Cleantek Industries : Q4 2022 Management Discussion & Analysis

Management's Discussion and Analysis

For the years ended December 31, 2022 and 2021

MANAGEMENTŇS DISCUSSION AND ANALYSIS

BASIS OF PRESENTATION AND DESCRIPTION OF THE COMPANY

April 28, 2023 - The following Managem ent's Discussion and Analysis ("MD&A") of the financial condition and results of operations for Cleantek Industries Inc. ("Cleantek" or the "Company" which includes references to "we", "our", "us", "its"), (formerly Raise Production Inc. ("Raise")) is a review of the operations, current financial position and condition for the years ended Decem ber 31, 2022 and 2021 and should be read in conjunction with the Company's audited consolidated financial s tatements for the years ended Decem ber 31, 2022 and 2021 ("Annual Financial Statements "). All amounts are in thousands of Canadian dollars unless otherwise indicated.

The Annual Financial Statements of Cleantek have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. This MD&A and the Annual Financial Statements of Cleantek have been prepared by managem ent and approved by the board of directors (the "Board") as of April 28, 2023.

Cleantek, headquartered in Calgary, Alberta, is an innovative provider of patented, clean technology solutions focused on reducing both cost and carbon intensity in the wastewater management and industrial lighting sectors across North America. Cleantek is a publicly traded com pany listed on the TSX Venture Exchange (the "TSXV") under the trading symbol CTEK.

READER ADVISORIES

This MD&A contains forward-looking statements and introduces financial measures which are not defined under IFRS aimed at helping the reader in making comparisons to metrics sim ilarly disclosed by industry peers . Readers are cautioned that the MD&A should be read in conjunction with the Company's disclosure under "Non-IFRS Measurements" and "Forward-Looking Information" included at the end of this MD&A.

COMPANY OVERVIEW AND STRATEGY

Cleantek is an environmental technology-based com pany that provides specialized and fully integrated wastewater treatment and disposal equipment along with turnkey sustainable lighting rental solutions . Cleantek leverages its patented technology and industry expertise to provide equipment to service a diverse range of clientele . Cleantek prioritizes people and the environm ent through our high-performance safety focused culture and our experienced technical professionals are committed to providing environm entally friendly cost-effective solutions to our clients .

On October 29, 2021 Cleantek completed a reverse takeover of Raise (the "RTO"), a TSXV listed company, pursuant to the terms of the arrangement agreement dated July 12, 2021 between Cleantek and Raise . This resulted in the amalgamated public company continuing under the name Cleantek Industries Inc. (TSXV: CTEK), which began trading on the TSXV on November 10, 2021.

Cleantek provides technology-based solutions for an increasingly demanding water treatment and disposal sector along with location lighting to provide safe working conditions for 24-hour operations . Cleantek provides its technology and services in some of the most active areas in Canada and the United States . Our environmental, safety and operational performance have enabled us to establish and maintain a blue - chip client base, including many exploration and production com panies in North America.

As the market continues its shift towards environmental, social and governance ("ESG") response initiatives and best practices, Cleantek intends to leverage its technology to capture additional market share through organic growth of its ZeroE wastewater treatment and vaporization service offering, along with a forecasted strong utilization of our sustainable lighting rental solutions .

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GOING CONCERN

The Annual Financial Statements have been prepared on a going concern basis, which contem plates the realization of assets and settlement of liabilities in the normal course of business as they become due .

In 2021, a com petitor providing lighting solutions in North Am erica initiated legal proceedings against the Company alleging patent infringement by Cleantek on a small fraction of the Company's installed HALOTM lighting units in the United States . The Company has fully responded to the as serted claim and filed a counterclaim, which was expected to go to trial in October 2022. Legal costs incurred in 2022 for the patent litigation totaled $3,430, which significantly im pacted the Company's cash flows from operating activities and liquidity. At December 31, 2022, the Company had net current liabilities of $8,348, including $8,573 of longer-term debt maturing on October 31, 2023, and incurred a net loss of $3,587 for the year ended December 31, 2022 .

• n November 21, 2022 The Com pany reached a settlement regarding the patent infringement with the competitor, with both parties vacating their lawsuits .

However, as a result of legal costs incurred from the patent litigation, Cleantek required the support of its Canadian private debt lender in the near term to manage current cash flow restrictions caused by the patent litigation to allow tim e for the Com pany to generate sufficient cash flows to fund its operations . On October 1, 2022 the Company signed an amending agreement the Canadian private debt lender related to its Non-Revolving Term Facility that eliminated the requirem ent to make principal repayments from October through March 2023 to assist the Company in operational cash flow management. The Com pany will continue to require the support of the Canadian private debt lender as the Company seeks to find an alternate lender or obtains an extension of the maturity of the Credit Facilities , which mature on October 31, 2023. There is no certainty that the Company will be successful in obtaining credit facilities with alternate lenders or an extension of the maturity date with the existing Canadian private debt lender. The Company is budgeting that it will not have sufficient cash available to enable repayment of the Credit Facilities upon maturity on October 31, 2023.

Due to facts and circumstances noted above, there are material uncertainties that exist that may cast significant doubt with respect to the Company's ability to continue as a going concern. These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business .

These financial statements do not reflect adjustments that would be necess ary if the going concern assumption were not appropriate . If the going concern basis were not appropriate for these financial statements, then adjustments would be necessary in the carrying value of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. These adjustments could be material.

HIGHLIGHTS FOR THE FOURTH QUARTER 2022

• Cleantek generated revenue of $3,483 for Q4 2022, an increase of $1,111 or 47% , from Q4 2021. On a year-to-date basis, Cleantek generated revenues of $13,146 for the year ended 2022, an increase of $4,327 or 49% , from 2021. The increased revenue in 2022 is primarily due to a ramp up in rental activity and increased rental prices in both sustainable lighting solutions and ZeroE dehydration;
• Cleantek's gross profit of $2,248 or 65% of revenue for Q4 2022 and $7,822 or 59% of revenue for the year ended 2022 was inline with target and improved when compared with gross profits of $1,126 and 47% of revenue for Q4 2021 and $4,577 and 52% of revenue for 2021;
• Cleantek's Adjusted EBITDA was $1,155 for Q4 2022, an increase of $461 when compared to Q4 2021 primarily due to the increased revenue;

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• On a year-to-date basis Adjusted EBITDA was $4,703, more than double the $1,939 in 2021 primarily due to the $4,327 increase in revenue;
• On November 21, 2022, the Company reached a settlement agreem ent on the patent litigation which has elim inated patent litigation spending going forward. Legal costs incurred in 2022 for the patent litigation totaled $3,430. Details can be found in the Litigation and Claims section within this MD&A;
• Mobile ZeroE deployment peaked at 17 units operating in Q4 2022 when compared to just 10 units at the peak of 2021. A large redeployment to the United States market has helped generate consistent utilization due to the United States market not being impacted by the typical Canadian spring break up. Of the 17 units deployed in Q4 2022, 11 units were deployed in the United States compared to just three in 2021;
• The Company fabricated and deployed an additional 20 HALO lighting systems over the balance of 2022; and,
• As at December 31, 2022 the Company had drawn $1,815 on its revolving debt facility with a remaining $494 available to be drawn; com bined with $724 cash on hand, Cleantek had $1,218 of available liquidity.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
	Three months ended		Years ended
(Canadian $000's, except	December 31		December 31
per share amounts and percentages)	2022	2021	Change	2022	2021	Change
Revenue	3,483	2,372	1,111	13,146	8,819	4,327
Gross profit	2,248	1,126	1,122	7,822	4,577	3,245
Gross profit %	65	47	18%	59	52	7%
Net loss	(388)	(4,747)	4,359	(3,587)	(5,955)	2,368
Net loss per share - basic and diluted ($)	$(0.01)	$(0.22)	$0.21	$(0.13)	$(0.32)	$0.19
EBITDA(1)	612	(4,482)	5,094	802	(3,360)	4,162
Adjusted EBITDA(1)	1,155	694	461	4,703	1,939	2,764
Capital expenditures	819	253	566	2,856	562	2,294
		December 31,	December 31,
As at:			2022		2021	Change
Total assets			15,917	17,156	(1,239)
Working capital surplus /(deficit)(1)			(8,348)		535	(8,883)
Non-current debt(1,2)			2,121		7,875	5,754
Total non-current liabilities			2,167		7,932	5,765

1. Management considers EBITDA and adjusted EBITDA key metrics in analyzing operational performance and the Company's ability to generate cashflow . EBITDA is measured as net income (loss) before interest, tax, depreciation and amortization. Adjusted EBITDA is measured as EBITDA adjusted for share -based compensation, impairment/impairment reversals of non-financial assets, research expense/ recoveries and unusual items not representative of ongoing business performance such as patent litigation expense . Working capital (or also referred to as net current assets/liabilities) for Cleantek is calculated as current assets less current liabilities per the statement of financial position. These items are not defined and have no standardized meaning under IFRS. Presenting these items from period to period provides management and investors with the ability to evaluate earnings trends more readily in comparison with prior periods' results . Please see the Non-IFRS Measurements section of this MD&A for further discussion of these items, and where applicable, reconciliations to measures calculated in accordance with IFRS.
2. Total non-current debt includes the non-current portions of long-term debt and lease liabilities .

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OUTLOOK

Cleantek's strategy focuses on delivering innovative and cost-effective solutions that reduce the carbon intens ity as well as the capital and operating costs of industrial operations . By focusing on expanding the market awareness and adoption of its sustainable lighting solutions and wastewater treatment assets, Cleantek expects to experience increased utilization of these high-margin product lines in the near-term . This, combined with the expansion of our ZeroE System portfolio of waste energy powered, wastewater treatment and vaporization units across industrial and infrastructure projects throughout North Am erica and globally, is expected to lead to a sustainable increase in revenue and corresponding profitability as the Company's asset base grows over time .

The Com pany's near-term strategy will continue to focus on:

• taking advantage of increased oil and gas drilling and production activity in North Am erica to maximize utilization rates of its current fleet of sustainable lighting solutions and mobile ZeroE wastewater treatment assets;
• expanding and growing the Com pany's fleet of sustainable lighting solutions and mobile ZeroE wastewater treatment assets to satisfy increased demand in the oil and gas, m idstream, mining, industrial and construction markets;
• leveraging Cleantek's technology to capture additional market share through organic growth of the ZeroE wastewater treatment and vaporization services;
• expanding and diversifying Cleantek's geographic focus and custom er base including exploring opportunities outside of the North American market; and,
• focusing on growth, generating pos itive return for shareholders and improving financial position now that the patent litigation related to the HALOtm lighting systems in the United State s is behind it; and,
• evaluating new technology, products and services to increase our offering to our current client base .

The Company is uniquely positioned with the prospect to capture expansion in both ZeroE wastewater vaporization and sustainable lighting markets . Cleantek expects that wastewater and vaporization opportunities in the oil and gas, municipal grey water, and industrial wastewater industries and a growing awareness regarding the disadvantages and risks of downhole injection will continue to increase the demand for Cleantek's ZeroE products .

RESULTS OF OPERATIONS
Revenue
	Three months ended		Year ended
	December 31		December 31
(Canadian $000's)	2022	2021	Change	2022	2021	Change
Sustainable lighting solutions	3,149	2,127	1,022	11,746	7,895	3,851
ZeroE dehydration	333	245	88	1,400	924	476
Total revenue	3,482	2,372	1,110	13,146	8,819	4,327

Cleantek's revenue is generated primarily from the rental and service of sustainable lighting solutions, including HALO lighting systems and solar hybrid lighting towers, and ZeroE dehydration units, including mobile ZeroE dehydration units and a ZeroE production facility unit. Revenue is based on fixed or agreed upon service contracts with its customers in the upstream and m idstream segments of the energy industry as well as the commercial construction industry in western Canada and the United States .

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