold Bullfrog. the purchase and sale of renewable energy and environmental attributes, including Certified Renewable Energy Certificates, for a period of seven years with an expected start date in the second quarter of 2021. During the year, the Company has recognized an unrealized gain in the change in fair value of the derivative asset with an estimated fair value of $6,765 (2021 - $3,918). As at December 31, 2021, an amount of $1,769 was recorded as a current asset and expected to be realized within the next twelve months. To offset any risk and volatility of this agreement, management entered into a related power swap arrangement to hedge the risk of changes in cash flows due to the fluctuations of power prices in the Alberta market. While this agreement economically hedges the risk of changes in cash flows due to fluctuations in power rates, hedge accounting has not been applied for these instruments. The unrealized gain in change in the fair value of the other derivative liability during the year of $662 (2021 $1,202 loss) is based on the projected market values of similar contracts with similar remaining durations as if the contract has been entered into at end of each period. On March 9, 2022, the Company signed a second Power Purchase Agreement for the purchase and sale of renewable energy and environmental attributes, including Certified Renewable Energy Certificates. The agreement started during the second quarter of 2022. During the year, the Company recognized realized settlements on the PPA in the amount of $4,478 offset by realized settlements on the hedge of $3,244 respectively for a net gain of $1,234. at are available for sale by the Company. These attributes, or renewable energy credits, are similar to those purchased and sold by the Company from other third parties, and as such, recorded as inventory. At November 30, 2022, the Company had 10,984 equal to $60 (December 31, 2021 - $111) that were included in inventory and held for sale by the Company under its normal course of business. Power Group Inc., had issued Letters of Credit to the seller and the hedge broker in the amount of $760 and $100 respectively. 31. COMMITMENTS AND CONTINGENT LIABILITY From time to time, the Company is party to legal proceedings arising out of the normal course of business. The results of these litigations cannot be predicted with certainty, and management is of the opinion that the outcome of these types of proceedings is generally not determinable. Any loss resulting from these proceedings will be charged to operations in the period that a loss becomes probable. 69 MANAGEMENT DISCUSSION & ANALYSIS FOR THE YEARS ENDED DECEMBER 31 2022 Management’s Discussion and Analysis 2 MANAGEMENT’S DISCUSSION AND ANALYSIS The following Management’s Discussion and Analysis (“MD&A”) of the operating performance and financial condition of Spark Power Group Inc. (“Spark Power”, the “Company”, “we”, “us”, or “our”) for the three and twleve months ended December 31, 2022, dated March 28, 2023, should be read in conjunction with the December 31, 2022 Consolidated Annual Financial Statements and related notes thereto and the 2021 Management Information Circular. Additional information related to Spark Power is available under the Company’s SEDAR profile at www.sedar.com and on our website at www.sparkpowercorp.com. Unless otherwise specified all amounts are expressed in Canadian dollars. FORWARD-LOOKING INFORMATION AND GOING CONCERN This Spark Power MD&A contains forward-looking information and future oriented financial information within the meaning of applicable Canadian securities laws (“forward-looking information”). All information other than statements of current and historical fact contained in this Spark Power MD&A is forward-looking information and reflect management’s expectations regarding the prospects, results of operations, performance and business of the Corporation based on information currently available to the Corporation. Forward-looking information is provided for the purpose of presenting information about management’s current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. These statements use forward-looking words, such as “anticipate”, “continue”, “could”, “expect”, “may”, “will”, “intend”, “estimate”, “plan”, “believe” or other similar words but the absence of these words does not mean that a statement is not forward-looking. Forward-looking information in this Spark Power MD&A includes, but is not limited to, information relating to Spark Power’s future financial and business operations outlook as set in the section entitled “Outlook” herein, statements regarding the Corporation’s business, future development, debt refinancing, future financial position, our ability to secure new financing on reasonable terms, our business strategy, execution of ‘Let’s Grow Better’ strategic plan, the success and profitability of the business and our ability to support the services of our business, the electrical power industry in general, potential future acquisitions, the ability of the Corporation to procure additional sales from new and existing customers, the Corporation’s plans and objectives, the impact of trading patterns in our share price, the impact of regulators’ actions and decisions on our business, the demand for our business and services, general business and economic conditions, our ability to manage corporate growth and acquisitions, changes in interest rates, litigation, our gross margin realization, and improvements in liquidity. In developing the forward-looking information in this Spark Power MD&A, we have applied several material assumptions, as set out herein, including those under the section “Outlook” and those related to general business and economic conditions and our ability to attract new financing on reasonable terms. By their nature, forward-looking information is inherently uncertain, is subject to risk and is based on numerous assumptions, including those regarding present and future business strategies, the environment in which the Corporation will operate in the future, expected revenues, financing plans, expansion plans and the Corporation’s ability to achieve its goals. Although management of the Corporation believes that the expectations represented in such forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. The future outcomes that relate to forward-looking information may be influenced by many factors that could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking information, including, but not limited to, those described in this Spark Power MD&A and in “Risk Factors” in the Company’s annual information form for the year ended December 31, 2022, filed on March 28, 2023 and available on SEDAR at www.sedar.com. Spark Power cautions that the list of risk factors and uncertainties is not exhaustive and other factors could also adversely affect results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and future oriented financial information and the inherent uncertainty of forward-looking information and future oriented financial information and are cautioned not to place undue reliance on such information. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Forward-looking information is provided as of the date of this Spark Power MD&A or such other date specified herein, and the Corporation assumes no obligation to update or revise such forward-looking information to reflect new events or circumstances except as required under applicable Canadian securities laws. 71 Management’s Discussion and Analysis 3 PRESENTATION OF FINANCIAL INFORMATION The consolidated financial statements (“Financial Statements”), including the required comparative information, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Financial results, including historical comparatives contained in this MD&A, unless otherwise specified herein, are based on these financial statements. The Canadian dollar is the Company’s reporting currency for purposes of preparing the financial statements given that the Company conducts most of its operations in that currency. Accordingly, all dollar references in this MD&A are in Canadian dollars, unless otherwise specified. KEY PERFORMANCE INDICATORS (NON-IFRS MEASURES) This Spark Power MD&A makes reference to certain non-IFRS measures, including: “EBITDA”, “EBITDA Margin”, “Adjusted EBITDA”, “Adjusted EBITDA Margin”, and “Adjusted Working Capital”. These non-IFRS measures are used to provide investors with supplemental measures of Spark Power’s operating performance and highlight trends in Spark Power’s business that may not otherwise be apparent when relying solely on IFRS measures. Spark also believes that providing such information to securities analysts, investors and other interested parties who frequently use non-IFRS measures in the evaluation of issuers will allow them to better compare Spark Power’s performance against others in its industry. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. See “Selected Consolidated Financial Information” and “Management’s Discussion and Analysis”. “Adjusted EBITDA” means EBITDA adjusted for any reorganization and transaction costs, discontinued operations, change in estimate and non-recurring items which management considers to be not representative of Spark Power’s ongoing operating performance. Spark Power uses EBITDA and Adjusted EBITDA to evaluate the performance of its business as these measures reflect ongoing profitability and it believes these measures are useful in making comparisons between periods. Spark Power believes that EBITDA and Adjusted EBITDA provide analysts and investors with information about its income generating capabilities, and ability to service debt and meet other payment obligations. Management uses these measures to monitor and plan for the operating performance of Spark Power in conjunction with other data prepared in accordance with IFRS. “Adjusted EBITDA Margin” means Adjusted EBITDA divided by revenue. “Adjusted Working Capital” means working capital less the current portion of long-term debt and lease liability, and therefore provides management and investors with a clearer understanding of the efficiency of operational working capital needs absent working capital required as a result of capital structure. “EBITDA” means net income (loss) before amortization and depreciation, finance costs, and provision for income taxes. “EBITDA Margin” means EBITDA divided by revenue. 72 Management’s Discussion and Analysis 4 BUSINESS OVERVIEW Headquartered in Oakville, Ontario, Canada, Spark Power Group Inc. is a leading provider of end-to-end electrical contracting, operations and maintenance services, and energy sustainability solutions to the industrial, commercial, utility, and renewable asset markets in Canada and the United States. Spark is focused on delivering our promise of being our customers’ Trusted Partner in PowerTM, taking advantage of the opportunities presented by a dynamic market. Operating within our field focused operating model, Spark Power is structured and financially reports the organization in three specific business segments: Technical Services, Renewables, and Corporate. The Technical Services business segment is managed in three geographic, operational regions: Western Canada, Eastern Canada, and USA. Spark’s integrated suite of services across North America are as follows: Technical Services Centred around its branch network, Spark’s Technical Services business segment operates out of several locations in the U.S. and Canada and focuses on pole-to-product electrical services. With highly responsive and local technical teams, Spark offers a wide variety of services and solutions to a wide range of customers including: Low Voltage • Electrical contracting services • Industrial automation • Systems integration • Custom control panel design and assembly • Electronic repair • 24/7 emergency services Medium & High Voltage • Power ‘On’ services • Sub-station construction and maintenance • Power line construction and maintenance • Equipment installation • Commissioning • Thermography services • Transformer maintenance Engineering • Power systems engineering • Protection and control engineering • Substation engineering • SCADA engineering • Arc flash studies Power Equipment • Buy, refurbishment and resale of used electrical equipment • Sales and rentals of power transformers • Sale of medium voltage electrical switchgear • Full fabrication shop/paint line capabilities 73 Management’s Discussion and Analysis 5 Renewables Spark Power’s Renewables business segment is one of the largest independent renewables operations and maintenance providers in North America. Operating in many centres and remote locations in the U.S. and Canada, Spark’s Renewables business is primarily focused on Wind, Solar, Storage and Electric Vehicle assets. Spark Power’s Renewables services include: Solar • 24/7 monitoring and analytics from central operating centre • Fence to fence, onsite operations and maintenance to wide range of solar sites Wind • In-construction services • Asset monitoring • Operations and maintenance • Commissioning Battery Energy Storage Systems (BESS) • Engineering, procurement, and construction • Operations and maintenance • Commissioning Electric Vehicle (EV) • Construction • Operations and maintenance 74 Management’s Discussion and Analysis 6 SUMMARY FINANCIAL INFORMATION The selected information presented below has been derived from and should be read in conjunction with the Company’s consolidated financial statements and related notes for the three and twelve months ended December 31, 2022 and 2021. (in $000's) 2022 2021 2022 2021 Revenue 64,518 $ 63,086 $ 272,277 $ 244,624 $ Cost of sales 52,033 55,085 217,430 199,446 Gross profit 12,485 8,001 54,847 45,178 Selling, general and administrative expenses 13,690 16,242 55,984 55,799 Provision for expected credit losses 1,500 439 1,769 518 Other expense (income) 57 (49) 57 (49) Reorganization costs 198 1,862 2,048 3,391 Foreign exchange (gain) loss 2,062 513 (624) 955 Loss from operations (5,022) (11,006) (4,387) (15,436) Finance costs (2,737) (2,233) (8,423) (7,126) Transaction costs (336) (580) (1,329) (2,141) Impairment loss (1,500) (4,000) (1,500) (4,000) (4,573) (6,813) (11,252) (13,267) Income (loss) before income taxes from continuing operations (9,595) (17,819) (15,639) (28,703) Income tax recovery (expense): Current 2,547 1,513 1,346 1,175 Deferred 1,510 (2,214) 3,294 1,005 4,057 (701) 4,640 2,180 Net income (loss) from continuing operations (5,538) (18,520) (10,999) (26,523) Net income from discontinued operations 10,673 645 18,804 5,230 Net income (loss) 5,135 (17,875) 7,805 (21,293) Cumulative translation adjustment (14) 241 (1,202) 373 Comprehensive loss 5,121 (17,634) 6,603 (20,920) EBITDA 10,566 $ (10,240) $ 34,442 $ 4,617 $ EBITDA margin 16.0% (15.7%) 12.2% 1.8% Adjusted EBITDA 6,972 3,136 33,083 23,304 Adjusted EBITDA margin 10.5% 4.8% 11.7% 9.1% Adjusted EBITDA excl. unrealized gains on derivatives 4,496 3,294 25,656 20,588 Adjusted EBITDA margin excl. unrealized gains on derivatives 6.8% 5.0% 9.1% 8.0% Three months ended December 31, Twelve months ended December 31, 75 Management’s Discussion and Analysis 7 EBITDA and Adjusted EBITDA The following tables provide a reconciliation of our EBITDA measures: (in $000's) 2022 2021 2022 2021 EBITDA - continuing operations (760) $ (10,650) 12,343 $ (2,624) $ EBITDA - discontinued operations 11,326 410 22,099 7,241 Total EBITDA 10,566 (10,240) 34,442 4,617 Adjusted EBITDA - continuing operations 4,320 2,648 19,643 15,375 Adjusted EBITDA - discontinued operations 2,652 488 13,440 7,929 Total Adjusted EBITDA 6,972 $ 3,136 33,083 $ 23,304 Total Adjusted EBITDA excl. unrealized gains on derivatives 4,496 $ 3,294 25,656 $ 20,588 Reconciliation of Total EBITDA and Adjusted EBITDA Three months ended December 31, Twelve months ended December 31, (in $000's) 2022 2021 2022 2021 Net Income (loss) from continuing operations (5,538) $ (18,520) $ (10,999) $ (26,523) $ Adjustments: Finance expense 2,737 2,233 8,423 7,126 Income tax (recovery) expense (4,057) 701 (4,640) (2,180) Amortization and depreciation 6,098 4,936 19,559 18,953 EBITDA - continuing operations (760) $ (10,650) $ 12,343 $ (2,624) $ EBITDA Margin - continuing operations (1.2%) (16.9%) 4.5% (1.1%) Adjustments: Provision for expected credit loss 1,500 439 1,769 518 Impairment loss 1,500 4,000 1,500 4,000 Foreign exchange loss (gain) 1,546 619 654 1,559 Reorganization costs 198 1,862 2,048 3,391 Transaction costs 336 580 1,329 2,141 Change in estimate - 3,740 - 6,390 Year end provisions - 2,058 - - Adjusted EBITDA - continuing operations 4,320 $ 2,648 $ 19,643 $ 15,375 $ Adjusted EBITDA Margin - continuing operations 6.7% 4.2% 7.2% 6.3% Reconciliation of net income (loss) to EBITDA and Adjusted EBITDA - Continuing operations Three months ended December 31, Twelve months ended December 31, (in $000's) 2022 2021 2022 2021 Net Income from discontinued operations 10,673 $ 645 $ 18,804 $ 5,230 $ Adjustments: Income tax expense 597 (435) 2,850 1,358 Amortization and depreciation 56 200 445 653 EBITDA - discontinued operations 11,326 $ 410 $ 22,099 $ 7,241 $ EBITDA Margin - discontinued operations 681.1% 17.5% 218.6% 64.7% Adjustments: Provision for expected credit loss - 78 15 112 Reorganization costs - - - 101 (Gain) loss on sale of discontinued operations (8,674) - (8,674) 475 Adjusted EBITDA - discontinued operations 2,652 $ 488 $ 13,440 $ 7,929 $ Adjusted EBITDA Margin - discontinued operations 159.5% 20.9% 133.0% 70.9% Adjusted EBITDA excl. unrealized gains on derivatives 176 $ 646 $ 6,013 $ 5,213 $ Adjusted EBITDA margin excl. unrealized gains on derivatives 10.6% 27.6% 59.5% 46.6% Reconciliation of net income to EBITDA and Adjusted EBITDA - Discontinued operations Three months ended December 31, Twelve months ended December 31, 76 Management’s Discussion and Analysis 8 RECENT DEVELOPMENTS Launch of New Three Year Strategy At the start of 2023, the Company launched its new three year ‘Let’s Grow Better’ strategy designed to create value for all stakeholders in the business. The focus of the strategy is to deliver profitable growth by way of a targeted go-to-market plan, enhance gross margins and cash flow, and leverage a scalable platform to support the next stage of growth. The Company plans on sharing details of the strategy in the coming months. Sale of Bullfrog Power Inc. On November 30, 2022, the Company sold its Bullfrog Power Inc. (“Bullfrog”) business unit, a wholly owned subsidiary, for total all-cash proceeds of up to $35.0 million. Proceeds from the transaction were used to reduce debt and fund working capital needs. At September 30, 2022, Bullfrog was classified as a discontinued operation. Amendment to Credit Facility On November 30, 2022, the Company entered into a new Amended and Restated Credit Agreement with its Lender. Key terms of this Agreement are as follows: a) The maturity date of this new facility was extended to September 30, 2024 and will be amortized over an 8-year period with quarterly repayments of $1.1 million, reduced from previously $2.1 million per quarter; b) Achieve a minimum cumulative monthly EBITDA at the end of each calendar month through March 31, 2023; c) Maintain incremental interest rate margin of 1.00% on facility advances in place from April 29, 2022 through March 31, 2023; d) Subsequent to the 2022 fiscal year, maintain certain covenants on a 12-month rolling quarterly basis, including: • Minimum fixed charge coverage ratio of 1.00 for the quarter ended March 31, 2023, as revised subsequent to the year end, increasing to 1.25 for each fiscal quarter thereafter; • Maximum total senior debt to EBITDA ratio based on the most recently completed four fiscal quarters of 3.25:1.00; • Maximum total debt to EBITDA ratio based on the most recently completed four fiscal quarters of 3.75:1.00. As at December 31, 2022, the Company was in compliance with the financial covenants in effect in its credit facility, being the minimum cumulative monthly EBITDA covenant. The Company is required to comply with certain covenants, terms and conditions under the credit facilities. As a result, management has determined that it would be prudent to disclose that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business. ERP Migration In September 2022, the Company migrated its first business unit on to the new Enterprise Technology platform (US Technical Services). The new platform is expected to streamline processes across the organization, improve operational and financial reporting, and deliver operational efficiences. In January 2023, the Company migrated its Renewables US business unit on to the new Enterprise Technology platform. The Company expects to migrate the Canadian business units later in 2023. 77 Management’s Discussion and Analysis 9 Business Integration Through the second half of 2022, the Company completed its business-wide integration initiative to consolidate Spark Power’s operating enterprise across all lines of business to achieve synergies and optimize financial performance. This action is expected to unify our go-to-market strategy across the enterprise, unlock operational efficiencies in our management structure, simplify business processes while eliminating complexity, and provide for more enhanced service delivery across the markets it serves. During the year, the Company recorded $2.0 million related to reorganization costs as part of the integration program. Rights Offering and Private Placement On January 31, 2022, the Company completed a rights offering (“Rights Offering”) and private placement raising $39.6 million in new capital. Upon closing of the Rights Offering, the Company issued approximately 24,674,133 common shares of the Company (“Common Shares“) at a price of $1.20 per Common Share for aggregate gross proceeds of approximately $29.6 million. Pursuant to the terms of the Rights Offering, each eligible shareholder is entitled to subscribe for 0.4393346119 of a Common Share for every right held by such shareholder. For the private placement, the Company issued 8,333,333 Common Shares at a price of $1.20 per Common Share for aggregate gross proceeds of approximately $10.0 million. The entire Private Placement was subscribed for by funds managed by Stornoway Portfolio Management Inc. (“Stornoway”). The Company used a portion of the net proceeds to (i) repay certain indebtedness under the various promissory notes held by the First Standby Guarantors in connection with past acquisitions and (ii) to satisfy an earn-out payment that was owing by the Company. The balance of the proceeds were used to reduce its line of credit to support working capital purposes. COVID-19 Pandemic The COVID-19 pandemic and its variants continued to disrupt global health and impact economic conditions. The Company maintained its business continuity plans to ensure appropriate measures, procedures and protocols were in place to safeguard service to our customers while prioritizing employee, customer and vendor safety. With the resurgence of COVID-19 driven by the impact of new variants in the beginning of 2021, the Company once again realized year-on-year revenue declines in its some of its Technical Services operations. These lower revenues, along with the impact of ongoing COVID protocols, continued to impact gross margin realizations through 2021, albeit to a lesser extent. During the first quarter of 2022, the Company continued to experience the effects of the pandemic on the operational efficiencies within its business units. Furthermore, the Company has realized significant inflationary price increases for certain of its key cost inputs resulting in downward pressure on gross margins. The Company has introduced certain pricing measures, including commodity surcharges and billable rate increases, to offset the impact on gross margins. The Company continues to closely monitor price inflation and the impact on key costs inputs and will continue to pursue pricing measures to the extent possible moving into 2023. RESULTS OF OPERATIONS Results of continuing operations for the three and twelve months ended December 31, 2022, reflect the benefits of the gross margin expansion and integration initiatives executed through the year to counter the rising costs of inflation and streamline the business operations as the Company scales for growth. Moreover, the Company continues to proactively implement pricing actions to counter act any ongoing cost increases. The fourth quarter is historically impacted by lower volumes due to seasonal demand and higher quoted work mix that results in lower gross margin realization. 78 Management’s Discussion and Analysis 10 Revenue Revenue is broken down by segment as follows ($000’s): Revenue for the three months ended December 31, 2022, was $64.5 million reflecting more modest growth overall, compared with $63.1 million in the fourth quarter of 2021, representing an increase of $1.4 million or 2.3%. The primary reason for the change was due to strong growth in Technical Services of $2.7 million or 6.5% tied to higher volumes in Canada, offset with lower volumes in our Renewables business of $1.2 million or 5.3% due to large project work in the prior period in the Wind segment. Revenue for the twelve months ended December 31, 2022, was $272.3 million, compared with $244.6 million in the same period in 2021, representing an increase of $27.7 million or 11.3%. The increase was attributable to strong growth in Technical Services of $17.9 million or 10.9% and ongoing Renewables revenue growth of $10.3 million or 13.0% related to strong growth in our Solar segment in the US. Organic revenue growth is broken down as follows: Government Grants When the COVID-19 pandemic struck in early 2020, the Company experienced a disruption in its operations due to restrictions implemented by the federal, state and provincial governments in relation to this outbreak. Both the Canadian and US governments responded to the expected economic crisis by announcing payroll subsidies. Canada Emergency Wage Subsidy In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) in order to help employers keep and/or return Canadian-based employees to payrolls in response to challenges posed by the COVID-19 pandemic. (in $000's) 2022 2021 $ Growth % Growth Technical Services 43,575 $ 40,917 $ 2,658 $ 6.5% Renewables 20,702 21,860 (1,158) (5.3%) Corporate 241 309 (68) (22.0%) Total 64,518 $ 63,086 $ 1,432 $ 2.3% 2022 2021 $ Growth % Growth Technical Services 181,653 $ 163,781 $ 17,872 $ 10.9% Renewables 89,333 79,055 10,278 13.0% Corporate 1,291 1,788 (497) (27.8%) Total 272,277 $ 244,624 $ 27,653 $ 11.3% Three months ended December 31 Twelve months ended December 31 79 Management’s Discussion and Analysis 11 During the three and twelve months ended December 31, 2021, the Company recognized $nil and $2.5 million, respectively, which was recorded against segment cost of sales and SG&A expenses to which they are related. There was no CEWS funding in 2022. Skills Development Funding During the second quarter of 2021 the Company received approval for a $5.3 million grant from the Government of Ontario Skills Development Fund to support employee training and advancement initiatives within the Company. With this funding the Company implemented a one-year program between April 2021 and March 2022 whereby the funds were utilized through this period on programs and initiatives previously approved by the Government of Ontario. The Company would be required to return any funds not utilized in accordance with the program criteria and timelines. At the end of 2022, the Company had received funding towards this grant of $4.8 million which has fully been utilized to fund expenditures approved under the program and interest on the funds earned and received was insignificant. The Company has received all funding related to this grant as at December 31, 2022. During the second quarter of 2022 the Company received approval for a $3.4 million grant from the Government of Ontario Skills Development Fund to support employee training and advancement initiatives within the Company. With this funding the Company implemented a one-year program between April 2022 and March 2023 whereby the funds need to be utilized through this period on programs and initiatives previously approved by the Government of Ontario. At the end of the year the Company had received funding towards this grant of $1.9 million of which $1.5 million has been utilized to fund expenditures approved under the program. The balance of $0.4 million has been included in bank indebtedness. Cost of Sales and Gross Profit For the three months ended December 31, 2022, gross profit, inclusive of depreciation and amortization increased $4.5 million to $12.5 million as compared to $8.0 million in the same period in 2021. Gross profit margins were 19.4%, up from 12.7% in the fourth quarter of 2021 resulting in an increase in gross margin realization of 6.7%. Gross profit excluding depreciation and amortization increased $5.0 million to 24.9% of revenue resulting in a 7.4% increase in gross margin realizations. The primary reasons for the change were related to improving revenue mix as the Company shifts focus to higher margin service work combined with the impact of cost inflation increases in the prior year. For the twelve months ended December 31, 2022, gross profit, inclusive of depreciation and amortization increased $9.7 million to $54.8 million as compared to $45.2 million in the same period in 2021. Gross profit margins were 20.1%, up from 18.5% in the same period in 2021 resulting in an increase in gross margin realization of 1.6%. Gross profit excluding depreciation and amortization increased to 24.9% of revenue from 23.2% in the same period in 2021 resulting in a 1.7% increase in gross margin realizations. The increase reflects the benefits of the gross margin expansion initiatives executed through the year combined with improving revenue mix and the impact of estimate updates in the prior year. Partially offsetting this are the government grants under the CEWS and Paycheck Protection programs of $2.1 million recognized in the twelve months ended December 31, 2021 as compared to $nil in the twelve months ended December 31, 2022. Tweleve months ended December 31, 2021 Technical Services Renewables Corporate Total Canadian Emergency Wage Subsidy Cost of sales 1,786 273 - 2,059 Selling, general and administrative 236 74 139 449 Total 2,022 $ 347 $ 139 $ 2,508 $ (in $000s) $ % $ % $ % $ % Revenue 64,518 $ 63,086 $ 272,277 $ 244,624 $ Cost of sales 52,033 80.6% 55,085 87.3% 217,430 79.9% 199,446 81.5% Gross profit 12,485 $ 19.4% 8,001 $ 12.7% 54,847 $ 20.1% 45,178 $ 18.5% Depreciation and amortization included in cost of sales 3,578 3,057 12,828 11,635 Gross profit, excluding depreciation and amortization 16,063 $ 24.9% 11,058 $ 17.5% 67,675 $ 24.9% 56,813 $ 23.2% Three months ended December 31 Twelve months ended December 31 2022 2021 2022 2021 80 Management’s Discussion and Analysis 12 Components of cost of sales were as follows: During the three and twelve months ended December 31, 2022, labour costs were $26.4 million and $102.7 million, respectively, as compared to $24.5 million and $89.5 million in the same period in 2021. These costs in the three and twelve months ended December 31, 2022 were offset by $nil and $nil, respectively as compared to $nil and $2.1 million, respectively in the same period in 2021 in government grants under the CEWS and Paycheck Protection programs. The increase in labour costs is related to revenue growth and the improved mix of service work. During the three and twelve months ended December 31, 2022, vehicle costs and travel increased to $9.0 million or 14.0% of revenue and $34.4 million or 12.6% of revenue, respectively from $8.2 million or 13.0% of revenue and $28.4 million or 11.6% of revenue in the same period of 2021. The increase is related to an increase in travel in our Technical Services group tied to revenue growth and higher vehicle and fuel costs in our Renewables segment tied to cost inflation and increased servicing of remote sites. Price increases and commodity surcharges have been implemented throughout the year to offset such cost increases. During the three and twelve months ended December 31, 2022, materials decreased to $10.3 million or 16.0% of revenue and increased to $53.2 million or 19.5% of revenue, respectively, from $15.4 million or 24.4% of revenue and $52.8 million or 21.6% of revenue in the same period of 2021. The decrease in materials mix in the three and twelve months ended December 31, 2022 is driven by project mix as the Company focuses on higher margin service work and becomes more selective on larger-scale projects requiring more materials. During the three and twelve months ended December 31, 2022, subcontractor costs decreased to $3.3 million or 5.1% of revenue and $14.9 million and 5.5% of revenue, respectively, from $3.9 million or 6.2% of revenue and $17.2 million or 7.0% of revenue in the same period of 2021. The decrease compared to prior year is due to a change in project mix in our Technical Services segment with fewer large-scale projects requiring additional third-party labour. 40.9%, $26,380 38.9%, $24,509 37.7%, $102,695 36.6%, $89,494 16.0%, $10,308 24.4%, $15,410 19.5%, $53,163 21.6%, $52,770 5.1%, 3,295 6.2%, 3,931 5.5%, 14,940 7.0%, 17,159 14.0%, $9,018 13.0%, $8,178 12.6%, $34,350 11.6%, $28,388 4.7%, $3,032 4.8%, $3,057 4.5%, $12,282 4.8%, $11,635 - 50,000 100,000 150,000 200,000 250,000 Q4 2022 Q4 2021 YTD-2022 YTD-2021 Cost of sales for the three months and twelve months ended December 31 (in $000's) Labor Materials Subcontractors Vehicle costs and travel Depreciation & Amortization 81 Management’s Discussion and Analysis 13 Selling, General and Administration Expense For the three and twelve months ended December 31, 2022, SG&A expenses decreased to $13.7 million or 21.2% of revenue and increased to $56.0 million or 20.6% of revenue, respectively, from $16.2 million or 25.7% of revenue and $55.8 million or 22.8% of revenue in the same period of 2021. SG&A excluding depreciation and amortization was $11.2 million or 17.3% of revenue and $48.2 million or 17.7% in the three and twelve months ended December 31, 2022 as compared to $14.3 million or 22.7% of revenue and $48.0 million or 19.6% over the same period in 2021. The decrease in the three months ended December 31, 2022, reflects the benefits of the cost actions executed earlier in the year combined with one-time provisions recorded in the prior period. Components of SG&A costs were as follows: (in $000s) % $ % $ % $ % Revenue 64,518 $ 63,086 $ 272,277 $ 244,624 $ Selling, general and administrative expenses 13,690 21.2% 16,242 25.7% 55,984 20.6% 55,799 22.8% Depreciation and amortization included in selling, general and administrative expenses 2,520 1,918 7,813 7,808 SG&A, excluding depreciation and amortization 11,170 17.3% 14,324 22.7% 48,171 17.7% 47,991 19.6% Three months ended December 31 Twelve months ended December 31 2022 2021 2022 2021 13.3%, $8,417 8.1%, $5,238 2.6%, $1,611 1.6%, $1,018 0.3%, $179 0.8%, $508 0.6%, $367 1.1%, $696 5.9%, $3,750 5.8%, $3,710 3.0%, $1,918 3.9%, $2,520 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 2021 2022 Selling, general and administrative expenses for the three months ended December 31 (in $000's) Salaries and benefits Director and professional fees Rent and property taxes Travel, meals and entertainment Office and other general Depreciation and amortization 11.8%, $28,903 9.5%, $25,907 1.4%, $3,535 1.2%, $3,314 0.4%, $969 0.7%, $1,851 0.9%, $2,240 0.9%, $2,547 5.0%, $12,344 5.3%, $14,552 3.2%, $7,808 2.9%, $7,813 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 2021 2022 Selling, general and administrative expenses for the twelve months ended December 31 (in $000's) Salaries and benefits Director and professional fees Rent and property taxes Travel, meals and entertainment Office and other general Depreciation and amortization 82 Management’s Discussion and Analysis 14 During the three and twelve months ended December 31, 2022, salaries and benefits costs decreased to $5.2 million and $25.9 million from $8.4 million and $28.9 million in the same period in 2021. During the three and twelve months ended December 31, 2022, salaries and benefits were offset by $nil and $nil million, respectively, by government grants under the CEWS and Paycheck Protection programs announced in April 2020 as compared to $nil and $0.5 million during the three and twelve months ended December 31, 2021. Salaries and benefits as a percentage of revenue was down by 5.2% for the three months ended December 31, 2022 as compared to the same period in 2021 reflecting the benefits of the cost actions taken through the first half of the year to rationalize S,G&A headcount combined with year end provisions recorded in the prior period. Office and other general costs during the three and twelve months ended December 31, 2022, were $3.7 million or 5.8% of revenue and $14.6 million or 5.3% of revenue, respectively as compared to $3.8 million or 5.9% of revenue and $12.3 million or 5.0% of revenues in the same period of 2021. The increases were primarily due to higher insurance costs and higher computer expenses related to the ERP migration. Rent and property costs during the three and twelve months ended December 31, 2022, were $0.5 million or 0.8% of revenue and $1.9 million or 0.7% of revenue, respectively as compared to $0.2 million or 0.3% of revenue and $1.0 million or 0.4% of revenues in the same period of 2021. The increase was primarily due to overlapping rent costs for the fourth quarter related to our head office move. Depreciation and amortization costs included in SG&A during the three and twelve months ended December 31, 2022, were $2.5 million or 3.9% of revenues and $7.8 million or 2.9% of revenue, respectively as compared to $1.9 million or 3.0% of revenue and $7.8 million or 3.2% of revenue in the same period of 2021. Reorganization and transaction costs Reorganization costs for the three and twelve months ended December 31, 2022, was $0.2 million and $2.0 million, respectively compared to $1.9 million and $3.4 million in the same period in 2021. Reorganization costs in 2022 relate primarily to severances paid and accrued related to the Company’s business integration program to reduce overhead costs. Transaction costs for the three and twelve months ended December 31, 2022, was $0.3 million and $1.3 million, respectively, as compared to $0.6 million and $2.1 million in the comparable period in 2021. Transaction costs in 2022 related primarily to professional fees associated with the rights offering. Transaction costs related to the Bullfrog sale have been recorded as part of discontinued operations. Amortization and Depreciation and Finance Costs Amortization and depreciation, included in cost of goods sold and SG&A expenses, for the three and twelve months ended December 31, 2022, was $6.1 million and $20.6 million compared with $5.0 million and $19.4 million over the same period in 2021. Finance costs for the three and twelve months ended December 31, 2022, were $2.7 million and $8.4 million as compared to $2.2 million and $7.1 million during the same period of 2021. 83 Management’s Discussion and Analysis 15 BUSINESS SEGMENTS RESULTS OF OPERATIONS – By Reportable Business Segment The Company has structured its reportable business segments as detailed below. Management believes that this segmentation reflects how the business is managed and provides a clearer understanding, for both management and other users of the financial information, of the businesses with different growth opportunities, revenue profiles and historical earnings performance and potential. Technical Services Segment The Technical Services segment is segregated by region, Canada East, Canada West, and USA, and includes all low- voltage services (New Electric brand and 3-Phase), high-voltage services (Spark Power High Voltage and Orbis) and all new and used equipment sales and service (Lizco brand). The financial results for the Technical Services segment for the three and twelve months ended December 31, 2022 and 2021 were as follows: (in $000's) Three months ended December 31 Twelve months ended December 31 2022 2021 Change 2022 2021 Change Revenue 43,575 $ 40,917 $ 2,658 $ 181,653 $ 163,781 $ 17,872 $ Cost of sales 34,417 36,351 $ (1,934) $ 145,141 136,645 $ 8,496 $ Gross profit 9,158 4,566 $ 4,592 $ 36,512 27,136 $ 9,376 $ Gross profit margin 21.0% 11.2% 9.9% 20.1% 16.6% 3.5% Gross profit margin, excluding depreciation and amortization 30.6% 20.9% 9.7% 28.9% 25.9% 3.0% Selling, general and administration 6,469 6,527 (58) 25,272 25,271 1 Provision for expected credit loss 1,500 439 1,061 1,769 518 1,251 Reorganization costs 23 98 (75) 266 569 (303) Foreign exchange (gain) loss (277) 7 (284) (270) 239 (509) Segment profit 1,443 (2,505) 3,948 9,475 539 8,936 Segment EBITDA 5,607 $ 1,473 $ 4,134 $ 25,487 $ 15,800 $ 9,687 $ Segment EBITDA % 12.9% 3.6% 9.3% 14.0% 9.6% 4.4% INTEGRATED POWER SOLUTIONS CANADA EAST CANADA WEST USA RENEWABLES TECHNICAL SERVICES CORPORATE 84 Management’s Discussion and Analysis 16 Results for the three and twelve months ended December 31, 2022 Revenue during the three and twelve months ended December 31, 2022, increased by 6.5% and 10.9%, respectively, over the same period in 2021. The increase in the three months ended December 31, 2022 was related to volume growth in the Low Voltage segment while the increase in the twelve months ended was related to growth in the High Voltage segment combined with larger projects carried forward from 2021. Gross profit during the three and twelve months ended December 31, 2022, increased by 100.6% and 34.6%, respectively, as compared to the same period in 2021. The increase during the three and twelve months ended December 31, 2022, was due to improving revenue mix related to higher margin service work combined with the impact of estimate updates in the prior year. SG&A expenses during the three and twelve months ended December 31, 2022, decreased by $0.1 million and $nil, respectively, over the same period in 2021. The decrease during the three months ended December 31, 2022 reflects the cost actions taken to rationalize S,G&A expenses. For the three and twelve months ended December 31, 2022, Segment EBITDA increased by 4.1 million or 280.7% and $9.7 million or 61.3%, respectively, over the same period in 2021. The increase related to the factors mentioned above. $91,757 $92,011 $6,892 $9,269 $66,165 $85,367 $32,286 $32,942 $5,859 $4,275 $1,739 $1,364 - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 YTD 2021 YTD 2022 Q4- 2021 Q4- 2022 Technical Services Revenue (in $000's) Equipment High Voltage Low Voltage 85 Management’s Discussion and Analysis 17 Renewables Segment The Renewables segment includes all operations and maintenance services under the One Wind and Northwind brands. Results for the three and twelve months ended December 31, 2022 Revenue during the three and twelve months ended December 31, 2022, decreased by 5.3% and increased by 13.0%, respectively, over the same period in 2021. The decrease for the three months ended December 31, 2022 is primarily related to significant large Wind projects in prior year offset by growth in the Solar segment, in particular the US market. The increase for the twelve months ended is reflective of the ongoing growth opportunities in the Renewables segment, in particular in the US market. Gross profit for the three and twelve months ended December 31, 2022, decreased by 1.3% and increased by 4.9% as compared to the same period in 2021. The increase for the twelve months ended December 31, 2022 was due to higher volumes in our Solar segment partially offset by lower margin realization in our Wind segment. (in $000's) Three months ended December 31 Twelve months ended December 31 2022 2021 Change 2022 2021 Change Revenue 20,702 $ 21,860 $ (1,158) $ 89,333 $ 79,055 $ 10,278 $ Cost of sales 17,616 18,734 (1,118) 72,289 62,801 9,488 Gross profit 3,086 3,126 (40) 17,044 16,254 790 Gross profit margin 14.9% 14.3% 0.6% 19.1% 20.6% (1.5%) Gross profit margin, excluding depreciation and amortization 17.9% 16.2% 1.8% 21.5% 22.5% (0.9%) Selling, general and administration 2,506 2,167 339 9,671 8,007 1,664 Reorganization costs 43 - 43 512 453 59 Foreign exchange (gain) loss 1,303 133 1,170 (95) 519 (614) Segment gain on sale of asset - - - - - - Segment profit (766) 826 (1,592) 6,956 7,275 (319) Segment EBITDA (140) $ 1,234 $ (1,374) $ 9,152 $ 8,794 $ 358 $ Segment EBITDA % (0.7%) 5.6% (6.3%) 10.2% 11.1% (0.9%) $8,014 $6,621 $1,450 $1,024 $37,829 $27,246 $9,014 $5,913 $16,159 $18,970 $4,936 $5,248 $10,378 $29,276 $4,974 $8,290 $6,675 $7,220 $1,486 $227 - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 YTD-2021 YTD-2022 Q4 2021 Q4 2022 Renewables Segment Revenue ($000's) BESS Solar - US Solar - Canada Wind - US Wind - Canada 86 Management’s Discussion and Analysis 18 SG&A expenses during the three and twelve months ended December 31, 2022, decreased by $0.3 million or 15.6% and increased by $1.7 million or 20.8%, respectively, over the same period in 2021. The increase in the twelve months ended December 31, 2022 is tied to revenue growth and to a lesser extent the government grant funding from the CEWS program in the twelve month period ended December 31, 2021 which was offset against related labour costs. Segment EBITDA for the three and twelve months ended December 31, 2022, decreased by $1.4 million and increased by $0.4 million, respectively, as compared to the same period in 2021. The change is related to the factors mentioned above. Corporate Segment Results for the three and twelve months ended December 31, 2022 The Corporate segment incurs no costs related to revenues resulting in a gross profit that is equal to its revenue. The revenue relates to billings for management fees charged to the solar co-operatives managed by the Company. For the three and twelve months ended December 31, 2022, both revenue and gross profit decreased due to lower fees over the same period in 2021. SG&A expenses in three and twelve months ended December 31, 2022, decreased by $2.8 million or 37.5% and $1.5 million or 6.6%, respectively, over the same period in 2021. The decrease for the three and twelve months ended December 31, 2022, is primarily due to lower salaries and benefits related to the cost actions taken through the year and year end provisions recorded in the prior year somewhat offset by higher computer related costs tied to the ERP migration and government grant funding from the CEWS program in the twelve month period ended December 31, 2021, which was offset against related labour costs. Corporate expenses are comprised of the following: (in $000’s) (in $000's) Three months ended December 31 Twelve months ended December 31 2022 2021 Change 2022 2021 Change Revenue 241 $ 309 $ (68) $ 1,291 $ 1,788 $ (497) $ Gross profit 241 309 (68) 1,291 1,788 (497) Gross profit margin 100.0% 100.0% - 100.0% 100.0% - Selling, general and administration 4,715 7,548 (2,833) 21,041 22,521 (1,480) Reorganization costs 132 1,764 (1,632) 1,270 2,369 (1,099) Foreign exchange (gain) loss 1,036 373 663 (259) 197 (456) Other expenses (income) 57 (49) 106 57 (49) 106 Segment loss (5,699) (9,376) 3,677 (20,818) (23,250) 2,432 Segment EBITDA (5,562) $ (8,824) $ 3,262 $ (19,467) $ (21,077) $ 1,610 $ $830 $947 $209 $2,056 $673 Three months ended December 31, 2022 Salaries and benefits Director and professional fees Travel, meals and entertainment Office and administration Depreciation and amortization $3,694 $1,357 $285 $1,647 $565 Three months ended December 31, 2021 $8,579 $2,895 $827 $6,853 $1,887 Twelve months ended December 31, 2022 $11,548 $2,872 $584 $5,344 $2,173 Twelve months ended December 31, 2021 87 Management’s Discussion and Analysis 19 Discontinued Operations - Sustainability Solutions Segment On November 30, 2022, the Company sold its Bullfrog Power Inc. (“Bullfrog”) business unit, a wholly owned subsidiary for approximately $35.0 million to a third-party. Bullfrog was classified and presented as a discontinued operation as at December 31, 2022. The Bullfrog business represented the entirety of the Company’s Sustainability operating segment until November 30, 2022. The Sustainability Solutions segment consists of the operations of Bullfrog Power, a green energy provider, offering a 100% clean, renewable energy choice to Canadians. Results for the three and twelve months ended December 31, 2022 Revenue during the three and twelve months ended December 31, 2022, decreased by $0.7 million and increased by $1.1 million, respectively, over the same period in 2021. The decrease in the three and twelve months ended December 31, 2022 is related to the sale of the business on November 30, 2022. Gross profit for the three and twelve months ended December 31, 2022, decreased 29.0% and increased 2.9%, respectively, over the same period in 2021. The decrease in the three months ended December 31, 2022 is related to the sale of the business on November 30, 2022 while the increase over the twelve month period is due to higher realized gross margins based on strong procurement channels to source environmental attributes at economical prices. SG&A expenses during the three and twelve months ended December 31, 2022, decreased 66.7% and 17.2%, respectively, over the same period in 2021. The decrease in the three months ended December 31, 2022 is related to the sale of the business on November 30, 2022. Change in fair value of financial instruments for the three and twelve months ended December 31, 2022 is related to the power purchase arrangement offset by the change in a related hedge. Change in realized gain on settlement is related to settlement of energy contracts and hedge contracts under the terms of the power purchase arrangement. For the three and twelve months ended December 31, 2022, Segment EBITDA increased $1.6 million and $5.1 million over the same period in 2021 as a result of the factors noted above. Change in fair value of derivative instruments During the year ended December 31, 2020, the Company entered into a Power Purchase Agreement (“PPA”) for the purchase and sale of renewable energy and environmental attributes, including Certified Renewable Energy Certificates, for a period of seven years with an expected start date in the second quarter of 2021. During the three and twelve months ended December 31, 2022, the Company has recognized an unrealized gain (loss) in the change in fair value of the derivative asset with an estimated fair value of $1,989 and $6,765 respectively (three and twelve months ended December 31, 2021 – $488 and $3,918, respectively). At December 31, 2021, an amount of $1,769 was expected to be realized within the next twelve months and was recorded as a current asset.To offset any risk and volatility of this agreement, management entered into a related power swap arrangement to hedge the risk of changes in cash flows due to the fluctuations of power prices in the Alberta market. While this agreement economically hedges the risk of changes in cash flows due to fluctuations in power rates, hedge accounting has not been applied for these instruments. The unrealized gain (loss) in change in the fair value of the other derivative liability during the three and twelve months ended (in $000's) Three months ended December 31 Twelve months ended December 31 2022 2021 Change 2022 2021 Change Revenue 1,663 $ 2,338 $ (675) $ 10,109 $ 11,191 $ (1,082) $ Cost of sales 587 822 (235) 2,830 4,118 (1,288) Gross profit 1,076 1,516 (440) 7,279 7,073 206 Gross profit margin 64.7% 64.8% (0.1%) 72.0% 63.2% 8.8% Selling, general and administration 472 1,419 (947) 2,930 3,538 (608) Provision for expected credit loss - 16 (16) 15 112 (97) Change in fair value of financial instruments (2,476) 158 (2,634) (7,427) (2,716) (4,711) Change in realized loss (gain) on settlement 818 113 705 (1,234) (1,051) (183) Reorganization costs - - - - 101 (101) Foreign exchange (gain) loss 15 (11) - 15 26 (11) Segment profit 2,247 (179) 2,426 12,980 7,063 5,917 Segment EBITDA 2,303 $ 21 $ 2,282 $ 13,425 $ 7,716 $ 5,709 $ Segment EBITDA % 138.5% 0.9% 137.6% 132.8% 68.9% 64.0% 88 Management’s Discussion and Analysis 20 December 31, 2022 of $487 and $662, respectively (three and twelve months ended December 31, 2021 – ($646) and ($1,202), respectively) is based on the projected market values of similar contracts with similar remaining durations as if the contract has been entered into at end of each period. On March 9, 2022, the Company announced the signing of a second Power Purchase Agreement for the purchase and sale of renewable energy and environmental attributes, including Certified Renewable Energy Certificates. The agreement started during the second quarter of 2022. During the three and twelve months ended December 31, 2022, the Company recognized realized settlements on the PPA in the amount of $499 and $4,478, respectively offset by realized settlements on the hedge of $1,317 and $3,244 respectively for a net gain (loss) of ($818) and $1,234, respectively. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Cash and Borrowing Capacity Bank indebtedness was $24.9 million at December 31, 2022, and was comprised of $26.1 million on the operating line and cash on hand of $1.1 million. This compares to bank indebtedness of $28.1 million net of cash on hand of $1.2 million at December 31, 2021. At December 31, 2022, the Company had additional borrowing capacity under the revolving line of credit of $6.9 million, as compared to $5.0 million as of December 31, 2021. We monitor our liquidity principally through cash and cash equivalents and available borrowing capacity under our revolving operating line of credit. Our primary uses of funds are for operating expenses, working capital requirements, capital expenditures and debt service requirements. Debt and Capital Structure The Company’s lending facility is comprised of two main components with details and terms as follows: On November 30, 2022, the Company entered into a new Amended and Restated Credit Agreement with its Lender. Key terms of this Agreement are as follows: a) The maturity date of this new facility was extended to September 30, 2024 and will be amortized over an 8-year period with quarterly repayments of $1.1 million, reduced from previously $2.1 million per quarter; b) Achieve a minimum cumulative monthly EBITDA at the end of each calendar month through March 31, 2023; c) Maintain incremental interest rate margin of 1.00% on facility advances in place from April 29, 2022 through March 31, 2023; d) Subsequent to the 2022 fiscal year, maintain certain covenants on a 12-month rolling quarterly basis, including: • Minimum fixed charge coverage ratio of 1.00 for the quarter ended March 31, 2023, as revised subsequent to the year end, increasing to 1.25 for each fiscal quarter thereafter; • Maximum total senior debt to EBITDA ratio based on the most recently completed four fiscal quarters of 3.25:1.00; • Maximum total debt to EBITDA ratio based on the most recently completed four fiscal quarters of 3.75:1.00. (in $000's) Operating Line Term Loan Total Amount $35,000 $35,922 $70,922 Term Committed Committed Interest rate (i) Prime + 2.00% - 3.00% Prime + 2.00% - 3.00% Maturity date September 30, 2024 September 30, 2024 Repayment terms Revolving Quarterly payments with remaining payable on maturity Amount Drawn $26,062 $35,922 $61,984 Letter of Credit 2,000 - 2,000 Amount Available to be Drawn (ii) - December 31, 2022 $6,938 - $6,938 (i) - based on Debt:EBITDA ratio ranges with an incremental interest rate margin of 1.00% from April 29, 2022 through March 31, 2023. (ii) - assumes maximum borrowing base available 89 Management’s Discussion and Analysis 21 As at December 31, 2022, the Company was in compliance with the financial covenants in effect in its credit facility, being the minimum cumulative monthly EBITDA covenant. Debt, including long-term debt, lease liabilities and promissory notes, decreased to $74.0 million at December 31, 2022 from $94.6 million at December 31, 2021. Long-term debt is comprised of the following components: (in $000’s) The decrease in long-term debt for the period ended December 31, 2022, was attributable to a reduction in term debt funded by the proceeds from the sale of the Bullfrog business unit and the paydown of promissory notes with funds from the Rights Offering partially offset by an increase in the lease liability tied to our new head office lease. The Company monitors its capital structure in accordance with the covenants required under its credit facility and the availability of long-term capital to support growth opportunities. The outstanding balance under the revolving operating line fluctuates from quarter to quarter as it is drawn to finance working capital requirements, capital expenditures and acquisitions, and is repaid with funds from operations, dispositions or financing activities. Summary of Cash Flows The following table summarizes Spark Power’s cash flows for the three and twelve months ended December 31, 2022: Cash flows from operating activities For the three and twelve months ended December 31, 2022, cash generated in operating activities from continuing operations increased by $1.0 million to $2.9 million and decreased by $18.3 million to ($7.7) million, respectively, as compared to cash generated of $1.9 million and $10.6 million in the same period in 2021. The main driver for the changes to cash flow from operations was attributable to the net change in working capital, deferred income taxes and net income. $35,922 $2,500 $35,532 December 31, 2022 Term debt, excluding financing fees Other long-term debt Promissory notes Lease liability, including current portion $62,459 $750 $10,738 $20,627 December 31, 2021 (in $000's) 2022 2021 2022 2021 Operating activities 2,876 $ 1,921 $ (7,652) $ 10,615 $ Investing activities (2,669) (691) (8,628) (5,599) Financing activities (30,647) (2,563) (9,383) (3,475) Discontinued operations 30,440 1,333 25,663 (1,541) Decrease (increase) in cash - - - - Cash, beginning of period - - - - Cash, end of period - $ - $ - $ - $ Three months ended December 31 Twelve months ended December 31 90 Management’s Discussion and Analysis 22 Cash flows from investing activities For the three and twelve months ended December 31, 2022, cash used in investing activities was $2.7 million and $8.6 million as compared to $0.7 million and $5.6 million in the same period in 2021. The purchase of property, plant and equipment increased by $1.3 million and decreased by $1.1 million, respectively, for the three and twelve months ended December 31, 2022 as compared to the same period in 2021.The Company also had investments of $4.1 million relating to the ERP migration, Spark’s technology and business process transformation initiative. Cash flows from financing activities For the three and twelve months ended December 31, 2022, cash used in financing activities was $30.6 million and $9.4 million, respectively, as compared to cash used of $2.6 million and $3.5 million in the same period in 2021. The repayment of the term loan of $29.6 million is the primary reason for the increase in cash used for the three and twelve months ended December 31, 2022 as compared to the same period in 2021. Cash flows from discontinued operations For the three and twelve months ended December 31, 2022, cash flow from discontinued operations activities increased by $29.1 million to $30.4 million and increased by $27.2 million to $25.7 million, respectively, as compared to cash flow of $1.3 million and cash used of $1.5 million in the same period in 2021. External Factors Impacting Liquidity Please refer to the “Risks” section contained in the Spark Power Group Inc. Annual Information Form filed under the Company’s profile at www.sedar.com, for a description of circumstances that could affect our sources of funding. Working Capital and Adjusted Working Capital Working Capital includes accounts receivable, other receivable, HST receivable, government grant receivable, current portion of lease receivable, contract assets, inventory, current portion of derivative assets, and prepaid expenses and deposits, bank indebtedness, accounts payable and accrued liabilities, other derivative liability, income taxes payable, contract liability, and the current portions of long-term debt, promissory notes and lease liability. Adjusted Working Capital excludes the current portion of long-term debt, promissory notes and lease liability, and therefore provides management and investors with a clearer understanding of the efficiency of operational working capital needs absent working capital required as a result of capital structure. Spark Power’s main sources of liquidity have been cash generated from operating activities and borrowings under its credit facilities. At December 31, 2022, Working Capital (deficiency) and Adjusted Working Capital were 22.0 million and $37.0 million, respectively, compared with ($63.9) million and $13.2 million, respectively at December 31, 2021. The change in adjusted working capital of $23.9 million was due primarily to an increase in contract assets and accounts receivable related to higher revenue growth and a decrease in accounts payable in part funded by the proceeds from the Rights Offering. The following table outlines how our working capital measures are determined: The Company believes that adjusted working capital provides a better understanding of period-on-period comparisons of results as it reflects the results of operations of companies. See “NON-IFRS MEASURES” at the end of this report. (in $000's) December 31 2022 December 31 2021 Working capital (deficiency) 21,992 $ (63,872) $ Current portion of long-term debt 4,500 61,962 Current portion of promissory notes 2,500 10,738 Current portion of lease liability 8,057 6,643 Working capital from discontinued operations - 2,297 Adjusted working capital 37,049 $ 13,174 $ 91 Management’s Discussion and Analysis 23 Adjusted working capital consists of the following: Outstanding Share Data The total number of fully diluted outstanding and issuable Common Shares is as follows: Warrants At December 31, 2022, the Company had 11,776,666 warrants outstanding. Each whole warrant gives the right to purchase 1.10 Common shares at an exercise price of $3.14 per Common share over the term. These warrants have been measured using the Black-Scholes method. Stock options, Restricted share units, Deferred share units and Performance share units The Company has an Option Plan adopted and effective as of August 31, 2018. Under the terms of the Option Plan, directors, officers, employees and consultants, subject to certain conditions, may be granted options to purchase Common Shares of the Company. Options are priced in accordance with regulatory requirements and the plan generally expires after ten years, with vesting provisions stated in the plan. With the adoption of the Omnibus Equity Incentive Plan, at the annual and special meeting of shareholders on May 15, 2019, the Company has not issued any further options under the Option Plan and does not intend to do so. The Company has an Omnibus Equity Incentive Plan (“the Plan”). Under the terms of the plan, directors, officers, employees and consultants, subject to certain conditions, may be granted options to purchase Common Shares, Restricted Share Units (“RSU”), and Performance Share Units (“PSU”) of the Company. In addition, directors may be granted Deferred Share Units (“DSU”) of the Company. All equity compensation awards are priced in accordance with regulatory requirements and the terms of the plan. Options generally expire after five or ten years, with vesting provisions stated in the plan and per grant (in $000's) December 31 2022 December 31 2021 Non-cash working capital balances 63,111 $ 43,613 $ Operating line (26,062) (28,142) Working capital from discontinued operations - 2,297 Adjusted working capital 37,049 $ 13,174 $ 90,493,135 11,776,666 2,443,221 241,705 1,875,000 1,250,000 2,937,042 December 31, 2022 Common shares Warrants Restricted share units Deferred share units Stock appreciation rights Performance share units Stock options 56,934,235 11,776,666 1,405,960 81,186 2,083,198 December 31, 2021 92 Management’s Discussion and Analysis 24 agreements. RSU’s generally vest over 3 to 4 years or cliff vest after 3 years and are granted in accordance with the plan. The PSU’s granted to date vest over a 4 year period as performance conditions are achieved. The DSU’s vest immediately. The Plan provides for equity compensation awards to be issued to eligible participants so that they may participate in its growth and development. Subject to the specific provisions of the Plans, eligibility, vesting period, terms of the options, RSU’s and PSU’s and the number of equity awards granted are to be determined by the Board of Directors at the time of the grant. The Plan allows the Board of Directors to issue equity settled RSU’s, PSU’s and DSU’s, provided that, when combined, the maximum number of Common Shares reserved for issuance under all stock-based compensation arrangements of the Company does not exceed amounts available for issuance under regulatory guidelines. Share Appreciation Rights On September 16, 2020, the Company adopted a stock appreciation rights plan (the “SAR Plan”). The SAR Plan further aligns the Company’s strategic objective of value creation to the compensation of the senior management team of the Company. On September 20, 2022, the Company’s senior management team were granted 2,325,000 share appreciation rights, to be settled in cash, with an expiry date on January 1, 2027. The SARs vest on the occurrence of a change in control that achieves certain financial threshold, or upon satisfaction of the alternative vesting condition, provided both events occur prior to the expiry date. As at December 31, 2022, 1,875,000 share appreciation rights were outstanding. OUTLOOK Business & Operations Outlook As part of the recent Let’s Grow Better 2025 Strategy launch, management has been focused on rolling out the deeper tactical plans aligned with the strategic plan. These plans are tied directly to strategic workstreams laid out in the new strategy. A heavy focus in the early part of the launch has been focused around the commercial aspects of the strategy and more specifically, the new go-to-market plan. In the first quarter of 2023, management expects to have the new strategy fully launched Company-wide and expects to measure Company performance against the strategic plan starting with internal first quarter 2023 reporting. In addition to the extensive focus on its new strategic plan, the Company continues to prioritize on executing the balance of its turnaround plan actions announced throughout 2022. These actions include the ongoing focus and improvement of gross margin performance, cash conversion and working capital management. While the Company progressed well in 2022, management is committed to getting the organization performing with better predictability. Demand on Spark’s Renewables business segment continues to be strong. In the fourth quarter of 2022, Spark continued to experience positive gains in the booking of new customers. Its U.S. operations will see significant growth in its solar segment with the onboarding of several new long-term O&M customer under master service agreements, covering sites throughout the Southwest and West U.S. The pipeline of new opportunities for Spark’s operations and maintenance service offering expanded significantly for solar and battery storage systems in 2022. Spark expects to capture significant market opportunities with its expanded operations in the U.S., both in the field and with its enhanced Renewables Operating Centre (ROC) in Dallas, Texas. The new operating centre supports customers who require monitoring of their assets, mainly in solar and battery storage systems. Spark’s ROC is NERC certified and supports O&M agreements signed on larger, utility scale, power producing sites. Further, the U.S. Technical Services operations also experienced an improvement in its work mix with the onboarding of new customers aligned well with the targeted go-to-market plan. Towards the end of 2022, the Eastern Canadian Technical Services operations gained momentum with improved margins and an enhanced mix of backlog expected to continue to drive better margin performance. In Western Canada, the Company is ramping up activity with its largest Regulated Utility customer in Alberta as part of the three year contract renewal signed in the second quarter of 2022. Outside of the utility segment, the Western Canadian business underperformed on its ongoing market expansion in the industrial segment. Management has launched get well plans for each of the affected business units. Management anticipates improvements to backlog, overall revenue mix and margins in the latter part of first half of 2023 throughout Western Canada. In the first quarter of 2023, the Company executed it second go-live on it previously announced Project Darwin – integrated technology and business process platform. The U.S. Renewables operations came onto the new technology and business process platform in January. Spark’s entire U.S. operation is now live and operating in the integrated technology platform. The Canadian business operations will launch the new platform later in 2023. 93 Management’s Discussion and Analysis 25 Financial Outlook With the growth in our business over the past few years, the diversification of our business, both on a geographic and industry basis, and the stabilization of COVID-19 related effects on the business, management has determined that it is now appropriate, and on a reasonable basis, to provide comments on certain key items that are expected to influence our business results through 2023. Management advises the reader that the following comments represent forward-looking information and are qualified by our forward-looking statement disclaimer set out in this management discussion and analysis. The following comments are also based on underlying assumptions on which management has relied, which in the view of management are reasonable in the circumstances: • The continued impact of COVID-19 protocols on demand and labor and equipment utilization will impact margin realizations, albeit to a lesser extent than prior years; • Pricing trends in key commodities such as copper, steel, aluminum and plastics that have seen significant price increases since late 2021 due to supply constraints and increasing price inflation, coupled with ongoing overall market inflation including labour, continue to impact full margin realization; • Demand for our services is expected to be reasonably strong barring any further infectious disease related mandates and/or economic slowdown that would impact any of our businesses providing non-essential services. Based on the foregoing, management currently expects the following range of performance targets for the Company in fiscal 2023: • Moderate Revenue growth across key segments and markets; • Continued growth in our Renewables segment through 2023 is expected given expanding market demands in the Solar sector; • Operational gross margin realizations to continue to improve across most segments; • Selling, general and administration costs are expected to be in the range of $46.0 million to $47.0 million, excluding amortization and depreciation; and • Liquidity is expected to improve through the 2023 with improvements in net working capital Other financial metrics the Company also expects include: • Capital expenditures, excluding lease additions, between $6.5 and $7.5 million; • Lease payments in the range of $8.5 and $9.0 million; and • Interest expense (excluding the impact of IFRS 16 – leases) in the range of $6.0 to $7.0 million. OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTINGENCIES Spark Power has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resource. 94 Management’s Discussion and Analysis 26 SUMMARY QUARTERLY FINANCIAL INFORMATION Note: (1) “Adjusted EBITDA” and Adjusted EBITDA marginare non-IFRS measures. Refer to Non-IFRS Measures” for definitions of these terms. (2) Q4 2022 net income excludes results of discontinued operations. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES The preparation of the Financial Statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and reported amounts of revenues and expenses during the reporting period. Management is required to apply judgment and estimates in recognizing revenue, determination of appropriate provisions, including expected credit losses, useful lives of assets, valuation of equity transactions, valuation of business combinations, discount rate of lease liabilities, valuation of derivative financial instruments, impairment of property and equipment and intangible assets, and impairment of goodwill. By their nature, these judgments and estimates are subject to measurement uncertainty and are reviewed periodically and adjustments, if necessary, are made in the period in which they are identified. Actual results could differ from those estimates. Revenue recognition - The most significant judgments and estimates in recognizing revenue relate to the long-term construction and management contracts, as they are long-term in nature and contain consideration that is variable based on a number of uncertain factors, such as change orders, reserves set up for additional costs/overruns, etc. Also, the Company estimates progress towards completion and gross margins to be earned at the end of these construction contracts, where a change in these estimates may have a material impact on the overall revenue recognized for the period. Construction contracts – The Company determines the extent to which the estimate of variable consideration is constrained (and therefore excluded from the measurement of revenue) by considering historical trends and the lowest levels of annual incentive fees earned in the past. Management contracts – Key assumptions made in determining the estimate of the transaction price relating to management contracts include: • Cash flow projections for the per-project and per-kilowatt hour capacity are uniform in each year going forward; and • The number of licensees will not materially change over the remaining contract term. Expected credit losses – Expected credit losses associated with accounts receivable and contract assets require management to assess certain forward looking and macroeconomic factors to determine whether there is a significant increase in credit risk as well as the expected provision on the balance outstanding as at period-end. Onerous contracts – A contract is considered onerous when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be derived from the contract. The determination of when to record a provision for an onerous contract is a complex process that involves management judgment about outcomes of future events and estimates concerning the nature, extent and timing of expected future cash flows and discount rates related to the contract. Useful lives of assets - Significant estimates in connection with these financial statements include the determination of the useful lives of property and equipment and intangible assets based on their expected depreciation rates. Lease liability – The lease liabilities associated with all property, equipment and vehicle leases are measured at the present value of expected lease payments and discounted using the interest rate implicit in the lease, unless this is not readily (in $000's) Q4 2022 Q3 2022 Q2 2022 Q1 2022 Adjusted Q4 2021 Q4 2021 Adjusted Q3 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Revenue 64,518 $ 73,353 $ 72,938 $ 70,043 $ 68,464 $ 65,424 $ 72,497 $ 68,982 $ 65,372 $ 56,037 $ 66,865 $ Gross Profit 12,485 18,326 16,878 13,564 13,257 9,517 18,690 12,710 15,851 14,173 18,523 19.4% 25.0% 23.1% 19.4% 19.4% 14.5% 25.8% 18.4% 24.2% 25.3% 27.7% Income (Loss) from Operations (5,022) 9,940 3,182 (2,139) (7,057) (10,797) 5,012 (1,479) 2,764 1,138 306 Net income (loss) 5,135 5,425 467 (3,257) (14,136) (17,876) 3,985 (2,862) 156 (712) (3,306) Adjusted EBITDA 6,972 14,864 10,398 2,775 2,516 2,516 10,264 10,264 7,350 7,295 8,873 Adjusted EBITDA Margin 10.8% 20.3% 14.3% 4.0% 3.7% 3.8% 14.2% 14.9% 11.2% 13.0% 13.3% Adjusted LTM EBITDA 35,009 30,553 25,952 22,905 27,425 27,425 33,782 33,782 32,502 34,264 32,349 Adjusted LTM EBITDA Margin 12.5% 10.8% 9.1% 8.3% 10.6% 10.7% 13.0% 13.1% 13.0% 14.9% 14.2% LTM Revenue 279,273 281,758 283,942 276,376 259,330 255,816 260,772 257,257 249,711 230,678 228,153 For the three months ended 95 Management’s Discussion and Analysis 27 determinable, in which case the Company’s incremental borrowing rate on commencement of the lease is used. The Company determines its incremental borrowing rate as the rate of interest it would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Additionally, management makes certain assumptions regarding the extension and termination options and termination value available within its lease arrangements to determine the overall lease term. This requires significant estimates and assumptions from management that may have an impact on the Financial Statements. Valuation of derivative financial – The estimated fair values of financial assets and liabilities are subject to measurement uncertainty due to their exposure to credit, liquidity and market risks. Furthermore, the Company may use derivative instruments, including power purchase arrangements, to manage commodity price, foreign currency and interest rate exposures. The fair value of these derivatives is determined using valuation models which require assumptions concerning the amount and timing of future cash flows, and discount rates. Management’s assumptions rely on external observable market data including quoted forward commodity prices and volatility, interest rate yield curves and foreign exchange rates. The resulting fair value estimates may not be indicative of the amounts realized or settled in current market transactions and, as such, are subject to measurement uncertainty. Impairment of property and equipment and intangible assets – At the end of each reporting period, the Company reviews the carrying amounts of property and equipment and intangibles to determine whether there is any indication of impairment. If any such indication exists, the Company estimates the recoverable amount of the asset in order to determine the extent of the impairment loss, if any. The Company generally assesses impairment at the level of cash-generating units (“CGU”), which are the smallest identifiable groups of assets that generate cash inflows that are largely independent of cash inflows from other assets. Impairment is assessed by comparing the CGU’s carrying value with its net recoverable amount. The preparation of future cash flows requires management to make estimates and assumptions with respect to expected revenues and expenses, which are subject to change. Impairment of goodwill – The annual test of impairment of goodwill is completed based on management’s estimates of future performance of the related CGU based on past history and economic trends, plus estimates of the weighted average cost of capital. When circumstances warrant, impairment testing will be completed on a quarterly basis. For the purpose of impairment testing, goodwill that is allocated to CGUs is compared to the net recoverable value of the CGU. The recoverable amount of each CGU was determined based on value-in-use calculations calculated using a discounted cash flow model based on a reasonable forecast of operations for each CGU. Various assumptions are used in forecasting the business the most significant of which include: • Discount rates – The discount rates reflect appropriate adjustments relating to market risk and risk factors specific to the business in general. • Revenue growth rates – Revenue growth rates assumed consider historical trends in the business unit, the general economic environment and managements views on business risks and opportunities that may exist that will impact the relevant CGUs. • Gross margin realizations – Gross margin realizations assumed for each CGU considers historical trends, recent trends impacted by current economic environment and business mix within the CGUs. Outside factors considered include the state of the general economy in the region and the impact of competitive forces on pricing and levels of investment in our customers’ businesses. The estimate of the recoverable amount for the CGUs is most sensitive to the assumptions noted above. Changes in any of these key inputs/assumptions could result in a significant change to the determination of goodwill impairment. Liquidity Risk – The Company makes estimates and assumptions concerning the future, including its projected compliance with debt covenants and potential for the disclosure of going concern indicators. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations on future events that are believed to be reasonable under the circumstances. Significant judgements and estimates surrounding future revenue growth rate assumptions and EBITDA realizations for each of its business units have the greatest impact on the potential for introducing additional liquidity risk as a result of debt covenant compliance requirements. The resulting accounting estimates and judgements may vary from actual results and could result in a risk of causing a change in presentation and/or disclosure in the future. Discontinued operations – A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. Judgement is required in determining the timing of classification to discontinued operations, and resulting assets held for sale. 96 Management’s Discussion and Analysis 28 FINANCIAL INSTRUMENTS The Company has classified its financial instruments in accordance with IFRS into various categories as described in its accounting policies. The fair values of financial instruments are classified and measured according to the following three levels based on the fair value hierarchy. Level 1: quoted prices in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly. Level 3: inputs for the asset or liability that are not based on observable market data. There were no financial instruments carried at fair value categorized in Level 3 as at December 31, 2022 and December 31, 2021. There were no transfers between levels during the period. The financial instruments recorded at fair value are the Interest Rate Swap arrangement and derivative financial instruments such as PPA and Hedge arrangements and are categorized as Level 2. The fair value of the Interest Rate Swap arrangement in a cumulative loss amount of $nil has been recorded to finance expense using Mark-to-Market (“MtM”) information as at December 31, 2021 from a third party. The Interest Rate Swap arrangement ended on September 30, 2021 and was not renewed. The Company does not have any financial instruments carried at fair value categorized in Level 3 as at period end. The carrying values of accounts receivable, other receivable, HST receivable, government grant receivable, contract assets, bank indebtedness, accounts payable and accrued liabilities, income taxes payable and contract liabilities approximate their fair values due to the immediate or short-term nature of these securities. The fair values of the borrowings approximate their carrying values as they are calculated based on the present value of the future principal and interest cash flows, discounted at the market rate of interest at the reporting date. The market rate of interest is determined by reference to similar liabilities. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Disclosure Controls and Procedures (“DC&P”) and Internal Controls over Financial Reporting (“ICFR”) Management is responsible for the design and operational effectiveness of DC&P and ICFR in order to provide reasonable assurance regarding the disclosure of material information relating to the Company. This includes information required to be disclosed in the Company’s annual filings, interim filings and other reports filed under securities legislation, as well as the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Consistent with National Instrument 52-109, the Company’s CEO and CFO evaluate quarterly the DC&P and ICFR. As of December 31, 2022, the Company’s CEO and CFO concluded that the Company’s DC&P and ICFR were properly designed and were operating effectively other than as detailed below in the section “Material weakness”. Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Because of their inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management has identified the material weakness outlined below: Material weakness The material weakness identified in our internal controls over financial reporting at December 31, 2022, is that we did not sufficiently design internal controls to provide the appropriate level of oversight regarding the review of the Company’s financial reporting. Consistent with our stage of development, we continue to rely on risk-mitigating procedures during our financial closing process in order to provide comfort that the financial statements are presented fairly in accordance with IFRS. 97 Management’s Discussion and Analysis 29 Changes in internal controls over financial reporting Management has evaluated whether there were changes to our internal controls over financial reporting during the period ended December 31, 2022, that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting. Management has identified actions that have been implemented in the year and will continue to be improved upon to further refine and enhance the estimates surrounding revenue recognition and provisions. Actions include optimization of system generated activities and reporting and a more comprehensive monthly review process of estimations used in calculating the value of contract assets. RISK MANAGEMENT The Board of Directors has overall responsibility for the determination of the Company’s risk management objectives and policies while retaining ultimate responsibility for them. The Company is exposed to a variety of financial risks by virtue of its activities: market risk, risk from infectious diseases, credit risk, interest rate risk, liquidity risk and foreign currency risk. Except for risks highlighted by COVID-19 pandemic, the Company’s overall risk management program has not changed throughout the year and focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance. Risk management is carried out by the finance department under policies approved by the Board of Directors. This department identifies and evaluates financial risks in close cooperation with management. Infectious Diseases Outbreaks or the threat of outbreaks of viruses or other infectious diseases or similar health threats may have a material adverse effect on the Company by causing operational and supply chain delays and disruptions (including as a result of government regulation and prevention actions), adverse effects on operational efficiency, including due to quarantine, testing and monitoring obligations, labour shortages and shutdowns, decreased demand, increased unrecoverable costs, declines in gross margin realizations, capital markets volatility, or other unknown but potentially significant impacts. Notwithstanding the phased reduction in restrictions in most jurisdictions following the peak of the COVID-19 variant in 2022, unexpected developments in financial markets, regulatory environments, supply chains, or supplier, employee, or customer behaviour and confidence may have adverse impacts on our financial results and condition, and business operations and reputation if another epidemic or pandemic-scale infectious disease arises, or if a mutation of the COVID-19 virus results in renewed government and private sector restrictions. The Company cannot accurately predict what future effects such conditions may have on its operations or financial results. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in economic downturn that could result in a material adverse effect on the demand for the Company’s services, investor confidence, and general financial market liquidity, all of which may adversely affect the Company’s business and the market price of the Common Shares. Accordingly, any outbreak or threat of an outbreak of an epidemic disease or similar public health emergency could have a material adverse effect on the Company’s business, financial condition, and results of operations. Credit risk Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation. The Company is mainly exposed to credit risk from credit sales. Management of the Company monitors the credit worthiness of its customers by performing background checks on all new customers focusing on publicity, reputation in the market and relationships with customers and other vendors. Further, management monitors the frequency of payments from Spark’s ongoing customers and performs frequent reviews of outstanding balances. The Company determines there to be an increase in credit risk when balances are outstanding for more than 60 days past the customers’ contractual payment terms. The Company considers a receivable to be in default when contractual payments are 120 days past due, except when they are within terms. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. Provisions for outstanding balances are set based on forward looking information; when there is a change in the circumstances of a customer that would result in financial difficulties as indicated through a change in credit quality or industry factors and create doubt over the receipt of funds. Such reviews of a customer’s circumstances are done on a continued basis through the monitoring of outstanding balances as well as the frequency of payments received. A receivable is completely written off once management determines the probability of collection to be not present. Further disclosures regarding accounts receivables are provided in Note 4 of the financial statements. The Company’s balances of bank indebtedness are subject the Company to credit risk. Bank indebtedness is held with a 98 Management’s Discussion and Analysis 30 major Canadian bank which the Company believes lessens the degree of credit risk. Contract assets subject the Company to credit risk in the case of non-performance or disputes on performance. Contract assets are reviewed similar to receivables when deemed necessary. Interest rate risk Interest rate risk arises from the Company’s use of floating interest rate bearing debt securities. The Company may increase debt levels depending on the balance of financing in the future. If cash balances are higher than required for immediate requirements, the Company invests with a low-risk strategy in secure short-term deposits through major banks to earn interest income. The revolving facilities (Note 12 of the financial statements) bear interest at a variable rate; however, the balance of the lines is continually adjusted based on the balance held in the operating accounts, mitigating the Company’s interest rate risk. Therefore, the interest rate risk and cash flow exposure are not significant. The long-term debt also bears interest at a variable rate. For the three and twelve months ended December 31, 2022, if interest rates had been higher by 2% with all other variables held constant, net income would have been $0.4 million and $1.5 million lower, respectively. A decline in interest rates of 1.0% would have increased the Company’s net income by $0.2 million and $0.8 million, respectively. Liquidity risk Liquidity risk arises from the Company’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Company’s policy is to ensure it will always have sufficient cash to allow it to meet its liabilities when they become due. The Board receives quarterly information regarding cash balances and cash flow projections. The liquidity risk of each subsidiary is managed centrally by the treasury function. Additional information related to liquidity risk is found in Note 2 and 13 of the financial statements. Cost inflation risk Cost inflation risk arises from rapid increases in key costs inputs due to price inflation in the markets. Given the nature of certain customer contracts and the time required to introduce compensating price increases to our customer base, there may be a period of time where cost increases outpace the realized benefit of price increases. 99 SPARK POWER HEAD OFFICE 1337 North Service Road East, Suite 200 Oakville, Ontario L6H 1A7 Canada 1-833-775-7697 LISTING SPG.TO SPG.WT AUDITORS BDO Canada LLP TRANSFER AGENT TSX Trust Company ANNUAL AND MEETING OF SHAREHOLDERS Thursday May 25, 2023 at 9am ET The meeting will be held virtually. For attendance details, please review the Notice of Annual and General Meeting of Shareholders, which is available online through the System for Electronic Document Analysis and Retrieval (SEDAR) at sedar.com. Additional information about Spark Power has been filed electronically with various securities regulators in Canada through SEDAR and is available online at sedar.com CORPORATE INFORMATION

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